SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
Form 10-K
_X__ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended January 1, 1994
____ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________________ to
____________________
Commission File Number: 1-6024
WOLVERINE WORLD WIDE, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-1185150
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
9341 Courtland Drive, Rockford, Michigan 49351
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (616) 866-5500
Securities registered pursuant to Section 12(b) of the Securities Exchange
Act:
(Title of class) (Name of each exchange on which registered)
Common Stock, $1 Par Value New York Stock Exchange/Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 X No ______
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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ____
Number of shares outstanding of the registrant's Common Stock, $1 par value
(excluding shares of treasury stock) as of March 1, 1994: 6,858,469
The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant based on the closing price on the New York
Stock Exchange on March 1, 1994: $227,201,578
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the registrant's annual
stockholders' meeting to be held April 21, 1994, are incorporated by
reference into Part III of this report.
PART I
Item 1. Business
Wolverine World Wide, Inc. (the "Company"), designs,
manufactures, distributes and markets various brands and styles of
footwear. The wide variety of footwear sold by the Company includes casual
shoes, slippers, moccasins, dress shoes, boots, uniform shoes and work
boots and shoes. The Company is also the largest domestic tanner of
pigskin. The Company, a Delaware corporation, is the successor of a 1969
reorganization of a Michigan corporation of the same name, originally
organized in 1906, which in turn was the successor of a business
established in Grand Rapids, Michigan, in 1883.
The Company is a leading provider of branded, comfort footwear
for the entire family, supplying more than 17 million pairs annually to
consumers in 80 countries. Footwear has accounted for 90% or more of the
consolidated revenues of the Company for each of the last three years. For
further financial information regarding the Company, see the consolidated
financial statements of the Company, which are attached as Appendix A to
this Form 10-K.
Footwear manufactured by the Company is sold under many
recognizable brand names. The Company's HUSH PUPPIES (Registered) brand
is a world leader in affordable, comfortable, casual and functional
footwear for men, women and children. The Company's WOLVERINE (Registered)
brand of work and sport boots ranks as the number two brand of work and
sport boots. The Company's BATES (Registered) brand is the number one
brand of uniform footwear in the United States. The Tru-Stitch Footwear
Division is the foremost supplier of constructed slippers in the United
States. The Company has also introduced a line of rugged outdoor and sport
footwear under the WOLVERINE WILDERNESS (Registered) brand. Through these,
and several other footwear brands, the Company expects to continue to
manufacture quality footwear for its customers.
The Company also manufactures and sources shoes for sale through
world wide licensing arrangements under the COLEMAN (Registered),
CATERPILLAR (Registered) and CAT (Registered) trademarks.
The Wolverine Leathers Division is one of the premier tanners of
quality pigskin leather for the shoe, automotive and leather goods
industries. The pigskin leather tanned by the Company is used in a
significant portion of the footwear manufactured and sold by the Company,
and is also sold to other domestic and foreign manufacturers of shoes.
The Company's products are sold by Company salespersons and
agents and through Company-owned stores. Sales are made directly to
various retail sellers, including independent shoe stores, footwear chains
and department stores. Most customers also sell shoes bought from
competing manufacturers.
Company products are sold directly to more than 10,000 accounts,
operating more than 20,000 retail locations. Sales are also made to large
footwear chains, including those owned or operated by other companies in
the shoe industry, catalog houses, and to the retail operations referenced
below.
In addition to its wholesale activities, the Company operated 124
domestic retail shoe stores, leased shoe departments and Company-owned HUSH
PUPPIES (Registered) Specialty Stores as of March 25, 1994. A fiscal 1990
decision to downsize the factory outlet business will result in closing
approximately 9 outlet retail locations during 1994. Eleven outlet retail
locations were closed in fiscal 1993.
Of the 124 retail locations, approximately 66 are factory outlet
stores located in strip centers or in free-standing buildings.
Approximately 36 of these stores operate under the LITTLE RED SHOE HOUSE
(Service Mark) format. These stores primarily handle closeouts and factory
rejects from the Company's own factories and those of other manufacturers.
Of the approximately 66 factory outlet stores, 30 are currently
operating under the HUSH PUPPIES (Registered) FACTORY DIRECT (Service Mark)
name in major manufacturer outlet malls. These stores carry a large
selection of first quality company branded footwear. The Company has and
may continue to selectively convert LITTLE RED SHOE HOUSE (Service Mark)
locations to this retail and merchandising format.
The 124 retail locations include 20 regional mall full service,
full price HUSH PUPPIES (Registered) Specialty Stores which feature
exclusively a broad selection of men's and women's HUSH PUPPIES
(Registered) brand footwear. The Company also licenses independent
retailers who operate HUSH PUPPIES (Registered) Specialty Stores at
another 81 locations.
In addition to retail shoe stores and HUSH PUPPIES (Registered)
Specialty Stores, the Company operates 38 full price, full service family
leased shoe departments in the Pacific Northwest and Alaska, which feature
the Company's wholesale brands.
The Company derives royalty income from licensing the HUSH
PUPPIES (Registered), WOLVERINE (Registered), WILDERNESS (Registered) and
other trademarks to domestic and foreign licensees for use on footwear and
related products. In addition, the Company sells its own pigskin leather
to certain of its licensees. In fiscal 1993, the Company's foreign
licensees and distributors sold an estimated 8.3 million pairs of
footwear, an increase from approximately 7.4 million pairs sold in fiscal
1992.
The Company continues to develop a global network of licensees to
market its footwear brands. The licensees purchase goods from the Company
and third-party manufacturers and these purchases are generally supported
by letters of credit. Each licensee is responsible for the marketing and
distribution of the Company's products, and generally purchases
substantially all marketing, advertising materials and products from the
Company.
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The Company operates a pigskin tannery as a part of its Wolverine
Leathers Division, from which the Company receives virtually all of its
pigskin requirements. The tannery is one of the most modern pigskin
tanneries in the world. The quality pigskin leather utilized in the
Company's products which incorporate this material is a significant element
of product cost, and is generally only available at comparable cost and
delivery terms from the Company's tannery. Therefore, the continued
operation of this tannery is important to the Company's competitive
position in the footwear industry. In addition, the Company owns a minority
interest in Wan Hau Enterprise Co., Ltd. ("Wan Hau"), a principal tanner of
pigskin in Taiwan. The Company provides semi-finished pigskin leather to
Wan Hau for finishing in Taiwan.
The Company's principal required raw material is quality
leather, which it purchases primarily from a select group of domestic
suppliers, including the Company's tannery. The Company has traditionally
purchased the vast majority of the shearling used extensively in the
manufacture of constructed slippers and related products by its Tru-Stitch
Footwear Division from a single source, which has been a reliable and
consistent supplier. The Company purchases all of its other raw materials,
including man-made materials and fabrics for uppers, and leather, rubber
and plastics for soles and heels, from a variety of sources, none of which
is believed by the Company to be a dominant supplier.
The Company is the holder of many trademarks which identify its
products. The trademarks which are most widely used by the Company include
HUSH PUPPIES (Registered), WOLVERINE (Registered), WILDERNESS (Registered),
WOLVERINE WILDERNESS (Registered), BATES (Registered), FLOATERS (Trademark),
BATES FLOATAWAYS (Registered), HARBOR TOWN (Trademark), TOWN & COUNTRY
(Trademark), TRU-STITCH (Registered), WIMZEES (Registered), and SIOUX MOX
(Registered). The Company is also licensed to market footwear in the
United States under the COLEMAN (Registered) trademark and throughout the
world under the CATERPILLAR (Registered) and CAT (Registered) trademarks.
Pigskin leather produced by the Company is sold under the trademarks
BREATHIN' BRUSHED PIGSKIN (Registered), SILKEE (Registered) and WEATHER
TIGHT (Registered).
The Company believes that its products are identified by its
trademarks and thus its trademarks are a valuable asset. It is the policy
of the Company to vigorously defend its trademarks against infringement to
the greatest extent practicable under the laws of the United States and
other countries. The Company is also the holder of several patents,
copyrights and various other proprietary rights. The Company protects all
of its proprietary rights to the greatest extent practicable under
applicable law.
The Company does not have a significant backlog of non-cancelable
orders. On March 1, 1994, the Company had a backlog of orders believed to
be firm of approximately $69 million compared with a backlog of
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approximately $66 million on March 20, 1993. Historically, the Company has
not experienced significant cancellation of orders. While orders in
backlog are subject to cancellation by customers, the Company expects that
substantially all of these orders will be shipped in fiscal 1994.
Retail footwear sales are seasonal with significant increases in
sales experienced during the Christmas, Easter and back-to-school periods.
Due to this seasonal nature of footwear sales, the Company experiences some
fluctuation in the levels of working capital. The Company provides working
capital for such fluctuation through internal financing and a revolving
credit agreement which the Company has in place. The Company expects the
seasonal sales pattern to continue in future years.
A broad distribution base insulates the Company from dependence
on any one customer. No customer of the Company accounted for more than
10% of the Company's consolidated revenues in fiscal year 1993.
The Company's footwear lines are manufactured and marketed in a
highly competitive environment. The Company competes with numerous other
manufacturers (domestic and foreign) and importers, many of which are
larger and have greater resources than the Company. The Company's major
competitors for its brands of footwear are generally located in the United
States. The Company has at least six major competitors in connection with
the sale of its work shoes and boots, at least eight major competitors in
connection with the sale of its sport boots, and at least fifteen major
competitors in connection with the sale of its casual and dress shoes.
Virtually all domestic and foreign manufacturers of footwear compete, or
plan to compete, with the Company in the rugged casual and outdoor footwear
market. Many of these competitors are established in the footwear
industry, and have strong market identities.
Product performance and quality, including technological
improvements, product identity, competitive pricing, and the ability to
adapt to style changes are all important elements of competition in the
footwear markets served by the Company. The Company attempts to meet
competition and maintain its competitive position through promotion of
brand awareness, manufacturing efficiencies, its tannery operations and the
style, comfort and value of its products. Future sales of the Company will
be affected by its continued ability to sell its products at competitive
prices and to meet shifts in customer preference.
Because of the lack of reliable published statistics, the Company
is unable to state with certainty its position in the shoe industry,
however, the Company believes it is one of the ten largest domestic
manufacturers of footwear.
Foreign footwear manufacturers and importers also provide a
source of competition for the Company. In order to remain competitive with
these foreign entities, the Company continues to improve and expand its
manufacturing facilities in Michigan, the Caribbean basin and Mexico. In
addition, the Company is continuing to pursue lower cost manufacturing
alternatives in the Far East and Latin America.
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Although a significant portion of the Company's product line is
purchased or sourced overseas, the majority of its products are produced
in the United States. The Company's footwear is manufactured in several
domestic facilities and certain related foreign facilities, including
facilities located in Michigan, Arkansas, New York, Mexico, Puerto Rico,
Costa Rica, the Dominican Republic and Canada. The Company includes, as
an integral part of its domestic manufacturing operations, five factories
located in the Caribbean basin and Mexico that produce footwear uppers for
final assembly in the Company's domestic factories.
The Company sources certain footwear from a variety of foreign
manufacturing facilities in the Far East, Latin America and the Caribbean.
The Company also maintains a small office in Taiwan to facilitate the
sourcing and import of footwear from the Far East.
The Company is subject to the normal risks of doing business abroad
due to its international operations, including the risks of expropriation,
acts of war, political disturbances and similar events, and loss of most
favored nations trading status. With respect to its international sourcing
activities, management believes that over a period of time, it could arrange
adequate alternative sources of supply for the products obtained from its
foreign suppliers. A sustained disruption of such sources of supply could,
particularly on a short-term basis, have an adverse impact on the Company's
operations.
At the end of the third quarter of fiscal 1992, the Company
announced its intent to dispose of its Brooks athletic footwear and sports
apparel business. The Brooks business consisted of sales and distribution
operations in the United States, France, Germany and the United Kingdom,
sourcing activities, primarily in the Far East, and worldwide licensing of
the rights to the brand name. The Brooks distributors in Europe were
33%-owned equity investees from April 3, 1990 until July 1, 1991 when the
remaining equity interests were acquired.
During 1993, the Company sold the Brooks businesses in
separate transactions in exchange for cash and notes totaling
approximately $24 million. Notes receivable of $7,700,000 were
outstanding as of January 1, 1994, and are collateralized by substantially
all of the assets sold. Payments of $2,300,000, $4,324,000, and $361,000,
representing the noncurrent portion of the notes receivable, are due in
1995, 1996 and 1997, respectively.
In addition to normal and recurring product development, design
and styling activities, the Company engages in research and development
related to new and improved materials for use in its footwear and other
products and in the development and adaptation of new production
techniques. The Company's continuing relationship with the Biomechanics
Evaluation Laboratory at Michigan State University, which is funded in part
by a grant from the Company, has led to specific biomechanical design
concepts which have been incorporated in the Company's footwear. The
Company also maintains a footwear design center in Italy to develop
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contemporary styling for the Company and its international licensees.
While the Company continues to be a leading developer of footwear
innovations, research and development costs do not represent a material
portion of operating expenses.
Compliance with federal, state and local regulations with respect
to the environment has not had, nor is it expected to have, any material
effect on the capital expenditures, earnings or competitive position of the
Company. The Company uses and generates, and in the past has used and
generated, 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 from time to time works with
federal, state and local agencies to resolve cleanup issues at various
waste sites. The Company recently received notice from the Michigan
Department of Natural Resources ("MDNR") that it is one of the 14 currently
named potentially responsible parties for cleanup of the Sunrise Landfill
Site in Allegan County, Michigan. The Sunrise Landfill Site is related to
another cleanup site in Allegan County, Michigan for which the MDNR has
identified 556 potentially responsible parties, including the Company.
The MDNR currently estimates that the total cost of cleanup of the Sunrise
Landfill Site is approximately $17 million, but actual costs could exceed
this amount. The Company is currently conducting an investigation into its
responsibility with respect to the Sunrise Landfill Site. The Company
currently anticipates that a substantial number of the 556 potentially
responsible parties for the related cleanup site in Allegan County,
Michigan, will eventually be identified as potentially responsible parties
for the cleanup of the Sunrise Landfill Site.
As of December 31, 1993, the Company had approximately 5,088
domestic and foreign production, office and sales employees. Approximately
1,218 employees are covered by seven union contracts expiring at various
dates through 1996. The Company has experienced four isolated work
stoppages since 1975, none of which materially affected operations. The
Company presently considers its employee relations to be good.
Item 2. Properties.
The principal executive, sales and administration offices of the
Company are located in Rockford, Michigan and consist of administration and
office buildings of approximately 123,300 square feet. The Company also
has additional administrative and sales offices in Arkansas, New York,
Italy, the United Kingdom, Canada and Taiwan totaling approximately 32,400
square feet, the majority of which is leased.
The Company owns and operates one pigskin tannery from which it
receives virtually all of its pigskin requirements. The tannery is located
in Rockford, Michigan and encompasses approximately 160,000 square feet.
The Company's footwear manufacturing operations are carried out
at 15 separate facilities, totaling approximately 713,500 square feet of
manufacturing space. These facilities are located primarily in smaller
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towns in Arkansas, Michigan, and New York and in Mexico, Puerto Rico, the
Dominican Republic and Canada. Approximately 370,400 square feet of
manufacturing space is under lease at seven locations and the remaining
eight facilities are Company-owned. The Company's current aggregate
footwear manufacturing capacity is in excess of 12.0 million pairs of
shoes per year. The Company believes its footwear manufacturing facilities
are generally among the most modern in the industry.
The Company maintains twelve warehouses, located in four states
and Canada, containing approximately 804,100 square feet. The vast
majority of these warehouses are Company-owned, with approximately 63,500
square feet at three locations under lease.
In addition, the Company's retail operations are conducted
throughout the United States and as of March 25, 1994, consisted of
approximately 124 locations, including 38 leased shoe departments. All
retail locations, except three factory outlet stores in Company-owned
facilities, are subject to operating leases.
The Company believes that all properties and facilities of the
Company are suitable, adequate and fit for their intended purposes.
Item 3. Legal Proceedings.
The Company is involved in litigation and various legal matters
arising in the normal course of business. The Company is also involved in
several proceedings involving cleanup issues associated with various waste
disposal sites, as more fully described in Item 1 of this Annual Report on
Form 10-K. Having considered facts that have been ascertained and opinions
of counsel handling these matters, the Company does not believe the
ultimate resolution of such litigation will have a material adverse effect
on the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
Supplemental Item. Executive Officers of the Registrant.
The following table lists the names and ages of the Executive
Officers of the Company as of the date of this Annual Report on Form 10-K,
and the positions presently held with the Company. The information
provided below the table lists the business experience of each such
Executive Officer during 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.
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Name Age Positions held with the Company
Geoffrey B. Bloom 52 President and Chief Executive Officer
Steven M. Duffy 41 Vice President
Stephen L. Gulis, Jr. 36 Vice President and Chief Financial Officer
Blake W. Krueger 40 General Counsel and Secretary
L. James Lovejoy 61 Vice President of Corporate
Communications
Charles F. Morgo 57 Senior Vice President
Thomas P. Mundt 44 Vice President of Strategic Planning and
Treasurer
Timothy J. O'Donovan 48 Executive Vice President
Robert J. Sedrowski 44 Vice President of Human Resources
Geoffrey B. Bloom has served the Company as President and Chief
Executive Officer since April 1993. From 1987 to 1993 he served the
Company as President and Chief Operating Officer.
Steven M. Duffy has served the Company as a Vice President since
April 1993. From 1989 to April 1993 he served the Company in various senior
manufacturing positions. Prior to 1989, he served as the Head of
Manufacturing for Florsheim Shoes.
Stephen L. Gulis, Jr., has served the Company as Vice President
and Chief Financial Officer since February 1994. From April 1993 to
February 1994 he served the Company as Vice President of Finance and
Corporate Controller, and from 1986 to 1993 he was the Vice President of
Administration and Control for the Hush Puppies Company.
Blake W. Krueger has served the Company as General Counsel and
Secretary since April 1993. He has been a partner of the law firm of
Warner, Norcross & Judd since 1985.
L. James Lovejoy has served the Company as Vice President of
Corporate Communications since 1991. From 1984 to 1991 he was the Director
of Corporate Communications for Gerber Products Company, a manufacturer of
baby food and related products.
Charles F. Morgo has served the Company as Senior Executive Vice
President since 1984.
Thomas P. Mundt has served the Company as Vice President of
Strategic Planning and Treasurer since December 1993. From 1988 to 1993 he
served in various financial and planning positions at Sears Roebuck & Co.
including Vice President Planning, Coldwell Banker's Real Estate Group and
Director of Corporate Planning for Sears Roebuck & Co.
Timothy J. O'Donovan has served the Company as Executive Vice
President since 1982.
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Robert J. Sedrowski has served the Company as Vice President of
Human Resources since October 1993. From 1990 to 1993 he served as
Director of Human Resources for the Company, and from 1989 to 1990 he
served as Director of Human Resources of Rospatch Corporation (now
Ameriwood International, Inc.), a manufacturer.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Wolverine World Wide, Inc. common stock is traded on the New York
and Pacific Stock Exchanges. The following table shows the high and low
transaction prices by calendar quarter for 1993 and 1992. The number of
holders of record of common stock on March 1, 1994 was 2,144.
1993 1992
High Low High Low
January-March $19 3/4 $13 3/4 $14 $10
April-June 20 7/8 16 3/4 13 3/4 8 3/4
July-September 29 16 5/8 10 1/8 7 3/4
October-December 33 1/2 28 15 1/8 9 1/2
Dividends Per Share Declared:
1993 1992
1st quarter $.04 $.04
2nd quarter $.04 $.04
3rd quarter $.04 $.04
4th quarter $.04 $.04
Dividends of $.04 per share were declared for the first quarter of
fiscal 1994. Future dividends are restricted as more fully described in
Note E of the consolidated financial statements, which are attached as
Appendix A to this Form 10-K.
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Item 6. Selected Financial Data.
Five-Year Operating and Financial Summary (Superscript (1)(2))
(Thousands of Dollars, Except Per Share Data)
1993 1992 1991 1990 1989
Summary of Operations
Net sales and other
operating income $333,143 $293,136 $282,749 $295,418 $290,486
Earnings (loss) from
continuing operations 11,492 4,620 4,422 (4,649) 8,256
Per share of common stock:
Earnings (loss) from
continuing operations(3):
Primary $ 1.65 $ 0.70 $ 0.68 $ (0.70) $ 1.23
Fully diluted $ 1.60 --- --- --- ---
Cash dividends(4) 0.16 0.16 0.16 0.16 0.16
Financial Position at Year End
Total assets 205,716 204,496 205,078 188,522 188,033
Long-term debt, less
current maturities 44,913 42,656 31,596 34,267 36,263
<FN>
Notes to Five-Year Operating and Financial Summary
1. This summary should be read in conjunction with the consolidated financial statements of the Company and the notes thereto,
which are attached as Appendix A to this Form 10-K.
2. The earnings (loss) from continuing operations exclude the discontinued athletic footwear businesses and are before the
cumulative effect of accounting changes. Balance sheet amounts for the athletic footwear businesses have been reclassified
separately as current and noncurrent assets. Refer to Note C to the consolidated financial statements for a description of
the Company's discontinued operations and Notes H and I for a description of the cumulative effect of accounting changes.
3. Primary earnings per share are computed based on the weighted average shares of common stock outstanding during each year
and, for fiscal 1993, the assumed exercise of dilutive stock options. Stock options are not included in the computation of
earnings per share in prior years since they were not materially dilutive. Fully diluted earnings per share for fiscal 1993
also includes the effect of converting subordinated notes into common stock. Fully diluted earnings per share are not
presented for prior years since the effect of exercising stock options and converting subordinated notes was not material.
4. Cash dividends per share represent the rates paid by the Company on the shares outstanding at dates of declaration.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Operations
Results of Operations - 1993 Compared to 1992
Net sales for fiscal 1993 were $333.1 million compared to $293.1
million for fiscal 1992. This 13.6% increase was driven by record sales in
the Wolverine Work & Outdoor Footwear Group, the Bates Uniform Footwear
Division and the Tru-Stitch Footwear Division. The Hush Puppies Company
also recorded a healthy sales increase during the year. These increases
were partially offset by a decrease in the Wolverine Leathers Division
sales.
The Wolverine Work & Outdoor Footwear Group posted a sales increase of
33.8% which was the second year in which the sales gain exceeded 30%. The
continued success of Wolverine DURASHOCK (Registered) boots and the
introduction of WOLVERINE WILDERNESS (Registered) products to the market
place were the primary factors contributing to the sales gain. Increased
marketing efforts to promote the Wolverine Work Boot products also
contributed to the sales gains.
A 16.2% increase in sales was realized by the Bates Uniform Footwear
Division. While the U.S. military continues to contract, the comfort
characteristics of BATES (Registered) footwear continues to gain acceptance
and the durability of the product makes Bates number one in this category.
The Tru-Stitch Footwear Division reached record sales with a 20.7%
increase for the year. Their prominent position in the market through all
distribution channels and the addition of B & B Shoe Company which produces
generally lower priced products continues to allow the Tru-Stitch Division
to grow its business.
While the Hush Puppies Company did not reach record sales volumes, it
did post an increase of 5.3%. The repositioning and revitalization of the
brand which began in 1992 is beginning to have a positive impact. Retail
and consumer acceptance for the product is apparent as the division's
reorder business for the year was strong.
The Wolverine Leathers Division began resizing during the third
quarter of 1993. The primary focus is to retract the business into high
margin areas where the business can perform profitability. The volume was
reduced and this, combined with other actions, is expected to allow the
division to regain its profitability as it focuses on the higher value
added product in its offerings.
Gross margins as a percentage of net sales decreased to 30.0% from
30.2% in 1992. The emphasis of value priced product in the market place
continues to place pressures on wholesale and retail price points. The
Company is maximizing its pricing positions when superior products are
available, such as WOLVERINE (Registered) DURASHOCKS (Registered) and
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TRU-STITCH (Registered) slippers, but is very cautious in raising prices
in order to increase gross margin levels. A significant benefit, which
improved the Company's gross margin levels, is the manufacturing
efficiencies being produced in the domestic facilities. This, combined
with the Company's low cost import operations, should continue to provide
the Company with product which can be priced attractively.
Selling and administrative expenses for 1993 were 24.1% of net sales
compared to 26.0% of net sales in 1992. While the expenses were reduced as
a percentage of net sales, the expenses increased $4.2 million. The
increase was primarily a result of increased commissions due to higher
volume, the impact of intensified marketing and promotional campaigns, and
employee profit sharing programs. The overhead reduction plan which was
announced in the fourth quarter of 1992 was successful and the initial
target of $3.0 million of savings was exceeded by over $1.0 million.
Interest expense of $5.1 million for 1993 reflects a $1.4 million
increase over 1992. However, 1992 interest expense did not include
interest expense of $2.3 million associated with discontinued operations.
Overall, interest expense was reduced by $0.9 million as a result of the
reduction in debt levels.
Other expenses in 1992 included a restructuring charge of $2.7 million
associated with the reduction in corporate staff and the write-down of
certain intangible assets.
The 1993 effective tax rate of 27.9% compared to 28.7% in 1992. The
decrease from the statutory federal rate of 35% was principally a result of
non-taxable earnings of Puerto Rican and foreign subsidiaries.
Earnings from continuing operations of $11.5 million for fiscal 1993
reflect a 149% increase over fiscal 1992 earnings of $4.6 million.
During 1992 the corporation incurred costs associated with the
operating losses of the Brooks Athletic Footwear Division and the loss
associated with the disposal of this operation, which totaled $14.8
million. Additionally, the corporation elected to adopt SFAS No. 109
("Accounting for Income Taxes") and SFAS No. 106 ("Employers Accounting for
Post-retirement Benefits Other Than Pensions") which resulted in a net
charge to earnings of $0.8 million. There were no additional charges
associated with either the discontinued operations or accounting changes
for 1993.
Net earnings of $11.5 million ($1.65 per share) for 1993 compares to a
loss of $10.9 million ($1.65 per share) for fiscal year end 1992. The
change reflects the significant progress made in the core business units of
the Company and the improvements resulting from the divestiture of the
Brooks athletic business.
Results of Operations - 1992 Compared to 1991
Net sales of continuing operations totaling $293.1 million for fiscal
1992 were $10.4 million, or 3.7% higher than 1991. Sales gains were
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realized in the Wolverine Work and Outdoor Footwear Group, the Bates
Uniform Footwear Division, the Tru-Stitch Footwear Division, and the
Wolverine Leather Division. Partially offsetting these gains was a sales
decline in the Hush Puppies Company.
The Wolverine Work and Outdoor Footwear Group posted sales gains of
38.0% over 1991, resulting primarily from the success of the WOLVERINE
(Registered) DURASHOCKS (Registered) boots which feature a rugged
adaptation of the patented BOUNCE (Registered) comfort sole. Improved
styling coupled with an aggressive advertising campaign also contributed to
the product's success.
A sales increase of 10.0% was realized by the Bates Uniform Footwear
Division despite a shrinking military market place. The majority of the
growth in 1992 was attributable to the penetration of the newly introduced
HUSH PUPPIES (Registered) PROFESSIONALS (Trademark) line into the civilian
uniform market.
The Tru-Stitch Footwear Division, the market leader of constructed
slippers, generated a 10.0% sales increase compared to 1991 as a result of
expanding its product offering to meet a broader range of retail price
points.
During 1992, the Hush Puppies Company experienced a sales decline of
8.0% from 1991 primarily due to the continued weakness in the retail sector
caused by the worldwide recession. The narrowing of the TOWN & COUNTRY
(Trademark) brand product offerings also contributed to the sales decrease.
Gross margin as a percentage of net sales for 1992 was 30.2%, a
decrease from 31.7% for 1991. Margin declines were realized in the Hush
Puppies Company, due primarily to manufacturing volume reductions, and the
Tru-Stitch Footwear Division, resulting from an increase in sales of lower
margin merchandise. Partially offsetting these declines were increases in
gross margins for the Wolverine Work and Outdoor Footwear Group and Bates
Uniform Division resulting from favorable manufacturing efficiencies and
improved pricing margins. The liquidation of lower cost LIFO inventories
contributed .4% to the gross margin in 1991 and was not repeated in 1992.
Selling and administrative expenses for 1992 of $76.2 million
increased by $1.3 million or 1.7% over 1991. Increases in variable selling
costs were partially offset by expense reductions related to a corporate
overhead cost reduction program initiated in the fourth quarter of 1992.
Interest expense of $3.6 million decreased by $0.1 million from 1991
as a result of a decline in interest rates partially offset by increased
borrowings. Reported interest expense for 1992 does not include $2.3
million of interest which was classified as discontinued operations.
Other expenses include restructuring costs in 1992 amounting to $2.7
million related to corporate staff reductions and asset write-offs compared
to a charge in 1991 of $7.5 million for litigation settlement and related
costs as described in Notes J and K to the Consolidated Financial
Statements.
-13-
The effective income tax rate for 1992 of 28.7% of earnings from
continuing operations is below the statutory rate of 34.0% primarily due to
nontaxable earnings of foreign subsidiaries and affiliates.
Earnings from continuing operations of $4.6 million or $0.70 per share
in 1992 compared favorably to $4.4 million or $0.68 per share in 1991.
The loss from discontinued operations in 1992 of $14.8 million is the
result of operating losses and the Company's disposition of its Brooks
athletic footwear and sports apparel businesses. The disposition includes
the sales and distribution operations in the United States, France, Germany
and the United Kingdom and the worldwide distribution and licensing rights
to the brand name as described in Note C to the Consolidated Financial
Statements.
During 1992, the Company adopted SFAS No. 109 "Accounting for Income
Taxes." The cumulative effect of adopting this change in accounting for
income taxes decreased the 1992 net loss by $0.8 million.
The Company also adopted the provisions of SFAS No. 106 "Employers'
Accounting for Post-retirement Benefits Other than Pensions" in 1992. The
cumulative effect of adopting this accounting change increased the 1992 net
loss by $1.6 million.
The net loss of $10.9 million or $1.65 per share compared unfavorably
to fiscal 1991 net earnings of $3.3 million or $0.50 per share due to the
cumulative effect of accounting changes and the loss from discontinued
operations recognized in fiscal 1992.
Liquidity and Capital Resources
Earnings from continuing operations after adjusting for non-cash items
increased cash by $18.9 million in 1993 compared to $10.9 million in 1992.
Of these amounts $12.9 million and $11.8 million were used to fund
increases in working capital. The most significant changes in working
capital were increases in accounts receivables and inventories during 1993
which were required in order to fund the growth of the business. In fiscal
1992, a significant reduction in other current liabilities was reported as
the litigation settlement was paid.
Additions to property, plant and equipment of $6.6 million in 1993 was
higher than the $4.1 million reported in 1992, but relatively flat with the
$6.3 million in 1991. The majority of this expenditure was related to
purchases of manufacturing equipment in order to continue to upgrade our
manufacturing facilities.
In 1993, cash of $12.2 million was provided from the divestiture of
the Brooks athletic business.
Payments on short-term debt of $15.2 million were made during 1993
which was principally a reduction of debt related to the discontinued
operations of Brooks.
-14-
Long-term debt of $49.6 million in 1993 remains relatively flat
compared to $48.4 million in 1992. While the senior notes were reduced by
$4.3 million, the Company recognized an increase in the revolving credit
obligations of $7.0 million.
The Company paid dividends of $1.1 million, or $.16 per share, which
was consistent with 1992 and 1991. Additionally, shares issued under
employee stock plans provided cash of $2.2 million compared to $1.2 million
during 1992. The Company expects to increase its dividend payout beginning
the second quarter of 1994 by 50%.
The Company continues to strengthen its financial position as the
current ratio improved to 3.9 : 1 in 1993 versus 2.8 : 1 in 1992.
Additionally, total interest bearing debt to equity was .46 : 1 in 1993
compared to .65 : 1 at year end 1992.
The Company's credit facilities and banking relationships combined
with cash flow from future operations are expected to be sufficient to meet
the cash requirements of the Company. The revolving credit facility which
expires in 1995 will be renegotiated during 1994 to assure that proper
financing remains in place for the Company. The Company is also evaluating
the refinancing of its senior notes to determine the benefits of lower
interest rates. Additionally, the Company maintains short-term credit
facilities of $41.0 million of which $13.4 million were used at year end
1993.
Inflation
Inflation has not had a significant impact on the Company over the
past three years nor is it expected to have a significant impact in the
foreseeable future. The Company continuously attempts to minimize the
effect of inflation through cost reductions and improved productivity.
Recent Development
The number of shares and the amount per share data included in this
Form 10-K have not been adjusted to reflect the three-for-two stock split
which was approved by the Board of Directors of the Company on March 10,
1994, and which will be payable on April 14, 1994, to stockholders of
record of the Company as of March 21, 1994.
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 here incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
-15-
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information regarding directors of the Company contained
under the captions "Board of Directors" and "Compliance with Section 16(a)
of the Exchange Act" in the definitive Proxy Statement of the Company dated
March 22, 1994, is incorporated herein by reference. The information
regarding Executive Officers is provided in the Supplemental Item following
Item 4 of Part I above.
Item 11. Executive Compensation.
The information contained under the captions "Compensation of
Directors", "Executive Compensation," "Employment Agreements,
Termination of Employment and Change of Control Arrangements" and
"Compensation Committee Interlocks and Insider Participation" in the
definitive Proxy Statement of the Company dated March 22, 1994, is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained under the captions "Ownership of Common
Stock" and "Securities Ownership of Management" contained in the definitive
Proxy Statement of the Company dated March 22, 1994, is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
The information regarding certain employee loans following the
caption "Executive Compensation," under the subheading "Stock Options," and
the information contained under the caption "Compensation Committee Interlocks
and Insider Participation" contained in the definitive Proxy Statement of the
Company dated March 22, 1994, are incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-
K.
Item 14(a)(1). List of Financial Statements. Attached as Appendix
A.
The following consolidated financial statements of Wolverine
World Wide, Inc. and subsidiaries are filed as a part of this report:
- Consolidated Balance Sheets as of January 1, 1994, and
January 2, 1993.
-16-
- Consolidated Statements of Stockholders' Equity for the
Fiscal Years Ended January 1, 1994, January 2, 1993 and
December 28, 1991.
- Consolidated Statements of Operations for the Fiscal Years
Ended January 1, 1994, January 2, 1993 and December 28,
1991.
- Consolidated Statements of Cash Flows for Fiscal Years Ended
January 1, 1994, January 2, 1993 and December 28, 1991.
- Notes to Consolidated Financial Statements for January 1,
1994.
Item 14(a)(2). Financial Statement Schedules. Attached as Appendix
B.
The following consolidated financial statement schedules of
Wolverine World Wide, Inc. and subsidiaries are filed as a part of this
report:
- Schedule II--Amounts receivable from related parties and
underwriters, promoters and employees other than related
parties.
- Schedule VIII--Valuation and qualifying accounts of
continuing operations.
- Schedule IX--Short-term borrowings of continuing operations.
- Schedule X--Supplementary income statement information of
continuing operations.
All other schedules (I, III, IV, V, VI, VII, XI, XII, XIII, XIV)
for which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
Item 14(a)(3). List of Exhibits.
Exhibit
Number
3(a) Articles of Incorporation, as amended. Incorporated by
reference from Exhibit 3(a) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 1988.
3(b) Amended and Restated Bylaws.
4(a) The Articles of Incorporation. See Exhibit 3(a) above.
-17-
4(b) Preferred Stock Purchase Rights. Incorporated by reference
from Amendment No. 1 to the Form 8-A filed with the
Securities Exchange Commission on November 13, 1990.
4(c) Credit Agreement dated as of March 11, 1993 with NBD Bank,
N.A. as Agent. Incorporated by reference from Exhibit 4(c)
of the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993.
4(d) Note Purchase Agreement dated as of August 29, 1988 relating
to 10.40% Senior Notes. Incorporated by reference from
Exhibit 4(d) of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.
4(e) First, Second, Third and Fourth Amendments to Note Purchase
Agreement. Incorporated by reference from Exhibit 4(e) of
the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993.
4(f) The Registrant has several classes of long-term debt
instruments outstanding in addition to that described in
exhibit 4(d) above. The amount of none of these classes of
debt outstanding on March 1, 1994 exceeds 10% of the
Registrant's total consolidated assets. The Registrant
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.
10(a) Stock Option Plan of 1979, and amendment.* Incorporated by
reference from Exhibit 10(a) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 1988.
10(b) 1993 Stock Incentive Plan.*
10(c) 1988 Stock Option Plan.* Incorporated by reference from the
Company's registration statement on Form S-8, filed July 21,
1988, Registration No. 33-23196.
10(d) Amended and Restated Directors Stock Option Plan.*
10(e) Agreement dated as of July 24, 1992, between
the Registrant and Thomas D. Gleason.* Incorporated by
reference from Exhibit 10(e) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 1993. The
Company also incorporates by reference the description of
Mr. Gleason's agreement under the caption "Employment
Agreements, Termination Agreements and Change of Control
Arrangements" contained in the definitive Proxy Statement of
the Company dated March 22, 1994.
10(f) Employment Agreement dated April 27, 1993, between the
Registrant and Geoffrey B. Bloom.*
-18-
10(g) Executive Short-Term Incentive Plan for 1994.*
10(h) Management Short-Term Incentive Plan for 1994.*
10(i) Stock Option Loan Program.* Incorporated by reference from
Exhibit 10(h) of the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991.
10(j) Deferred Compensation Agreements with Disability Benefits.*
The form of agreement is incorporated by reference from
Exhibit 10(i) of the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993. An updated
participant schedule is attached as Exhibit 10(j).
10(k) Deferred Compensation Agreements without Disability
Benefits.* The form of agreement is incorporated by
reference from Exhibit 10(j) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 1993. An
updated participant schedule is attached as Exhibit 10(k).
10(l) Executive Long-Term Incentive (Three Year) Plans for the years
1991 to 1993 and 1992 to 1994.* Incorporated by reference from
Exhibit 10(l) of the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991.
10(m) Executive Long-Term Incentive (Three Year) Plan for the
three year period 1993-1995.* Incorporated by reference
from Exhibit 10(l) of the Company's Annual Report on Form
10-K for the fiscal year ended January 2, 1993.
10(n) Executive Long-Term Incentive (Three Year) Plan for the three
year period 1994-1996.*
10(o) Termination of Employment and Change of Control Agreements.*
The form of agreement is incorporated by reference from
Exhibit 10(m) of the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993. An updated
participant schedule is attached as Exhibit 10(o).
10(p) Indemnification Agreements.* The form of agreement is
incorporated by reference from Exhibit 10(n) of the
Company's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993. An updated participant schedule is
attached as Exhibit 10(p).
10(q) Supplemental Retirement Benefits.* Incorporated by reference
from Exhibit 10(l) of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1988.
-19-
10(r) Benefit Trust Agreement dated May 19, 1987, and Amendments
Number 1, 2 and 3 thereto.* Incorporated by reference from
Exhibit 10(p) of the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993.
10(s) Supplemental Director's Fee Arrangement dated April 27,
1993, between the Company and Phillip D. Matthews.*
10(t) Retirement Agreement effective December 31, 1993, between
the Company and Peter D. Panter.*
10(u) 1984 Executive Stock Incentive Purchase Plan, and amendment.*
Incorporated by reference form Exhibit 10(b) of the Company's
Annual Report on Form 10-K for the fiscal year ended January
2, 1988.
10(v) Asset Purchase Agreement dated January 29, 1993, concerning
the sale of the Brooks Business. Incorporated by reference
from Exhibit No. 2 from the Company's Form 8-K filed February
1, 1993.
10(w) Agreements relating to the sale of the assets of the three
European Subsidiaries associated with the Brooks Business.
Incorporated by reference from Exhibits 2(a), 2(b) and 2(c)
from the Company's Form 8-K filed July 8, 1993.
11 Computation of Per Share Earnings.
21 Subsidiaries of Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney
<FN>
____________________________
*Management contract or compensatory plan or arrangement.
Item 14(b). Reports on Form 8-K.
No reports on Form 8-K were filed in the fourth
quarter of the fiscal year ended January 1, 1994.
-20-
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 31, 1994 By:/s/Geoffrey B. Bloom
Geoffrey B. Bloom
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
*/s/Phillip D. Matthews Chairman of the Board of March 31, 1994
Phillip D. Matthews Directors
/s/Geoffrey B. Bloom President, Chief Executive March 31, 1994
Geoffrey B. Bloom Officer and Director
*/s/Thomas D. Gleason Vice Chairman of the Board March 31, 1994
Thomas D. Gleason of Directors
*/s/Timothy J. O'Donovan Executive Vice President March 31, 1994
Timothy J. O'Donovan and Director
*/s/Stephen L. Gulis, Jr. Vice President and Chief March 31, 1994
Stephen L. Gulis, Jr. Financial Officer (Principal
Financial and Accounting
Officer)
*/s/Daniel T. Carroll Director March 31, 1994
Daniel T. Carroll
-21-
*/s/David T. Kollat Director March 31, 1994
David T. Kollat
*/s/David P. Mehney Director March 31, 1994
David P. Mehney
*/s/Stuart J. Northrop Director March 31, 1994
Stuart J. Northrop
*/s/Joseph A. Parini Director March 31, 1994
Joseph A. Parini
*/s/Joan Parker Director March 31, 1994
Joan Parker
*/s/Elmer L. Ward, Jr. Director March 31, 1994
Elmer L. Ward, Jr.
*by/s/Geoffrey B. Bloom
Geoffrey B. Bloom
Attorney-in-Fact
-22-
APPENDIX A
Wolverine World Wide, Inc. and Subsidiaries
Consolidated Balance Sheets
As of Fiscal Year End
1993 1992
(Thousands of Dollars)
Assets
Current assets:
Cash and cash equivalents $ 3,730 $ 2,375
Accounts receivable, less allowances
(1993--$3,411; 1992--$2,716) 62,362 51,510
Inventories:
Finished products 39,169 36,164
Raw materials and work-in-process 31,387 28,100
70,556 64,264
Refundable income taxes 1,594 3,798
Deferred income taxes 8,716 12,312
Net current assets of discontinued operations --- 10,994
Other current assets 2,554 2,960
Total current assets 149,512 148,213
Property, plant and equipment:
Land 1,269 1,283
Buildings and improvements 28,241 27,071
Machinery and equipment 61,098 57,908
90,608 86,262
Less allowances for depreciation 58,985 55,755
31,623 30,507
Other assets 24,581 25,776
Total assets $205,716 $204,496
-1-
Wolverine World Wide, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
As of Fiscal Year End
1993 1992
(Thousands of Dollars)
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 1,948 $16,377
Accounts payable 12,658 14,407
Salaries, wages and other compensation 8,998 4,748
Other accrued expenses 9,970 11,058
Current maturities of long-term debt 4,732 5,766
Total current liabilities 38,306 52,356
Long-term debt, less current maturities 44,913 42,656
Other liabilities:
Unfunded retirement benefits 8,214 7,526
Deferred income taxes 1,533 1,830
9,747 9,356
Stockholders' equity:
Common stock, $1 par value:
Authorized 15,000,000 shares:
Issued, including treasury shares:
1993 - 7,622,012 shares;
1992 - 7,466,929 shares 7,622 7,467
Additional paid-in capital 26,469 24,438
Retained earnings 86,986 76,580
Accumulated translation adjustments 398 351
Cost of shares in treasury (deduct):
1993 - 781,788 shares;
1992 - 781,252 shares (8,725) (8,708)
Total stockholders' equity 112,750 100,128
Total liabilities and stockholders' equity $205,716 $204,496
See accompanying notes to consolidated financial statements.
-2-
Wolverine World Wide, Inc. and Subsidiaries
Consolidated Statements of Operations
Fiscal Year
1993 1992 1991
(Thousands of Dollars, Except Per Share Data)
Net sales and other operating income $333,143 $293,136 $282,749
Cost and expenses:
Cost of products sold 233,115 204,481 193,005
Selling and administrative expenses 80,354 76,156 74,884
Interest expense 5,070 3,637 3,764
Interest income (859) (420) (460)
Other expenses (income) - net (469) 2,804 5,867
317,211 286,658 277,060
Earnings from continuing
operations before income taxes 15,932 6,478 5,689
Income taxes 4,440 1,858 1,267
Earnings from continuing operations 11,492 4,620 4,422
Discontinued operations, net of income taxes:
Operating loss (5,476) (1,172)
Loss on disposal (9,335)
Loss from discontinued operations (14,811) (1,172)
Cumulative effect of accounting changes:
Income taxes 800
Retirement benefits, net of income taxes (1,550)
(750)
Net earnings (loss) $11,492 $(10,941) $ 3,250
Primary earnings (loss) per share:
Continuing operations $ 1.65 $ .70 $ .68
Discontinued operations (2.24) (.18)
Cumulative effect of accounting changes (.11)
Net earnings (loss) $ 1.65 $ (1.65) $ .50
Fully diluted net earnings per share $ 1.60
See accompanying notes to consolidated financial statements.
-3-
Wolverine World Wide, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Fiscal Year
1993 1992 1991
(Thousands of Dollars)
Operating activities
Net earnings (loss) $11,492 $(10,941) $ 3,250
Adjustments necessary to reconcile net
earnings (loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 5,182 5,176 4,851
Deferred income taxes (credit) 3,299 1,911 (1,715)
Pension income (541) (673) (1,069)
Loss from discontinued operations 14,811 1,172
Provision for litigation and
restructuring charges 1,000 7,500
Cumulative effect of changes in
accounting principles 750
Other (537) (1,107) (1,087)
Changes in operating assets and liabilities:
Accounts receivable (10,852) 2,490 881
Inventories (6,292) (2,266) 1,602
Other current assets 2,348 (1,816) 367
Accounts payable (1,749) 205 (2,833)
Other current liabilities 3,641 (10,376) (3,218)
(12,904) (11,763) (3,201)
5,991 (836) 9,701
Investing activities
Additions to property, plant and equipment (6,605) (4,061) (6,264)
Purchase of business, less cash acquired (2,428)
Cash from (used in) discontinued operations 12,193 (12,062) (12,725)
Other 1,899 2,261 740
7,487 (13,862) (20,677)
-4-
Wolverine World Wide, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Fiscal Year
1993 1992 1991
(Thousands of Dollars)
Financing activities
Proceeds from short-term borrowings $ 775 $ 6,077 $ 7,749
Payments on short-term debt (15,204)
Proceeds from long-term borrowings 57,000 45,000 29,068
Payments on long-term debt (55,777) (36,312) (25,202)
Cash dividends (1,086) (1,063) (1,049)
Purchase of common stock for treasury (17) (1) (244)
Shares issued under employee stock plans 2,186 1,231 323
(12,123) 14,932 10,645
Increase (decrease) in cash and cash equivalents 1,355 234 (331)
Cash and cash equivalents at beginning of year 2,375 2,141 2,472
Cash and cash equivalents at end of year $ 3,730 $ 2,375 $ 2,141
Other cash flow information
Interest paid $ 5,661 $ 6,723 $ 5,153
Income taxes paid 957 2,495 2,921
<FN>
( ) Denotes reduction in cash and cash equivalents.
See accompanying notes to consolidated financial statements.
-5-
Wolverine World Wide, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Fiscal Year
1993 1992 1991
(Thousands of Dollars)
Common stock
Balance at beginning of the year $ 7,467 $ 7,341 $ 7,311
Common stock issued from exercise of
stock options (1993--155,083 shares;
1992--126,082 shares; 1991--29,978 shares) 155 126 30
Balance at end of the year 7,622 7,467 7,341
Additional paid-in-capital
Balance at beginning of the year 24,438 23,333 23,040
Excess of proceeds from exercise of stock
options, including income tax benefits,
over par value of shares issued 2,031 1,105 293
Balance at end of the year 26,469 24,438 23,333
Retained earnings
Balance at beginning of the year 76,580 88,584 86,383
Net earnings (loss) 11,492 (10,941) 3,250
Cash dividends--$.16 per share (1,086) (1,063) (1,049)
Balance at end of the year 86,986 76,580 88,584
Accumulated translation adjustments
Balance at beginning of the year 351 (166) (663)
Sale of investment in foreign affiliate 985
Equity adjustments from foreign currency
translation 47 517 (488)
Balance at end of the year 398 351 (166)
Cost of shares in treasury
Balance at beginning of the year (8,708) (8,707) (8,463)
Common stock purchased for treasury
(1993--526 shares; 1992--50 shares;
1991--30,000 shares) (17) (1) (244)
Balance at end of the year (8,725) (8,708) (8,707)
Stockholders' equity at end of the year $112,750 $100,128 $110,385
<FN>
( ) Denotes deduction.
See accompanying notes to consolidated financial statements.
-6-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
January 1, 1994
Note A - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. Upon consolidation, all intercompany
accounts, transactions and profits have been eliminated. The investment in
a 35%-owned foreign affiliate is carried on the equity basis.
Fiscal Year End
The Company's fiscal year is the 52- or 53-week period that ends on the
Saturday nearest the end of December. Fiscal years presented herein
include the 52-week years ended January 1, 1994 and December 28, 1991, and
the 53-week year ended January 2, 1993.
Revenue Recognition
Revenue is recognized on the sale of Company products when the related
goods have been shipped and legal title has passed to the customer.
Cash Equivalents
All short-term investments with a maturity of less than three months when
purchased are considered cash equivalents for purposes of the consolidated
statement of cash flows. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method for substantially all manufacturing
inventories (see Note B). Inventories of the Company's retail operations
are valued using the retail method.
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost and include
expenditures for new facilities, major renewals and betterments. Normal
repairs and maintenance are expensed as incurred.
Depreciation of plant and equipment is computed using the straight-line
method over the estimated useful lives of the respective assets.
-7-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note A - Summary of Significant Accounting Policies (continued)
Income Taxes
The provision for income taxes is based on the earnings or loss reported in
the 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 value of assets and
liabilities for financial statement and income tax purposes. Deferred
income tax expense (credit) is measured by the change in the deferred
income tax asset or liability during the year.
Earnings Per Share
Primary earnings per share are computed based on the weighted average
shares of common stock outstanding during each year and, for fiscal 1993,
the assumed exercise of dilutive stock options. Stock options are not
included in the computation of earnings per share in prior years since they
were not materially dilutive. Fully diluted earnings per share for fiscal
1993 also includes the effect of converting subordinated notes into common
stock. Fully diluted earnings per share are not presented for prior years
since the effect of exercising stock options and converting subordinated
notes was not material.
Financial Instruments
The Company's financial instruments, as defined by Statement of Financial
Accounting Standard No. 107, consist of cash and cash equivalents, notes
receivable and long-term debt. The Company's estimate of the fair value of
these financial instruments approximates the carrying amounts at January 1,
1994, except for certain long-term debt arrangements as discussed in Note
E.
Reclassifications
Certain amounts in 1992 and 1991 have been reclassified to conform with the
presentation used in 1993.
Note B - Inventories
Inventories in the amount of $47,686,000 at January 1, 1994 and $38,950,000
at January 2, 1993 have been valued using the LIFO method. If the FIFO
method had been used, the amounts would have been $19,903,000 and
$20,082,000 higher than reported at January 1, 1994 and January 2, 1993,
respectively.
Reductions in certain inventory quantities during 1991 resulted in the
liquidation of LIFO inventory layers carried at costs prevailing in prior
-8-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
years that were lower than current costs. The effect of these reductions
was to increase 1991 earnings from continuing operations before income
taxes by $1,080,000 and net earnings by $702,000 ($.11 per share). There
were no similar liquidations of LIFO inventories in 1993 or 1992.
Note C - Discontinued Operations
At the end of the third quarter of fiscal 1992, the Company announced its
intent to dispose of its Brooks athletic footwear and sports apparel
business. The Brooks business consisted of sales and distribution
operations in the United States, France, Germany and the United Kingdom,
sourcing activities, primarily in the Far East, and worldwide licensing of
the rights to the brand name. The Brooks distributors in Europe were 33%-
owned equity investees from April 3, 1990 until July 1, 1991 when the
remaining equity interests were acquired.
During 1993, the Company sold the Brooks businesses in separate
transactions in exchange for cash and notes totaling approximately $24
million. Notes receivable of $7,700,000 were outstanding at January 1,
1994 and are collateralized by substantially all of the assets sold. The
noncurrent portion of the notes receivable representing payments of
$2,300,000, $4,324,000, and $361,000, due in 1995, 1996 and 1997,
respectively, are included in other assets.
The results of these businesses, which are classified separately as
discontinued operations in the accompanying consolidated statements of
operations, are summarized as follows:
1992 1991
(Thousands of Dollars)
Net sales $39,819 $32,696
Loss from operations before income taxes $(6,711) $(1,152)
Income taxes (credit) (1,235) 20
Loss from operations $(5,476) $(1,172)
The above results for 1992 are through the third quarter when the decision
was made to dispose of the Brooks business. Operating results of
discontinued operations for 1992 and 1991 include allocations of overhead
and interest expense. Overhead expense of $370,000 and $556,000,
respectively, was allocated based upon a determination of those costs which
were not expected to be incurred by continuing operations. Interest
-9-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
expense of $2,268,000 and $1,442,000, respectively, was allocated based on
debt incurred to finance the discontinued operations since acquisition.
The Company also made charges of $16,300,000 ($9,335,000 after income
taxes) during fiscal 1992 to provide for estimated losses on the disposal
of the Brooks businesses including anticipated operating losses from the
end of the third quarter to the expected dates of sale.
Note D - Notes Payable to Banks
Notes payable to banks at January 1, 1994 consist primarily of unsecured
short-term borrowings of the Company's Canadian subsidiary. The notes bear
interest at Canadian prime (5.5% at January 1, 1994) plus 2%. Notes
payable to banks in 1992 also included unsecured short-term borrowings of
the Company's Brooks Europe subsidiaries which were substantially repaid
in 1993 in connection with the disposal of the Brooks business.
The Company also has $41,000,000 of short-term borrowing and commercial
letter-of-credit facilities. There were no outstanding borrowings at the
end of fiscal 1993; however, outstanding letters-of-credit amounted to
approximately $13,400,000.
Note E - Long-Term Debt
Long-term debt consists of the following obligations at the end of fiscal
1993 and 1992:
1992 1991
(Thousands of Dollars)
10.4% senior notes to insurance companies $21,429 $25,714
Revolving credit obligations 25,000 18,000
Subordinated convertible notes 2,500 2,500
Other 716 2,208
49,645 48,422
Less current maturities 4,732 5,766
$44,913 $42,656
The 10.4% senior notes to insurance companies were issued on September 1,
1988. The note agreement requires equal annual principal payments of
$4,286,000 on August 15, 1994 through 1998.
-10-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note E - Long-Term Debt (continued)
The revolving credit agreement allows for borrowings of up to the lesser of
$50,000,000 or amounts determined in accordance with certain asset-based
debt limitation formulas. The agreement also requires the outstanding
balance to be no more than $30,000,000 during the period December 1 through
May 31 each year. Interest is payable at variable rates based on both
LIBOR and prime (6% at January 1, 1994). The agreement expires on June 30,
1995, but can be renewed with the mutual consent of the Company and the
participating lenders. As of January 1, 1994, the available unused credit
under the agreement was $5,000,000. Maximum borrowings under the agreement
during 1993 and 1992 were $46,000,000 and $45,000,000, respectively.
The subordinated convertible notes are payable in two installments of
$1,250,000 each in 1995 and 1996 with interest payable semiannually at
6.5%. The notes are subordinated to all insurance company and bank debt
and are convertible into common stock at a price of $12.50 per share at any
time prior to maturity.
The revolving credit and insurance company loan agreements contain
restrictive covenants which, among other things, require the Company to
maintain certain financial ratios and minimum levels of working capital and
tangible net worth. The agreements also impose restrictions on the
occurrence of additional debt, sale and merger transactions, acquisition by
the Company of its common stock and the payment of dividends. At January
1, 1994, retained earnings of $2,873,000 are available for dividends or
other restricted payments under the most restrictive of these provisions.
Principal maturities of long-term debt during the four years subsequent to
1994 are as follows: 1995--$30,705,000; 1996--$5,586,000; 1997--$4,336,000;
1998--$4,286,000.
The carrying value of the Company's long-term debt approximates fair market
value except for the 10.4% senior notes and the convertible notes. The
fair market value of the senior notes is estimated to be $24,300,000. This
was determined using discounted cash flow analysis and the Company's
incremental borrowing rate for similar financing arrangements. The fair
market value of the subordinated convertible notes is $6,000,000 based on
the quoted market price of the Company's common stock at January 1, 1994.
Note F - Leases
The Company leases machinery, transportation equipment and certain
warehouse and retail store space under agreements which expire at various
dates through 2002. At January 1, 1994, minimum rental payments due under
all noncancelable leases are as follows (thousands of dollars):
-11-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note F - Leases (continued)
1994 $ 3,364
1995 2,958
1996 2,295
1997 1,731
1998 868
Thereafter 185
Total minimum lease payments $11,401
Rental expense under all operating leases is summarized as follows:
1993 1992 1991
(Thousands of Dollars)
Minimum rentals $5,210 $5,441 $5,546
Contingent rentals 1,138 1,098 1,233
$6,348 $6,539 $6,779
Contingent rentals are based on retail store sales volume or usage of
equipment.
Note G - Capital Stock
The Company's authorized capital includes 2,000,000 shares of preferred
stock with a par value of $1 per share. No preferred stock has been
issued; however, the Company has designated 880,000 shares of preferred
stock as Series A junior participating preferred stock for possible future
issuance under the Company's stock rights plan described below. Each share
of Series A junior preferred stock will have 100 votes upon issuance and a
preferential quarterly dividend equal to the greater of $6.00 per share or
100 times the dividend declared on the Company's common stock.
The Company's stock rights plan is designed to protect stockholder
interests in the event the Company is confronted with coercive or unfair
takeover tactics. Under its terms, each stockholder received one right for
each share of common stock owned. The rights will trade separately from
common stock and will become exercisable only upon the occurrence of
certain triggering events, including a person, group or company acquiring
15% or more of the Company's outstanding common stock, tendering for a 15%
or greater interest in the Company, or acquiring 10% or more of the
outstanding common stock and being determined by the Company's Board of
Directors to be an adverse person, as defined.
-12-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note G - Capital Stock (continued)
Each right, when exercisable, will entitle the holder to purchase one one-
hundredth of a share of Series A junior participating preferred stock for
$40. Alternatively, in the event the Company is a party to a merger or
other business combination, regardless of whether the Company is the
surviving corporation, rights holders, other than the party to the merger,
will be entitled to receive common stock of the surviving corporation worth
twice the exercise price of the rights. The plan also provides for
protection against self-dealing transactions by a 15% stockholder or the
activities of an adverse person. The Company may redeem the rights for
$.01 each at any time prior to fifteen days after a triggering event.
Unless redeemed earlier, all rights will expire on May 8, 1997.
The Company has stock incentive plans under which options to purchase
shares of common stock may be granted to officers, other key employees and
nonemployee directors. Under the plans, which were adopted in 1979, 1988
and 1993, options are exercisable in equal annual installments of 25% over
three years beginning on the date the options are granted. All unexercised
options under the 1988 and 1993 plans are available for future grants upon
their cancellation. The 1979 plan expired during 1989 and no additional
options are available for future grants under this plan.
A summary of the transactions under the plans follows:
Number of
Shares Under
Options Option Price
Outstanding at December 29, 1990 413,625 $ 8.75 to $13.31
Granted in 1991 142,500 9.38 to 10.00
Exercised (7,853) 8.75 to 10.00
Canceled (21,270) 8.75 to 11.56
Outstanding at December 28, 1991 527,002 8.75 to 13.31
Granted in 1992 116,150 10.00 to 11.63
Exercised (108,295) 8.75 to 11.63
Canceled (62,575) 8.75 to 11.63
Outstanding at January 2, 1993 472,282 8.75 to 13.31
Granted in 1993 97,900 17.31 to 30.88
Exercised (134,883) 8.75 to 18.00
Canceled (825) 8.75 to 10.00
Outstanding at January 1, 1994 434,474 8.75 to 30.88
Exercisable at January 1, 1994 292,178 $ 8.75 to $30.88
Available for future grants:
At January 1, 1994 311,316
At January 2, 1993 73,875
-13-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note G - Capital Stock (continued)
A provision in the 1993 stock incentive plan allows the Company to make
stock awards to officers and key employees as consideration for future
services. The intent of this provision is to provide a continuation of the
provisions of the executive incentive stock purchase plan adopted in 1984
and expiring on December 31, 1994, which awarded rights to purchase shares
of the Company's common stock at a nominal price of $1.00 per share.
Common stock acquired under the provisions of either plan is subject to
certain restrictions, including prohibition against any sale, transfer or
other disposition by the officer or employee, and a requirement to forfeit
the award upon termination of employment. These restrictions lapse over a
three- to five-year period from the date of the award. During 1993, 15,484
shares were issued under provisions of the current plan and 4,716 shares
were issued under the predecessor plan. Rights to purchase 19,700 and
26,500 shares of common stock under the 1984 plan for $1.00 per share were
granted in 1992 and 1991, respectively, and rights to 2,913 and 3,375
shares were canceled in 1992 and 1991. The maximum of 150,000 shares have
been granted under the 1984 plan. Additional shares may be awarded under
the 1993 stock incentive plan. Such awards will reduce the number of
shares effected above as available for grant under the stock option
provisions of the plan.
Note H - Retirement Plans
The Company has noncontributory, defined benefit pension plans covering a
majority of domestic employees. The Company's principal defined benefit
pension plan provides benefits based on the employee's years of service and
final average earnings (as defined), while the other plans provide benefits
at a fixed rate per year of service. The Company intends to annually
contribute amounts deemed necessary, if any, to maintain the plans on a
sound actuarial basis.
The Company also has individual deferred compensation agreements with
certain key employees which entitles them to receive payments from the
Company for a period of fifteen to eighteen years following retirement.
Under the terms of the individual contracts, the employees are eligible for
reduced benefits upon early retirement generally at age 58. Prior to 1992,
the Company's policy was to recognize the deferred compensation cost over
the expected employment period of the individual employees.
In addition, the Company sponsors a noncontributory defined benefit plan
that provides postretirement life insurance benefits to full-time employees
who have worked ten or more consecutive years and attained age 60 while
employed by the Company. Prior to 1992, the Company's policy was to
recognize expense when claims were paid.
The Company does not provide postretirement medical benefits.
-14-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note H - Retirement Plans (continued)
The Company also has a defined contribution plan covering substantially all
employees which provides for Company contributions based on the Company's
earnings. Contributions to the plan were $760,000 in 1993, $69,000 in 1992
and $267,000 in 1991.
The Company adopted the provisions of Statement of Financial Accounting
Standard (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" in 1992. SFAS No. 106 requires the estimated cost of
life insurance benefits and deferred compensation contracts to be
recognized over the period of employment to the date that employees are
fully eligible to receive future benefits.
The cumulative prior year effect of adopting SFAS No. 106 was recorded in
fiscal 1992 and amounted to $2,400,000 ($1,550,000 after related deferred
income taxes). If the revised accounting principle had been applied
retroactively, net earnings for fiscal 1991 would not have changed
significantly.
The following summarizes the status of the Company's pension assets and
related obligations:
September 30
1992 1991
(Thousands of Dollars)
Pension assets at fair value $72,865 $54,403
Actuarial present value of accumulated plan benefits:
Vested 36,223 31,419
Nonvested 1,969 1,215
38,192 32,634
Effect of estimated future increases in compensation 6,793 5,481
Projected benefit obligation for service rendered
to date 44,985 38,115
Excess pension assets $27,880 $16,288
Components of excess pension assets:
Prepaid pension costs recognized in the Company's
balance sheet in other assets $ 4,879 $ 4,338
Unrecognized amounts, net of amortization:
Transition asset 5,634 6,567
Prior service costs (2,348) (2,234)
Experience gains 19,715 7,617
$27,880 $16,288
-15-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note H - Retirement Plans (continued)
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit
obligation were 7.5% and 4% in 1993 and 8.5% and 5% in 1992. These
assumption changes increased the projected benefit obligation at September
30, 1993 by approximately $3,300,000.
At September 30, 1993, plan assets were invested in listed equity
securities (69%), fixed income funds (20%), guaranteed investment contracts
(6%) and short-term investments (5%). Equity securities at September 30,
1993 include 200,200 shares of the Company's common stock with a fair value
of $5,756,000.
The following is a summary of the pension income recognized by the Company:
1993 1992 1991
(Thousands of Dollars)
Service cost pertaining to benefits earned
during the year $ (1,398) $ (1,258) $ (1,188)
Interest cost on projected benefit
obligation (3,247) (3,052) (2,723)
Actual net investment income 20,354 5,638 11,614
Amortization of net transition asset 933 933 933
Amortization of prior service cost from
plan amendments and net experience gains (284) (267) (113)
Deferral of actual net investment income
in excess of expected (15,855) (1,418) (7,559)
Net pension income $ 503 $ 576 $ 964
The expected long-term return on plan assets was 9.0% in 1993 and 1992, and
9.5% in 1991.
The Company's accumulated postretirement life insurance benefit obligation
is as follows:
1992 1991
(Thousands of Dollars)
Retirees $ 731 $ 576
Active plan participants 202 224
Accumulated postretirement benefit obligation 933 800
Unrecognized experience losses (151)
Amount accrued in other liabilities $ 782 $ 800
-16-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note H - Retirement Plans (continued)
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% in 1993 and 8.5% in 1992. The
Company's expense for postretirement life insurance benefits was $70,000 in
1993 and $50,000 in 1992 and 1991.
Note I - Income Taxes
Effective the beginning of fiscal 1992, the Company adopted SFAS No. 109,
"Accounting for Income Taxes". The new standard requires that an asset and
liability approach be applied in accounting for income taxes and provides
revised criteria for the recognition of deferred tax assets. As permitted
under the new rules, prior years financial statements were not restated.
The cumulative prior year effect of adopting SFAS No. 109 was recorded in
fiscal 1992 and decreased the net loss by $800,000.
The provisions (credit) for income taxes consists of the following:
1993 1992 1991
(Thousands of Dollars)
Currently payable (refundable):
Federal $ (310) $(1,429) $ 1,729
State and foreign 1,451 1,376 1,253
Deferred (credit) 3,299 1,911 (1,715)
$ 4,440 $ 1,858 $ 1,267
A reconciliation of the Company's total income tax expense (benefit) and
the amount computed by applying the statutory federal tax rate of 35% (34%
for fiscal 1992 and 1991) to earnings from continuing operations before
income taxes is as follows:
1993 1992 1991
(Thousands of Dollars)
Income taxes at statutory rate $ 5,576 $2,203 $1,934
State income and foreign taxes, net of federal
tax reduction 340 65 301
Nontaxable earnings of Puerto Rican
subsidiaries and foreign affiliates (1,202) (292) (82)
Gain on sale of foreign affiliate 690
Utilization of foreign tax credit carryovers (896)
Investment tax and other credits utilized (241)
Other (274) (118) (439)
$ 4,440 $1,858 $1,267
-17-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note I - Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
as of the end of fiscal 1993 and 1992 are as follows:
1992 1991
(Thousands of Dollars)
Deferred tax assets:
Accounts receivable and inventory
valuation allowances $ 3,861 $ 3,122
Deferred compensation accruals 2,841 2,287
Restructuring and litigation accruals 1,416 1,641
Provision for losses on disposal of discontinued operations 454 5,675
Credit carryforwards 1,038
Other 4,349 4,021
13,959 16,746
Valuation allowance (deduct) (1,000) (1,000)
Total deferred tax assets 12,959 15,746
Deferred tax liabilities:
Excess tax depreciation 2,773 2,826
Prepaid pension costs 1,766 1,495
Unremitted earnings of Puerto Rican subsidiary 705 485
Other 532 458
Total deferred tax liabilities 5,776 5,264
Net deferred tax asset $ 7,183 $10,482
The valuation allowance has been provided to recognize the uncertainty of
realizing a portion of the deferred tax assets which are dependent upon
future taxable income.
The Company has provided for substantially all taxes that would be payable
if accumulated earnings of its Puerto Rico subsidiary were distributed.
Similar taxes on the unremitted earnings of the Company's foreign
affiliates have not been provided because such earnings are considered
permanently invested. The additional taxes that would be payable if
unremitted earnings of its foreign affiliates were distributed are not
significant.
-18-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note J - Restructuring
A restructuring charge of $2,700,000 in fiscal 1992 is included in other
expense - net. The charge consisted principally of costs associated with a
reduction in the corporate staff and the write-off of certain intangible
and other assets. After related income taxes, the charge reduced 1992
earnings from continuing operations and net earnings by $1,730,000 ($.26
per share).
Note K - Litigation
On March 2, 1992, the Company settled lawsuits which were filed in 1989 and
1990 by Southwest Hide Company and First Security Bank of Utah under an
agreement requiring the payment of cash and notes. To provide for the
settlement, the Company recognized a charge of $7,500,000 in its 1991
financial statements which is included in other expenses - net. After
related income taxes, the provision reduced 1991 earnings from continuing
operations and net earnings by $6,100,000 ($.93 per share).
The Company is involved in various other legal actions arising in the
normal course of business. After taking into consideration legal counsel's
evaluation of such actions, management is of the opinion that their outcome
will not have a significant effect on the Company's consolidated financial
position or results of operations.
Note L - Industry Information
The Company is principally engaged in the manufacture and sale of footwear,
primarily casual shoes, slippers, moccasins, dress shoes, boots, uniform
shoes and work shoes. The Company is also the largest domestic tanner of
pigskin which is used in a significant portion of shoes manufactured and
sold by the Company, and is also sold to other domestic and foreign
manufacturers of shoes and other products and to the Company's foreign
trademark licensees. Royalty income is derived from licensing its
trademarks to domestic and foreign licensees for use on non-footwear and
footwear products. As part of its footwear business, the Company operates
a number of domestic retail shoe stores that sell Company-manufactured
products as well as footwear manufactured by unaffiliated companies.
Foreign operations consist of factories in the Dominican Republic and
Mexico which produce shoe uppers for Company operations in the United
States and a 75%-owned subsidiary which manufactures and markets branded
footwear in Canada. Export sales, foreign operations and related assets,
excluding the discontinued Brooks European operations (see Note C), are not
significant.
The Company markets its products primarily to customers in the retail
sector. Although the Company closely monitors the credit worthiness of its
customers and adjusts its credit policies and limits as needed, a
substantial portion of its debtors' ability to discharge amounts owed is
-19-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
dependent upon the retail economic environment. The Company does not
believe that it is dependent upon any single customer, since none account
for more than 10% of consolidated net sales.
Note M - Quarterly Results of Operations (Unaudited)
The Company reports its quarterly results of operations on the basis of
12-week periods for each of the first three quarters and a 16-week period
for the fourth quarter. The fourth quarter of fiscal 1992 included 17
weeks.
The following tabulation presents the Company's unaudited quarterly results
of operations for fiscal 1993 and 1992. Certain reclassifications have
been made to the amounts originally reported in the Company's quarterly
reports on Form 10-Q to conform with the presentation used in the annual
financial statements.
Fiscal 1993
First Second Third Fourth
Quarter Quarter Quarter Quarter
(Thousands of Dollars, Except Per Share Data)
Net sales and other operating income $65,859 $65,902 $81,314 $120,068
Gross margin 18,799 19,956 22,192 39,081
Net earnings $ 700 $ 1,084 $ 2,048 $ 7,660
Net earnings per share:
Primary $ .10 $ .17 $ .30 $ 1.08
Fully diluted $ .10 $ .15 $ .29 $ 1.05
Fiscal 1992
First Second Third Fourth
Quarter Quarter Quarter Quarter
(Thousands of Dollars, Except Per Share Data)
Net sales and other operating income $53,681 $60,104 $73,051 $106,300
Gross margin 16,403 17,809 20,871 33,572
Earnings (loss) from continuing operations (202) (472) (1,062) 6,356
Loss from discontinued operations (337) (1,262) (6,285) (6,927)
Cumulative effect of changes in
accounting principles (750)
Net loss $(1,289) $(1,734) $(7,347) ($571)
-20-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note M - Quarterly Results of Operations (Unaudited) (continued)
Fiscal 1992
First Second Third Fourth
Quarter Quarter Quarter Quarter
(Thousands of Dollars, Except Per Share Data)
Primary earnings (loss) per share:
Continuing operations $ (.03) $ (.07) $ (.16) $ .96
Discontinued operations (.06) (.19) (.95) (1.04)
Cumulative effect of changes
in accounting principles (.11)
Net loss $ (.20) $ (.26) $ (1.11) $ (.08)
Adjustments recorded in the fourth quarter of fiscal 1993 and 1992 relating
principally to inventories increased net earnings by $1,910,000 ($0.27 per
share) in 1993 and earnings from continuing operations in 1992 by
$1,030,000 ($0.16 per share). In addition, an after tax provision of
$6,900,000 ($1.04 per share) related to discontinued operations was
recorded in the fourth quarter of 1992 (see Note C).
-21-
Report of Independent Auditors
The Board of Directors
Wolverine World Wide, Inc.
We have audited the accompanying consolidated balance sheets of Wolverine
World Wide, Inc. and subsidiaries as of January 1, 1994 and January 2,
1993, and the related consolidated statements of stockholders' equity,
operations and cash flows for each of the three fiscal years in the period
ended January 1, 1994. Our audits also included the financial statement
schedules listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Wolverine World Wide, Inc. and subsidiaries at January 1, 1994
and January 2, 1993, and the consolidated results of their operations and
their cash flows for each of the three fiscal years in the period ended
January 1, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information
set forth therein.
Ernst & Young
Grand Rapids, Michigan
February 14, 1994
APPENDIX B
Schedule II--Amounts Receivable from Related Parties and Underwriters,
Promoters and Other Employees Other than Related Parties
Wolverine World Wide, Inc. and Subsidiaries
Fiscal year ended January 1, 1994
Column A Column B Column C Column D Column E
Deductions Balance at End of Period
Balance at (1) (2)
Beginning of Amounts Amounts (1) (2)
Name of Debtor Period Additions Collected Written Off Current Not Current
Geoffrey B. Bloom(A) $210,930 $105,465 $105,465
Thomas D. Gleason(B) 106,813 106,813
<FN>
(A) The note receivable from Mr. Bloom bears interest at 7.83% and is due in installments from 1997 through 2004.
(B) The notes receivable from Mr. Gleason bear interest at rates ranging from 7.33% to 7.72% and are due in installments from
1994 to 2004.
-1-
Schedule VIII--Valuation and Qualifying Accounts from Continuing Operations
Wolverine World Wide, Inc. and Subsidiaries
Column A Column B Column C Column D Column E
Additions
(1) (2)
Balance at Charged to Charged to
Beginning Costs and Other Accounts-- Deductions-- Balance at
Description of Period Expenses Describe Describe End of Period
Fiscal year ended January 1, 1994
Deducted from asset
accounts:
Allowance for doubtful
accounts $2,454,000 $2,208,000 $1,521,000(A) $3,141,000
Allowance for cash
discounts 262,000 1,770,000 1,762,000(B) 270,000
$2,716,000 $3,978,000 $3,283,000 $3,411,000
Fiscal year ended January 2, 1993
Deducted from asset
accounts:
Allowance for doubtful
accounts $2,454,000 $1,615,000 $1,615,000(A) $2,454,000
Allowance for cash
discounts 396,000 1,636,000 1,770,000(B) 262,000
$2,850,000 $3,251,000 $3,385,000 $2,716,000
Fiscal year ended December 28, 1991
Deducted from asset
accounts:
Allowance for doubtful
accounts $2,732,000 $1,965,000 $2,243,000(A) $2,454,000
Allowance for cash
discounts 347,000 1,758,000 1,709,000(B) 396,000
$3,079,000 $3,723,000 $3,952,000 $2,850,000
<FN>
(A) Accounts charged off, net of recoveries.
(B) Discounts given to customers
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Schedule IX--Short-Term Borrowings of Continuing Operations
Wolverine World Wide, Inc. and Subsidiaries
Column A Column B Column C Column D Column E Column F
Maximum Average Weighted
Amount Amount Average
Weighted Outstanding Outstanding Interest Rate
Category of Aggregate Balance at Average During the During the During the
Short-Term Borrowings End of Period Interest Rate Period Period(B) Period(C)
Fiscal year ended January 1, 1994
Foreign notes payable
to banks(A) $1,948,000 7.5% $16,377,000 $ 7,250,000 8.48%
Fiscal year ended January 2, 1993
Notes payable to banks(A):
Domestic 0 8,000,000 827,000 6.53
Foreign 16,377,000 9.3 20,799,000 14,613,000 10.78
Fiscal year ended December 28, 1991
Foreign notes payable
to banks(A) 10,300,000 10.5 10,300,000 3,817,000 10.04
<FN>
(A) Notes payable to banks represent borrowings under various short-term line-of-credit arrangements.
(B) The average amount outstanding during the period was computed by dividing the total daily outstanding principal balances by
the number of days in the fiscal year.
(C) The weighted average interest rate during the period was computed by dividing the actual interest expense, excluding
commitment fees, by average short-term debt outstanding during the period.
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Schedule X--Supplementary Income Statement Information
of Continuing Operations
Wolverine World Wide, Inc. and Subsidiaries
Column A Column B
Item Charged to Costs and Expenses
Fiscal year ended
January 1, January 2, December 28,
1994 1993 1991
Maintenance and repairs $ 3,579,000 $ 3,437,000 $ 3,409,000
Advertising costs 13,725,000 12,886,000 11,972,000
Amounts for amortization of intangible assets, taxes other than payroll and
income taxes and royalties are not presented, as such amounts are less than
one percent of total net sales and other operating income in each of the
three fiscal years.
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Commission File No. 1-6024
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM 10-K
For the Fiscal Year
January 1, 1994
Wolverine World Wide, Inc.
9341 Courtland Drive
Rockford, Michigan 49351
EXHIBIT INDEX
Exhibit
Number
3(a) Articles of Incorporation, as amended. Incorporated by
reference from Exhibit 3(a) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 1988.
3(b) Amended and Restated Bylaws.
4(a) The Articles of Incorporation. See Exhibit 3(a) above.
4(b) Preferred Stock Purchase Rights. Incorporated by reference
from Amendment No. 1 to the Form 8-A filed with the
Securities Exchange Commission on November 13, 1990.
4(c) Credit Agreement dated as of March 11, 1993 with NBD Bank,
N.A. as Agent. Incorporated by reference from Exhibit 4(c)
of the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993.
4(d) Note Purchase Agreement dated as of August 29, 1988 relating
to 10.40% Senior Notes. Incorporated by reference from
Exhibit 4(d) of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.
4(e) First, Second, Third and Fourth Amendments to Note Purchase
Agreement. Incorporated by reference from Exhibit 4(e) of
the Company's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993.
4(f) The Registrant has several classes of long-term debt
instruments outstanding in addition to that described in
exhibit 4(d) above. The amount of none of these classes of
debt outstanding on March 1, 1994 exceeds 10% of the
Registrant's total consolidated assets. The Registrant
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.
10(a) Stock Option Plan of 1979, and amendment. Incorporated by
reference from Exhibit 10(a) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 1988.*
10(b) 1993 Stock Incentive Plan.*
10(c) 1988 Stock Option Plan.* Incorporated by reference from the
Company's registration statement on Form S-8, filed July 21,
1988, Registration No. 33-23196.
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10(d) Amended and Restated Directors Stock Option Plan.*
10(e) Agreement dated as of July 24, 1992, between the Registrant
and Thomas D. Gleason.* Incorporated by reference from
Exhibit 10(e) of the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993. The Company also
incorporates by reference the description of Mr. Gleason's
agreement under the caption "Employment Agreements,
Termination Agreements and Change of Control Arrangements"
contained in the definitive Proxy Statement of the Company
dated March 22, 1994.
10(f) Employment Agreement dated April 27, 1993, between the Registrant
and Geoffrey B. Bloom.*
10(g) Executive Short-Term Incentive Plan for 1994.*
10(h) Management Short-Term Incentive Plan for 1994.*
10(i) Stock Option Loan Program.* Incorporated by reference from
Exhibit 10(h) of the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991.
10(j) Deferred Compensation Agreements with Disability Benefits.*
The form of agreement is incorporated by reference from
Exhibit 10(i) of the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993. An updated
participant schedule is attached as Exhibit 10(j).
10(k) Deferred Compensation Agreements without Disability Benefits.*
The form of agreement is incorporated by reference from Exhibit
10(j) of the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993. An updated participant schedule is
attached as Exhibit 10(k).
10(l) Executive Long-Term Incentive (Three Year) Plans for the years
1991 to 1993 and 1992 to 1994.* Incorporated by reference from
Exhibit 10(l) of the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 1991.
10(m) Executive Long-Term Incentive (Three Year) Plan for the three
year period 1993-1995.* Incorporated by reference from Exhibit
10(l) of the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993.
10(n) Executive Long-Term Incentive (Three Year) Plan for the three year
period 1994-1996.*
10(o) Termination of Employment and Change of Control Agreements.*
The form of agreement is incorporated by reference from Exhibit
10(m) of the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993. An updated participant schedule is
attached as Exhibit 10(o).
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10(p) Indemnification Agreements.* The form of agreement is
incorporated by reference from Exhibit 10(n) of the Company's
Annual Report on Form 10-K for the fiscal year ended January 2,
1993. An updated participant schedule is attached as Exhibit
10(p).
10(q) Supplemental Retirement Benefits.* Incorporated by reference
from Exhibit 10(l) of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1988.
10(r) Benefit Trust Agreement dated May 19, 1987, and Amendments
Number 1, 2 and 3 thereto.* Incorporated by reference from
Exhibit 10(p) of the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993.
10(s) Supplemental Director's Fee Arrangement dated April 27,
1993, between the Company and Phillip D. Matthews.*
10(t) Retirement Agreement effective December 31, 1993, between
the Company and Peter D. Panter.*
10(u) 1984 Executive Stock Incentive Purchase Plan, and amendment.*
Incorporated by reference form Exhibit 10(b) of the Company's
Annual Report on Form 10-K for the fiscal year ended January
2, 1988.
10(v) Asset Purchase Agreement dated January 29, 1993, concerning
the sale of the Brooks Business. Incorporated by reference
from Exhibit No. 2 from the Company's Form 8-K filed February
1, 1993.
10(w) Agreements relating to the sale of the assets of the three
European Subsidiaries associated with the Brooks Business.
Incorporated by reference from Exhibits 2(a), 2(b) and 2(c)
from the Company's Form 8-K filed July 8, 1993.
11 Computation of Per Share Earnings.
21 Subsidiaries of Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney
<FN>
___________________________
*Management contract or compensatory plan or arrangement.
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