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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 December 31, 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 identification no.)
incorporation or organization)
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 Act:
Title of each 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, 1995: 10,788,618
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, 1995: $277,264,120
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the registrant's annual
stockholders' meeting to be held April 19, 1995, are incorporated by
reference into Part III of this report.
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PART I
Item 1. Business
General
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, in conjunction with its licensees and
distributors, more than 26 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
trademark) brand is a world leader in affordable, comfortable, casual and
functional footwear for men, women and children. The Company's WOLVERINE
(registered trademark) brand of work and sport boots is recognized as an
industry leader in work and sport boots. The Company's BATES (registered
trademark) brand is an industry leader in uniform footwear. The Tru-Stitch
Footwear Division is the foremost supplier of constructed slippers in the
United States. The Company also manufactures a line of rugged outdoor and
sport footwear under the WOLVERINE WILDERNESS (registered trademark) brand.
The Company has been granted the worldwide rights to manufacture and market
footwear under the CATERPILLAR (registered trademark) and CAT (registered
trademark) trademarks, and is also licensed to market footwear throughout
the United States, Japan and Canada under the COLEMAN (registered
trademark) trademark. Through these, and several other footwear brands,
the Company expects to continue to manufacture and source quality footwear
for its customers.
The Wolverine Leather 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.
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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 through a
revolving credit agreement that the Company has in place. The Company
expects the seasonal sales pattern to continue in future years.
Sales and Distribution
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 102
domestic retail shoe stores, leased shoe departments and Company-owned HUSH
PUPPIES (registered trademark) Specialty Stores as of March 25, 1995. A
fiscal 1990 decision to downsize the factory outlet business will result in
closing approximately 12 outlet retail locations during 1995. Fifteen
outlet retail locations were closed in fiscal 1994. As noted below, the
Company has also decided to exit the leased shoe department business in the
Lamonts Apparel chain.
Of the 102 retail locations, approximately 56 are factory outlet
stores located in strip centers or in free-standing buildings.
Approximately 21 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.
The 35 remaining outlet stores are currently operating under the HUSH
PUPPIES (registered trademark) 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 the
HUSH PUPPIES (registered trademark) FACTORY DIRECT (service mark) retail
and merchandising format.
In addition to the traditional retail shoe stores, the Company
currently operates 32 full price, full service family leased shoe
departments in the Lamonts Apparel chain in the Pacific Northwest and
Alaska, which feature the Company's wholesale brands. During 1994, the
Company announced its intent to discontinue its leased shoe department
business in the Lamonts Apparel chain. The current Lamonts Apparel leases
are scheduled to expire in October, 1995, and the business will be phased
out by year end.
The 102 retail locations also include 14 regional mall full
service, full price HUSH PUPPIES (registered trademark) Specialty Stores
which feature a broad selection of men's and women's HUSH PUPPIES
(registered trademark) brand footwear. The Company also licenses
independent retailers who operate HUSH PUPPIES (registered trademark)
Specialty Stores at another 63 locations.
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The Company derives royalty income from licensing the HUSH
PUPPIES (registered trademark), WOLVERINE (registered trademark), WOLVERINE
WILDERNESS (registered trademark), COLEMAN (registered trademark), TOWN &
COUNTRY (trademark), and other trademarks to domestic and foreign licensees
for use on footwear and related products. The Company sells footwear
bearing the CATERPILLAR (registered trademark) trademark through domestic
and foreign distributors. In addition, the Company sells its own pigskin
leather to certain of its licensees. In fiscal 1994, the Company's foreign
licensees and distributors sold an estimated 12.4 million pairs of
footwear, an increase from approximately 8.3 million pairs sold in fiscal
1993.
The Company continues to develop a global network of licensees
and distributors to market its footwear brands. The licensees and
distributors purchase goods from the Company and third-party manufacturers
and these purchases are generally supported by letters of credit. Each
licensee and distributor 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.
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 1994.
Raw Materials
The Company operates a pigskin tannery as a part of its Wolverine
Leather 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 majority of the shearling used extensively in the manufacture of
constructed slippers and related products by its Tru-Stitch Footwear
Division from a single domestic source, which has been a reliable and
consistent supplier. The Company currently purchases the vast majority of
the raw pigskins used in a significant portion of its pigskin footwear from
a single domestic source, which has also 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.
-3-
Trademarks, Licenses and Patents
The Company is the holder of many trademarks which identify its
products. The trademarks that are most widely used by the Company include
HUSH PUPPIES (registered trademark), WOLVERINE (registered trademark),
WILDERNESS (registered trademark), WOLVERINE WILDERNESS (registered
trademark), BATES (registered trademark), FLOATERS (trademark), DURASHOCKS
(registered trademark), BOUNCE & DESIGN (registered trademark), COMFORT
CURVE (registered trademark), TOWN & COUNTRY (trademark), TRU-STITCH
(registered trademark), WIMZEES (registered trademark), and SIOUX MOX
(registered trademark). The Company is also licensed to market footwear in
the United States, Japan and Canada under the COLEMAN (registered
trademark) trademark and throughout the world under the CATERPILLAR
(registered trademark) and CAT (registered trademark) trademarks.
Pigskin leather produced by the Company is sold under the trademarks
WOLVERINE (registered trademark), BREATHIN' BRUSHED PIGSKIN (registered
trademark), and SILKEE (registered trademark).
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.
Order Backlog
The Company does not have a significant backlog of non-cancelable
orders. On March 1, 1995, the Company had a backlog of orders believed to
be firm of approximately $79 million compared with a backlog of
approximately $69 million on March 1, 1994. 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 1995.
Competition
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.
-4-
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 five 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.
Manufacturing and Sourcing
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 importation 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 currently 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.
Discontinued Operations
During 1994, the Company announced its intent to discontinue its
leased shoe department business in the Lamonts Apparel chain. The current
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Lamonts Apparel leases are scheduled to expire in October 1995, and the
business will be phased out by year end. In connection with this phase
out, an estimated after-tax loss of $1,122,000 was recognized in 1994. The
loss represents the cost of inventory liquidation, write-off of leasehold
improvements and anticipated operating results during 1994 and the 1995
phase-out period. On January 6, 1995, Lamonts Apparel filed for protection
under Chapter 11 of the U.S. Bankruptcy Code. Lamonts Apparel has
indicated that it will continue with the lease arrangement with the Company
through October 1995, the end of the contract term, or find another operator for
the leased shoe department business.
Research and Development
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
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.
Environmental Matters
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 or other environmental regulatory issues.
The Company is one of 13 companies named as potentially
responsible parties ("PRPs") by the MDNR at the Sunrise Landfill Site near
Wayland, Michigan. The MDNR has demanded that the PRPs pay approximately $5
million as reimbursement for past costs at the site and join in financing
further investigation and remedial efforts. The MDNR estimates that cleanup and
remediation of the site could cost in excess of $10 million. The Sunrise PRPs
have jointly agreed with the MDNR to pay $323,000 in costs incurred by the MDNR
prior to July 1991, and have undertaken a comprehensive remedial
investigation/feasibility study at the site in order to determine whether less
expensive remedial measures will adequately protect public health and safety.
Excavation and removal of buried waste has been deferred pending the outcome of
this investigation, which is scheduled for completion in mid-1995. Preliminary
results suggest that it may be possible to leave the waste in place,
thereby significantly reducing the cost of remediation. In the meantime,
-6-
however, the PRPs are financing interim response measures aimed at
controlling the level of liquids in the landfill and preventing any further
environmental degradation. The PRPs have also undertaken a comprehensive
investigation in an effort to identify other responsible parties to share
in the response activity costs. The Company's share of the cost of these
activities is currently estimated at $75,000 to $125,000, of which
approximately $65,000 was paid during 1994. The Company's ultimate
liability at this site will depend largely upon what remedial measures
prove feasible and whether additional PRPs can be identified. To date, no
additional PRPs have been brought into the proceedings. The Company
appears to have been a relatively small generator at this site, and is
seeking to be classified as a de minimis PRP.
Employees
As of December 31, 1994, the Company had approximately 5,205
domestic and foreign production, office and sales employees. Approximately
1,292 employees were covered by seven union contracts expiring at various
dates through 1998. The Company has experienced no work stoppages since
1990. 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 14 separate facilities, totaling approximately 583,500 square feet of
manufacturing space. These facilities are located primarily in smaller
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
seven 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, 1995, consisted of
approximately 102 locations, including 32 leased shoe departments. As
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noted in Item 1 above, the Company intends to discontinue its leased shoe
department business by year end. 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
certain environmental compliance activities, including proceedings
involving cleanup issues associated with a waste disposal site, 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 proceedings will have a material adverse effect on the
Company's financial condition.
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.
Name Age Positions held with the Company
Geoffrey B. Bloom 53 President and Chief Executive Officer
Steven M. Duffy 42 Vice President
Stephen L. Gulis, Jr. 37 Vice President and Chief Financial Officer
Blake W. Krueger 41 General Counsel and Secretary
L. James Lovejoy 62 Vice President of Corporate
Communications
Thomas P. Mundt 45 Vice President of Strategic Planning and
Treasurer
Timothy J. O'Donovan 49 Executive Vice President
Robert J. Sedrowski 45 Vice President of Human Resources
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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.
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 LLP 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.
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.
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.
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 1994 and 1993. The 1993
transaction prices have been adjusted to reflect the three-for-two stock
split announced in March 1994. The number of holders of record of common
stock on March 1, 1995 was 2,033.
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1994 1993
High Low High Low
January-March $24 5/8 $19 3/8 $13 1/8 $ 9 1/8
April-June 24 3/8 18 1/2 14 11 1/8
July-September 27 1/8 20 3/4 19 3/8 11
October-December 26 3/4 20 1/4 22 3/8 18 5/8
Dividends Per Share Declared:
1994 1993
1st quarter $.04 $.0275
2nd quarter $.04 $.0275
3rd quarter $.04 $.0275
4th quarter $.04 $.0275
Cash dividends declared per share for 1993 have been retroactively
adjusted to reflect the three-for-two stock split announced in March 1994.
Dividends of $.05 per share were declared for the first quarter of fiscal
1995.
Item 6. Selected Financial Data.
Five Year Operating and Financial Summary (1)(2)
(Thousands of Dollars, Except Per Share Data)
1994 1993 1992 1991 1990
Summary of Operations
Net sales and other
operating income $378,473 $323,315 $282,863 $271,622 $284,274
Earnings (loss) from
continuing operations 18,050 11,754 4,699 4,563 (4,644)
Primary earnings (loss) from
continuing operations
per share of common stock(3)(4)$ 1.65 $ 1.12 $ 0.47 $ 0.46 $ (0.46)
Cash dividends(4)(5) 0.16 0.11 0.11 0.11 0.11
1994 1993 1992 1991 1990
Financial Position at Year End
Total assets $230,151 $205,633 $201,232 $201,488 $185,366
Long-term debt, less
current maturities 43,482 44,913 42,656 31,596 34,267
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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 results from operations exclude discontinued operations and are before the cumulative
effect of accounting changes. Balance sheet amounts for discontinued operations have been
separately identified within current assets. Refer to Note B 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 (loss) from continuing operations per share are based on the weighted average
number of shares of common stock outstanding during the year and the assumed exercise of
dilutive stock options.
4. On March 10, 1994, the Company announced a three-for-two stock split on shares of common stock
outstanding as of March 21, 1994. All share and per share data have been retroactively
adjusted for the increased shares resulting from the stock split.
5. Cash dividends per share represent the rates paid by the Company on the shares outstanding at
dates of declaration and have been retroactively adjusted to reflect the three-for-two stock
split announced in March 1994.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Operations
Results of Operations - 1994 Compared to 1993
Net sales from continuing operations for 1994 of $378.5 million
compare with $323.3 million for 1993, a 17.1% increase. This increase was
primarily the result of record sales in the Wolverine Footwear Group and
the Tru-Stitch businesses. Additionally, strong sales increases occurred
in the Hush Puppies Company and the Wolverine Leather operations.
The Wolverine Footwear Group's record sales were fueled by a 31.9%
increase in the domestic and international work and sport boot divisions.
This increase was offset by a 6.1% decrease in the Bates Uniform division.
The work and sport boot gains continue to reflect superior product
characteristics and the continued trend toward utilizing these products for
everyday use. The reduced shipments in the Bates division reflect the
continued downsizing of the U.S. military and reduced demand in export
markets.
The Tru-Stitch Footwear Division reached record sales by recording a
23.9% increase over record 1993 levels. The increase resulted from further
increases in catalog accounts and a full year of operations of the B & B
Shoe Company, which was acquired in 1993.
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The Hush Puppies Company recorded a 11.1% increase in volume for the
year with all operating groups reporting an increase. The brand
repositioning which began in 1993 continues to have a positive impact on
the domestic wholesale business and is also contributing to gains in the
international and retail operations. Despite the closing of thirty stores
during the year, the retail operations reported a 4.6% sales increase.
The Global Operations Group recorded a sales increase in its Leather
operation while its contract sales remained flat. The Leather operation
recorded a revenue increase of 23.2% which reflects the opportunities
created from increased pricing pressure on cowhide prices. This increase
was obtained despite the actions taken to reduce its product offerings and
to focus on high margin products.
Gross margins increased to 31.6% in 1994 compared to 29.8% in 1993.
Pricing pressures continue on both the wholesale and retail level and cost
increases on raw materials occurred throughout the Company during the year.
Despite these pressures, the Company was able to improve its margins by
increasing manufacturing efficiencies, providing improved sourcing to the
wholesale groups and capitalizing on increased production levels which
provides incremental absorption of overhead costs. These benefits are
expected to continue and should provide the Company with the ability to
maintain its value pricing position.
Selling and administrative expenses increased $13.8 million in 1994
and as a percentage of net sales rose to 23.9% in 1994. This increase was
a result of increased investment spending in our core brands as advertising
and marketing expenses of the Hush Puppies Company and Wolverine Footwear
Group increased 40.3% on a combined basis. Additionally, normal cost
increases occurred in conjunction with the growth of the Company and
employee profit-sharing costs increased as the overall profitability of the
corporation improved.
Interest expense of $4.0 million was down in 1994 from the $4.7
million reported in 1993. The reduction resulted from reduced average
borrowings during the year and a more favorable interest rate on our long-
term borrowings which resulted from the issuance of replacement senior
debt.
The 1994 effective tax rate on continuing operations of 29.0%
increased from 28.0% in 1993. The reduction from the federal statutory
rates of 35% was principally a result of non-taxable earnings of the
Company's Caribbean operations.
Earnings from continuing operations of $18.1 million ($1.65 per share)
for 1994 reflect a 53.6% increase over earnings of $11.8 million ($1.12 per
share) reported for 1993. In 1994, the Company recorded a loss from
discontinued operations of $1.5 million ($.13 per share), net of income
taxes, to reflect the costs associated with the exiting of its leased shoe
department business.
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Primary earnings per share of $1.52 for 1994 compare to $1.10 per
share for 1993. Fully diluted earnings per share of $1.50 and $1.07 were
reported for 1994 and 1993 respectively.
Results of Operations - 1993 Compared to 1992
Net sales for fiscal 1993 were $323.3 million compared to $282.9
million for fiscal 1992. This 14.3% increase was driven by record sales in
the Wolverine Footwear Group 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
Leather Division sales.
Domestically, the Wolverine Footwear Group posted a sales increase of
31.5% which was the second year in which the sales gain exceeded 30%. The
continued success of Wolverine DURASHOCKS (registered trademark) boots and
the introduction of WOLVERINE WILDERNESS (registered trademark) 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 Division
of the Wolverine Footwear Group. While the U.S. military continued to
downsize, the comfort characteristics of BATES (registered trademark)
footwear continues to gain acceptance and the durability of the product
made 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 had a positive impact. Retail and consumer
acceptance for the product was apparent as the division's reorder business
for the year was strong.
The Wolverine Leather Division began resizing during the third
quarter of 1993. The primary focus was 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 29.8% from
30.0% in 1992. The emphasis of value priced product in the market place
continues to place pressures on wholesale and retail price points. The
Company maximized its pricing positions when superior products were
available, such as WOLVERINE (registered trademark) DURASHOCKS (registered
trademark) and TRU-STITCH (registered trademark) slippers, but was very
cautious in raising prices in a competitive market in order to increase
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gross margin levels. A significant benefit, which improved the Company's
gross margin levels, was the manufacturing efficiencies realized in the
domestic facilities. This, combined with the Company's low cost import
operations, provided the Company with product which was priced
attractively.
Selling and administrative expenses for 1993 were 23.7% of net sales
compared to 25.6% of net sales in 1992. While the expenses were reduced as
a percentage of net sales, the expenses increased $4.1 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 $4.7 million for 1993 reflects a $1.4 million
increase over 1992. However, 1992 interest expense did not include
interest expense of $2.6 million associated with discontinued operations.
Overall, interest expense was reduced by $1.1 million as a result of the
reduction in debt levels.
Other expenses in 1992 included a 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 on continuing operations of 28.0% compared
to 28.8% in 1992. The reduction from the statutory federal rate of 35% was
principally a result of non-taxable earnings of our Puerto Rican
subsidiaries and foreign affiliates.
Earnings from continuing operations of $11.8 million for 1993 reflect
a 151% increase over 1992 earnings of $4.7 million.
The Company incurred costs associated with the operating losses of the
Brooks Athletic Footwear Division and Lamonts leased shoe department
business in 1993 and 1992. The losses associated with the disposal of
these operations totaled $0.3 million in 1993 and $14.9 million in 1992.
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 in 1992.
Net earnings of $11.5 million ($1.10 per share) for 1993 compares to a
loss of $10.9 million ($1.10 per share) for 1992. The change reflected the
significant progress made in the core business units of the Company and the
improvements resulting from the divestiture of the Brooks athletic
business.
Liquidity and Capital Resources
Net cash provided by operating activities before working capital items
was $24.0 million in 1994 compared to $19.2 million in 1993. Of these
amounts, $11.6 million in 1994 and $13.6 million in 1993 were used to fund
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increases in working capital. The most significant changes in working
capital were increases in accounts receivables and inventories which were
the result of higher sales volumes and anticipated demand for product.
Cash of $0.7 million in 1994 and $12.7 million in 1993 was provided from
the discontinuance of the Lamonts and Brooks businesses.
Additions to property, plant and equipment of $9.9 million in 1994
were higher than the $6.6 million reported in 1993. The majority of these
expenditures were related to purchases of manufacturing equipment that were
necessary to continue to upgrade our manufacturing facilities.
Short-term debt was reduced by $0.5 million in 1994 and $14.4 million
in 1993. The significant reduction in 1993 was principally a reduction of
debt related to the discontinued operations of Brooks.
Long-term debt of $43.5 million at the end of 1994 remained relatively
flat compared to $44.9 million at the end of 1993. The Company issued a
$30.0 million 7.8% senior note and used the proceeds to extinguish previous
10.4% senior debt and reduced revolving credit obligations. Also, during
1994, holders of subordinated debt converted the underlying notes into
250,000 shares of the Company's common stock.
The Company paid dividends of $1.7 million, or $0.16 per share, which
reflects a 50% increase over 1993 dividends per share. Additionally,
shares issued under stock incentive plans provided cash of $2.5 million in
1994 compared to $2.2 million during 1993.
The Company has authorized a 25% increase in the dividend rate to
$0.05 per share for the first quarter of 1995.
The Company maintained its strong financial position as the current
ratio remained stable at 3.9 to 1. Additionally, the Company maintains
short-term borrowing and commercial letter-of-credit facilities of
$54.4 million of which $21.4 million was used at the end of 1994.
The combination of cash flows from operations and available credit
facilities will be sufficient to meet future capital needs.
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.
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.
-15-
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
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 "Section 16(a) Reporting
Delinquencies" in the definitive Proxy Statement of the Company dated March
27, 1995, 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 in Control Arrangements" and "Compensation
Committee Interlocks and Insider Participation" in the definitive Proxy
Statement of the Company dated March 27, 1995, 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 27, 1995, 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 captions "Compensation of Directors,"
"Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions" contained in the definitive Proxy
Statement of the Company dated March 27, 1995, is incorporated herein
by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-
K.
-16-
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 December 31, 1994 and
January 1, 1994.
- Consolidated Statements of Stockholders' Equity for the
Fiscal Years Ended December 31, 1994, January 1, 1994 and
January 2, 1993.
- Consolidated Statements of Operations for the Fiscal Years
Ended December 31, 1994, January 1, 1994 and January 2,
1993.
- Consolidated Statements of Cash Flows for Fiscal Years Ended
December 31, 1994, January 1, 1994 and January 2, 1993.
- Notes to Consolidated Financial Statements as of
December 31, 1994.
- Report of Independent Auditors.
Item 14(a)(2). Financial Statement Schedules. Attached as Appendix
B.
The following consolidated financial statement schedule of
Wolverine World Wide, Inc. and subsidiaries is filed as a part of this
report:
- Schedule II--Valuation and qualifying accounts of continuing
operations.
All other schedules (I, III, IV, and V) 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) Certificate of Incorporation, as amended. Previously filed
as Exhibit 4(a) to the Company's Quarterly Report on
Form 10-Q for the period ended June 18, 1994. Here
incorporated by reference.
3(b) Amended and Restated Bylaws. Previously filed as
Exhibit 3(b) to the Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994. Here incorporated by
reference.
-17-
Exhibit
Number
4(a) The Certificate of Incorporation, as amended. See
Exhibit 3(a) above.
4(b) Rights Agreement dated as of May 7, 1987, as amended and
restated as of October 24, 1990. Previously filed with
Amendment No. 1 to the Company's Form 8-A filed November 13,
1990. Here incorporated by reference. This agreement has
been amended by the Second Amendment to Rights Agreement
included as Exhibit 4(f) below.
4(c) Amended and Restated Credit Agreement dated as of
October 13, 1994 with NBD Bank, N.A. as Agent.
4(d) Note Agreement dated as of August 1, 1994 relating to 7.81%
Senior Notes. Previously filed as Exhibit 4(d) to the
Company's Quarterly Report on Form 10-Q for the period ended
September 10, 1994. Here incorporated by reference.
4(e) 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, 1995 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.
4(f) Second Amendment to Rights Agreement made as of October 28,
1994 (amending the Rights Agreement included as Exhibit 4(b)
above).
10(a) Stock Option Plan of 1979 and amendment.* Previously filed
as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1988. Here
incorporated by reference.
10(b) 1993 Stock Incentive Plan.* Previously filed as
Exhibit 10(b) to the Company's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994. Here
incorporated by reference.
10(c) 1988 Stock Option Plan.* Previously filed as an exhibit to
the Company's registration statement on Form S-8, filed July
21, 1988, Registration No. 33-23196. Here incorporated by
reference.
10(d) Amended and Restated Directors Stock Option Plan.*
Previously filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended January 1,
1994. Here incorporated by reference.
-18-
Exhibit
Number
10(e) Amended and Restated Agreement executed on May 26, 1994 and
dated as of July 24, 1992, between the Company and Thomas D.
Gleason.* Previously filed as Exhibit 10(e) to the
Company's Quarterly Report on Form 10-Q for the period ended
June 18, 1994. Here incorporated by reference.
10(f) Employment Agreement dated April 27, 1993, between the
Registrant and Geoffrey B. Bloom.* Previously filed as
Exhibit 10(f) to the Company's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994. Here
incorporated by reference.
10(g) Executive Short-Term Incentive Plan for 1994.* Previously
filed as Exhibit 10(g) to the Company's Annual Report on
Form 10-K for the fiscal year ended January 1, 1994. Here
incorporated by reference.
10(h) Management Short-Term Incentive Plan for 1994.* Previously
filed as Exhibit 10(h) to the Company's Annual Report on
Form 10-K for the fiscal year ended January 1, 1994. Here
incorporated by reference.
10(i) Stock Option Loan Program.* Previously filed as
Exhibit 10(h) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991. Here
incorporated by reference.
10(j) Deferred Compensation Agreements with Disability Benefits.*
The form of agreement was previously filed as Exhibit 10(i)
to the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993. Here incorporated by reference.
An updated participant schedule is attached as
Exhibit 10(j).
10(k) Deferred Compensation Agreements without Disability
Benefits.* The form of agreement was previously filed as
Exhibit 10(j) to the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993. Here
incorporated by reference. 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.* Previously filed as
Exhibit 10(l) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991. Here
incorporated by reference.
10(m) Executive Long-Term Incentive (Three Year) Plan for the
three year period 1993-1995.* Previously filed as
Exhibit 10(l) to the Company's Annual Report on Form 10-K
-19-
Exhibit
Number
for the fiscal year ended January 2, 1993. Here
incorporated by reference.
10(n) Executive Long-Term Incentive (Three Year) Plan for the
three year period 1994-1996.* Previously filed as
Exhibit 10(n) to the Company's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994. Here
incorporated by reference.
10(o) Termination of Employment and Change of Control Agreements.*
The form of agreement was previously filed as Exhibit 10(m)
to the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993. Here incorporated by reference.
An updated participant schedule is attached as
Exhibit 10(o).
10(p) Indemnification Agreements.* The form of agreement was
previously filed as Exhibit 10(n) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 2,
1993. Here incorporated by reference. An updated
participant schedule is attached as Exhibit 10(p).
10(q) Supplemental Retirement Benefits.* Previously filed as
Exhibit 10(l) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988. Here
incorporated by reference.
10(r) Benefit Trust Agreement dated May 19, 1987, and Amendments
Numbers 1, 2 and 3 thereto.* Previously filed as
Exhibit 10(p) to the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993. Here
incorporated by reference.
10(s) Supplemental Director's Fee Arrangement dated April 27,
1993, between the Company and Phillip D. Matthews.*
Previously filed as Exhibit 10(s) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 1,
1994. Here incorporated by reference.
10(t) Letter Agreement dated May 2, 1994, between the Company and
George A. Andrews.*
10(u) 1984 Executive Incentive Stock Purchase Plan and amendment.*
Previously filed as Exhibit 10(h) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 2,
1988. Here incorporated by reference.
10(v) Asset Purchase Agreement dated January 29, 1993, concerning
the sale of the Brooks Business. Previously filed as
Exhibit No. 2 to the Company's Current Report on Form 8-K
filed February 1, 1993. Here incorporated by reference.
-20-
Exhibit
Number
10(w) Agreements relating to the sale of the assets of the three
European Subsidiaries associated with the Brooks Business.
Previously filed as Exhibits 2(a), 2(b) and 2(c) to the
Company's Current Report on Form 8-K filed July 8, 1993.
Here incorporated by reference.
10(x) Deferred Compensation Agreement dated as of April 21, 1994,
between the Company and Charles F. Morgo.* Previously filed
as Exhibit 10(x) to the Company's Quarterly Report on
Form 10-Q for the period ended June 18, 1994. Here
incorporated by reference.
10(y) Employment Agreement dated April 21, 1994, between the
Company and Charles F. Morgo.* Previously filed as
Exhibit 10(y) to the Company's Quarterly Report on Form 10-Q
for the period ended June 18, 1994. Here incorporated by
reference.
10(z) Restricted Stock Agreement dated April 21, 1994, between the
Company and Charles F. Morgo.* Previously filed as
Exhibit 10(z) to the Company's Quarterly Report on Form 10-Q
for the period ended June 18, 1994. Here incorporated by
reference.
10(aa) 1994 Directors' Stock Option Plan.* Previously filed as
Exhibit 10(aa) to the Company's Quarterly Report on Form 10-
Q for the period ended June 18, 1994. Here incorporated by
reference.
11 Computation of Per Share Earnings.
21 Subsidiaries of Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney
27 Financial Data Schedule
*Management contract or compensatory plan or arrangement.
The Company will furnish a copy of any exhibit listed above to any
stockholder without charge upon written request to Mr. Blake W. Krueger,
General Counsel and Secretary, 9341 Courtland Drive, Rockford, Michigan
49351.
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 December 31, 1994.
-21-
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 29, 1995 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 29, 1995
Phillip D. Matthews Directors
/s/Geoffrey B. Bloom President, Chief Executive March 29, 1995
Geoffrey B. Bloom Officer and Director
*/s/Thomas D. Gleason Vice Chairman of the Board of March 29, 1995
Thomas D. Gleason Directors
*/s/Timothy J. O'Donovan Executive Vice President and March 29, 1995
Timothy J. O'Donovan Director
*/s/Stephen L. Gulis, Jr. Vice President and Chief March 29, 1995
Stephen L. Gulis, Jr. Financial Officer (Principal
Financial and Accounting
Officer)
*/s/Daniel T. Carroll Director March 29, 1995
Daniel T. Carroll
-22-
*/s/Alberto L. Grimoldi Director March 29, 1995
Alberto L. Grimoldi
*/s/David T. Kollat Director March 29, 1995
David T. Kollat
*/s/David P. Mehney Director March 29, 1995
David P. Mehney
*/s/Stuart J. Northrop Director March 29, 1995
Stuart J. Northrop
*/s/Joseph A. Parini Director March 29, 1995
Joseph A. Parini
*/s/Joan Parker Director March 29, 1995
Joan Parker
*/s/Elizabeth A. Sanders Director March 29, 1995
Elizabeth A. Sanders
*by/s/Geoffrey B. Bloom
Geoffrey B. Bloom
Attorney-in-Fact
-23-
APPENDIX A
Wolverine World Wide, Inc. and Subsidiaries
Consolidated Balance Sheets
As of Fiscal Year End
1994 1993
(Thousands of Dollars)
Assets
Current assets:
Cash and cash equivalents $ 2,949 $ 3,730
Accounts receivable, less allowances
(1994--$3,959; 1993--$3,411) 70,669 62,322
Inventories:
Finished products 48,637 36,118
Raw materials and work-in-process 30,388 31,387
79,025 67,505
Refundable income taxes 1,629 1,594
Deferred income taxes 8,843 8,716
Net current assets of discontinued operations 991 2,940
Other current assets 4,430 2,622
Total current assets 168,536 149,429
Property, plant and equipment:
Land 1,292 1,269
Buildings and improvements 30,638 28,241
Machinery and equipment 65,098 61,098
97,028 90,608
Less accumulated depreciation 61,680 58,985
35,348 31,623
Other assets 26,267 24,581
Total assets $230,151 $205,633
Wolverine World Wide, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
As of Fiscal Year End
1994 1993
(Thousands of Dollars)
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 1,432 $ 1,948
Accounts payable 18,257 12,575
Salaries, wages and other compensation 8,474 8,998
Other accrued expenses 14,553 9,970
Current maturities of long-term debt 304 4,732
Total current liabilities 43,020 38,223
Long-term debt, less current maturities 43,482 44,913
Other liabilities:
Unfunded retirement and other employee benefits 9,265 8,214
Deferred income taxes 1,860 1,533
11,125 9,747
Stockholders' equity:
Common stock, $1 par value:
Authorized 25,000,000 shares;
Issued, including treasury shares:
1994--11,314,673 shares; 1993--11,042,129 shares; 11,315 7,622
Additional paid-in capital 25,004 26,469
Retained earnings 101,873 86,986
Accumulated translation adjustments 332 398
Cost of shares in treasury (deduct):
1994--533,992 shares; 1993--781,778 shares; (6,000) (8,725)
Total stockholders' equity 132,524 112,750
Total liabilities and stockholders' equity $230,151 $205,633
See accompanying notes to consolidated financial statements.
-2-
Wolverine World Wide, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Fiscal Year
1994 1993 1992
(Thousands of Dollars)
Common Stock
Balance at beginning of the year $ 7,622 $ 7,467 $ 7,341
Common stock issued from exercise of stock options:
(1994--222,967 shares; 1993--232,625 shares;
1992--189,123 shares) 179 155 126
Three-for-two stock split 3,514
Balance at end of the year 11,315 7,622 7,467
Additional Paid In Capital
Balance at beginning of the year 26,469 24,438 23,333
Excess of proceeds from exercise of stock options,
including income tax benefits, over par value
of shares issued 2,351 2,031 1,105
Excess of cost of treasury shares over face value
of subordinated notes converted (302)
Three-for-two stock split (3,514)
Balance at end of the year 25,004 26,469 24,438
Retained Earnings
Balance at beginning of the year 86,986 76,580 88,584
Net earnings (loss) 16,598 11,492 (10,941)
Cash dividends (1994--$0.16 per share;
1993--$0.11 per share; 1992--$0.11 per share) (1,711) (1,086) (1,063)
Balance at end of the year 101,873 86,986 76,580
Accumulated Translation Adjustments
Balance at beginning of the year 398 351 (166)
Equity adjustments from foreign currency translation (66) 47 517
Balance at end of the year 332 398 351
Cost of Shares in Treasury
Balance at beginning of the year (8,725) (8,708) (8,707)
Issuance of 250,000 shares of common stock from
treasury upon conversion of subordinated notes 2,802
Common stock purchased for treasury (1994--2,214
shares; 1993--526 shares; 1992--50 shares) (77) (17) (1)
Balance at end of the year (6,000) (8,725) (8,708)
Total stockholders' equity at end of the year $132,524 $112,750 $100,128
( ) Denotes deduction.
See accompanying notes to consolidated financial statements.
-3-
Wolverine World Wide, Inc. and Subsidiaries
Consolidated Statements of Operations
Fiscal Year
1994 1993 1992
(Thousands of Dollars,)
Except Per Share Data)
Net sales and other operating income $378,473 $323,315 $282,863
Costs and expenses:
Cost of products sold 258,818 227,026 198,129
Selling and administrative expenses 90,297 76,543 72,447
Interest expense 3,981 4,745 3,305
Interest income (644) (859) (420)
Other expenses (income) - net 598 (469) 2,804
353,050 306,986 276,265
Earnings from continuing operations before
income taxes 25,423 16,329 6,598
Income taxes 7,373 4,575 1,899
Earnings from continuing operations 18,050 11,754 4,699
Loss from discontinued operations, net of income taxes:
Operating losses (330) (262) (5,555)
Loss on disposals (1,122) (9,335)
(1,452) (262) (14,890)
Cumulative effect of accounting changes:
Income taxes 800
Retirement benefits, net of income taxes (1,550)
(750)
Net earnings (loss) $ 16,598 $ 11,492 $(10,941)
Primary earnings (loss) per share:
Continuing operations $ 1.65 $ 1.12 $ .47
Discontinued operations (.13) (.02) (1.50)
Cumulative effect of accounting changes (.07)
Net earnings (loss) $ 1.52 $ 1.10 $ (1.10)
Fully diluted net earnings per share $ 1.50 $ 1.07
See accompanying notes to consolidated financial statements.
-4-
Wolverine World Wide, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Fiscal Year
1994 1993 1992
(Thousands of Dollars)
Operating Activities
Net earnings (loss) $ 16,598 $ 11,492 $(10,941)
Adjustments necessary to reconcile net earnings (loss)
to cash provided by (used in) operating activities:
Depreciation and amortization 5,664 5,182 5,176
Deferred income taxes 200 3,299 1,911
Pension income (731) (503) (576)
Loss from discontinued operations 1,452 262 14,890
Cumulative effect of accounting changes 750
Other 855 (575) (204)
Changes in operating assets and liabilities:
Accounts receivable (8,347) (10,998) 2,609
Inventories (11,520) (6,312) (2,711)
Other operating assets (404) 2,347 (1,815)
Accounts payable 5,682 (1,813) 217
Other operating liabilities 2,944 3,139 (10,431)
Net cash provided by (used in) operating activities 12,393 5,520 (1,125)
Investing Activities
Additions to property, plant and equipment (9,858) (6,605) (4,061)
Cash from (used in) discontinued operations 747 12,664 (11,773)
Other (930) 1,899 2,261
Net cash provided by (used in) investing activities (10,041) 7,958 (13,573)
Financing Activities
Proceeds from short-term borrowings 4,000 775 6,077
Payments of short-term debt (4,516) (15,204)
Proceeds from long-term borrowings 75,886 57,000 45,000
Payments of long-term debt (79,245) (55,777) (36,312)
Cash dividends paid (1,711) (1,086) (1,063)
Purchase of common stock for treasury (77) (17) (1)
Shares issued under stock incentive plans 2,530 2,186 1,231
Net cash provided by (used in) financing activities (3,133) (12,123) 14,932
Increase (decrease) in cash and cash equivalents (781) 1,355 234
Cash and cash equivalents at beginning of year 3,730 2,375 2,141
Cash and cash equivalents at end of year $ 2,949 $ 3,730 $ 2,375
Other cash flow information
Interest paid $ 4,361 $ 5,661 $ 6,723
Income taxes paid 4,219 957 2,495
( ) Denotes reduction in cash and cash equivalents.
See accompanying notes to consolidated financial statements.
-5-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994, January 1, 1994 and January 2, 1993
Note A--Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Wolverine
World Wide, Inc. and its majority owned subsidiaries (the Company). 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
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 periods ended December 31, 1994 and January 1, 1994, and the
53-week period ended January 2, 1993.
Revenue Recognition
Revenue is recognized on the sale of 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 three months or less when
purchased are considered cash equivalents for purposes of the consolidated
statements of cash flows.
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 C). 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.
-6-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note A--Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment (continued)
Depreciation of plant and equipment is computed using the straight-line
method over the estimated useful lives of the respective assets.
Income Taxes
The provision for income taxes is based on the earnings or loss reported in
the consolidated financial statements. A deferred income tax asset or
liability is determined by applying currently enacted tax laws and rates to
the cumulative temporary differences between the carrying value of assets
and liabilities for financial reporting and income tax purposes. Deferred
income tax expense or credit is measured by the change in the deferred
income tax asset or liability during the year.
Earnings Per Share
Primary earnings (loss) per share are computed based on the weighted
average shares of common stock outstanding during each period and, for 1994
and 1993, the assumed exercise of dilutive stock options. Stock options are
not included in the computation of primary earnings per share in 1992 since
they were not materially dilutive. Fully diluted earnings per share for
1994 and 1993 also include the effect of converting subordinated notes into
common stock. Fully diluted earnings per share and the weighted average
shares of common stock outstanding are not presented for 1992 since the
effect of exercising stock options and converting subordinated notes was
antidilutive.
Weighted average shares outstanding for purposes of calculating earnings
(loss) per share are as follows:
1994 1993 1992
Primary 10,905,371 10,477,824 9,941,154
Fully diluted 11,076,557 10,839,279
-7-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note A--Summary of Significant Accounting Policies (continued)
Financial Instruments
The Company's financial instruments, as defined by Statement of Financial
Accounting Standards (SFAS) 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 their carrying amounts at
December 31, 1994. The fair value of these financial instruments was
determined using discounted cash flow analysis and current interest rates
for similar instruments.
Reclassifications
Certain amounts reported in 1993 and 1992 have been reclassified to conform
with the presentation used in 1994.
Note B--Discontinued Operations
During the fourth quarter of 1994, the Company adopted a formal plan to
withdraw from its Lamonts leased shoe department business, which involves
management of shoe departments in department stores. The shoe department
leases expire in October 1995 and the Company expects to complete its exit
of this business by the end of 1995.
In connection with this exit plan, an estimated after-tax loss of
$1,122,000 was recognized in 1994. The loss represents the cost of
inventory liquidation, write-off of leasehold improvements and anticipated
operating results during the phase-out period.
At the end of the third quarter of 1992, the Company announced its intent
to dispose of its Brooks athletic footwear and sports apparel businesses.
The Brooks businesses 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 rights to the brand
name.
The Company recognized a loss of $9,335,000 after income taxes in 1992 to
provide for estimated losses on the disposal of the Brooks businesses,
including anticipated operating results to the expected dates of sale.
-8-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note B--Discontinued Operations (continued)
During 1993, the Company sold the Brooks businesses in separate
transactions in exchange for cash and notes totaling approximately
$24,000,000. Notes receivable of $7,170,000 were outstanding at December
31, 1994 and are collateralized by substantially all of the assets sold.
The noncurrent portion of the notes receivable, representing amounts due of
$4,325,000 in 1996 and $360,000 in 1997, is included in other assets.
Summarized operating results of the Lamonts and Brooks businesses are shown
as discontinued operations in the accompanying consolidated statements of
operations and are as follows:
1994 1993 1992
(Thousands of Dollars)
Net Sales $9,061 $9,828 $50,092
Losses before income taxes $ 500 $ 397 $ 6,831
Income tax credit (170) (135) (1,276)
Losses from operations $ 330 $ 262 $ 5,555
The operating results above include allocations of overhead and interest
expense. Overhead expense of $370,000 in 1993 and $556,000 in 1992 was
allocated based on a determination of costs not expected to be incurred by
continuing operations. Interest expense of $302,000 in 1994, $325,000 in
1993 and $2,600,000 in 1992 was allocated based on debt incurred to finance
the discontinued operations.
Note C--Inventories
Inventories of $60,198,000 at December 31, 1994 and $47,887,000 at
January 1, 1994 have been valued using the LIFO method. If the first-in,
first-out (FIFO) method had been used, the amounts would have been
$19,667,000 and $19,636,000 higher than reported at December 31, 1994 and
January 1, 1994, respectively.
-9-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note D--Notes Payable to Banks
Notes payable to banks consist of unsecured short-term borrowings of the
Company's Canadian subsidiary. The notes bear interest at the Canadian
prime rate (8% at December 31, 1994) plus 2%.
The Company also has short-term borrowing and commercial letter-of-credit
facilities that allow for borrowings of up to $54,400,000. Outstanding
letters of credit amounted to approximately $21,400,000 and $13,400,000 at
December 31, 1994 and January 1, 1994, respectively.
The weighted average interest rate associated with short-term borrowings
outstanding was 10% at December 31, 1994 and 7.5% at January 1, 1994.
Note E--Long-Term Debt
Long-term debt consists of the following obligations:
1994 1993
(Thousands of Dollars)
7.8% senior notes to insurance companies $30,000
10.4% senior notes to insurance companies $21,429
Revolving credit obligations 13,000 25,000
Subordinated convertible notes 2,500
Other 786 716
43,786 49,645
Less current maturities 304 4,732
$43,482 $44,913
The 7.8% senior notes to insurance companies were issued on August 15, 1994
and the previous 10.4% senior notes were extinguished. The new note
agreement requires equal annual principal payments of $4,285,000 on
August 15, 1998 through 2004. The prepayment penalty associated with the
early extinguishment of debt was not significant.
-10-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note E--Long-Term Debt (continued)
The revolving credit agreement, which expires on October 13, 1998, provides
for borrowings of up to $50,000,000, with interest payable at variable
rates based on both LIBOR and the prime rate (8.5% at December 31, 1994).
As of December 31, 1994, the available unused credit under the agreement
was $37,000,000. Maximum borrowings under the agreement were $40,000,000 in
1994 and $46,000,000 in 1993.
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 securing
additional debt and on sale and merger transactions. At December 31, 1994,
retained earnings of $21,311,000 are unrestricted under these covenants.
During 1994, the holders of the subordinated debt converted the notes into
250,000 shares of the Company's common stock, as allowed by the agreement.
Principal maturities of long-term debt during the four years subsequent to
1995 are as follows: 1996--$112,000; 1997--$113,000; 1998--$17,350,000;
1999--$4,350,000.
Note F--Leases
The Company leases machinery, transportation equipment and certain
warehouse and retail store space under operating lease agreements that
expire at various dates through 2002. At December 31, 1994, minimum rental
payments due under all noncancelable leases are as follows (thousands of
dollars):
1995 $ 3,609
1996 2,742
1997 2,227
1998 1,628
1999 644
Thereafter 724
Total minimum lease payments $11,574
-11-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note F--Leases (continued)
Rental expense under all operating leases is as follows:
1994 1993 1992
(Thousands of Dollars)
Minimum rentals $5,039 $5,210 $5,441
Contingent rentals 1,106 1,138 1,098
$6,145 $6,348 $6,539
Contingent rentals are based on retail store sales volume or equipment
usage.
Note G--Capital Stock
On March 10, 1994, the Company announced a three-for-two stock split on
shares of common stock outstanding as of March 21, 1994. All share and per
share data included in the consolidated financial statements have been
retroactively adjusted for the increased shares resulting from the stock
split.
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. Upon issuance, each
share of Series A junior participating preferred stock will have 100 votes
and a preferential quarterly dividend equal to the greater of $6 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 trade separately from common
stock and become exercisable only upon the occurrence of certain triggering
events. 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.
-12-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note G--Capital Stock (continued)
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 $0.01 each at any
time prior to fifteen days after a triggering event. Unless redeemed
earlier, all rights 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. Options are exercisable in equal annual installments
of 25% over three years beginning on the date the options are granted. All
unexercised options are available for future grants upon their
cancellation.
A summary of the transactions under the plans follows:
Shares Under
Options Option Price
Outstanding at December 28, 1991 790,503 $ 5.83 to $ 8.87
Granted in 1992 174,225 6.67 to 7.75
Exercised (162,442) 5.83 to 7.75
Canceled (93,862) 5.83 to 7.75
Outstanding at January 2, 1993 708,424 5.83 to 8.87
Granted in 1993 146,850 11.54 to 20.59
Exercised (202,235) 5.83 to 12.00
Canceled (1,238) 5.83 to 6.67
Outstanding at January 1, 1994 651,711 5.83 to 8.87
Granted in 1994 196,625 20.13 to 26.88
Exercised (179,792) 5.83 to 13.25
Canceled (4,536) 7.75 to 23.96
Outstanding at December 31, 1994 664,008 $ 5.83 to $26.88
Exercisable at December 31, 1994 429,888 $ 5.83 to $26.88
Available for future grants:
At December 31, 1994 351,710
At January 1, 1994 466,974
-13-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note G--Capital Stock (continued)
Certain of the stock incentive plans allow the Company to make stock awards
to officers and other key employees at nominal exercise prices as
consideration for future services. Common stock acquired under the plans 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. Shares
aggregating 43,175 in 1994, 30,300 in 1993 and 29,550 in 1992 were awarded
under the plans. There were no cancellations of stock awards in 1994 or
1993, and 2,913 shares were canceled in 1992. Additional shares awarded
will reduce the number of shares identified as available for future grants
in the above table.
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 any amounts deemed necessary to maintain the plans on a sound
actuarial basis.
The Company also has individual deferred compensation agreements with
certain key employees that entitle 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.
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.
The Company does not provide postretirement medical benefits.
The Company has a defined contribution money accumulation plan covering
substantially all employees that provides for Company contributions based
on earnings. In 1994, the Company combined this plan with its principal
defined benefit pension plan for funding purposes. Contributions to the
money accumulation plan were $935,000 in 1994, $760,000 in 1993 and $69,000
in 1992.
-14-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note H--Retirement Plans (continued)
The following summarizes the status of the Company's pension assets and
related obligations for its defined benefit pension plans:
September 30
1994 1993
(Thousands of Dollars)
Pension assets at fair value $73,793 $72,865
Actuarial present value of accumulated plan benefits:
Vested 37,082 36,223
Nonvested 2,044 1,969
39,126 38,192
Effect of estimated future increases in compensation 8,887 6,793
Projected benefit obligation for service rendered to date 48,013 44,985
Excess pension assets $25,780 $27,880
Components of excess pension assets:
Prepaid pension costs recognized in other assets $ 5,610 $ 4,879
Unrecognized amounts, net of amortization:
Transition assets 4,701 5,634
Prior service costs (2,375) (2,348)
Experience gains 17,844 19,715
$25,780 $27,880
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit
obligation were 8.5% and 5%, respectively, in 1994 and 7.5% and 4%,
respectively, in 1993. The effect of the assumption changes on the
projected benefit obligation was not significant.
Plan assets were invested in listed equity securities (58%), fixed income
funds (20%) and short-term and other investments (22%). Equity securities
include 300,300 shares of the Company's common stock, with a fair value of
$7,733,000 at September 30, 1994.
-15-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note H--Retirement Plans (continued)
The following is a summary of net pension income recognized by the Company:
1994 1993 1992
(Thousands of Dollars)
Service cost pertaining to benefits earned during
the year $(2,410) $ (1,398) $(1,258)
Interest cost on projected benefit obligation (3,292) (3,247) (3,052)
Actual net investment income 3,317 20,354 5,638
Net amortization and deferrals 3,116 (15,206) (752)
Net pension income $ 731 $ 503 $ 576
The expected long-term return on plan assets was 9% in 1994, 1993 and 1992.
The Company adopted the provisions of 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 agreements to be recognized over the period of employment to
the date when employees are fully eligible to receive future benefits. The
cumulative effect of adopting SFAS No. 106 was to decrease net earnings by
$1,550,000 ($0.16 per share) in 1992.
The Company's accumulated postretirement life insurance benefit obligation
is as follows:
1994 1993
(Thousands of Dollars)
Retirees $ 675 $ 731
Active plan participants 189 202
Accumulated postretirement benefit obligation 864 933
Unrecognized experience losses (44) (151)
Obligation recognized in other liabilities $ 820 $ 782
The discount rate used in determining the accumulated postretirement life
insurance benefit obligation was 8.5% in 1994 and 7.5% in 1993. The
Company's expense for postretirement life insurance benefits was $88,000 in
1994, $70,000 in 1993 and $50,000 in 1992.
-16-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note I--Income Taxes
Effective as of the beginning of 1992, the Company adopted SFAS No. 109,
Accounting for Income Taxes. The new standard requires that an asset and
liability approach be applied to accounting for income taxes and provides
revised criteria for the recognition of deferred income tax assets. The
cumulative prior year effect of adopting SFAS No. 109 was recorded in 1992
and decreased the net loss by $800,000 ($0.08 per share).
The provisions for income taxes pertaining to continuing operations consist
of the following:
1994 1993 1992
(Thousands of Dollars)
Currently payable (refundable):
Federal $ 3,828 $ (175) $(1,388)
State and foreign 2,750 1,451 1,376
Deferred 795 3,299 1,911
$ 7,373 $4,575 $ 1,899
A reconciliation of the Company's total income tax expense and the amount
computed by applying the statutory federal income tax rate of 35% (34% for
1992) to earnings from continuing operations before income taxes is as
follows:
1994 1993 1992
(Thousands of Dollars)
Income taxes at statutory rate $ 8,898 $ 5,715 $ 2,243
State income and foreign taxes, net of federal income
tax reduction 757 340 65
Nontaxable earnings of Puerto Rican subsidiary and
foreign affiliates (1,712) (1,202) (292)
Reduction of deferred income tax asset valuation
allowance (1,000)
Other 430 (278) (117)
$ 7,373 $ 4,575 $ 1,899
-17-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note I--Income Taxes (continued)
Deferred income taxes reflect the net income tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting and income tax purposes. Significant components of the
Company's deferred income tax assets and liabilities as of the end of 1994
and 1993 are as follows:
1994 1993
(Thousands of Dollars)
Deferred income tax assets:
Accounts receivable and inventory valuation allowances $ 4,398 $ 3,861
Deferred compensation accruals 2,425 2,841
Provision for losses on disposal of discontinued operations 1,004 454
Credit carryforwards 1,038
Other 4,530 5,765
12,357 13,959
Valuation allowance (deduct) (1,000)
Total deferred income tax assets 12,357 12,959
Deferred income tax liabilities:
Excess tax depreciation 2,349 2,773
Prepaid pension costs 1,915 1,766
Unremitted earnings of Puerto Rican subsidiary 973 705
Other 137 532
Total deferred income tax liabilities 5,374 5,776
Net deferred income tax assets $ 6,983 $ 7,183
The valuation allowance for deferred income tax assets was reduced in 1994
because of management s evaluation that such assets will be realized as a
result of the Company's ability to generate future taxable income.
The Company has provided for substantially all taxes that would be payable
if accumulated earnings of its Puerto Rican 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--Litigation
The Company is involved in various environmental claims and 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 K--Industry Information
The Company is principally engaged in the manufacture and sale of footwear,
including 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 sold to other domestic and foreign manufacturers
of shoes and other products. Royalty income is derived from licensing
the Company's trademarks to domestic and foreign licensees. 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 a
75%-owned Canadian subsidiary and factories located in the Dominican
Republic and Mexico that produce shoe uppers for domestic operations.
Export sales, foreign operations and related assets 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
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 L--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.
-19-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note L--Quarterly Results of Operations (unaudited) (continued)
The following tabulation presents the Company's unaudited quarterly results
of operations for 1994 and 1993. Certain reclassifications have been made
to the amounts originally reported in the Company's quarterly reports on
Form 10-Q to segregate the results of discontinued operations.
1994
First Second Third Fourth
Quarter Quarter Quarter Quarter
(Thousands of Dollars, Except Per Share Data)
Net sales and other operating
income $66,766 $79,319 $91,910 $140,478
Gross margin 21,107 24,421 26,905 47,222
Earnings from continuing operations 1,391 2,463 3,757 10,439
Loss from discontinued operations (100) (79) (70) (1,203)
Net earnings $ 1,291 $ 2,384 $ 3,687 $ 9,236
Net earnings (loss) per share:
Primary:
Continuing operations $ .13 $ .23 $ .34 $ .95
Discontinued operations (.01) (.01) (.11)
$ .12 $ .22 $ .34 $ .84
Fully diluted $ .12 $ .22 $ .33 $ .83
-20-
Wolverine World Wide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note L--Quarterly Results of Operations (unaudited) (continued)
1993
First Second Third Fourth
Quarter Quarter Quarter Quarter
(Thousands of Dollars, Except Per Share Data)
Net sales and other operating
income $ 64,099 $ 63,585 $ 78,820 $116,811
Gross margin 18,528 19,076 21,516 37,169
Earnings from continuing operations 825 1,119 2,092 7,718
Loss from discontinued operations (125) (35) (44) (58)
Net earnings $ 700 $ 1,084 $ 2,048 $ 7,660
Net earnings (loss) per share:
Primary:
Continuing operations $ .08 $ .11 $ .20 $ .73
Discontinued operations (.01) (.01)
$ .07 $ .11 $ .20 $ .72
Fully diluted $ .07 $ .11 $ .19 $ .70
Adjustments recorded in the fourth quarter of 1994 and 1993 relating
principally to inventories increased earnings from continuing operations by
$615,000 ($0.06 per share) in 1994 and $1,910,000 ($0.18 per share) in
1993.
-21-
Report of Independent Auditors
Board of Directors
Wolverine World Wide, Inc.
We have audited the accompanying consolidated balance sheets of Wolverine
World Wide, Inc. and subsidiaries as of December 31, 1994 and January 1,
1994, and the related consolidated statements of stockholders' equity,
operations and cash flows for each of the three fiscal years in the period
ended December 31, 1994. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with 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 December 31,
1994 and January 1, 1994, and the consolidated results of their operations
and their cash flows for each of the three fiscal years in the period ended
December 31, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 16, 1995
APPENDIX B
Schedule II -- Valuation and Qualifying Accounts of Continuing Operations
Wolverine World Wide, Inc. and Subsidiaries
Column A Column B Column C Column D Column E
Additions
(1) (2)
Charged Charged
Balance at to Costs to Other Balance
Beginning of and Accounts- Deductions- at End of
Description Period Expenses Describe Describe Period
Fiscal year ended
December 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $3,141,000 $1,722,000 $1,353,000(A) $3,510,000
Allowance for cash discounts 270,000 1,236,000 1,057,000(B) 449,000
$3,411,000 $2,958,000 $2,410,000 $3,959,000
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
(A) Accounts charged off, net of recoveries.
(B) Discounts given to customers.
Commission File No. 1-6024
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM 10-K
For the Fiscal Year
December 31, 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. Previously filed as
Exhibit 3(b) to the Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994. Here incorporated by
reference.
4(a) The Certificate of Incorporation, as amended. See
Exhibit 3(a) above.
4(b) Rights Agreement dated as of May 7, 1987, as amended and
restated as of October 24, 1990. Previously filed with
Amendment No. 1 to the Company's Form 8-A filed November 13,
1990. Here incorporated by reference. This agreement has
been amended by the Second Amendment to Rights Agreement
included as Exhibit 4(f) below.
4(c) Amended and Restated Credit Agreement dated as of
October 13, 1994 with NBD Bank, N.A. as Agent.
4(d) Note Agreement dated as of August 1, 1994 relating to 7.81%
Senior Notes. Previously filed as Exhibit 4(d) to the
Company's Quarterly Report on Form 10-Q for the period ended
September 10, 1994. Here incorporated by reference.
4(e) 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, 1995 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.
4(f) Second Amendment to Rights Agreement made as of October 28,
1994 (amending the Rights Agreement included as Exhibit 4(b)
above).
10(a) Stock Option Plan of 1979 and amendment.* Previously filed
as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1988. Here
incorporated by reference.
10(b) 1993 Stock Incentive Plan.* Previously filed as
Exhibit 10(b) to the Company's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994. Here
incorporated by reference.
Exhibit
Number
10(c) 1988 Stock Option Plan.* Previously filed as an exhibit to
the Company's registration statement on Form S-8, filed July
21, 1988, Registration No. 33-23196. Here incorporated by
reference.
10(d) Amended and Restated Directors Stock Option Plan.*
Previously filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended January 1,
1994. Here incorporated by reference.
10(e) Amended and Restated Agreement executed on May 26, 1994 and
dated as of July 24, 1992, between the Company and Thomas D.
Gleason.* Previously filed as Exhibit 10(e) to the
Company's Quarterly Report on Form 10-Q for the period ended
June 18, 1994. Here incorporated by reference.
10(f) Employment Agreement dated April 27, 1993, between the
Registrant and Geoffrey B. Bloom.* Previously filed as
Exhibit 10(f) to the Company's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994. Here
incorporated by reference.
10(g) Executive Short-Term Incentive Plan for 1994.* Previously
filed as Exhibit 10(g) to the Company's Annual Report on
Form 10-K for the fiscal year ended January 1, 1994. Here
incorporated by reference.
10(h) Management Short-Term Incentive Plan for 1994.* Previously
filed as Exhibit 10(h) to the Company's Annual Report on
Form 10-K for the fiscal year ended January 1, 1994. Here
incorporated by reference.
10(i) Stock Option Loan Program.* Previously filed as
Exhibit 10(h) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991. Here
incorporated by reference.
10(j) Deferred Compensation Agreements with Disability Benefits.*
The form of agreement was previously filed as Exhibit 10(i)
to the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993. Here incorporated by reference.
An updated participant schedule is attached as
Exhibit 10(j).
10(k) Deferred Compensation Agreements without Disability
Benefits.* The form of agreement was previously filed as
Exhibit (j) to the Company's Annual Report on Form 10-K for
the fiscal year ended January 2, 1993. Here incorporated by
reference. An updated participant schedule is attached as
Exhibit 10(k).
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Exhibit
Number
10(l) Executive Long-Term Incentive (Three Year) Plans for the
years 1991 to 1993 and 1992 to 1994.* Previously filed as
Exhibit 10(l) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991. Here
incorporated by reference.
10(m) Executive Long-Term Incentive (Three Year) Plan for the
three year period 1993-1995.* Previously filed as
Exhibit 10(l) to the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993. Here
incorporated by reference.
10(n) Executive Long-Term Incentive (Three Year) Plan for the
three year period 1994-1996.* Previously filed as
Exhibit 10(n) to the Company's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994. Here
incorporated by reference.
10(o) Termination of Employment and Change of Control Agreements.*
The form of agreement was previously filed as Exhibit 10(m)
to the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993. Here incorporated by reference.
An updated participant schedule is attached as
Exhibit 10(o).
10(p) Indemnification Agreements.* The form of agreement was
previously filed as Exhibit 10(n) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 2,
1993. Here incorporated by reference. An updated
participant schedule is attached as Exhibit 10(p).
10(q) Supplemental Retirement Benefits.* Previously filed as
Exhibit 10(l) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988. Here
incorporated by reference.
10(r) Benefit Trust Agreement dated May 19, 1987, and Amendments
Numbers 1, 2 and 3 thereto.* Previously filed as
Exhibit 10(p) to the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993. Here
incorporated by reference.
10(s) Supplemental Director's Fee Arrangement dated April 27,
1993, between the Company and Phillip D. Matthews.*
Previously filed as Exhibit 10(s) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 1,
1994. Here incorporated by reference.
10(t) Letter Agreement dated May 2, 1994, between the Company and
George A. Andrews*
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Exhibit
Number
10(u) 1984 Executive Incentive Stock Purchase Plan and amendment.*
Previously filed as Exhibit (h) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 2,
1988. Here incorporated by reference.
10(v) Asset Purchase Agreement dated January 29, 1993, concerning
the sale of the Brooks Business. Previously filed as
Exhibit No. 2 to the Company's Current Report on Form 8-K
filed February 1, 1993. Here incorporated by reference.
10(w) Agreements relating to the sale of the assets of the three
European Subsidiaries associated with the Brooks Business.
Previously filed as Exhibits 2(a), 2(b) and 2(c) to the
Company's Current Report on Form 8-K filed July 8, 1993.
Here incorporated by reference.
10(x) Deferred Compensation Agreement dated as of April 21, 1994,
between the Company and Charles F. Morgo.* Previously filed
as Exhibit 10(x) to the Company's Quarterly Report on
Form 10-Q for the period ended June 18, 1994. Here
incorporated by reference.
10(y) Employment Agreement dated April 21, 1994, between the
Company and Charles F. Morgo.* Previously filed as
Exhibit 10(y) to the Company's Quarterly Report on Form 10-Q
for the period ended June 18, 1994. Here incorporated by
reference.
10(z) Restricted Stock Agreement dated April 21, 1994, between the
Company and Charles F. Morgo.* Previously filed as
Exhibit 10(z) to the Company's Quarterly Report on Form 10-Q
for the period ended June 18, 1994. Here incorporated by
reference.
10(aa) 1994 Directors' Stock Option Plan.* Previously filed as
Exhibit 10(aa) to the Company's Quarterly Report on Form 10-
Q for the period ended June 18, 1994. Here incorporated by
reference.
11 Computation of Per Share Earnings.
21 Subsidiaries of Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney
27 Financial Data Schedule
___________________________
*Management contract or compensatory plan or arrangement.
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