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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1996
[ ] 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 Securities
Exchange 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, 1997: 27,877,914.
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, 1997: $967,667,343.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the registrant's annual
stockholders' meeting to be held April 16, 1997, 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") is a leading designer,
manufacturer and marketer of a broad line of quality comfortable casual
shoes, rugged outdoor and work footwear, and constructed slippers and
moccasins. 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 footwear business
established in Grand Rapids, Michigan in 1883.
Consumers on six continents purchased approximately 33 million pairs
of Company branded footwear during fiscal 1996, making the Company a global
leader among U.S. shoe companies in the marketing of branded non-athletic
footwear. The Company's products generally feature contemporary styling
with patented technologies designed to provide maximum comfort. The
products are marketed throughout the world under widely recognized brand
names, including HUSH PUPPIES[REGISTERED], WOLVERINE[REGISTERED],
BATES[REGISTERED], CATERPILLAR[REGISTERED], COLEMAN[REGISTERED],
HY-TEST[REGISTERED] and TRU-STITCH[REGISTERED]. The Company believes that its
primary competitive strengths are its well recognized brand names, broad
range of comfortable footwear, patented comfort technologies, distribution
through numerous channels and diversified manufacturing and sourcing base.
The Company's footwear is sold under a variety of brand names designed
to appeal to most consumers of non-athletic footwear at numerous price
points. The Company's footwear products are organized under four operating
divisions: (i) The Hush Puppies Company, focusing on comfortable casual
shoes, (ii) the Wolverine Footwear Group, focusing on work, outdoor and
lifestyle boots and shoes, (iii) the CATERPILLAR[REGISTERED] Footwear
Group, focusing on the CATERPILLAR[REGISTERED] product line of work and
lifestyle products and (iv) the Wolverine Slipper Group, focusing on
slippers and moccasins under HUSH PUPPIES[REGISTERED] brand and other
private labels for third party retailers. The Company's Global Operations
Group is responsible for manufacturing and sourcing, including the operation
of the Company-owned pigskin tannery. The Company's footwear is distributed
domestically to approximately 35,000 department store, footwear chain,
catalog specialty retailer and mass merchant accounts, as well as 59
Company-owned retail stores. The Company's products are distributed
worldwide through approximately 150 licensees and distributors in over
90 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.
-1-
On March 22, 1996, the Company completed the acquisition of certain
assets of Hy-Test, Inc. ("Hy-Test") from The Florsheim Shoe Company. The
acquisition included various assets of the Hy-Test work, safety and
occupational footwear business. The Hy-Test business is operated as part
of the Wolverine Footwear Group. On August 24, 1996, the Company acquired
the rights to and certain assets of the HUSH PUPPIES[REGISTERED] wholesale
shoe business in the United Kingdom and Ireland from British Shoe
Corporation, a subsidiary of Sears Plc.
The Company, through its Wolverine Leathers Division, is one of the
premier tanners of quality pigskin leather for the shoe 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.
PRODUCTS.
The Company's products include casual, dress, work and uniform shoes,
and work, sport and uniform boots as well as constructed slippers and
moccasins. Footwear is offered by the Company under many recognizable
brand names including HUSH PUPPIES[REGISTERED], WOLVERINE[REGISTERED],
BATES[REGISTERED], CATERPILLAR[REGISTERED], COLEMAN[REGISTERED] and
HY-TEST[REGISTERED]. The Company also manufactures constructed slippers and
moccasins and markets them on a private label basis through its Wolverine
Slipper Group. Through its manufacturing facilities and third-party
contractors, the Company combines quality materials and skilled workmanship
from around the world to produce footwear according to its specifications.
THE HUSH PUPPIES COMPANY. The Company believes that HUSH
PUPPIES'[REGISTERED] 39-year heritage as a pioneer of comfortable casual
shoes positions the brand to capitalize on the global trend toward more
casual workplace and leisure attire. The diverse product line includes
numerous styles for both work and casual wear and utilizes comfort
features, such as the COMFORT CURVE[REGISTERED] sole and patented
BOUNCE[REGISTERED] technology. The product line features the popular HUSH
PUPPIES[REGISTERED] Classics line of colorful, fashionable, casual shoes.
HUSH PUPPIES[REGISTERED] shoes are sold to men, women and children in over
70 countries and are distributed through a multi-tiered network of
department stores, specialty retailers, national chains, catalogs and
Company-owned stores.
THE WOLVERINE FOOTWEAR GROUP. The Wolverine Footwear Group is one of
the world's largest work and outdoor footwear companies, encompassing
multiple brands designed with performance and comfort features to serve a
variety of work, outdoor and lifestyle functions. The
WOLVERINE[REGISTERED] brand, which has been in existence for 113 years, is
identified with performance and quality and markets work and outdoor
footwear in two categories: (i) work and industrial footwear; and (ii)
rugged outdoor and sport footwear. The Wolverine Footwear Group also
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includes the BATES[REGISTERED], COLEMAN[REGISTERED] and
HY-TEST[REGISTERED] product lines. The product lines feature patented
technologies and designs, such as the DURASHOCKS[REGISTERED] and
DURASHOCKS SR systems, and the use of quality materials and
components.
The Company believes the WOLVERINE[REGISTERED] brand has built its
reputation by making quality, durable and comfortable work boots and shoes.
The development of DURASHOCKS[REGISTERED] technology allowed the
WOLVERINE[REGISTERED] brand to introduce a broad line of work footwear with
a focus on comfort. The WOLVERINE[REGISTERED] Work product line features
work boots and shoes, including steel toe boots and shoes, targeting male
and female industrial and farm workers. This product line is distributed
through department stores and specialty and independent retailers.
The WOLVERINE[REGISTERED] rugged outdoor and sport product lines
incorporate DURASHOCKS[REGISTERED] and DURASHOCKS SR technology
and other comfort features to products designed for rugged outdoor use.
This broad product line includes all-terrain sport boots, walking shoes,
trail hikers, rugged casuals and outdoor sandals. The line targets active
lifestyles and is distributed through department stores and specialty and
independent retailers. The Company also produces boots that target
hunters, fishermen and other active outdoor users. Warmth, waterproofing
and comfort are achieved through the use of GORTEX[REGISTERED],
THINSULATE[REGISTERED] and the Company's DURASHOCKS[REGISTERED] brand
technologies. This line is sold through specialty retail and catalog
distribution channels that serve hunting and fishing enthusiasts.
BATES. The Company's Bates Division is an industry leader in
supplying footwear to military and civilian uniform users. The Bates
Division utilizes DURASHOCKS[REGISTERED] and DURASHOCKS SR
and other proprietary comfort technologies in the design of its
military-style boots and oxfords. Civilian uniform uses, including the
ENFORCER footwear line, include police, security, postal,
restaurant and other industrial occupations. Bates Division products
are also distributed through specialty retailers and catalogs.
COLEMAN. The Company has been granted the exclusive rights to
manufacture, market, distribute and sell certain outdoor footwear under the
COLEMAN[REGISTERED] brand in the United States, Japan and Canada.
COLEMAN[REGISTERED] brand footwear products include lightweight hiking
boots, rubber footgear and outdoor sandals, which are sold primarily at
value-oriented prices through mass merchants.
HY-TEST. The HY-TEST[REGISTERED] product line consists primarily of
high quality work boots and shoes. HY-TEST[REGISTERED] brand footwear is
sold to male and female industrial workers, primarily through a network of
independent SHOEMOBILE distributors.
-3-
THE CATERPILLAR[REGISTERED] FOOTWEAR GROUP. The
CATERPILLAR[REGISTERED] Footwear Group began operating as a separate
division of the Company in 1997. Previously, the CATERPILLAR[REGISTERED]
Footwear Group operated as part of the Wolverine Footwear Group. The
Company has been granted the exclusive worldwide rights to manufacture,
market and distribute certain footwear and related accessories under the
CATERPILLAR[REGISTERED], CAT DESIGN[REGISTERED] and other trademarks. The
Company believes the association with CATERPILLAR[REGISTERED] equipment
enhances the reputation of its boots for quality, ruggedness and
durability. The diversity of the product line and strong recognition of
the CATERPILLAR[REGISTERED] brand name allow the Company to distribute
products through a wide variety of channels, including mass merchants,
department stores and independent retailers. These products are primarily
targeted at work and industrial users.
THE WOLVERINE SLIPPER GROUP. Through the Wolverine Slipper Group, the
Company is one of the leading suppliers of constructed slippers in the
United States.
The styling of TRU-STITCH[REGISTERED] footwear reflects consumer
demand for the "rugged indoor" look by using natural leathers such as
moosehide, shearling and suede in constructed slipper and indoor and
outdoor moccasin designs. The Company designs and manufactures constructed
slippers and moccasins on a private label basis according to customer
specifications. Such products are manufactured for leading United States
retailers and catalogs, such as Nordstrom, J.C. Penney, L.L. Bean, Eddie
Bauer and Lands' End. In addition, in late 1996, the Wolverine Slipper
Group added branded HUSH PUPPIES[REGISTERED] Slippers to its traditional
line of private label slippers.
THE WOLVERINE LEATHERS DIVISION. The Company's Global Operations
Group includes the Wolverine Leathers Division, the largest domestic tanner
of pigskin, primarily for use in the footwear industry. WOLVERINE
LEATHERS[REGISTERED] brand products are manufactured in the Company's
pigskin tannery located in Rockford, Michigan. The Company believes these
leathers offer superior performance and cost advantages over cowhide
leathers. The Company's waterproof, stain resistant and washable leathers
are featured in all of the Company's domestic footwear lines and many
products offered by the Company's international licensees.
MARKETING.
The Company's overall marketing strategy is to develop brand-specific
plans and related promotional materials for the United States market which
foster a differentiated and globally consistent image for each of the
Company's core brands. Each brand group within the Company has its own
marketing personnel who develop the marketing strategy for products within
that group. Domestic marketing campaigns target both the Company's retail
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accounts and consumers, and strive to increase overall brand awareness for
the Company's products. The Company's advertisements typically emphasize
fashion and lifestyle aspects and the comfort and quality of its footwear,
in addition to durability, functionality and other performance aspects.
Components of the brand-specific plans include print, radio and television
advertising, in-store point of purchase displays, Shop-in-Shop design,
promotional materials, and sales and technical floor assistance.
The Company's brand groups provide its international licensees and
distributors with creative direction and materials to convey consistent
messages and brand images. Examples of assistance provided by the Company
to its licensees and distributors are (i) direction concerning the
categories of footwear to be promoted, (ii) photography and layouts, (iii)
broadcast advertising, including commercials and film footage, (iv) point
of purchase presentation specifications, blueprints and packaging, (v) sales
materials, and (vi) consulting concerning retail store layout and design.
The Company believes the strengths of its brand names provide a competitive
advantage. In support of this belief, the Company has significantly
increased its expenditures on marketing and promotion to support the
position of its products and enhance brand awareness.
DOMESTIC SALES AND DISTRIBUTION.
The Company uses a wide variety of distribution channels to distribute
its products. To meet the diverse needs of its broad customer base, the
Company uses four primary distribution strategies.
- Traditional wholesale distribution is used to service department
stores (such as J.C. Penney, Sears and Nordstrom), large footwear
chains (such as Famous Footwear and Chernin's), specialty
retailers, catalogs and independent retailers and military
outlets. A dedicated sales force and customer service team,
advertising and point of purchase support and in-stock inventories
are used to service these accounts.
- Volume direct programs provide branded and private label footwear
at competitive prices with limited marketing support. These
programs service major retail, mail order and government
customers.
- First cost agreements are primarily utilized to furnish brands
licensed by the Company to mass merchants (such as Wal-Mart) on a
royalty basis.
- A network of independent SHOEMOBILE distributors is
primarily used to distribute and sell HY-TEST[REGISTERED] brand
products. The Company may also distribute additional products
through this independent distributor network.
-5-
In addition to its wholesale activities, the Company operated 59
domestic retail shoe stores as of March 21, 1997, under two formats,
consisting of factory outlet stores and mall-based speciality stores. In
fiscal 1990, the Company implemented a strategic plan to focus the majority
of its resources on its wholesale businesses. As a result, the Company's
retail operations were significantly downsized and repositioned from 176
stores operating under seven formats in 1990 to the current store base.
The Company expects the scope of its retail operations to remain relatively
consistent in the foreseeable future. Most of the Company's 52 factory
outlet stores carry a large selection of first quality Company branded
footwear at a discount to conventional retail prices. The 7 regional
mall-based full service, full price HUSH PUPPIES[REGISTERED] Specialty
Stores feature a broad selection of men's and women's HUSH
PUPPIES[REGISTERED] brand footwear and are used by the Company to test new
styles and merchandizing strategies.
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 net sales and other operating income in fiscal 1996.
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 fluctuations 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.
GLOBAL LICENSING.
The Company derives royalty income from licensing the HUSH
PUPPIES[REGISTERED], WOLVERINE[REGISTERED] and other trademarks to domestic
and foreign licensees for use on footwear and related products. The
Company, as a licensee, sells footwear bearing the CATERPILLAR[REGISTERED]
and COLEMAN[REGISTERED] trademarks through foreign distributors. Licensing
and distributing enables the Company to develop international markets
without the capital commitment required to maintain inventories or fund
localized marketing programs. In fiscal 1996, the Company's foreign
licensees and distributors sold an estimated 16.0 million pairs of
footwear, an increase from approximately 14.3 million pairs sold in fiscal
1995.
The Company continues to develop a global network of licensees and
distributors to market its footwear brands. The Company assists in
designing products that are appropriate to each foreign market but are
consistent with the global brand position. The licensees and distributors
then either manufacture their own product or purchase goods from either the
Company or third-party manufacturers. Each licensee and distributor is
responsible for the marketing and distribution of the Company's products.
-6-
MANUFACTURING AND SOURCING.
Although approximately one half of the Company's product line is
purchased or sourced from third parties, the remainder is produced at
Company-owned facilities. The Company's footwear is manufactured in
several domestic and certain related foreign facilities located in
Michigan, Arkansas, Missouri, New York, the Caribbean Basin and Canada.
The Company has implemented a "twin plant" concept whereby a majority of
the labor intensive cutting and fitting construction of the "upper" is
performed at the Company's facilities in the Caribbean Basin, Mexico and
Canada and the technology intensive construction, or "bottoming," is
performed at the Company's domestic facilities.
The Company has retooled most of its factories since the beginning of
fiscal 1993, giving each facility the flexibility to produce a variety of
footwear, and has departed from the industry's historic practice of
dedicating a given facility for production of specific footwear products.
The traditional dedication of facilities at times caused internal conflicts
in manufacturing capacity and did not permit the Company to quickly respond
to changes in market preference and demand. The Company now produces
various products for both men and women in most of its domestic facilities,
providing greater flexibility for the Company to respond to both market and
customer-specific demand.
The Company sources certain footwear from a variety of foreign
manufacturing facilities in the Asia-Pacific region, Central and South
America and Europe. The Company maintains technical offices in the
Asia-Pacific region and in Europe to facilitate the sourcing and
importation of quality footwear. The Company has established guidelines
for each of its third-party manufacturers in order to monitor product
quality, labor practices, and financial viability.
The Company's domestic manufacturing operations allow the Company to
(i) reduce its lead time, enabling it to quickly respond to market demand
and reduce inventory risk, (ii) lower freight and shipping costs and (iii)
closely monitor product quality. The Company's foreign manufacturing
strategy allows the Company to (i) benefit from lower labor costs, (ii)
source the highest quality raw materials from around the world and (iii)
avoid additional capital expenditures necessary for factories and
equipment. The Company believes that its overall global manufacturing
strategy gives the Company maximum flexibility to properly balance the need
for timely shipments, high quality products and competitive pricing.
The Company owns and operates a pigskin tannery, which is one of the
premier tanners of quality leather for the footwear industry. The Company
and its licensees receive virtually all of their pigskin requirements from
the tannery. The Company believes the tannery provides a strategic
advantage for the Company by producing leather using proprietary technology
-7-
at prices below those available from other sources. The continued
operation of this tannery is important to the Company's competitive
position in the footwear industry.
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 global availability of shearling and
cowhide leather eliminates any reliance by the Company upon a sole
supplier. However, the Company currently purchases the vast majority of
the raw pigskins used in a significant portion of its tannery operations
from a single domestic source, which has been a reliable and consistent
supplier for over 30 years. The Company purchases all of its other raw
materials and component parts from a variety of sources, none of which is
believed by the Company to be a dominant supplier.
The Company is subject to the normal risks of doing business abroad
due to its international operations, including the risk of expropriation,
acts of war, political disturbances and similar events, and loss of most
favored nations trading status. With respect to international sourcing
activities, management believes that over a period of time, it could
arrange adequate alternative sources of supply for the products currently
obtained from its foreign suppliers. A sustained disruption of such
sources of supply could, particularly on a short-term basis, have an
adverse impact on the Company's operations.
TRADEMARKS, LICENSES AND PATENTS.
The Company holds a number of registered and common law trademarks
that identify its products. The trademarks that are most widely used by
the Company include HUSH PUPPIES[REGISTERED], WOLVERINE[REGISTERED],
BATES[REGISTERED], DURASHOCKS[REGISTERED], BOUNCE AND DESIGN[REGISTERED],
COMFORT CURVE[REGISTERED], TRU-STITCH[REGISTERED], SIOUX MOX[REGISTERED]
and HY-TEST[REGISTERED]. The Company is licensed to market certain
footwear under the COLEMAN[REGISTERED] trademark in the United States and
Canada and in Japan pursuant to agreements extending through December 31,
2000, and June 30, 1999, respectively. The Company is also licensed to
market certain footwear throughout the world under the
CATERPILLAR[REGISTERED] and CAT DESIGN[REGISTERED] trademarks pursuant to
an agreement that extends through December 31, 1999. Pigskin leather
produced by the Company is sold under the trademarks WOLVERINE
LEATHERS[REGISTERED], ALL SEASON WEATHER LEATHERS and SATIN
Suede.
The Company believes that its products are identified by consumers by
its trademarks and that its trademarks are valuable assets. The Company is
not aware of any infringing uses or any prior claims of ownership of its
trademarks that could materially affect its current business. It is the
policy of the Company to pursue registration of its primary marks whenever
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possible and to vigorously defend its trademarks against infringement or
other threats 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.
At March 21, 1997, the Company had a backlog of orders of approximately
$141 million compared with a backlog of approximately $102 million at
March 21, 1996. While orders in backlog are subject to cancellation by
customers, the Company has not experienced significant cancellation of
orders in the past and the Company expects that substantially all of the
orders will be shipped in fiscal 1997. The backlog at a particular time is
affected by a number of factors, including seasonality and the scheduling
of the manufacture and shipment of products. Accordingly, a comparison of
backlog from period to period is not necessarily meaningful and may not be
indicative of eventual actual shipments.
COMPETITION.
The Company's footwear lines are manufactured and marketed in a highly
competitive environment. The Company competes with numerous manufacturers
(domestic and foreign) and importers of footwear, some of which are larger
and have greater resources than the Company. The Company's major
competitors for its brands of footwear are located in the United States.
The Company has at least ten 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. 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 footwear industry in general is subject to changes in
consumer preferences. The Company strives 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 by the Company will be affected by
its continued ability to sell its products at competitive prices and to
meet shifts in consumer preference.
Because of the lack of reliable published statistics, the Company is
unable to state with certainty its position in the footwear industry. The
market share in the footwear industry is highly fragmented and no one
company has a dominant market position; however, the Company believes it is
one of the three largest domestic manufacturers of footwear.
-9-
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 has led to specific biomechanical
design concepts, such as BOUNCE[REGISTERED], DURASHOCKS[REGISTERED] and
HIDDEN TRACKS[REGISTERED] comfort technologies, that 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 provisions which have been
enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of 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
regulatory issues.
EMPLOYEES.
As of December 28, 1996, the Company had approximately 6,775
domestic and foreign production, office and sales employees. Approximately
1,750 employees were covered by nine 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 Company owned or leased the following offices and manufacturing
facilities as of December 28, 1996:
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OWNED
LOCATION TYPE OF FACILITY LEASED SQUARE FOOTAGE
Rockford, MI Administration/Sales Owned 123,300
Rockford, MI Admin/Sales Under Construction Owned 70,000
Jonesboro, AR Administration/Sales Leased 5,680
Malone, NY Administration/Sales Leased 11,718
New York, NY Administration/Sales Leased 3,811
Montecatine Terme, Italy Administration/Sales Leased 2,800
St. Laurent, Quebec, Canada Administration/Sales Leased 2,800
Taipei, Taiwan Administration/Sales Leased 2,800
Chungil, Taiwan Administration/Sales Leased 2,800
Leicechire, England, United Kingdom Administration/Sales Leased 13,250
TOTAL ADMINISTRATION/SALES 225,709
Rockford, MI Tannery Owned 160,000
Des Moines, IA Procurement Owned 6,200
Dyersburg, TN Procurement Leased 12,000
Durant, OK Procurement Leased 12,900
Dennison, KS Procurement Leased 1,855
TOTAL TANNERY AND PROCUREMENT 192,955
Jonesboro, AR Manufacturing Leased 79,197
Jonesboro, AR Manufacturing Owned 11,680
Walnut Ridge, AR Manufacturing Leased 41,174
Monette, AR Manufacturing Owned 18,030
Russellville, AR Manufacturing Leased 41,808
Rockford, MI Manufacturing Owned 20,833
Rockford, MI Manufacturing Owned 19,624
Rockford, MI Manufacturing Owned 7,790
Big Rapids, MI Manufacturing Owned 77,626
Kirksville, MO Manufacturing Owned 104,000
Malone, NY Manufacturing Owned 90,664
Malone, NY Manufacturing Owned 37,596
Malone, NY Manufacturing Owned 8,100
Malone, NY Manufacturing Owned 27,125
Bombay, NY Manufacturing Owned 58,980
Monterrey, MX Manufacturing Leased 60,000
Aquadilla, PR Manufacturing Leased 62,100
Sand Pedro, DR Manufacturing Leased 65,111
Santo Domingo, DR Manufacturing Leased 54,332
Alexandria, Ontario, Canada Manufacturing Owned 28,000
TOTAL MANUFACTURING 903,870
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Rockford, MI Warehouse Owned 304,278
Rockford, MI Warehouse Owned 93,140
Rockford, MI Warehouse Owned 75,000
Grand Rapids, MI Warehouse Leased 20,000
Cedar Springs, MI Warehouse Leased 32,900
Cedar Springs, MI Warehouse Leased 230,000
Big Rapids, MI Warehouse Owned 39,800
Sparks, NV Warehouse Leased 15,060
Malone, NY Warehouse Owned 115,211
Bombay, NY Warehouse Owned 26,000
Jonesboro, AR Warehouse Leased 13,600
St. Laurent, Quebec, Canada Warehouse Leased 33,000
TOTAL WAREHOUSE 999,879
The Company believes that its current facilities are suitable and
adequate to meet its anticipated needs for the next twelve months.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in litigation and various legal matters
arising in the normal course of business, including certain environmental
compliance activities. The Company has considered facts that have been
ascertained and opinions of counsel handling these matters, and does not
believe the ultimate resolution of such proceedings will have a material
adverse effect on the Company's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table lists the names and ages of the Executive Officers
of the Company as of the date of this Annual Report on Form 10-K, and the
positions presently held with the Company. The information provided below
the table lists the business experience of each such Executive Officer
during the past five years. All Executive Officers serve at the pleasure
of the Board of Directors of the Company, or if not appointed by the Board
of Directors, they serve at the pleasure of management.
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NAME AGE POSITIONS HELD WITH THE COMPANY
---- --- -------------------------------
Geoffrey B. Bloom 55 Chief Executive Officer and Chairman
of the Board
Steven M. Duffy 44 Executive Vice President
V. Dean Estes 47 Vice President and President of the
Wolverine Footwear Group
Stephen L. Gulis, Jr. 39 Executive Vice President, Chief Financial
Officer and Treasurer
Blake W. Krueger 43 Executive Vice President, General Counsel
and Secretary
Thomas P. Mundt 47 Vice President of Strategic Planning and
Corporate Communications
Timothy J. O'Donovan 51 President and Chief Operating Officer
Robert J. Sedrowski 47 Vice President of Human Resources
Geoffrey B. Bloom has served the Company as Chief Executive Officer
and Chairman of the Board since April 1996. From 1993 to 1996 he served
the Company as President and Chief Executive Officer. From 1987 to 1993 he
served the Company as President and Chief Operating Officer.
Steven M. Duffy has served the Company as an Executive Vice President
since April 1996 and is President of the Company's Global Operations Group.
From 1993 to 1996 he served the Company as a Vice President. From 1989 to
April 1993 he served the Company in various senior manufacturing positions.
V. Dean Estes has served the Company as a Vice President since 1995.
Mr. Estes is also President of the Wolverine Footwear Group. Since he
joined the Company in 1975, Mr. Estes has served in various positions
relating to the sales, marketing and product development functions of the
Company's work boot and shoe and related businesses.
Stephen L. Gulis, Jr., has served the Company as Executive Vice
President, Chief Financial Officer and Treasurer since April 1996. From
1994 to April 1996 he served the Company as Vice President and Chief
Financial Officer. From 1993 to 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 Executive Vice President,
General Counsel and Secretary since April 1996. From 1993 to April 1996 he
served the Company as General Counsel and Secretary. From 1985 to 1996 he
was a partner of the law firm of Warner Norcross & Judd LLP.
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Thomas P. Mundt has served the Company as Vice President of Strategic
Planning and Corporate Communications since April 1996. From December 1993
to April 1996, he served the Company as Vice President of Strategic
Planning and Treasurer. 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 President and Chief
Operating Officer since April 1996. From 1982 to April 1996 he served the
Company as Executive Vice President.
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 under the symbol "WWW." The following table
shows the high and low sales prices by calendar quarter for 1996 and 1995
as reported on the New York Stock Exchange. The prices shown below have
been retroactively adjusted to reflect the three-for-two stock splits
announced in July 1996 and April 1995. The number of stockholders of
record of common stock on March 1, 1997 was 1,949.
1996 1995
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
1st quarter $20 1/8 $16 3/4 $12 3/4 $10 1/4
2nd quarter 22 5/8 19 5/8 16 1/8 2 1/2
3rd quarter 26 1/8 22 3/8 18 3/4 13 1/8
4th quarter 29 25 5/8 22 3/4 17
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CASH DIVIDENDS DECLARED PER SHARE:
1996 1995
---- ----
1st quarter $.0233 $ .022
2nd quarter $.0267 $ .023
3rd quarter $.0267 $ .023
4th quarter $.0267 $ .023
Cash dividends declared per share for 1996 and 1995 have been
retroactively adjusted to reflect the three-for-two stock splits announced
in July 1996 and April 1995. Dividends of $.0267 and $.0325 per share were
declared for the first quarter and second quarter, respectively, of fiscal
1997.
ITEM 6. SELECTED FINANCIAL DATA.
FIVE-YEAR OPERATING AND FINANCIAL SUMMARY
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
SUMMARY OF OPERATIONS
Net sales and other
operating income $511,029 $413,957 $387,534 $333,143 $293,136
Earnings from
continuing operations 32,856 24,067 16,598 11,492 4,620
Per share of common stock:
Primary earnings from con-
tinuing operations $ 1.15 $ .94 $ .67 $ .49 $ .21
Cash dividends .10 .09 .07 .05 .05
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
FINANCIAL POSITION AT YEAR END
Total assets $361,598 $283,554 $231,582 $205,112 $204,081
Long-term debt, less
current maturities 41,233 30,594 43,482 44,913 42,656
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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 1992 results from operations exclude discontinued operations and
are before the cumulative effect of accounting changes.
3. Primary earnings 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, April 19, 1995 and July 11, 1996, the Company
announced three-for-two stock splits on shares of common stock
outstanding on March 21, 1994, May 1, 1995 and July 26, 1996,
respectively. All share and per share data has been retroactively
adjusted for the increased shares resulting from these stock splits.
5. Cash dividends per share represent the rates paid by the Company on
the shares outstanding at the dates of declaration.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OPERATIONS.
RESULTS OF OPERATIONS 1996--COMPARED TO 1995
Net sales and other operating income increased 23.4% to $511.0 million
during 1996 from $414.0 million in 1995. The Wolverine Footwear Group
continued its strong performance, accounting for $37.9 million (9.2%) of
the increase in consolidated net sales as sales for its products increased
by 21.3% over 1995. The Hush Puppies Wholesale Division reported a $19.2
million increase in net sales over 1995, reflecting the popularity of the
HUSH PUPPIES[REGISTERED] Classics product line. The Wolverine Leathers
Division experienced sales increases showing a $3.5 million improvement
over 1995 due in large part to the sale of leather to the Hush Puppies
Wholesale Division and Wolverine Footwear Group. Sales to the United
States Department of Defense increased by $13.5 million in 1996. Sales of
the Wolverine Slipper Group declined $4.6 million in 1996 when compared to
1995. Sales for the Hush Puppies Retail Division remained flat for 1996.
The Wolverine Footwear Group reported a $37.9 million (21.3%) net
sales improvement over 1995, its fifth consecutive year of over 20%
increases. CATERPILLAR[REGISTERED] brand was successful with a spring
product launch into casuals boasting a 64.2% revenue increase in the
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domestic and international markets. HY-TEST[REGISTERED] Boots and Shoes
proved to be a strong addition to the group adding $24.6 million to net
sales in 1996 since the date of acquisition. BATES[REGISTERED] footwear
sales improved 11.0% as the civilian market continued to grow and military
shipments increased. WOLVERINE[REGISTERED] brand shipments slipped 4.7%
due to reduced demand during the first half of 1996 as the work boot market
was oversaturated with product.
The Hush Puppies Wholesale Division increased sales 18.9% over the
1995 levels. Strong second half shipments of the HUSH PUPPIES[REGISTERED]
Classics product line helped contribute to the increase. Net sales and
other operating income for the Hush Puppies International Division
increased $.4 million (4.0%) in 1996 over 1995 levels, reflecting the
growth of established programs throughout the world. Additionally, Hush
Puppies Retail Division same-store sales were up $.4 million (2.1%). Hush
Puppies (U.K.) Ltd. reported $27.3 million in net sales since its
acquisition in the third quarter of 1996.
Net sales for the Wolverine Slipper Group were $4.6 million (10.0%)
below the levels posted in 1995, reflecting strong competitive pressures
and decreases in catalogue house orders. Reduced orders for traditional
private label products were offset by the new HUSH PUPPIES[REGISTERED]
branded slipper business which resulted in shipments of approximately $4.0
million in its first year.
The Wolverine Leathers Division recorded a significant revenue
improvement of $3.5 million (15.6%) in 1996. This performance represented
the third consecutive year of revenue increases for the division and its
most successful year in nearly a decade. This growth was due in part to
increased demand for premium satin sueded products which was partially
offset by a reduction in procurement revenues totaling $1.3 million.
Gross margin increased $32.2 million in 1996 to $155.8 million as
compared to $123.5 million in 1995 and as a percentage of net sales and
other operating income increased to 30.5% in 1996 from 29.8% in 1995.
Improved margins were recorded in both the Hush Puppies Wholesale Division
($8.7 million) and the Wolverine Footwear Group ($21.6 million) through
improved initial pricing margins, increased licensing revenues and
manufacturing and sourcing efficiencies. The Wolverine Leathers Division
continued its strong performance reporting a $2.3 million gross margin
increase achieved by a more favorable product mix to higher margin
products. The Hush Puppies Retail Division also contributed to the
improved margins with a $1.8 million increase as inventory management
programs improved initial turnover which reduced reliance on promotional
programs and markdown allowances.
Selling and administrative expenses of $107.5 million in 1996
increased $21.5 million (26.2%) from $86.0 million in 1995, and as a
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percentage of net sales increased to 21.0% in 1996 from 20.8% in 1995. The
1996 acquisitions of Hy-Test and Hush Puppies (U.K.) Ltd. accounted for
$6.4 million of the increase. Selling, administrative and distribution
costs associated with the higher sales volume, combined with a $3.5 million
increase in advertising and promotional investments in the Wolverine
Footwear Group and The Hush Puppies Company, increased costs by $11.1
million in 1996 over the prior year. Other drivers of general and
administrative costs were increases in profit sharing provisions,
information systems investments and costs associated with senior executive
stock incentive and retirement programs.
Interest expense of $3.1 million was $1.6 million (33.7%) less than
the 1995 level of $4.7 million as a result of lower average borrowings
throughout the year. The lower borrowing levels were primarily
attributable to a reduction in the balance of the Company's revolving
credit facility with funds generated by the November 1995 equity offering.
Interest income of $1.5 million increased $0.5 million in 1996 over
1995. The increase was generated by short-term investing of the available
funds from the equity offering during the first quarter of 1996.
The 1996 effective tax rate of 31.1% increased from 29.5% in 1995.
The effective tax rate increased due to the non-taxable net earnings of
foreign subsidiaries becoming a smaller percentage of total consolidated
earnings in 1996 as compared to 1995.
Net earnings of $32.9 million for 1996 reflect a 36.5% increase over
net earnings of $24.1 million reported for 1995. Primary earnings per
share for 1996 were $1.15 compared to $0.94 per share in 1995. Fully
diluted earnings per share of $1.15 and $0.93 were reported for 1996 and
1995, respectively. Increased net earnings are primarily a result of the
items noted above.
RESULTS OF OPERATIONS--1995 COMPARED TO 1994
Net sales and other operating income increased 6.8% to $414.0 million
during 1995 from $387.5 million in 1994. This growth was created by volume
increases in the Company's work and sport boot product lines which
increased 32.7% domestically and in the Company's Hush Puppies and
Wolverine International Divisions, which combined posted a 29.3% increase
in revenues. Additionally, sales increases of $8.7 million were generated
by United States Department of Defense contracts, which helped offset a
$9.6 million decrease in the Hush Puppies Retail Division resulting from a
1994 decision to downsize the retail operations. Sales in the Hush Puppies
Wholesale Division remained flat due to the generally difficult retail
environment for apparel and footwear in the United States.
-18-
The Wolverine Footwear Group continued to grow at a record pace in
1995. Net sales for the group improved $36.7 million (25.9%) on the
strength of core work products offered in both the WOLVERINE[REGISTERED]
and CATERPILLAR[REGISTERED] brands. These increases were partially offset
by a slight volume shortfall in the Bates Division, which continued to be
affected by military downsizing and reduced emphasis on export markets.
During 1995, the Bates Division strategy was focused on building a strong
civilian uniform business to complement its military business.
The Hush Puppies Wholesale Division fell short of 1994 net sales
levels by $1.8 million (2.4%). During 1995, the loss of certain Company
controlled distribution channels negatively affected wholesale revenues.
Net sales and other operating income for the Hush Puppies International
Division increased $1.6 million (17.0%) in 1995 over 1994 levels,
reflecting new international opportunities and the growth of established
programs. Additionally, Hush Puppies Retail Division sales were down $9.6
million, resulting primarily from the store closings noted above.
The Wolverine Slipper Group's net sales were $3.4 million (6.8%) below
the record levels posted in 1994 primarily due to a softening of sales in
the catalog sector at the end of 1995. Despite this reduction, Company
products were placed in several new distribution channels.
The Wolverine Leathers Division recorded a modest revenue improvement
of $0.4 million (1.1%) in 1995. This performance represented the second
consecutive year of revenue increases for the division. This growth was
due in part to favorable pricing opportunities in the pigskin procurement
markets and increased volume in proprietary sueded products. The
division's recent restructuring placed additional focus on proprietary
sueded product.
Gross margin as a percentage of net sales and other operating income
declined to 29.8% in 1995 from 31.8% in 1994. Aggressive promotional
pricing programs designed to generate business in the fourth quarter
resulted in margin erosion for the wholesale businesses. One-time
transition costs to upgrade manufacturing processes and increase
manufacturing flexibility in the Company's Arkansas facilities and costs
associated with increasing upper capacities in the Company's Caribbean
operations also resulted in lower gross margin levels.
Selling and administrative expenses of $86.0 million in 1995 declined
$8.0 million from $94.0 million in 1994, and as a percentage of net sales
dropped to 20.8% in 1995 from 24.3% in 1994. Selling, administrative and
distribution costs associated with the increased sales volume combined with
advertising and promotional investments for the Wolverine Footwear Group
increased costs by $4.2 million in 1995 over the prior year. Improved cost
controls throughout the remainder of the organization offset the above
noted increases. In addition, the Company lowered its employee benefit
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expenses and reduced selling, general and administrative costs of the Hush
Puppies Retail Division operations by closing certain unprofitable stores.
Interest expense of $4.7 million is $0.4 million greater than the 1994
level of $4.3 million as a result of higher average borrowings throughout
the year to fund working capital requirements associated with sales growth.
The effect of higher average borrowings was partially offset by lower
average borrowing rates.
Interest income of $1.0 million increased $0.4 million. The Company
invested a portion of the funds from an equity offering in the fourth
quarter which accounted for approximately one-half of the increase.
The 1995 effective tax rate on earnings of 29.5% increased from 28.5%
in 1994. The reduction from the federal statutory rate of 35% was
principally a result of non-taxable earnings of the Company's Caribbean
operations.
Net earnings of $24.1 million ($0.94 per share) for 1995 reflect a
45.0% increase over earnings of $16.6 million ($0.67 per share) reported
for 1994. Increased net earnings are primarily a result of the items noted
above.
Primary earnings per share for 1995 were $0.94 compared to $0.67 per
share in 1994. Fully diluted earnings per share of $0.93 and $0.67 were
reported for 1995 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES.
Net cash provided by operating activities was $14.9 million in 1996
compared to $1.4 million in 1995. Cash of $22.0 million in 1996 and $28.1
million in 1995 was used to fund working capital requirements. Accounts
receivable of $126.0 million at December 28, 1996 reflect a $42.6 million
(51.1%) increase over the $83.4 million balance at December 30, 1995.
Inventories of $117.4 million at December 28, 1996 reflect a $29.0 million
(32.9%) increase over the $88.4 million balance at December 30, 1995. A
portion of the increase in accounts receivable and inventories was due to
the 1996 acquisitions of the assets of Hy-Test, Inc. from The Florsheim
Shoe Company and Hush Puppies (U.K.) Ltd., which on a combined basis
contributed 11.8% and 10.8% of the respective increases. In addition,
accounts receivable increased due to a 40.9% increase in fourth quarter
shipments. Order backlog was approximately 40% higher at December 28,
1996, as compared to the previous year, supporting the need for increased
inventories to meet anticipated future demand in both wholesaling and
manufacturing operations. Accounts payable of $41.3 million at December
28, 1996 reflect a $26.1 million (71.7%) increase over the $15.2 million
balance at December 30, 1995. Of this increase, $17.7 million (16.8%) is
attributable to the 1996 acquisitions mentioned above.
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Other current assets of $2.5 million at December 28, 1996 decreased
$3.3 million over the 1995 balance of $5.8 million, reflecting primarily
the collection of the final $4.0 million payment due on notes receivable
related to the 1992 disposition of the Brooks athletic footwear business.
Additions to property, plant and equipment of $20.6 million in 1996
compare to the $18.6 million reported in 1995. The majority of these
expenditures were related to the construction of a new corporate business
center, modernization of existing corporate buildings, expansion of
warehouse facilities and purchases of manufacturing equipment necessary to
continue to upgrade the Company's footwear and leather manufacturing
facilities. Depreciation and amortization of $7.1 million in 1996 compares
to $5.8 million in 1995. This increase was a result of the capital
investments noted above and the amortization of goodwill related to the two
1996 acquisitions.
The Company maintains short-term borrowing and commercial letter-of-
credit facilities of $68.5 million, of which $29.5 million and $25.5
million were outstanding at the end of 1996 and 1995, respectively.
Long-term debt, excluding current maturities, of $41.2 million at the end of
1996 increased 34.8% from the $30.6 million balance at the end of 1995 as a
result of borrowings under the Company's revolving credit facility to
support working capital requirements associated with sales growth.
It is expected that continued growth of the Company will require
increases in capital funding over the next several years. In the fourth
quarter of 1996, the Company renegotiated its long-term revolving debt
agreement and increased the amount available under its credit facilities
from $50 million to $100 million. In addition, the Company's subsidiary in
the United Kingdom entered into a $17.0 million, three-year variable rate
revolving credit agreement in January 1997 to support working capital
requirements. The combination of credit facilities and cash flows from
operations are expected to be sufficient to meet long- and short-term
capital needs.
The Company paid dividends of $3.0 million in 1996, or $.10 per share,
which reflects a 26.7% increase over the $2.3 million of dividends paid in
1995, which represented $0.09 per share. Additionally, shares issued under
stock incentive plans provided cash of $6.2 million in 1996 compared to
$4.3 million during 1995.
During 1996, the Company completed two acquisitions, the work, safety
and occupational footwear business of Hy-Test, Inc. from The Florsheim Shoe
Company and the rights to and certain assets of the Hush Puppies wholesale
shoe business in the United Kingdom and Ireland from British Shoe
Corporation, a subsidiary of Sears Plc. The combined purchase price of
these acquisitions was $31.5 million of which $29.2 million was paid in
cash in 1996. The Company has an active program to evaluate strategic
-21-
business acquisitions on a global basis and may, from time to time, make
additional acquisitions.
The current ratio at year end was 3.8 to 1.0 in 1996 compared with 5.7
to 1.0 in 1995. The Company's total debt to total capital ratio increased
to .15 to 1.0 in 1996 from .14 to 1.0 in 1995.
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.
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) Beneficial Ownership
Reporting Compliance" in the definitive Proxy Statement of the Company
dated March 17, 1997, 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 and
Termination of Employment and Change in Control Arrangements," and
"Compensation Committee Report on Executive Compensation" in the definitive
Proxy Statement of the Company dated March 17, 1997, is incorporated herein
by reference.
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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 17, 1997, 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" and
"Certain Relationships and Related Transactions" contained in the
definitive Proxy Statement of the Company dated March 17, 1997, are
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K.
ITEM 14(A)(1). 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 28, 1996 and December
30, 1995.
- Consolidated Statements of Stockholders' Equity for the Fiscal
Years Ended December 28, 1996, December 30, 1995, and December
31, 1994.
- Consolidated Statements of Operations for the Fiscal Years Ended
December 28, 1996, December 30, 1995 and December 31, 1994.
- Consolidated Statements of Cash Flows for the Fiscal Years Ended
December 28, 1996, December 30, 1995 and December 31, 1994.
- Notes to Consolidated Financial Statements as of December 28,
1996.
- Report of Independent Auditors.
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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.
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). EXHIBITS.
The following exhibits are filed as part of this report:
Exhibit
NUMBER DOCUMENT
3.1 Certificate of Incorporation, as amended. Previously filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for
the period ended June 15, 1996. Here incorporated by reference.
3.2 Amended and Restated Bylaws. Previously filed as Exhibit 3.2 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995. Here incorporated by reference.
4.1 Certificate of Incorporation, as amended. See Exhibit 3.1 above.
4.2 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 4.6
below.
4.3 Credit Agreement dated as of October 11, 1996 with NBD Bank as
Agent.
4.4 Note Purchase 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.
-24-
4.5 The Registrant has several classes of long-term debt instruments
outstanding in addition to that described in Exhibit 4.4 above.
The amount of none of these classes of debt outstanding on March
1, 1997 exceeds 10% of the Company's total consolidated assets.
The Company agrees to furnish copies of any agreement defining
the rights of holders of any such long-term indebtedness to the
Securities and Exchange Commission upon request.
4.6 Second Amendment to Rights Agreement made as of October 28, 1994
(amending the Rights Agreement included as Exhibit 4.2 above).
Previously filed as Exhibit 4(f) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994. Here
incorporated by reference.
10.1 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.
10.2 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.
10.3 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.
10.4 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.
10.5 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.
10.6 Employment Agreement dated April 27, 1993, between the Company
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.
10.7 Executive Long-Term Incentive (Three Year) Plan 1996-1998 Period.*
-25-
10.8 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.
10.9 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.
10.10 Deferred Compensation Agreement dated as of August 24, 1989
between the Company and Thomas D. Gleason.* Previously filed as
part of Exhibit 10(i) of the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993. Here incorporated by
reference.
10.11 Supplemental Executive Retirement Plan, as amended.* Previously
filed as Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended June 15, 1996. Here incorporated by
reference. Each of the Company's executive officers participate
at the 2.4% level.
10.12 1995 Stock Incentive Plan.* Previously filed as an Appendix to
the Company's Definitive Proxy Statement with respect to the
Company's Annual Meeting of Stockholders held on April 19, 1995.
Here incorporated by reference.
10.13 Executive Long-Term Incentive (Three Year) Plan for the three
year period 1994-1996.* Previously filed as Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1995. Here incorporated by reference.
10.14 Executive Long-Term Incentive (Three Year) Plan for the three
year period 1995-1997.* Previously filed as Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1995. Here incorporated by reference.
10.15 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 10.15.
10.16 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 10.16.
-26-
10.17 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.
10.18 Benefit Trust Agreement dated May 19, 1987, and Amendments Number
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.
10.19 1996 Executive Short-Term Incentive Plan (Annual Bonus Plan).*
Previously filed as Exhibit 10.19 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 30, 1995. Here
incorporated by reference.
10.20 Outside Directors' Deferred Compensation Plan.* Previously filed
as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the period ended June 15, 1996. Here incorporated by
reference.
10.21 1984 Executive Incentive Stock Purchase Plan, and amendment.*
Previously filed as Exhibit 10(b) to the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 1988. Here
incorporated by reference.
10.22 Supplemental Director's Fee Agreement dated as of March 27, 1995,
between the Company and Phillip D. Matthews.* Previously filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the period ended March 25, 1995. Here incorporated by reference.
10.23 Restricted Stock Agreement dated as of March 27, 1995, between
the Company and Phillip D. Matthews.* Previously filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
period ended March 25, 1995. 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.
-27-
The Company will furnish a copy of any exhibit listed above to any
stockholder without charge upon written request to Mr. Blake W. Krueger,
Executive Vice President, 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 28, 1996.
-28-
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 28, 1997 By:/S/STEPHEN L. GULIS, JR.
Stephen L. Gulis, Jr.
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
*/S/GEOFFREY B. BLOOM Chief Executive Officer March 28, 1997
Geoffrey B. Bloom and Chairman of the Board
of Directors
*/S/TIMOTHY J. O'DONOVAN President and Director March 28, 1997
Timothy J. O'Donovan
/S/STEPHEN L. GULIS, JR. Executive Vice President, March 28, 1997
Stephen L. Gulis, Jr. Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
*/S/DANIEL T. CARROLL Director March 28, 1997
Daniel T. Carroll
*/S/ALBERTO L. GRIMOLDI Director March 28, 1997
Alberto L. Grimoldi
-29-
*/S/DAVID T. KOLLAT Director March 28, 1997
David T. Kollat
*/S/PHILLIP D. MATTHEWS Director March 28, 1997
Phillip D. Matthews
*/S/DAVID P. MEHNEY Director March 28, 1997
David P. Mehney
*/S/JOSEPH A. PARINI Director March 28, 1997
Joseph A. Parini
*/S/JOAN PARKER Director March 28, 1997
Joan Parker
*/S/ELIZABETH A. SANDERS Director March 28, 1997
Elizabeth A. Sanders
*BY/S/STEPHEN L. GULIS, JR.
Stephen L. Gulis, Jr.
Attorney-in-Fact
-30-
APPENDIX A
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF FISCAL YEAR END
------------------------
(THOUSANDS OF DOLLARS) 1996 1995
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,534 $ 27,088
Accounts receivable, less allowances (1996--$5,634;1995--$3,407) 125,999 83,392
Inventories:
Finished products 71,346 45,814
Raw materials and work-in-process 46,081 42,536
-------- --------
117,427 88,350
Refundable income taxes 2,062 2,935
Deferred income taxes 8,149 7,321
Other current assets 2,457 5,789
-------- --------
TOTAL CURRENT ASSETS 264,628 214,875
PROPERTY, PLANT AND EQUIPMENT:
Land 1,178 1,071
Buildings and improvements 40,284 30,930
Machinery and equipment 89,317 77,730
-------- --------
130,779 109,731
Less accumulated depreciation 67,776 62,846
-------- --------
63,003 46,885
OTHER ASSETS
Goodwill 8,362
Other intangibles 3,092
Cash value of life insurance 11,812 10,570
Prepaid pension costs 6,981 6,929
Other 3,720 4,295
-------- --------
33,967 21,794
-------- --------
TOTAL ASSETS $361,598 $283,554
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 1,026 $ 2,339
Accounts payable 41,273 15,188
Salaries, wages and other compensation 9,010 7,825
Taxes, other than income taxes 4,174 2,673
Other accrued expenses 14,251 9,538
Current maturities of long-term debt 76 84
-------- --------
TOTAL CURRENT LIABILITIES 69,810 37,647
LONG-TERM DEBT, LESS CURRENT MATURITIES 41,233 30,594
SUPPLEMENTAL EMPLOYEE RETIREMENT BENEFITS 7,353 8,883
DEFERRED INCOME TAXES 2,830 2,216
OTHER NONCURRENT LIABILITIES 1,080
STOCKHOLDERS' EQUITY:
Common stock, $1 par value:
Authorized: 40,000,000 shares
Issued, including treasury shares:
1996--28,356,538 shares; 1995--27,894,914 shares 28,357 27,895
Additional paid-in capital 67,303 61,604
Retained earnings 153,475 123,593
Accumulated translation adjustments 79 (324)
Unearned compensation (2,908) (1,827)
Cost of shares in treasury:
1996--557,323 shares; 1995--547,913 shares (7,014) (6,727)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 239,292 204,214
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $361,598 $283,554
======== ========
() Denotes deduction.
See accompanying notes to consolidated financial statements.
-2-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEAR
--------------------------------------
(THOUSANDS OF DOLLARS) 1996 1995 1994
-------- -------- --------
COMMON STOCK
Balance at beginning of the year $ 27,895 $ 24,759 $ 24,257
Proceeds from issuance of common stock 2,607
Common stock issued under stock incentive
plans (1996--462,018 shares;
1995 528,504 shares; 1994 501,675 shares) 462 529 502
-------- -------- --------
Balance at end of the year 28,357 27,895 24,759
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of the year 61,604 11,560 9,834
Proceeds from issuance of common stock 46,262
Excess of proceeds from awards under stock
incentive plans over par value of shares issued 5,699 3,782 2,028
Excess of cost of treasury shares over face
value of subordinated notes converted (302)
-------- -------- --------
Balance at end of the year 67,303 61,604 11,560
RETAINED EARNINGS
Balance at beginning of the year 123,593 101,873 86,986
Net earnings 32,856 24,067 16,598
Cash dividends--(1996--$.10 per share;
1995--$.09 per share; 1994--$.07 per share) (2,974) (2,347) (1,711)
-------- -------- --------
Balance at end of the year 153,475 123,593 101,873
ACCUMULATED TRANSLATION ADJUSTMENTS
Balance at beginning of the year (324) 332 398
Equity adjustments from foreign currency
translation 403 (656) (66)
-------- -------- --------
Balance at end of the year 79 (324) 332
UNEARNED COMPENSATION
Balance at beginning of the year (1,827) (1,181) (604)
Awards under stock incentive plans (2,469) (1,490) (1,016)
Compensation expense 1,388 844 439
-------- -------- --------
Balance at end of the year (2,908) (1,827) (1,181)
-3-
COST OF SHARES IN TREASURY
Balance at beginning of the year (6,727) (6,000) (8,725)
Issuance of common stock from treasury
(1995--10,000 shares; 1994--250,000 shares
upon conversion of subordinated notes) 125 2,802
Common stock purchased for treasury
(1996--9,410 shares; 1995--23,921 shares;
1994--2,214 shares) (287) (852) (77)
-------- -------- --------
Balance at end of the year (7,014) (6,727) (6,000)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY AT END OF THE YEAR $239,292 $204,214 $131,343
======== ======== ========
( ) Denotes deduction.
See accompanying notes to consolidated financial statements.
-4-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) 1996 1995 1994
-------- -------- --------
Net sales and other operating income $511,029 $413,957 $387,534
Cost and expenses:
Cost of products sold 355,224 290,469 264,384
Selling and administrative expenses 107,492 85,993 93,982
Interest expense 3,127 4,717 4,283
Interest income (1,532) (1,039) (644)
Loss on disposal of business 1,700
Other expenses (income) -- net (949) (297) 606
-------- -------- --------
463,362 379,843 364,311
-------- -------- --------
Earnings before income taxes 47,667 34,114 23,223
Income taxes 14,811 10,047 6,625
-------- -------- --------
Net earnings $ 32,856 $ 24,067 $ 16,598
======== ======== ========
Net earnings per share:
Primary $ 1.15 $ .94 $ .67
Fully diluted 1.15 .93 .67
See accompanying notes to consolidated financial statements.
-5-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR
--------------------------------------
(THOUSANDS OF DOLLARS) 1996 1995 1994
-------- -------- --------
OPERATING ACTIVITIES
Net earnings $ 32,856 $ 24,067 $ 16,598
Adjustments necessary to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 7,147 5,765 5,664
Deferred income taxes (credit) (214) 1,878 217
Loss on disposal of business 1,700
Other (2,867) (2,271) 124
Changes in operating assets and liabilities:
Accounts receivable (32,752) (12,723) (8,307)
Inventories (19,526) (9,325) (11,081)
Other operating assets 154 (1,000) (398)
Accounts payable 26,085 (3,069) 5,682
Other operating liabilities 4,056 (1,950) 2,941
-------- -------- --------
Net cash provided by operating activities 14,939 1,372 13,140
INVESTING ACTIVITIES
Business acquisitions (29,158)
Additions to property, plant and equipment (20,639) (18,645) (9,858)
Other 4,086 3,632 (930)
-------- -------- --------
Net cash used in investing activities (45,711) (15,013) (10,788)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 2,907 4,000
Payments of short-term debt (1,313) (2,000) (4,516)
Proceeds from long-term borrowings 58,000 58,181 75,886
Payments of long-term debt (47,369) (71,289) (79,245)
Proceeds from issuance of common stock 48,869
Cash dividends (2,974) (2,347) (1,711)
Purchase of common stock for treasury (287) (852) (77)
Shares issued under stock incentive plans 6,161 4,311 2,530
-------- -------- --------
Net cash provided by (used in) financing activities 12,218 37,780 (3,133)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (18,554) 24,139 (781)
-6-
Cash and cash equivalents at beginning of year 27,088 2,949 3,730
-------- -------- --------
Cash and cash equivalents at end of year $ 8,534 $ 27,088 $ 2,949
======== ======== ========
OTHER CASH FLOW INFORMATION
Interest paid $ 3,595 $ 5,187 $ 4,361
Income taxes paid 8,426 5,683 4,219
( ) Denotes reduction in cash and cash equivalents.
See accompanying notes to consolidated financial statements.
-7-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (collectively, the
Company). Upon consolidation, all intercompany accounts, transactions and
profits have been eliminated.
FISCAL YEAR
The Company's fiscal year is the 52- or 53-week period that ends on the
Saturday nearest the end of December. All fiscal years presented herein
are 52-week periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Revenue is recognized on the sale of products 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.
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 D). 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.
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation of plant and equipment is computed using the straight-line
method. The depreciable lives for buildings and improvements range from
five to thirty years and from three to ten years for machinery and
equipment.
ADVERTISING COSTS
Advertising costs are expensed as incurred and totaled $21,186,000 in 1996,
$17,592,000 in 1995 and $17,942,000 in 1994.
INCOME TAXES
The provision for income taxes is based on the earnings reported in the
consolidated financial statements. A deferred income tax asset or
liability is determined by applying currently enacted tax laws and rates to
the cumulative temporary differences between the carrying value of assets
and liabilities for financial statement and income tax purposes. Deferred
income tax expense (credit) is measured by the net change in deferred
income tax assets and liabilities during the year.
EARNINGS PER SHARE
Primary earnings per share are computed based on the weighted average
shares of common stock outstanding during each period and the assumed
exercise of dilutive stock options. Fully diluted earnings per share for
1994 also include the effect of converting subordinated notes into common
stock.
Weighted average shares outstanding for purposes of calculating earnings
per share are as follows:
1996 1995 1994
---------- ---------- ----------
Primary 28,526,045 25,671,702 24,537,084
Fully diluted 28,677,852 25,855,769 24,922,253
-2-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company's financial instruments consist of cash and cash equivalents,
accounts and notes receivable, accounts payable and long-term debt. The
Company's estimate of the fair value of these financial instruments
approximates their carrying amounts at December 28, 1996 and December 30,
1995. Fair value was determined using discounted cash flow analysis and
current interest rates for similar instruments. The Company does not hold
or issue financial instruments for trading purposes.
The Company does not require collateral or other security on trade accounts
receivable.
RECLASSIFICATIONS
Certain amounts previously reported in 1995 and 1994 have been reclassified
to conform with the presentation used in 1996.
NOTE B - BUSINESS ACQUISITIONS
On March 22, 1996, the Company acquired the assets and assumed certain
liabilities of the work, safety and occupational footwear business of Hy-Test,
Inc. from The Florsheim Shoe Company for a cash purchase price of
$24,468,000, including related transaction expenses.
On August 24, 1996, the Company acquired the rights to and certain assets
of the Hush Puppies wholesale shoe business in the United Kingdom and
Ireland from British Shoe Corporation, a subsidiary of Sears Plc, for a
purchase price of $7,045,000 of which $2,355,000 is payable over a
three-year period beginning in 1997.
The acquisitions were accounted for using the purchase method and
accordingly, the operating results of these acquired businesses are
included in the consolidated statements of operations since the dates of
acquisition. The purchase prices were allocated to the net assets acquired
based on fair market value at the dates of acquisition. Goodwill and other
intangibles recognized in connection with these transactions totaled
$11,480,000 and are being amortized over periods ranging from five to
seventeen years.
-3-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE B - BUSINESS ACQUISITIONS (continued)
Consolidated net sales would have approximated $575,000,000 in 1996,
$518,000,000 in 1995 and $452,000,000 in 1994 on a pro forma basis if the
acquisitions had occurred at the beginning of 1994. Pro forma consolidated
earnings from continuing operations for all three years would not have been
materially different from reported amounts.
NOTE C - DISPOSAL OF BUSINESS
During the fourth quarter of 1994, the Company adopted a formal plan to
withdraw from its Lamonts leased shoe department business. In connection
with this exit plan, an estimated pre-tax loss of $1,700,000 was
recognized. The loss represents the anticipated incremental costs
associated with completing the exit plan. The exit plan was completed
in 1995.
The Lamonts business had net sales of $9,061,000 and a pre-tax loss from
operations of $500,000 in 1994. This business was previously reported as a
discontinued operation in the accompanying 1994 consolidated statement of
operations and has been reclassified as part of continuing operations.
NOTE D - INVENTORIES
Inventories of $99,483,000 at December 28, 1996 and $70,162,000 at
December 30, 1995 have been valued using the LIFO method. If the first-in,
first-out (FIFO) method had been used, inventories would have been
$19,695,000 and $22,171,000 higher than reported at December 28, 1996 and
December 30, 1995, respectively.
NOTE E - NOTES PAYABLE TO BANK
Notes payable to bank consist of unsecured short-term debt of the Company's
Canadian subsidiary. The notes bear interest at the Canadian prime rate
(4.75% at December 28, 1996).
The Company has short-term debt and commercial letter-of-credit facilities
that allow for total borrowings up to $68,543,000. In addition to the notes
payable to bank discussed above, amounts outstanding under these facilities
consist of letters-of-credit that totaled approximately $28,500,000 and
$23,200,000 at December 28, 1996 and December 30, 1995, respectively.
-4-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following obligations:
(THOUSANDS OF DOLLARS) 1996 1995
-------- --------
7.8% senior notes to insurance companies $ 30,000 $ 30,000
Revolving credit obligations 11,000
Other 309 678
-------- --------
41,309 30,678
Less current maturities 76 84
-------- --------
$ 41,233 $ 30,594
======== ========
The 7.8% senior notes to insurance companies require equal annual principal
payments of $4,285,000 in 1998 through 2003 with the balance due on August
15, 2004.
In 1996, the Company amended its revolving credit agreement to increase its
borrowing limit to $100,000,000 ($50,000,000 in 1995). The agreement
requires that interest be paid at variable rates based on both LIBOR and
the prime rate (8.25% at December 28,1996) and expires on October 11, 2001.
Maximum borrowings under the agreement were $39,000,000 in 1996 and
$50,000,000 in 1995.
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 tangible net worth.
At December 28, 1996, unrestricted retained earnings are $30,815,000. The
agreements also impose restrictions on securing additional debt, sale and
merger transactions and the disposition of significant assets.
Principal maturities of long-term debt during the four years subsequent to
1997 are as follows: 1998--$4,298,000; 1999--$4,505,000; 2000--$4,285,000:
2001--$15,285,000.
In January 1997, the Company's subsidiary in the United Kingdom entered
into a $17,000,000 three-year variable-rate revolving credit agreement to
support its working capital requirements.
-5-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE G - LEASES
The Company leases machinery, transportation equipment and certain
warehouse and retail store space under operating lease agreements which
expire at various dates through 2007. At December 28, 1996, minimum rental
payments due under all noncancelable leases are as follows (THOUSANDS OF
DOLLARS):
1997 $ 5,609
1998 4,542
1999 3,600
2000 2,757
2001 1,376
Thereafter 3,954
--------
Total minimum lease payments $ 21,838
========
Rental expense under all operating leases consisted primarily of minimum
rentals and totaled $7,468,000 in 1996, $6,275,000 in 1995 and $6,145,000
in 1994.
NOTE H - CAPITAL STOCK
The Company has 2,000,000 authorized shares of preferred stock ($1 par
value) of which none is issued and outstanding.
On March 10, 1994, April 19, 1995, and July 11, 1996, the Company announced
three-for-two stock splits on shares of common stock outstanding at March
21, 1994, May 1, 1995, and July 26, 1996, respectively. All share and per
share data included in the consolidated financial statements has been
retroactively adjusted for the increased shares resulting from these stock
splits.
The Company has a stock rights plan that 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
-6-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H - CAPITAL STOCK (continued)
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. 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. Upon issuance, each share
of Series A junior 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.
In the event the Company is a party to a merger or other business
combination, regardless of whether the Company is the surviving
corporation, rights holders other than the party to the merger will be
entitled to receive common stock of the surviving corporation worth twice
the exercise price of the rights. The plan also provides for protection
against self-dealing transactions by a 15% stockholder or the activities of
an adverse person. The Company may redeem the rights for $.01 each at any
time prior to fifteen days after a triggering event. Unless redeemed
earlier, all rights 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 granted have ten-year terms and are
exercisable over three years. All unexercised options are available for
future grants upon their cancellation.
A summary of the transactions under the stock option plans is as follows:
-7-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H - CAPITAL STOCK (continued)
SHARES UNDER WEIGHTED-AVERAGE
OPTIONS OPTION PRICE
------------ ---------------
Outstanding at January 1, 1994 1,466,349 $ 3.51
Granted in 1994 442,407 6.59
Exercised (404,532) 10.13
Cancelled (10,206) 7.26
--------- -------
Outstanding at December 31, 1994 1,494,018 5.71
Granted in 1995 439,368 12.40
Exercised (432,916) 14.69
Cancelled (1,512) 10.24
--------- -------
Outstanding at December 30, 1995 1,498,958 8.15
Granted in 1996 416,444 19.57
Exercised (343,485) 20.77
Cancelled (10,732) 16.53
--------- -------
Outstanding at December 28, 1996 1,561,185 $ 11.56
========= =======
Available for grant:
At December 28, 1996 857,392
=========
At December 30, 1995 1,382,902
=========
The weighted-average grant-date fair value was $6.40 for stock options
granted in 1996.
The exercise price of options outstanding at December 28, 1996 range from
$2.59 to $28.38. A summary of stock options outstanding at December 28,
1996 by range of option price is as follows:
-8-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H - CAPITAL STOCK (continued)
WEIGHTED-AVERAGE
-----------------------------------------------
NUMBER OF OPTIONS OPTION PRICE REMAINING
OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE CONTRACTUAL LIFE
----------- ----------- ----------- ----------- ----------------
Less than $10 500,053 483,222 $ 4.92 $ 4.75 5.5 years
$10 to $20 970,193 463,096 14.00 12.81 8.2 years
Greater than $20 90,939 39,012 22.04 20.87 9.4 years
--------- ------- ------ ------ ---------
1,561,185 985,330 $11.56 $ 9.18 7.4 years
========= ======= ====== ====== =========
The Company has elected to follow Accounting Principles Board (APB) Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations in accounting for its stock incentive plans because the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards (SFAS) No.123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, requires the use of option valuation models that were not
specifically developed for valuing the types of stock incentive plans
maintained by the Company. Under APB Opinion No. 25, compensation expense
is recognized when the market price of the underlying stock award on the
date of grant exceeds any related exercise price.
Pro forma information regarding net earnings and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its stock awards since January 1, 1995 using the fair value
method. The fair value of these awards was estimated at the date of grant
using a Black-Sholes option pricing model with the following
weighted-average assumptions in 1996 and 1995: risk free interest rate of
6%; dividend yield of 0.5%; expected market price volatility factor of 0.32;
and an expected option life of four years.
The Black-Sholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting provisions and are
fully transferable. In addition, the model requires input of highly
subjective assumptions. Because the Company's stock options have
characteristics significantly different from traded options and the input
assumptions can materially affect the estimate of fair value, in
-9-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H - CAPITAL STOCK (continued)
management's opinion, the Black-Sholes option model does not necessarily
provide a reliable measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of stock
options are amortized to expense over the related vesting period. The
Company's pro forma information under SFAS No. 123 is as follows:
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) 1996 1995
-------- --------
Pro forma net earnings $ 31,613 $ 23,589
Pro forma net earnings per share:
Primary $ 1.11 $ .93
Fully diluted 1.11 .92
Because SFAS No. 123 is applicable only to options granted subsequent to
1994, its pro forma effect will not be fully reflected until 1997.
The Company also has nonvested stock award plans for officers and other key
employees. Common stock issued under these 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
133,612 in 1996, 95,587 in 1995 and 97,143 in 1994 were awarded under these
plans. The weighted-average award-date fair value was $19.64 for the shares
awarded in 1996. Rights to 14,579 shares were cancelled in 1996 and there
were no cancellations in 1995 or 1994. Any future shares awarded reduce the
number of shares identified as available for future grants in the stock
option table. The market value of the shares awarded is recognized as
unearned compensation in the consolidated statements of stockholders'
equity and is amortized to operations as restrictions lapse.
NOTE I - RETIREMENT PLANS
The Company has noncontributory, defined benefit pension plans covering a
majority of its domestic employees. The Company's principal defined benefit
pension plan provides benefits based on the employee's years of service and
-10-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I - RETIREMENT PLANS (CONTINUED)
final average earnings (as defined), while the other plans provide benefits
at a fixed rate per year of service. The Company intends to annually
contribute amounts deemed necessary to maintain the plans on a sound
actuarial basis.
The Company also has individual deferred compensation agreements with
certain current and former 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. The Company maintains
life insurance policies which are intended to fund these deferred benefits.
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. This plan is combined with the principal defined benefit
pension plan for funding purposes. Contributions to the money accumulation
plan were $1,200,000 in 1996, $1,050,000 in 1995 and $935,000 in 1994.
The following summarizes the status of the Company's pension assets and
related obligations for its defined benefit pension plans:
-11-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I - RETIREMENT PLANS (CONTINUED)
SEPTEMBER 30
-----------------------
(THOUSANDS OF DOLLARS) 1996 1995
-------- --------
Pension assets at fair value $104,673 $ 99,484
Actuarial present value of accumulated plan benefits:
Vested 60,315 52,628
Nonvested 1,048 497
-------- --------
61,363 53,125
Effect of estimated future increases in compensation 11,914 9,145
-------- --------
Projected benefit obligation for service rendered to date 73,277 62,270
-------- --------
Excess pension assets $ 31,396 $ 37,214
======== ========
Components of excess pension assets:
Prepaid pension costs recognized in other assets $ 6,981 $ 6,929
Unrecognized amounts, net of amortization:
Transition assets 2,834 3,768
Prior service costs (4,601) (3,048)
Experience gains 26,182 29,565
-------- --------
$ 31,396 $ 37,214
======== ========
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit
obligation were 7.5% and 5%, respectively, in 1996 and 1995. Additional
plan participants in connection with the acquisition of Hy-Test, Inc. and
certain new supplemental retirement benefits increased the projected
benefit obligation by $5,162,000 at September 30, 1996.
Plan assets were invested in listed equity securities (83%), fixed income
funds (11%) and short-term and other investments (6%). Equity securities
include 225,675 shares of the Company's common stock with a fair value of
$6,262,000 at September 30, 1996.
-12-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I - RETIREMENT PLANS (CONTINUED)
The following is a summary of net pension income recognized by the Company:
(THOUSANDS OF DOLLARS) 1996 1995 1994
-------- -------- --------
Service cost pertaining to benefits earned
during the year $ (4,704) $ (2,540) $ (2,410)
Interest cost on projected benefit obligation (2,426) (3,771) (3,292)
Actual net investment income 8,066 28,495 3,317
Net amortization and deferrals 665 (20,865) 3,116
-------- -------- --------
Net pension income $ 1,601 $ 1,319 $ 731
======== ======== ========
The expected long-term return on plan assets was 10% in both 1996 and 1995
and 9% in 1994.
The Company's accumulated postretirement life insurance benefit obligation
is as follows:
(THOUSANDS OF DOLLARS) 1996 1995
-------- -------
Retirees $ 812 $ 775
Active plan participants 255 215
------- -------
Accumulated postretirement benefit obligation 1,067 990
Unrecognized experience losses (126) (153)
Obligation recognized as a noncurrent liability $ 941 $ 837
The discount rate used in determining the accumulated postretirement life
insurance benefit obligation was 7.5% in 1996 and 1995. The expense
associated with postretirement life insurance benefits was not significant.
-13-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE J - INCOME TAXES
The provisions for income taxes consist of the following:
(THOUSANDS OF DOLLARS) 1996 1995 1994
-------- -------- --------
Currently payable:
Federal $ 9,652 $ 4,610 $ 3,658
State and foreign 5,373 3,559 2,750
Deferred (credit) (214) 1,878 217
-------- -------- --------
$ 14,811 $ 10,047 $ 6,625
======== ======== ========
A reconciliation of the Company's total income tax expense and the amount
computed by applying the statutory federal tax rate of 35% to earnings
before income taxes is as follows:
(THOUSANDS OF DOLLARS) 1996 1995 1994
-------- -------- --------
Income taxes at statutory rate $ 16,683 $ 11,940 $ 8,128
State income and foreign taxes, net of federal
income tax reduction 1,572 731 757
Nontaxable earnings of Puerto Rican
subsidiary and foreign affiliates (2,881) (1,898) (1,712)
Reduction of deferred income tax asset
valuation allowance (1,000)
Other (563) (726) 452
-------- -------- --------
$ 14,811 $ 10,047 $ 6,625
======== ======== ========
Significant components of the Company's deferred income tax assets and
liabilities as of the end of 1996 and 1995 are as follows:
-14-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE J - INCOME TAXES (continued)
(THOUSANDS OF DOLLARS) 1996 1995
-------- --------
Deferred income tax assets:
Accounts receivable and inventory valuation allowances $ 5,175 $ 4,308
Deferred compensation accruals 1,959 2,466
Other amounts not deductible until paid 5,107 4,233
-------- --------
Total deferred income tax assets 12,241 11,007
Deferred income tax liabilities:
Tax over book depreciation (2,699) (2,190)
Prepaid pension costs (2,632) (2,340)
Unremitted earnings of Puerto Rican subsidiary (1,343) (1,154)
Other (248) (218)
-------- --------
Total deferred income tax liabilities (6,922) (5,902)
-------- --------
Net deferred income tax assets $ 5,319 $ 5,105
======== ========
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.
NOTE K - 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.
-15-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE L - 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 which 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 M - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company reports its quarterly results of operations on the basis of
12-week periods for each of the first three quarters and a 16-week period
for the fourth quarter.
The Company's unaudited quarterly results of operations are as follows:
-16-
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE M - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
1996
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
Net sales and other operating income $ 83,842 $ 94,153 $120,466 $212,568
Gross margin 25,323 31,317 36,013 63,152
Net earnings 3,393 5,433 7,350 16,680
Net earnings per share:
Primary $ .12 $ .19 $ .26 $ .58
Fully diluted .12 .19 .26 .58
1995
------------------------------------------------------
FIRST SECOND THIRD FOURTH
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
Net sales and other operating income $ 76,331 $ 86,289 $100,460 $150,877
Gross margin 22,788 27,490 28,753 44,457
Net earnings 2,497 3,897 5,207 12,466
Net earnings per share:
Primary $ .10 $ .15 $ .21 $ .48
Fully diluted .10 .15 .21 .47
-17-
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Wolverine World Wide, Inc.
We have audited the accompanying consolidated balance sheets of Wolverine
World Wide, Inc. and subsidiaries as of December 28, 1996 and December 30,
1995, and the related consolidated statements of stockholders' equity,
operations and cash flows for each of the three fiscal years in the period
ended December 28, 1996. 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 28, 1996
and December 30, 1995, and the consolidated results of their operations and
their cash flows for each of the three fiscal years in the period ended
December 28, 1996, 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 7, 1997
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)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION PERIOD EXPENSES (DESCRIBE) (DESCRIBE) PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 28, 1996
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS $2,657,000 $ 2,005,000 $ 434,000 $4,228,000
ALLOWANCE FOR CASH DISCOUNTS 750,000 4,896,000 4,240,000 1,406,000
INVENTORY VALUATION ALLOWANCES 1,317,000 5,535,000 3,898,000 2,954,000
---------- ----------- ---------- ----------
$4,724,000 $12,436,000 $8,572,000 $8,588,000
========== =========== ========== ==========
Fiscal Year Ended December 30, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $3,510,000 $ (746,000) $ 107,000 $2,657,000
Allowance for cash discounts 449,000 2,851,000 2,550,000 750,000
Inventory valuation allowances 1,753,000 4,261,000 4,697,000 1,317,000
---------- ------------ ---------- ----------
$5,712,000 $ 6,366,000 $7,354,000 $4,724,000
========== =========== ========== ==========
Fiscal Year Ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $3,141,000 $ 1,722,000 $1,353,000 $3,510,000
Allowance for cash discounts 270,000 1,236,000 1,057,000 449,000
Inventory valuation allowances 1,703,000 3,760,000 3,710,000 1,753,000
---------- ----------- ---------- ----------
$5,114,000 $ 6,718,000 $6,120,000 $5,712,000
========== =========== ========== ==========
ACCOUNTS CHARGED OFF, NET OF RECOVERIES.
DISCOUNTS GIVEN TO CUSTOMERS.
ADJUSTMENT UPON DISPOSAL OF RELATED INVENTORIES.
Commission File No. 1-6024
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM 10-K
For the Fiscal Year Ended
December 28, 1996
Wolverine World Wide, Inc.
9341 Courtland Drive
Rockford, Michigan 49351
EXHIBIT INDEX
EXHIBIT
NUMBER
3.1 Certificate of Incorporation, as amended. Previously
filed as Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q for the period ended June 15, 1996. Here
incorporated by reference.
3.2 Amended and Restated Bylaws. Previously filed as Exhibit 3.2
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995. Here incorporated by reference.
4.1 Certificate of Incorporation, as amended. See Exhibit
3.1 above.
4.2 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 4.6
below.
4.3 Credit Agreement dated as of October 11, 1996 with NBD Bank as
Agent.
4.4 Note Purchase 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.
4.5 The Registrant has several classes of long-term debt
instruments outstanding in addition to that described
in Exhibit 4.4 above. The amount of none of these
classes of debt outstanding on March 1, 1997 exceeds
10% of the Company's total consolidated assets. The
Company agrees to furnish copies of any agreement
defining the rights of holders of any such long-term
indebtedness to the Securities and Exchange Commission
upon request.
4.6 Second Amendment to Rights Agreement made as of
October 28, 1994 (amending the Rights Agreement
included as Exhibit 4.2 above). Previously filed as
Exhibit 4(f) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.
Here incorporated by reference.
10.1 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.
10.2 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.
10.3 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.
10.4 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.
10.5 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.
10.6 Employment Agreement dated April 27, 1993, between the
Company 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.
10.7 Executive Long-Term Incentive (Three Year) Plan 1996-1998
Period.*
10.8 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.
10.9 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.
-2-
10.10 Deferred Compensation Agreement dated as of August 24,
1989 between the Company and Thomas D. Gleason.*
Previously filed as part of Exhibit 10(i) of the
Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993. Here incorporated by
reference.
10.11 Supplemental Executive Retirement Plan, as amended.*
Previously filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended
June 15, 1996. Here incorporated by reference. Each
of the Company's executive officers participate at the
2.4% level.
10.12 1995 Stock Incentive Plan.* Previously filed as an
Appendix to the Company's Definitive Proxy Statement
with respect to the Company's Annual Meeting of
Stockholders held on April 19, 1995. Here incorporated
by reference.
10.13 Executive Long-Term Incentive (Three Year) Plan for
the three year period 1994-1996.* Previously filed as
Exhibit 10.13 to the Company's Annual Report on Form
10-K for the fiscal year ended December 30, 1995.
Here incorporated by reference.
10.14 Executive Long-Term Incentive (Three Year) Plan for
the three year period 1995-1997.* Previously filed as
Exhibit 10.14 to the Company's Annual Report on Form
10-K for the fiscal year ended December 30, 1995.
Here incorporated by reference.
10.15 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 10.15.
10.16 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 10.16.
-3-
10.17 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.
10.18 Benefit Trust Agreement dated May 19, 1987, and
Amendments Number 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.
10.19 1996 Executive Short-Term Incentive Plan (Annual Bonus
Plan).* Previously filed as Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 30, 1995. Here incorporated by
reference.
10.20 Outside Directors' Deferred Compensation Plan.*
Previously filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended
June 15, 1996. Here incorporated by reference.
10.21 1984 Executive Incentive Stock Purchase Plan, and
amendment.* Previously filed as Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1988. Here incorporated by
reference.
10.22 Supplemental Director's Fee Agreement dated as of
March 27, 1995, between the Company and Phillip D.
Matthews.* Previously filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period
ended March 25, 1995. Here incorporated by reference.
10.23 Restricted Stock Agreement dated as of March 27, 1995,
between the Company and Phillip D. Matthews.*
Previously filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended
March 25, 1995. Here incorporated by reference.
11 Computation of Per Share Earnings.
21 Subsidiaries of Registrant.
-4-
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
___________________________
*Management contract or compensatory plan or arrangement.
-5-