SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the third twelve week accounting period ended September 9, 1995 OR [ ] 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 (IRS Employer Identification No.) Incorporation or Organization) 9341 COURTLAND DRIVE, ROCKFORD, MICHIGAN 49351 (Address of Principal Executive Offices) (Zip Code) (616) 866-5500 (Registrant's Telephone Number, including Area Code) 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 twelve (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 ninety (90) days. Yes __X__ No _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practical date. There were 17,011,227 shares of Common Stock, $1 par value, outstanding as of September 30, 1995 of which 562,903 shares are held as Treasury Stock. The shares outstanding, excluding shares held in treasury, have been adjusted for the 3-for-2 stock split paid on May 15, 1995, on shares outstanding at the close of business on May 1, 1995. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS <TABLE> WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (THOUSANDS OF DOLLARS) <CAPTION> September 9, December 31, September 10, 1995 1994 1994 (UNAUDITED) (AUDITED) (UNAUDITED) <S> <C> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,950 $ 2,949 $ 2,103 Accounts receivable, less allowances September 9, 1995 - $5,296 December 31, 1994 - $3,959 September 10, 1994 - $4,708 85,615 70,669 71,588 Inventories: Finished products 68,388 48,637 51,094 Raw materials and work in process 41,994 30,388 33,265 110,382 79,025 84,359 Other current assets 14,932 14,902 10,912 Net current assets of discontinued operations 75 991 3,727 TOTAL CURRENT ASSETS 212,954 168,536 172,689 PROPERTY, PLANT & EQUIPMENT Gross cost 102,364 97,028 96,195 Less accumulated depreciation 62,969 61,680 62,087 39,395 35,348 34,108 OTHER ASSETS 24,084 26,267 27,558 TOTAL ASSETS $ 276,433 $ 230,151 $ 234,355 </TABLE> See notes to consolidated condensed financial statements. -2- <TABLE> WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS - CONTINUED (THOUSANDS OF DOLLARS) <CAPTION> September 9, December 31, September 10, 1995 1994 1994 (UNAUDITED) (AUDITED) (UNAUDITED) <S> <C> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable to banks $ 2,936 $ 1,432 $ 2,822 Accounts payable and other accrued liabilities 36,415 41,284 34,566 Current maturities of long-term debt 120 304 433 TOTAL CURRENT LIABILITIES 39,471 43,020 37,821 LONG-TERM DEBT (less current maturities) 80,700 43,482 64,520 OTHER NONCURRENT LIABILITIES 11,304 11,125 10,362 STOCKHOLDERS' EQUITY Common Stock - par value $1, authorized 25,000,000 shares; shares issued (including shares in treasury): September 9, 1995 - 17,007,082 shares December 31, 1994 - 16,705,013 shares September 10, 1994 - 16,535,260 shares 17,007 11,315 11,251 Additional paid-in capital 21,833 25,004 24,641 Retained earnings 112,343 101,873 93,048 Accumulated translation adjustments 298 332 398 Cost of shares in treasury: September 9, 1995 - 562,903 shares December 31, 1994 - 533,992 shares September 10, 1994 - 683,992 shares (6,523) (6,000) (7,686) TOTAL STOCKHOLDERS' EQUITY 144,958 132,524 121,652 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 276,433 $ 230,151 $ 234,355 </TABLE> See notes to consolidated condensed financial statements. -3- <TABLE> WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) (UNAUDITED) <CAPTION> 12 WEEKS ENDED 6 WEEKS ENDED September 9, September 10, September 9, September 10, 1995 1994 1995 1994 <S> <C> <C> <C> <C> NET SALES AND OTHER OPERATING INCOME $ 100,460 $ 91,910 $ 63,080 $ 237,995 Cost of products sold 71,707 65,005 184,049 165,562 GROSS MARGIN 28,753 26,905 79,031 72,433 Selling and administrative expenses 20,053 20,222 60,138 57,874 OPERATING INCOME 8,700 6,683 18,893 14,559 OTHER EXPENSES (INCOME): Interest expense 1,489 1,272 3,142 2,888 Interest income (155) (132) (560) (328) Other - net (83) 15 (404) 796 1,251 1,155 2,178 3,356 EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 7,449 5,528 16,715 11,203 Income taxes 2,242 1,771 5,114 3,592 EARNINGS FROM CONTINUING OPERATIONS 5,207 3,757 11,601 7,611 Loss from discontinued operations, net of income taxes - 70 - 249 NET EARNINGS $ 5,207 $ 3,687 $ 11,601 $ 7,362 PRIMARY EARNINGS (LOSS) PER SHARE: Continuing operations $ .31 $ .23 $ .69 $ .47 Discontinued operations - - - (.02) Net earnings $ .31 $ .23 $ .69 $ .45 Fully diluted earnings per share $ .31 $ .23 $ .69 $ .45 CASH DIVIDENDS PER SHARE $ .035 $ .027 $ .103 $ .080 SHARES USED FOR NET EARNINGS PER SHARE COMPUTATION: Primary 16,974,116 16,362,308 16,819,285 16,322,601 Fully diluted 17,003,586 16,659,728 16,900,529 16,638,534 </TABLE> See notes to consolidated condensed financial statements. -4- <TABLE> WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (THOUSANDS OF DOLLARS) (UNAUDITED) <CAPTION> 36 WEEKS ENDED September 9, September 10, 1995 994 <S> <C> <C> OPERATING ACTIVITIES Net earnings from continuing operations $ 11,601 $ 7,611 Depreciation, amortization and other non-cash items 3,242 1,898 Loss from discontinued operations - (249) Changes in operating assets and liabilities: Accounts receivable (14,946) (9,438) Inventories (31,357) (17,534) Other current assets 2,886 1,899 Accounts payable and other accrued liabilities (4,869) 3,209 NET CASH USED IN OPERATING ACTIVITIES (33,443) (12,604) FINANCING ACTIVITIES Proceeds from long-term borrowings 58,181 38,000 Payments of long-term borrowings (21,147) (21,442) Proceeds from short-term borrowings 3,504 1 ,189 Payments of short-term borrowings (2,000) (315) Cash dividends (1,131) (1,300) Proceeds from shares issued under employee stock plans 1,998 1,590 NET CASH PROVIDED BY FINANCING ACTIVITIES 39,405 17,722 INVESTING ACTIVITIES Additions to property, plant and equipment (8,448) (5,587) Other 1,487 (1,158) NET CASH USED IN INVESTING ACTIVITIES (6,961) (6,745) DECREASE IN CASH AND CASH EQUIVALENTS (999) (1,627) Cash and cash equivalents at beginning of year 2,949 3,730 CASH AND CASH EQUIVALENTS AT END OF THIRD QUARTER $ 1,950 $ 2,130 </TABLE> ( ) - Denotes reduction in cash and cash equivalents. See notes to consolidated condensed financial statements. -5- WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS SEPTEMBER 9, 1995 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Certain amounts in 1994 have been reclassified to conform with the presentation used in 1995. NOTE B - FLUCTUATIONS The Company's sales are seasonal, particularly in its major divisions, Hush Puppies<reg-trade-mark> and the Wolverine Footwear Group. Seasonal sales patterns and the fact that the fourth quarter has sixteen or seventeen weeks as compared to twelve weeks in each of the first three quarters cause significant differences in sales and earnings from quarter to quarter. These differences, however, follow a consistent pattern each year. NOTE C - COMMON STOCK On March 10, 1994, the Company announced a 3-for-2 stock split on shares outstanding on March 21, 1994. Also, on April 19, 1995, the Company announced an additional 3-for-2 stock split on shares outstanding on May 1, 1995. All share and per share data have been retroactively adjusted for the increased shares resulting from these stock splits. NOTE D - EARNINGS PER SHARE Primary earnings per share are computed based on the weighted average shares of common stock outstanding during each period assuming that the stock splits described in Note C had been completed at the beginning of the earliest period presented. Common stock equivalents (stock options) are included in the computation of primary and fully diluted earnings per share. -6- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - COMPARISONS OF THIRD QUARTER 1995 TO THIRD QUARTER 1994 Third quarter net sales and other operating income of $100.5 million for 1995 exceeded 1994 levels by $8.6 million (a 9.3% increase), and 1995 year-to-date net sales of $263.1 million compares to $238.0 million recorded for the comparable period of 1994 (a 10.5% increase). The strong performance of the Wolverine Footwear Group continued, accounting for $6.8 million of the quarterly net sales and other operating income increase and $21.5 million of the year-to-date increase. Current year third quarter increases of $3.0 million and year-to-date increases of $4.6 million generated by United States Department of Defense contracts helped offset a $1.3 million third quarter decrease in the Hush Puppies Retail Division, a result of 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. The Leather and Tru-Stitch Divisions recognized slight sales increases which are in line with the Company's plan. Gross margin as a percentage of net sales and other operating income for the third quarter of 1995 was 28.6% compared to the prior year level of 29.3%. Year-to-date gross margin of 30.0% for 1995 compares to 30.4% for 1994. Improved margins were recorded in the Wolverine Footwear Group through increased licensing revenues and manufacturing and sourcing efficiencies. The Leather Division continued its strong performance reporting a year-to-date $1.8 million gross margin increase. The increase in gross margin was achieved by significant reductions in fixed costs, a shift in product mix to higher value added products and price adjustments. These improvements were offset by decreases in the Hush Puppies Wholesale and Retail Divisions, resulting from the continued soft retail climate which impacts both initial wholesale margins and retail promotional pricing requirements. Selling and administrative costs totaling $20.0 million (20.0% of net sales) for the third quarter of 1995 remained relatively consistent with the 1994 third quarter levels of $20.2 million (22.0% of net sales). Year-to-date selling and administrative expenses of $60.1 million (22.9% of net sales) in 1995 are comparable to $57.9 million (24.3% of net sales) in 1994. Year-to-date selling, advertising and distribution costs associated with the increased sales volume combined with advertising and promotional investments for Wolverine Brand accounted for $4.3 million of the increase. Offsetting decreases in direct selling costs were reported in the Hush Puppies Retail Division totaling $.9 million, which were due to the strategic repositioning of the Hush Puppies Retail Division. Hush Puppies Wholesale distribution costs have decreased 13% from $3.1 million to $2.7 million, reflecting the implementation of a new incentive wage program designed to reduce costs through increased productivity. -7- Interest expense for the third quarter of 1995 was $1.5 million, compared to $1.3 million for the same period of 1994. Year-to-date interest expense for 1995 and 1994 was $3.1 million and $2.9 million, respectively. The 1995 interest expense totals reflect an increase in borrowings outstanding partially offset by reduced senior debt interest rates and average borrowing costs. Increased borrowings were needed to fund working capital requirements associated with sales growth. The effective income tax rates on net earnings from continuing operations decreased on a year-to-date basis in 1995 from 1994 levels (30.6% compared to 32.1%). The effective tax rates reflect the anticipated annualized rate for the Company giving consideration to the non-taxable net earnings of foreign subsidiaries. Net earnings from continuing operations of $5.2 million ($.31 per share) for the twelve weeks ended September 9, 1995 compared favorably to earnings of $3.8 million ($.23 per share) for the respective period of 1994. Year-to-date net earnings from continuing operations of $11.6 million ($.69 per share) in 1995 compared with earnings of $7.6 million ($.47 per share) for the same period of 1994. Increased earnings are primarily a result of the items noted above. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Accounts receivable of $85.6 million at September 9, 1995 reflect an increase of $14.0 million and $14.9 million over the balances at September 10, 1994 and December 31, 1994, respectively. Inventories of $110.4 million at September 9, 1995 reflect an increase of $26.0 million and $31.4 million over the balances at September 10, 1994 and December 31, 1994, respectively. The increases in accounts receivable were directly related to increased volume. Inventories were increased to meet anticipated future demand in both wholesaling and manufacturing. Third quarter order backlogs have increased 25% when compared to 1994, supporting the requirement for increased inventories. Fourth quarter shipments are expected to reduce inventories to levels which will be commensurate with the growth of the Company's wholesale businesses. Other current assets totaling $14.9 million at September 9, 1995 were unchanged from December 31, 1994 levels and is $4.0 million higher than the September 10, 1994 balance. The increases were primarily a result of the current portion of notes receivable from the 1992 disposition of the Brooks operations becoming classified as a current asset. Total interest bearing debt of $83.8 million on September 9, 1995 compares to $67.8 million and $45.2 million at September 10, 1994 and December 31, 1994, respectively. The increase in debt since December 31, 1994 was a result of the seasonal working capital requirements of the Company. The increase over September 10, 1994 was primarily attributable to additional investment in inventories to meet anticipated sales demand in the last quarter of 1995. The -8- Company is currently examining its long term capital requirements. It is expected that continued growth of the Company will require increases in capital funding over the next several years. An expansion of warehousing and administrative facilities is being contemplated and alternatives for meeting these and other of the Company's capital needs are being evaluated. The Company issued $30.0 million of senior debt during the third quarter of 1994 with an interest rate of 7.81%. Proceeds were used to pay $21.4 million of existing 10.4% senior debt and to reduce balances outstanding under a revolving credit facility. Additionally, the long-term revolving debt scheduled to expire in June 1995 was renegotiated during 1994 to provide more favorable terms and conditions and the Company's revolving credit facility was extended through June 1998. The 1995 third quarter dividend declared of $.035 per share of common stock represents a 29.6% increase over the $.027 per share (post split) declared for the third quarter of 1994. The dividend is payable February 1, 1996 to stockholders of record on January 2, 1996. The Company's increased investments in capital improvements have resulted in a $1.3 million increase in depreciation expense for year-to-date 1995 over the same period of 1994. These capital investments reflect the ongoing integration of manufacturing facilities and refurbishment of a corporate office building. During the fourth quarter of 1994, the Company adopted a formal plan to withdraw from its Lamont's leased shoe department business, which resulted in a charge to 1994 fourth quarter earnings of $1.2 million. This plan was completed as of July 15, 1995. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS. The following documents are filed as exhibits to this report on Form 10-Q: Exhibit NUMBER DOCUMENT 3.1 Certificate of Incorporation, as amended. Previously filed as Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the period ended June 18, 1994. Here incorporated by reference. 3.2 Amended and Restated Bylaws. Previously filed as Exhibit 3(b) to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1994. Here incorporated by reference. -9- 3.3 Amendment to Bylaws. Previously filed as Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the period ended March 25, 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 Amended and Restated Credit Agreement dated as of October 13, 1994 with NBD Bank, N.A. as Agent. Previously filed as Exhibit 4(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Here incorporated by reference. 4.4 Note Agreement dated as of August 1, 1994 relating to 7.81% Senior Notes. Previously filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the period ended September 10, 1994. Here incorporated by reference. 4.5 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 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 Supplemental Executive Retirement Plan. 27 Financial Data Schedule. (b) REPORT ON FORM 8-K. No reports on Form 8-K have been filed during the period for which this report is filed. -10- SIGNATURES Pursuant to the requirements 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. AND SUBSIDIARIES October 23, 1995 s/Geoffrey B. Bloom Date Geoffrey B. Bloom President and Chief Executive Officer (Duly Authorized Signatory for Registrant) October 23, 1995 s/Stephen L. Gulis, Jr. Date Stephen L. Gulis, Jr. Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory of Registrant) -11- EXHIBIT INDEX Exhibit NUMBER DOCUMENT 3.1 Certificate of Incorporation, as amended. Previously filed as Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the period ended June 18, 1994. Here incorporated by reference. 3.2 Amended and Restated Bylaws. Previously filed as Exhibit 3(b) to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1994. Here incorporated by reference. 3.3 Amendment to Bylaws. Previously filed as Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the period ended March 25, 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 Amended and Restated Credit Agreement dated as of October 13, 1994 with NBD Bank, N.A. as Agent. Previously filed as Exhibit 4(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. Here incorporated by reference. 4.4 Note Agreement dated as of August 1, 1994 relating to 7.81% Senior Notes. Previously filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the period ended September 10, 1994. Here incorporated by reference. 4.5 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 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 Supplemental Executive Retirement Plan. 27 Financial Data Schedule. -12-