============================================================================= 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 January 3, 1998 [ ] 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 Exchange, Inc. 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. [X] Number of shares outstanding of the registrant's Common Stock, $1 par value (excluding shares of treasury stock) as of March 2, 1998: 42,742,513. 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 2, 1998: $1,239,532,877. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement for the registrant's annual stockholders' meeting to be held April 27, 1998, are incorporated by reference into Part III of this report. =============================================================================
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 over 37 million pairs of Company branded footwear during fiscal 1997, making the Company a global leader among U.S. shoe companies in the marketing of branded casual, work and outdoor 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], MERRELL[REGISTERED] and HARLEY-DAVIDSON[REGISTERED]. The Company believes that its primary competitive strengths are its well recognized brand names, broad range of comfortable footwear, patented comfort technologies, numerous distribution 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 casual, work and outdoor 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 the 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 52,000 department store, footwear chain, catalog, specialty retailer and mass merchant accounts, as well as 60 Company-owned retail stores. The Company's products are distributed worldwide through approximately 150 licensees and distributors in over 100 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. -2-
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 Company licensees and other domestic and foreign manufacturers of shoes. On September 7, 1997, the Company obtained a global license from The Coleman Company, Inc. to manufacture and market COLEMAN[REGISTERED] brand footwear. The Company's prior COLEMAN[REGISTERED] license was limited to the U.S., Canada and Japan. On October 17, 1997, the Company acquired certain assets of the MERRELL[REGISTERED] outdoor footwear business from the Outdoor Division of Sports Holdings Corp. The acquisition included substantially all the assets of the MERRELL[REGISTERED] hiking and rugged outdoor footwear business and global rights to the MERRELL[REGISTERED] trademark. In addition, on March 12, 1998, the Company was granted the rights to manufacture and market footwear, including motorcycle, casual, work and western boots under the HARLEY-DAVIDSON[REGISTERED] brand. The COLEMAN[REGISTERED], MERRELL[REGISTERED] and HARLEY-DAVIDSON[REGISTERED] footwear businesses are operated as part of the Wolverine Footwear Group. PRODUCTS. The Company's products include casual, dress, work and uniform shoes, hiking and outdoor shoes, boots and sandals, and work 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], HY-TEST[REGISTERED], MERRELL[REGISTERED] and HARLEY-DAVIDSON[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 Company's four operating divisions and the Wolverine Leathers Division are described below. 1. THE HUSH PUPPIES COMPANY. The Company believes that HUSH PUPPIES'[REGISTERED] 40-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, -3-
women and children in over 80 countries and are distributed through a multi-tiered network of department stores, specialty retailers, national chains, catalogs and Company-owned stores. In addition, the HUSH PUPPIES[REGISTERED] brand apparel and accessory licensing program includes eyewear, toy dogs and apparel. 2. 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 114 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 includes the BATES[REGISTERED], HY-TEST[REGISTERED] and HARLEY-DAVIDSON[REGISTERED] product lines. The product lines feature patented technologies and designs, such as the DURASHOCKS[REGISTERED] and DURASHOCKS SR<Trademark> systems, and the use of quality materials and components. In addition, the Wolverine Footwear Group includes the Wolverine Outdoor Division, which markets hiking and outdoor shoes, boots and sandals through the MERRELL[REGISTERED] and COLEMAN[REGISTERED] product lines. WOLVERINE[REGISTERED] WORK AND INDUSTRIAL FOOTWEAR. 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. WOLVERINE[REGISTERED] RUGGED OUTDOOR AND SPORT FOOTWEAR. The WOLVERINE[REGISTERED] rugged outdoor and sport product lines incorporate DURASHOCKS[REGISTERED] and DURASHOCKS SR<Trademark> technology and other comfort features into 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 -4-
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 GORE-TEX[REGISTERED], THINSULATE[REGISTERED] and the Company's patented DURASHOCKS[REGISTERED] technologies. This line is sold through specialty retail and catalog distribution channels that serve hunting and fishing enthusiasts. In addition, in 1997, the Company introduced WOLVERINE[REGISTERED] brand rubber footwear, boots and waders for hunters, fishermen and farm workers. This product line is sold through mass merchants and specialty retail stores. 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], DURASHOCKS SR<Trademark> and other proprietary comfort technologies in the design of its military-style boots and oxfords including the BATES[REGISTERED] ENFORCER<Trademark> Series footwear line. The Bates Division currently contracts with the U.S. Department of Defense and other governmental organizations to supply military footwear. Civilian uniform uses include police, security, postal, restaurant and other industrial occupations. Bates Division products are also distributed through specialty retailers and catalogs. HY-TEST. The HY-TEST[REGISTERED] product line consists primarily of high quality work boots and shoes designed to protect male and female industrial workers from footwear injuries. HY-TEST[REGISTERED] footwear incorporates various safety features into its product lines, including steel toe footwear and electrical hazard, static dissipating and conductive footwear to protect against hazards of the workplace. In addition, HY-TEST[REGISTERED] brand footwear incorporates features such as FOOT RESTS[REGISTERED] comfort technology to provide comfort together with safety for working men and women. HY-TEST[REGISTERED] footwear is distributed primarily through a network of mobile truck "ShoemobilesTM" providing direct sales to workers at industrial facilities. HARLEY-DAVIDSON. On March 12, 1998, the Company entered into a License Agreement with the Harley-Davidson Motor Company granting the Company the right to manufacture, market, distribute and sell footwear under the HARLEY-DAVIDSON[REGISTERED] brand in most -5-
countries of the world. The Company's rights to the HARLEY-DAVIDSON[REGISTERED] brand become effective in North America, South America and Central America in 1998, and become effective in the remaining areas of the world at various times in the future, such that by January 1, 2000, the Company will have the exclusive right to produce and distribute HARLEY-DAVIDSON[REGISTERED] footwear in most countries of the world. HARLEY-DAVIDSON[REGISTERED] brand footwear products include motorcycle, casual, work and western boots. HARLEY-DAVIDSON[REGISTERED] footwear will be sold primarily through a network of 600 independent HARLEY-DAVIDSON[REGISTERED] dealerships and through department stores and specialty retailers. WOLVERINE OUTDOOR DIVISION. The Wolverine Outdoor Division consists of the MERRELL[REGISTERED] and COLEMAN[REGISTERED] footwear brands. - MERRELL. The MERRELL[REGISTERED] product line, acquired by the Company on October 17, 1997, consists primarily of technical hiking and rugged outdoor footwear designed for backpacking, day hiking and rugged every day use. MERRELL[REGISTERED] products are sold primarily through specialty retailers and catalogs. - COLEMAN. The Company has been granted the exclusive worldwide rights to manufacture, market, distribute and sell outdoor footwear under the COLEMAN[REGISTERED] brand. 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. 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 footwear 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. CATERPILLAR[REGISTERED] brand footwear products include work boots and shoes, sport boots, rugged casuals and lifestyle footwear. In addition, in 1997 the Company introduced -6-
CAT[REGISTERED] Marine Power footwear, designed for industrial and recreational uses in marine areas and on water covered surfaces. The diversity of the product line and strong recognition of the CATERPILLAR[REGISTERED] brand name allow the Company and its international distributors to distribute products through a wide variety of channels, including mass merchants, department stores and independent retailers. CATERPILLAR[REGISTERED] brand products target work and industrial users and active lifestyle users. 4. 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 the Wolverine Slipper Group's 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. 5. THE WOLVERINE LEATHERS DIVISION. The Wolverine Leathers Division produces pigskin leathers primarily for use in the footwear industry. The Wolverine Leathers Division is the largest domestic tanner of pigskin and is included in the Company's Global Operations Group. 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 many of the Company's domestic footwear lines and many products offered by the Company's international licensees and distributors. MARKETING. The Company's overall marketing strategy is to develop brand-specific plans and related promotional materials for the United States market to 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 accounts and consumers, and strive to increase overall brand awareness for the Company's products. The Company's advertisements typically emphasize -7-
fashion, comfort, quality, durability, functionality and other performance and lifestyle aspects of the Company's footwear. Components of the brand-specific plans include print, radio and television advertising, in-store point of purchase displays, promotional materials, and sales and technical 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 marketing 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, catalog 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<Trademark> distributors is primarily used to distribute and sell HY-TEST[REGISTERED] brand products. The Company also distributes additional products through this independent distributor network. In addition to its wholesale activities, the Company operated 60 domestic retail shoe stores as of March 30, 1998, under two formats, -8-
consisting of factory outlet stores and mall-based speciality stores. The Company expects the scope of its retail operations to remain relatively consistent in the foreseeable future. Most of the Company's 54 factory outlet stores carry a large selection of first quality Company branded footwear at a discount to conventional retail prices. The 6 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 merchandising strategies. In addition, one of the mall-based full service, full price HUSH PUPPIES[REGISTERED] Specialty Stores also features other Company brands in addition to HUSH PUPPIES[REGISTERED]. 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 1997. 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. INTERNATIONAL OPERATIONS AND GLOBAL LICENSING The Company records revenue from foreign sources through a combination of sales generated from the Company's wholly owned operations in Canada, the United Kingdom and Russia, and from royalty income through a network of independent licensees and distributors. The Company's owned operations include Hush Puppies UK, Ltd., Merrell Europe Ltd., Hush Puppies Canada and Wolverine Russia, Inc., which provides operational support, marketing assistance and consulting services to promote the sale of both HUSH PUPPIES[REGISTERED] and CATERPILLAR[REGISTERED] brand footwear in Russia. The Company's owned operations are located in markets where the Company believes it can gain a strategic advantage. The Company derives royalty income from sales of Company footwear bearing the HUSH PUPPIES[REGISTERED], WOLVERINE[REGISTERED], BATES[REGISTERED], HY-TEST[REGISTERED] and other trademarks by independent distributors and licensees. The Company also derives royalty income from sales of footwear bearing the CATERPILLAR[REGISTERED], COLEMAN[REGISTERED] and HARLEY-DAVIDSON[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 1997, the Company's wholly owned foreign operations, together with the Company's foreign licensees and distributors sold an -9-
estimated 18 million pairs of footwear, an increase from approximately 15 million pairs sold in fiscal 1996. 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 purchase goods from either the Company or authorized third-party manufacturers pursuant to a distribution agreement or manufacture branded products consistent with Company standards pursuant to a license agreement. Each distributor and licensee is responsible for independently marketing and distributing Company branded products in their respective territories, with general oversight provided by the Company. MANUFACTURING AND SOURCING. Although approximately two-thirds 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, Costa Rica, Mexico and Canada. The Company has implemented a "twin plant" concept whereby a majority of the labor intensive cutting and fitting construction of the "upper" portion of shoes and boots is performed at the Company's facilities in the Caribbean Basin, Costa Rica and Mexico and the technology intensive construction, or "bottoming," is performed at the Company's domestic and Canadian 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 to 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 and international 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. In addition, Wolverine has developed its "Engagement Criteria for Partners & Sources" to ensure that its domestic and foreign manufacturers, licensees and distributors use ethical business standards, comply with all applicable health and safety laws and -10-
regulations, are committed to environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions, and do not use child or prison labor. 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 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. The Company currently purchases the vast majority of the raw pigskins used in a significant portion of its tannery operations from two domestic sources. One of these sources 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, the imposition of trade barriers, quotas and tariffs and loss of most favored nation 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 -11-
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], HY-TEST[REGISTERED] and MERRELL[REGISTERED]. The Company is licensed to manufacture and market footwear throughout the world under the COLEMAN[REGISTERED] trademark pursuant to an agreement that extends through December 31, 2002, with an automatic five year renewal, subject to the Company achieving certain sales volumes. The Company is also licensed to manufacture and market footwear throughout the world under the CATERPILLAR[REGISTERED] and CAT DESIGN[REGISTERED] trademarks pursuant to an agreement that extends through December 31, 2002. In addition, pursuant to a long-term agreement, the Company is licensed to manufacture and market footwear throughout most countries of the world under the HARLEY-DAVIDSON[REGISTERED] trademark. Pigskin leather produced by the Company is sold under the trademarks WOLVERINE LEATHERS[REGISTERED] and ALL SEASON WEATHER LEATHERS<Trademark>. 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 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 also holds 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 20, 1998, the Company had a backlog of orders of approximately $168 million compared with a backlog of approximately $141 million at March 21, 1997. 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 1998. 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 -12-
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 preferences. 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 among the largest domestic manufacturers of footwear. 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 and distributors. 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 have not had, nor are they expected to have, any material effect on the capital expenditures, earnings or competitive position of the Company. The Company uses and generates, 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 -13-
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 January 3, 1998, the Company had approximately 6,696 domestic and foreign production, office and sales employees. Approximately 1,801 employees were covered by eight union contracts expiring at various dates through February 11, 2002. 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 January 3, 1998: <TABLE> <CAPTION> OWNED SQUARE LOCATION TYPE OF FACILITY LEASED FOOTAGE <S> <C> <C> <C> Rockford, MI Administration/Sales Owned 193,300 Jonesboro, AR Administration/Sales Leased 5,680 Malone, NY Administration/Sales Owned 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 Saint-Sauveur-des-Monts, Quebec, Canada Administration/Sales Leased 1,500 Taipei, Taiwan Administration/Sales Leased 2,800 Chungil, Taiwan Administration/Sales Leased 2,800 Leicechire, England, United Kingdom Administration/Sales Leased 13,250 Bristol, England, United Kingdom Administration/Sales Leased 2,200 TOTAL ADMINISTRATION/SALES 242,659 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 Monette, AR Manufacturing Owned 18,030 Russellville, AR Manufacturing Leased 41,808 Rockford, MI Manufacturing Owned 20,833 Rockford, MI Manufacturing Owned 19,624 -14-
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, Puerto Rico Manufacturing Leased 62,100 San Pedro, Dominican Republic Manufacturing Leased 65,111 Santo Domingo, Dominican Republic Manufacturing Leased 54,332 Alexandria, Ontario, Canada Manufacturing Owned 28,000 Cartago, Costa Rica Manufacturing Leased 88,308 TOTAL MANUFACTURING 949,224 Jonesboro, AR Warehouse Leased 2,000 Jonesboro, AR Warehouse Leased 19,500 Jonesboro, AR Warehouse Owned 13,500 Jonesboro, AR Warehouse Owned 15,478 Walnut Ridge, AR Warehouse Leased 2,000 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 Howard City, MI Warehouse Leased 350,000 Malone, NY Warehouse Owned 115,211 Bombay, NY Warehouse Owned 26,000 St. Laurent, Quebec, Canada Warehouse Leased 33,000 TOTAL WAREHOUSE 1,371,807 </TABLE> 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 -15-
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 to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year covered by this report. 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. <TABLE> <CAPTION> NAME AGE POSITIONS HELD WITH THE COMPANY ---- --- ------------------------------- <S> <C> <C> <C> Gary M. Acromite 41 Vice President and Chief Information Officer Geoffrey B. Bloom 56 Chief Executive Officer and Chairman of the Board Steven M. Duffy 45 Executive Vice President and President, Global Operations Group V. Dean Estes 48 Vice President and President, Wolverine Footwear Group Stephen L. Gulis, Jr. 40 Executive Vice President, Chief Financial Officer and Treasurer Blake W. Krueger 44 Executive Vice President, General Counsel and Secretary Thomas P. Mundt 48 Vice President of Strategic Planning and Corporate Communications Timothy J. O'Donovan 52 Chief Operating Officer and President Nicholas P. Ottenwess 35 Corporate Controller Robert J. Sedrowski 48 Vice President of Human Resources James D. Zwiers 30 Associate General Counsel and Assistant Secretary </TABLE> Gary M. Acromite has served the Company as Vice President and Chief Information Officer since February 1998. From 1995 to February 1998 he -16-
served the Company as Chief Information Officer. From 1982 to 1995 he served in various information services positions with Honeywell, Inc. and most recently was Director of Information Services. 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. 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 Chief Operating Officer and President since April 1996. From 1982 to April 1996 he served the Company as Executive Vice President. Nicholas P. Ottenwess has served as Corporate Controller of the Company since September 1997. From 1993 to September 1997 he served as Vice President of Finance & Administration for The Hush Puppies Company. -17-
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. James D. Zwiers has served the Company as Associate General Counsel and Assistant Secretary since January 1998. From 1995 to 1998 he was an attorney with the law firm of Warner Norcross & Judd LLP. From 1992 to 1995 he attended the University of Michigan Law School. From 1990 to 1992 he was a Certified Public Accountant at BDO Siedman LLP. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Wolverine World Wide, Inc. common stock is traded on the New York Stock Exchange and the Pacific Exchange, Inc. under the symbol "WWW." The following table shows the high and low sales prices by calendar quarter for 1997 and 1996 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 April 1997 and July 1996. The number of stockholders of record of common stock on March 2, 1998, was 1,992. <TABLE> <CAPTION> 1997 1996 ---- ---- HIGH LOW HIGH LOW ---- --- ---- --- <S> <C> <C> <C> <C> <C> 1st quarter $ 26 1/4 $ 18 9/16 $ 13 3/8 $ 11 3/16 2nd quarter 27 5/8 22 11/16 15 1/16 13 1/16 3rd quarter 31 1/8 21 5/8 17 3/8 14 15/16 4th quarter 26 3/8 19 7/16 19 5/16 17 1/8 </TABLE> <TABLE> CASH DIVIDENDS DECLARED PER SHARE: <CAPTION> 1997 1996 ---- ---- <S> <C> <C> <C> 1st quarter $ .0217 $ .0178 2nd quarter .0217 .0178 3rd quarter .0217 .0178 4th quarter .0217 .0178 </TABLE> Cash dividends declared per share for 1997 and 1996 have been retroactively adjusted to reflect the three-for-two stock splits announced in April 1997 and July 1996. Dividends of $.0275 were declared for the first quarter of fiscal 1998. -18-
ITEM 6. SELECTED FINANCIAL DATA. <TABLE> FIVE-YEAR OPERATING AND FINANCIAL SUMMARY <F1> (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) <CAPTION> 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> SUMMARY OF OPERATIONS Net sales and other operating income $ 665,125 $ 511,029 $ 413,957 $ 387,534 $ 333,143 Net earnings 41,539 32,856 24,067 16,598 11,492 Per share of common stock: Net earnings<F2><F3>: Basic $ 1.00 $ .81 $ .66 $ .48 $ .35 Diluted .96 .76 .62 .45 .31 Cash dividends<F3><F4> .09 .07 .06 .05 .03 FINANCIAL POSITION AT YEAR END Total assets $ 449,663 $ 361,598 $ 283,554 $ 231,582 $ 205,112 Long-term debt 92,264 41,309 30,678 43,786 49,645 </TABLE> [FN] NOTES TO FIVE-YEAR OPERATING AND FINANCIAL SUMMARY <F1> 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. <F2> Basic earnings per share are based on the weighted average number of shares of common stock outstanding during the year after adjustment for nonvested common stock. Diluted earnings 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. <F3> On April 17, 1997, July 11, 1996, April 19, 1995, and March 10, 1994, the Company announced three-for-two stock splits on shares of common stock outstanding at May 2, 1997, July 26, 1996, May 1, 1995, and March 21, 1994, respectively. All share and per share data has been retroactively adjusted for the increased shares resulting from these stock splits. <F4> Cash dividends per share represent the rates paid by the Company on the shares outstanding. </FN> -19-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OPERATIONS. RESULTS OF OPERATIONS - 1997 COMPARED TO 1996 Net sales and other operating income increased 30.2% to $665.1 million during 1997 from $511.0 million in 1996. The Hush Puppies Company had a $67.5 million (33.7%) increase in 1997 net sales, while the Wolverine Footwear Group contributed $42.9 million (24.4%) of additional sales in 1997 as compared to 1996. The CATERPILLAR[REGISTERED] Footwear Group continued its strong growth rate showing a $24.9 million (63.7%) increase in 1997 net sales over 1996. The Wolverine Leathers Division recognized a $14.5 million (56.1%) net sales improvement in 1997 over 1996. Sales of the Wolverine Slipper Group were flat for 1997 as compared to the prior year. The Hush Puppies North American wholesale operations' net sales increased $21.8 million (16.4%) over the 1996 level as a result of the continued popularity of the HUSH PUPPIES[REGISTERED] Classics product line. Net sales and other operating income for the Hush Puppies International Division increased $1.3 million (12.1%) in 1997 over 1996 levels, reflecting solid growth rates throughout the world. The Hush Puppies Retail Division's net sales increased $6.1 million (20.2%) in 1997 with same-store net sales improving 7.9%. Hush Puppies (U.K.) Ltd., which was acquired at the end of the third quarter of 1996, had a $36.4 million increase over its four months of 1996 operations. The Wolverine Footwear Group continued its strong performance in 1997 as the Wolverine Boots and Shoes Division reported a $22.8 million (19.0%) increase in net sales and other operating income over 1996. HY-TEST[REGISTERED] Boots and Shoes, which was acquired near the end of the first quarter of 1996, had a $12.1 million (49.4%) increase in 1997 net sales over its nine months of 1996 operations. BATES[REGISTERED] footwear net sales and other operating income improved $4.3 million (14.8%) in 1997 over 1996 reflecting increased penetration into military, uniform and export markets. The MERRELL[REGISTERED] outdoor footwear business was acquired in the fourth quarter of 1997 and contributed marginally to net sales and other operating income. The CATERPILLAR[REGISTERED] Footwear Group recognized a $24.9 million (63.7%) increase in 1997 net sales and other operating income over 1996. Domestically, the CAT[REGISTERED] Footwear brand continues to gain momentum as approximately 800 new specialty and department store customers were added in 1997. Internationally, the brand continues to show solid growth gains in the United Kingdom and Europe and has accelerated its growth in the Pacific Rim and Latin American regions. -20-
The Wolverine Slipper Group's net sales and other operating income was 1.0% above the level recorded in 1996. Higher sales of HUSH PUPPIES[REGISTERED] branded slippers offset lower sales of private branded products in 1997. The Wolverine Leathers Division recorded a significant net sales improvement of $14.5 million (56.1%) in 1997 with both licensee and domestic accounts contributing to the increase. The 1997 performance represented the fourth consecutive year of net sales increases for the division. Strong demand for performance leather and sueded products continues to drive volume increases. Gross margin as a percentage of net sales and other operating income increased to 30.7% in 1997 from 30.5% in 1996. Gross margin dollars increased $48.3 million (31.0%) in 1997 to $204.1 million as compared to $155.8 million in 1996. The Hush Puppies Company reported a gross margin improvement of 4.3 percentage points in 1997 based primarily on results of the North American Wholesale operations where initial pricing improvements and manufacturing and sourcing efficiencies were achieved. The 1997 improvement in gross margin percentage by The Hush Puppies Company was tempered to some degree by the higher level of operations of Hush Puppies (U.K.) Ltd., which operates at lower gross margin levels than comparable U.S. operations. The Wolverine and CATERPILLAR[REGISTERED] Footwear Groups experienced slightly lower gross margin percentages in 1997 as compared to 1996 as a result of initial investments required to position recent acquisitions and new products in both domestic and international markets. Additionally, gross margin gains of the Wolverine Leathers Division were offset by lower gross margins of the Wolverine Slipper Group in 1997. Both of these businesses operate at comparable gross margin percentages that are lower than those experienced by the Company's wholesale footwear operations. Selling and administrative expenses as a percentage of net sales and other operating income decreased to 20.6% in 1997 from 21.0% in 1996 as these costs increased $29.7 million (27.6%) to $137.2 million in 1997 from $107.5 million in 1996. Excluding the 1997 acquisition of the MERRELL[REGISTERED] outdoor footwear business and the 1996 acquisitions of HY-TEST[REGISTERED] and Hush Puppies (U.K.) Ltd., selling, advertising and distribution costs increased $15.4 million or 21.4% during 1997. The reduction in selling and administrative expenses as a percentage of net sales and other operating income occurred despite increased investments in branded marketing initiatives, significant information system upgrades, higher profit sharing provisions and costs associated with employee performance incentive plans. Interest expense of $5.5 million was $2.4 million greater in 1997 than the 1996 level of $3.1 million. The increase in interest expense for 1997 reflects additional borrowings on the revolving credit facility over the 1996 level resulting from the 1997 acquisition of the MERRELL[REGISTERED] -21-
outdoor footwear business and increased working capital requirements associated with higher sales volume. Additionally, proceeds from the November 1995 equity offering provided cash which resulted in lower average borrowings for the first quarter of 1996. On September 24, 1997, the Company moved to strengthen its domestic footwear businesses by closing three Arkansas women's shoe factories and converting a New York slipper factory into a warehouse. These actions resulted in a restructuring charge of $3.5 million in 1997. The restructuring balanced the sourcing mix for HUSH PUPPIES[REGISTERED] women's shoes and the Wolverine Slipper Group as more products will be sourced internationally in future years. The 1997 effective tax rate of 32.0% increased from 31.1% in 1996 as a result of earnings from certain foreign subsidiaries, which are taxed generally at lower rates, becoming a smaller percentage of total consolidated earnings. Net earnings of $41.5 million for 1997 reflect a 26.4% increase over net earnings of $32.9 million reported for 1996. Diluted earnings per share for 1997 were $0.96 compared to $0.76 per share in 1996. Prior to the one-time after-tax restructuring charge of $2.3 million, diluted earnings per share were $1.01 for 1997. Basic earnings per share of $1.00 and $0.81 were reported for 1997 and 1996, respectively. Increased net earnings are primarily a result of the items noted above. 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 of 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 (15.6%) improvement over 1995. 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 (10.0%) 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 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 -22-
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, the Hush Puppies Retail Division same-store sales were up $.4 million (2.1%). Hush Puppies (U.K.) Ltd. reported $26.4 million in 1996 net sales since its acquisition in the third quarter. 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 $32.3 million (26.1%) 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 in 1996 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 (25.0%) from $86.0 million in 1995, and as a percentage of net sales increased to 21.0% in 1996 from 20.8% in 1995. The 1996 acquisitions of HY-TEST[REGISTERED] 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 -23-
$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 as a result of earnings from certain foreign subsidiaries, which are taxed generally at lower rates, becoming a smaller percentage of total consolidated earnings. Net earnings of $32.9 million for 1996 reflect a 36.5% increase over net earnings of $24.1 million reported for 1995. Diluted earnings per share for 1996 were $0.76 compared to $0.62 per share in 1995. Basic earnings per share of $0.81 and $0.66 were reported for 1996 and 1995, respectively. Increased net earnings are primarily a result of the items noted above. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities was $0.2 million in 1997 compared to net cash provided by operating activities of $17.4 million in 1996. Cash of $52.6 million (34.1% of the net sales and other operating income increase) in 1997 and $22.0 million (22.7% of the net sales and other operating income increase) in 1996 was used to fund working capital requirements. Accounts receivable of $138.1 million at January 3, 1998, reflect a $12.1 million (9.6%) increase over the $126.0 million balance at December 28, 1996. Inventories of $143.8 million at January 3, 1998, reflect a $26.4 million (22.5%) increase over the $117.4 million balance at December 28, 1996. The 1997 acquisition of the assets of the MERRELL[REGISTERED] outdoor footwear business contributed 4.7% and 4.0% of the increases in accounts receivable and inventories, respectively. The Company's order backlog was approximately 20% higher at January 3, 1998, as compared to the previous year, supporting the need for increased inventories to meet anticipated future demand. Accounts payable of $24.3 million at January 3, 1998, reflects a $17.0 million (41.1%) decrease over the $41.3 million balance at December 28, 1996. The decrease in accounts payable is primarily attributable to the timing of 1997 year end payments -24-
compared to 1996. The 1996 accounts payable balance also included significant inventory purchases at the Hush Puppies (U.K.) Ltd. operation near year end. Additions to property, plant and equipment of $35.4 million in 1997 compare to $20.6 million reported in 1996. The majority of these expenditures were related to the construction of a new corporate business center, modernization of existing office buildings, replacement of legacy information systems, expansion of warehouse facilities and purchases of manufacturing equipment necessary to upgrade the Company's footwear and leather manufacturing facilities. Depreciation and amortization of $9.2 million in 1997 compares to $7.1 million in 1996. This increase was a result of the capital investments noted above and the amortization of goodwill related to the 1997 and 1996 acquisitions discussed below. The Company maintains short-term borrowing and commercial letter-of-credit facilities of $58.4 million, of which $39.3 million and $29.5 million were outstanding at the end of 1997 and 1996, respectively. Long-term debt of $94.2 million at the end of 1997 increased $52.9 million from the $41.3 million balance at the end of 1996. The increase in debt primarily resulted from seasonal working capital requirements of the Company, investments in capital improvements and the purchase of the MERRELL[REGISTERED] outdoor footwear business. It is expected that continued growth of the Company will require increases in capital funding over the next several years. In the first quarter of 1998, the Company renegotiated its long-term revolving debt agreement and increased the amount available under its domestic credit facilities from $100 million to $150 million. In addition, the Company's subsidiary in the United Kingdom has a $17.2 million, three-year variable rate revolving credit agreement expiring in January 2000 to support its working capital requirements. The combination of credit facilities and cash flows from operations is expected to be sufficient to meet future capital needs. The Company paid dividends of $3.7 million in 1997, or $.09 per share, which reflects a 24.0% increase over the $3.0 million, or $0.07 per share paid in 1996. Additionally, shares issued under stock incentive plans provided cash of $8.9 million in 1997 compared to $3.7 million during 1996. On October 17, 1997, the Company completed the purchase of substantially all of the assets of the MERRELL[REGISTERED] outdoor footwear business from the Outdoor Division of Sports Holdings Corp. The purchase price of this acquisition was $16.3 million of which $15.8 million was paid in cash in 1997. 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[REGISTERED] -25-
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 business acquisitions on a global basis and may, from time to time, make additional acquisitions. The current ratio at year-end was 4.7 to 1.0 in 1997 compared with 3.8 to 1.0 in 1996. The Company's total debt to total capital ratio increased to .26 to 1.0 in 1997 from .15 to 1.0 in 1996. IMPACT OF YEAR 2000 The Company is currently in the process of addressing a problem that is facing all users of automated information systems. The "Year 2000 Issue" is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This situation could result in a system failure or miscalculations causing disruptions to operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Based on a recent assessment, the Company determined that it will be required to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. This modification and replacement process will be implemented by the Company's Information Systems team and will be supervised primarily by an Executive Oversight Committee, consisting of internal executive management and various other third parties. The Company presently believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed in a timely manner, the Year 2000 Issue could have a material impact on the operations of the Company. The Company is in the process of initiating formal communications with significant suppliers and customers to determine the extent to which the Company may be vulnerable to a failure by any of these third parties to remediate their own Year 2000 issues. The Company's total Year 2000 project costs include the estimated costs and time associated with anticipated third party Year 2000 issues based on presently available information. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted and will not have an adverse effect on the Company's operations. The Company does not sell technology-based products and believes it has no exposure to contingencies related to the Year 2000 Issue in this regard. -26-
The Company will utilize both internal and external resources to reprogram, or replace, and test its information systems software for Year 2000 modifications. A significant portion of the Company's Year 2000 issues will be resolved by the installation of Year 2000 compliant systems. The new systems are designed to handle the Company's information systems for order processing, warehousing and finance on a fully integrated enterprise- wide basis (the "Base System"). Manufacturing systems, which are generally Year 2000 compliant, will not be replaced. Implementation of the Base System began in 1997 primarily in response to business demand and growth, although implementation of the Base System will replace software that is not Year 2000 compliant as an ancillary benefit. Any remaining Year 2000 problems will be addressed through a combination of reprogramming and replacement. The Company anticipates completing the Year 2000 project no later than June 30, 1999, which is prior to any anticipated impact on its operating systems. The Company currently estimates that total costs for implementing the new Base System will approximate $20 million and that total costs for additional reprogramming, replacement and other Year 2000 compliance issues not covered by implementation of the Base System will approximate $2 million. To the extent these costs represent investment in new or upgraded technology with definable value lasting beyond 2000 and Year 2000 compliance is merely an ancillary benefit, the Company will capitalize and depreciate such assets over their estimated useful lives. To the extent that Year 2000 costs do not qualify as capital investments, the Company will expense such costs as incurred. The costs of Year 2000 modifications and the date on which the Company believes it will complete the project are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, supplier compliance and contingency actions, and similar uncertainties. 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. -27-
FORWARD-LOOKING STATEMENTS This discussion and analysis of financial condition and results of operations, and other sections of this Annual Report, contain forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the footwear industry, the economy, and about the Company itself. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is likely," "plans," "predicts," "projects," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Furthermore, the Company undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. Future Factors include, but are not limited to, uncertainties relating to changes in demand for the Company's products; changes in consumer preferences or spending patterns; the cost and availability of inventories, services, labor and equipment furnished to the Company; the degree of competition by the Company's competitors; changes in government and regulatory policies; changes in trading policies or import and export regulations; changes in interest rates, tax laws, duties or applicable assessments; technological developments; and changes in domestic or international economic conditions. These matters are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable for fiscal year 1997. 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. -28- PAGE> 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 27, 1998, 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 27, 1998, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained under the captions "Ownership of Common Stock" and "Securities Ownership of Management" contained in the definitive Proxy Statement of the Company dated March 27, 1998, 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 27, 1998, 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: -29-
- Consolidated Balance Sheets as of January 3, 1998, and December 28, 1996. - Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended January 3, 1998, December 28, 1996, and December 30, 1995. - Consolidated Statements of Operations for the Fiscal Years Ended January 3, 1998, December 28, 1996, and December 30, 1995. - Consolidated Statements of Cash Flows for the Fiscal Years Ended January 3, 1998, December 28, 1996, and December 30, 1995. - Notes to Consolidated Financial Statements as of January 3, 1998. - Report of Independent Auditors. ITEM 14(a)(2). FINANCIAL STATEMENT SCHEDULES. Attached as Appendix B. The following consolidated financial statement schedule of Wolverine World Wide, Inc. and subsidiaries is filed as a part of this report: Schedule II--Valuation and qualifying accounts. 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 14, 1997. 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. -30-
4.2 Rights Agreement dated as of April 17, 1997. Previously filed with the Company's Form 8-A filed April 12, 1997. Here incorporated by reference. 4.3 Credit Agreement dated as of October 11, 1996, with NBD Bank as Agent. Previously filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996. Here incorporated by reference. 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 2, 1998, 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. 10.1 Stock Option Plan of 1979, and amendment.<F*> 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.<F*> 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.<F*> 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.<F*> 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 Employees Pension Plan.<F*> 10.6 Employment Agreement dated April 27, 1993, between the Company and Geoffrey B. Bloom.<F*> 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. -31-
10.7 Executive Long-Term Incentive (Three Year) Plan 1996-1998 Period.<F*> Previously filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996. Here incorporated by reference. 10.8 1994 Directors' Stock Option Plan.<F*> 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.<F*> 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 Executive Severance Agreement.<F*> 10.11 Supplemental Executive Retirement Plan, as amended.<F*> 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. An updated participant schedule is attached as Exhibit 10.11. 10.12 1995 Stock Incentive Plan.<F*> 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.<F*> 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.<F*> 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 Indemnification Agreements.<F*> 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. The Company has entered into an Indemnification Agreement with each director and executive officer. -32-
10.16 Supplemental Retirement Benefits.<F*> 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. 10.17 Benefit Trust Agreement dated May 19, 1987, and Amendments Number 1, 2 and 3 thereto.<F*> 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. 10.18 1996 Executive Short-Term Incentive Plan (Annual Bonus Plan).<F*> 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. 10.19 Outside Directors' Deferred Compensation Plan.<F*> 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. 10.20 1984 Executive Incentive Stock Purchase Plan, and amendment.<F*> 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. 10.21 Supplemental Director's Fee Agreement dated as of March 27, 1995, between the Company and Phillip D. Matthews.<F*> 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. 10.22 Restricted Stock Agreement dated as of March 27, 1995, between the Company and Phillip D. Matthews.<F*> 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. 10.23 1997 Stock Incentive Plan.<F*> Previously filed as Appendix A to the Company's Definitive Proxy Statement with respect to the Company's Annual Meeting of Stockholders held on April 16, 1997. Here incorporated by reference. 10.24 Executive Short-Term Incentive Plan (Annual Bonus Plan).<F*> Previously filed as Appendix B to the Company's Definitive Proxy Statement with respect to the Company's Annual Meeting of Stockholders held on April 16, 1997. Here incorporated by reference. -33-
10.25 Executive Long-Term Incentive Plan (3-Year Bonus Plan).<F*> Previously filed as Appendix C to the Company's Definitive Proxy Statement with respect to the Company's Annual Meeting of Stockholders held on April 16, 1997. Here incorporated by reference. 11 Computation of Per Share Earnings. 21 Subsidiaries of Registrant. 23 Consent of Independent Auditors. 24 Powers of Attorney. 27.1 Financial Data Schedule. 27.2 Restated Financial Data Schedule for the quarterly period ended September 6, 1997. 27.3 Restated Financial Data Schedule for the quarterly period ended June 14, 1997. 27.4 Restated Financial Data Schedule for the fiscal year ended December 28, 1996. 27.5 Restated Financial Data Schedule for the quarterly period ended September 7, 1996. 27.6 Restated Financial Data Schedule for the quarterly period ended June 15, 1996. 27.7 Restated Financial Data Schedule for the quarterly period ended March 23, 1996. 27.8 Restated Financial Data Schedule for the fiscal year ended December 30, 1995. ____________________________ [FN] <F*>Management contract or compensatory plan or arrangement. </FN> 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 January 3, 1998. -34-
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WOLVERINE WORLD WIDE, INC. Dated: March 31, 1998 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 31, 1998 Geoffrey B. Bloom and Chairman of the Board of Directors */S/TIMOTHY J. O'DONOVAN President and Director March 31, 1998 Timothy J. O'Donovan /S/STEPHEN L. GULIS, JR. Executive Vice President, Chief March 31, 1998 Stephen L. Gulis, Jr. Financial Officer and Treasurer (Principal Financial and Accounting Officer) */S/DANIEL T. CARROLL Director March 31, 1998 Daniel T. Carroll */S/ALBERTO L. GRIMOLDI Director March 31, 1998 Alberto L. Grimoldi -35-
*/S/DAVID T. KOLLAT Director March 31, 1998 David T. Kollat */S/PHILLIP D. MATTHEWS Director March 31, 1998 Phillip D. Matthews */S/DAVID P. MEHNEY Director March 31, 1998 David P. Mehney */S/JOSEPH A. PARINI Director March 31, 1998 Joseph A. Parini */S/JOAN PARKER Director March 31, 1998 Joan Parker */S/ELIZABETH A. SANDERS Director March 31, 1998 Elizabeth A. Sanders */S/PAUL D. SCHRAGE Director March 31, 1998 Paul D. Schrage /S/STEPHEN L. GULIS, JR. Stephen L. Gulis, Jr. Attorney-in-Fact -36-
APPENDIX A
CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> AS OF FISCAL YEAR END (THOUSANDS OF DOLLARS) 1997 1996 - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 5,768 $ 8,534 Accounts receivable, less allowances (1997 $7,292; 1996 $5,634) 138,066 125,999 Inventories: Finished products 100,272 71,346 RAW MATERIALS AND WORK-IN-PROCESS 43,562 46,081 - ---------------------------------------------------------------------------------------------------------- 143,834 117,427 Refundable income taxes 7,174 2,062 Deferred income taxes 4,880 8,149 OTHER CURRENT ASSETS 4,139 2,457 - ---------------------------------------------------------------------------------------------------------- Total current assets 303,861 264,628 Property, plant and equipment: Land 1,178 1,178 Buildings and improvements 58,483 40,284 MACHINERY AND EQUIPMENT 103,720 89,317 - ---------------------------------------------------------------------------------------------------------- 163,381 130,779 LESS ACCUMULATED DEPRECIATION 73,050 67,776 - ---------------------------------------------------------------------------------------------------------- 90,331 63,003 Other assets Goodwill and other intangibles, less accumulated amortization (1997 $1,017; 1996 $193) 18,789 11,454 Cash value of life insurance 13,166 11,812 Prepaid pension costs 9,963 6,981 Assets held for exchange 6,033 Notes receivable 4,388 2,439 OTHER 3,132 1,281 - ---------------------------------------------------------------------------------------------------------- 55,471 33,967 - ---------------------------------------------------------------------------------------------------------- Total assets $ 449,663 $ 361,598 ========================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 3,251 $ 1,026 Accounts payable 24,318 41,273 -2-
Salaries, wages and other compensation 13,512 9,010 Taxes, other than income taxes 3,463 4,174 Other accrued expenses 15,934 14,251 CURRENT MATURITIES OF LONG-TERM DEBT 4,417 76 - ----------------------------------------------------------------------------------------------------------- Total current liabilities 64,895 69,810 Long-term debt, less current maturities 89,847 41,233 Supplemental employee retirement benefits 7,741 7,353 Deferred income taxes 4,203 2,830 Other noncurrent liabilities 547 1,080 Stockholders' equity: Common stock, $1 par value: Authorized: 80,000,000 shares Issued, including treasury shares: 1997 43,310,718 shares; 1996 42,243,609 shares 43,311 42,244 Additional paid-in capital 64,912 53,943 Retained earnings 190,799 152,948 Accumulated translation adjustments (68) 79 Unearned compensation (4,285) (2,908) Cost of shares in treasury: 1997 758,113 SHARES; 1996 557,323 SHARES (12,239) (7,014) - ---------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 282,430 239,292 - ---------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 449,663 $ 361,598 ========================================================================================================== </TABLE> ( ) Denotes deduction. See accompanying notes to consolidated financial statements. -3-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY <TABLE> <CAPTION> FISCAL YEAR (THOUSANDS OF DOLLARS) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> COMMON STOCK Balance at beginning of the year $ 42,244 $ 41,551 $ 36,847 Proceeds from issuance of common stock 3,911 Common stock issued under stock incentive plans (1997 1,067,109 shares; 1996 693,027 SHARES; 1995 792,756 SHARES) 1,067 693 793 - ---------------------------------------------------------------------------------------------------------- Balance at end of the year 43,311 42,244 41,551 ADDITIONAL PAID-IN CAPITAL Balance at beginning of the year 53,943 48,475 Proceeds from issuance of common stock 44,957 Proceeds over par value and income tax benefits associated with common stock issued under STOCK INCENTIVE PLANS 10,969 5,468 3,518 - ---------------------------------------------------------------------------------------------------------- Balance at end of the year 64,912 53,943 48,475 RETAINED EARNINGS Balance at beginning of the year 152,948 123,066 101,346 Net earnings 41,539 32,856 24,067 Cash dividends (1997 $.09 per share; 1996 $.07 PER SHARE; 1995 $.06 PER SHARE) (3,688) (2,974) (2,347) - ---------------------------------------------------------------------------------------------------------- Balance at end of the year 190,799 152,948 123,066 ACCUMULATED TRANSLATION ADJUSTMENTS Balance at beginning of the year 79 (324) 332 EQUITY ADJUSTMENTS FROM FOREIGN CURRENCY TRANSLATION (147) 403 (656) - ---------------------------------------------------------------------------------------------------------- Balance at end of the year (68) 79 (324) UNEARNED COMPENSATION Balance at beginning of the year (2,908) (1,827) (1,181) Awards under stock incentive plans (3,117) (2,469) (1,490) COMPENSATION EXPENSE 1,740 1,388 844 - ---------------------------------------------------------------------------------------------------------- Balance at end of the year (4,285) (2,908) (1,827) COST OF SHARES IN TREASURY Balance at beginning of the year (7,014) (6,727) (6,000) -4-
Issuance of 10,000 shares of common stock from treasury 125 Common stock purchased for treasury (199--200,790 shares; 1996 9,410 shares; 1995--23,921 SHARES) (5,225) (287) (852) - ---------------------------------------------------------------------------------------------------------- BALANCE AT END OF THE YEAR (12,239) (7,014) (6,727) - ---------------------------------------------------------------------------------------------------------- Total stockholders' equity at end of the year $ 282,430 $ 239,292 $ 204,214 ========================================================================================================== </TABLE> ( ) Denotes deduction. See accompanying notes to consolidated financial statements. -5-
CONSOLIDATED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> FISCAL YEAR (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Net sales and other operating income $ 665,125 $ 511,029 $ 413,957 Costs and expenses: Cost of products sold 460,999 355,224 290,469 Selling and administrative expenses 137,157 107,492 85,993 Interest expense 5,455 3,127 4,717 Interest income (845) (1,532) (1,039) Restructuring charge 3,450 OTHER INCOME -- NET (2,172) (949) (297) - ---------------------------------------------------------------------------------------------------------- 604,044 463,362 379,843 - ---------------------------------------------------------------------------------------------------------- Earnings before income taxes 61,081 47,667 34,114 INCOME TAXES 19,542 14,811 10,047 - ---------------------------------------------------------------------------------------------------------- Net earnings $ 41,539 $ 32,856 $ 24,067 ========================================================================================================== Net earnings per share: Basic $ $ 1.00 $ .81 $ .66 Diluted .96 .76 .62 </TABLE> See accompanying notes to consolidated financial statements. -6-
CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> FISCAL YEAR (THOUSANDS OF DOLLARS) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> OPERATING ACTIVITIES Net earnings $ 41,539 $ 32,856 $ 24,067 Adjustments necessary to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 9,151 7,147 5,765 Deferred income taxes (credit) 4,642 (214) 1,878 OTHER (2,980) (398) (781) - ---------------------------------------------------------------------------------------------------------- 52,352 39,391 30,929 Changes in operating assets and liabilities: Accounts receivable (6,092) (32,752) (12,723) Inventories (27,744) (19,526) (9,325) Other operating assets (5,794) 154 (1,000) Accounts payable (17,162) 26,085 (3,069) OTHER OPERATING LIABILITIES 4,214 4,056 (1,950) - ---------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities (226) 17,408 2,862 INVESTING ACTIVITIES Business acquisitions (15,753) (29,158) Additions to property, plant and equipment (35,419) (20,639) (18,645) OTHER (5,950) 4,086 3,632 - ---------------------------------------------------------------------------------------------------------- Net cash used in investing activities (57,122) (45,711) (15,013) FINANCING ACTIVITIES Proceeds from short-term borrowings 4,711 2,907 Payments of short-term debt (3,090) (1,313) (2,000) Proceeds from long-term borrowings 112,090 58,000 58,181 Payments of long-term debt (59,135) (47,369) (71,289) Proceeds from issuance of common stock 48,869 Cash dividends (3,688) (2,974) (2,347) Purchase of common stock for treasury (5,225) (287) (852) PROCEEDS FROM SHARES ISSUED UNDER STOCK INCENTIVE PLANS 8,919 3,692 2,821 - ---------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 54,582 9,749 36,290 - ---------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (2,766) (18,554) 24,139 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 8,534 27,088 2,949 - ---------------------------------------------------------------------------------------------------------- -7-
Cash and cash equivalents at end of the year $ 5,768 $ 8,534 $ 27,088 ============================================================================================================= OTHER CASH FLOW INFORMATION Interest paid $ 6,361 $ 3,595 $ 5,187 Income taxes paid 11,174 8,426 5,683 </TABLE> ( ) Denotes reduction in cash and cash equivalents. See accompanying notes to consolidated financial statements. -8-
WOLVERINE WORLD WIDE, INC. 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 wholly 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. Fiscal years presented herein include the 53-week period ended January 3, 1998, and the 52-week periods ended December 28, 1996, and December 30, 1995. 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 inventories (see Note C). Foreign and retail inventories are valued using the methods approximating cost under the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated on the basis of cost and include expenditures for new facilities, major renewals and betterments. Normal repairs and maintenance are expensed as incurred. Depreciation of plant and equipment is computed using the straight-line method. The depreciable lives for buildings and improvements range from five to forty years and from three to ten years for machinery and equipment. -9-
ADVERTISING COSTS Advertising costs are expensed as incurred and totaled $26,976,000 in 1997, $21,186,000 in 1996 and $17,592,000 in 1995. 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 In 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings per share does not consider the potentially dilutive effects of common stock equivalents as was the case with the former computation of primary earnings per share, and requires adjustments for nonvested common stock issued under stock incentive plans. Diluted earnings per share is computed in substantially the same manner as previously reported and assumes the exercise of dilutive stock options. All earnings per share amounts have been restated to conform with SFAS No. 128. The following table sets forth the reconciliation of weighted average shares used in the computation of basic and diluted earnings per share: <TABLE> <CAPTION> 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> Outstanding during the year 42,214,620 41,541,944 37,246,444 Adjustment for nonvested common stock (699,107) (900,898) (976,819) - ------------------------------------------------------------------------------------------------------------ Denominator for basic earnings per share 41,515,513 40,641,046 36,269,625 Effect of dilutive stock options 1,249,070 1,412,691 1,261,013 Adjustment for nonvested common stock 699,107 900,898 976,819 - ------------------------------------------------------------------------------------------------------------ Denominator for diluted earnings per share 43,463,690 42,954,635 38,507,457 ============================================================================================================ </TABLE> Options to purchase 116,275 shares of common stock in 1997 have not been included in the denominator for computation of diluted earnings per share because related exercise prices were greater than the average market price for the period and, therefore, were antidilutive. Antidilutive options in 1996 and 1995 were not significant. -10-
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 estimates of the fair values of these financial instruments approximate their carrying amounts at January 3, 1998, and December 28, 1996. Fair value was determined using discounted cash flow analyses 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. COMPREHENSIVE INCOME In June 1997, The Financial Accounting Standards Board (FASB) issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which is effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. The new standard defines comprehensive income as including net earnings and any revenues, expenses, gains and losses that, under generally accepted accounting principles, are excluded from net earnings and recognized directly as a component of stockholders' equity. Comprehensive income must be reported in a financial statement that is displayed as prominently as other financial statements. Management will adopt SFAS No. 130 in the first quarter of 1998 and does not anticipate that it will have a significant effect on its financial reporting, as the Company has limited transactions that are not presently reported as a part of its operating results. RECLASSIFICATIONS Certain amounts previously reported in 1996 and 1995 have been reclassified to conform with the presentation used in 1997. - ----------------------------------------------------------------------------- NOTE B BUSINESS ACQUISITIONS - ----------------------------------------------------------------------------- On October 17, 1997, the Company acquired the assets of the Merrell outdoor footwear business from the Outdoor Division of Sports Holding Corp. for cash of $15,753,000, including related transaction expenses, and a $500,000 note payable in 1998. 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[REGISTERED] wholesale shoe business in the United Kingdom and Ireland from British Shoe Corporation, a subsidiary of Sears -11-
Plc, for a purchase price of $7,045,000, of which $2,355,000 is payable over a three-year period ending in 1999. 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 their fair market values at the dates of acquisition. Goodwill and other intangibles recognized in connection with these transactions totaled $5,914,000 in 1997 and $11,480,000 in 1996, and are being amortized over periods ranging from five to seventeen years. Consolidated net sales would have approximated $685,000,000 in 1997, $602,000,000 in 1996 and $557,000,000 in 1995 on a pro forma basis if the acquisitions had occurred at the beginning of 1995. Consolidated pro forma net earnings for all three years would not have been materially different from reported amounts. - ----------------------------------------------------------------------------- NOTE C INVENTORIES - ----------------------------------------------------------------------------- Inventories of $122,607,000 at January 3, 1998, and $99,483,000 at December 28, 1996, have been valued using the LIFO method. If the FIFO method had been used, inventories would have been $18,204,000 and $19,695,000 higher than reported at January 3, 1998, and December 28, 1996, respectively. - ----------------------------------------------------------------------------- NOTE D DEBT - ----------------------------------------------------------------------------- Notes payable consist primarily of unsecured short-term debt of the Company's Canadian and United Kingdom subsidiaries. The notes bear interest of up to 1% over the respective foreign bank base rate (6.55% weighted average base rate at January 3, 1998). The Company has short-term debt and commercial letter-of-credit facilities that allow for total borrowings up to $58,399,000. In addition to the notes payable discussed above, amounts outstanding under these facilities consist of letters-of-credit that totaled $37,047,000 and $28,506,000 at January 3, 1998, and December 28, 1996, respectively. Long-term debt consists of the following obligations: -12-
<TABLE> <CAPTION> (THOUSANDS OF DOLLARS) 1997 1996 - ----------------------------------------------------------------------------------------------------------- <S> <C> <C> 7.8% senior notes payable to insurance companies $ 30,000 $ 30,000 Revolving credit obligations 63,922 11,000 OTHER 342 309 - ----------------------------------------------------------------------------------------------------------- 94,264 41,309 LESS CURRENT MATURITIES 4,417 76 - ----------------------------------------------------------------------------------------------------------- $ 89,847 $ 41,233 =========================================================================================================== </TABLE> The 7.8% senior notes payable to insurance companies require equal annual principal payments of $4,285,000 in 1998 through 2003, with the balance due on August 15, 2004. The Company has domestic and foreign revolving credit agreements that allow for borrowings of up to $167,227,000 ($100,000,000 in 1996), of which $17,227,000 pertains to the Company's United Kingdom subsidiary. The agreements require that interest be paid at variable rates based on both LIBOR and the domestic prime rate. The weighted average interest rate of outstanding borrowings under these facilities was 6.1% at January 3, 1998, and 5.9% at December 28, 1996. The foreign commitment expires on January 9, 2000, and the domestic facility expires on October 11, 2001. Maximum borrowings under the agreements were $99,600,000 in 1997 and $39,000,000 in 1996. 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 January 3, 1998, unrestricted retained earnings are $53,081,000. 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 1998 are as follows: 1999 $4,290,000; 2000 $9,411,000; 2001 $63,285,000; 2002 $4,285,000. Interest costs of $768,000 in 1997, $610,000 in 1996 and $211,000 in 1995 were capitalized in connection with the construction of new corporate facilities and other capital improvement projects. -13-
- ----------------------------------------------------------------------------- NOTE E LEASES - ----------------------------------------------------------------------------- The Company leases machinery, transportation equipment and certain warehouse and retail store space under operating lease agreements which expire at various dates through 2012. At January 3, 1998, minimum rental payments due under all noncancelable leases are as follows: 1998 $7,055,000; 1999 $6,044,000; 2000 $5,079,000; 2001 $3,897,000; 2002 $2,794,000; thereafter $16,589,000. Rental expense under all operating leases consisted primarily of minimum rentals and totaled $9,013,000 in 1997, $7,468,000 in 1996 and $6,275,000 in 1995. - ----------------------------------------------------------------------------- NOTE F CAPITAL STOCK - ----------------------------------------------------------------------------- The Company has 2,000,000 authorized shares of $1 par value preferred stock, of which none is issued and outstanding. On April 17, 1997, July 11, 1996, and April 19, 1995, the Company announced three-for-two stock splits on shares of common stock outstanding at May 2, 1997, July 26, 1996, and May 1, 1995, 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 preferred stock rights plan that is designed to protect stockholder interests in the event the Company is confronted with coercive or unfair takeover tactics. One right is associated with each share of common stock currently outstanding. The rights trade with the common stock and become exercisable only upon the occurrence of certain triggering events. Each right, when exercisable, will entitle the holder to purchase one one-hundredth of a share of Series B junior participating preferred stock for $120. The Company has designated 500,000 shares of preferred stock as Series B junior participating preferred stock for possible future issuance under the Company's preferred stock rights plan. Upon issuance for reasons other than liquidation, each share of Series B junior participating preferred stock will have 100 votes and a preferential quarterly dividend equal to the greater of $21 per share or 100 times the dividend declared on 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 -14-
against self-dealing transactions by a 15% stockholder or the activities of an adverse person (as defined). The Company may redeem the rights for $.01 each at any time prior to a person being designated as an adverse person or fifteen days after a triggering event. Unless redeemed earlier, all rights expire on May 7, 2007. 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 are exercisable for up to ten years and vest over various periods ranging up to 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: <TABLE> <CAPTION> SHARES UNDER WEIGHTED-AVERAGE OPTIONS OPTION PRICE - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> Outstanding at January 1, 1995 2,241,027 $ 3.81 Granted in 1995 659,052 8.27 Exercised (649,374) 9.79 CANCELED (2,268) 6.83 - ---------------------------------------------------------------------------------------------------------- Outstanding at December 30, 1995 2,248,437 5.43 Granted in 1996 624,666 13.05 Exercised (515,227) 13.85 CANCELED (16,098) 11.02 - ---------------------------------------------------------------------------------------------------------- Outstanding at December 28, 1996 2,341,778 7.71 Granted in 1997 798,015 24.12 Exercised (922,491) 20.48 CANCELED (35,861) 17.09 - ---------------------------------------------------------------------------------------------------------- Outstanding at January 3, 1998 2,181,441 $ 13.65 ========================================================================================================== Available for grant: At January 3, 1998 1,879,818 ============================================================================ At December 28, 1996 1,286,088 ============================================================================ </TABLE> The weighted-average grant-date fair value was $7.91 in 1997 and $4.27 in 1996 for stock options granted. The exercise price of options outstanding at January 3, 1998, ranges from $1.73 to $28.50. A summary of stock options outstanding at January 3, 1998, by range of option price is as follows: -15-
<TABLE> <CAPTION> WEIGHTED-AVERAGE ------------------------------------------- NUMBER OF OPTIONS OPTION PRICE REMAINING ----------------------------------------------------- OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE CONTRACTUAL LIFE - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Less than $10 933,303 800,876 $ 6.05 $ 5.74 5.9 years $10 to $20 514,062 244,921 12.66 12.56 8.1 years GREATER THAN $20 734,076 368,896 23.98 24.44 9.3 Years - ------------------------------------------------------------------------------------------------------------- 2,181,441 1,414,693 $ 13.65 $ 11.79 7.6 years ============================================================================================================= </TABLE> 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 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-Scholes option pricing model with the following weighted-average assumptions: 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-Scholes 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 management's opinion, the Black-Scholes 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: -16-
<TABLE> <CAPTION> (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Pro forma net earnings $ 38,945 $ 31,613 $ 23,589 Pro forma net earnings per share: Basic $ .94 $ .78 $ .65 Diluted .90 .74 .62 </TABLE> 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 154,862 in 1997, 200,418 in 1996 and 143,381 in 1995 were awarded under these plans. The weighted-average award-date fair value was $23.75 in 1997 and $13.09 in 1996 for the shares awarded. Rights to 8,250 shares in 1997 and 21,869 shares in 1996 were cancelled, and there were no cancellations in 1995. 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 over the vesting period. - ----------------------------------------------------------------------------- NOTE G 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 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. 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 $1,495,000 in 1997, $1,200,000 in 1996 and $1,050,000 in 1995. -17-
The following summarizes the status of the Company's pension assets and related obligations for its defined benefit pension plans: <TABLE> <CAPTION> SEPTEMBER 30, (THOUSANDS OF DOLLARS) 1997 1996 - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> Pension assets at fair value $ 131,406 $ 104,673 Actuarial present value of accumulated plan benefits: Vested 66,707 60,315 NONVESTED 1,625 1,048 - ------------------------------------------------------------------------------------------------------------ 68,332 61,363 EFFECT OF ESTIMATED FUTURE INCREASES IN COMPENSATION 12,889 11,914 - ------------------------------------------------------------------------------------------------------------ PROJECTED BENEFIT OBLIGATION FOR SERVICE RENDERED TO DATE 81,221 73,277 - ------------------------------------------------------------------------------------------------------------ Excess pension assets $ 50,185 $ 31,396 ============================================================================================================ Components of excess pension assets: Prepaid pension costs recognized in other assets $ 9,963 $ 6,981 Unrecognized amounts, net of amortization: Transition assets 1,902 2,834 Prior service costs (7,140) (4,601) EXPERIENCE GAINS 45,460 26,182 - ------------------------------------------------------------------------------------------------------------ $ 50,185 $ 31,396 ============================================================================================================ </TABLE> 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 1997 and 1996. Plan assets were invested in listed equity securities (81%), fixed income funds (15%) and short-term and other investments (4%). Equity securities include 338,512 shares of the Company's common stock with a fair value of $8,547,000 at September 30, 1997. The following is a summary of net pension income recognized by the Company: <TABLE> <CAPTION> (THOUSANDS OF DOLLARS) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> Service cost pertaining to benefits earned during the year $ (3,698) $ (3,626) $ (2,540) Interest cost on projected benefit obligation (5,116) (4,704) (3,771) -18-
Actual net investment income 29,924 8,066 28,495 NET AMORTIZATION AND DEFERRALS (18,481) 1,865 (20,865) - ------------------------------------------------------------------------------------------------------------ Net pension income $ 2,629 $ 1,601 $ 1,319 ============================================================================================================ </TABLE> The expected long-term return on plan assets was 10% in each year. - ----------------------------------------------------------------------------- NOTE H INCOME TAXES - ----------------------------------------------------------------------------- The provisions for income taxes consist of the following: <TABLE> <CAPTION> (THOUSANDS OF DOLLARS) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> Currently payable: Federal $ 12,505 $ 13,247 $ 7,375 State and foreign 2,395 1,778 794 DEFERRED (CREDIT) 4,642 (214) 1,878 - ------------------------------------------------------------------------------------------------------------ $ 19,542 $ 14,811 $ 10,047 ============================================================================================================ </TABLE> 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: <TABLE> <CAPTION> (THOUSANDS OF DOLLARS) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> Income taxes at statutory rate $ 21,378 $ 16,683 $ 11,940 State income taxes, net of federal income tax reduction 777 746 520 Nontaxable earnings of Puerto Rican subsidiary and foreign affiliates (2,233) (1,854) (1,562) OTHER (380) (764) (851) - ------------------------------------------------------------------------------------------------------------ $ 19,542 $ 14,811 $ 10,047 ============================================================================================================ </TABLE> Significant components of the Company's deferred income tax assets and liabilities as of the end of 1997 and 1996 are as follows: -19-
<TABLE> <CAPTION> (THOUSANDS OF DOLLARS) 1997 1996 - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> Deferred income tax assets: Accounts receivable and inventory valuation allowances $ 1,256 $ 5,175 Deferred compensation accruals 2,207 1,959 OTHER AMOUNTS NOT DEDUCTIBLE UNTIL PAID 6,281 5,107 - ------------------------------------------------------------------------------------------------------------ Total deferred income tax assets 9,744 12,241 Deferred income tax liabilities: Tax over book depreciation (3,032) (2,699) Prepaid pension costs (4,239) (2,632) Unremitted earnings of Puerto Rican subsidiary (1,543) (1,343) OTHER (253) (248) - ------------------------------------------------------------------------------------------------------------ TOTAL DEFERRED INCOME TAX LIABILITIES (9,067) (6,922) - ------------------------------------------------------------------------------------------------------------ Net deferred income tax assets $ 677 $ 5,319 ============================================================================================================ </TABLE> The Company has provided for 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 approximate $6,042,000 at January 3, 1998, and $3,950,000 at December 28, 1996. - ----------------------------------------------------------------------------- NOTE I LITIGATION AND CONTINGENCIES - ----------------------------------------------------------------------------- The Company is involved in various environmental claims and other legal actions arising in the normal course of business. The environmental claims include sites where the Environmental Protection Agency has notified the Company that it is a potentially responsible party with respect to environmental remediation. It is not possible at this time to reasonably estimate the amount of any obligations for remediation, because the extent of environmental impact, allocation among responsible parties, remediation alternatives and concurrence of regulatory authorities have not yet advanced to a stage where a reasonable estimate of any loss can be made. However, after taking into consideration legal counsel's evaluation of all actions and claims against the Company, management is currently of the opinion that their outcome will not have a significant effect on the Company's consolidated financial position or future results of operations. -20-
- ----------------------------------------------------------------------------- NOTE J 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 and outdoor 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 Canadian and United Kingdom subsidiaries, and factories located in the Dominican Republic, Puerto Rico, Mexico and Costa Rica which produce shoe components for domestic operations. Export sales, foreign operations and related assets are not significant. Approximately 28% of the Company's employees are subject to bargaining unit contracts extending through various dates to 2002. 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. In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which is effective for fiscal years beginning after December 15, 1997. SFAS No. 131 establishes new standards for the way public business enterprises report information about operating segments in annual financial statements and requires selected information be presented in interim financial reports. It also establishes standards for related disclosures about products and services, geographic operating areas and major customers. Management will adopt the new requirements retroactively in 1998 and has not yet completed its analysis of the effect of SFAS No. 131 on its segment reporting. - ----------------------------------------------------------------------------- NOTE K QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) - ----------------------------------------------------------------------------- The Company generally reports its quarterly results of operations on the basis of 12-week periods for each of the first three quarters and a 16-week period for the fourth quarter. The fourth quarter of 1997 includes 17 weeks of operating results, while the fourth quarter of 1996 includes 16 weeks, because 1997 was a 53-week period. -21-
The Company's unaudited quarterly results of operations are as follows: <TABLE> <CAPTION> 1997 - ------------------------------------------------------------------------------------------------------------ FIRST SECOND THIRD FOURTH (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Net sales and other operating income $ 129,301 $ 127,789 $ 162,246 $ 245,789 Gross margin 38,389 40,817 47,910 77,010 Net earnings 4,693 7,368 9,199 20,279 Net earnings per share: Basic $ .11 $ .18 $ .22 $ .49 Diluted .11 .17 .21 .47 </TABLE> <TABLE> <CAPTION> 1996 - ------------------------------------------------------------------------------------------------------------ FIRST SECOND THIRD FOURTH (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> 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: Basic $ .08 $ .14 $ .18 $ .41 Diluted .08 .12 .17 .39 </TABLE> Net earnings per share for the first three quarters of 1997 and all quarters in 1996 have been restated as a result of the required adoption of SFAS No. 128 (see Note A). - ----------------------------------------------------------------------------- NOTE L RESTRUCTURING CHARGE - ----------------------------------------------------------------------------- On September 24, 1997, the Company announced a restructuring of its domestic manufacturing and warehousing operations under which it closed three Hush Puppies[REGISTERED] women's shoe factories and converted a slipper factory into a warehouse. The total restructuring charge of $3,450,000 includes employee termination benefits ($2,472,000) and other closing costs ($978,000) associated with the facilities, and is disclosed separately in the 1997 consolidated statement of operations. As of January 3, 1998, $1,620,000 of the restructuring costs have been incurred and charged against the related liability. -22-
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 January 3, 1998, and December 28, 1996, and the related consolidated statements of stockholders' equity, operations and cash flows for each of the three fiscal years in the period ended January 3, 1998. 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 January 3, 1998, and December 28, 1996, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended January 3, 1998, 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 6, 1998 -23-
APPENDIX B
Schedule II - Valuation and Qualifying Accounts of Continuing Operations Wolverine World Wide, Inc. and Subsidiaries <TABLE> <CAPTION> 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 - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> FISCAL YEAR ENDED JANUARY 3, 1998 Deducted from asset accounts: Allowance for doubtful accounts $ 4,228,000 $ 2,956,000 $ 1,146,000 (A) $ 6,038,000 Allowance for cash discounts 1,406,000 7,690,000 7,842,000 (B) 1,254,000 Inventory valuation allowances 2,954,000 6,888,000 5,290,000 (C) $ 4,552,000 ----------- ------------ ----------- ------------ $ 8,588,000 $ 17,534,000 $14,278,000 $ 11,844,000 =========== ============ =========== ============ FISCAL YEAR ENDED DECEMBER 28, 1996 Deducted from asset accounts: Allowance for doubtful accounts $ 2,657,000 $ 2,005,000 $ 434,000 (A) $ 4,228,000 Allowance for cash discounts 750,000 4,896,000 4,240,000 (B) 1,406,000 Inventory valuation allowances 1,317,000 5,535,000 3,898,000 (C) 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 (A) $ 2,657,000 Allowance for cash discounts 449,000 2,851,000 2,550,000 (B) 750,000 Inventory valuation allowances 1,753,000 4,261,000 4,697,000 (C) 1,317,000 ----------- ------------ ----------- ------------- $ 5,712,000 $ 6,366,000 $ 7,354,000 $ 4,724,000 =========== ============ =========== ============= </TABLE> (A) ACCOUNTS CHARGED OFF, NET OF RECOVERIES. (B) DISCOUNTS GIVEN TO CUSTOMERS. (C) 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 January 3, 1998 Wolverine World Wide, Inc. 9341 Courtland Drive Rockford, Michigan 49351
EXHIBIT INDEX 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 14, 1997. 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 April 17, 1997. Previously filed with the Company's Form 8-A filed April 12, 1997. Here incorporated by reference. 4.3 Credit Agreement dated as of October 11, 1996, with NBD Bank as Agent. Previously filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996. Here incorporated by reference. 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 2, 1998, 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. 10.1 Stock Option Plan of 1979, and amendment.<F*> 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.<F*> 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.<F*> 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.<F*> 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 Employees Pension Plan.<F*> 10.6 Employment Agreement dated April 27, 1993, between the Company and Geoffrey B. Bloom.<F*> 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.<F*> Previously filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996. Here incorporated by reference. 10.8 1994 Directors' Stock Option Plan.<F*> 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.<F*> 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 Executive Severance Agreement.<F*> 10.11 Supplemental Executive Retirement Plan, as amended.<F*> 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. An updated participant schedule is attached as Exhibit 10.11. 10.12 1995 Stock Incentive Plan.<F*> 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.<F*> 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.<F*> 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. -32-
10.15 Indemnification Agreements.<F*> 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. The Company has entered into an Indemnification Agreement with each director and executive officer. 10.16 Supplemental Retirement Benefits.<F*> 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. 10.17 Benefit Trust Agreement dated May 19, 1987, and Amendments Number 1, 2 and 3 thereto.<F*> 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. 10.18 1996 Executive Short-Term Incentive Plan (Annual Bonus Plan).<F*> 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. 10.19 Outside Directors' Deferred Compensation Plan.<F*> 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. 10.20 1984 Executive Incentive Stock Purchase Plan, and amendment.<F*> 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. 10.21 Supplemental Director's Fee Agreement dated as of March 27, 1995, between the Company and Phillip D. Matthews.<F*> 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. 10.22 Restricted Stock Agreement dated as of March 27, 1995, between the Company and Phillip D. Matthews.<F*> 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. 10.23 1997 Stock Incentive Plan.<F*> Previously filed as Appendix A to the Company's Definitive Proxy Statement with respect to the Company's Annual Meeting of Stockholders held on April 16, 1997. Here incorporated by reference. -3-
10.24 Executive Short-Term Incentive Plan (Annual Bonus Plan).<F*> Previously filed as Appendix B to the Company's Definitive Proxy Statement with respect to the Company's Annual Meeting of Stockholders held on April 16, 1997. Here incorporated by reference. 10.25 Executive Long-Term Incentive Plan (3-Year Bonus Plan).<F*> Previously filed as Appendix C to the Company's Definitive Proxy Statement with respect to the Company's Annual Meeting of Stockholders held on April 16, 1997. Here incorporated by reference. 11 Computation of Per Share Earnings. 21 Subsidiaries of Registrant. 23 Consent of Independent Auditors. 24 Powers of Attorney. 27.1 Financial Data Schedule. 27.2 Restated Financial Data Schedule for the quarterly period ended September 6, 1997. 27.3 Restated Financial Data Schedule for the quarterly period ended June 14, 1997. 27.4 Restated Financial Data Schedule for the fiscal year ended December 28, 1996. 27.5 Restated Financial Data Schedule for the quarterly period ended September 7, 1996. 27.6 Restated Financial Data Schedule for the quarterly period ended June 15, 1996. 27.7 Restated Financial Data Schedule for the quarterly period ended March 23, 1996. 27.8 Restated Financial Data Schedule for the fiscal year ended December 30, 1995. ____________________________ [FN] <F*>Management contract or compensatory plan or arrangement. </FN>