<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the first twelve week accounting period ended March 27, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 1-6024
WOLVERINE WORLD WIDE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 38-1185150
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
9341 COURTLAND DRIVE, ROCKFORD, MICHIGAN 49351
(Address of Principal Executive Offices) (Zip Code)
(616) 866-5500
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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 the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
There were 44,266,670 shares of Common Stock, $1 par value,
outstanding as of May 6, 1999, of which 3,110,663 shares are held
as Treasury Stock.
<PAGE>
FORWARD-LOOKING STATEMENTS
This report contains 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. Assessments that Wolverine is year 2000
"compliant" or "ready" are necessarily statements of belief as to the
outcome of future events, based in part on information provided by vendors
and others that Wolverine has not independently verified. 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, implied or forecasted in such forward-looking
statements.
Internal and external 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; disruptions due to Year
2000 problems experienced by the Company and/or its suppliers or customers;
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.
Historical operating results are not necessarily indicative of the results
that may be expected in the future. 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.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<CAPTION>
MARCH 27, JANUARY 2, MARCH 28,
1999 1999 1998
(UNAUDITED) (AUDITED) (UNAUDITED)
----------- --------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,274 $ 6,203 $ 2,920
Accounts receivable, less allowances
March 27, 1999 - $6,031
January 2, 1999 - $5,896
March 28, 1998 - $7,212 153,364 152,110 140,369
Inventories:
Finished products 126,215 113,923 110,987
Raw materials and work in process 45,316 53,116 48,975
-------- -------- --------
171,531 167,039 159,962
Other current assets 14,751 15,626 9,964
-------- -------- --------
TOTAL CURRENT ASSETS 341,920 340,978 313,215
PROPERTY, PLANT & EQUIPMENT
Gross cost 199,919 194,374 170,733
Less accumulated depreciation 86,751 83,239 75,484
-------- -------- --------
113,168 111,135 95,249
OTHER ASSETS 69,883 69,365 56,310
-------- -------- --------
TOTAL ASSETS $524,971 $521,478 $464,774
======== ======== ========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
<TABLE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - CONTINUED
(THOUSANDS OF DOLLARS)
<CAPTION>
MARCH 27, JANUARY 2, MARCH 28,
1999 1999 1998
(UNAUDITED) (AUDITED) (UNAUDITED)
----------- --------- -----------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $ 541 $ 6,546 $ 1,729
Accounts payable and other accrued liabilities 44,287 40,161 50,263
Current maturities of long-term debt 4,561 4,561 4,417
-------- -------- --------
TOTAL CURRENT LIABILITIES 49,389 51,268 56,409
LONG-TERM DEBT (less current maturities) 160,825 157,089 107,834
OTHER NONCURRENT LIABILITIES 11,543 12,801 11,922
STOCKHOLDERS' EQUITY
Common Stock - par value $1, authorized
80,000,000 shares; shares issued
(including shares in treasury):
March 27, 1999 - 44,062,487 shares
January 2, 1999 - 43,832,070 shares
March 28, 1998 - 43,564,352 shares 44,062 43,832 43,564
Additional paid-in capital 74,793 72,825 65,746
Retained earnings 230,199 227,829 196,007
Accumulated other comprehensive loss (1,113) (1,014) (43)
Unearned compensation (7,170) (5,999) (3,852)
Cost of shares in treasury:
March 27, 1999 3,110,663 shares
January 2, 1999 3,067,177 shares
March 28, 1998 791,749 shares (37,557) (37,153) (12,813)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY 303,214 300,320 288,609
-------- -------- --------
4
<PAGE>
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $524,971 $521,478 $464,774
======== ======== ========
</TABLE>
( ) - Denotes deduction.
See notes to consolidated condensed financial statements.
5
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT SHARES AND PER SHARE DATA)
(UNAUDITED)
<CAPTION>
12 WEEKS ENDED
---------------------------
MARCH 27, MARCH 28,
1999 1998
---------- ----------
<S> <C> <C>
NET SALES AND OTHER
OPERATING INCOME $ 136,193 $ 148,514
Cost of products sold 94,325 102,617
---------- ----------
GROSS MARGIN 41,868 45,897
Selling and administrative expenses 34,139 34,550
---------- ----------
OPERATING INCOME 7,729 11,347
OTHER EXPENSES (INCOME):
Interest expense 2,284 1,670
Interest income (118) (63)
Other - net 186 131
---------- ----------
2,352 1,738
---------- ----------
EARNINGS BEFORE INCOME TAXES 5,377 9,609
Income taxes 1,774 3,221
---------- ----------
NET EARNINGS $ 3,603 $ 6,388
========== ==========
EARNINGS PER SHARE:
Basic $ .09 $ .15
========== ==========
6
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Diluted $ .09 $ .15
========== ==========
CASH DIVIDENDS PER SHARE $ .0300 $ .0275
========== ==========
SHARES USED FOR NET EARNINGS
PER SHARE COMPUTATION:
Basic 40,182,655 41,939,952
Diluted 41,130,097 43,656,107
</TABLE>
See notes to consolidated condensed financial statements.
7
<PAGE>
<TABLE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<CAPTION>
12 WEEKS ENDED
-----------------------
MARCH 27, MARCH 28,
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 3,603 $ 6,388
Depreciation, amortization and other non-cash items 1,137 550
Unearned compensation 545 433
Changes in operating assets and liabilities:
Accounts receivable (1,254) (2,303)
Inventories (4,492) (16,128)
Other current assets 875 6,229
Accounts payable and other accrued liabilities 4,126 (6,964)
------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,540 (11,795)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 9,000 30,101
Payments of long-term borrowings (5,264) (12,114)
Proceeds from short-term borrowings 1,714
Payments of short-term borrowings (6,005) (3,236)
Cash dividends (1,231) (1,180)
Proceeds from shares issued under employee stock plans 78 513
------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,422) 15,798
INVESTING ACTIVITIES
Additions to property, plant and equipment (5,545) (7,352)
Other 498 501
------- --------
NET CASH USED IN INVESTING ACTIVITIES (5,047) (6,851)
------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (3,929) (2,848)
8
<PAGE>
Cash and cash equivalents at beginning of the year 6,203 5,768
------- --------
CASH AND CASH EQUIVALENTS AT END OF THE
PERIOD $ 2,274 $ 2,920
======= ========
</TABLE>
( ) - Denotes reduction in cash and cash equivalents.
See notes to consolidated condensed financial statements.
9
<PAGE>
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 27, 1999 AND MARCH 28, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting solely of normal recurring accruals) considered
necessary for fair presentation have been included. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's Annual Report on Form 10-K for the fiscal year
ended January 2, 1999.
NOTE B - FLUCTUATIONS
The Company's sales are seasonal, particularly in its major divisions, The
Hush Puppies Company, the Wolverine Footwear Group, the Caterpillar
Footwear Group, the Wolverine Slipper Group and the Wolverine Leathers
Division. Seasonal sales patterns and the fact that the fourth quarter has
sixteen or seventeen weeks as compared to twelve weeks in each of the first
three quarters cause significant differences in sales and earnings from
quarter to quarter. These differences, however, have followed a consistent
pattern each year.
NOTE C - EARNINGS PER SHARE
The following table sets forth the reconciliation of weighted average
shares used in the computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
MARCH 27, MARCH 28,
1999 1998
---------- ----------
<S> <C> <C>
Outstanding during the year 40,855,168 42,647,637
Adjustment for nonvested common stock (672,513) (707,685)
---------- ----------
Denominator for basic earnings per share 40,182,655 41,939,952
Effect of dilutive stock options 274,929 1,282,431
Adjustment for nonvested common stock 672,513 707,685
---------- ----------
10
<PAGE>
Denominator for diluted earnings per share 41,130,097 43,656,107
========== ==========
</TABLE>
NOTE D - COMPREHENSIVE INCOME
Total comprehensive income totaled $3,504,000 and $6,413,000 for the
first quarter of 1999 and 1998, respectively, and in addition to net
earnings, included foreign currency translation losses of $99,000 in 1999
and gains of $25,000 in 1998.
NOTE E - BUSINESS SEGMENTS
The Company has one reportable segment that is engaged in the manufacture
and marketing of branded footwear, including casual shoes, slippers,
moccasins, dress shoes, boots, uniform shoes and work shoes, to the retail
sector. Revenues of this segment are derived from the sale of branded
footwear products to external customers and the Company's retail division
as well as royalty income from the licensing of the Company's trademarks
and brand names to licensees. The business units comprising the branded
footwear segment manufacture or source, market and distribute products in a
similar manner. Branded footwear is distributed through wholesale channels
and under licensing and distributor arrangements.
The other business units in the following table consist of the Company's
retail, tannery and pigskin procurement operations. The Company operated 57
domestic retail stores at March 27, 1999 that sell Company-manufactured or
sourced products and footwear manufactured by unaffiliated companies. The
other business units distribute products through retail and wholesale
channels.
There have been no changes in the way the Company measures segment profits
or in its basis of segmentation since the year ended January 2, 1999.
Business segment information is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
BRANDED OTHER
FOOTWEAR BUSINESSES CORPORATE CONSOLIDATED
-------------------------------------------------
QUARTER ENDED MARCH 27, 1999
-------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and other operating income
from external customers $122,418 $13,775 $136,193
Intersegment sales 5,646 1,065 6,711
Earnings before income taxes 4,943 346 88 5,377
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 28, 1998
-------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and other operating income
from external customers $133,694 $14,820 $148,514
Intersegment sales 5,534 1,887 7,421
Earnings before income taxes 7,608 871 1,130 9,609
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - COMPARISONS OF FIRST QUARTER 1999 TO FIRST QUARTER
1998
First quarter net sales and other operating income of $136.2 million for
1999 fell below the 1998 level by $12.3 million (an 8.3% decrease). On a
combined basis, the Company's branded footwear businesses, consisting of
The Hush Puppies Company, the Wolverine Footwear Group (comprised of
Wolverine, Hy-Test, Merrell, Coleman, Bates and Harley-Davidson brands),
the Caterpillar Footwear Group, and the Wolverine Slipper Group, accounted
for $11.3 million (8.4%) of the decrease in 1999 first quarter net sales
and other operating income. The Company's other business units (Hush
Puppies Retail Division and Wolverine Leathers Division) reported a $1.0
million (7.1%) decline in net sales and other operating income for the
first quarter of 1999 compared to 1998.
Within the Branded Footwear segment, The Hush Puppies Company reported a
$11.6 million (23.2%) decline in 1999 first quarter net sales and other
operating income, while the Wolverine Footwear Group contributed $5.4
million (8.9%) of increased net sales and other operating income for the
first quarter of 1999 as compared to the same period of 1998. The
Caterpillar Footwear Group recorded a $1.4 million (10.0%) decrease in the
1999 first quarter net sales and other operating income compared to the
first quarter 1998 level. Net sales and other operating income of the
Wolverine Slipper Group decreased $0.1 million (7.0%) for the first quarter
of 1999 compared to the same period of 1998. The Company's newly acquired
wholesale footwear operation in Russia contributed $1.0 million to 1999
first quarter net sales and other operating income.
The Hush Puppies U.S. wholesale operations' 1999 first quarter net sales
and other operating income decreased $5.9 million (20.8%) from the first
quarter 1998 level primarily as the result of disappointing U.S. retail
sales of men's and women's moderate priced casual shoes. Net sales and
other operating income related to Hush Puppies International licensing
increased $0.1 million (4.4%) in the first quarter of 1999 over the 1998
first quarter level. The Hush Puppies U.K. wholesale operations' 1999 first
quarter net sales and other operating income decreased $6.0 million (41.1%)
from 1998 as a result of the planned reduction in the specialty store
segment of its distribution channel. Net sales and other operating income
in the Hush Puppies Canadian wholesale operation increased $0.2 million
(4.2%) for the first quarter of 1999 as compared to 1998.
The Wolverine Footwear Group's strong performance continued during the
first quarter of 1999 with the Wolverine Boots and Shoes Division reporting
a $2.1 million (6.9%) increase in net sales and other operating income over
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<PAGE>
the first quarter of 1998. Hy-Test[REGISTERED] Boots and Shoes reported a
$0.2 million (2.2%) decrease in net sales and other operating income for
the first quarter of 1999 as a result of the sale of two Company-owned
mobile retail distribution groups during the second half of 1998. The
Merrell[REGISTERED] outdoor footwear business contributed $1.8 million
(a 24.5% increase) to the increase in net sales and other operating income
in the first quarter of 1999 over the same period of 1998. Harley-
Davidson[REGISTERED] footwear, which began operations in the third
quarter of 1998, contributed $4.1 million to net sales and other operating
income during the first quarter of 1999. Coleman[REGISTERED] footgear
net sales and other operating income decreased $1.2 million for the first
quarter of 1999 as compared to 1998. Net sales and other operating income
for the first quarter of 1999 for the Bates[REGISTERED] footwear division,
including shipments to the United States Department of Defense, decreased
$1.7 million (13.3%) compared to 1998 as a result of a slow down in draw
orders against contracts.
The Caterpillar[REGISTERED] Footwear Group recognized a $1.4 million
(10.0%) decline in net sales and other operating income for the first
quarter of 1999 as compared to the same period of 1998. The U.S. wholesale
operation reported a $0.6 million (6.1%) drop in first quarter 1999 net
sales and other operating income. First quarter 1999 international royalty
revenue decreased $0.8 million (17.8%) over first quarter 1998 net sales
and other operating income, primarily the result of shipment timing to
European markets.
The Wolverine Slipper Group's net sales and other operating income remained
flat for the first quarter of 1999 as compared to the first quarter 1998
level.
The Hush Puppies Retail Division's 1999 first quarter net sales and other
operating income decreased $0.2 million in 1999 compared to the same period
in 1998. Same-store net sales and other operating income declined 2.2%.
The Wolverine Leathers Division recorded a first quarter 1999 decrease in
net sales and other operating income of $0.9 million (10.4%) from the first
quarter of 1998. The decrease relates primarily to reduced demand for the
Hush Puppies Classics sueded product line, which was partially offset by
stronger utilization by the Merrell and Caterpillar footwear divisions.
Gross margin as a percentage of net sales and other operating income for
the first quarter of 1999 was 30.7% compared to the prior year's first
quarter level of 30.9%. Gross margin dollars decreased $4.0 million (8.8%)
in the first quarter of 1999 to $41.9 million as compared to $45.9 million
for the same period of 1998. The gross margin percentage for the branded
footwear businesses increased to 30.2% for the first quarter of 1999 from
30.3% for the same period of 1998, reflecting that initial pricing margins
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<PAGE>
for branded footwear continued to be strong. The gross margin percentage
for the other business units decreased to 35.4% for the first quarter of
1999 from 36.1% for the same period of 1998. The Hush Puppies Company's
gross margin remained flat in the first quarter of 1999 as compared to
1998. The Wolverine Footwear Group experienced a gross margin erosion of 70
basis points in the first quarter of 1999 as compared to the same period of
1998 resulting from the liquidation of Merrell product purchased at the
time of acquisition. The Caterpillar Footwear Group recognized a 1.4
percentage point decrease in gross margin for the first quarter of 1999, as
a result of a slight decline in International sales that operate at higher
gross margins. Gross margin decreased $.7 million from the Wolverine
Leathers Division and the Wolverine Slipper Group combined during the first
quarter of 1999 as compared to the first quarter of 1998. 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 decreased $0.4 million (1.2%) to $34.1
million for the first quarter of 1999 from $34.5 million for the first
quarter of 1998 and as a percentage of net sales and other operating income
increased to 25.1% in the first quarter of 1999 from 23.3% in the first
quarter of 1998. The change in selling and administrative costs includes
increased depreciation expense of $1.1 million related to the recent
investments in warehousing infrastructure and information services and $1.0
million of Harley-Davidson selling and administration costs which were
offset by $2.5 million in cost reductions applicable to actions taken in
the last half of 1998.
Interest expense for the first quarter of 1999 was $2.2 million, compared
to $1.6 million for the same period of 1998. The increase in interest
expense for 1999 reflects additional borrowings on the revolving credit
facility to support the repurchase of 2.2 million shares of the Company's
common stock primarily during the fourth quarter of 1998, and increased
working capital borrowings during 1998.
The 1999 first quarter effective tax rate of 33.0% decreased from 33.5% for
the first quarter of 1998 as a result earnings from certain foreign
subsidiaries, which are taxed generally at lower rates, becoming a larger
percentage of total consolidated earnings.
Net earnings of $3.6 million for the twelve weeks ended March 27, 1999
compares to net earnings of $6.4 million for the respective period of 1998
(43.6% decrease). Diluted earnings per share of $0.09 for the first quarter
of 1999 compares to $0.15 for the same period of 1998. Net earnings are
primarily a result of the items noted above.
15
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4.5 million for the first
quarter of 1999 compared to net cash used of $11.8 million for the first
quarter of 1998, an improvement of $16.3 million. Cash of $0.7 million for
the first quarter of 1999 and $19.2 million for the first quarter of 1998 was
used to fund working capital requirements. Accounts receivable of $153.4
million at March 27, 1999 reflects an increase of $13.0 million (9.3%) over
the balance at March 28, 1998 and $1.3 million (0.8%) over the January 2,
1999 balance. Inventories of $171.5 million at March 27, 1999 reflect
increases of $11.6 million (7.2%) and $4.5 million (2.7%) over the balances
at March 28, 1998 and January 2, 1999, respectively. The 1998 addition of the
Harley-Davidson business increased accounts receivable and inventories by
$3.9 million and $1.9 million, respectively, over the March 28, 1998
balances. Order backlog was approximately 3% lower at March 27, 1999, when
compared to the previous years' first quarter. Accounts payable of $16.8
million at March 27, 1999 reflect a $2.1 million (11.0%) decrease from the
$18.9 million balance at March 28, 1998 and a $1.9 million (12.6%) increase
over the $14.9 million balance at January 2, 1999.
Additions to property, plant and equipment of $5.5 million in the first
quarter of 1999 compares to $7.4 million reported during the same period in
1998. The majority of these expenditures are related to the 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 $3.9 million in the first
quarter of 1999 compares to $2.6 million in the first quarter of 1998.
This increase was a result of the capital investments noted above and the
amortization of goodwill related to acquisitions made during the past three
years.
The Company maintains short-term borrowing and commercial letter-of-credit
facilities of $69.1 million, of which $19.8 million, $30.1 million and
$25.0 million were outstanding at March 27, 1999, January 2, 1999 and March
28, 1998, respectively. Long-term debt, excluding current maturities, of
$160.8 million at March 27, 1999 compares to $107.8 million and $157.1
million at March 28, 1998 and January 2, 1999, respectively. The increase
in debt since March 28, 1998 was a result of the repurchase of 2.2 million
shares of the Company's common stock as discussed below and increases in
working capital borrowings during 1998.
Effective August 20, 1998, the Company's Board of Directors approved and the
Company executed a common stock repurchase program for a total of 2.2 million
shares of common stock. The primary purpose of this stock repurchase program
was to take advantage of the low market price relative to management's
16
<PAGE>
assessment of the future prospects of the business and its corresponding
favorable effect on stockholder value. The total cost of shares repurchased
under this program totaled $23.0 million, averaging $10.25 per share.
It is expected that continued Company growth will require increases in
capital funding over the next several years. The Company has a long-term
domestic revolving credit facility of $150 million. 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. In addition, the Company issued $75 million of senior debt
during the fourth quarter of 1998 and used the proceeds to reduce outstanding
borrowings under its revolving credit facility. The combination of credit
facilities and cash flows from operations is expected to be sufficient to
meet future capital needs. Any excess cash flows from operations are expected
to be used to pay down the revolving credit facility.
The 1999 first quarter dividend declared of $.03 per share of common stock
represents approximately a 9.1% increase over the $.0275 per share declared
for the first quarter of 1998. The dividend was payable May 3, 1999 to
stockholders of record on April 1, 1999.
The current ratio for the first quarter was 6.9 to 1.0 in 1999 compared with
5.6 to 1.0 in 1998. The Company's total debt to total capital ratio was .35
to 1.0 in 1999 compared to .28 to 1.0 in 1998.
YEAR 2000 READINESS DISCLOSURE
The "Year 2000 Issue" is the result of computer programs that use 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 system failures 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.
The Company has and continues to modify or replace portions of its software
so that its computer systems and equipment will function properly with
respect to dates in the year 2000 and thereafter. This modification and
replacement process is being implemented by the Company's Information
Systems Team under a general remediation strategy developed by an Executive
Oversight Committee, consisting of internal executive management, a member
of the Board of Directors and various other third parties. The Company
presently believes that with planned 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 the Company
fails to complete modifications required to obtain year 2000 compliance in
17
<PAGE>
a timely manner or if significant suppliers or customers experience year
2000 problems, the Year 2000 Issue could have a material adverse impact on
the operations and financial condition of the Company.
The Company has completed a thorough assessment of all its existing
information systems. A significant portion of the Company's Year 2000
Issues will be resolved by the installation of year 2000 compliant
information systems. The new systems are designed to manage order
processing, warehousing and finance activities on a fully integrated
enterprise-wide basis (the "Base System"). 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. Year 2000 compliance for
information systems not replaced by the Base System, including
manufacturing and raw material inventory systems, will be addressed through
a combination of reprogramming and replacement. The Company is utilizing
both internal and external resources to replace, reprogram and test its
information systems for year 2000 modifications. The Company anticipates
implementation of the Base System to be substantially complete by mid-1999
and anticipates reprogramming and replacement efforts for year 2000
compliance in its information systems to be substantially complete by the
end of third quarter 1999, which is prior to any anticipated impact on its
operating systems, with the balance of modifications to be completed on
less critical systems during the fourth quarter of 1999.
The Company has also completed a thorough assessment of all operating
systems and equipment containing computer microchips that may be year 2000
sensitive (commonly referred to as "embedded chips"). With priority given
to critical items, the Company intends to test operating systems and
equipment containing embedded chips for year 2000 compliance and to
reprogram or replace such equipment as appropriate. Company-owned
manufacturing systems are generally year 2000 compliant and will not
require significant reprogramming or replacement. It is intended that year
2000 modifications for critical operating systems and equipment will be
completed by mid-1999, with the modification or elimination of lower
priority systems and equipment to be completed during the third and fourth
quarters of 1999.
The Company has initiated formal communications with significant suppliers
and vendors 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 has also received year 2000 communications from
substantially all its significant customers indicating formal attention to
Year 2000 Issues. Although the Company has not received any specific
indications that any significant suppliers, vendors or customers will not
be year 2000 compliant, other companies are widely resistant to providing
any written or binding assurances that they will be year 2000 compliant
18
<PAGE>
given the scope and uncertainties relating to Year 2000 Issues. For this
reason, the Company can provide no assurance that the systems of suppliers,
vendors or significant customers will be year 2000 compliant or that the
lack of year 2000 compliance among suppliers, vendors or significant
customers could not have an adverse effect on the Company's operations or
financial condition.
To date, the Company has spent approximately $18.0 million for
implementation of the new Base System and estimates that total costs for
implementing the new Base System will approximate $21.0 million. The
Company has also spent approximately $0.9 million to date for additional
assessment, reprogramming, replacement and other year 2000 compliance
issues not covered by implementation of the Base System and estimates that
total costs for such items will approximate $2.5 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 capitalizes and depreciates such assets over
their estimated useful lives. To the extent that year 2000 costs do not
qualify as capital investments, the Company expenses such costs as
incurred.
The Company has given consideration to the most reasonably likely worst-
case year 2000 scenarios and contingency planning to address such
scenarios. Year 2000 problems may involve temporary delays in the delivery
to the Company of footwear or raw materials used in its manufacturing
operations. The Company sources footwear from numerous vendors located in
22 countries and sources raw materials, principally leather and footwear
soles, from a select group of domestic and international suppliers. The
possibility that year 2000 problems could cause the temporary failure in
basic utilities, delays in transportation, interruption of electronic
communications or the interruption of banking and commercial payment
systems in various parts of the world is beyond the reasonable ability of
the Company to assess or control. Any such events could disrupt suppliers'
abilities to make timely deliveries to the Company and could disrupt the
Company's own operations. Although there is also the risk that suppliers
may fail to completely remediate their own internal year 2000 problems, the
Company believes this risk is mitigated by the fact that the bulk of its
supplied goods, such as pigskins for tanning or leather footwear uppers
stitched offshore, involve relatively lower levels of technology that are
less susceptible to year 2000 problems. To the extent year 2000 problems
affect vendors and suppliers, the Company could experience delays which in
turn could adversely affect its ability to fill customer orders in a timely
manner resulting in a reduction or delay in sales and earnings.
The Company believes that any supply delays will generally be temporary in
nature and that the Company can address any material delays in supply
through the diversity of its supplier base and owned manufacturing
19
<PAGE>
facilities. Because the Company sources finished footwear and stitched
uppers from numerous vendors throughout the world, and because this work is
to a large degree interchangeable, management believes it can address any
serious supplier problems by shifting orders to suppliers not experiencing
significant Year 2000 Issues or shifting production to Company-owned
facilities as may be required. To the extent any important suppliers are
unable to provide reasonable assurances of continued performance during the
year 2000, the Company may elect to accumulate reasonable advance
inventories or, because the Company is not dependent upon any single
supplier for footwear or raw materials, may identify alternative suppliers
for the goods in question.
The Company's customers consist primarily of mass merchants and footwear
retailers. Although the Company's customers are subject to the general
risks associated with the year 2000, these risks may be mitigated because
the Company's footwear products are not vulnerable to Year 2000 Issues and
because the Company's customers sell footwear in retail stores and have a
relatively low degree of direct dependence upon technology that is
vulnerable to Year 2000 Issues. Year 2000 problems among customers could
adversely affect the Company's sales and earnings. Customers are not under
an obligation to purchase Company products and an inability of customers to
purchase Company products arising from year 2000 problems is beyond the
ability of the Company to correct or control.
Internally, an unforeseen delay in implementation of the Company's new Base
System could adversely affect the Company's operations and sales and would
have to be addressed by the parallel remediation of legacy information
systems to support continuing operations until completion of the Base
System. Additionally, any delay in the reprogramming and replacement of
manufacturing or raw material inventory related systems could also
adversely affect the Company's operations and sales. The Company does not
currently believe these risks are likely because implementation of the Base
System and the reprogramming and replacement efforts are scheduled for
completion prior to the year 2000.
The costs and anticipated completion dates for year 2000 modifications and
the estimated impact of Year 2000 Issues 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, the ability to
locate and correct all relevant computer codes, the level of year 2000
disruptions experienced by the Company's suppliers and customers and the
success of any required contingency actions, and similar uncertainties.
20
<PAGE>
This Year 2000 Readiness Disclosure is in part based upon and repeats
information provided to the Company by outside sources, including certain
customers, suppliers, outside consultants and other business partners and
certain manufacturers, vendors and licensors of the Company's software,
hardware and other systems and equipment. Although the Company believes
this outside information is accurate, the Company is not the original
source of this outside information and has not independently verified the
information.
21
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information concerning quantitative and qualitative disclosures about
market risk contained in Wolverine's Form 10-K Annual Report for its fiscal
year ended January 2, 1999, is incorporated herein by reference
Wolverine faces market risk to the extent that changes in foreign currency
exchange rates affect Wolverine's foreign assets, liabilities and inventory
purchase commitments and to the extent that its long-term debt requirements
are affected by changes in interest rates. Wolverine manages these risks
by attempting to denominate contractual and other foreign arrangements in
U.S. dollars and by maintaining a significant percentage of fixed-rate
debt. Wolverine does not believe that there has been a material change in
the nature of Wolverine's primary market risk exposures, including the
categories of market risk to which Wolverine is exposed and the particular
markets that present the primary risk of loss to Wolverine. As of the date
of this Form 10-Q Quarterly Report, Wolverine does not know of or expect
there to be any material change in the general nature of its primary market
risk exposure in the near term.
The methods used by Wolverine to manage its primary market risk exposures,
as described in the sections of its annual report incorporated herein by
reference in response to this item, have not changed materially during the
current year. As of the date of this Form 10-Q Quarterly Report, Wolverine
does not expect to change its methods used to manage its market risk
exposures in the near term. However, Wolverine may change those methods in
the future to adapt to changes in circumstances or to implement new
techniques.
Wolverine's market risk exposure is mainly comprised of its vulnerability
to changes in foreign currency exchange rates and interest rates.
Prevailing rates and rate relationships in the future will be primarily
determined by market factors that are outside of Wolverine's control. All
information provided in response to this item consists of forward-looking
statements. Reference is made to the section captioned "Forward-Looking
Statements" at the beginning of this document for a discussion of the
limitations on Wolverine's responsibility for such statements.
22
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. The following documents are filed as exhibits to this
report on Form 10-Q:
EXHIBIT
NUMBER DOCUMENT
- ------ --------
3.1 Certificate of Incorporation, as amended. Previously filed as
Exhibit 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 January 2, 1999. Here incorporated by reference.
27 Financial Data Schedule.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the period for which this report is filed.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WOLVERINE WORLD WIDE, INC.
AND SUBSIDIARIES
May 11, 1999 /S/ GEOFFREY B. BLOOM
Date Geoffrey B. Bloom
Chairman and Chief Executive Officer
(Duly Authorized Signatory for Registrant)
May 11, 1999 /S/ STEPHEN L. GULIS, JR.
Date Stephen L. Gulis, Jr.
Executive Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer and Duly
Authorized Signatory for Registrant)
24
<PAGE>
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 January 2, 1999. Here incorporated by reference.
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES FOR THE PERIOD ENDED
MARCH 27, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> MAR-27-1999
<CASH> 2,274
<SECURITIES> 0
<RECEIVABLES> 153,364
<ALLOWANCES> 6,031
<INVENTORY> 171,531
<CURRENT-ASSETS> 341,920
<PP&E> 199,919
<DEPRECIATION> 86,751
<TOTAL-ASSETS> 524,971
<CURRENT-LIABILITIES> 49,389
<BONDS> 160,825
<COMMON> 44,062
0
0
<OTHER-SE> 259,152
<TOTAL-LIABILITY-AND-EQUITY> 524,971
<SALES> 136,193
<TOTAL-REVENUES> 136,193
<CGS> 94,325
<TOTAL-COSTS> 94,325
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<INTEREST-EXPENSE> 2,166
<INCOME-PRETAX> 5,377
<INCOME-TAX> 1,774
<INCOME-CONTINUING> 3,603
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