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Feb. 26, 2021, 10:37 a.m. EST

10-K: WOLVERINE WORLD WIDE INC /DE/

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(EDGAR Online via COMTEX) -- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW BUSINESS OVERVIEW The Company is a leading global designer, marketer and licensor of branded footwear, apparel and accessories. The Company's vision statement is "to build a family of the most admired performance and lifestyle brands on earth" and the Company seeks to fulfill this vision by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global consumer-direct footprint; and delivering supply chain excellence. The Company's brands are marketed in approximately 170 countries and territories at January 2, 2021, including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At January 2, 2021, the Company operated 97 retail stores in the U.S. and Canada and 37 consumer-direct eCommerce sites. The following discussion includes a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2020 and 2019. A discussion of a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2019 and 2018 has been omitted from this Form 10-K but may be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, filed with the SEC on February 26, 2020. Impact of COVID-19 In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. COVID-19 has had a negative effect on the global economy and on the Company's 2020 operating and financial results. The full financial effects of the COVID-19 pandemic cannot be reasonably estimated at this time due to uncertainty as to its severity and duration. The Company has taken the following proactive and precautionary measures to mitigate known areas of risk and navigate the future environment: To increase liquidity and flexibility of the Company's capital structure, the Company borrowed $171 million in incremental 364-day term loan under its senior credit facility and by the end of the fourth quarter the amount had been repaid, and sold $300 million of 6.375% senior notes (refer to Note 7, "Debt"), delayed most capital projects, suspended share repurchases, implemented select employee furloughs and organizational changes, compensation changes for the Company's management team and Board of Directors, delayed or canceled certain future product purchases across its portfolio of brands, took additional steps to reduce discretionary spending and other expenditures, and initiated conversations with landlords to seek lease concessions. Lease concessions have been received for some of the Company's leased properties and other discussions are still ongoing. The Company temporarily closed all U.S. and Canada retail stores on March 17, 2020. Stores began reopening in May under a phased approach and during the second quarter all stores had reopened with newly instituted health and safety protocols for customers and employees following regulatory guidance and protocols promulgated by health authorities and government officials. During the period stores were closed, the Company's distribution centers remained open and the Company's direct on-line channels continued to serve customer demand. The COVID-19 pandemic has had, and is expected to continue to have, a material adverse impact on the Company's financial results. Expenses related to the COVID-19 pandemic in fiscal year 2020 include $10.9 million of severance expenses, $8.5 million of credit loss expenses related to accounts receivable, $5.5 million of expenses in connection with the Company's credit facility refinance and an interest rate swap termination, $4.4 million of inventory charges, $3.9 million of air freight charges related to production delays, $3.6 million in connection with facility exit costs and $6.4 million for other costs. The full nature and extent of the impact of the pandemic on the Company's business will depend on future developments, including, among other things; the continued spread and duration of the pandemic; the negative impact on global and regional economies and economic activity; actions governments, businesses and individuals take in response to the pandemic; the effects of the pandemic, including all of the foregoing, on the Company's manufacturers, distributors, suppliers, joint venture partners, wholesale customers and other counterparties, and how quickly the global economy and demand for the Company's products recovers after the pandemic subsides. The Company continues to monitor the situation closely.

2020 FINANCIAL OVERVIEW

RESULTS OF OPERATIONS







                                                                                 Fiscal Year
        (In millions, except per share data)                           2020               2019                  Percent Change
        Revenue                                                    $ 1,791.1          $ 2,273.7                         (21.2) %
        Cost of goods sold                                           1,055.5            1,349.9                         (21.8) %
        Gross profit                                                   735.6              923.8                         (20.4) %
        Selling, general and administrative expenses                   639.4              669.3                          (4.5) %
        Impairment of intangible assets                                222.2                  -                             -
        Environmental and other related costs, net of recoveries        11.1               83.5                         (86.7) %
        Operating profit (loss)                                       (137.1)             171.0                        (180.2) %
        Interest expense, net                                           43.6               30.0                          45.3  %
        Debt extinguishment, interest rate swap termination, and
        other costs                                                      5.5                  -                             -
        Other income, net                                               (2.1)              (4.9)                        (57.1) %
        Earnings (loss) before income taxes                           (184.1)             145.9                        (226.2) %
        Income tax expense (benefit)                                   (45.5)              17.0                        (367.6) %
        Net earnings (loss)                                           (138.6)             128.9                        (207.5) %
        Less: net earnings (loss) attributable to noncontrolling
        interests                                                       (1.7)               0.4                        (525.0) %
        Net earnings (loss) attributable to Wolverine World Wide,
        Inc.                                                       $  (136.9)         $   128.5                        (206.5) %
        Diluted earnings (loss) per share                          $   (1.70)         $    1.44                        (218.1) %
        


REVENUE

The effective tax rate in 2020 was 24.7%, compared to 11.7% in 2019. The higher effective tax rate in 2020 reflects the positive net impact from one-time discrete items combined with a shift in income between tax jurisdictions with differing tax rates.







                                                           Fiscal Year
        (In millions)                 2020           2019          Change       Percent Change
        REVENUE
        Wolverine Michigan Group   $ 1,051.0      $ 1,299.7      $ (248.7)             (19.1) %
        Wolverine Boston Group         696.0          910.9        (214.9)             (23.6) %
        Other                           44.1           63.1         (19.0)             (30.1) %
        Total                      $ 1,791.1      $ 2,273.7      $ (482.6)             (21.2) %
        OPERATING PROFIT (LOSS)
        Wolverine Michigan Group   $   179.9      $   244.8      $  (64.9)             (26.5) %
        Wolverine Boston Group          88.1          153.8         (65.7)             (42.7) %
        Other                            1.6            2.9          (1.3)             (44.8) %
        Corporate                     (406.7)        (230.5)       (176.2)              76.4  %
        Total                      $  (137.1)     $   171.0      $ (308.1)            (180.2) %
        


Further information regarding the reportable segments can be found in Note 18 to the consolidated financial statements.

The Boston Group's operating profit decreased $65.7 million, or 42.7%, in 2020 compared to 2019. The operating profit decline was due to the revenue declines, partially offset by a 150 basis point increase in gross margin and a $13.2 million decrease in selling, general and administrative costs. The increase in gross margin in the current year period was due improved product mix including higher margin eCommerce sales, partially offset by increased tariffs. The decrease in selling, general and administrative expenses in the current year period was due to reductions in employee costs and other discretionary spending in response to the COVID-19 pandemic.







                                                                     Fiscal Year
        (In millions)                                             2020         2019
        Cash and cash equivalents                               $ 347.4      $ 180.6
        Debt                                                      722.5        798.4
        Available Revolving Credit Facility (1)                   793.9        434.3
        Net cash provided by operating activities                 309.1        222.6
        Net cash provided by (used in) investing activities         6.1        (61.5)
        Net cash used in financing activities                    (154.0)      (124.6)
        Additions to property, plant and equipment                 10.3         34.4
        Depreciation and amortization                              32.8         32.7
        


(1)Amounts are net of both borrowings, if any, and outstanding standby letters of credit issued in accordance with the terms of the Revolving Credit Facility. Liquidity

Operating Activities

2020 and 2019 respectively, in connection with shares or units withheld to pay employee taxes related to stock-based compensation plans.







        CRITICAL ACCOUNTING POLICIES
        The preparation of the Company's consolidated financial statements, which have
        been prepared in accordance with accounting principles generally accepted in the
        U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that
        affect the amounts reported in the financial statements and accompanying notes.
        On an ongoing basis, management evaluates these estimates. Estimates are based
        on historical experience and on various other assumptions that are believed to
        be reasonable under the circumstances, the results of which form the basis for
        making judgments about the carrying values of assets and liabilities that are
        not readily apparent from other sources. Historically, actual results have not
        been materially different from the Company's estimates. However, actual results
        may differ materially from these estimates under different assumptions or
        conditions.
        The Company has identified the following critical accounting policies used in
        determining estimates and assumptions in the amounts reported. Management
        believes that an understanding of these policies is important to an overall
        understanding of the Company's consolidated financial statements.
        Revenue Recognition and Performance Obligations
        Revenue is recognized upon the transfer of promised goods or services to
        customers, in an amount that reflects the expected consideration to be received
        in exchange for those goods or services. The Company identifies the performance
        obligation in the contract, determines the transaction price, allocates the
        transaction price to the performance obligations, and recognizes revenue upon
        completion of the performance obligation. Revenue is recognized net of variable
        consideration and any taxes collected from customers, which are subsequently
        remitted to governmental authorities.
        Control of the Company's goods and services, and associated revenue, are
        transferred to customers at a point in time. The Company's contract revenue
        consist of wholesale revenue and consumer-direct revenue. Wholesale revenue is
        . . .
        


Feb 26, 2021

COMTEX_381786277/2041/2021-02-26T10:36:51

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