What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-02-26 · 464 added, 348 removed, 882 unchanged (48% of the section changed)

2 unchanged sentences

Consolidated Statements of Operations 37

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive Income (Loss) 38

Consolidated Balance Sheets 39

7 unchanged sentences

Revenue From Contracts With Customers 51

Inventories 52

Property, Plant and Equipment 54

2 unchanged sentences

Retirement Plans 59

Income Taxes 61

Accumulated Other Comprehensive Income (Loss) 63

9 unchanged sentences

(In millions, except per share data) 2020 2019 2018

Revenue $ 1,791.1 $ 2,273.7 $ 2,239.2

Cost of goods sold 1,055.5 1,349.9 1,317.9

Restructuring costs

Gross profit 735.6 923.8 921.3

Selling, general and administrative expenses 639.4 669.3 654.1

Restructuring and other related costs

Impairment of intangible assets 222.2 — —

Environmental and other related costs

Operating profit

Environmental and other related costs, net of recoveries 11.1 83.5 15.3

Operating profit (loss) ( 137.1 ) 171.0 251.9

Other expenses:

Interest expense, net 43.6 30.0 24.5

Debt extinguishment and other costs

Other expense (income), net

Debt extinguishment, interest rate swap termination, and other costs 5.5 — 0.6

Other income, net ( 2.1 ) ( 4.9 ) ( 0.6 )

Total other expenses 47.0 25.1 24.5

3 unchanged sentences

net earnings (loss) attributable to noncontrolling interests ( 1.7 ) 0.4 0.2

Net earnings attributable to Wolverine World Wide, Inc.

Net earnings per share (see Note 3):

Net earnings (loss) attributable to Wolverine World Wide, Inc.

$ ( 136.9 ) $ 128.5 $ 200.1

Net earnings (loss) per share (see Note 3):

Basic $ ( 1.70 ) $ 1.48 $ 2.07

Diluted $ ( 1.70 ) $ 1.44 $ 2.05

See accompanying notes to consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive Income (Loss)

(In millions) 2020 2019 2018

Net earnings (loss) $ ( 138.6 ) $ 128.9 $ 200.3

Other comprehensive income (loss) net of tax:

Other comprehensive loss net of tax:

Foreign currency translation adjustments 10.6 5.4 ( 20.5 )

5 unchanged sentences

Amortization of prior actuarial losses, net of taxes of $1.4, $0.5 and $0.7 5.2 2.1 2.6

Curtailment gain arising during the period, net of taxes $0.8 in 2017

Settlement loss, net of taxes of $1.5 in 2018

Other comprehensive income (loss)

Other comprehensive loss ( 28.7 ) ( 13.8 ) ( 5.2 )

other comprehensive income (loss) attributable to noncontrolling interests ( 0.2 ) — ( 0.2 )

Other comprehensive income (loss) attributable to Wolverine World Wide, Inc.

Comprehensive income

Other comprehensive loss attributable to Wolverine World Wide, Inc.

( 28.5 ) ( 13.8 ) ( 5.0 )

Comprehensive income (loss) ( 167.3 ) 115.1 195.1

comprehensive income (loss) attributable to noncontrolling interests ( 1.9 ) 0.4 —

Comprehensive income attributable to Wolverine World Wide, Inc.

Comprehensive income (loss) attributable to Wolverine World Wide, Inc.

$ ( 165.4 ) $ 114.7 $ 195.1

See accompanying notes to consolidated financial statements.

2 unchanged sentences

Consolidated Balance Sheets

(In millions, except share data)

(In millions, except share data) January 2 ,

2021 December 28,

Current assets:

Cash and cash equivalents

$ 347.4 $ 180.6

Accounts receivable, less allowances of $33.5 and $26.7 268.3 331.2

6 unchanged sentences

Accumulated depreciation

( 197.2 ) ( 184.0 )

Property, plant and equipment, net

5 unchanged sentences

Total other assets

966.1 1,211.1

$ 2,137.4 $ 2,480.0

See accompanying notes to consolidated financial statements.

2 unchanged sentences

Consolidated Balance Sheets – continued

(In millions, except share data)

(In millions, except share data) January 2 ,

2021 December 28,

LIABILITIES AND STOCKHOLDERS’ EQUITY

1 unchanged sentence

Accounts payable

$ 185.0 $ 202.1

Accrued salaries and wages

16 unchanged sentences

Retained earnings

1,093.3 1,263.3

Accumulated other comprehensive loss

( 130.6 ) ( 102.1 )

Cost of shares in treasury;

5 unchanged sentences

Total liabilities and stockholders’ equity

$ 2,137.4 $ 2,480.0

See accompanying notes to consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

Consolidated Statements of Cash Flow

Consolidated Statements of Cash Flows

(In millions)

2020 2019 2018

OPERATING ACTIVITIES

2 unchanged sentences

Depreciation and amortization

32.8 32.7 31.5

Deferred income taxes

( 56.9 ) ( 9.0 ) 22.1

Stock-based compensation expense

28.9 24.5 31.2

Pension contribution

Pension and SERP expense

Debt extinguishment costs

Restructuring and other related costs

Cash payments related to restructuring costs

Debt extinguishment, interest rate swap termination, and other costs 5.5 — 0.6

Impairment of intangible assets 222.2 — —

Environmental and other related costs, net of cash payments

Loss/(gain) on sale of a business and other assets

Environmental and other related costs, net of cash payments and recoveries received 31.5 48.8 ( 6.1 )

( 12.7 ) ( 11.6 ) 4.7

Changes in operating assets and liabilities:

Accounts receivable

64.8 30.7 ( 95.0 )

107.2 ( 23.8 ) ( 44.5 )

Other operating assets

7.4 ( 5.4 ) ( 17.8 )

Accounts payable

( 18.9 ) — 40.6

( 0.5 ) 3.6 ( 1.9 )

Other operating liabilities

27.9 ( 2.4 ) ( 19.3 )

Net cash provided by operating activities 309.1 222.6 97.5

1 unchanged sentence

Business acquisition, net of cash acquired

( 5.5 ) ( 15.1 ) —

Additions to property, plant and equipment

( 10.3 ) ( 34.4 ) ( 21.7 )

Proceeds from sale of a business and other assets

Investment in joint ventures

Net cash used in investing activities

( 3.5 ) ( 8.5 ) —

Proceeds from company-owned life insurance policies 26.8 — —

( 1.6 ) ( 3.5 ) ( 2.7 )

Net cash provided by (used in) investing activities 6.1 ( 61.5 ) ( 22.2 )

FINANCING ACTIVITIES

Net borrowings (payments) under revolving credit agreements

Payments under revolving credit agreements ( 898.0 ) ( 469.3 ) ( 27.7 )

Borrowings under revolving credit agreements 538.0 704.3 152.2

Borrowings of long-term debt

471.0 — 200.0

Payments on long-term debt

( 183.5 ) ( 7.5 ) ( 538.2 )

Payments of debt issuance and debt extinguishment costs

( 6.4 ) ( 0.3 ) ( 2.7 )

Termination of interest rate swap ( 7.3 ) — —

Cash dividends paid

( 33.6 ) ( 33.6 ) ( 28.6 )

Purchase of common stock for treasury

( 21.0 ) ( 319.2 ) ( 174.7 )

Employee taxes paid under stock-based compensation plans

( 24.8 ) ( 16.9 ) ( 8.8 )

Proceeds from the exercise of stock options

9.8 12.2 24.0

Contributions from noncontrolling interests

1 unchanged sentence

Effect of foreign exchange rate changes

5.6 1.0 ( 8.7 )

Increase (decrease) in cash and cash equivalents 166.8 37.5 ( 337.9 )

Cash and cash equivalents at beginning of the year

180.6 143.1 481.0

Cash and cash equivalents at end of the year

$ 347.4 $ 180.6 $ 143.1

See accompanying notes to consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

Consolidated Statements of Cash Flow – continued

Consolidated Statements of Cash Flows – continued

(In millions)

2020 2019 2018

OTHER CASH FLOW INFORMATION

Interest paid

$ 41.4 $ 32.4 $ 29.0

Net income taxes paid

8.6 23.2 17.4

NON-CASH INVESTING AND FINANCING ACTIVITY

7 unchanged sentences

Stockholders' Equity

(In millions, except share and per share data)

Additional Paid-In Capital

Retained Earnings

(In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated

Comprehensive

Treasury Stock

Non-controlling Interest

Loss Treasury Stock Non-controlling Interest Total

Balance at December 30, 2017 $ 106.4 $ 149.2 $ 992.2 $ ( 75.2 ) $ ( 223.0 ) $ 5.6 $ 955.2

Net earnings (loss)

Other comprehensive income

Net earnings 200.1 0.2 200.3

Other comprehensive loss ( 5.0 ) ( 0.2 ) ( 5.2 )

Shares forfeited, net of shares issued under stock incentive plans (154,084 shares) ( 0.2 ) ( 1.7 ) ( 1.9 )

5 unchanged sentences

Purchases of shares under stock-based compensation plans (219,039 shares) ( 6.9 ) ( 6.9 )

Capital contribution from noncontrolling interests

Incremental investment in joint venture

Change in accounting principle 8.1 ( 8.1 ) $ —

Balance at December 29, 2018 $ 107.6 $ 201.4 $ 1,169.7 $ ( 88.3 ) $ ( 404.4 ) $ 5.6 $ 991.6

Other comprehensive loss

Shares forfeited, net of shares issued under stock incentive plans (154,084 shares)

Net earnings 128.5 0.4 128.9

Other comprehensive income (loss) ( 13.8 ) — ( 13.8 )

Shares issues, net of shares forfeited under stock incentive plans (38,655 shares) 0.1 ( 4.2 ) ( 4.1 )

Shares issued for stock options exercised, net (681,389 shares) 0.6 11.6 12.2

4 unchanged sentences

Purchases of shares under stock-based compensation plans (368,326 shares) ( 12.8 ) ( 12.8 )

Change in accounting principle

Capital contribution from noncontrolling interests 5.7 5.7

Balance at December 28, 2019 $ 108.3 $ 233.4 $ 1,263.3 $ ( 102.1 ) $ ( 736.2 ) $ 11.7 $ 778.4

5 unchanged sentences

Stockholders' Equity

(In millions, except share and per share data)

Additional Paid-In Capital

Retained Earnings

(In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated

Comprehensive

Treasury Stock

Non-controlling Interest

Loss Treasury Stock Non-controlling Interest Total

Balance at December 28, 2019 $ 108.3 $ 233.4 $ 1,263.3 $ ( 102.1 ) $ ( 736.2 ) $ 11.7 $ 778.4

Other comprehensive income (loss)

Net loss ( 136.9 ) ( 1.7 ) ( 138.6 )

Other comprehensive loss ( 28.5 ) ( 0.2 ) ( 28.7 )

Shares issued, net of shares forfeited under stock incentive plans (1,497,478 shares) 1.5 ( 19.0 ) ( 17.5 )

6 unchanged sentences

Capital contribution from noncontrolling interests 1.8 1.8

Balance at December 28, 2019

Balance at January 2, 2021 $ 110.4 $ 252.6 $ 1,093.3 $ ( 130.6 ) $ ( 764.3 ) $ 11.6 $ 573.0

See accompanying notes to consolidated financial statements.

13 unchanged sentences

Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , Hytest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® , Stride Rite ® and Wolverine ® .

Licensing and distribution arrangements with third parties extend the global reach of the Company’s brand portfolio.

The Company also operates a consumer-direct division to market both its own brands and branded footwear and apparel from other manufacturers, as well as a leathers division that markets Wolverine Performance Leathers™ .

The Company’s products are marketed worldwide through owned operations, through licensing and distribution arrangements with third parties, and through joint ventures.

The Company also operates retail stores and eCommerce sites to market both its own brands and branded footwear and apparel from other manufacturers, and has a leathers division that markets Wolverine Performance Leathers™ .

Principles of Consolidation and Basis of Presentation

2 unchanged sentences

All intercompany accounts and transactions have been eliminated in consolidation.

During the first quarter of 2019, the brands that were formerly aligned with the Wolverine Outdoor & Lifestyle Group and Wolverine Heritage Group were realigned into a new operating segment, the Wolverine Michigan Group.

All prior period disclosures have been retrospectively adjusted to reflect these new reportable operating segments.

The COVID-19 pandemic, the duration and severity of which is subject to uncertainty, has had and continues to have, a significant impact on the Company's business.

Management's estimates and assumptions used in the preparation of the Company’s consolidated financial statements in accordance with U.S.

GAAP take into account both current and expected potential future impacts of the COVID-19 pandemic on the Company’s business based on available information.

Actual results may differ materially from management’s estimates.

The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31.

Fiscal years 2019 , 2018 and 2017 all had 52 weeks.

Fiscal year 2020 had 53 weeks, and fiscal years 2019 and 2018 each had 52 weeks.

Use of Estimates

6 unchanged sentences

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.

Control of the Company's goods and services, and associated fixed revenue, are transferred to customers at a point in time.

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 recognized for products sourced by the Company when control transfers to the customer generally occurring upon the shipment or delivery of branded products by or to the customer.

Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the shipment or delivery of branded products to the customer.

Consumer-direct includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue recognized at time of sale.

5 unchanged sentences

Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the consumer-direct channel.

The timing of revenue recognition, billings and cash collections results in billed accounts receivable (contract assets), and customer advances (contract liabilities) on the consolidated balance sheets.

Generally, billing occurs subsequent to revenue recognition resulting in contract assets.

The timing of revenue recognition, billings and cash collections results in billed accounts receivable (contract assets), and customer advances (contract

liabilities) on the consolidated balance sheets.

Generally, billing occurs commensurate to revenue recognition resulting in contract assets.

See Note 6 for additional information.

5 unchanged sentences

Advertising expenses were $ 135.6 million, $ 119.4 million and $ 120.8 million for fiscal years 2020, 2019 and 2018, respectively.

Prepaid advertising totaled $ 3.7 million and $ 1.5 million as of December 28, 2019 and December 29, 2018 , respectively.

Prepaid advertising totaled $ 1.2 million and $ 3.7 million as of January 2 , 2021 and December 28, 2019, respectively.

Cash Equivalents

Cash equivalents include highly liquid investments with an original maturity of three months or less.

Cash equivalents are stated at cost, which approximates market.

Allowance for Uncollectible Accounts

The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers’ failure to make required payments.

Company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience.

Cash equivalents are stated at cost, which approximates fair value.

Allowance for Credit Losses

The Company maintains an allowance for credit losses on accounts receivable that represents estimated losses resulting from its customers’ failure to make required payments.

Company management evaluates the allowance for credit losses based on a review of current customer status and historical collection experience along with current and reasonable supportable forecasts of future economic conditions.

The Company values its inventory at the lower of cost or net realizable value.

19 unchanged sentences

These costs are amortized into earnings through interest expense over the terms of the respective agreements.

Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close.

Goodwill and Other Intangibles

1 unchanged sentence

Indefinite-lived intangibles include trademarks and trade names.

Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually.

The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present,

to determine if such assets may be impaired.

Goodwill and intangible assets deemed to

have indefinite lives are not amortized, but are subject to impairment tests at least annually.

The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired.

The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value.

If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management performs the next step, which compares the fair value of the reporting unit to the carrying value of the tangible and intangible net assets of the reporting units.

Goodwill is considered impaired if the recorded value of the tangible and intangible net assets exceeds the fair value of the reporting unit.

If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management compares the fair value of the assets to the carrying value.

Goodwill and indefinite-lived intangibles are considered impaired if the recorded value exceeds the fair value.

The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value.

The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value.

The Company may skip the qualitative assessment and quantitatively test indefinite-lived intangibles by comparison of the individual carrying values to the fair values.

Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans.

6 unchanged sentences

Environmental

The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual site.

The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual affected site.

The costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies.

2 unchanged sentences

Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred.

Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is reasonably certain.

Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed probable.

Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is realizable.

Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed realized or realizable.

Retirement Benefits

6 unchanged sentences

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 values of assets and liabilities for financial statement and income tax purposes.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.

A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized.

In the event the Company determines it is more likely than not that the deferred tax assets will not be realized in the future, the valuation allowance adjustment to the deferred tax assets will be charged to earnings in the period in which the Company makes such a determination.

The Company records an increase in liabilities for income tax accruals associated with tax benefits claimed on tax returns but not recognized for financial statement purposes (unrecognized tax benefits).

The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively.

In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax position is more likely than not to be sustained upon examination, and if so, a tax benef it is measured on a cumulative probability basis that is more likely than not to be realized upon the ultimate settlement.

T he Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively.

Foreign Currency

2 unchanged sentences

dollars at the year-end exchange rate.

Operating statement amounts are translated at average

exchange rates for each period.

Operating statement amounts are translated at average exchange rates for each period.

The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

3 unchanged sentences

The following is a summary of the effect of adoption of these new standards.

Effect on the Financial Statements or Other Significant Matters

ASU 2016-02, Leases (as amended by ASUs 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01)

The core principle is that a lessee shall recognize a lease liability in its statement of financial position for the present value of all future lease payments.

A lessee would also recognize a right-of-use asset representing its right to use the underlying asset for the lease term.

Under a new transition method, a reporting entity will apply the new lease requirements as of the effective date and continue to report comparative periods presented in the financial statements under GAAP in effect during the comparable periods.

The Company adopted ASU 2016-02 at the beginning of the first quarter using the modified retrospective approach and elected the package of practical expedients for its existing leases.

The Company recognized a lease liability of $178.1 million, which was equal to the present value of the future lease payments for its portfolio of operating leases.

The Company recognized a right-of-use asset of $157.3 million, which was equal to the lease liabilities adjusted for the balance of accrued rent and unamortized lease incentives as of the effective date.

The adoption of ASU 2016-02 did not have a material impact on the Company’s results of operations or cash flows.

See Note 10 for additional information on the adoption of this standard and disclosures regarding the Company’s leases.

The FASB has issued the following ASUs that have not yet been adopted by the Company.

The following is a summary of the planned adoption period and anticipated impact of adopting these new standards.

Planned Period of Adoption

Effect on the Financial Statements or Other Significant Matters

ASU 2016-13, Measurement of Credit Losses on Financial Instruments (as amended by ASU 2018-19)

Standard Description Effect on the Financial Statements or Other Significant Matters

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments

Seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current U.S.

GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates.

The Company is evaluating the impacts of the new standard on its existing financial instruments, including trade receivables.

The Company adopted ASU 2016-13 at the beginning of the first quarter on a prospective basis.

The Company adjusted its business policies and processes relating to the measurement of allowances for credit losses to consider reasonable and supportable information to determine expected credit losses on accounts receivable.

The adoption of the ASU did not have a material effect on the consolidated financial statements.

ASU 2017-04, Intangibles Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment Eliminates step two of the goodwill impairment test under legacy US GAAP.

Annual and interim goodwill impairment tests are performed by comparing the fair value of a reporting unit with its carrying amount and the amount by which the carrying amount exceeds the reporting unit’s fair value will be recognized as an impairment charge.

The Company adopted the ASU at the beginning of the first quarter on a prospective basis.

The adoption of the ASU did not have a significant impact on the Company’s financial statements and all prospective impairment tests will be completed under this standard.

EARNINGS PER SHARE

4 unchanged sentences

(In millions, except per share data) 2020 2019 2018

Net earnings attributable to Wolverine World Wide, Inc.

Net earnings (loss) attributable to Wolverine World Wide, Inc.

$ ( 136.9 ) $ 128.5 $ 200.1

net earnings attributed to participating share-based awards

Net earnings used to calculate basic earnings per share

Adjustment for earnings (loss) reallocated to participating share-based awards

Net earnings used to calculate diluted earnings per share

( 0.8 ) ( 2.6 ) ( 7.5 )

Net earnings (loss) used to calculate basic earnings per share ( 137.7 ) 125.9 192.6

Adjustment for earnings reallocated to participating share-based awards — 0.1 1.8

Net earnings (loss) used to calculate diluted earnings per share $ ( 137.7 ) $ 126.0 $ 194.4

Weighted average shares outstanding

81.8 85.7 94.8

Adjustment for unvested restricted common stock

( 0.8 ) ( 0.6 ) ( 1.8 )

Shares used to calculate basic earnings per share

81.0 85.1 93.0

Effect of dilutive share-based awards

Shares used to calculate diluted earnings per share

Net earnings per share:

81.0 87.2 95.0

Net earnings (loss) per share:

$ ( 1.70 ) $ 1.48 $ 2.07

$ ( 1.70 ) $ 1.44 $ 2.05

For fiscal years 2020, 2019 and 2018, 1,179,088 , 133,505 and 25,230 outstanding stock options, respectively, have not been included in the denominator for the computation of diluted earnings per share because they were anti-dilutive.

The Company has 2,000,000 authorized shares of $ 1 par value preferred stock, none of which was issued or outstanding as of December 28, 2019 or December 29, 2018 .

The Company has 2,000,000 authorized shares of $ 1 par value preferred stock, none of which was issued or outstanding as of January 2 , 2021 or December 28, 2019.

The Company has designated 150,000 shares of preferred stock as Series A junior participating preferred stock and 500,000 shares of preferred stock as Series B junior participating preferred stock for possible future issuance.

The Company repurchased $ 21.0 million, $ 319.2 million and $ 174.7 million of Company common stock in fiscal years 2020, 2019 and 2018, respectively, under stock repurchase plans.

In addition to the stock repurchase program activity, the Company acquired $ 16.9 million , $ 8.8 million and $ 5.5 million of shares in fiscal years 2019 , 2018 and 2017 , respectively, in connection with employee transactions related to stock incentive plans.

In addition to the stock repurchase program activity, the Company acquired $ 24.8 million, $ 16.9 million and $ 8.8 million of Company common stock in fiscal years 2020, 2019 and 2018, respectively, in connection with employee transactions related to stock incentive plans.

On February 11, 2019, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of an additional $ 400.0 million of common stock over a four year period incremental to amounts remaining under the previous repurchase program.

7 unchanged sentences

Goodwill balance at end of the year $ 442.4 $ 438.9

The Company did not recognize any impairment charges during fiscal years 2019 , 2018 and 2017 for goodwill.

The annual impairment testing indicated, for all reporting units tested quantitatively, that their fair values exceeded their respective carrying values.

For the reporting units that the Company elected to test qualitatively, as is permitted under ASU 2011-08, Intangibles-Goodwill and Other (Topic 350):

Testing Goodwill for Impairment , the Company concluded it to be more likely than not that their estimated fair values are greater than their respective carrying values.

The Company’s indefinite-lived intangible assets, which comprise trade names and trademarks, totaled $ 604.5 million as of December 28, 2019 and December 29, 2018 .

No impairment charges were recognized for the Company's intangible assets during fiscal years 2019 and 2018 .

In the fourth quarter of fiscal 2017, as a result of its annual impairment testing, the Company recognized a $ 68.6 million impairment charge for the Sperry ® trade name.

The risk of future impairment for the Sperry ® trade name is dependent on key assumptions used in the determination of the trade name's fair value, such as revenue growth, operating profit and the discount rate.

The carrying value of the Company’s Sperry ® trade name indefinite-lived intangible asset was $ 518.2 as of December 28, 2019 .

The Company did not recognize any goodwill impairment charges during fiscal years 2020, 2019 and 2018.

The annual impairment testing indicated, for all reporting units tested quantitatively, that the fair values exceeded the respective carrying values.

For the reporting units that the Company elected to test qualitatively, the Company concluded it to be more likely than not that their estimated fair values are greater than their respective carrying values.

The Company’s indefinite-lived intangible assets, which comprise trade names and trademarks, totaled $ 382.3 million and $ 604.5 million as of January 2 , 2021 and December 28, 2019, respectively.

In the fourth quarter of fiscal 2020, after the completion of the annual impairment testing, the Company recognized a $ 222.2 million impairment charge for the Sperry ®

trade name resulting from reductions in the future cash flow assumptions mainly due to the impact of the COVID-19 pandemic to the Sperry ® brand and an increase in the discount rate.

The Sperry ® trade name was valued using the income approach, specifically the multi-period excess earnings method with the key assumptions used in the valuation being revenue growth, operating profit, and the discount rate.

If the operating results for Sperry ® decline in future periods compared to current projections, the discount rate increases, increases in the assumed tax rate, or macroeconomic conditions deteriorate further due to the COVID-19 pandemic and adversely affect the value of the Company’s Sperry ® trade name balance, the Company may need to record additional non-cash impairment charges.

The Company continues to monitor the effects of the COVID-19 pandemic, and actions taken by governments, businesses and individuals in response to the pandemic, on the global economy to assess the outlook for demand for the Company's products and the impact on the Company's business and financial performance.

The carrying value of the Company’s Sperry ® trade name indefinite-lived intangible asset was $ 296.0 million as of January 2 , 2021.

Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives.

The combined gross carrying values and accumulated amortization for these amortizable intangibles are as follows:

December 28, 2019

(In millions)

Gross carrying

Average remaining life (years)

January 2 , 2021

(In millions) Gross carrying

value Accumulated

amortization Net Average remaining life (years)

Customer relationships $ 114.5 $ 44.9 $ 69.6 12

Other 18.7 15.3 3.4 3

Total $ 133.2 $ 60.2 $ 73.0

December 28, 2019

(In millions)

Gross carrying

Average remaining life (years)

(In millions) Gross carrying

value Accumulated

amortization Net Average remaining life (years)

Customer relationships $ 113.3 $ 38.8 $ 74.5 13

Other 17.3 14.0 3.3 3

Total $ 130.6 $ 52.8 $ 77.8

Amortization expense for these amortizable intangible assets was $ 7.1 million, $ 8.6 million and $ 6.2 million for fiscal years 2020, 2019 and 2018, respectively.

Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to December 28, 2019 is as follows:

Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to January 2 , 2021 is as follows:

(In millions) 2021 2022 2023 2024 2025

10 unchanged sentences

Accounts receivable sold

$ 14.1 $ 42.7 $ 264.3

The fees are recorded in the other expense (income), net line item on the consolidated statements of operations.

Net proceeds of this program are classified in operating activities in the consolidated statements of cash flows.

This program reduced the Company's accounts receivable by $ 33.9 million and $ 0 as of December 28, 2019 and December 29, 2018 , respectively.

The amounts outstanding under this program were $ 0.0 million and $ 33.9 million as of January 2 , 2021 and December 28, 2019, respectively.

REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company provides disaggregated revenue for the wholesale and consumer-direct sales channels, which are reconciled to the Company’s reportable operating segments.

The wholesale channel includes royalty revenues, which operates in a similar manner due to similar oversight and management, customer base, the performance obligation (footwear and apparel goods) and point in time completion of the performance obligation.

Revenue Recognition and Performance Obligations

The Company has agreements to license symbolic intellectual property with minimum guarantees or fixed consideration.

The Company is due $ 26.4 million of remaining fixed transaction price under its license agreements as of January 2 , 2021, which it expects to recognize per the terms of its contracts over the course of time through December 2024 .

The Company has elected to omit the remaining variable consideration under its license agreements given the Company recognizes revenue equal to what it has the right to invoice and that amount corresponds directly with the value to the customer of the Company’s performance to date.

The Company provides disaggregated revenue for the wholesale and consumer-direct sales channels, which are reconciled to the Company’s reportable segments.

The wholesale channel includes royalty revenues, which operates in a similar manner as other wholesale revenues due to similar oversight and management, customer base, the performance obligation (footwear and apparel goods) and point in time completion of the performance obligation.

(in millions) 2020 2019 2018

Wolverine Michigan Group:

Wholesale $ 814.2 $ 1,134.9 $ 1,129.2

Consumer-direct 236.8 164.8 143.0

Total 1,051.0 1,299.7 1,272.2

Wolverine Boston Group:

Wholesale 508.9 743.4 762.0

Consumer-direct 187.1 167.5 133.5

Total 696.0 910.9 895.5

Wholesale 40.5 57.9 64.1

Consumer-direct 3.6 5.2 7.4

Total 44.1 63.1 71.5

Total revenue $ 1,791.1 $ 2,273.7 $ 2,239.2

The Company has agreements to license symbolic intellectual property with minimum guarantees and/or fixed consideration.

Revenue is recognized under these contracts over the contractual term as the Company believes time is the appropriate measure of progress and best represents a faithful depiction of the transfer of goods under the contract.

The Company is due $ 33.6 million of remaining fixed consideration under these license agreements as of December 28, 2019 , which will be recognized over the remaining term of the contracts, which expire at various dates through 2024 .

Reserves for Variable Consideration

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The Company’s contract balances are as follows:

(In millions)

(In millions) January 2 ,

2021 December 28,

Product returns reserve $ 15.6 $ 11.4

3 unchanged sentences

Customer advances liability 8.2 7.2

The amount of variable consideration included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period.

contract will not occur in a future period.

Actual amounts of consideration ultimately received may differ from initial estimates.

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Customer advances are recognized as a current liability on the consolidated balance sheets.

The Company used the LIFO method to value inventories of $ 81.2 million and $ 61.1 million at December 28, 2019 and December 29, 2018 , respectively.

The Company used the LIFO method to value inventories of $ 35.6 million and $ 81.2 million at January 2 , 2021 and December 28, 2019, respectively.

During fiscal years 2020 and 2019, a reduction in inventory quantities resulted in a liquidation of applicable LIFO inventory quantities carried at lower costs in prior years.

This LIFO liquidation decreased cost of goods sold by $ 3.9 million and $ 0.4 million, respectively.

If the FIFO method had been used, inventories would have been $ 11.4 million and $ 11.8 million higher than reported at December 28, 2019 and December 29, 2018 , respectively.

If the FIFO method had been used, inventories would have been $ 7.5 million and $ 11.4 million higher than reported at January 2 , 2021 and December 28, 2019, respectively.

Total debt consists of the following obligations:

(In millions)

(In millions) January 2 ,

2021 December 28,

Term Loan A, due December 6, 2023 $ 180.0 $ 192.5

Senior Notes, 5.000% interest, due September 1, 2026 250.0 250.0

Senior Notes, 6.375% interest, due May 15, 2025 300.0 —

Borrowings under revolving credit agreements — 360.0

Capital lease obligation

Unamortized deferred financing costs ( 7.5 ) ( 4.1 )

On December 6, 2018, the Company amended its credit agreement (as amended, the "Credit Agreement").

The Credit Agreement includes a $ 200.0 million term loan facility (“Term Loan A”) and an $ 800.0 million Revolving Credit Facility, both with maturity dates of December 6, 2023.

The Credit Agreement’s debt capacity is limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 1,750.0 million , unless certain specified conditions set forth in the Credit Agreement are met.

Total debt $ 722.5 $ 798.4

On May 5, 2020, the Company entered into a Second Amendment (the “Amendment”) which amended its senior credit facility, which had previously been amended and restated as of December 6, 2018 (as so amended by the Amendment, the “Amended Senior Credit Facility”).

In connection with the Amendment, the Company borrowed $ 171.0 million in aggregate principal amount of an incremental term loan (the “Incremental Term Loan”).

The Incremental Term Loan was fully repaid by the end of fiscal 2020.

The Amended Senior Credit Facility also includes a $ 200.0 million term loan facility (“Term Loan A”) and an $ 800.0 million Revolving Credit Facility, both with maturity dates of December 6, 2023, that remain unchanged as a result of the Amendment.

The Amended Senior Credit Facility’s debt capacity is limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 1,750.0 million, unless certain specified conditions set forth in the Credit Agreement are met.

Term Loan A requires quarterly principal payments with a balloon payment due on December 6, 2023.

The scheduled principal payments due over the next 12 months total $ 12.5 million as of December 28, 2019 and are recorded as current maturities of long-term debt on the consolidated balance sheets.

The scheduled principal payments due over the next 12 months total $ 10.0 million as of January 2 , 2021 and are recorded as current maturities of long-term debt on the consolidated balance sheets.

The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $ 800.0 million, which includes a $ 200.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined in accordance with the Credit Agreement.

The Revolving Credit Facility also includes a $ 50.0 million swingline subfacility and a $ 50.0 million letter of credit subfacility.

The Company also had outstanding letters of credit under the Revolving Credit Facility of $ 5.7 million and $ 2.5 million as of December 28, 2019 and December 29, 2018 , respectively.

The Company also had outstanding letters of credit under the Revolving Credit Facility of $ 6.1 million and $ 5.7 million as of January 2 , 2021 and December 28, 2019, respectively.

These outstanding borrowings and letters of credit reduce the borrowing capacity under the Revolving Credit Facility.

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dollar denominated amounts outstanding under the Revolving Credit Facility will be, at the Company’s option, either (1) the Alternate Base Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 0.125 % to 1.000 %, or (2) the Eurocurrency Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 1.125 % to 2.000 % (all capitalized terms used in this sentence are as defined in the Credit Agreement).

The Company has interest rate swap arrangements that reduce the Company’s exposure to fluctuations in interest rates on its variable rate debt.

At December 28, 2019 , Term Loan A and the Revolving Credit Facility had weighted-average interest rates of 3.13 % and 3.05 % , respectively.

At January 2 , 2021, Term Loan A had weighted-average interest rate of 2.00 %.

The obligations of the Company pursuant to the Credit Agreement are guaranteed by substantially all of the Company’s material domestic subsidiaries and secured by substantially all of the personal and real property of the Company and its material domestic subsidiaries, subject to certain exceptions.

The Credit Agreement also contains certain affirmative and negative covenants, including covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things:

The Amended Senior Credit Facility also contains certain affirmative and negative covenants, including covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things:

incur or guarantee indebtedness;

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or make investments, as well as covenants restricting the activities of certain foreign subsidiaries of the Company that hold intellectual property related assets.

Further, the Credit Agreement requires compliance with the following financial covenants:

a maximum Consolidated Leverage Ratio and a minimum Consolidated Interest Coverage Ratio (all capitalized terms used in this paragraph are as defined in the Credit Agreement).

As of December 28, 2019 , the Company was in compliance with all covenants and performance ratios under the Credit Agreement.

The Company has $ 250.0 million of senior notes outstanding that are due on September 1, 2026 (the “Senior Notes”).

The Senior Notes bear interest at 5.00 % with the related interest payments due semi-annually.

Further, the Amended Senior Credit Facility requires compliance with the following financial covenants:

a maximum Consolidated Leverage Ratio and a minimum Consolidated Interest Coverage Ratio (all capitalized terms used in this paragraph are as defined in the Amended Senior Credit Facility).

As of January 2 , 2021, the Company was in compliance with all covenants and performance ratios under the Amended Senior Credit Facility.

On May 11, 2020 the Company issued $ 300.0 million aggregate principal amount of 6.375 % senior notes due on May 15, 2025.

Related interest payments are due semi-annually beginning on November 15, 2020.

These senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries

The Company has $ 250.0 million of senior notes outstanding that are due on September 1, 2026.

These senior notes bear interest at 5.00 % and related interest payments are due semi-annually.

The Senior Notes are guaranteed by substantially all of the Company’s domestic subsidiaries.

The Company has a foreign revolving credit facility with aggregate available borrowings of $ 4.0 million that are uncommitted and, therefore, each borrowing against the facility is subject to approval by the lender.

As of December 28, 2019 and December 29, 2018 there were no borrowings against this credit facility.

Prior to fiscal 2019, the Company had a capital lease obligation.

As a result of the adoption of ASU 2016-02, Leases , the capital lease is now classified as a financing lease and is no longer included in long term debt.

The Company has a foreign revolving credit facility with aggregate available borrowing s of $ 4.0 million that are un committed and, therefore, each borrowing against the facility is subject to approval by the lender.

As of January 2 , 2021 and December 28, 2019, there were no borrowings against this credit facility.

The Company included in interest expense the amortization of deferred financing costs of $ 2.7 million, $ 1.6 million, and $ 2.8 million in fiscal years 2020, 2019 and 2018, respectively.

Annual maturities of debt, including capital leases, for the fiscal years subsequent to December 28, 2019 are as follows:

(In millions)

Annual maturities of debt for the fiscal years subsequent to January 2 , 2021 are as follows:

(In millions) 2021 2022 2023 2024 2025 Thereafter

Annual maturities of debt

$ 10.0 $ 10.0 $ 160.0 $ — $ 300.0 $ 250.0

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

(In millions)

December 28, 2019

(In millions) January 2 ,

2021 December 28, 2019

Land $ 3.9 $ 3.9

Buildings and leasehold improvements 119.6 123.2

Furniture, fixtures and equipment 135.1 136.8

Software 63.2 61.1

Gross cost 321.8 325.0

accumulated depreciation 197.2 184.0

1 unchanged sentence

Depreciation expense was $ 25.7 million, $ 24.1 million and $ 25.3 million for fiscal years 2020, 2019 and 2018, respectively.

The Company adopted ASU 2016-02, Leases , at the beginning of the first quarter of fiscal 2019 using the modified retrospective approach applied to all leases as of the date of application.

The Company elected the package of practical expedients for leases existing as of the effective date under which it did not reassess whether contracts contain leases under the new definition of a lease, the lease classification or whether previously capitalized initial direct costs would qualify for capitalization under ASU 2016-02.

In addition, the Company did not elect the hindsight practical expedient for considering judgments and estimates relating to its existing leases such as determining the remaining lease term.

Description of Leases

5 unchanged sentences

The Company determines the lease term for each lease based on the terms of each contract and factors in renewal and early termination options if such options are reasonably certain to be exercised.

In response to the COVID-19 pandemic and the effect the pandemic had on the Company’s leased properties, the Company has been actively seeking rent relief from its landlords.

The Company considered the FASB staff guidance issued in April 2020 in relation to accounting for lease concessions made in connection with the effects of the COVID-19 pandemic and elected to apply the temporary practical expedient to account for rent deferrals and abatements as though the enforceable rights and obligations existed in each contract.

Depending on the timing of the future payments, amounts deferred and payable in future periods have been included in “Other accrued liabilities” and “Other liabilities” on the Company’s condensed consolidated balance sheets.

The Company continued to recognize lease expense on a straight-line basis for its leases over the related lease terms.

Accounting for Leases

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The Company recognizes a lease liability in current and noncurrent liabilities equal to the present value of the fixed future lease payments using an incremental borrowing rate as of the commencement date of each lease.

The incremental borrowing rate is based on interest rate that the Company would normally pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments.

The weighted-average discount rate for operating leases as of December 28, 2019 is 5.2 %.

The Company also recognizes a right-of-use asset, which is equal to the lease liability as of December 28, 2019 adjusted for the remaining balance of accrued rent and unamortized lease incentives.

The incremental borrowing rate is based on an interest rate that the Company would normally pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments.

The weighted-average discount rate for operating leases as of January 2 , 2021 is 5.2 %.

The Company also recognizes a right-of-use asset, which is equal to the lease liability as of January 2 , 2021 adjusted for the remaining balance of accrued rent and unamortized lease incentives.

The following is a summary of the Company’s lease cost.

5 unchanged sentences

Total lease cost $ 42.8 $ 44.3

The weighted-average remaining lease term for operating leases as of December 28, 2019 is 10.1 years.

Future undiscounted cash flows for operating leases for the fiscal periods subsequent to December 28, 2019 are as follows:

(In millions)

Operating Leases

The weighted-average remaining lease term for operating leases as of January 2 , 2021 is 9.5 years.

Future undiscounted cash flows for operating leases for the fiscal periods subsequent to January 2 , 2021 are as follows:

(In millions) Operating Leases

Thereafter 90.2

Total future payments 211.1

1 unchanged sentence

Recognized lease liability $ 164.3

The Company made cash payments of $ 33.2 million for operating lease liabilities during fiscal 2019 .

During fiscal 2019 , the Company entered into new or amended leases that resulted in the noncash recognition of right-of-use assets and lease liabilities of $ 26.8 million .

In addition, the Company entered into real estate leases which will commence subsequent to December 28, 2019 with future undiscounted rental payments of $ 4.8 million .

The Company has a financing lease with future payments of $ 0.3 million and a remaining term of 2.1 years.

Rental expense under all operating leases, under the previous lease standard ASC 840 and consisting primarily of minimum rentals, totaled $ 32.0 million and $ 39.9 million in fiscal years 2018 and 2017, respectively.

The Company recognized sublease income of $ 2.8 million and $ 1.9 million in fiscal years 2018 and 2017, respectively.

The Company made cash payments of $ 28.6 million and $ 33.2 million for operating lease liabilities during fiscal 2020 and 2019, respectively.

The Company entered into new or amended leases that resulted in the noncash recognition of right-of-use assets and lease liabilities of $ 6.0 million and $ 26.8 million during fiscal 2020 and 2019, respectively.

The Company did not enter into any real estate leases with commencement dates subsequent to January 2 , 2021.

Rental expense under all operating leases, under the previous lease standard ASC 840 and consisting primarily of minimum rentals, totaled $ 32.0 million in fiscal year 2018.

The Company recognized sublease income of $ 2.8 million in fiscal year 2018.

DERIVATIVE FINANCIAL INSTRUMENTS

4 unchanged sentences

wholesale operations in the normal course of business.

These foreign currency forward exchange hedge contracts extended out to a maximum of 545 days and 524 days as of December 28, 2019 and December 29, 2018 , respectively.

When foreign exchange contracts are determined not to be highly effective or are terminated before their contractual termination dates, the Company would remove the hedge designation from those contracts and reclassify into earnings the unrealized gains or losses that would otherwise be included in accumulated other comprehensive income (loss) (“AOCI”) within stockholders’ equity.

During fiscal 2019, the Company reclassified $ 1.2 million to other income for foreign currency derivatives that were no longer deemed highly effective.

These foreign currency forward exchange hedge contracts extended out to a maximum of 538 days and 545 days as of January 2 , 2021 and December 28, 2019, respectively.

During fiscal 2020 and 2019, the Company reclassified $ 0.6 million and $ 1.2 million respectively, to other income for foreign currency derivatives that were no longer deemed highly effective.

The Company also utilizes foreign currency forward exchange contracts that are not designated as hedging instruments to manage foreign currency transaction exposure.

Foreign currency derivatives not designated as hedging instruments are offset by foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities.

The Company has two interest rate swap arrangements, which unless otherwise terminated, will mature on July 13, 2020 and December 6, 2023 , respectively.

These agreements, which exchange floating rate for fixed rate interest payments over the life of the agreements without the exchange of the underlying notional amounts, have been designated as cash flow hedges of the underlying debt.

The notional amounts of the interest rate swap arrangements are used to measure interest to be paid or received and do not

represent the amount of exposure to credit loss.

The differential paid or received on the interest rate swap arrangements is recognized as interest expense.

In accordance with ASC 815, the Company has formally documented the relationship between the interest rate swaps and the variable rate borrowing, as well as its risk management objective and strategy for undertaking the hedge transactions.

This process included linking the derivative to the specific liability or asset on the balance sheet.

The Company also assessed at the inception of each hedge, and continues to assess on an ongoing basis, whether the derivatives used in the hedging transactions are highly effective in offsetting changes in the cash flows of the hedged item.

The Company had an interest rate swap arrangement to mitigate interest volatility with regard to variable rate borrowings under the Amended Senior Credit Facility.

The interest rate swap exchanged floating rate for fixed rate interest payments without the exchange of the underlying notional amounts, and had been designated as cash flow hedge of the underlying debt.

The arrangement was terminated, effective December 29, 2020, in association with the repayment of the Incremental Term Loan.

The fair value of the swap at the termination date of $ 7.3 million was required to be paid in full.

Consequently, unrealized losses of $ 4.9 million in accumulated other comprehensive income that were associated with variable rate debt interest

payments that were no longer probable were reclassified to “Debt extinguishment, interest rate swap termination, and other costs“ in the accompanying consolidated statement of operations.

The Company has a cross currency swap to minimize the impact of exchange rate fluctuations.

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dollar notional amount, with an exchange of principal at maturity.

Changes in fair value related to movements in the foreign currency exchange spot rate are recorded in AOCI, offsetting the currency translation adjustment related to the underlying net investment that is also recorded in AOCI.

Changes in fair value related to movements in the foreign currency exchange spot rate are recorded in accumulated other comprehensive income, offsetting the currency translation adjustment related to the underlying net investment that is also recorded in accumulated other comprehensive income.

All other changes in fair value are recorded in interest expense.

3 unchanged sentences

The notional amounts of the Company’s derivative instruments are as follows:

(Dollars in millions)

December 28, 2019

(Dollars in millions) January 2 ,

2021 December 28, 2019

5 unchanged sentences

The recorded fair values of the Company’s derivative instruments are as follows:

(In millions)

December 28, 2019

(In millions) January 2 ,

2021 December 28, 2019

1 unchanged sentence

Foreign exchange contracts - hedge $ — $ 2.3

Interest rate swap

Financial liabilities:

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The Company generally grants restricted stock or units (“Restricted Awards”), performance-based restricted stock or units (“Performance Awards”) and stock options under its stock-based compensation plans.

As of December 28, 2019 , the Company had 5,669,643 stock incentive units (stock options, stock appreciation rights, restricted stock, restricted stock units and common stock) available for issuance under the Stock Incentive Plan of 2016, as amended and restated ("Stock Plan").

As of January 2 , 2021, the Company had 6,060,880 stock incentive units (stock options, stock appreciation rights, restricted stock, restricted stock units and common stock) available for issuance under the Stock Incentive Plan of 2016, as amended and restated ("Stock Plan").

Each stock option or stock appreciation right granted counts as 1.0 stock incentive unit.

5 unchanged sentences

Certain option and restricted awards provide for accelerated vesting under various scenarios, including retirement, death and disability, and upon a change in control of the Company.

Awards issued to employees that meet the specified retirement age and service requirements are vested upon the employee's retirement in accordance with plan provisions and the applicable award agreements issued under the Stock Plan.

Awards issued to employees that meet the specified retirement

age and service requirements are vested upon the employee's retirement in accordance with plan provisions and the applicable award agreements issued under the Stock Plan.

The Company issues shares to plan participants upon exercise or vesting of stock-based incentive awards from either authorized, but unissued shares or treasury shares.

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A summary of the unvested Restricted Awards and Performance Awards is as follows:

Unvested at December 31, 2016

Awards Weighted-

Fair Value Performance

Awards Weighted-

Unvested at December 30, 2017 2,025,072 $ 21.70 1,690,668 $ 21.54

Granted 609,276 31.81 384,657 35.10

Vested ( 560,263 ) 22.93 ( 229,023 ) 26.64

Forfeited ( 153,712 ) 23.81 ( 215,284 ) 26.18

Unvested at December 29, 2018 1,920,373 $ 24.38 1,631,018 $ 23.42

Granted 554,092 34.73 370,830 37.10

Vested ( 681,938 ) 24.63 ( 654,021 ) 17.46

Forfeited ( 173,611 ) 28.47 ( 220,725 ) 19.74

Unvested at December 28, 2019 1,618,916 $ 27.36 1,127,102 $ 31.94

As of December 28, 2019 , there was $ 19.9 million of unrecognized compensation expense related to unvested Restricted Awards, which is expected to be recognized over a weighted-average period of 1.5 years.

The total fair value of Restricted Awards vested during the year ended December 28, 2019 was $ 23.7 million .

Granted 1,416,117 22.59 455,207 34.00

Vested ( 1,122,811 ) 22.07 ( 451,334 ) 23.51

Forfeited ( 268,205 ) 29.67 ( 125,653 ) 35.91

Unvested at January 2, 2021 1,644,017 $ 26.39 1,005,322 $ 35.25

As of January 2 , 2021, there was $ 18.5 million of unrecognized compensation expense related to unvested Restricted Awards, which is expected to be recognized over a weighted-avera ge period of 1.5 years.

The total fair value of Restricted Awards vested during the year ended January 2 , 2021 was $ 35.0 million.

As of December 28, 2019, there was $ 19.9 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.5 years.

2 unchanged sentences

The total fair value of Restricted Awards vested during the year ended December 29, 2018 was $ 17.4 million.

As of December 28, 2019 , there was $ 4.5 million of unrecognized compensation expense related to unvested Performance Awards, which is expected to be recognized over a weighted-average period of 1.1 years.

The total fair value of Performance Awards vested during the year ended December 28, 2019 was $ 22.8 million .

As of January 2 , 2021, there was $ 1.4 million of unrecognized compensation expense related to unvested Performance Awards, which is expected to be recognized over a weighted-average period of 1.4 years.

The total fair value of Performance Awards vested during the year ended January 2 , 2021 was $ 28.0 million.

As of December 28, 2019, there was $ 4.5 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weighted-average period of 1.1 years.

The total fair value of Performance Awards vested during the year ended December 28, 2019 was $ 22.8 million.

As of December 30, 2017 , there was $ 16.9 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weighted-average period of 1.9 years.

As of December 29, 2018, there was $ 19.0 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weig hted-average period of 1.7 years.

The total fair value of Performance Awards vested during the year ended December 29, 2018 was $ 7.3 million.

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The estimated weighted-average fair value for each option granted was $ 8.20 , $ 9.07 and $ 8.20 per share for fiscal years 2020, 2019 and 2018, respectively, with the following weighted-average assumptions.

2020 2019 2018

Expected market price volatility (1)

31.2 % 29.6 % 29.6 %

Risk-free interest rate (2)

1.5 % 2.5 % 2.5 %

Dividend yield (3)

1.2 % 1.0 % 0.8 %

Expected term (4)

4 years 4 years 4 years

(1) Based on historical volatility of the Company’s common stock.

6 unchanged sentences

A summary of the stock option transactions is as follows:

Shares Under Option

Weighted-Average Exercise Price

Average Remaining Contractual Term (Years)

Shares Under Option Weighted-Average Exercise Price Average Remaining Contractual Term (Years)

Aggregate Intrinsic Value

1 unchanged sentence

Outstanding at December 30, 2017 6,089,664 $ 20.05 5.8 $ 72.1

Outstanding at December 30, 2017

Granted 28,171 31.85

Exercised ( 1,359,387 ) 17.69

Canceled ( 56,446 ) 17.12

Outstanding at December 29, 2018 4,702,002 $ 20.83 5.2 $ 54.5

Granted 25,471 34.81

Exercised ( 681,389 ) 17.87

Canceled ( 12,977 ) 23.97

Outstanding at December 28, 2019 4,033,107 $ 21.41 4.4 $ 49.8

Unvested at December 28, 2019

Exercisable at December 28, 2019

Granted 28,171 32.85

Exercised ( 788,883 ) 18.39

Canceled ( 12,990 ) 25.39

Outstanding at January 2, 2021 3,259,405 $ 22.22 3.9 $ 29.7

Unvested at January 2, 2021 ( 54,541 )

Exercisable at January 2, 2021 3,204,864 $ 22.03 3.8 $ 29.7

The total pretax intrinsic value of stock options exercised during fiscal years 2020, 2019 and 2018 was $ 9.3 million, $ 10.7 million and $ 21.2 million, respectively.

As of December 28, 2019 , there was $ 0.2 million of unrecognized compensation expense related to stock option grants expected to be recognized over a weighted-average period of 1.4 years.

As of January 2 , 2021, there was $ 0.1 million of unrecognized compensation expense related to stock option grants expected to be recognized over a weighted-average period of 0.9 years.

As of December 28, 2019 and December 29, 2018, there was $ 0.2 million and $ 0.4 million, respectively, of unrecognized compensation expense related to stock option awards expected to be recognized over a weighted-average period of 1.4 years and 0.8 years, respectively.

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price as of each fiscal year end, which would have been received by the option holders had all option holders exercised options, where the market price of the Company's stock was above the strike price ("in-the-money"), as of that date.

The total number of in-the-money options exercisable as of December 28, 2019 , based on the Company’s closing stock price of $ 33.74 per share, was 3,974,757 and the weighted-average exercise price was $ 21.29 per share.

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price as of each fiscal year end, which would have been received by the option holders had all option holders exercised options, where the market price o f the Company's stock was above the strike price ("in-the-money"), as of that date.

The total number of in-the-money options exercisable as of January 2 , 2021, based on the Company’s closing stock price of $ 31.25 per share, was 3,096,685 and the weighted-average exercise price was $ 21.66 per share .

As of December 28, 2019, 3,974,757 outstanding options were exercisable and in-the-money, with a weighted-average exercise price of $ 21.29 per share.

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The Company also has individual deferred compensation agreements with certain former employees that entitle those employees to receive payments from the Company following retirement, generally for the duration of their lives.

The Company maintains life insurance policies with a cash surrender value of $ 66.8 million at December 28, 2019 and $ 64.4 million at December 29, 2018 that are intended to partially fund deferred compensation benefits under the SERP and deferred compensation agreements.

The Company maintains life insurance policies with a cash surrender value of $ 44.0 million at January 2 , 2021 and $ 66.8 million at December 28, 2019 that are intended to partially fund deferred compensation benefits under the SERP and deferred compensation agreements.

The Company has two defined contribution 401(k) plans covering substantially all domestic employees that provide for discretionary Company contributions based on the amount of participant deferrals.

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The Company also has a benefit plan at a foreign location that provides for retirement benefits based on years of service.

The obligation recorded under this plan was $ 0.9 million at December 28, 2019 and $ 1.1 million at December 29, 2018 and was recognized as a deferred compensation liability on the consolidated balance sheets.

The obligation recorded under this plan was $ 1.0 million at January 2 , 2021 and $ 0.9 million at December 28, 2019 and was recognized as a deferred compensation liability on the consolidated balance sheets.

The following summarizes the status of and changes in the Company’s assets and related obligations for its pension plans (which include the Company’s defined benefit pension plans and the SERP) for the fiscal years 2020 and 2019:

2 unchanged sentences

Projected benefit obligations at beginning of the year

$ 401.0 $ 348.8

Service cost pertaining to benefits earned during the year

Interest cost on projected benefit obligations

Actuarial loss (gain)

Actuarial losses 48.1 45.4

Benefits paid to plan participants

( 13.9 ) ( 13.9 )

Projected benefit obligations at end of the year

$ 455.8 $ 401.0

Change in fair value of pension assets:

Fair value of pension assets at beginning of the year

Actual return (loss) on plan assets

Company contributions - pension

$ 287.6 $ 254.4

Actual return on plan assets 28.8 44.7

Company contributions - SERP

Benefits paid to plan participants

( 13.9 ) ( 13.9 )

Fair value of pension assets at end of the year

$ 305.0 $ 287.6

Funded status

$ ( 150.8 ) $ ( 113.4 )

Amounts recognized in the consolidated balance sheets:

Noncurrent assets

Current liabilities

$ ( 3.8 ) $ ( 3.7 )

Noncurrent liabilities

( 147.0 ) ( 109.7 )

Net amount recognized

$ ( 150.8 ) $ ( 113.4 )

Funded status of pension plans and SERP (supplemental):

Funded status of qualified defined benefit plans and SERP

$ ( 150.8 ) $ ( 113.4 )

Nonqualified trust assets (cash surrender value of life insurance) recorded in other assets and intended to satisfy the projected benefit obligation of unfunded SERP obligations 36.6 59.6

Net funded status of pension plans and SERP (supplemental)

Unrecognized net actuarial loss recognized in AOCI was $ 61.4 million and $ 44.6 million , and amounts net of tax were $ 48.7 million and $ 36.2 million , as of December 28, 2019 and December 29, 2018 , respectively.

The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 378.4 million at December 28, 2019 and $ 319.1 million at December 29, 2018 .

The actuarial loss included in accumulated other comprehensive loss and expected to be recognized in net periodic pension expense during 2020 is $ 6.6 million .

$ ( 114.2 ) $ ( 53.8 )

Unrecognized net actuarial loss recognized in accumulated other comprehensive income was $ 92.8 million and $ 61.4 million, and amounts net of tax were $ 73.5 million and $ 48.7 million, as of January 2 , 2021 and December 28, 2019, respectively.

The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 430.2 million at January 2 , 2021 and $ 378.4 million at December 28, 2019 .

The increase in benefit obligation for fiscal 2020 was the result of actuarial losses caused by changes to the discount rate.

The actuarial loss included in accumulated other comprehensive loss and expected to be recognized in net periodic pension expense during fiscal 2021 is $ 13.8 million.

The following is a summary of net pension and SERP expense recognized by the Company:

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Net pension expense $ 8.5 $ 5.6 $ 11.8

SERP expense 5.2 5.4 5.5

Qualified defined benefit pension plans expense $ 3.3 $ 0.2 $ 6.3

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Discount rate

2.85 % 3.60 %

Rate of compensation increase - pension

4.18 % 4.23 %

Rate of compensation increase - SERP

7.00 % 7.00 %

Weighted average assumptions used to determine net periodic benefit cost for the years ended:

Discount rate

3.60 % 4.46 %

Expected long-term rate of return on plan assets

6.75 % 6.75 %

Rate of compensation increase - pension

4.23 % 3.82 %

Rate of compensation increase - SERP

7.00 % 7.00 %

Unrecognized net actuarial losses exceeding certain corridors are amortized over one of two amortization periods, based on each plan's election.

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fixed income investments.

The target investment allocations as of December 28, 2019 were 57 % in equity securities, 38 % in fixed income securities and 5 % in real estate investments.

The target investment allocations as of January 2 , 2021 were 57 % in equity securities, 38 % in fixed income securities and 5 % in real estate investments.

Within the equity and fixed income classifications, the investments are diversified.

The Company’s asset allocations by asset category and fair value measurement are as follows:

December 28, 2019

December 29, 2018

(In millions)

The Company’s asset

allocations by asset category and fair value measurement are as follows:

January 2 , 2021 December 28, 2019

(In millions) Total % of Total Total % of Total

Equity securities $ 173.3 1

56.8 % $ 162.2 1

Fixed income securities 112.7 1

37.0 % 106.2 1

Real estate investments 16.7 1

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See Note 16 for additional information.

The Company does not expect to make any contributions to its qualified defined benefit pension plans in fiscal 2020 and to make $ 3.7 million in contributions to the SERP in fiscal 2020 .

Expected benefit payments for the fiscal years subsequent to December 28, 2019 are as follows:

The Company does not expect to make any contributions to its qualified defined benefit pension plans in fiscal 2021 and expects to make $ 3.8 million in contributions to the SERP in fiscal 2021.

Expected benefit payments for the fiscal years subsequent to January 2 , 2021 are as follows:

(In millions) 2021 2022 2023 2024 2025 2026-2030

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United States $ ( 218.6 ) $ 79.3 $ 159.2

Foreign 34.5 66.6 68.2

Earnings (loss) before income taxes $ ( 184.1 ) $ 145.9 $ 227.4

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Current expense:

Federal $ 0.7 $ 10.6 $ 6.7

State 0.6 0.5 2.4

Foreign 8.3 12.5 10.9

Deferred expense (credit):

Federal ( 51.6 ) ( 5.8 ) 2.1

State ( 4.4 ) ( 2.0 ) 3.3

Foreign 0.9 1.2 1.7

Income tax provision $ ( 45.5 ) $ 17.0 $ 27.1

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Income taxes at U.S.

statutory rates of 21%, 21% and 35%

statutory rate of 21% $ ( 38.7 ) $ 30.6 $ 47.7

State income taxes, net of federal income tax ( 8.1 ) 0.5 2.8

(Nontaxable earnings) non-deductible losses of foreign affiliates:

Cayman Islands

Foreign earnings taxed at rates different from the U.S.

statutory rate:

Hong Kong ( 3.3 ) ( 8.5 ) ( 10.8 )

Other 1.2 2.8 ( 3.1 )

Adjustments for uncertain tax positions ( 1.4 ) ( 1.0 ) ( 1.4 )

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Change in state tax rates — ( 1.5 ) 1.9

Transition tax due to TCJA

Remeasurement of U.S.

deferred taxes due to TCJA

Global Intangible Low Tax Income tax 2.5 2.1 3.7

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Other Permanent adjustments and non-deductible expenses 1.0 ( 0.6 ) ( 6.7 )

Other 0.2 ( 0.3 ) 0.3

Income tax provision $ ( 45.5 ) $ 17.0 $ 27.1

Significant components of the Company’s deferred income tax assets and liabilities are as follows:

(In millions)

(In millions) January 2 ,

2021 December 28,

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Environmental reserve 24.9 15.4

Other 9.1 5.1

Total gross deferred income tax assets 110.3 91.7

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Tax over book depreciation and amortization ( 10.7 ) ( 8.6 )

Other ( 4.3 ) ( 4.1 )

Total deferred income tax liabilities ( 120.3 ) ( 170.2 )

Net deferred income tax liabilities $ ( 32.3 ) $ ( 96.1 )

The valuation allowance for deferred income tax assets as of December 28, 2019 and December 29, 2018 was $ 17.6 million and $ 17.8 million , respectively.

The net decrease in the total valuation allowance during fiscal 2019 was $ 0.2 million .

The valuation allowance for deferred income tax assets as of January 2 , 2021 and December 28, 2019 was $ 22.3 million and $ 17.6 million, respectively.

The net increase in the total valuation allowance during fiscal 2020 was $4.7 million.

The valuation allowance for both years is primarily related to U.S.

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The ultimate realization of the deferred tax assets depends on the generation of future taxable income in foreign jurisdictions as well as state and local tax jurisdictions.

The current year change in the valuation allowance results in a decrease against the state deferred tax assets of $ 0.5 million , an increase related to state net operating loss carryforward of $ 1.3 million , and a net decrease relating to the foreign net operating losses and foreign tax credits and other deferred tax assets of $ 1.0 million .

At December 28, 2019 , the Company had foreign net operating loss carryforwards of $ 27.3 million , which have expirations ranging from 2020 to an unlimited term during which they are available to offset future foreign taxable income.

The current year change in the valuation

allowance results in an increase against the state deferred tax assets of $ 0.6 million, an increase related to state net operating loss carryforward of $ 1.9 million, and a net increase relating to the foreign net operating losses and foreign tax credits and other deferred tax assets of $ 2.2 million.

At January 2 , 2021, the Company had foreign net operating loss carryforwards of $ 30.1 million, which have expirations ranging from 2021 to an unlimited term during which they are available to offset future foreign taxable income.

The Company had U.S.

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Unrecognized tax benefits at end of the year $ 5.5 $ 6.9

The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 6.5 million and $ 7.1 million as of December 28, 2019 and December 29, 2018 , respectively.

The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 5.0 million and $ 6.5 million as of January 2 , 2021 and December 28, 2019, respectively.

The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively.

Interest accrued related to unrecognized tax benefits was $ 1.5 million and $ 2.4 million as of December 28, 2019 and December 29, 2018 , respectively.

Interest accrued related to unrecognized tax benefits was $ 0.6 million and $ 1.5 million as of January 2 , 2021 and December 28, 2019, respectively.

The Company is subject to periodic audits by domestic and foreign tax authorities.

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The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S.

and has, therefore, not established a deferred tax liability on the amount of non-cash foreign undistributed earnings of $ 272.1 million at December 28, 2019 .

and has, therefore, not established a deferred tax liability on the amount of non-cash foreign undistributed earnings of $ 229.1 million at January 2 , 2021.

However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

AOCI represents net earnings and any revenue, expenses, gains and losses that, under U.S.

Accumulated other comprehensive income represents net earnings and any revenue, expenses, gains and losses that, under U.S.

GAAP, are excluded from net earnings and recognized directly as a component of stockholders’ equity.

The change in accumulated other comprehensive income (loss) during fiscal years 2020 and 2019 is as follows:

(In millions)

Balance of AOCI as of December 30, 2017

(In millions) Foreign

translation Derivatives Pension Total

Balance at December 29, 2018 $ ( 53.0 ) $ 0.9 $ ( 36.2 ) $ ( 88.3 )

Other comprehensive income (loss) before reclassifications (1)

5.4 0.9 ( 14.6 ) ( 8.3 )

Amounts reclassified from accumulated other comprehensive income (loss) — ( 9.8 ) (2)

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Net reclassifications

— ( 7.6 ) 2.1 ( 5.5 )

Net current-period other comprehensive income (loss) (1)

Reclassifications to retained earnings (4)

Balance of AOCI as of December 29, 2018

5.4 ( 6.7 ) ( 12.5 ) ( 13.8 )

Balance at December 28, 2019 $ ( 47.6 ) $ ( 5.8 ) $ ( 48.7 ) $ ( 102.1 )

Other comprehensive income (loss) before reclassifications (1)

10.8 ( 17.6 ) ( 30.0 ) ( 36.8 )

Amounts reclassified from accumulated other comprehensive income (loss) — 3.5 (2)

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Net reclassifications

— 3.1 5.2 8.3

Net current-period other comprehensive income (loss) (1)

Balance of AOCI as of December 28, 2019

10.8 ( 14.5 ) ( 24.8 ) ( 28.5 )

Balance at January 2, 2021 $ ( 36.8 ) $ ( 20.3 ) $ ( 73.5 ) $ ( 130.6 )

(1) Other comprehensive income (loss) is reported net of taxes and noncontrolling interest.

2 unchanged sentences

Amounts related to interest rate swaps and the cross currency swap are included in interest expense.

Amounts reclassified are included in the computation of net pension expense, and includes $ 7.2 million in fiscal 2018 related to a settlement loss.

Amounts reclassified to retained earnings upon adoption of ASU 2017-12 and ASU 2018-02.

(3) Amounts reclassified are included in the computation of net pension expense.

FAIR VALUE MEASUREMENTS

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Quoted Prices With Other Observable Inputs (Level 2)

(In millions)

December 28, 2019

December 29, 2018

(In millions) January 2 , 2021 December 28, 2019

Financial assets:

Derivatives $ — $ 2.3

Financial liabilities:

Derivatives $ ( 19.6 ) $ ( 6.6 )

The fair value of foreign currency forward exchange contracts represents the estimated receipts or payments necessary to terminate the contracts.

The two interest rate swaps are valued based on the current forward rates of the future cash flows.

The fair value of the cross-currency swap is determined using the current forward rates and changes in the spot rate.

Nonrecurring Fair Value Measurements

Indefinite-lived intangible assets are tested annually, or if a triggering event occurs that indicates an impairment loss may have been incurred, using fair value measurements with unobservable inputs (Level 3).

The Company recorded an impairment charge of $ 222.2 million on the Sperry ® indefinite-lived trade name in fiscal 2020.

Refer to Note 4, “Goodwill and Other Intangibles” for additional discussion on the Sperry ® trade name impairment.

Fair Value Disclosures

2 unchanged sentences

The carrying value and the fair value of the Company’s debt are as follows:

(In millions)

December 28, 2019

December 29, 2018

(In millions) January 2 , 2021 December 28, 2019

Carrying value $ 722.5 $ 798.4

Fair value 765.4 817.6

The fair value of the fixed rate debt was based on third-party quotes (Level 2).

6 unchanged sentences

PFOA and PFOS help provide non-stick, stain-resistant, and water-resistant qualities, and were used for many decades in commercial products like firefighting foams and metal plating, and in common consumer items like food wrappers, microwave popcorn bags, pizza boxes, Teflon™, carpets and Scotchgard™.

The United States Centers for Disease Control and Prevention has concluded that studies of the health effects of PFOA and PFOS are “inconsistent and inconclusive,” but in May 2016, the Environmental Protection Agency (“EPA”) announced a lifetime health advisory level of 70 parts per trillion ("ppt") combined for PFOA and PFOS.

Lifetime health advisories, while not enforceable, serve as guidance and are benchmarks for determining if concentrations of chemicals in tap water from public utilities are safe for public consumption.

In January 2018, the Michigan Department of Environmental Quality (“MDEQ”) enacted a drinking water criterion of 70 ppt combined for PFOA and PFOS, which set an official state standard for acceptable concentrations of these contaminants in groundwater used for drinking water purposes.

On April 22, 2019, the MDEQ was reorganized into the Michigan Department of Environment, Great Lakes, and Energy (“EGLE”).

The Company has been served with two regulatory actions including a civil action filed by the EGLE under the federal Resource Conservation and Recovery Act of 1976 (“RCRA”), Part 201 of the Michigan Natural Resources and Environmental Protection Act (“NREPA”) and Part 31 of NREPA, and a Unilateral Administrative Order issued by the EPA under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) Section 106.

The Company has also been served with individual lawsuits and three putative class action lawsuits.

The three putative class action lawsuits were subsequently refiled as a single consolidated putative class action lawsuit.

In May 2016, the Environmental Protection Agency (“EPA”) announced a lifetime health advisory level of 70 parts per trillion (“ppt”) combined for PFOA and PFOS.

In January 2018, the Michigan Department of Environmental Quality (“MDEQ”, now known as the Michigan Department of Environment, Great Lakes, and Energy (“EGLE”)) enacted a drinking water criterion of 70 ppt combined for PFOA and PFOS, which set an official state standard for acceptable concentrations of these contaminants in groundwater used for drinking water purposes.

On August 3, 2020, Michigan changed the standards for PFOA and PFOS in drinking water to 8 and 16 ppt, respectively, and set standards for four other PFAS substances.

Civil and Regulatory Actions of EGLE and EPA

On January 10, 2018, EGLE filed a civil action against the Company in the U.S District Court for the Western District of Michigan under RCRA and Parts 201 and 31 of NREPA alleging that the Company’s past and present handling, storage, treatment, transportation and/or disposal of solid waste at the Company’s properties has contributed to the disposal of solid wastes that was done in a way that resulted in releases of PFAS at levels that resulted in detections exceeding applicable Michigan cleanup criteria for PFOA and PFOS (the "EGLE Action").

Plainfield and Algoma Townships intervened in the EGLE Action alleging claims under RCRA, CERCLA, Part 201 of NREPA, and common law nuisance.

On December 19, 2018, the Company filed a third-party complaint against 3M Company seeking, among other things, recovery of the Company’s remediation and other costs incurred in defense of the EGLE Action ("the 3M Action").

On June 20, 2019, the 3M Company filed a counterclaim against the Company in response to the 3M Action, seeking, among other things, contractual and common law indemnity and contribution under CERCLA and Part 201 of NREPA.

On January 10, 2018, EGLE filed a civil action against the Company in the U.S.

District Court for the Western District of Michigan under the federal Resource Conservation and Recovery Act of 1976 (“RCRA”) and Parts 201 and 31 of the Michigan Natural Resources and Environmental Protection Act (“NREPA”) alleging that the Company’s past and present handling, storage, treatment, transportation and/or disposal of solid waste at the Company’s properties has resulted in releases of PFAS at levels exceeding applicable Michigan cleanup criteria for PFOA and PFOS (the "EGLE Action").

Plainfield and Algoma Townships intervened in the EGLE Action alleging claims under RCRA, NREPA, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and common law nuisance.

On February 3, 2020, the parties entered into a consent decree resolving the EGLE Action, which was approved by U.S.

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Neff on February 19, 2020 (the “Consent Decree”).

On February 20, 2020, the Company and 3M Company entered into a settlement agreement resolving the 3M Action, under which 3M Company will pay the Company a lump sum amount of $ 55.0 million in fiscal 2020.

The Company has recognized the $ 55.0 million as a loss recovery partially offsetting the environmental remediation costs recorded in fiscal 2019 and is recorded in the prepaid expenses and other current assets line item on the consolidated balance sheets.

Under the Consent Decree, the Company will pay to extend Plainfield Township’s municipal water system to more than 1,000 properties in Plainfield and Algoma Townships, subject to an aggregate cap of $69.5 million.

The Consent Decree also obligates the Company to continue maintaining water filters for certain homeowners, resample certain residential wells for PFAS, continue remediation at the Company’s Tannery property and House Street site, and conduct further investigations and monitoring to the assess the presence of PFAS in area groundwater.

Under the Consent Decree, the Company agreed to pay for an extension of Plainfield Township’s municipal water system to more than 1,000 properties in Plainfield and Algoma Townships, subject to an aggregate cap of $69.5 million.

The Company also agreed to continue maintaining water filters for certain homeowners, resample certain residential wells for PFAS, continue remediation at the Company’s Tannery property and House Street site, and conduct further investigations and monitoring to the assess the presence of PFAS in area groundwater.

The Company’s activities under the Consent Decree are not materially impacted by the drinking water standards that became effective on August 3, 2020.

On February 20, 2020, the Company and 3M Company entered into a settlement agreement resolving the 3M Action, under which 3M Company paid the Company a lump sum amount of $ 55.0 million during the first quarter of fiscal 2020.

On January 10, 2018, the EPA entered a Unilateral Administrative Order (the “Order”) under Section 106(a) of CERCLA, 42 U.S.C.

The effective date of the Order was February 1, 2018.

The Order pertained to the Company's Tannery and House Street sites and directed the Company to conduct specified removal actions, including certain time critical removal actions subsequently identified in an April 29, 2019 letter from the EPA, to abate the actual or threatened release of hazardous substances at or from the sites.

§ 9606(a) with an effective date of February 1, 2018.

The Order pertained to specified removal actions at the Company's Tannery and House Street sites, including certain time critical removal actions subsequently identified in an April 29, 2019 letter from the EPA, to abate the actual or threatened release of hazardous substances at or from the sites.

On October 28, 2019, the EPA and the Company entered into an Administrative Settlement and Order on Consent (“AOC”) that supersedes the Order and addresses the agreed-upon removal actions outlined in the Order.

The Company has already completed some of these activities and submitted work plans for completion of the remaining items.

The Company has completed almost all of these activities related to the AOC, and anticipates completing the remaining activities in 2021 pursuant to approved work plans.

The Company discusses its reserve for remediation costs in the environmental liabilities section below.

3 unchanged sentences

District Court for the Western District of Michigan as a single consolidated putative class action lawsuit.

3M Company, which sold Scotchgard containing PFAS to the Company, has been named as a co-defendant in the individual lawsuits and consolidated putative class action lawsuit.

In addition, the current owner of a former landfill and gravel mining operation has sued the Company seeking damages and cost recovery for property damage allegedly caused by the Company’s disposal of tannery waste containing PFAS (collectively with the individual lawsuits and putative class action, the “Litigation Matters”).

3M Company has been named as a co-defendant in the individual lawsuits and consolidated putative class action lawsuit.

In addition, the current owner of a former landfill and gravel mining operation sued the Company seeking damages and cost recovery for property damage allegedly caused by the Company’s disposal of tannery waste containing PFAS (this suit collectively with the individual lawsuits and putative class action, the “Litigation Matters”).

Assessing potential liability with respect to the Litigation Matters at this time is difficult.

3 unchanged sentences

The Company intends to continue to vigorously defend itself against these claims.

In addition, in December 2018 the Company filed a lawsuit against certain of its historic liability insurers, seeking their participation in Wolverine's defense and remediation efforts.

No estimated recoveries from legacy insurance policies have been recognized.

In addition, in December 2018 the Company filed a lawsuit against certain of its historic liability insurers, seeking their participation in the Company's defense and remediation efforts.

The Company recognized $ 8.3 million in recoveries from legacy insurance policies in fiscal 2020.

The recoveries resulted from interim payment agreements reached with the insurers and are pending final resolution of the lawsuit filed by the Company.

Other Litigation

The Company is also involved in litigation incidental to its business and is a party to legal actions and claims, including, but not limited to, those related to employment and intellectual property.

The Company is also involved in litigation incidental to its business and is a party to legal actions and claims, including, but not limited to, those related to employment, intellectual property, and other environmental matters.

Some of the legal proceedings include claims for compensatory as well as punitive damages.

While the final outcome of these matters cannot be predicted with certainty, considering, among

other things, the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, it is management’s opinion that the outcome of these items are not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the meritorious legal defenses available to the Company and reserves for liabilities that the Company has recorded, along with applicable insurance, it is management’s opinion that the outcome of these items are not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Environmental Liabilities

2 unchanged sentences

Remediation liability at beginning of the year

$ 124.4 $ 22.6

Changes in estimate

( 22.6 ) ( 11.1 )

Remediation liability at the end of the year

The reserve balance as of December 28, 2019 includes $ 41.5 million that is expected to be paid within the next twelve months and is recorded as a current obligation in other accrued liabilities, with the remaining $ 82.9 million expected to be paid over the course of up to 25 years, recorded in other liabilities.

$ 101.8 $ 124.4

The reserve balance as of January 2 , 2021 includes $ 23.6 million that is expected to be paid within the next twelve months and is recorded as a current obligation in other accrued liabilities, with the remaining $ 78.2 million expected to be paid over the course of up to 25 years, recorded in other liabilities.

The Company's remediation activity at the Tannery property, House Street site and other relevant disposal sites is ongoing.

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The Company has future minimum royalty and advertising obligations due under the terms of certain licenses held by the Company.

These minimum future obligations for the fiscal years subsequent to December 28, 2019 are as follows:

(In millions)

These minimum future obligations for the fiscal years subsequent to January 2 , 2021 are as follows:

(In millions) 2021 2022 2023 2024 2025 Thereafter

Minimum royalties $ 1.7 $ 1.8 $ — $ — $ — $ —

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BUSINESS SEGMENTS

The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable operating segments.

The change was to align our brands under key leadership to best support innovation and efficiency.

All prior period disclosures have been retrospectively adjusted to reflect these new reportable operating segments.

The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable segments.

• Wolverine Michigan Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Wolverine ® footwear and apparel, Chaco ® footwear, Hush Puppies ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and Hytest ® safety footwear;

Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel, Keds ® footwear and apparel, and the Kids footwear business, which includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® .

• Wolverine Boston Group , consisting of Sperry ® footwear, Saucony ® footwear and apparel, Keds ® footwear and the Kids' footwear business, which includes the Stride Rite ® licensed business, as well as Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® .

The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories.

Revenue for the reportable operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers;

revenue from third-party licensees and distributors;

Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers;

revenue from third-party distributors, licensees and joint ventures;

and revenue from the Company’s consumer-direct businesses.

The Company also reports “Other” and “Corporate” categories.

The Other category consists of the Company’s leather marketing operations, sourcing operations that include third-party commission revenues and multi-branded consumer-direct retail stores.

The Corporate category consists of unallocated corporate expenses, organizational transformation costs, reorganization costs, restructuring and other related costs, impairment of intangible assets, environmental and other related costs, a foreign currency remeasurement gain recorded in the second quarter of fiscal 2018 and a pension settlement loss related to the Company's purchase of pension annuity contracts in the fourth quarter of fiscal 2018 .

The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions.

The operating segment managers all report directly to the chief operating decision maker.

Company management uses various financial measures to evaluate the performance of the reportable operating segments.

The Other category consists of the Company’s leather marketing operations, sourcing operations and multi-branded consumer-direct retail stores.

The Corporate category consists of unallocated corporate expenses, such as costs related to the COVID-19 pandemic, impairment of intangible assets and environmental and other related costs.

The Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions.

Company management uses various financial measures to evaluate the performance of the reportable segments.

The following is a summary of certain key financial measures for the respective fiscal periods indicated.

2 unchanged sentences

Wolverine Boston Group 696.0 910.9 895.5

Other 44.1 63.1 71.5

Total $ 1,791.1 $ 2,273.7 $ 2,239.2

Operating profit (loss):

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Wolverine Boston Group 88.1 153.8 157.5

Other 1.6 2.9 3.1

Corporate ( 406.7 ) ( 230.5 ) ( 166.3 )

Total $ ( 137.1 ) $ 171.0 $ 251.9

Depreciation and amortization expense:

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Wolverine Boston Group 3.4 3.3 3.3

Other 2.0 2.4 3.1

Corporate 24.7 24.6 22.4

Total $ 32.8 $ 32.7 $ 31.5

Capital expenditures:

1 unchanged sentence

Wolverine Boston Group 2.3 5.7 1.2

(In millions)

Other 0.9 2.2 1.8

Corporate 6.3 24.3 15.6

Total $ 10.3 $ 34.4 $ 21.7

(In millions) January 2 ,

2021 December 28,

Total assets:

1 unchanged sentence

Wolverine Boston Group 1,077.8 1,354.8

Other 31.4 38.4

Corporate 401.3 313.0

Total $ 2,137.4 $ 2,480.0

Wolverine Michigan Group $ 145.4 $ 144.4

Wolverine Boston Group 297.0 294.5

Total $ 442.4 $ 438.9

Geographic dispersion of revenue from external customers, based on shipping destination is as follows:

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Europe, Middle East and Africa 279.8 343.1 325.7

Asia Pacific 120.3 193.7 186.0

Canada 88.9 117.9 116.7

Latin America 67.9 111.1 105.6

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The location of the Company’s tangible long-lived assets, which comprises property, plant and equipment and lease right-of-use assets, is as follows:

(In millions)

(In millions) January 2 ,

2021 December 28,

2019 December 29,

United States $ 222.2 $ 247.2 $ 117.1

Foreign countries 44.9 54.6 13.8

Total $ 267.1 $ 301.8 $ 130.9

The Company does not believe that it is dependent upon any single customer because no customer accounts for more than 10% of consolidated revenue in any year.

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The detailed amounts of each component of the purchase consideration are as follows:

(In millions)

Purchase Consideration

(In millions) Purchase Consideration

Cash paid $ 15.1

Extinguishment of Sportlab’s accounts payable balance 4.6

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The final allocation of the purchase price as of December 28, 2019 was:

(In millions)

Final Valuation

(In millions) Final Valuation

Accounts receivable $ 1.8

Inventories 6.2

Goodwill 12.0

Amortizable intangibles 12.9

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Net assets acquired $ 25.2

The excess of the purchase price over the fair value of the net assets acquired, amounting to $ 12.0 million , was recorded as goodwill in the consolidated balance sheet and was assigned to the Wolverine Boston Group operating segment.

The excess of the purchase price over the fair value of the net assets acquired, amounting to $ 12.0 million, was recorded as goodwill in the consolidated balance sheet and was assigned to the Wolverine Boston Group reportable segment.

The goodwill that was recognized is attributable to the efficiencies to be gained by integrating operations with the Saucony ® distribution business purchased from Sportlab.

Other intangible assets acquired include order backlog, valued at $ 1.7 million, and customer relationship assets, valued at $ 11.2 million, which had estimated useful lives at the acquisition date of 7 months and 14 years, respectively.

In the third quarter of fiscal 2017, the Company entered into a global, multi-year licensing agreement of the Stride Rite ® brand.

As part of this agreement, the Company agreed to sell inventory and certain other assets and liabilities related to the Stride Rite ® brand and provide certain transition services to the licensee.

The Company received cash of $ 16.9 million for the sale of these assets and liabilities and recognized a gain of $ 0.2 million , which is included in the selling, general and administrative expenses line item on the consolidated statement of operations .

The assets and liabilities sold, which were reported in the Wolverine Boston Group, are as follows:

(In millions)

Prepaid expenses and other current assets

Other accrued liabilities

Total assets and liabilities sold

In the third quarter of fiscal 2017, the Company sold certain intangible and other assets related to the Sebago ® brand.

As part of this agreement, the buyer acquired the intellectual property rights to design, manufacture and market all products under the Sebago ® brand.

The Company received cash of $ 14.3 million and recognized a gain on sale of $ 8.4 million , net of transaction costs, which is included in the selling, general and administrative expenses line item on the consolidated statement of operations.

The assets sold, which were reported in the Wolverine Michigan Group, are as follows:

(In millions)

Indefinite-lived intangibles

Amortizable intangibles

Total assets sold

In the third quarter of fiscal 2017, the Company sold its Department of Defense contract business, which comprised an owned manufacturing facility, the transfer of employees and certain associated assets.

The goodwill allocated to the sale of the business was nominal.

The Company received cash of $ 7.8 million and recognized a loss on sale of $ 1.6 million , net of transaction costs, which is included in the selling, general and administrative expenses line item on the consolidated statement of operations.

The assets sold, which were reported in the Wolverine Michigan Group and Other segments, are as follows:

(In millions)

Prepaid expenses and other current assets

Property, plant and equipment

Total assets sold

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

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Fiscal 2020 Quarters Ended

(In millions, except per share data)

March 30, 2019

June 29, 2019

September 28, 2019

December 28, 2019

(In millions, except per share data) March 28, 2020 June 27, 2020 September 26, 2020 January 2 , 2021

$ 439.3 $ 349.1 $ 493.1 $ 509.6

181.8 147.2 202.0 204.6

Net earnings (loss) attributable to Wolverine World Wide, Inc.

13.0 ( 1.6 ) 22.4 ( 170.7 )

Net earnings (loss) per share:

$ 0.16 $ ( 0.02 ) $ 0.27 $ ( 2.10 )

0.16 ( 0.02 ) 0.27 ( 2.10 )

Fiscal 2019 Quarters Ended

(In millions, except per share data)

March 31, 2018

June 30, 2018

September 29, 2018

December 29, 2018

Net earnings attributable to Wolverine World Wide, Inc.

Net earnings per share:

(In millions, except per share data) March 30, 2019 June 29, 2019 September 28, 2019 December 28, 2019

$ 523.4 $ 568.6 $ 574.3 $ 607.4

220.2 230.4 243.3 229.9

Net earnings (loss) attributable to Wolverine World Wide, Inc.

40.5 40.2 48.7 ( 0.9 )

Net earnings (loss) per share:

$ 0.44 $ 0.45 $ 0.57 $ ( 0.01 )

0.43 0.45 0.57 ( 0.01 )

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Wolverine World Wide, Inc.

and subsidiaries (the Company) as of December 28, 2019 and December 29, 2018 , the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 28, 2019 , and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 28, 2019 and December 29, 2018 , and the results of its operations and its cash flows for each of the three years in the period ended December 28, 2019 , in conformity with U.S.

and subsidiaries (the Company) as of January 2, 2021 and December 28, 2019, the related consolidated statements of operations, comprehensive income (loss) , stockholders' equity and cash flows for each of the three years in the period ended January 2, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 28, 2019 , based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 26, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

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Valuation of indefinite-lived intangibles

Description of the Matter

At December 28, 2019, the Company’s indefinite-lived intangible assets were $604.5 million, which included $518.2 million for the Sperry trade name.

Description of the Matter At January 2, 2021, the Company’s indefinite-lived intangible assets were $382.3 million, which included $296.0 million for the Sperry trade name.

As discussed in Notes 1 and 4 of the consolidated financial statements, indefinite-lived intangibles are tested for impairment at least annually.

Auditing management’s annual impairment test for the Sperry trade name was complex and highly judgmental due to the significant estimation required in determining the fair value of the Sperry trade name indefinite-lived intangible asset.

The fair value estimate was sensitive to significant assumptions such as future revenue growth and operating earnings, and the discount rate, which are affected by expectations about future market or economic conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s Sperry trade name impairment review process.

The fair value estimate was sensitive to significant assumptions such as future revenue growth and operating profit, and the discount rate, which are affected by expectations about future market or economic conditions.

Changes in these assumptions could have a significant impact on the fair value of the Sperry trade name, the amount of any impairment charge, or both.

During fiscal 2020, the Company recognized an impairment charge related to the Sperry trade name of $222.2 million, as the carrying value exceeds its estimated fair value.

Given the significant judgments made by management to estimate the fair value of the Sperry trade name and the impairment charge recorded during the year, performing auditing procedures to evaluate the reasonableness of management’s judgments regarding the business and valuation assumptions utilized in the valuation model, particularly the future revenue growth, operating profit, and discount rate, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our valuation specialists.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s Sperry trade name impairment review process.

This included controls over the significant assumptions described above and the completeness and accuracy of the data used in the fair value estimate.

To test the estimated fair value of the Sperry trade name, we performed audit procedures that included, among others, assessing the methodology and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis.

To test the estimated fair value of the Sperry trade name, we performed audit procedures that included, among others, assessing the valuation model and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis.

We involved our valuation specialists to assist in our evaluation of the Company's model, valuation methodology and the discount rate.

We also compared the significant assumptions used by management to current industry and economic trends, to the business model used by Sperry and other relevant factors.

We assessed the historical accuracy of management’s estimates and performed a sensitivity analysis of the significant assumptions to evaluate the change in the fair value of the trade name that would result from changes in the assumptions.

Loss contingencies for environmental matters

Description of the Matter

As discussed in Note 17, the Company recognized a loss contingency related to environmental matters on an undiscounted basis for $124.4 million.

Additionally, we assessed the historical accuracy of management’s estimates.

Environmental Liabilities

Description of the Matter As discussed in Note 17, the Company has recognized environmental liabilities of $101.8 million on an undiscounted basis.

Specifically, the Company was served with two regulatory actions filed by the Environmental Protection Agency (“EPA”) and Michigan Department of Environment, Great Lakes, and Energy (“EGLE”) in early 2018.

The Company, EGLE and EPA entered into various settlement agreements that address and outline the Company’s required remedial actions.

The Company believes it is probable that it will incur losses related to the required remediation actions and recognized a loss contingency for its estimate of the cost of the remedial actions.

The Company believes it is probable that it will incur losses related to the required remediation actions and has recognized environmental liabilities for its estimate of the cost of the remedial actions.

Auditing management’s accounting for and disclosure of loss contingencies from the environmental matters was especially challenging as evaluating the probability and amount of loss is highly subjective and requires significant judgment due in part to the uncertain nature and extent of the activities to complete the required remedial actions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the identification, evaluation and disclosure of these environmental matters, including the Company’s assessment and measurement of the estimate of the probable liability.

To test the assessment of the probability of incurrence of a loss and the estimated loss, to the extent it was reasonably estimable, we performed audit procedures that included, among others, reviewing summaries of the proceedings and related correspondence with attorneys and environmental agencies, reviewing legal counsel confirmation letters, assessing scope and cost estimates of the Company’s third-party environmental specialists used in determination of the reserve, utilizing internal environmental specialists to assist with assessing the cost estimate (by using all the information available) and searching for other publicly available information that might indicate new or contrary facts related to the matter.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the identification, evaluation and disclosure of these environmental matters, including the Company’s assessment and measurement of the estimate of the probable liability.

To test the assessment of the probability of incurrence of a loss and the estimated loss, to the extent it was reasonably estimable, we performed audit procedures that included, among others, reviewing summaries of the proceedings and related correspondence with attorneys and environmental agencies, reviewing legal counsel confirmation letters, assessing scope and cost estimates of the Company’s third-party environmental studies used in determination of the reserve, utilizing internal environmental specialists to assist with assessing the cost estimate (by using all the information available) and searching for other publicly available information that might indicate new or contrary facts related to the matter.

/s/ Ernst & Young LLP

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We have audited Wolverine World Wide, Inc.

and subsidiaries internal control over financial reporting as of December 28, 2019 , based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

and subsidiaries' internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Wolverine World Wide, Inc.

and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 28, 2019 , based on the COSO criteria .

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Sportlab S.R.L.

(Sportlab), which are included in the December 28, 2019 consolidated financial statements of the Company and constituted less than 2% of consolidated total assets and consolidated net sales as of, and for the year-ended, December 28, 2019.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Sportlab.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 28, 2019 and December 29, 2018 , the related consolidated statements of operations, comprehensive income , stockholders' equity and cash flows for each of the three years in the period ended December 28, 2019 , and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 26, 2020 expressed an unqualified opinion thereon.

and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 2, 2021, based on the COSO criteria .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 2, 2021 and December 28, 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended January 2, 2021, and the related notes and financial statement schedule and our report dated February 26, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data