What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-24 · 140 added, 133 removed, 223 unchanged (55% of the section changed)

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The Company is a leading global designer, marketer and licensor of branded footwear, apparel and accessories.

The Company’s vision statement is “ to build a family of the most admired performance and lifestyle brands on earth ” and the Company seeks to fulfill this vision by offering innovative products and compelling brand propositions;

The Company’s strategic vision is to build and grow high-energy footwear, apparel and accessories brands that inspire and empower consumers to explore and enjoy their active lives.

The Company seeks to fulfill this vision by offering innovative products and compelling brand propositions;

complementing its footwear brands with strong apparel and accessories offerings;

expanding its global consumer-direct footprint;

expanding its global direct-to-consumer footprint;

and delivering supply chain excellence.

The Company’s brands are marketed in approximately 170 countries and territories at January 1, 2022, including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific.

The Company’s brands are marketed in approximately 170 countries and territories at December 31, 2022, including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific.

In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures.

At January 1, 2022, the Company oper ated 143 re tail stores in the U.S., United Kingdom, and Canada an d 65 consumer-direct eCommerce sites.

On July 31, 2021, the Company entered into a definitive agreement to acquire 100% of the outstanding shares of Lady Leisure InvestCo Limited.

The acquisition was completed on August 2, 2021 for $417.4 million, which is net of acquired cash of $7.4 million.

Lady Leisure InvestCo Limited owns the Sweaty Betty ® brand and activewear business, a premium women’s activewear brand.

The acquisition was funded with cash on hand and borrowings under the Company’s Revolving Facility.

At December 31, 2022, the Company oper ated 154 retail stores in the U.S., United Kingdom, and Canada an d 63 direct-to-consumer eCommerce sites.

On July 31, 2021, the Company entered into a definitive agreement to acquire 100% of the outstanding shares of Lady of Leisure InvestCo Limited.

The acquisition was completed on August 2, 2021 for $417.4 million, net of acquired cash of $7.4 million.

Lady of Leisure InvestCo Limited owns the Sweaty Betty ® brand and activewear business, a premium women’s activewear brand.

The acquisition was funded with cash on hand and borrowings under the Company’s Revolving Facility, as defined below.

The following discussion includes a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2022 and 2021.

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Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, filed with the SEC on February 24, 2022.

Additional information about the reorganization of the Company's reportable segments can be found in the Company's Current Report on Form 8-K/A filed with the SEC on November 10, 2022.

Known Trends Impacting Our Business

The global impact of the COVID-19 pandemic continues to affect the Company’s business.

Most importantly, the Company remains focused on the health and safety of its employees, customers and partners around the world.

In accordance with regulatory guidance and protocols promulgated by health authorities and government officials, the Company continues to execute a number of enhanced business practices including temporary office closures, travel restrictions, enhanced cleaning procedures and social distancing designed to protect all employees, customers and partners.

Following the onset of the pandemic, the Company further prioritized brand investments in the Company’s owned eCommerce sites.

The Company’s brands’ online growth accelerated due to the investments in this channel and consumer preference changes in favor of digital purchases.

The Company continues to prioritize eCommerce investments including digital leadership, marketing investments in digital platforms, developing richer content and storytelling, and optimizing digital user experiences to increase conversion.

The Company is offering incremental exclusive products through owned eCommerce sites, and the Company has enhanced the online customer shopping experience.

During the third quarter of 2021, a significant portion of the Company’s contract manufacturer’s production capacity in Vietnam was subject to government mandated shutdowns due to COVID-19.

Contract manufacturers in certain other Asia Pacific countries were also subject to closures, reduced capacity and production delays due to COVID-19.

Factories reopened during October 2021, although some did not reopen at full capacity.

These production capacity restraints significantly negatively impacted, and are expected to continue to significantly negatively impact, the Company’s previously planned inventory production and in turn, deliveries to wholesale customers.

The COVID-19 pandemic has had a material adverse impact, and is expected to continue to have an adverse impact, on the Company’s financial results.

In addition to the contract manufacturer closures during the third quarter discussed above, the effects of the pandemic caused disruption in the global supply chain due to vessel shortages, containers damaged and lost in transit, labor and container shortages and U.S.

port congestion that resulted in transportation delays that interrupted the flow of the Company’s inventory and caused delays of shipments to wholesale partners during fiscal 2021.

The Company expects certain aspects of the disruption in the global supply chain to continue, which may negatively impact results in fiscal 2022.

Expenses related to the COVID-19 pandemic incurred in fiscal 2021 included $26.1 million of costs primarily for incremental air freight cost to expedite the delivery of inventory resulting from production and shipping delays.

Expenses related to the COVID-19 pandemic incurred in fiscal 2020 included $37.6 million of costs related to severance expenses, credit loss expenses, air freight related to production delays, facility exit costs and other costs.

The Company continues to monitor the ongoing impacts of COVID-19, including developments that are outside the Company’s control, such as the planned return to full production of factories in Vietnam and certain other Asia Pacific countries and the planned shift of production capacity to other countries following factory closures.

These developments and other potential impacts of COVID-19, such as new or prolonged factory closures and other adverse impacts on the global supply chain affecting the planned delivery of inventory, could materially adversely impact revenue growth as well as profitability in future periods.

Macroeconomic conditions and supply chain disruptions and the COVID-19 pandemic continue to have an impact on the Company’s business results.

During fiscal 2021 and the first half of fiscal 2022, disruption in the global supply chain due to vessel shortages, labor and container shortages, and U.S.

port congestion resulted in transportation delays that interrupted the flow of the Company’s inventory and delayed shipments to wholesale partners.

As a result, the Company planned fiscal 2022 product purchases based on the assumption that extended inventory transit times would continue throughout the year.

However, during the third quarter of 2022, inventory transit times improved ahead of plan, resulting in challenges managing the timing of inventory flow.

As of December 31, 2022, the Company had $146.8 million of inventory in-transit, which includes both inventory in-transit to the Company's distribution centers and inventory not yet able to be processed due to processing capacity pressures at the Company’s distribution centers.

As a result, the Company’s inventory levels as of December 31, 2022 were elevated compared to the prior fiscal year.

The inventory in-transit balance has declined from a balance of $280.9 million at October 1, 2022.

The Company increased promotional activity in the third and fourth quarters of fiscal 2022 and expects this increased level of promotional activity to continue during the first half of 2023 to reduce inventory levels.

The Company incurred higher logistics costs, including freight and labor costs, during 2022 as a result of the supply chain disruption as well as inflationary pressures.

The Company implemented selective price increases by brand and product to partially offset the effects of inflation on the Company’s financial results.

The Company expects to continue to evaluate future pricing of its products.

In addition to inflationary headwinds, the strengthening of the U.S.

dollar relative to other major currencies also negatively impacted the Company’s financial results in 2022 and is expected to have a negative impact on the Company's 2023 financial results.

In March 2022, the Company temporarily suspended all business operations in Russia due to the Russia-Ukraine conflict.

The Company has no assets or employees in Russia or Ukraine.

The Company’s business operations in Russia represent less than 1 percent of revenue.

Please refer to Item 1A, “Risk Factors” for a more complete discussion of the risks the Company encounters in our business.

2022 FINANCIAL OVERVIEW

• Revenue was $2,684.8 million for 2022, representing an increase of 11.2% compared to the prior year's revenue of $2,414.9 million.

The increase reflects a 23.6% increase from the Michigan Group, a 34.5% increase from the Boston Group and a 18.8% increase on Sweaty Betty ® revenue of $117.3 million.

Changes in foreign exchange rates increased revenue by $25.3 million during 2021.

Owned eCommerce revenue increased 39.7% during 2021 compared to 2020.

• Gross margin for 2021 was 42.6%, an increase of 150 basis points from 2020.

• Gross margin for 2022 was 39.9%, a decrease of 270 basis points from 2021.

• The effective tax rate in 2022 was 25.2%, compared to 16.6% in 2021.

• Diluted earnings per share in 2021 was $0.81, compared to a diluted loss per share of $1.70 in 2020.

• Diluted loss per share in 2022 was $2.37, compared to diluted earnings per share of $0.81 in 2021.

• The Company declared cash dividends of $0.40 per share in 2022 and 2021.

• Cash flow provided by operating activities was $86.8 million and $309.1 million for 2021 and 2020, respectively.

• Cash flow used in operating activities was $178.9 million for 2022 and cash flow provided by operating activities was $86.8 million for 2021.

• Compared to the prior year, inventory increased $379.7 million, or 103.9% .

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906.4 817.8 10.8 %

Impairment of intangible assets — 222.2 (100.0)

Gain on sale of trademarks (90.0) — —

Impairment of goodwill and intangible assets 428.7 — —

Environmental and other related costs, net of recoveries 33.7 56.4 (40.2) %

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Net earnings (loss) (189.1) 67.0 (382.2) %

net earnings (loss) attributable to noncontrolling interests (1.6) (1.7) 5.9 %

net loss attributable to noncontrolling interests (0.8) (1.6) 50.0 %

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

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Revenue was $2,684.8 million for 2022, representing an increase of 11.2% compared to the prior year's revenue of $2,414.9 million.

The change in revenue reflected a 23.6% increase from the Michigan Group and a 34.5% increase from the Boston Group.

The Michigan Group's revenue increase was driven by high-forties increase from Hytest ® , low-thirties increase from Cat ® , high-twenties increase from Wolverine ® , mid-twenties increase from Hush Puppies ® , low-twenties increase from Harley-

Davidson ® , low-twenties increase from Merrell ® , and low-teens increase from Bates ® .

The Boston Group’s revenue increase was driven by high-fifties increase from Saucony ® , high-twenties increase from Kids’, and mid-twenties increase from Sperry ® .

The change in revenue reflected a 19.0% increase from the Active Group, a 7.6% increase from the Work Group and a 6.2% decline from the Lifestyle Group.

The Active Group's revenue increase was driven by an increase of $116.9 million from Merrell ® , $94.3 million from Sweaty Betty ® , $29.1 million from Saucony ® , and $10.3 million from Chaco ® .

The Work Group’s revenue increase was driven by an increase of $32.1 million from Cat ® and $20.1 million from Wolverine ® , partially offset by a decrease of $9.2 million from Bates ® .

The Lifestyle Group’s revenue decline was driven by a decrease of $33.4 million from Sperry ® and $7.8 million from Keds ® , partially offset by an increase of $11.7 million from Hush Puppies ® .

International revenue represented 41.8%, and 34.8% of total reported revenues in 2022 and 2021, respectively.

Sweaty Betty ® contributed $117.3 million to the current year revenue increase.

Changes in foreign exchange rates increased revenue by $25.3 million during 2021.

Owned eCommerce revenue increased during 2021 by 39.7% compared to 2020, including a 21.4% contribution from the Sweaty Betty ® acquisition.

Changes in foreign exchange rates decreased revenue by $70.0 million during 2022.

Direct-to-consumer revenue increased by $64.1 million, or 10.2% during 2022 compared to 2021.

For 2022, the Company’s gross margin was 39.9%, compared to 42.6% in 2021.

The gross margin increase was driven by favorable product mix and average selling price through the Company's direct to consumer channel (110 basis points), the contribution from the Sweaty Betty ® acquisition (80 basis points), and favorable product mix and average selling price across the Company's brands mainly attributable to Saucony ® , Merrell ® and Wolverine ® (80 basis points), partially offset by incremental air freight costs resulting from production and shipping delays caused by the COVID-19 pandemic (140 basis points).

The gross margin decrease was driven by unfavorable product mix and higher promotional activity in the Company's direct to consumer channel (150 basis points), increased closeout sales and closeout reserves (90 basis points) and unfavorable product mix and higher promotional activity across the Company's brands (30 basis points).

OPERATING EXPENSES

Operating expenses increased $404.6 million in 2022, to $1,278.8 million.

The increase was driven by higher general and administrative costs ($61.7 million), higher advertising costs ($59.8 million), higher environmental and other related costs, net of recoveries ($45.3 million), higher selling costs ($34.2 million), higher incentive compensation costs ($22.5 million), higher distribution costs ($16.9 million), higher acquisition costs ($7.5 million), and higher product development costs ($5.1 million).

These increases were partially offset by lower impairment of intangible assets ($222.2 million) and lower non-operating costs incurred due to the COVID-19 pandemic ($29.4 million).

The increase was driven by higher impairment of intangible assets ($428.7 million), Sweaty Betty ® operating expenses included contribution through the one-year anniversary of the acquisition ($60.2 million), higher general and administrative costs ($26.6 million), higher selling costs ($10.4 million), higher distribution costs ($9.5 million), higher advertising costs ($6.0 million), higher Sweaty Betty ® integration costs ($2.0 million), and higher product development costs ($1.1 million), partially offset by the gain recorded on the sale of the Champion trademarks for footwear in the United States and Canada ($90.0 million), lower environmental and other related costs, net of recoveries ($22.7 million), lower incentive compensation costs ($20.0 million), and lower acquisition costs ($7.5 million).

Environmental and other related costs were $56.3 million and $73.9 million in 2022 and 2021, respectively.

The increase in environmental and other related costs in 2021 is due to settlement accruals recorded.

See Note 17 to the Company's Consolidated Financial Statements for further discussion.

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Net interest expense was $47.3 million in 2022 compared to $37.4 million in 2021.

Interest expense decreased in the current year due to the lower average debt balances outstanding on the Company's credit facility.

The Company incurred $34.0 million of debt extinguishment and other costs in connection with the extinguishment of the $250.0 million senior notes due on September 1, 2026 and $300.0 million senior notes due on May 15, 2025.

The Company also incurred $0.3 million of debt extinguishment and other costs in connection with the 2021 Replacement Facility Amendment and Reaffirmation Agreement entered into on October 21, 2021.

Interest expense increased in the current year due to higher average principal balances of variable rate debt and higher average interest rates on the Company’s variable rate debt, partially offset by lower interest rates on the Company's senior notes.

The Company redeemed and replaced the 6.375% senior notes due in 2025 and the 5.000% senior notes due in 2026 with the 4.000% senior notes in August 2021 due in 2029.

The effective tax rate in 2022 was 25.2%, compared to 16.6% in 2021.

The Company recognized discrete tax benefits in 2021 which reduced the tax expense on pretax income, resulting in a lower effective tax rate.

In 2020, the Company also recognized discrete tax benefits however such benefits increased the tax benefit recognized from the pretax loss, resulting in a higher effective tax rate.

Other expense was $3.7 million in 2021 compared to other income of $2.1 million in 2020.

The increase in expense was driven by higher non-service pension costs ($4.9 million) and higher losses from equity method investments ($1.8 million), partially offset by higher sublease income ($1.7 million).

The Company recognized tax benefits in 2022 which increased the tax benefit recognized from the pretax loss, resulting in a higher effective tax rate.

In 2021, the Company also recognized tax benefits which reduced the tax expense on pretax income, resulting in a lower effective tax rate.

Other income was $2.8 million in 2022 compared to other expense of $3.7 million in 2021.

The decrease in expense was driven by lower non-service pension costs ($3.0 million), higher sublease income ($1.8 million), and lower losses from equity method investments ($1.6 million).

REPORTABLE 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, 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 Company’s portfolio of brands are organized into the following three reportable segments.

During the fourth quarter of 2022, the Company announced changes to its reportable segments as a result of changes in how its Chief Operating Decision Maker, the Company's Chief Executive Officer, allocates resources to and assess performance of the Company's operating segments.

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

• Active Group, consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Sweaty Betty ® activewear, and Chaco ® footwear;

• Work Group, consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Harley-Davidson ® footwear and HYTEST ® safety footwear;

• Lifestyle Group , consisting of Sperry ® footwear, Keds ® footwear, and Hush Puppies ® footwear and apparel.

Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are included with the applicable brand.

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

The Other category consists of the Sweaty Betty ® activewear business, 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, such as corporate employee costs, costs related to the COVID-19 pandemic, impairment of intangible assets and environmental and other related costs.

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

The Corporate category consists of the gain on the sale of the Champion trademarks in 2022 and unallocated corporate expenses, such as corporate employee costs, costs related to the COVID-19 pandemic, impairment of intangible assets and goodwill, reorganization activities, and environmental and other related costs.

The reportable segment results for years 2022 and 2021 are as follows:

(In millions) 2022 2021 Change Percent Change

Wolverine Michigan Group $ 1,298.9 $ 1,051.0 $ 247.9 23.6 %

Wolverine Boston Group 935.8 696.0 239.8 34.5 %

Active Group $ 1,570.2 $ 1,319.6 $ 250.6 19.0 %

Work Group 590.5 548.8 41.7 7.6 %

Lifestyle Group 447.5 477.0 (29.5) (6.2) %

76.6 69.5 7.1 10.2 %

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OPERATING PROFIT (LOSS)

Wolverine Michigan Group $ 245.3 $ 179.9 $ 65.4 36.4 %

Wolverine Boston Group 149.3 88.1 61.2 69.5 %

Active Group $ 198.4 $ 229.5 $ (31.1) (13.6) %

Work Group 102.5 103.8 (1.3) (1.3) %

Lifestyle Group 48.1 67.5 (19.4) (28.7) %

11.8 8.1 3.7 45.7 %

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$ (208.4) $ 155.7 $ (364.1) (233.8) %

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

Wolverine Michigan Group

The Michigan Group’s revenue increased $247.9 million, or 23.6%, in 2021 compared to 2020.

The increase was driven by high-forties increase from Hytest ® , low-thirties increase from Cat ® , high-twenties increase from Wolverine ® , mid-twenties increase from Hush Puppies ® , low-twenties increase from Harley-Davidson ® , low-twenties increase from Merrell ® , and low-teens increase from Bates ® .

The increase across all brands is due to economic recovery from the effects of the COVID-19 pandemic experienced in the prior period as a result of the closure of brick-and-mortar stores in 2020, as well as accelerated growth from Merrell ® , Cat ® and Wolverine ® resulting from strength in the outdoor and work categories.

The Michigan Group’s operating profit increased $65.4 million, or 36.4%, in 2021 compared to 2020.

The operating profit increase was due to the revenue increases and a 100 basis point increase in gross margin, partially offset by a $50.9 million increase in selling, general and administrative costs.

The increase in gross margin in the current year period was due to improved product mix, including higher margin eCommerce sales, partially offset by increased product and shipping costs including air freight.

The increase in selling, general and administrative expenses in 2021 was primarily due to higher advertising costs and higher employee costs.

Wolverine Boston Group

The Boston Group’s revenue increased $239.8 million, or 34.5%, in 2021 compared to 2020.

The increase was driven by high-fifties increase from Saucony ® , high-twenties increase from Kids’ and mid-twenties increase from Sperry ® .

The increase across all brands is due to economic recovery from the effects of the COVID-19 pandemic experienced in the prior period as a result of closure of brick-and-mortar stores in 2020, as well as accelerated growth from Saucony ® resulting from strength in the running category and innovative product launches.

The Boston Group’s operating profit increased $61.2 million, or 69.5%, in 2021 compared to 2020.

The operating profit increase was due to the revenue increases and a 40 basis point increase in gross margin, partially offset by a $46.0 million increase in selling, general and administrative costs.

The increase in gross margin in the current year period was due to improved product mix including higher margin eCommerce sales, partially offset by increased product and shipping costs including air freight.

The increase in selling, general and administrative expenses in 2021 was primarily due to higher advertising costs and higher employee costs.

Further information regarding the reportable segments can be found in Note 18 to the Company's Consolidated Financial Statements.

The Active Group’s revenue increased $250.6 million, or 19.0%, in 2022 compared to 2021.

The revenue increase was driven by an increase of $116.9 million from Merrell ® , $94.3 million from Sweaty Betty ® , $29.1 million from Saucony ® , and $10.3 million from Chaco ® .

The Merrell ® increase was primarily due to the strength of the hike product category, which includes the industry leading Moab franchise as well as strong performance across all regions, specifically the international channel.

The Sweaty Betty ® increase included contribution through the one-year anniversary of the acquisition.

The Saucony ® increase was primarily driven by the strength and expanded sales of core technical road and trail product franchises which include the Ride, Guide, Kinvara, Triumph, Peregrine and Endorphin series.

The Chaco ® increase was primarily the result of improved inventory positions in the current period versus the prior period which was negatively impacted by supply chain constraints.

The Active Group’s operating profit decreased $31.1 million, or 13.6%, in 2022 compared to 2021.

The operating profit decrease was due to a 320 basis point decrease in gross margin and a $97.0 million increase in selling, general and administrative costs, partially offset by revenue increases.

The decrease in gross margin in the current year period was due to unfavorable product mix and higher promotional activity in the Company's direct to consumer channel and increased closeout sales in the wholesale channel.

The increase in selling, general and administrative expenses in 2022 includes a contribution of $60.2 million of Sweaty Betty ® operating expenses through the one-year anniversary of the acquisition, as well as higher advertising costs, labor and distribution costs and employee costs.

The Work Group’s revenue increased $41.7 million, or 7.6%, in 2022 compared to 2021.

The revenue increase was driven by an increase of $32.1 million from Cat ® and $20.1 million from Wolverine ® , partially offset by a decrease of $9.2 million from Bates ® .

The Cat ® increase was primarily due to the strength of the life and work product categories.

The Wolverine ® increase was primarily due to the strong performance of its core franchises which include Raider and Rancher, strength of the work product category, and expanded work footwear products.

The Bates ® decline was primarily due to a reduction in military exchange customer revenue for domestically manufactured products.

The Work Group’s operating profit decreased $1.3 million, or 1.3%, in 2022 compared to 2021.

The operating profit decrease was due to a 240 basis point decrease in gross margin and by a $2.9 million increase in selling, general and administrative costs, partially offset by revenue increases.

The increase in selling, general and administrative expenses in 2022 was primarily due to higher advertising costs, labor and distribution costs and employee costs.

Lifestyle Group

The Lifestyle Group’s revenue decreased $29.5 million, or 6.2%, in 2022 compared to 2021.

The revenue decrease was driven by a decrease of $33.4 million from Sperry ® and $7.8 million from Keds ® , partially offset by an increase of $11.7 million from Hush Puppies ® .

The Sperry ® and Keds ® declines were primarily driven by supply chain issues and softer consumer demand in both the U.S.

wholesale and direct-to-consumer sales channels.

The Hush Puppies ® increase was primarily due to the launch of a strategic distribution partnership with DSW in North America and the strength of the brand’s lifestyle head-to-toe product offering internationally, with a focus on casual, comfort and color.

The Lifestyle Group’s operating profit decreased $19.4 million, or 28.7%, in 2022 compared to 2021.

The operating profit decrease was due to a 150 basis point decrease in gross margin and revenue decreases, partially offset by a $0.4 million decrease in selling, general and administrative costs.

The Other category's revenue increased $7.1 million, or 10.2%, in 2022 compared to 2021.

The revenue increase was driven by low-forties increase in the performance leathers business and an $117.3 million contribution from the Sweaty Betty ® acquisition.

Corporate expenses decreased $153.5 million in 2021 compared to 2020 primarily due to the impairment of the Sperry trade name in 2020 ($222.2 million) and lower non-operating costs due to the COVID-19 pandemic ($29.2 million), partially offset by higher environmental and other related costs ($45.3 million), higher incentive compensation and bonus expense ($28.4 million), higher wages and employee cost ($13.1 million), and higher acquisition costs ($7.5 million).

The revenue increase was primarily driven by an increase of $6.0 million from the performance leathers business.

Corporate expenses increased $316.0 million in 2022 compared to 2021 primarily due to the impairment of intangible assets related to the Sperry ® trade name and Sweaty Betty ® trade name and goodwill ($428.7 million), reorganization and integration activities ($9.6 million), and higher employee costs ($7.8 million), partially offset by the gain recorded on the sale of the Champion trademarks for footwear in the United States and Canada ($90.0 million), lower environmental and other related costs ($22.7 million), and lower incentive compensation costs ($19.2 million).

LIQUIDITY AND CAPITAL RESOURCES

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Cash and cash equivalents (1)

$ 135.5 $ 161.7

Debt 1,158.0 966.8

Available Revolving Facility (2)

(1) Cash and cash equivalents at the end of the year in the Consolidated Statements of Cash Flows includes $4.0 million of Wolverine Leathers business related cash and cash equivalents that are classified as held for sale as of December 31, 2022 that are not included in cash and cash equivalents in the Consolidated Balance Sheets.

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

Cash and cash equivalents of $161.7 million as of January 1, 2022 were $185.7 million lower compared to January 2, 2021.

The decrease is due primarily to the acquisition of Sweaty Betty ® for $417.4 million, share repurchases of $39.6 million, cash dividends paid of $33.5 million, additions to property, plant, and equipment of $17.6 million, shares acquired related to employee stock plans of $14.1 million and payments of debt issuance and debt extinguishment costs of $10.4 million, partially offset by net revolver borrowings of $225.0 million, cash provided by operating activities of $86.8 million, and net borrowings of long-term debt of $20.0 million.

The Company had $769.2 million of borrowing capacity available under the Revolving Facility as of January 1, 2022.

Cash and cash equivalents located in foreign jurisdictions totaled $133.4 million as of January 1, 2022.

The Company funded the purchase price for the Sweaty Betty ® acquisition through a combination of cash on hand and borrowings under the Revolving Facility.

Cash and cash equivalents of $135.5 million as of December 31, 2022 were $26.2 million lower compared to January 1, 2022.

The decrease is due primarily to cash used by operating activities of $178.9 million, share repurchases of $81.3 million, additions to property, plant, and equipment of $36.5 million, cash dividends paid of $32.8 million, and shares acquired related to employee stock plans of $7.7 million, partially offset by net revolver borrowings of $200.0 million, cash received from the sale of the Champion trademark of $90.0 million, proceeds from company-owned life insurance policies of $30.5 million, and contributions from noncontrolling interests of $7.0 million.

The Company had $569.3 million of borrowing capacity available under the Revolving Facility as of December 31, 2022.

Cash and cash equivalents located in foreign jurisdictions totaled $114.9 million as of December 31, 2022.

Cash flow from operating activities is expected to be sufficient to meet the Company’s working capital needs for the foreseeable future.

Any excess cash flow from operating activities is expected to be used to fund organic growth initiatives, reduce debt, pay dividends, pursue acquisitions and for general corporate purposes.

Any excess cash flow from operating activities is expected to be used to fund organic growth initiatives, reduce debt, pay dividends and for general corporate purposes.

The Company may purchase up to an additional $366.5 million of shares under its existing common stock repurchase program, which expires in 2023.

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

As of January 1, 2022, the Company has a reserve of $85.7 million, of which $24.5 million is expected to be paid in the next 12 months and is recorded as a current obligation in other accrued liabilities, with the remaining $61.2 million recorded in other liabilities and expected to be paid over the course of up to 25 years.

As of December 31, 2022, the Company has a reserve of $74.1 million, of which $49.8 million is expected to be paid in the next 12 months and is recorded as a current obligation in other accrued liabilities, with the remaining $24.3 million recorded in other liabilities and expected to be paid over the course of up to 25 years.

The Company's remediation activity at its former Tannery site and sites where the Company disposed of Tannery byproducts is ongoing.

It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods.

Future developments may occur that could materially change the Company’s current cost estimates.

Note 17 to the Company's Consolidated Financial Statements also includes a detailed discussion of environmental litigation matters.

The Company has established an accrual in the amount of $50.7 million, and made related payments of $0.6 million, with respect to certain of these matters for the year ended January 1, 2022, as discussed in Note 17.

The Company has established an accrual in the amount of $40.5 million, and made related payments of $50.1 million, with respect to certain of these matters for the year ended December 31, 2022, as discussed in Note 17.

The Company expects to disburse payments during 2023 equal to the remainder of the established accrual.

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The Company adjusts recorded liabilities as further information develops or circumstances change.

The future impact of the COVID-19 pandemic on the Company’s statement of operations and cash flows remains uncertain.

The actions the Company has taken and continues to take to improve the Company’s liquidity are discussed above in this Item 7 and below under “Financing Arrangements.”

The Company expects to meet its contractual obligations through its typical sources of liquidity in the normal course of business, such as coash from operating activities, and believes it has the financial resources to satisfy these contractual obligations.

The Company had the following contractual obligations due by period at January 1, 2022:

The Company expects to meet its contractual obligations through its typical sources of liquidity in the normal course of business, such as cash from operating activities, and believes it has the financial resources to satisfy these contractual obligations.

The Company had the following contractual obligations due by period at December 31, 2022:

(In millions) Total Less than

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(1) Includes principal and interest payments on the Company’s long-term debt.

Estimated future interest payments on outstanding debt obligations are based on interest rates as of January 1, 2022.

Estimated future interest payments on outstanding debt obligations are based on interest rates as of December 31, 2022.

Actual cash outflows may differ significantly due to changes in underlying interest rates.

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(3) Under the terms of a Consent Decree resolving certain civil and regulatory actions, the Company is obligated to contribute towards the costs of extending municipal water lines, developing a replacement wellfield and making certain improvements to Plainfield Township’s existing water treatment plant, all subject to an aggregate cap of $69.5 million.

During 2021 and 2020, the Company made payments of $12.9 and $9.7 million towards the total cap, respectively.

D uring 2022 and 2021, the Company made paymen ts of $15.0 and $12 .9 million towards the total cap, respectively.

Due to the uncertainty of the timing and amounts related to the Company's other environmental remediation costs, they have been excluded from this table.

See Note 17 to the Company's Consolidated Financial Statements for additional information.

(4) The total amount of unrecognized tax benefits on the consolidated balance sheet at January 1, 2022 is $10.9 million.

(4) The total amount of unrecognized tax benefits on the consolidated balance sheet at December 31, 2022 is $9.0 million .

At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes.

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The proceeds from the senior notes were used to extinguish the Company’s $250.0 million senior notes due on September 1, 2026 and $300.0 million senior notes due on May 15, 2025.

As of January 1, 2022, the Company was in compliance with all covenants and performance ratios under the Credit Agreement.

The Company’s debt at January 1, 2022 totaled $966.8 million compared to $722.5 million at January 2, 2021.

The Company expects to use the current borrowings to fund organic growth initiatives, reduce debt, pay dividends, pursue acquisitions and for general corporate purposes.

The increased debt position resulted from borrowings under the Revolving Facility to fund the Sweaty Betty ® acquisition as well as the new Term Facility's increased principal balance resulting from the Amendment.

As of December 31, 2022, the Company was in compliance with all covenants and performance ratios under the Credit Agreement.

The Company’s debt at December 31, 2022 totaled $1,158.0 million, compared to $966.8 million at January 1, 2022.

The Company expects to use the current borrowings to fund organic growth initiatives, reduce debt, pay dividends and for general corporate purposes.

The increased debt position resulted from borrowings under the Revolving Facility to fund organic growth initiatives, pay dividends and for general corporate purposes.

The following table summarizes cash flow activities:

Fiscal Year Ended

(In millions) January 1,

(In millions) December 31,

2022 January 1,

Net cash provided by operating activities $ 86.8 $ 309.1

Net cash provided by (used in) operating activities (178.9) 86.8

Net cash provided by (used in) investing activities 54.6 (437.3)

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Cash from operations during 2022 was lower compared to 2021, due primarily to an increase in net working capital representing a use of cash of $274.4 million.

Working capital balances were unfavorably impacted by an increase in inventories of $77.2 million, an increase in accounts receivable of $49.2 million, and an increase in other operating assets of $2.3 million, partially offset by an increase in accounts payable of $23.0 million and an increase in other operating liabilities of $15.7 million.

Operating cash flows were favorably impacted by stock-based compensation expense of $38.1 million, environmental and other related costs of $33.7 million, depreciation and amortization expense of $33.2 million, pension expense of $14.0 million and debt extinguishment costs of $5.8 million, partially offset by deferred income taxes of $14.7 million.

Working capital balances were unfavorably impacted by an increase in inventories of $428.9 million, a decrease in accounts receivable of $84.5 million, and an increase in other operating assets of $21.1 million, partially offset by an increase in accounts payable of $62.6 million and an increase in other operating liabilities of $26.1 million.

Operating cash flows included non-cash add back for the impairment of intangible assets of $428.7 million, depreciation and amortization expense adjustment of $34.6 million, stock-based compensation expense adjustment of $33.4 million, deferred income tax adjustment of $105.7 million, gain on sale of the Champion trademark of $90.0 million, environmental and other related costs, net of cash payments and recoveries received cash outflow of $23.0 million, and pension expense adjustment of $9.3 million.

Investing Activities

The Company acquired the Sweaty Betty ® brand and activewear business in 2021 resulting in a net cash payment of $417.4 million.

The Company also made capital expenditures of $17.6 million and $10.3 million in years 2021 and 2020, respectively, for building improvements, new retail stores, distribution operations improvements and information system enhancements.

The Company also received $26.8 million of proceeds during the second quarter of 2020 related to a company-owned life insurance policy.

During the first quarter of 2020, the Company made a contingent consideration payment of $5.5 million related to the Saucony ® Italy distributor acquisition.

The Company made capital expenditures of $36.5 million and $17.6 million in years 2022 and 2021, respectively, for building improvements, eCommerce site enhancements, new retail stores, distribution operations improvements and information system enhancements.

The current year activity includes additional investment in the Company’s China joint venture of $2.8 million and proceeds received from the sale of the Champion trademarks of $90.0 million.

Financing Activities

The current year debt activity includes net borrowings under the Revolving Facility of $225.0 million.

The current year revolver borrowings were used to fund a portion of the Sweaty Betty ® brand and activewear business acquisition.

On August 26, 2021, the Company issued $550.0 million aggregate principal amount of senior notes, and the proceeds from these senior notes were used to extinguish the Company’s $250.0 million senior notes due on September 1, 2026 and $300.0 million senior notes due on May 15, 2025.

The October 21, 2021 Replacement Facility Amendment and Reaffirmation Agreement also provided for a term facility that replaced the prior term loan A, resulting in a $20.0 million increase in long-term debt.

Payments of debt issuance costs of $10.4 million were associated with the current year debt transactions.

The prior year activity included net revolving credit payments of $360.0 million, net long-term debt borrowings of $287.5 million that included issuance of senior notes and quarterly term loan payments, and payments of debt issuance costs of $6.4 million.

The current year debt activity includes net borrowings under the Revolving Facility of $200.0 million and $30.5 million in proceeds from company-owned life insurance policies.

The Company paid $7.7 million and $14.1 million in 2022 and 2021, respectively, in connection with shares or units withheld to pay employee taxes related to awards under stock incentive plans and received $1.4 million and $17.1 million in proceeds from the exercise of stock options in 2022 and 2021, respectively.

The Company also repurchased $81.3 million and $39.6 million of its common stock during 2022 and 2021, respectively.

The Company received $4.8 million and $1.8 million from noncontrolling owners of the Company’s China joint venture to support the growth of the joint venture in 2021 and 2020, respectively.

During 2020, the Company terminated an interest rate swap and the fair value of the swap of $7.3 million was repaid.

Company received $7.0 million and $4.8 million from noncontrolling owners of the Company’s China joint venture to support the growth of the joint venture in 2022 and 2021, respectively.

The Company declared cash dividends of $0.40 per share in each of 2022 and 2021.

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Management believes that an understanding of these policies is important to an overall understanding of the Company’s Consolidated Financial Statements.

Significant accounting policies are summarized in Note 1 to the consolidated financial statements.

Significant accounting policies are summarized in Note 1 to the Company's Consolidated Financial Statements.

Revenue Recognition and Performance Obligations

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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.

The Company’s contract revenue consist of wholesale revenue and direct-to-consumer revenue.

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

Direct-to-consumer 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.

The point of purchase or shipment was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods.

Payment terms for the Company's revenue vary by sales channel.

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

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

Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established.

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Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts.

Revenue recognized during the year ended January 1, 2022, related to the Company’s contract liabilities was nominal.

Revenue recognized during the year ended December 31, 2022 related to the Company’s contract liabilities was nominal.

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

Cost is determined by the last-in, first out ("LIFO") method for certain domestic finished goods inventories.

Cost is determined using the first-in, first-out (“FIFO”) method for all raw materials, work-in-process and finished goods inventories in foreign countries and certain domestic finished goods inventories.

The average cost of inventory is used for finished goods inventories of the Company’s consumer-direct business and Sweaty Betty ® inventory.

Cost is determined by the last-in, first out ("LIFO") method for certain domestic finished product inventories.

Cost is determined using the first-in, first-out (“FIFO”) method for all raw materials, work-in-process and finished product inventories in foreign countries and certain domestic finished product inventories.

The average cost of inventory is used for finished product inventories of the Company’s direct-to-

consumer business and Sweaty Betty ® inventory.

The Company has applied these inventory cost valuation methods consistently from year to year.

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The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded.

Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory

Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances.

If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made.

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If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values.

The Company includes assumptions about expected future operating performance, which are derived from internal projections and operating plans, as part of a discounted cash flow analysis to estimate fair value.

The Company includes assumptions such as a discount rate and expected future operating performance, which includes forecasted revenue growth, earnings before interest, taxes, depreciation and amortization ("EBITDA") margin and cost of capital, which are derived from internal projections and operating plans, as part of a discounted cash flow analysis to estimate fair value.

For goodwill, if the estimated fair value of the reporting unit exceeds its carrying value, no further review is required.

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The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units.

In the fourth quarter of 2022, after completion of the annual impairment testing, the Company recorded a $48.4 million impairment charge for Sweaty Betty ® goodwill.

The Company did not recognize any impairment charges for goodwill during years 2021 and 2020.

No impairment charges were recognized for the Company's intangible assets during years 2021 and 2019.

In the fourth quarter of 2020, after the completion of the annual impairment testing, the Company recorded a $222.2 million impairment charge for the Sperry trade name.

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

In the fourth quarter of 2022, the Company recognized impairment charges of $191.0 million for the Sperry ® trade name and $189.3 million for the Sweaty Betty ® trade name.

No impairment charges were recognized for the Company's intangible assets during 2021.

In the fourth quarter of 2020, the Company recorded a $222.2 million impairment charge for the Sperry ® trade name.

Refer to Note 4, “Goodwill and Other

Intangibles” for additional discussion on the Sweaty Betty ® goodwill impairment and the Sweaty Betty ® and Sperry ® trade name impairments.

Environmental

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The bonds selected are listed as high grade by at least two recognized ratings agency and are non-callable, currently purchasable and non-prepayable.

The calculated discount rate was 3.09% at January 1, 2022, compared to 2.85% at January 2, 2021.

The calculated discount rate was 5.56% at December 31, 2022, compared to 3.09% at January 1, 2022.

Pension expense is also impacted by the expected long-term rate of return on plan assets, which the Company has determined to be 6.87% and 6.75% for fiscal 2022 and 2021, respectively.

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Income tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates.

Because income tax adjustments in certain jurisdictions can be significant, the Company records accruals representing management’s best estimate of the resolution of these matters.

To the extent additional information becomes available, such accruals are adjusted to reflect the revised estimated outcome.

The Company evaluates the probability a tax position will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity.

Changes in the Company’s assessment may result in the recognition of a tax benefit or an additional charge to the tax provision in the period our assessment changes.

The carrying value of the Company’s deferred tax assets assumes that the Company will be able to generate sufficient taxable income in future years to utilize these deferred tax assets.

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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 7. Management’s Discussion and Analysis