WOLVERINE WORLD WIDE INC /DE/ 10-K

Item 8. Financial Statements and Supplementary Data Table of Contents Consolidated Financial Statements Consolidated Statements of Operations 38 Consolidated Statements of Comprehensive Income (Loss) 39 Consolidated Balance Sheets 40 Consolidated Statements of Cash Flows 41 Consolidated Statements of Stockholders' Equity 43 Note 1. Summary of Significant Accounting Policies 45 Note 2. New Accounting Standards 50 Note 3. Earnings Per Share 50 Note 4. Goodwill and Other Intangibles 51 Note 5. Accounts Receivable 52 Note 6. Revenue From Contracts With Customers 52 Note 7. Inventories 54 Note 8. Debt 54 Note 9. Property, Plant and Equipment 56 Note 10. Leases 56 Note 11. Derivative Financial Instruments 56 Note 12. Stock-Based Compensation 57 Note 13. Retirement Plans 59 Note 14. Income Taxes 62 Note 15. Accumulated Other Comprehensive Income (Loss) 65 Note 16. Fair Value Measurements 65 Note 17. Litigation and Contingencies 66 Note 18. Business Segments 68 Note 19. Business Acquisition 71 Note 20. Variable Interest Entities and Related Party Transactions 72 Note 21. Assets and Liabilities Held for Sale 73 Note 22. Subsequent Event 74 Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 75 37 WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES Consolidated Statements of Operations Fiscal Year (In millions, except per share data) 2022 2021 2020 Revenue $ 2,684.8 $ 2,414.9 $ 1,791.1 Cost of goods sold 1,614.4 1,385.0 1,055.5 Gross profit 1,070.4 1,029.9 735.6 Selling, general and administrative expenses 906.4 817.8 639.4 Gain on sale of trademarks ( 90.0 ) — — Impairment of goodwill and intangible assets 428.7 — 222.2 Environmental and other related costs, net of recoveries 33.7 56.4 11.1 Operating profit (loss) ( 208.4 ) 155.7 ( 137.1 ) Other expenses: Interest expense, net 47.3 37.4 43.6 Debt extinguishment and other costs — 34.3 5.5 Other expense (income), net ( 2.8 ) 3.7 ( 2.1 ) Total other expenses 44.5 75.4 47.0 Earnings (loss) before income taxes ( 252.9 ) 80.3 ( 184.1 ) Income tax expense (benefit) ( 63.8 ) 13.3 ( 45.5 ) Net earnings (loss) ( 189.1 ) 67.0 ( 138.6 ) Less: net loss attributable to noncontrolling interests ( 0.8 ) ( 1.6 ) ( 1.7 ) Net earnings (loss) attributable to Wolverine World Wide, Inc. $ ( 188.3 ) $ 68.6 $ ( 136.9 ) Net earnings (loss) per share (see Note 3): Basic $ ( 2.37 ) $ 0.82 $ ( 1.70 ) Diluted $ ( 2.37 ) $ 0.81 $ ( 1.70 ) See accompanying notes to consolidated financial statements. 38 WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) Fiscal Year (In millions) 2022 2021 2020 Net earnings (loss) $ ( 189.1 ) $ 67.0 $ ( 138.6 ) Other comprehensive income (loss) net of tax: Foreign currency translation adjustments ( 76.8 ) ( 20.0 ) 10.6 Unrealized gain (loss) on derivative instruments: Unrealized gain (loss) arising during the period, net of taxes of $ 7.9 , $ 3.0 and $( 5.2 ) 25.4 7.7 ( 17.6 ) Reclassification adjustments included in net earnings (loss), net of taxes of $( 4.7 ), $ 1.4 and $ 0.4 ( 14.6 ) 3.7 3.1 Pension adjustments: Net actuarial gain (loss) arising during the period, net of taxes of $ 6.3 , $ 7.8 and $( 8.0 ) 22.6 29.5 ( 30.0 ) Amortization of prior actuarial losses, net of taxes of $ 2.4 , $ 3.0 and $ 1.4 8.9 10.8 5.2 Other comprehensive income (loss) ( 34.5 ) 31.7 ( 28.7 ) Less: other comprehensive income (loss) attributable to noncontrolling interests ( 0.5 ) — ( 0.2 ) Other comprehensive income (loss) attributable to Wolverine World Wide, Inc. ( 34.0 ) 31.7 ( 28.5 ) Comprehensive income (loss) ( 223.6 ) 98.7 ( 167.3 ) Less: comprehensive loss attributable to noncontrolling interests ( 1.3 ) ( 1.6 ) ( 1.9 ) Comprehensive income (loss) attributable to Wolverine World Wide, Inc. $ ( 222.3 ) $ 100.3 $ ( 165.4 ) See accompanying notes to consolidated financial statements. 39 WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In millions, except share data) December 31, 2022 January 1, 2022 ASSETS Current assets: Cash and cash equivalents $ 131.5 $ 161.7 Accounts receivable, less allowances of $ 11.1 and $ 28.3 241.7 319.6 Finished products, net 743.2 354.1 Raw materials and work-in-process, net 2.0 11.4 Total inventories 745.2 365.5 Prepaid expenses and other current assets 79.0 56.9 Current assets held for sale 67.9 — Total current assets 1,265.3 903.7 Property, plant and equipment, net of accumulated depreciation of $ 236.1 and $ 219.1 136.2 129.0 Lease right-of-use assets 174.7 138.2 Goodwill 485.0 556.6 Indefinite-lived intangibles 274.0 718.1 Amortizable intangibles, net 67.4 74.6 Deferred income taxes 24.5 1.8 Other assets 65.6 64.4 Total assets $ 2,492.7 $ 2,586.4 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 272.2 $ 222.1 Accrued salaries and wages 32.3 41.7 Other accrued liabilities 322.9 222.5 Lease liabilities 39.1 38.3 Current maturities of long-term debt 10.0 10.0 Borrowings under revolving credit agreements 425.0 225.0 Current liabilities held for sale 8.8 — Total current liabilities 1,110.3 759.6 Long-term debt, less current maturities 723.0 731.8 Accrued pension liabilities 72.9 107.4 Deferred income taxes 35.3 118.9 Lease liabilities, noncurrent 153.6 118.2 Other liabilities 58.6 106.1 Stockholders’ equity Common stock – par value $ 1 , authorized 320,000,000 shares; 112,202,078 , and 111,632,094 shares issued 112.2 111.6 Additional paid-in capital 325.4 298.9 Retained earnings 907.2 1,128.2 Accumulated other comprehensive loss ( 132.9 ) ( 98.9 ) Cost of shares in treasury; 33,413,204 , and 29,604,013 shares ( 891.3 ) ( 810.2 ) Total Wolverine World Wide, Inc. stockholders’ equity 320.6 629.6 Noncontrolling interest 18.4 14.8 Total stockholders’ equity 339.0 644.4 Total liabilities and stockholders’ equity $ 2,492.7 $ 2,586.4 See accompanying notes to consolidated financial statements. 40 WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Fiscal Year (In millions) 2022 2021 2020 OPERATING ACTIVITIES Net earnings (loss) $ ( 189.1 ) $ 67.0 $ ( 138.6 ) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 34.6 33.2 32.8 Deferred income taxes ( 105.7 ) ( 14.7 ) ( 56.9 ) Stock-based compensation expense 33.4 38.1 28.9 Pension and SERP expense 9.3 14.0 8.5 Debt extinguishment, interest rate swap termination, and other costs — 5.8 5.5 Impairment of goodwill and intangible assets 428.7 — 222.2 Environmental and other related costs, net of cash payments and recoveries received ( 23.0 ) 33.7 31.5 Gain on sale of trademarks ( 90.0 ) — — Other ( 2.7 ) ( 1.9 ) ( 12.7 ) Changes in operating assets and liabilities: Accounts receivable 84.5 ( 49.2 ) 64.8 Inventories ( 428.9 ) ( 77.2 ) 107.2 Other operating assets ( 21.1 ) ( 2.3 ) 7.4 Accounts payable 62.6 23.0 ( 18.9 ) Income taxes 2.4 1.6 ( 0.5 ) Other operating liabilities 26.1 15.7 27.9 Net cash provided by (used in) operating activities ( 178.9 ) 86.8 309.1 INVESTING ACTIVITIES Business acquisition, net of cash acquired — ( 417.4 ) ( 5.5 ) Additions to property, plant and equipment ( 36.5 ) ( 17.6 ) ( 10.3 ) Investment in joint ventures ( 2.8 ) — ( 3.5 ) Proceeds from sale of trademarks 90.0 — — Proceeds from company-owned life insurance policies — — 26.8 Other 3.9 ( 2.3 ) ( 1.4 ) Net cash provided by (used in) investing activities 54.6 ( 437.3 ) 6.1 FINANCING ACTIVITIES Payments under revolving credit agreements ( 740.0 ) ( 435.0 ) ( 898.0 ) Borrowings under revolving credit agreements 940.0 660.0 538.0 Proceeds from company-owned life insurance policies 30.5 — — Borrowings of long-term debt — 750.0 471.0 Payments on long-term debt ( 10.0 ) ( 730.0 ) ( 183.5 ) Payments of debt issuance and debt extinguishment costs — ( 10.4 ) ( 6.4 ) Termination of interest rate swap — — ( 7.3 ) Cash dividends paid ( 32.8 ) ( 33.5 ) ( 33.6 ) Purchase of common stock for treasury ( 81.3 ) ( 39.6 ) ( 21.0 ) Employee taxes paid under stock-based compensation plans ( 7.7 ) ( 14.1 ) ( 24.8 ) Proceeds from the exercise of stock options 1.4 17.1 9.8 Contributions from noncontrolling interests 7.0 4.8 1.8 Net cash provided by (used in) financing activities 107.1 169.3 ( 154.0 ) Effect of foreign exchange rate changes ( 9.0 ) ( 4.5 ) 5.6 Increase (decrease) in cash and cash equivalents ( 26.2 ) ( 185.7 ) 166.8 Cash and cash equivalents at beginning of the year 161.7 347.4 180.6 Cash and cash equivalents at end of the year $ 135.5 $ 161.7 $ 347.4 See accompanying notes to consolidated financial statements. 41 WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows – continued Fiscal Year (In millions) 2022 2021 2020 OTHER CASH FLOW INFORMATION Interest paid $ 43.0 $ 34.6 $ 41.4 Net income taxes paid 44.3 27.8 8.6 NON-CASH INVESTING AND FINANCING ACTIVITY Additions to property, plant and equipment not yet paid 3.3 3.2 0.9 See accompanying notes to consolidated financial statements. 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. 42 WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Wolverine World Wide, Inc. Stockholders' Equity (In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive 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 Net loss ( 136.9 ) ( 1.7 ) ( 138.6 ) Other comprehensive loss ( 28.5 ) ( 0.2 ) ( 28.7 ) Shares forfeited, net of shares issued under stock incentive plans ( 1,497,478 shares) 1.5 ( 19.0 ) ( 17.5 ) Shares issued for stock options exercised, net ( 600,041 shares) 0.6 9.3 9.9 Stock-based compensation expense 28.9 28.9 Cash dividends declared ($ 0.40 per share) ( 33.1 ) ( 33.1 ) Issuance of treasury shares ( 5,479 shares) — 0.2 0.2 Purchase of common stock for treasury ( 877,624 shares) ( 21.0 ) ( 21.0 ) Purchases of shares under stock-based compensation plans ( 231,617 shares) ( 7.3 ) ( 7.3 ) Capital contribution from noncontrolling interests 1.8 1.8 Balance at January 2, 2021 $ 110.4 $ 252.6 $ 1,093.3 $ ( 130.6 ) $ ( 764.3 ) $ 11.6 $ 573.0 Net earnings (loss) 68.6 ( 1.6 ) 67.0 Other comprehensive income 31.7 — 31.7 Shares issues, net of shares forfeited under stock incentive plans ( 431,180 shares) 0.4 ( 8.2 ) ( 7.8 ) Shares issued for stock options exercised, net ( 774,145 shares) 0.8 16.4 17.2 Stock-based compensation expense 38.1 38.1 Cash dividends declared ($ 0.40 per share) ( 33.7 ) ( 33.7 ) Issuance of treasury shares ( 4,005 shares) — 0.1 0.1 Purchase of common stock for treasury ( 1,150,721 shares) ( 39.6 ) ( 39.6 ) Purchases of shares under stock-based compensation plans ( 172,023 shares) ( 6.4 ) ( 6.4 ) Capital contribution from noncontrolling interests 4.8 4.8 Balance at January 1, 2022 $ 111.6 $ 298.9 $ 1,128.2 $ ( 98.9 ) $ ( 810.2 ) $ 14.8 $ 644.4 See accompanying notes to consolidated financial statements. 43 WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity – continued Wolverine World Wide, Inc. Stockholders' Equity (In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Non-controlling Interest Total Balance at January 1, 2022 $ 111.6 $ 298.9 $ 1,128.2 $ ( 98.9 ) $ ( 810.2 ) $ 14.8 $ 644.4 Net loss ( 188.3 ) ( 0.8 ) ( 189.1 ) Other comprehensive loss ( 34.0 ) ( 0.5 ) ( 34.5 ) Shares issued, net of shares forfeited under stock incentive plans ( 495,502 shares) 0.5 ( 8.2 ) ( 7.7 ) Shares issued for stock options exercised, net ( 74,482 shares) 0.1 1.3 1.4 Stock-based compensation expense 33.4 33.4 Cash dividends declared ($ 0.40 per share) ( 32.7 ) ( 32.7 ) Issuance of treasury shares ( 5,973 shares) — 0.2 0.2 Purchase of common stock for treasury ( 3,815,164 shares) ( 81.3 ) ( 81.3 ) Capital contribution from noncontrolling interests 7.0 7.0 Other ( 2.1 ) ( 2.1 ) Balance at December 31, 2022 $ 112.2 $ 325.4 $ 907.2 $ ( 132.9 ) $ ( 891.3 ) $ 18.4 $ 339.0 See accompanying notes to consolidated financial statements. 44 WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Fiscal Years 2022, 2021 and 2020 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel; performance outdoor and athletic footwear and apparel; kids’ footwear; industrial work shoes, boots and apparel; and uniform shoes and boots. The Company’s portfolio of owned and licensed brands includes: Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HYTEST ® , Keds ® , Merrell ® , Saucony ® , Sperry ® , Stride Rite ® , Sweaty Betty ® and Wolverine ® . 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™ . On June 30, 2022, the Company sold the Champion trademarks for footwear in the United States and Canada to HanesBrand Inc. for $ 90.0 million in cash. The Company recorded a gain of $ 90.0 million associated with the transaction. On August 2, 2021, the Company completed the acquisition of Lady of Leisure InvestCo Limited (the “Acquired Company”) for $ 417.4 million, net of acquired cash of $ 7.4 million. The Acquired Company owns the Sweaty Betty ® brand and activewear business, a premium women’s activewear brand. See Note 19 for further discussion. Principles of Consolidation and Basis of Presentation The consolidated financial statements include the accounts of Wolverine World Wide, Inc. and its majority-owned subsidiaries (collectively, the “Company”) and any variable interest entities for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation. 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. Fiscal Year The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31. Fiscal years 2022 and 2021 each had 52 weeks, and fiscal year 2020 had 53 weeks. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Revenue Recognition The Company recognizes revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers . Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations and recognizes revenue upon completion of the performance obligation. 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 consists 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 shipment or delivery of branded products to the customer. 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 is recognized at time of sale. The shipment of goods, or point of purchase for retail store sales, 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. 45 Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Shipping and handling costs that are charged to and reimbursed by a customer are recognized as revenue, while the related expenses incurred by the Company are recorded as cost of goods sold. The Company has elected the practical expedient to treat shipping and handling activities that occur after control of the goods transfers to the customer as fulfillment activities. 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 direct-to-consumer 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 commensurate to revenue recognition resulting in contract assets. See Note 6 for additional information. Cost of Goods Sold Cost of goods sold includes the actual product costs, including inbound freight charges and certain outbound freight charges, purchasing, sourcing, inspection and receiving costs. Warehousing costs are included in selling, general and administrative expenses. Advertising Costs Advertising costs are expensed as incurred, except for certain materials that are expensed the first time that the advertising takes place. Advertising expenses were $ 220.7 million, $ 195.4 million and $ 135.6 million for fiscal years 2022, 2021 and 2020, respectively. Prepaid advertising totaled $ 2.7 million and $ 3.6 million as of December 31, 2022 and January 1, 2022, respectively. Earnings Per Share The Company calculates earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share (“ASC 260”). ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. Under the guidance in ASC 260, the Company’s unvested share-based payment awards that contain non-forfeitable rights to dividends, whether paid or unpaid, are participating securities and must be included in the computation of earnings per share pursuant to the two-class method. 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 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. Inventories The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the LIFO method for certain domestic finished product inventories. Cost is determined using the 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. The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. 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 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. 46 Property, Plant and Equipment Property, plant and equipment are stated on the basis of cost and include expenditures for buildings, leasehold improvements, furniture and fixtures, material handling systems, equipment and computer hardware and software. Normal repairs and maintenance are expensed as incurred. Depreciation of property, plant and equipment is computed using the straight-line method. The depreciable lives range from 14 to 20 years for buildings, from 5 to 15 years for leasehold improvements, from 3 to 10 years for furniture, fixtures and equipment and from 3 to 5 years for software. Leases The Company’s leases consist primarily of corporate offices, retail stores, distribution centers, showrooms, vehicles and office equipment. The Company leases assets in the normal course of business to meet its current and future needs while providing flexibility to its operations. The Company enters into contracts with third parties to lease specifically identified assets. Most of the Company’s leases have contractually specified renewal periods. Most retail store leases have early termination clauses that the Company can elect if stipulated sales amounts are not achieved. 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. Under FASB ASC Topic 842, Leases , the Company has elected the practical expedient to account for lease components and nonlease components associated with individual leases as a single lease component for all of its leases. In addition, the Company has elected to account for multiple lease components as a single lease component. The Company’s leases may include variable lease costs such as payments based on changes to an index, payments based on a percentage of retail store sales, and maintenance, utilities, shared marketing or other service costs that are paid directly to the lessor under terms of the lease. The Company recognizes variable lease payments when the amounts are incurred and determinable. The Company has elected to account for leases of less than one year as short-term leases and accordingly does not recognize a right-of-use asset or lease liability for these leases. The Company recognizes rent expense on a straight-line basis over the lease term. The Company subleases certain portions of leased offices and distribution centers that exceed the Company’s current operational needs. Since the Company utilizes the majority of the leased space and retains the obligation to the lessor, the underlying leases continue to be accounted for as operating leases. Sublease income is recognized on a straight-line basis over the term of the sublease and is recognized in other expense (income), net on the consolidated statements of operations. 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 an interest rate that the Company would normally pay to borrow on a collateralized basis over a similar term and an amount equal to the lease payments. The Company also recognizes a right-of-use asset, which is equal to the lease liability as of December 31, 2022 adjusted for the remaining balance of accrued rent and unamortized lease incentives. Deferred Financing Costs Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining commitments for financing that result in a closing of such financings for the Company. Deferred financing costs related to fixed term borrowings are recorded as a reduction of long-term debt in the consolidated balance sheet. Deferred financing costs related to revolving credit facilities are recorded as an other noncurrent asset in the consolidated balance sheet. These costs are amortized into earnings through interest expense over the terms of the respective agreements. Derivatives The Company follows FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), which requires that all derivative instruments be recorded on the consolidated balance sheets at fair value by establishing criteria for designation and effectiveness of hedging relationships. The Company does not hold or issue financial instruments for trading purposes. Refer to Note 11 for further discussion regarding the Company's derivative arrangements and derivative accounting. Equity Method Investments Equity method investments where the Company owns a non-controlling interest, but exercises significant influence, are accounted for under the equity method of accounting. The Company's original cost of investment is adjusted for the Company's share of equity in the earnings of the equity investee. Goodwill and Other Intangibles Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. 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 47 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 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. 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 goodwill and indefinite-lived intangible asset are less than their carrying value. The Company would not be required to quantitatively determine the fair value 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 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. See Note 4 for information related to the results of the Company's annual test. Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. Fair Value of Financial Instruments The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. ASC 820 requires fair value measurements to be classified and disclosed in one of the following three categories: Level 1: Fair value is measured using quoted prices (unadjusted) in active markets for identical assets and liabilities. Level 2: Fair value is measured using either direct or indirect inputs, other than quoted prices included within Level 1, which are observable for similar assets or liabilities. Level 3: Fair value is measured using valuation techniques in which one or more significant inputs are unobservable. Environmental 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. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company records adjustments to the estimated costs if there are changes in the scope of the required remediation activity, extent of contamination, governmental regulations or remediation technologies. 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 realizable. Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed probable. The Company is subject to legal proceedings and claims related to the environmental matters described in Note 17. The Company routinely assesses the legal and factual circumstances of each matter and the likelihood of any adverse outcomes in these matters, as well as ranges of possible losses. Assessments of lawsuits and claims can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. The Company accrues an estimated liability for legal proceeding claims that are both probable and estimable and reserves may change in future periods due to new developments in each matter. For further discussion, refer to Note 17. 48 Retirement Benefits The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. See Note 13 for additional information. The Company has elected to measure its defined benefit plan assets and obligations as of December 31 of each year, regardless of the Company's actual fiscal year end date, which is the Saturday nearest to December 31. Stock Based Compensation The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of ASC Topic 718, Compensation – Stock Compensation . 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. All stock-based awards are accounted for based on their respective grant date fair values. Compensation cost for all awards expected to vest is recognized over the vesting period, including accelerated recognition for retirement-eligible employees. Income Taxes The provision for income taxes is based on the geographic dispersion of the earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently-enacted tax laws and rates to the cumulative temporary differences between the carrying 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 includes Global Intangible Low Tax Income ("GILTI") as a current period tax expense when incurred. 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). 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 For most of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the year-end exchange rate. 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. Transaction gains and losses are included in the consolidated statements of operations and were not material for fiscal years 2022, 2021 and 2020. Business Combination The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, the consolidated financial statements reflect the operations of an acquired business starting from the acquisition date. All assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The Company allocates the purchase price of an acquired business to the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, with any excess purchase price recorded as goodwill. Contingent consideration, if any, is included in the purchase price and is recognized at its fair value on the acquisition date. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques and requires management to make judgments that may involve the use of significant estimates. For intangible assets acquired in a business combination, the Company typically uses the income method. Significant estimates used in valuing certain intangible 49 assets include, but are not limited to, the amount and timing of future cash flows, growth rates and discount rates, among other items. If the actual results differ from the estimates and judgments used, the amounts recorded in the Consolidated Financial Statements may be exposed to potential impairment of the intangible assets and goodwill as discussed in the "Goodwill and Indefinite-Lived Intangibles" accounting policy. For further discussion, refer to Note 19. 2. NEW ACCOUNTING STANDARDS The FASB has issued the following Accounting Standards Update (“ASU”) that the Company has not yet adopted. The following is a summary of the new standard. Standard Description Effect on the Financial Statements or Other Significant Matters ASU 2020-04, Reference Rate Reform (Topic 848); Facilitation of the Effects of Reference Rate Reform on Financial Reporting (as amended by ASU 2021-01 and ASU 2022-06) Provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for the Company’s borrowing instruments under the amended senior credit facility, which use LIBOR as a reference rate, and is available for adoption effective immediately. but was previously only available through December 31, 2022. In December 2022, in ASU 2022-06, the FASB deferred the expiration date and extended the relief in Topic 848 beyond the cessation date of USD LIBOR. The new accounting rules must be adopted by December 31, 2024. The Company is evaluating the impact of the new standard on its Consolidated Financial Statements. 3. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: Fiscal Year (In millions, except per share data) 2022 2021 2020 Numerator: Net earnings (loss) attributable to Wolverine World Wide, Inc. $ ( 188.3 ) $ 68.6 $ ( 136.9 ) Less: net earnings attributed to participating share-based awards ( 0.6 ) ( 1.1 ) ( 0.8 ) Net earnings (loss) used to calculate earnings per share $ ( 188.9 ) $ 67.5 $ ( 137.7 ) Denominator: Weighted average shares outstanding 79.7 82.4 81.8 Adjustment for unvested restricted common stock — ( 0.1 ) ( 0.8 ) Shares used to calculate basic earnings per share 79.7 82.3 81.0 Effect of dilutive share-based awards — 1.0 — Shares used to calculate diluted earnings per share 79.7 83.3 81.0 Net earnings (loss) per share: Basic $ ( 2.37 ) $ 0.82 $ ( 1.70 ) Diluted $ ( 2.37 ) $ 0.81 $ ( 1.70 ) For fiscal years 2022, 2021 and 2020, 1,434,081 , 605,774 and 1,179,088 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 31, 2022 or January 1, 2022. 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 $ 81.3 million, $ 39.6 million and $ 21.0 million of Company common stock in fiscal years 2022, 2021 and 2020, respectively, under stock repurchase plans. In addition to the stock repurchase program activity, the Company acquired $ 7.7 million, $ 14.1 million and $ 24.8 million of Company common stock in fiscal years 2022, 2021 and 2020, respectively, in connection with employee transactions related to stock incentive plans. 50 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. The annual amount of stock repurchases is restricted under the terms of the Company's Credit Agreement. 4. GOODWILL AND OTHER INTANGIBLE ASSETS The changes in the carrying amount of goodwill are as follows: Fiscal Year (In millions) 2022 2021 Goodwill balance at beginning of the year $ 556.6 $ 442.4 Acquisition of a business (see Note 19) — 118.9 Impairment ( 48.4 ) — Foreign currency translation effects ( 23.2 ) ( 4.7 ) Goodwill balance at end of the year $ 485.0 $ 556.6 In the fourth quarter of fiscal 2022, after completion of its annual impairment testing, the Company recognized a $ 48.4 million goodwill impairment charge to the Sweaty Betty ® reporting unit. The impairment was due to an increase in the discount rates used in the valuation. The Company did not recognize any goodwill impairment charges during fiscal years 2021 and 2020. The Company’s indefinite-lived intangible assets, which comprise trade names and trademarks, totaled $ 274.0 million and $ 718.1 million as of December 31, 2022 and January 1, 2022, respectively. In the fourth quarter of fiscal 2022, after the completion of the annual impairment testing, the Company recognized impairment charges of $ 191.0 million and $ 189.3 million to the Sperry ® and Sweaty Betty ® trade names, respectively. The impairment charge for the Sperry ® trade name was due to reductions in future cash flow assumptions mainly due to decreases in anticipated future performance and an increase in the discount rate used in the valuation. The impairment charge for the Sweaty Betty ® trade name resulted from reductions in future cash flow assumptions due to an increase in the discount rate used in the valuation. 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. The Sperry ® and Sweaty Betty ® trade names were valued using the income approach, specifically the multi-period excess earnings method. The Sweaty Betty ® reporting unit fair value was estimated using both income-based and market-based valuation methods. T he key assumptions used in the valuations were revenue growth, EBITDA margin, and the discount rate. Although the Company believes the estimates and assumptions used in the valuation were appropriate, it is possible assumptions could change in future periods. The risk of future impairment to the Sperry ® and Sweaty Betty ® trade names and Sweaty Betty ® goodwill depend on key assumptions used in the determination of the trade name's and Sweaty Betty ® reporting unit's fair value, such as revenue growth, EBITDA margin, discount rate, and assumed tax rate, or macroeconomic conditions that could adversely affect the value of the Company's Sperry ® and Sweaty Betty ® trade names and Sweaty Betty ® reporting unit. A future impairment charge of the Sperry ® trade name or Sweaty Betty ® trade name and Sweaty Betty ® reporting unit goodwill could have an adverse material effect on the Company's consolidated financial results. The carrying value of the Company’s Sperry ® and Sweaty Betty ® trade names indefinite-lived intangible assets was $ 105.3 million and $ 94.1 million, respectively, as of December 31, 2022. 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 31, 2022 (In millions) Gross carrying value Accumulated amortization Net Average remaining life (years) Customer relationships $ 118.4 $ 55.2 $ 63.2 10 Other 22.2 18.0 4.2 3 Total $ 140.6 $ 73.2 $ 67.4 51 January 1, 2022 (In millions) Gross carrying value Accumulated amortization Net Average remaining life (years) Customer relationships $ 119.9 $ 49.1 $ 70.8 11 Other 20.3 16.5 3.8 3 Total $ 140.2 $ 65.6 $ 74.6 Amortization expense for these amortizable intangible assets was $ 7.9 million, $ 8.4 million and $ 7.1 million for fiscal years 2022, 2021 and 2020, respectively. Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to December 31, 2022 is as follows: (In millions) 2023 2024 2025 2026 2027 Amortization expense $ 7.6 $ 7.3 $ 7.0 $ 6.7 $ 6.4 5. ACCOUNTS RECEIVABLE The Company and certain of its subsidiaries sell, on a continuous basis without recourse, their trade receivables to Rockford ARS, LLC (“Rockford ARS”), a wholly-owned bankruptcy-remote subsidiary of the Company. On December 7, 2022, Rockford ARS entered into a receivables purchase agreement (“RPA”) to sell up to $ 175.0 million of receivables to certain purchasers (the “Purchasers”) on a recurring basis in exchange for cash (referred to as “capital” in the RPA) equal to the gross receivables transferred. The parties intend that the transfers of receivables to the Purchasers constitute purchases and sales of receivables. Rockford ARS has guaranteed to each Purchaser the prompt payment of sold receivables, and has granted a security interest in its assets for the benefit of the Purchasers. Under the RPA, which matures on December 5, 2025 each Purchaser’s share of capital accrues yield at a floating rate plus an applicable margin. The Company is the master servicer under the RPA, and is responsible for administering and collecting receivables. The proceeds of the RPA are classified as operating activities in the Company's Consolidated Statement of Cash Flows. Cash received from collections of sold receivables may be used to fund additional purchases of receivables on a revolving basis or to return all or any portion of outstanding capital of the Purchasers. Subsequent collections on the pledged receivables, which have not been sold, will be classified as operating cash flows at the time of collection. Total receivables sold under the RPA were $ 218.2 million and total cash collections under the RPA were $ 75.5 million in fiscal year 2022. The fair value of the sold receivables approximated book value due to their credit quality and short-term nature, and as a result, no gain or loss on sale of receivables was recorded. As of the fiscal year ended December 31, 2022, the amount sold to the Purchasers was $ 142.7 million, which was derecognized from the Consolidated Balance Sheets. As collateral against sold receivables, Rockford ARS maintains a certain level of unsold receivables, which was $ 70.0 million as of the fiscal year ended December 31, 2022. 6. REVENUE FROM CONTRACTS WITH CUSTOMERS Revenue Recognition and Performance Obligations The Company provides disaggregated revenue for the wholesale and direct-to-consumer sales channels, which are reconciled to the Company’s reportable segments. The wholesale channel includes royalty revenues, which operates in a similar manner as 52 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. Fiscal Year (in millions) 2022 2021 2020 Active Group: Wholesale $ 1,086.6 $ 930.7 $ 682.9 Direct-to-consumer 483.6 388.9 226.4 Total 1,570.2 1,319.6 909.3 Work Group: Wholesale 532.0 487.3 372.0 Direct-to-consumer 58.5 61.5 53.4 Total 590.5 548.8 425.4 Lifestyle Group: Wholesale 304.0 305.6 263.4 Direct-to-consumer 143.5 171.4 143.6 Total 447.5 477.0 407.0 Other: Wholesale 70.4 63.6 45.3 Direct-to-consumer 6.2 5.9 4.1 Total 76.6 69.5 49.4 Total revenue $ 2,684.8 $ 2,414.9 $ 1,791.1 The Company has agreements to license symbolic intellectual property with minimum guarantees or fixed consideration. The Company is due $ 11.1 million of remaining fixed transaction price under its license agreements as of December 31, 2022, which it expects to recognize per the terms of its contracts over the course of time through December 2026 . 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. Reserves for Variable Consideration Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. 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 fiscal years 2022 and 2021 related to the Company’s contract liabilities was nominal. The Company’s contract balances are as follows: (In millions) December 31, 2022 January 1, 2022 Product returns reserve $ 15.3 $ 16.6 Customer markdowns reserve 2.6 2.3 Other sales incentives reserve 3.3 3.4 Customer rebates liability 19.8 17.0 Customer advances liability 9.1 6.8 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. Actual amounts of consideration ultimately received may differ from initial estimates. 53 If actual results in the future vary from initial estimates, the Company subsequently adjusts these estimates, which would affect net revenue and earnings in the period such variances become known. Product Returns Consistent with industry practice, the Company offers limited product return rights for various return scenarios. The Company estimates the amount of product sales that may be returned by customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized, and an offsetting increase to other accrued liabilities on the consolidated balance sheets. The Company believes there is sufficient current and historical information to record an estimate of the expected value of product returns although actual returns could differ from recorded amounts. The estimated cost of inventory for product returns is recorded in prepaid expenses and other current assets on the consolidated balance sheets. The estimated cost of inventory for product returns was $ 6.7 million and $ 6.1 million at December 31, 2022 and January 1, 2022, respectively. Customer Markdowns Markdowns represent the estimated reserve resulting from commitments to sell products to the Company’s customers at prices lower than the list prices charged to customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the end consumer. The reserve is established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets. Other Sales Incentives The Company accrues for other customer allowances for certain customers that purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets depending on the nature of the item. Customer Rebates The Company accrues for customer rebates related to customers who purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and an establishment of a current liability on the consolidated balance sheets. Customer Advances The Company recognizes a liability for amounts received from customers before revenue is recognized. Customer advances are recognized in other accrued liabilities on the consolidated balance sheets. 7. INVENTORIES The Company used the LIFO method to value inventories of $ 109.8 million and $ 42.0 million at December 31, 2022 and January 1, 2022, respectively. During fiscal years 2022 and 2021, changes in the LIFO reserve increased cost of goods sold by $ 3.0 million and $ 0.5 million, respectively. If the FIFO method had been used, inventories would have been $ 11.0 million and $ 8.0 million higher than reported at December 31, 2022 and January 1, 2022, respectively. 8. DEBT Total debt consists of the following obligations: (In millions) December 31, 2022 January 1, 2022 Term Facility, due October 21, 2026 $ 190.0 $ 200.0 Senior Notes, 4.000% interest, due August 15, 2029 550.0 550.0 Borrowings under revolving credit agreements 425.0 225.0 Unamortized deferred financing costs ( 7.0 ) ( 8.2 ) Total debt $ 1,158.0 $ 966.8 On October 21, 2021, the Company entered into a 2021 Replacement Facility Amendment and Reaffirmation Agreement (the “Amendment”) of its credit facility (as amended and restated, the "Credit Agreement"). The Amendment amended and restated the prior credit agreement to, among other things: (i) provide for a term loan A facility (the “Term Facility”) in an aggregate principal amount of $ 200.0 million, which replaced the existing term loan A; (ii) provide for an increased revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facilities”) with total commitments of $ 1.0 billion, an increase of $ 200.0 million from the existing Revolving Facility; and (iii) set the LIBOR floor to 0.000 %, a 54 decrease of 0.750% from the existing Senior Credit Facilities. The maturity date of the loans under the Senior Credit Facilities was extended to October 21, 2026. The Amendment provides for a debt capacity of up to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 2.0 billion unless certain specified conditions set forth in the Credit Agreement are met. The Term Facility requires quarterly principal payments with a balloon payment due on October 21, 2026. The scheduled principal payments due under the Term Facility over the next 12 months total $ 10.0 million as of December 31, 2022 and are recorded as current maturities of long-term debt on the consolidated balance sheets. The Revolving Facility allows the Company to borrow up to an aggregate amount of $ 1.0 billion. The Revolving Facility also includes a $ 100.0 million swingline subfacility and a $ 50.0 million letter of credit subfacility. The Company had outstanding letters of credit under the Revolving Facility of $ 5.7 million and $ 5.8 million as of December 31, 2022 and January 1, 2022, respectively. These outstanding letters of credit reduce the borrowing capacity under the Revolving Facility. The interest rates applicable to amounts outstanding under Term Facility and to U.S. dollar denominated amounts outstanding under the Revolving Facility are, 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). At December 31, 2022, the Term Facility and the Revolving Facility had a weighted-average interest rate of 4.86 %. 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 Senior Credit Facilities also contain 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; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; 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 Senior Credit Facilities require 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 Senior Credit Facilities). As of December 31, 2022, the Company was in compliance with all covenants and performance ratios under the Senior Credit Facilities. On August 26, 2021, the Company issued $ 550.0 million aggregate principal debt amount of 4.000 % senior notes due on August 15, 2029. Related interest payments are due semi-annually beginning February 15, 2022. The senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries. 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. The Company incurred $ 34.0 million of debt extinguishment and other costs in connection with the extinguishment of the senior notes, of which $ 28.4 million is related to redemption premiums and $ 5.6 million is related to the write-off of capitalized financing fees. The Company has a foreign revolving credit facility with aggregate available borrowing s of $ 2.0 million that are un committed and, therefore, each borrowing against the facility is subject to approval by the lender. There were no borrowings against this facility as of December 31, 2022 and January 1, 2022. The Company included in interest expense the amortization of deferred financing costs of $ 2.0 million, $ 2.3 million, and $ 2.7 million in fiscal years 2022, 2021 and 2020, respectively. Annual maturities of debt for the fiscal years subsequent to December 31, 2022 are as follows: (In millions) 2023 2024 2025 2026 2027 Thereafter Annual maturities of debt $ 435.0 $ 10.0 $ 10.0 $ 160.0 $ — $ 550.0 55 9. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following: (In millions) December 31, 2022 January 1, 2022 Land $ 3.9 $ 3.9 Buildings and leasehold improvements 121.8 122.2 Furniture, fixtures and equipment 170.2 144.7 Software 76.4 77.3 Gross cost 372.3 348.1 Less: accumulated depreciation 236.1 219.1 Property, plant and equipment, net $ 136.2 $ 129.0 Depreciation expense was $ 26.7 million, $ 24.8 million and $ 25.7 million for fiscal years 2022, 2021 and 2020, respectively. 10. LEASES The following is a summary of the Company’s lease cost. Fiscal Year (In millions) 2022 2021 Operating lease cost $ 36.0 $ 34.5 Variable lease cost 14.5 12.3 Short-term lease cost 3.1 1.3 Sublease income ( 8.3 ) ( 6.5 ) Total lease cost $ 45.3 $ 41.6 The following is a summary of the Company’s supplemental cash flow information related to leases. Fiscal Year (In millions) 2022 2021 Cash paid for operating lease liabilities $ 39.5 $ 38.5 Operating lease assets obtained in exchange for lease liabilities 72.5 14.6 The weighted-average discount rate for operating leases as of December 31, 2022 is 5.1 %. The weighted-average remaining lease term for operating leases as of December 31, 2022 is 8.2 years. Future undiscounted cash flows for operating leases for the fiscal periods subsequent to December 31, 2022 are as follows: (In millions) Operating Leases 2023 $ 38.6 2024 33.1 2025 27.7 2026 24.8 2027 22.3 Thereafter 90.0 Total future payments 236.5 Less: imputed interest 43.8 Recognized lease liability $ 192.7 The Company did not enter into any real estate leases with commencement dates subsequent to December 31, 2022. 11. DERIVATIVE FINANCIAL INSTRUMENTS The Company utilizes foreign currency forward exchange contracts designated as cash flow hedges to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of 56 business. These foreign currency forward exchange hedge contracts extended out to a maximum of 524 days and 538 days as of December 31, 2022 and January 1, 2022, respectively. If, in the future, the 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) within stockholders’ equity. During fiscal 2020, the Company reclassified $ 0.6 million 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 an interest rate swap arrangement, which unless otherwise terminated, will mature on May 30, 2025 . This agreement, which exchanges floating rate interest payments for fixed rate interest payments over the life of the agreement without the exchange of the underlying notional amounts, has been designated as a cash flow hedge of the underlying debt. The notional amount of the interest rate swap arrangement is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap arrangement is recognized as interest expense, net. In accordance with ASC 815, the Company has formally documented the relationship between the interest rate swap 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 the hedge, and continues to assess on an ongoing basis, whether the derivative used in the hedging transaction is highly effective in offsetting changes in the cash flows of the hedged item. The Company had a cross currency swap to minimize the impact of exchange rate fluctuations which matured on September 1, 2021 . Changes in fair value related to movements in the foreign currency exchange spot rate were recorded in accumulated other comprehensive income (loss), offsetting the currency translation adjustment related to the underlying net investment that was also recorded in accumulated other comprehensive income (loss). All other changes in fair value were recorded in interest expense. The notional amounts of the Company’s derivative instruments are as follows: (Dollars in millions) December 31, 2022 January 1, 2022 Foreign exchange hedge contracts $ 334.2 $ 296.7 Interest rate swap 176.2 311.3 The recorded fair values of the Company’s derivative instruments are as follows: (In millions) December 31, 2022 January 1, 2022 Financial assets: Foreign exchange hedge contracts $ 7.5 $ 5.9 Interest rate swap 6.1 — Financial liabilities: Foreign exchange hedge contracts $ ( 1.3 ) $ ( 1.0 ) Interest rate swap — ( 0.1 ) Foreign exchange hedge contract financial assets are recorded to prepaid expenses and other current assets and financial liabilities are recorded to other accrued liabilities on the consolidated balance sheets. Interest rate swap financial assets are recorded to other assets and financial liabilities are recorded to other liabilities on the consolidated balance sheets. 12. STOCK-BASED COMPENSATION The Company recognized stock-based compensation expense of $ 33.4 million, $ 38.1 million and $ 28.9 million and related income tax benefits of $ 6.5 million, $ 7.5 million and $ 5.6 million for grants under its stock-based compensation plans in the statements of operations for fiscal years 2022, 2021 and 2020, respectively. As of December 31, 2022, the Company had 5,543,811 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. Stock options 57 granted under the Stock Plan have an exercise price equal to the fair market value of the underlying stock on the grant date, expire no later than ten years from the grant date and generally vest over three years . All other awards granted, including Restricted Awards and Performance Awards, count as 2.6 stock incentive units for each share, restricted share or restricted stock unit granted. Restricted Awards issued under the Stock Plan are subject to certain restrictions, including a prohibition against any sale, transfer or other disposition by the officer or employee during the vesting period (except for certain transfers for estate planning purposes for certain officers), and a requirement to forfeit all or a certain portion of the award upon certain terminations of employment. These restrictions typically lapse over a three - to four- year period from the date of the award. The Company has elected to recognize expense for these stock-based incentive plans ratably over the vesting term on a straight-line basis. 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. 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. The Board of Directors awards an annual grant of Performance Awards to certain plan participants. The number of Performance Awards that will be earned (and eligible to vest) during the performance period will depend on the Company’s level of success in achieving two specifically identified performance targets. Any portion of the Performance Awards that are not earned by the end of the three-year measurement period will be forfeited. The final determination of the number of Performance Awards to be issued in respect to an award is determined by the Compensation Committee of the Company’s Board of Directors. Restricted Awards and Performance Awards A summary of the unvested Restricted Awards and Performance Awards is as follows: Restricted Awards Weighted- Average Grant Date Fair Value Performance Awards Weighted- Average Grant Date Fair Value Unvested at December 28, 2019 1,618,916 $ 27.36 1,127,102 $ 31.94 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 Granted 654,898 34.64 630,996 38.02 Vested ( 981,681 ) 22.78 ( 181,657 ) 35.03 Forfeited ( 109,234 ) 32.75 ( 690,246 ) 35.71 Unvested at January 1, 2022 1,208,000 $ 33.62 764,415 $ 35.69 Granted 980,456 25.86 437,253 27.40 Vested ( 452,448 ) 33.37 ( 343,290 ) 37.06 Forfeited ( 219,530 ) 30.05 ( 83,724 ) 27.31 Unvested at December 31, 2022 1,516,478 $ 28.95 774,654 $ 34.14 As of December 31, 2022, there was $ 19.4 million of unrecognized compensation expense related to unvested Restricted Awards, which is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Restricted Awards vested during the year ended December 31, 2022 was $ 10.9 million. As of January 1, 2022, there was $ 19.8 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Restricted Awards vested during the year ended January 1, 2022 was $ 34.8 million. As of January 2, 2021, there was $ 18.5 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. The total fair value of Restricted Awards vested during the year ended January 2, 2021 was $ 35.0 million. As of December 31, 2022, there was $ 10.8 million of unrecognized compensation expense related to unvested Performance Awards, which is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Performance Awards vested during the year ended December 31, 2022 was $ 9.3 million. As of January 1, 2022, there was $ 16.1 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weighted-average period of 1.4 years. The total fair value of Performance Aw ards vested during the year ended January 1, 2022 was $ 6.2 million. As of January 2, 2021, there was $ 1.4 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weig hted-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. 58 Stock Options The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes-Merton formula. The estimated weighted-average fair value for each option granted was $ 8.46 , $ 11.14 and $ 8.20 per share for fiscal years 2022, 2021 and 2020, respectively. A summary of the stock option transactions is as follows: Shares Under Option Weighted-Average Exercise Price Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (In millions) Outstanding at December 28, 2019 4,033,107 $ 21.41 4.4 $ 49.8 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 Granted 23,610 34.22 Exercised ( 776,850 ) 22.11 Canceled ( 17,353 ) 33.79 Outstanding at January 1, 2022 2,488,812 $ 22.29 3.2 $ 16.7 Granted 20,171 25.19 Exercised ( 74,482 ) 18.26 Canceled ( 101,091 ) 22.57 Outstanding at December 31, 2022 2,333,410 $ 22.43 2.4 $ — Unvested at December 31, 2022 ( 36,909 ) Exercisable at December 31, 2022 2,296,501 $ 22.33 2.3 $ — The total pretax intrinsic value of stock options exercised during fiscal years 2022, 2021 and 2020 was $ 0.4 million, $ 11.4 million and $ 9.3 million, respectively. As of December 31, 2022, 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 January 1, 2022 and January 2, 2021, there was $ 0.2 million and $ 0.1 million, respectively, of unrecognized compensation expense related to stock option awards expected to be recognized over a weighted-average period of 1.3 years and 0.9 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 o f the Company's stock was above the strike price ("in-the-money"), as of that date. There were no in-the-money options exercisable as of December 31, 2022, based on the Company’s closing stock price of $ 10.93 per share . As of January 1, 2022, 2,247,575 outstanding options were exercisable and in-the-money, with a weighted-average exercise price of $ 21.70 per share. 13. RETIREMENT PLANS The Company has two non-contributory, defined benefit pension plans that provide retirement benefits to less than half of its domestic employees. The Company’s principal defined benefit pension plan, which is closed to new participants, provides benefits based on the employee’s years of service and final average earnings. The second plan is closed to new participants and no longer accrue future benefits. The Company has a Supplemental Executive Retirement Plan (the “SERP”) for certain current and former employees that entitles a participating employee to receive payments from the Company following retirement based on the employee’s years of service and final average earnings (as defined in the SERP). Under the SERP, the employees can elect early retirement with a corresponding reduction in benefits. 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 $ 46.6 million at December 31, 2022 and $ 45.6 million at January 1, 2022 recognized as other assets on the consolidated balance sheets 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. The Company recognized expense for its 59 contributions to the defined contribution plans of $ 5.6 million, $ 5.2 million and $ 4.2 million in fiscal years 2022, 2021 and 2020, respectively. The Company also has certain defined contribution plans at foreign subsidiaries. Contributions to these plans were $ 1.5 million, $ 1.4 million and $ 1.3 million in fiscal years 2022, 2021 and 2020, respectively. 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 $ 0.8 million at December 31, 2022 and $ 1.0 million at January 1, 2022 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 2022 and 2021: Fiscal Year (In millions) 2022 2021 Change in projected benefit obligations: Projected benefit obligations at beginning of the year $ 434.3 $ 455.8 Service cost pertaining to benefits earned during the year 5.3 6.9 Interest cost on projected benefit obligations 13.2 12.8 Actuarial gains ( 107.8 ) ( 26.6 ) Benefits paid to plan participants ( 16.8 ) ( 14.6 ) Projected benefit obligations at end of the year $ 328.2 $ 434.3 Change in fair value of pension assets: Fair value of pension assets at beginning of the year $ 323.0 $ 305.0 Actual return (loss) on plan assets ( 58.7 ) 30.1 Company contributions - SERP 3.8 2.5 Benefits paid to plan participants ( 16.7 ) ( 14.6 ) Fair value of pension assets at end of the year $ 251.4 $ 323.0 Funded status $ ( 76.8 ) $ ( 111.3 ) Amounts recognized in the consolidated balance sheets: Current liabilities $ ( 3.9 ) $ ( 3.9 ) Accrued pension liabilities ( 72.9 ) ( 107.4 ) Net amount recognized $ ( 76.8 ) $ ( 111.3 ) Funded status of pension plans and SERP (supplemental): Funded status of qualified defined benefit plans and SERP $ ( 76.8 ) $ ( 111.3 ) 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 38.8 38.0 Net funded status of pension plans and SERP (supplemental) $ ( 38.0 ) $ ( 73.3 ) Unrecognized net actuarial loss recognized in accumulated other comprehensive income was $ 1.8 million and $ 41.8 million, and amounts net of tax were $ 1.7 million and $ 33.2 million, as of December 31, 2022 and January 1, 2022, respectively. The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 315.9 million at December 31, 2022 and $ 416.1 million at January 1, 2022 . The decrease in benefit obligation for fiscal 2022 was the result of actuarial gains caused by changes to the discount rate . The actuarial gain included in accumulated other comprehensive loss and expected to be recognized in net periodic pension income during fiscal 2023 is $ 0.7 million. 60 The following is a summary of net pension and SERP expense recognized by the Company: Fiscal Year (In millions) 2022 2021 2020 Service cost pertaining to benefits earned during the year $ 5.3 $ 6.9 $ 6.4 Interest cost on projected benefit obligations 13.2 12.8 14.2 Expected return on pension assets ( 20.5 ) ( 19.5 ) ( 18.7 ) Net amortization loss 11.3 13.8 6.6 Net pension expense $ 9.3 $ 14.0 $ 8.5 Less: SERP expense 3.8 5.7 5.2 Qualified defined benefit pension plans expense $ 5.5 $ 8.3 $ 3.3 The non-service cost components of net pension expense is recorded in the Other expense (income), net line item on the consolidated statements of operations and comprehensive income. The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic benefit cost for the Company’s pension and post-retirement plans are as follows: Fiscal Year 2022 2021 Weighted-average assumptions used to determine benefit obligations at fiscal year-end: Discount rate 5.56 % 3.09 % Rate of compensation increase - pension 4.13 % 4.18 % 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 3.09 % 2.85 % Expected long-term rate of return on plan assets 6.87 % 6.75 % Rate of compensation increase - pension 4.18 % 4.18 % 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. The amortization period is either a five-year period, unless the minimum amortization method based on average remaining service periods produces a higher amortization; or, over the average remaining service period of participants expected to receive benefits. The Company utilizes a bond matching calculation to determine the discount rate. A hypothetical bond portfolio is created based on a presumed purchase of high-quality corporate bonds with maturities that match the plan’s expected future cash outflows. The discount rate is the resulting yield of the hypothetical bond portfolio. The discount rate is used in the calculation of the year-end pension liability and the service and interest cost for the subsequent year. The long-term rate of return is based on overall market expectations for a balanced portfolio with an asset mix similar to the Company’s, utilizing historic returns for broad market and fixed income indices. The Company’s investment policy for plan assets uses a blended approach of U.S. and foreign equities combined with U.S. fixed income investments. The target investment allocations as of December 31, 2022 were 43 % in equity securities and 57 % in fixed income securities. 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 31, 2022 January 1, 2022 (In millions) Total % of Total Total % of Total Equity securities $ 112.2 1 44.7 % $ 181.3 1 56.1 % Fixed income securities 90.0 1 35.8 % 118.9 1 36.8 % Real Estate — 1 — % 19.9 1 6.2 % Cash 46.6 18.5 % — — % Other 2.6 2 1.0 % 2.9 2 0.9 % Fair value of plan assets $ 251.4 100.0 % $ 323.0 100.0 % 1 In accordance with ASC 820, Fair Value Measurement (“ASC 820”), certain investments are measured at fair value using the net asset value per share as a practical expedient. These assets have not been classified in the fair value hierarchy. 61 2 In accordance with ASC 820, investments have been measured using valuation techniques in which one or more significant inputs are unobservable (Level 3). See Note 1 for additional information. The Company does not expect to make any contributions to its qualified defined benefit pension plans in fiscal 2023 and expects to make $ 3.9 million in contributions to the SERP in fiscal 2023. Expected benefit payments for the fiscal years subsequent to December 31, 2022 are as follows: (In millions) 2023 2024 2025 2026 2027 2028-2032 Expected benefit payments $ 18.3 $ 19.0 $ 19.6 $ 20.3 $ 20.9 $ 112.2 14. INCOME TAXES The geographic components of earnings (loss) before income taxes are as follows: Fiscal Year (In millions) 2022 2021 2020 United States $ ( 94.6 ) $ 22.7 $ ( 218.6 ) Foreign ( 158.3 ) 57.6 34.5 Earnings (loss) before income taxes $ ( 252.9 ) $ 80.3 $ ( 184.1 ) The provisions for income tax expense (benefit) consist of the following: Fiscal Year (In millions) 2022 2021 2020 Current expense: Federal $ 22.7 $ 14.6 $ 0.7 State 4.0 2.5 0.6 Foreign 28.2 15.0 8.3 Deferred expense (benefit): Federal ( 52.9 ) ( 17.1 ) ( 51.6 ) State ( 4.9 ) ( 1.8 ) ( 4.4 ) Foreign ( 60.9 ) 0.1 0.9 Income tax expense (benefit) $ ( 63.8 ) $ 13.3 $ ( 45.5 ) 62 A reconciliation of the Company’s total income tax expense and the amount computed by applying the statutory federal income tax rate to earnings before income taxes is as follows: Fiscal Year (In millions) 2022 2021 2020 Income taxes at U.S. statutory rate of 21% $ ( 53.1 ) $ 16.9 $ ( 38.7 ) State income taxes, net of federal income tax ( 2.3 ) ( 1.1 ) ( 8.1 ) Foreign earnings taxed at rates different from the U.S. statutory rate: Hong Kong ( 14.2 ) ( 7.2 ) ( 3.3 ) Other 2.1 3.1 1.2 Adjustments for uncertain tax positions ( 0.9 ) ( 1.3 ) ( 1.4 ) Change in valuation allowance 2.1 2.2 4.7 Tax impact of impairment in foreign jurisdiction 3.0 — — Global Intangible Low Tax Income tax 3.8 3.2 2.5 Foreign Derived Intangible Income tax benefit ( 8.2 ) ( 3.7 ) ( 1.6 ) Non-deductible executive compensation 3.3 5.2 1.6 Permanent adjustments related to employee share based compensation 1.6 ( 3.7 ) ( 4.6 ) Deferred tax on future cash dividends ( 0.2 ) ( 0.9 ) 1.0 Income tax audit adjustments — 2.5 — Deferred adjustment for income tax audit — ( 1.2 ) — Other Permanent adjustments and non-deductible expenses ( 1.4 ) ( 0.3 ) 1.0 Other 0.6 ( 0.4 ) 0.2 Income tax expense (benefit) $ ( 63.8 ) $ 13.3 $ ( 45.5 ) Significant components of the Company’s deferred income tax assets and liabilities are as follows: (In millions) December 31, 2022 January 1, 2022 Deferred income tax assets: Accounts receivable and inventory valuation allowances $ 18.1 $ 5.2 Deferred compensation accruals 4.3 7.2 Accrued pension expense 18.7 25.7 Stock-based compensation 9.1 8.2 Net operating loss and foreign tax credit carryforwards 19.9 18.5 Book over tax depreciation and amortization 0.5 0.4 Tenant lease expenses 4.3 4.0 Environmental reserve 28.3 33.7 Other 6.5 9.5 Total gross deferred income tax assets 109.7 112.4 Less valuation allowance ( 26.7 ) ( 24.6 ) Net deferred income tax assets 83.0 87.8 Deferred income tax liabilities: Intangible assets ( 76.2 ) ( 190.6 ) Tax over book depreciation and amortization ( 9.4 ) ( 9.3 ) Other ( 8.2 ) ( 5.0 ) Total deferred income tax liabilities ( 93.8 ) ( 204.9 ) Net deferred income tax liabilities $ ( 10.8 ) $ ( 117.1 ) 63 The valuation allowance for deferred income tax assets as of December 31, 2022 and January 1, 2022 was $ 26.7 million and $ 24.6 million, respectively. The net increase in the total valuation allowance during fiscal 2022 was $2.1 million. The valuation allowance for both years is primarily related to U.S. state and local net operating loss carryforwards as well as a valuation allowance against state deferred tax assets for certain U.S. legal entities, foreign net operating loss carryforwards and tax credit carryforwards in foreign jurisdictions. 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 $ 0.3 million, an increase related to state net operating loss carryforward of $ 0.3 million, and a net increase relating to the foreign net operating losses and foreign tax credits and other deferred tax assets of $ 2.1 million. At December 31, 2022, the Company had foreign net operating loss carryforwards of $ 33.7 million, which have expirations ranging from 2023 to an unlimited term during which they are available to offset future foreign taxable income. The Company had U.S. federal net operating loss carryforwards, state net operating loss carryforwards and Internal Revenue Code section 163(j) interest expense carryforwards of $ 15.7 million, $ 224.7 million and $ 43.6 million respectively, which have expirations ranging from 2023 to an unlimited term during which they are available to offset future state taxable income. The Company also had tax credit carryforwards in foreign jurisdictions of $ 2.7 million, which are available for an unlimited carryforward period to offset future foreign taxes. The following table summarizes the activity related to the Company’s unrecognized tax benefits: Fiscal Year (In millions) 2022 2021 Unrecognized tax benefits at beginning of the year $ 10.9 $ 5.5 Increases related to current year tax positions 0.2 7.8 Decreases related to prior year positions ( 1.1 ) ( 0.9 ) Decreases relating to settlements with taxing authorities ( 0.5 ) ( 1.4 ) Decrease due to lapse of statute ( 0.5 ) ( 0.1 ) Unrecognized tax benefits at end of the year $ 9.0 $ 10.9 The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 9.0 million and $ 10.1 million as of December 31, 2022 and January 1, 2022, 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 $ 0.5 million and $ 0.6 million as of December 31, 2022 and January 1, 2022, respectively. The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of the audits. However, any payment of tax is not expected to be material to the consolidated financial statements. For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2017. The Company intends to repatriate cash held in foreign jurisdictions and as such has recorded a deferred tax liability related to additional state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries of $ 1.1 million and $ 1.4 million for fiscal years 2022 and 2021, respectively. 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 $ 176.0 million at December 31, 2022. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. 64 15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 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 2022 and 2021 is as follows: (In millions) Foreign currency translation Derivatives Pension Total Balance at Balance at January 2, 2021 $ ( 36.8 ) $ ( 20.3 ) $ ( 73.5 ) $ ( 130.6 ) Other comprehensive income (loss) before reclassifications (1) ( 20.0 ) 7.7 29.5 17.2 Amounts reclassified from accumulated other comprehensive income (loss) — 5.1 (2) 13.8 (3) 18.9 Income tax (expense) benefit — ( 1.4 ) ( 3.0 ) ( 4.4 ) Net reclassifications — 3.7 10.8 14.5 Net current-period other comprehensive income (loss) (1) ( 20.0 ) 11.4 40.3 31.7 Balance at January 1, 2022 $ ( 56.8 ) $ ( 8.9 ) $ ( 33.2 ) $ ( 98.9 ) Other comprehensive income (loss) before reclassifications (1) ( 76.3 ) 25.4 22.6 ( 28.3 ) Amounts reclassified from accumulated other comprehensive income (loss) — ( 19.3 ) (2) 11.3 (3) ( 8.0 ) Income tax (expense) benefit — 4.7 ( 2.4 ) 2.3 Net reclassifications — ( 14.6 ) 8.9 ( 5.7 ) Net current-period other comprehensive income (loss) (1) ( 76.3 ) 10.8 31.5 ( 34.0 ) Balance at December 31, 2022 $ ( 133.1 ) $ 1.9 $ ( 1.7 ) $ ( 132.9 ) (1) Other comprehensive income (loss) is reported net of taxes and noncontrolling interest. (2) Amounts related to foreign currency derivatives used to manage the volatility associated with inventory purchases in various currencies and deemed to be highly effective are included in cost of goods sold. Amounts related to foreign currency derivatives that are no longer deemed to be highly effective are included in other income. Amounts related to interest rate swaps and the cross currency swap are included in interest expense. (3) Amounts reclassified are included in the computation of net pension expense. 16. FAIR VALUE MEASUREMENTS Recurring Fair Value Measurements The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy. Fair Value Measurements Quoted Prices With Other Observable Inputs (Level 2) (In millions) December 31, 2022 January 1, 2022 Financial assets: Derivatives $ 13.6 $ 5.9 Financial liabilities: Derivatives $ ( 1.3 ) $ ( 1.1 ) The fair value of foreign currency forward exchange contracts represents the estimated receipts or payments necessary to terminate the contracts. 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 and goodwill 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). In the fourth quarter of fiscal 2022, after completion of its annual impairment testing, the Company recognized a $ 48.4 million goodwill impairment charge to the Sweaty Betty ® reporting unit. The Company also recorded impairment charges of $ 189.3 million and $ 191.0 million to 65 the Sweaty Betty ® and Sperry ® indefinite-lived trade names, respectively, in fiscal 2022. Refer to Note 4, “Goodwill and Other Intangibles” for additional discussion on the Sweaty Betty ® goodwill impairment and the Sperry ® and Sweaty Betty ® trade name impairments. Fair Value Disclosures The Company’s financial instruments that are not recorded at fair value consist of cash and cash equivalents, accounts and notes receivable, accounts payable, borrowings under revolving credit agreements and other short-term and long-term debt. The carrying amount of these financial instruments is historical cost, which approximates fair value, except for the debt. The carrying value and the fair value of the Company’s debt are as follows: (In millions) December 31, 2022 January 1, 2022 Carrying value $ 1,158.0 $ 966.8 Fair value 1,042.9 960.6 The fair value of the fixed rate debt was based on third-party quotes (Level 2). The fair value of the variable rate debt was calculated by discounting the future cash flows to its present value using a discount rate based on the risk-free rate of the same maturity (Level 3). 17. LITIGATION AND CONTINGENCIES Litigation The Company operated a leather tannery in Rockford, Michigan from the early 1900s through 2009 (the “Tannery”). The Company also owns a parcel on House Street in Plainfield Township that the Company used for the disposal of Tannery byproducts until about 1970 (the "House Street" site). Beginning in the late 1950s, the Company used 3M Company’s Scotchgard™ in its processing of certain leathers at the Tannery. Until 2002 when 3M Company changed its Scotchgard™ formula, Tannery byproducts disposed of by the Company at the House Street site and other locations may have contained PFOA and/or PFOS, two chemicals in the family of compounds known as per- and polyfluoroalkyl substances (together, “PFAS”). 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™. 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, which the EPA reduced in June 2022 to 0.004 ppt and 0.02 ppt for PFOA and PFOS, respectively. 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 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. District Judge Janet T. Neff on February 19, 2020 (the “Consent Decree”). 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 assess the presence of PFAS in area groundwater. The Company’s activities under the Consent Decree are not materially impacted by either the drinking water standards that became effective on August 3, 2020, or the EPA’s revised advisory levels issued in June 2022. 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, 66 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 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 2020. On January 10, 2018, the EPA entered a Unilateral Administrative Order (the “Order”) under Section 106(a) of CERCLA, 42 U.S.C. § 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 completed the activities required by the AOC, and is awaiting the final review and determination from the EPA. The Company discusses its reserve for remediation costs in the environmental liabilities section below. Individual and Class Action Litigation Beginning in late 2017, individual lawsuits and three putative class action lawsuits were filed against the Company that raise a variety of claims, including claims related to property, remediation, and human health effects. The three putative class action lawsuits were subsequently refiled in the U.S. District Court for the Western District of Michigan as a single consolidated putative class action lawsuit. 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”). On January 11, 2022, the Company and 3M Company entered into a master settlement agreement with the law firm representing certain of the plaintiffs in the individual lawsuits included in the Litigation Matters, and each of these plaintiffs subsequently agreed to participate in the settlement. These plaintiffs’ lawsuits were dismissed with prejudice on or around April 25, 2022. On December 9, 2021, the Company and 3M Company reached a settlement in principle to resolve certain of the remaining individual lawsuits included in the Litigation Matters, and the parties entered into definitive settlement agreements in March 2022. These plaintiffs’ lawsuits were dismissed with prejudice on June 14, 2022. The last remaining individual action included in the Litigation Matters was dismissed without prejudice on June 24, 2022. In addition, in September 2022, the parties to the putative class action filed a motion for preliminary approval of a proposed class action settlement seeking to resolve the putative class action plaintiffs’ claims (the “Motion for Preliminary Approval”). On September 19, 2022, the court granted the Motion for Preliminary Approval and scheduled a final approval hearing regarding the settlement for March 29, 2023. Only one of the Litigation Matters, the lawsuit filed by the current owner of a former landfill and gravel mining operations, remains pending in Michigan state court, and it is in the discovery and motions stages of litigation. For certain of the Litigation Matters described above and as a result of developments during 2022, the Company has increased its accrual by $ 40.5 million since January 1, 2022 and made related payments of $ 50.1 million. As of December 31, 2022, the Company had recorded liabilities of $ 40.5 million for certain of the Litigation Matters described above which are recorded as other accrued liabilities in the consolidated balance sheets. In December 2018, the Company filed a lawsuit against certain of its historic liability insurers, seeking to compel them to provide a defense against the Litigation Matters on the Company's behalf and coverage for remediation efforts undertaken by, and indemnity provided by, the Company. The Company recognized certain recoveries from legacy insurance policies in 2022 and 2021, and continues pursing additional recoveries through the lawsuit. 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, intellectual property, and consumer related 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 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 67 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 The following is a summary of the activity with respect to the environmental remediation reserve established by the Company: Fiscal Year (In millions) 2022 2021 Remediation liability at beginning of the year $ 85.7 $ 101.8 Changes in estimate 6.8 — Amounts paid ( 18.4 ) ( 16.1 ) Remediation liability at the end of the year $ 74.1 $ 85.7 The reserve balance as of December 31, 2022 includes $ 49.8 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 $ 24.3 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 operations or disposal sites is ongoing. Although the Consent Decree has made near-term costs more clear, it is difficult to estimate the long-term 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, including, but not limited to: (i) changes in the information available regarding the environmental impact of the Company’s operations and products; (ii) changes in environmental regulations, changes in permissible levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including efforts to recover natural resource damages; (iii) new and evolving analytical and remediation techniques; (iv) changes to the form of remediation; (v) success in allocating liability to other potentially responsible parties; and (vi) the financial viability of other potentially responsible parties and third-party indemnitors. For locations at which remediation activity is largely ongoing, the Company cannot estimate a possible loss or range of loss in excess of the associated established reserves for the reasons described above. The Company adjusts recorded liabilities as further information develops or circumstances change. Minimum Royalties and Advertising Commitments 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 31, 2022 are as follows: (In millions) 2023 2024 2025 2026 2027 Thereafter Minimum royalties $ 1.0 $ — $ — $ — $ — $ — Minimum advertising 3.9 3.9 4.2 4.3 4.4 4.6 Minimum royalties are based on both fixed obligations and assumptions regarding the Consumer Price Index. Royalty obligations in excess of minimum requirements are based upon future sales levels. In accordance with these agreements, the Company incurred royalty expense of $ 2.3 million, $ 2.3 million and $ 1.9 million for fiscal years 2022, 2021 and 2020, respectively. The terms of certain license agreements also require the Company to make advertising expenditures based on the level of sales of the licensed products. In accordance with these agreements, the Company incurred advertising expense of $ 6.5 million, $ 6.5 million and $ 2.5 million for fiscal years 2022, 2021 and 2020, respectively. 18. BUSINESS SEGMENTS 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; and 68 • Lifestyle Group , consisting of Sperry ® footwear, Keds ® footwear, and Hush Puppies ® footwear and apparel. The Company's operating segments are the Work Group, Lifestyle Group, Active Group, and Sweaty Betty ® . Sweaty Betty ® and the Active Group were evaluated and combined into one reportable segment because they meet the similar economic characteristics and qualitative aggregation criteria set forth in the relevant accounting guidance 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 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 fiscal 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 segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party licensees and distributors; and revenue from the Company’s direct-to-consumer businesses. 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. Fiscal Year (In millions) 2022 2021 2020 Revenue: Active Group $ 1,570.2 $ 1,319.6 $ 909.3 Work Group 590.5 548.8 425.4 Lifestyle Group 447.5 477.0 407.0 Other 76.6 69.5 49.4 Total $ 2,684.8 $ 2,414.9 $ 1,791.1 Operating profit (loss): Active Group $ 198.4 $ 229.5 $ 164.1 Work Group 102.5 103.8 65.2 Lifestyle Group 48.1 67.5 34.2 Other 11.8 8.1 6.1 Corporate ( 569.2 ) ( 253.2 ) ( 406.7 ) Total $ ( 208.4 ) $ 155.7 $ ( 137.1 ) Interest expense, net 47.3 37.4 43.6 Debt extinguishment and other costs — 34.3 5.5 Other expense (income), net ( 2.8 ) 3.7 ( 2.1 ) Earnings (loss) before income taxes $ ( 252.9 ) $ 80.3 $ ( 184.1 ) 69 Fiscal Year (In millions) 2022 2021 2020 Depreciation and amortization expense: Active Group $ 8.1 $ 5.4 $ 2.7 Work Group 0.3 0.3 0.4 Lifestyle Group 2.0 2.3 3.0 Other 1.4 1.6 2.0 Corporate 22.8 23.6 24.7 Total $ 34.6 $ 33.2 $ 32.8 Capital expenditures: Active Group $ 18.9 $ 5.0 $ 1.4 Work Group 0.4 0.4 — Lifestyle Group 2.0 0.1 1.7 Other 3.2 1.7 0.9 Corporate 12.0 10.4 6.3 Total $ 36.5 $ 17.6 $ 10.3 (In millions) December 31, 2022 January 1, 2022 Total assets: Active Group $ 1,331.5 $ 1,377.3 Work Group 375.7 284.2 Lifestyle Group 514.8 663.4 Other 58.6 57.8 Corporate 212.1 203.7 Total $ 2,492.7 $ 2,586.4 Goodwill: Active Group $ 314.4 $ 380.3 Work Group 59.6 61.3 Lifestyle Group 97.4 101.3 Other 13.6 13.7 Total $ 485.0 $ 556.6 Geographic dispersion of revenue from external customers, based on shipping destination is as follows: Fiscal Year (In millions) 2022 2021 2020 United States $ 1,563.1 $ 1,573.9 $ 1,234.2 Foreign: Europe, Middle East and Africa 602.5 460.3 279.8 Asia Pacific 245.7 161.6 120.3 Canada 126.8 116.9 88.9 Latin America 146.7 102.2 67.9 Total from foreign territories 1,121.7 841.0 556.9 Total revenue $ 2,684.8 $ 2,414.9 $ 1,791.1 70 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) December 31, 2022 January 1, 2022 January 2, 2021 United States $ 222.3 $ 205.8 $ 222.2 Foreign countries 88.6 61.4 44.9 Total $ 310.9 $ 267.2 $ 267.1 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. During fiscal 2022, the Company sourced 100 % of its footwear products and apparel and accessories from third-party suppliers, located primarily in the Asia Pacific region. While changes in suppliers could cause delays in manufacturing and a possible loss of sales, management believes that other suppliers could provide similar products on comparable terms. 19. BUSINESS ACQUISITIONS Sweaty Betty ® 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. The Acquired Company owns the Sweaty Betty ® brand and activewear business. The acquisition was funded with cash on hand and borrowings under the Company’s Revolving Facility. Sweaty Betty ® is a premium women’s activewear brand that distributes a wide array of innovative on-trend tops, bottoms, swimwear, outerwear and accessories around the world, mainly through direct-to-consumer channels. The Sweaty Betty ® acquisition is part of the Company’s strategic shift over the last several years from a traditional footwear wholesaler to a consumer-obsessed, digital-focused growth company. The acquisition also aligns with the Company’s strategic growth plan to focus on expanding the Company’s digital and international footprint, and building the brand portfolio beyond footwear. Sweaty Betty ® contributed net revenue of $ 211.5 million and net loss of $ 5.5 million to the Company for the year ended December 31, 2022. The Sweaty Betty ® operating results are included in the Active category for segment reporting purposes. The Company recognized acquisition-related transaction costs of $ 7.5 million, all of which were recognized in fiscal year 2021 in the selling, general and administrative expenses line item in the Consolidated Statement of Operations. These costs represent investment banking fees, legal and professional fees, transaction fees, and consulting fees associated with the acquisition. The Company accounted for the acquisition following FASB ASC Topic 805, Business Combinations , and the related assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The aggregate purchase price was allocated to the major categories of assets acquired and liabilities assumed based upon their respective fair values at the acquisition date using primarily Level 2 and Level 3 inputs. The Level 2 and Level 3 valuation inputs include an estimate of future cash flows and discount rates. The Sweaty Betty ® trademark, which is estimated to have an indefinite life, has been valued at $ 346.4 million using the multi-period excess earnings method. The multi-period excess earnings method requires the use of significant estimates and assumptions, including but not limited to, future revenues, growth rates, EBITDA margin, tax rates and a discount rate. The purchase price allocation was finalized during the quarter ended July 2, 2022. 71 The following table summarizes the purchase price allocation to the assets acquired and liabilities assumed at the acquisition date: (In millions) Fair Value Accounts receivable $ 3.6 Inventories 48.4 Prepaid expenses and other current assets 5.3 Property, plant and equipment 10.0 Lease right-of-use assets 7.0 Goodwill 118.9 Intangibles 355.0 Other assets 0.6 Total assets acquired 548.8 Accounts payable 13.1 Accrued salaries and wages 6.0 Other accrued liabilities 14.3 Lease liabilities 7.0 Deferred income taxes 91.0 Total liabilities assumed 131.4 Net assets acquired $ 417.4 Goodwill is the result of expected synergies and the Company’s ability to grow the Sweaty Betty ® brand, as well as the acquired assembled workforce. All of the goodwill is presented within the Active Group for segment reporting purposes and within the Sweaty Betty ® reporting unit and will not be deductible for income tax purposes. Intangible assets acquired in the acquisition were valued on the acquisition date as follows: (In millions) Intangible Asset Useful life Trade name and trademark $ 346.4 Indefinite Customer relationship 7.2 18 years Backlog 1.0 5 months Customer list 0.4 3 years Total intangible assets acquired $ 355.0 The following unaudited pro forma summary presents consolidated information of the Company as if the acquisition of the Sweaty Betty ® brand and activewear business occurred at the beginning of fiscal 2020. The pro forma information is not necessarily indicative of the results that would have actually been obtained if the acquisition had occurred at such date or that may be attained in the future. These pro forma amounts have been calculated after including the historical Sweaty Betty ® operating results in the Company’s consolidated results and reflecting the following adjustments: fair value adjustments for intangible assets and inventory acquired, timing adjustment to recognize acquisition related costs incurred in 2021 and in 2020, and adjustments reflecting historical interest expense. The adjustments have been applied with related tax effects. Fiscal Year (In millions) 2021 2020 Net revenue $ 2,552.4 $ 1,954.7 Net earnings attributable to Wolverine World Wide, Inc. 83.9 ( 144.9 ) 20. VARIABLE INTEREST ENTITIES AND RELATED PARTY TRANSACTIONS Assets and Liabilities of Consolidated VIEs The Company has joint ventures that source and market the Company’s footwear and apparel products in China. Based upon the criteria set forth in FASB ASC 810, Consolidation , the Company has determined two of the consolidated joint ventures are variable interest entities (VIEs) and the Company is the primary beneficiary. The primary beneficiary determination is based on the relationship between the Company and the VIE, including contractual agreements between the Company and the VIE. 72 Specifically, the Company has the power to direct the activities that are considered most significant to the entities’ performance and the Company has the obligation to absorb losses and the right to receive benefits that are significant to the entities. The other equity holder’s interests are reflected in “net earnings (loss) attributable to noncontrolling interests” in the Consolidated Statement of Operations and “Noncontrolling interest” in the Consolidated Balance Sheets. Assets held by the VIEs are only available to settle obligations of the respective entities. Holders of liabilities of the VIEs do not have recourse to the Company. The following is a summary of the entities’ assets and liabilities included in the Company’s consolidated balance sheets. Fiscal Year (In millions) 2022 2021 Cash $ 5.8 $ 3.7 Accounts receivable 19.7 8.0 Inventory 16.0 9.7 Other current assets 2.4 0.1 Noncurrent assets 0.8 0.7 Total assets 44.7 22.2 Current liabilities 9.6 4.0 Noncurrent liabilities 1.6 2.4 Total liabilities $ 11.2 $ 6.4 Nonconsolidated VIEs The Company also has two joint ventures that are VIEs and are not consolidated as the Company does not have the power to direct the most significant activities that impact the VIEs' economic performance. The two VIEs distribute footwear and apparel products in the Asia Pacific region. The following is a summary of carrying amounts of assets included in the Company’s consolidated balance sheets for fiscal years 2022 and 2021 related to VIEs for which the Company is not the primary beneficiary. The Company’s maximum exposure to loss is the same as the carrying amounts. The following is a summary of the carrying amounts of assets included in the Company’s consolidated balance sheets. Fiscal Year (In millions) 2022 2021 Equity method investments (1) $ 8.1 $ 7.1 (1) Equity method investments are included in “Other Assets” on the Consolidated Balance Sheets. Related Party Transactions In the normal course of business, the Company enters into transactions with related party equity affiliates. Related party transactions consist of the sale of goods, made at arm’s length, and other arrangements. For the fiscal years ended December 31, 2022 and January 1, 2022 the Company recognized net sales to equity affiliates totaling $ 35.5 million and $ 19.5 million, respectively. The following table summarizes related party transactions included in the consolidated balance sheets. Fiscal Year (In millions) 2022 2021 Accounts receivable due from related parties $ 18.1 $ 10.3 Long term liabilities due to related parties — 2.4 Long term assets due from related parties 1.6 — 21. ASSETS AND LIABILITIES HELD FOR SALE During the fourth quarter of 2022, the Company announced that it had initiated a formal process to divest the Keds ® business and Wolverine Leathers business, both of which are low-profit contributors. The Company has determined that both the Keds ® 73 business and the Wolverine Leathers business meet the criteria to be classified as held for sale, and therefore have reclassified the related assets and liabilities as held for sale on the Consolidated Balance Sheets. The following is a summary of the major categories of assets and liabilities that have been classified as held for sale on the Consolidated Balance Sheets at December 31, 2022: (In millions) 2022 Cash and cash equivalents $ 4.0 Accounts receivables, net 3.5 Inventories 43.1 Indefinite-lived intangibles 11.4 Other assets 5.9 Total assets held for sale 67.9 Accounts payable 8.1 Accrued liabilities 0.7 Total liabilities held for sale 8.8 The Company determined that the divestiture of the Keds ® business and Wolverine Leathers business do not represent a strategic shift that had or will have a major effect on the Consolidated Results of Operations, and therefore results were not classified as discontinued operations. 22. SUBSEQUENT EVENT On February 7, 2023 the Company entered into an Asset Purchase Agreement with Designer Brands, Inc. (the "Buyer") pursuant to which the Buyer agreed to purchase the global Keds ® business, other than the Excluded Assets (as defined in the Asset Purchase Agreement), and to assume certain liabilities. The purchase price was approximately $ 83.6 million and the sale was effective February 4, 2023, in accordance with the terms and conditions of the Asset Purchase Agreement. 74 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries (the Company) as of December 31, 2022 and January 1, 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the fiscal years ended December 31, 2022, January 1, 2022, and 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 December 31, 2022 and January 1, 2022, and the results of its operations and its cash flows for the fiscal years ended December 31, 2022, January 1, 2022, and 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 31, 2022, 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 23, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 75 Valuation of goodwill and indefinite-lived intangibles Description of the Matter At December 31, 2022, the Company’s goodwill and indefinite-lived intangible assets were $485.0 million and $274.0 million, respectively. During 2022, the Company recognized a goodwill impairment charge of $48.4 million associated with its Sweaty Betty reporting unit and impairment charges of $191.0 million and $189.3 million, associated with its Sperry and Sweaty Betty indefinite-lived intangible assets, respectively. As discussed in Notes 1 and 4 of the consolidated financial statements, goodwill and indefinite-lived intangibles are tested for impairment at least annually. The impairment test for goodwill consists of measuring the fair value of the reporting unit and comparing it to the reporting unit’s carrying amount. The impairment test for indefinite-lived intangible assets consists of measuring the fair value of the asset and comparing it to the asset’s carrying amount. Auditing management’s annual impairment tests for goodwill and indefinite-lived intangible assets was complex due to the significant estimation uncertainty required in determining the fair values of certain reporting units and the Sperry and Sweaty Betty trade names. The significant assumptions used to estimate the fair values of certain reporting units and the Sperry and Sweaty Betty trade names included the forecasted revenue growth, EBITDA margin, and discount rate. These significant assumptions are forward-looking and could be affected by future economic and market conditions. Changes in these assumptions could have a significant impact on the fair values of certain reporting units and the Sperry and Sweaty Betty trade names, the amount of any impairment charge, or both. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the impairment review process. For example, we tested controls that address the risk of material misstatement relating to the valuation of certain reporting units and the Sperry and Sweaty Betty trade names, including management’s review of the significant assumptions described above and the completeness and accuracy of the data used to develop such estimates. To test the estimated fair values of certain reporting units and the Sperry and Sweaty Betty trade names, our audit procedures included, among others, assessing the appropriateness of the valuation model used, evaluating the significant assumptions discussed above, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We compared the financial projections to current industry and economic trends and the historical accuracy of management’s estimates. We involved our valuation specialists to assist in our evaluation of the Company's model, valuation methodology and the discount rate. /s/ Ernst & Young LLP We have served as the Company’s auditor since at least 1933, but we are unable to determine the specific year. Grand Rapids, Michigan February 23, 2023 76 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. Opinion on Internal Control over Financial Reporting We have audited Wolverine World Wide, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2022, 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 31, 2022, 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 December 31, 2022 and January 1, 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, and the related notes and financial statement schedule and our report dated February 23, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Grand Rapids, Michigan February 23, 2023 77 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.