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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-23 · 122 added, 132 removed, 231 unchanged (52% of the section changed)

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At December 30, 2023, the Company oper ated 166 retail stores in the U.S., United Kingdom, and Canada an d 56 direct-to-consumer eCommerce sites.

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

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

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

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

Effective February 4, 2023, the Company completed the sale of the Keds ® business.

In the third quarter of fiscal 2023, the Company entered into a multi-year licensing agreement of the Hush Puppies ® brand in the United States and Canada.

In addition, the Company completed the sale of Hush Puppies ® trademarks, patents, copyrights, and domains in China, Hong Kong, and Macau.

Effective August 23, 2023, the Company completed the sale of the U.S.

Leathers business and effective December 28, 2023, the Company completed the sale of the Asia-based Leathers business.

See Note 20 to the Company's Consolidated Financial Statements for further discussion.

The following discussion includes a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2023 and 2022.

A discussion of a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2022 and 2021 has been omitted from this Form 10-K but may be found in Item 7.

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

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

Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 23, 2023.

Known Trends Impacting Our Business

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

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

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

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

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

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

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

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

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

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

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

Macroeconomic conditions and supply chain disruptions continue to adversely affect the Company’s business results.

During the third quarter of 2022, inventory transit times improved ahead of plan, resulting in challenges managing the timing of inventory flow, which caused the Company to have excess inventory.

Elevated inventory levels have resulted, and continue to result, in storage and processing capacity pressures at the Company’s U.S.

distribution centers.

The Company has incurred additional inventory carrying costs including costs for outside storage and other inventory related holding costs.

The Company decreased inventory purchases and increased promotional activity during the fourth quarter of 2022 and fiscal year 2023 to reduce excess inventory.

These actions caused inventories to decline in fiscal year 2023 by $371.6 million, compared to the fourth quarter of 2022.

As of the end of fiscal year 2023, the Company had $30.9 million of inventory in-transit, which represents a decrease in inventory of $115.9 million as compared to the end of the fourth quarter of 2022.

As inventory transit and product purchase timelines continue to move towards pre-pandemic levels, the Company expects that the flow of seasonal product and our inventory levels will normalize by the end of fiscal 2024.

Inflation and other macroeconomic pressures in the U.S.

and the global economy such as rising interest rates, energy prices and recession fears are creating a complex and challenging retail environment for the Company and its customers as consumers generally seek discounted merchandise and reduce discretionary spending, which in turn impacts wholesale customer orders.

Inflationary pressures are increasing logistics costs, including labor costs, raw materials costs and product input costs, which continue to adversely affect the Company’s results.

These increased costs, combined with higher promotional activity, contributed to gross margin contraction of 100 basis points for fiscal year 2023 compared to fiscal year 2022.

These impacts were partially offset by selective price increases taken in prior quarters by certain brands and products.

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

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

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

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

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

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

In addition, the strengthening of the U.S.

dollar relative to other major currencies negatively impacted the Company’s financial results in fiscal year 2023.

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

2023 FINANCIAL OVERVIEW

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

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

• Revenue was $2,242.9 million for 2023, representing a decrease of 16.5% compared to the prior year's revenue of $2,684.8 million.

• Gross margin for 2023 was 38.9%, compared to 39.9% in 2022.

• The effective tax rate in 2023 was 70.7%, compared to 25.2% in 2022.

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

• Diluted loss per share in 2023 was $0.51, compared to diluted loss per share of $2.37 in 2022.

• The Company declared cash dividends of $0.40 per share in 2023 and 2022.

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

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

• Cash flow provided by operating activities was $121.8 million in 2023 and cash flow used in operating activities was $178.9 million in 2022.

• Compared to the prior year, inventory decreased $371.6 million, or 49.9%, as of year-end.

RESULTS OF OPERATIONS

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856.2 906.4 (5.5) %

Gain on sale of trademarks (90.0) — —

Impairment of goodwill and intangible assets 428.7 — —

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

Gain on sale of businesses, trademarks and long-lived assets (90.4) (90.0) (0.4) %

Impairment of long-lived assets 185.3 428.7 (56.8) %

Environmental and other related costs (income), net of recoveries (10.4) 33.7 (130.9) %

Operating profit (loss) (68.2) (208.4) 67.3 %

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63.5 47.3 34.2 %

Debt extinguishment and other costs — 34.3 (100.0) %

Other expense (income), net 2.5 (2.8) 189.3 %

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Net earnings (loss) (39.2) (189.1) 79.3 %

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

net earnings (loss) attributable to noncontrolling interests 0.4 (0.8) 150.0 %

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

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Diluted earnings (loss) per share $ (0.51) $ (2.37) 78.5 %

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

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

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

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

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

Revenue was $2,242.9 million for 2023, representing a decline of 16.5% compared to the prior year's revenue of $2,684.8 million.

The change in revenue reflected a 8.3% decline from the Active Group, an 18.6% decline from the Work Group and a 38.3% decline from Other.

The Active Group's revenue decline was driven by a decrease of $88.4 million from Merrell ® , $25.3 million from Chaco ® , $9.6 million from Saucony ® and $7.8 million from Sweaty Betty ® .

The Work Group’s revenue decline was driven primarily by a decrease of $46.3 million from Wolverine ® , $40.2 million from Cat ® , $15.9 million from Harley-Davidson ® and $6.5 million from Bates ® .

The decline in Other revenue was primarily driven by a decrease of $87.0 million from Sperry ® , $84.7 million from Keds ® and $21.6 million from the performance leathers business.

International revenue represented 45.7%, and 41.8% of total reported revenues in 2023 and 2022, respectively.

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

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

Changes in foreign exchange rates increased revenue by $3.4 million during 2023.

Direct-to-consumer revenue decreased by $109.4 million, or 15.8% during 2023 compared to 2022.

For 2023, the Company’s gross margin was 38.9%, compared to 39.9% in 2022.

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

The gross margin decrease was primarily driven by unfavorable supply chain costs in the Company’s wholesale channel and unfavorable average selling price and product costs changes in the Company’s direct-to-consumer channel.

OPERATING EXPENSES

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

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

Operating expenses decreased $338.1 million in 2023, to $940.7 million.

The decrease was driven by lower impairment of long-lived assets ($243.4 million), the gain on the sale of businesses, trademarks, and long-lived assets ($90.4 million), lower advertising costs ($51.4 million), lower environmental and other related costs, net of recoveries ($44.1 million), lower incentive compensation costs ($22.1 million), lower selling costs ($9.6 million), lower product development costs ($4.8 million), lower distribution costs ($4.7 million), and lower Sweaty Betty ® integration costs ($2.0 million), partially offest by the prior year gain recorded on the sale of the Champion trademarks for footwear in the United States and Canada ($90.0 million), higher reorganization costs ($36.8 million), higher divestiture costs ($5.1 million), and higher general and administrative costs ($2.1 million).

Environmental and other related costs were $8.4 million and $56.3 million in 2023 and 2022, respectively.

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

See Note 17 to the Company's Consolidated Financial Statements for further discussion of environmental remediation costs.

INTEREST, OTHER AND TAXES

Net interest expense was $63.5 million in 2023 compared to $47.3 million in 2022.

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

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

Interest expense increased in the current year due to higher average principal balances of variable rate debt and higher average interest rates on the Company’s variable rate debt.

Other expense was $2.5 million in 2023 compared to other income of $2.8 million in 2022.

The effective tax rate in 2023 was 70.7%, compared to 25.2% in 2022.

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

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

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

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

In 2023 the Company recognized more tax benefits compared to 2022 primarily related to the generation and utilization of a capital loss.

The tax benefits increased the tax benefit recognized from the pretax loss, resulting in a higher effective tax rate in 2023.

REPORTABLE 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.

The Company’s portfolio of brands are organized into the following reportable segments.

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

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

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

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

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

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

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

The Other category consists of Sperry ® footwear, Keds ® footwear, Hush Puppies ® footwear and apparel, 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.

Prior to the fourth quarter of 2023, Sperry ® , Keds ® , and Hush Puppies ® financial results were reported in the Lifestyle Group.

The Lifestyle Group is no longer a reportable segment based upon how the Chief Operating Decision Maker, the Company's Chief Executive Officer, allocates resources to and assesses performance of the Company's operating segments.

The Corporate category consists of gains on the sale of businesses and trademarks, unallocated corporate expenses, such as corporate employee costs, corporate facility costs, reorganization activities, impairment of long-lived assets and environmental and other related costs.

The reportable segment results for years 2023 and 2022 are as follows:

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Work Group 480.6 590.5 (109.9) (18.6) %

Lifestyle Group 447.5 477.0 (29.5) (6.2) %

323.2 524.1 (200.9) (38.3) %

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Work Group 58.1 102.5 (44.4) (43.3) %

Lifestyle Group 48.1 67.5 (19.4) (28.7) %

32.8 59.9 (27.1) (45.2) %

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

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

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

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

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

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

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

The Active Group’s revenue decreased $131.1 million, or 8.3%, in 2023 compared to 2022.

The revenue decline was driven by a decrease of $88.4 million from Merrell ® , $25.3 million from Chaco ® , $9.6 million from Saucony ® and $7.8 million from Sweaty Betty ® .

The Merrell ® decrease was primarily due to softer consumer demand in wholesale and eCommerce channels.

The Chaco ® decrease was primarily the result of softer consumer demand and high inventory levels at retail customers.

The Saucony ® decrease was primarily due to high inventory levels at retail customers, which adversely impacted order patterns.

Sweaty Betty ® decrease was primarily due to softer consumer demand in direct-to-consumer sales channels across the U.K., Ireland, and U.S.

markets reflecting the challenging economic environment.

The Active Group’s operating profit decreased $58.1 million, or 29.3%, in 2023 compared to 2022.

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

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

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

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

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

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

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

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

The operating profit decrease was due to revenue decreases and a 200 basis point decrease in gross margin partially offset by a $26.9 million decrease in selling, general and administrative costs.

The decrease in gross margin in the current year period was primarily due to increased closeout sales and higher promotional activity in the Company’s wholesale and direct-to-consumer channels.

The decrease in selling, general and administrative expenses in 2023 is primarily due to lower advertising costs, selling expenses and employee costs.

The Work Group’s revenue decreased $109.9 million, or 18.6%, in 2023 compared to 2022.

The revenue decline was primarily driven by a decrease of $46.3 million from Wolverine ® , $40.2 million from Cat ® , $15.9 million from Harley-Davidson ® and $6.5 million from Bates ® .

The Wolverine ® decrease was primarily due to softer consumer demand in U.S.

wholesale and high inventory levels at retail customers resulting in a continually heightened promotional environment.

The Cat ® decrease was primarily due to softer consumer demand across all regions.

The Harley-Davidson ® decrease was primarily due to lower at-once shipments and declines in top dealer accounts.

The Bates ® decrease was primarily due to softer consumer demand in U.S.

wholesale and direct-to-consumer channels.

The Work Group’s operating profit decreased $44.4 million, or 43.3%, in 2023 compared to 2022.

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

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

Lifestyle Group

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

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

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

wholesale and direct-to-consumer sales channels.

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

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

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

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

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

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

The operating profit decrease was due to revenue decreases and a 180 basis point decrease in gross margin, partially offset by a $2.6 million decrease in selling, general and administrative costs.

The decrease in gross margin in the current year was due to increased closeout sales, product mix and unfavorable average selling price and higher promotional activity in the Company’s direct-to-consumer channel.

The decrease in selling, general and administrative expenses in 2023 was primarily due to lower advertising costs and selling expenses.

Other revenue decreased $200.9 million, or 38.3%, in 2023 compared to 2022.

The revenue decline was driven by a decrease of $87.0 million from Sperry ® , $84.7 million from Keds ® and $21.6 million from the performance leathers business.

The Sperry ® decrease was primarily driven by softer consumer demand in U.S.

wholesale and softer boot sales in the direct-to-consumer channels.

The Keds ® decrease is due to the divestiture of the business effective February 4, 2023.

The performance leathers business decrease is due to the divestiture of the U.S.

leathers business effective August 23, 2023.

Other operating profit decreased $27.1 million, or 45.2%, in 2023 compared to 2022.

The operating profit decrease was due to revenue decreases partially offset by a 30 basis point increase in gross margin and a $50.9 million decrease in selling, general and administrative costs.

The increase in gross margin in the current year period was primarily due to the divestiture of the lower margin Keds ® and performance leathers businesses.

The decrease in selling, general and administrative expenses in the current year period was primarily due to lower advertising costs, selling expenses and the divestiture of the Keds ® and performance leathers businesses.

Corporate expenses decreased $269.8 million in 2023 compared to 2022 primarily due to lower impairment of long-lived and intangible assets ($243.4 million), the gain on sale of businesses, trademarks, and long-lived assets ($90.4 million), lower environmental and other related costs ($44.1 million), lower incentive compensation costs ($14.5 million), and lower employee costs ($11.4 million), partially offset by the 2022 gain recorded on the sale of the Champion trademarks for footwear in the United States and Canada ($90.0 million), and higher reorganization activities ($36.8 million).

LIQUIDITY AND CAPITAL RESOURCES

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Available Revolving Facility (2)

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

(1) Cash and cash equivalents at the end of the year in the Consolidated Statements of Cash Flows includes $5.6 million and $4.0 million of cash and cash equivalents that are classified as held for sale as of December 30, 2023 and December 31, 2022, respectively, that are not included in cash and cash equivalents in the Consolidated Balance Sheets.

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

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

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

Cash and cash equivalents of $184.6 million as of December 30, 2023 were $49.1 million higher compared to December 31, 2022.

The increase is due primarily to proceeds from the sale of businesses, trademarks, long-lived assets and other assets of $188.9 million, cash provided by operating activities of $121.8 million and contributions from noncontrolling interests of $31.2 million, partially offset by net revolver payments of $120.0 million, long-term debt payments of $118.3 million, cash dividends paid of $32.6 million, additions to property, plant, and equipment of $14.6 million and shares acquired related to employee stock plans of $5.8 million.

The Company had $688.4 million of borrowing capacity available under the Revolving Facility as of December 30, 2023.

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

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

The common stock repurchase program does not obligate the Company to acquire any shares and may be suspended at any time.

The Company repurchased $81.3 million and $39.6 million of shares during 2022 and 2021, respectively.

The Company did not repurchase shares during 2023 and repurchased $81.3 million of shares in 2022.

The common stock repurchase program expired in September 2023.

A detailed discussion of environmental remediation costs is found in Note 17 to the Company's Consolidated Financial Statements.

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

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

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

As of December 30, 2023, the Company had recorded liabilities of $2.7 million for certain of these environmental litigation matters which are recorded as other accrued liabilities in the consolidated condensed balance sheets.

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

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

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

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

The Company had the following contractual obligations due by period at December 30, 2023:

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

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

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

During 2023 and 2022, the Company made payments of $6.4 million and $15.0 million towards the total cap, respectively.

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

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

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Financing Arrangements

On October 21, 2021, the Company entered into a 2021 Replacement Facility Amendment and Reaffirmation Agreement (the “Amendment”) to the Company's Credit Facility (as amended and restated, the "Credit Agreement").

The Amendment amended and restated the 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 decrease of 0.750%.

The maturity date of the loans under the Senior Credit Facilities was extended to October 21,

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 amended senior credit facility are met.

The Term Facility requires quarterly principal payments with a balloon payment due on October 21, 2026.

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 Company’s credit agreement provides for a term loan A facility (the “Term Facility”) and for a revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facilities”).

The maturity date of the loans under the Senior Credit Facilities is October 21, 2026.

The credit agreement 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 Revolving Facility allows the Company to borrow up to an aggregate amount of $1.0 billion.

The Company’s $550.0 million 4.0% senior notes issued on August 26, 2021 are due on August 15, 2029.

Related interest payments are due semi-annually.

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.

As of December 30, 2023, the Company was in compliance with all covenants and performance ratios under the Credit Agreement.

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

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

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

The Company’s debt at December 30, 2023 totaled $920.8 million, compared to $1,158.0 million at December 31, 2022.

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

The decreased debt position is due to lower borrowings under the Revolving Facility resulting from operating cash inflows and proceeds from divestitures.

The following table summarizes cash flow activities:

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(In millions) December 30,

2022 January 1,

2023 December 31,

Net cash provided by (used in) operating activities 121.8 (178.9)

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

Net cash provided by investing activities 171.6 54.6

Net cash provided by (used in) financing activities (246.3) 107.1

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The principal source of the Company’s operating cash flow is net earnings, including cash receipts from the sale of the Company’s products, net of costs of goods sold.

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

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

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

Cash from operations during 2023 was higher compared to 2022, due primarily to a decrease in net working capital representing a source of cash of $168.0 million.

Working capital balances were favorably impacted by a decrease in inventories of $286.5 million and a decrease in accounts receivable of $2.8 million, partially offset by an increase in other operating assets of $16.8 million, a decrease in accounts payable of $65.6 million and a decrease in other operating liabilities of $36.6 million.

Operating cash flows included non-cash add back for the impairment of long-lived assets of $185.3 million, depreciation and amortization expense adjustment of $35.1 million, stock-based compensation expense adjustment of $15.2 million, deferred income tax adjustment of $95.8 million, gain on sale of business, trademarks and long-lived assets of $90.4 million, environmental and other related costs, net of cash payments and recoveries received cash outflow of $55.1 million, and pension expense adjustment of $0.7 million.

Investing Activities

The Company made capital expenditures of $14.6 million and $36.5 million in years 2023 and 2022, respectively, for building improvements, eCommerce site enhancements, new retail stores, distribution operations improvements and information system enhancements.

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

The current year activity includes proceeds from the sale of businesses and trademarks of $188.9 million.

Financing Activities

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

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

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

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

The current year debt activity includes net payments under the Revolving Facility of $120.0 million and payments on long-term debt of $118.3 million.

The Company paid $5.8 million and $7.7 million in 2023 and 2022, respectively, in connection with shares or units withheld to pay employee taxes related to awards under stock incentive plans.

The Company received $31.2 million and $7.0 million from noncontrolling interests in 2023 and 2022, respectively.

The Company declared cash dividends of $0.40 per share in each of 2023 and 2022 .

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

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

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

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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.

Overall, these reserves reflect the Company’s best estimates of the amount of consideration to

which it is entitled based on the terms of the respective underlying contracts.

Revenue recognized during the year ended December 30, 2023 related to the Company’s contract liabilities was nominal.

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

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

consumer business and Sweaty Betty ® inventory.

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

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

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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" section below.

Refer to Note 19 “Business Acquisitions” for additional discussion.

Goodwill and Indefinite-Lived Intangibles

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

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

The Company did not recognize any impairment charges for goodwill during 2023 and 2021.

In the third quarter of 2023, after completion of impairment testing, the Company recorded a $38.3 million impairment charge for the Sperry ® trade name.

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

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

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

Refer to Note 4, “Goodwill and Other

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

Refer to Note 4, “Goodwill and Other Intangibles” for additional discussion of the Sweaty Betty ® goodwill impairment and the Sweaty Betty ® and Sperry ® trade name impairments.

Environmental

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

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

The calculated discount rate was 5.30% at December 30, 2023, compared to 5.56% at December 31, 2022.

Pension expense is also impacted by the expected long-term rate of return on plan assets, which the Company has determined to be 6.88% and 6.87% for fiscal 2023 and 2022, respectively.

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

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

The Company evaluates the probability a tax position will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on

factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis