Wolverine Form 10-Q - period ended March 24, 2001

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the first twelve week accounting period ended March 24, 2001

OR

[  ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to        

Commission File Number: 1-6024

WOLVERINE WORLD WIDE, INC.
(Exact Name of Registrant as Specified in its Charter)

 

Delaware


 

38-1185150


(State or Other Jurisdiction of Incorporation or Organization)

 

(IRS Employer Identification No.)

 

 

 

 

 

 

9341 Courtland Drive, Rockford, Michigan


 

49351


(Address of Principal Executive Offices)

 

(Zip Code)


 

(616) 866-5500


 

 

(Registrant's Telephone Number, including Area Code)

 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    X         No      

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

There were 45,131,765 shares of Common Stock, $1 par value, outstanding as of May 4, 2001, of which 3,694,356 shares are held as Treasury Stock.






FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the footwear business, worldwide economics and about the Company itself including, without limitation, statements in Item 2 regarding the sourcing realignment charge and the Company's financial condition, liquidity and capital resources and statements in Item 3 regarding market risk. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is likely," "plans," "predicts," "projects," "should," "will," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Risk Factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements.

Risk Factors include, but are not limited to, uncertainties relating to changes in demand for the Company's products; changes in consumer preferences or spending patterns; the cost and availability of inventories, services, labor and equipment furnished to the Company; the cost and availability of contract manufacturers; the impact of competition and pricing by the Company's competitors; changes in government and regulatory policies; changes in trading policies or import and export regulations; changes in interest rates, tax laws, duties or applicable assessments; technological developments; changes in local, domestic or international economic and market conditions; the size and growth of footwear markets; changes in the amount or severity of inclement weather; changes due to the growth of Internet commerce; popularity of particular designs and categories of footwear; the ability of the Company to manage and forecast its growth and inventories; the ability to secure and protect trademarks, patents and other intellectual property; changes in business strategy or development plans; and the ability to attract and retain qualified personnel. These matters are representative of the Risk Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement. Historical operating results are not necessarily indicative of the results that may be expected in the future. The Risk Factors included here are not exhaustive. Other Risk Factors exist, and new Risk Factors emerge from time-to-time, that may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Furthermore, the Company undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.





2


PART I. FINANCIAL INFORMATION

ITEM 1.      Financial Statements

WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Thousands of dollars)

 

March 24,
2001
(Unaudited)


 

December 30,
2000
(Audited)


 

March 25,
2000
(Unaudited)


ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

     Cash and cash equivalents

$

1,708

 

$

8,434

 

$

1,766

     Accounts receivable, less allowances

 

 

 

 

 

 

 

 

          March 24, 2001 - $6,592

 

 

 

 

 

 

 

 

          December 30, 2000 - $6,147

 

 

 

 

 

 

 

 

          March 25, 2000 - $6,800

 

168,016

 

 

161,957

 

 

169,725

     Inventories:

 

 

 

 

 

 

 

 

          Finished products

 

128,158

 

 

114,855

 

 

137,689

          Raw materials and work in process

 


25,100


 

 


29,337


 

 


38,768


 

 

153,258

 

 

144,192

 

 

176,457

 

 

 

 

 

 

 

 

 

     Other current assets

 


11,091


 

 


10,503


 

 


9,953


 

 

 

 

 

 

 

 

 

TOTAL CURRENT ASSETS

 

334,073

 

 

325,086

 

 

357,901

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT & EQUIPMENT

 

 

 

 

 

 

 

 

     Gross cost

 

218,751

 

 

216,743

 

 

214,066

     Less accumulated depreciation

 


116,968


 

 


114,078


 

 


100,366


 

 

101,783

 

 

102,665

 

 

113,700

 

 

 

 

 

 

 

 

 

OTHER ASSETS

 


67,652


 

 


66,817


 

 


68,653


 

 

 

 

 

 

 

 

 

TOTAL ASSETS

$


503,508


 

$


494,568


 

$


540,254









See notes to consolidated condensed financial statements



3


WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS - Continued

(Thousands of dollars)

 

March 24,
2001
(Unaudited)


 

December 30,
2000
(Audited)


 

March 25,
2000
(Unaudited)


 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

   Notes payable to banks

$

2,768

 

$

896

 

$

1,308

 

   Accounts payable and other accrued liabilities

 

46,466

 

 

48,792

 

 

36,069

 

   Current maturities of long-term debt

 


4,316


 

 


4,316


 

 


4,370


 

TOTAL CURRENT LIABILITIES

 

53,550

 

 

54,004

 

 

41,747

 

 

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT (less current maturities)

 

93,873

 

 

87,878

 

 

144,529

 

 

 

 

 

 

 

 

 

 

 

OTHER NONCURRENT LIABILITIES

 

15,707

 

 

15,448

 

 

18,349

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

   Common Stock - par value $1, authorized

 

 

 

 

 

 

 

 

 

      80,000,000 shares; shares issued

 

 

 

 

 

 

 

 

 

      (including shares in treasury):

 

 

 

 

 

 

 

 

 

         March 24, 2001 - 45,082,627 shares

 

 

 

 

 

 

 

 

 

         December 30, 2000 - 44,785,009 shares

 

 

 

 

 

 

 

 

 

         March 25, 2000 - 44,725,785 shares

 

45,083

 

 

44,785

 

 

44,726

 

   Additional paid-in capital

 

83,060

 

 

79,633

 

 

79,563

 

   Retained earnings

 

264,471

 

 

260,158

 

 

258,610

 

   Accumulated other comprehensive loss

 

(3,560

)

 

(2,532

)

 

(1,016

)

   Unearned compensation

 

(7,553

)

 

(5,921

)

 

(8,428

)

   Cost of shares in treasury:

 

 

 

 

 

 

 

 

 

      March 24, 2001 - 3,401,856 shares

 

 

 

 

 

 

 

 

 

      December 30, 2000 - 3,125,952 shares

 

 

 

 

 

 

 

 

 

      March 25, 2000 - 3,110,663 shares

 


(41,123


)

 


(38,885


)

 


(37,826


)

 

 

 

 

 

 

 

 

 

 

TOTAL STOCKHOLDERS' EQUITY

 


340,378


 

 


337,238


 

 


335,629


 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND

 

 

 

 

 

 

 

 

 

   STOCKHOLDERS' EQUITY

$


503,508


 

$


494,568


 

$


540,254


 






(  ) - Denotes deduction.
See notes to consolidated condensed financial statements




4


WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS

(Thousands of dollars, except shares and per share data)
(Unaudited)

 

 

12-Weeks Ended


 

 

 

March 24,
2001


 

March 25,
2000


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET SALES AND OTHER

 

 

 

 

 

 

 

    OPERATING INCOME

 

$

158,223

 

$

147,370

 

 

 

 

 

 

 

 

 

Cost of products sold

 

 


104,897


 

 


98,477


 

GROSS MARGIN

 

 

53,326

 

 

48,893

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

 


42,723


 

 


39,545


 

OPERATING INCOME

 

 

10,603

 

 

9,348

 

 

 

 

 

 

 

 

 

OTHER EXPENSES (INCOME):

 

 

 

 

 

 

 

    Interest expense

 

 

1,563

 

 

2,481

 

    Interest income

 

 

(118

)

 

(57

)

    Other - net

 

 


97


 

 


(128


)

 

 

 


1,542


 

 


2,296


 

 

 

 

 

 

 

 

 

EARNINGS BEFORE

 

 

 

 

 

 

 

    INCOME TAXES

 

 

9,061

 

 

7,052

 

 

 

 

 

 

 

 

 

Income taxes

 

 


3,081


 

 


2,257


 

 

 

 

 

 

 

 

 

NET EARNINGS

 

$


5,980


 

$


4,795


 

 

 

 

 

 

 

 

 

NET EARNINGS PER SHARE:

 

 

 

 

 

 

 

    Basic

 

$


.15


 

$


.12


 

    Diluted

 

$


.14


 

$


.12


 

 

 

 

 

 

 

 

 

CASH DIVIDENDS PER SHARE

 

$


.040


 

$


.035


 

 

 

 

 

 

 

 

 

SHARES USED FOR NET EARNINGS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        Basic

 

 

40,790,228

 

 

40,498,659

 

        Diluted

 

 

42,502,542

 

 

41,673,044

 




See notes to consolidated condensed financial statements.




5


WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Thousands of dollars)
(Unaudited)

 

12-Weeks Ended


 

 

March 24,
2001


 

March 25,
2000


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

 

 

   Net earnings

$

5,980

 

$

4,795

 

   Adjustments necessary to reconcile net earnings to net cash

 

 

 

 

 

 

      provided by (used in) operating activities:

 

 

 

 

 

 

         Depreciation

 

3,934

 

 

3,883

 

         Amortization

 

368

 

 

201

 

         Other

 

(1,289

)

 

(777

)

         Changes in operating assets and liabilities:

 

 

 

 

 

 

            Accounts receivable

 

(6,059

)

 

1,007

 

            Inventories

 

(9,066

)

 

(8,446

)

            Other current assets

 

(498

)

 

(841

)

            Accounts payable and other accrued liabilities

 


(2,326


)

 


(7,952


)

 

 

 

 

 

 

 

NET CASH USED IN OPERATING ACTIVITIES

 

(8,956

)

 

(8,130

)

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

   Additions to property, plant and equipment

 

(3,220

)

 

(1,300

)

   Other

 


168


 

 


339


 

 

 

 

 

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

 


(3,052


)

 


(961


)

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

   Proceeds from long-term debt

 

16,000

 

 

28,743

 

   Payments of long-term debt

 

(10,005

)

 

(19,045

)

   Net increase in short-term debt

 

1,872

 

 

1,160

 

   Cash dividends

 

(1,667

)

 

(1,450

)

   Purchase of common stock for treasury

 


(918


)

 


3


 

 

 

 

 

 

 

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

5,282

 

 

9,411

 

 

 

 

 

 

 

 

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

(6,726

)

 

320

 

Cash and cash equivalents at beginning of the year

 


8,434


 

 


1,446


 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

$


1,708


 

$


1,766


 


(  ) - Denotes reduction in cash and cash equivalents.
See notes to consolidated condensed financial statements.





6


WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 24, 2001 and March 25, 2000

1. Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring accruals) considered necessary for fair presentation have been included in the accompanying financial statements. For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2000. Certain amounts previously reported in 2000 have been reclassifed to conform with the presentation used in 2001.

2. Fluctuations

The Company's sales are seasonal. Seasonal sales patterns and the fact that the fourth quarter has sixteen or seventeen weeks as compared to twelve weeks in each of the first three quarters can cause significant differences in sales and earnings from quarter to quarter. These differences, however, have followed a consistent pattern each year.

3. Nonrecurring Charges

As discussed in the Annual Report on Form 10-K for the fiscal year ended December 30, 2000, the Company initiated a strategic realignment of its global sourcing and manufacturing operations on July 12, 2000. In connection with this realignment, the Company has already closed or is in the process of closing five of its manufacturing facilities in New York, Missouri, Canada, Puerto Rico and Costa Rica. The Company has also eliminated certain footwear product offerings and related raw material inventories, reduced administrative support services and incurred other nonrecurring expenses in connection with the strategic realignment. The realignment activities were primarily completed in the third and fourth quarters of 2000 with the balance to be completed by the end of the 2001 second quarter.

The following table summarizes the activity and remaining liabilities associated with the sourcing realignment activities at March 24, 2001 and the 12-week period then ended (thousands of dollars):

 

 

Severance
and Related
Costs




 




Inventories




 



Other Exit
Costs




 




Total


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts initially recognized as charges in the
   consolidated condensed statement
   of operations on July 12, 2000



$



11,754

 



$



10,938

 



$



3,259

 



$



25,951

 

 

Disposal of inventories

 

 

 

 

(52

)

 

 

 

 

(52

)

 

Payments and other adjustments

 


(1,669


)

 


 


 

 


 


 


(1,669


)

 

Balance at September 9, 2000

$

10,085

 

$

10,886

 

$

3,259

 

$

24,230

 


 

Additional realignment charges

 

(31

)

 

1,203

 

 

1,004

 

2,176

 

 

Disposal of inventories

 

 

 

 

(10,972

)

 

 

 

 

(10,972

)

 

Payments and other adjustments

 


(4,051


)

 


 


 

 


(1,871


)

 


(5,922


)

 

Balance at December 30, 2000

 

6,003

 

 

1,117

 

 

2,392

 

 

9,512

 


 

Additional realignment charges

 

 

 

 

468

 

 

 

 

468

 

 

Disposal of inventories

 

 

 

 

(1,585

)

 

 

 

 

(1,585

)

 

Payments and other adjustments

 


(2,155


)

 


 


 

 


(730


)

 


(2,885


)

 

Balance at March 24, 2001

$


3,848


 

$


 


 

$


1,662


 

$


5,510


 


As of March 24, 2001 workforce terminations totaling 1,347 employees have occurred in the areas of manufacturing (1,228), general management (28) and administrative support (91).



7


WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 24, 2001 and March 25, 2000

4. Net Earnings Per Share

The following table sets forth the reconciliation of weighted average shares used in the computation of basic and diluted earnings per share:

 

12-Weeks Ended


 

 

March 24,
2001


 

March 25,
2000


 

Weighted average shares outstanding

41,650,009

 

41,400,355

 

Adjustment for nonvested common stock

(859,781


)

(901,696


)

Denominator for basic earnings per share

40,790,228

 

40,498,659

 

Effect of dilutive stock options

852,533

 

272,689

 

Adjustment for nonvested common stock

859,781


 

901,696


 

Denominator for diluted earnings per share

42,502,542


 

41,673,044


 


5. Comprehensive Income

Total comprehensive income was $4,952,000 and $4,393,000 for the 12-weeks ended March 24, 2001 and March 25, 2000, respectively, and included foreign currency translation losses of $1,028,000 and $402,000 for the respective periods.


















8


WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 24, 2001 and March 25, 2000

6. Business Segments

The Company has one reportable segment that is engaged in the manufacture and marketing of branded footwear to the retail sector, including casual shoes, slippers, moccasins, dress shoes, boots, uniform shoes and work shoes. Revenues of this segment are derived from the sale of branded footwear products to external customers and the Company's retail division as well as royalty income from the licensing of the Company's trademarks and brand names to licensees. The business units comprising the branded footwear segment manufacture or source, market and distribute products in a similar manner. Branded footwear is distributed through wholesale channels and under licensing and distributor arrangements.

The other business units in the following table consist of the Company's retail, apparel and accessories, tannery and procurement operations. The Company operated 61 domestic retail stores at March 24, 2001 that sell Company-manufactured or sourced products and footwear manufactured by unaffiliated companies. The other business units distribute products through retail and wholesale channels.

There have been no changes in the way the Company measures segment profits or in its basis of determining business segments.

Business segment information is as follows (thousands of dollars):

 

Branded
Footwear


 

Other
Businesses


 


Corporate


 


Consolidated


 

12-Weeks ended March 24, 2001


Net sales and other operating income

 

 

 

 

 

 

 

     from external customers

$  142,133

 

$  16,090

 

 

 

$  158,223

Intersegment sales

4,388

 

1,649

 

 

 

6,037

Earnings (loss) before income taxes

11,034

 

676

 

$  (2,649)

 

9,061

 

 

 

 

 

 

 

 

 

12-Weeks ended March 25, 2000


Net sales and other operating income

 

 

 

 

 

 

 

     from external customers

$  132,941

 

$14,423

 

 

 

$  147,370

Intersegment sales

4,244

 

1,675

 

 

 

5,919

Earnings before income taxes

5,965

 

620

 

$      467

 

7,052



7. Financial Instruments and Risk Management

Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 138. The standard requires that all derivative instruments be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated with foreign currency purchases in the normal course of business. These contracts typically have maturities of less than one year and are not designated as accounting hedges. The cumulative effect of adopting SFAS No. 133 did not have a material effect on the Company's earnings or statement of financial position as of March 24, 2001.



9


ITEM 2.

Management's Discussion and Analysis of Financial Condition and
Results of Operations


Results of Operations - Comparisons of the 12-Weeks Ended March 24, 2001 (2001 first quarter) to the 12-Weeks Ended March 25, 2000 (2000 first quarter)

Net sales and other operating income of $158.2 million for the 2001 first quarter exceeded the 2000 first quarter level of $147.4 million by $10.8 million (7.4%). On a combined basis, net sales and other operating income for the Company's branded footwear businesses, consisting of the Casual Footwear Group (comprised of The Hush Puppies Company, the Children's Footwear Group and the Wolverine Slipper Group), the Wolverine Footwear Group (comprised of the Wolverine®, HYTEST®, Stanley®, Coleman®, Bates® and Harley-Davidson® brands), and the Performance Footwear Group (comprised of the Caterpillar® and Merrell® brands), increased $9.2 million (6.9%) for the 2001 first quarter compared to the respective period of 2000. The Company's other business units, consisting of Wolverine Retail, Apparel and Accessory Licensing, Wolverine Leathers and Wolverine Procurement, reported a net sales and other operating income increase of $1.6 million (11.5%) for the 2001 first quarter compared to the respective period of 2000.

The Casual Footwear Group reported a decrease in net sales and other operating income of $6.3 million (14.2%) in the 2001 first quarter when compared to the same period in 2000. The Hush Puppies Company's net sales and other operating income for the 2001 first quarter decreased from the 2000 first quarter level as Hush Puppies U.K. experienced soft sales as a result of the difficult U.K. retail environment. The Children's Footwear Group also experienced a decrease in net sales and other operating income as a result of losing one major customer and a number of customers that exited the childrens' footwear business. The Wolverine Slipper Group reported a slight decrease in net sales and other operating income during the 2001 first quarter as compared to the respective period of 2000. Partially offsetting the shortfall, Hush Puppies U.S.'s 2001 first quarter net sales and other operating income increased compared to the same period in 2000 due to expanded product offerings and an increase in consumer demand.

The Wolverine Footwear Group's net sales and other operating income increased $3.7 million (6.6%) for the 2001 first quarter compared to the 2000 first quarter. Harley-Davidson® and Stanley® footwear contributed the majority of this increase as the brands are becoming more widely distributed in the marketplace. This increase was partially offset by the HYTEST® work boot brand, which reported a decrease in 2001 first quarter net sales and other operating income compared to the 2000 first quarter level resulting in part from more diversified sales by the independent mobile shoe distributors. These distributors historically sold only HYTEST® brand product, but are now also selling Wolverine, CAT® and Stanley® brand work boots.

The Performance Footwear Group continued its strong growth, reporting an increase in net sales and other operating income of $11.8 million (37.4%) for the 2001 first quarter over the same period of 2000. The Merrell® outdoor footwear business accounted for the majority of the increase in net sales and other operating income as a result of increased consumer demand and expansion of its domestic and international distribution. Also contributing to the increase was CAT® footwear, which reported a 15.7% increase in net sales and other operating income for the 2001 first quarter due to timing of delivering the spring line of footwear at the end of 2001 first quarter.

Within the Company's other business units, Wolverine Retail's net sales and other operating income increased $0.6 million (7.8%) for the 2001 first quarter compared to the same period of 2000. The Wolverine Leathers division also recorded a $1.0 million increase in net sales and other operating income for the 2001 first quarter as compared to the same period of 2000 as a result of increased demand for Merrell® products utilizing Wolverine Performance Leathers.

Gross margin as a percentage of net sales and other operating income for the 2001 first quarter was 33.7%, compared to the prior year's first quarter level of 33.2%. Gross margin dollars increased $4.4 million or 9.1% for the 2001 first quarter compared to the same period of 2000. The gross margin percentages for the branded footwear businesses were 33.5% for the 2001 first quarter compared to 32.8% for the same period of 2000. The margin increase for the branded footwear business reflected increased sales of higher margin Merrell® and Harley-Davidson® product and manufacturing efficiencies as a result of the 2000 sourcing realignment. The gross margin percentage for the other business units decreased to 35.4% for the 2001 first quarter from 36.7% for the same period of 2000 due to an increase in raw material costs for the Wolverine Leathers division.

Selling and administrative expenses of $42.7 million for the 2001 first quarter increased $3.2 million from the 2000 first quarter level of $39.5 million and, as a percentage of net sales and other operating income, increased to 27.0% in first quarter 2001 compared to 26.8% in the same period of 2000. The change is a result of additional marketing and advertising expenses of $1.3 million and Merrell® selling and administrative expenses of $2.0 million.



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As discussed in Note 3 of the consolidated condensed financial statements, the Company initiated a strategic realignment of its global sourcing and manufacturing operations on July 12, 2000. In connection with this realignment, the Company has already closed its manufacturing facilities in New York, Missouri, Canada and Costa Rica and is in the process of closing its Puerto Rican facility. The remaining liabilities associated with the sourcing realignment include severance for those employees assisting in the closure of the Puerto Rican facility, pension benefits for all employees terminated in connection with the realignment and other exit costs for expected product returns, lease termination costs and expenses related to facilities held for sale. Inventory write-downs have been fully utilized. The balance of the realignment activities are expected to be completed by the end of the 2001 second quarter.

Interest expense for the 2001 first quarter was $1.6 million, compared to $2.5 million for the same period of 2000. The decrease in interest expense reflected lower average borrowings in first quarter 2001 compared to the same period of 2000.

The Company's 2001 first quarter effective income tax rate of 34.0% compared to 32.0% in the prior year. The increase reflected earnings from certain foreign subsidiaries, which are taxed at lower rates, being a lower percentage of total consolidated net earnings in 2001.

Net earnings of $6.0 million for the 2001 first quarter compared to net earnings of $4.8 million for the same period in 2000. Diluted earnings per share of $0.14 for the 2001 first quarter compared to $0.12 for the same period of 2000.

Financial Condition, Liquidity and Capital Resources

Net cash used in operating activities was $9.0 million for 2001 first quarter compared to $8.1 million for the same period of 2000. Cash of $18.1 million for 2001 first quarter and $16.2 million for 2000 first quarter was used to fund working capital requirements. Accounts receivable of $168.0 million at March 24, 2001 reflected a decrease of $1.7 million (1.0%) from the balance at March 25, 2000 and an increase of $6.1 million (3.7%) from the December 30, 2000 balance. Inventories of $153.3 million at March 24, 2001 reflected a decrease of $23.2 million (13.1%) compared to the balance at March 25, 2000 and an increase of $9.1 million (6.3%) over the balance at December 30, 2000. The decline in accounts receivable and inventories when compared to the 2000 first quarter, was the result of a focused asset reduction program despite the 7.4% increase in net sales and other operating income. Accounts payable and other accrued liabilities of $46.5 million at March 24, 2001 reflected a $10.4 million (28.8%) increase from the $36.1 million balance at March 25, 2000 and a $2.3 million (4.8%) decrease from the $48.8 million balance at December 30, 2000. The increase in accounts payable and other accrued liabilities when compared to the 2000 first quarter was primarily attributable to timing of payments and nonrecurring charges associated with the sourcing realignment.

Additions to property, plant and equipment of $3.2 million for the 2001 first quarter compared to $1.3 million reported during the respective period in 2000. The increase in additions is the result of timing of the Company's purchases. Depreciation expense remained flat at $3.9 million for the 2001 and 2000 first quarters.

The Company maintains short-term borrowing and commercial letter-of-credit facilities of $66.4 million, of which $28.0 million, $20.1 million and $27.0 million were outstanding at March 24, 2001, March 25, 2000 and December 30, 2000, respectively. Long-term debt, excluding current maturities, of $93.9 million at March 24, 2001 compared to $144.5 million and $87.8 million at March 25, 2000 and December 30, 2000, respectively. The decrease in debt at March 24, 2001 compared to March 25, 2000 was a result of improved operating cash flows that provided funds to pay down amounts borrowed under the revolving credit facility.

Effective October 3, 2000, the Company's Board of Directors approved a common stock repurchase program authorizing the repurchase of up to 2.0 million shares of common stock over 24 months. The primary purpose of this stock repurchase program is to increase stockholder value. There were 80,000 shares repurchased during the 2001 first quarter and 105,900 total cumulative common shares repurchased under the program through March 24, 2001. The Company intends to continue to repurchase shares of its common stock in open market transactions, from time to time, depending upon market conditions and other factors.

The Company has long-term revolving credit facilities of $175.5 million which expire in October 2001. The Company has secured commitments from its bank group to renew its revolving credit agreement for five years and expects to sign the final agreement before the end of the second quarter 2001. Accordingly the outstanding revolver balance as of March 24, 2001 has been classified as a long-term liability in the consolidated balance sheet. The revolving credit facilities are used to support working capital requirements. Proceeds from existing credit facilities and anticipated renewals together with cash flows from operations are expected to be sufficient to meet capital needs in the forseeable




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future. Any excess cash flows from operations are expected to be used to pay down existing debt, fund growth initiatives and repurchase the Company's common stock under the repurchase program.

The 2001 first quarter dividend declared of $.04 per share of common stock represents a 14.3% increase over the $.035 per share declared in the 2000 first quarter. The dividend is payable May 1, 2001 to stockholders of record on April 2, 2001.

The current ratio was 6.2 to 1.0 for the 2001 first quarter compared with 8.6 to 1.0 for the same period of 2000. The Company's total debt to total capital ratio decreased to .23 to 1.0 for the 2001 first quarter from .31 to 1.0 for the same period of 2000.

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk


The information concerning quantitative and qualitative disclosures about market risk contained in the Company's Form 10-K Annual Report for its fiscal year ended December 30, 2000, is incorporated herein by reference.

The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company's foreign assets, liabilities and inventory purchase commitments and to the extent that its long-term debt requirements are affected by changes in interest rates. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars and by maintaining a significant percentage of fixed-rate debt. The Company does not believe that there has been a material change in the nature of the Company's primary market risk exposures, including the categories of market risk to which the Company is exposed and the particular markets that present the primary risk of loss to the Company. As of the date of this Form 10-Q Quarterly Report, the Company does not know of or expect there to be any material change in the general nature of its primary market risk exposure in the near term.

The methods used by the Company to manage its primary market risk exposures, as described in the sections of its annual report incorporated herein by reference in response to this item, have not changed materially during the current year. As of the date of this Form 10-Q Quarterly Report, the Company does not expect to change its methods used to manage its market risk exposures in the near term. However, the Company may change those methods in the future to adapt to changes in circumstances or to implement new techniques.

The Company's market risk exposure is mainly comprised of its vulnerability to changes in foreign currency exchange rates and interest rates. Prevailing rates and rate relationships in the future will be primarily determined by market factors that are outside of the Company's control. All information provided in response to this item consists of forward-looking statements. Reference is made to the section captioned "Forward-Looking Statements" at the beginning of this document for a discussion of the limitations on the Company's responsibility for such statements.




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PART II. OTHER INFORMATION

ITEM 6.

Exhibits and Reports on Form 8-K


          (a)

Exhibits. The following documents are filed as exhibits to this report on Form 10-Q:


Exhibit
Number


Document

 

 

3.1

Certificate of Incorporation, as amended. Previously filed as Exhibit 3.1 to the Company's Quarterly Report of Form 10-Q for the period ended June 14, 1997. Here incorporated by reference.

 

 

3.2

Amended and Restated Bylaws. Previously filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1999. Here incorporated by reference.


          (b)

Reports on Form 8-K. The following reports on form 8-K were filed during the period covered by this report:


 

Date


 

Items Reported


 

Financial Statements


 
 

January 18, 2001

 

7, 9

 

None

 
 

January 30, 2001

 

7, 9

 

None

 
 

February 7, 2001

 

7, 9

 

None

 
 

March 19, 2001

 

9

 

None

 












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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

WOLVERINE WORLD WIDE, INC.
AND SUBSIDIARIES

 

 

 

 

 

 

May 8, 2001


 

/s/ Timothy J. O'Donovan


Date

 

Timothy J. O'Donovan
President and Chief Executive Officer
(Duly Authorized Signatory for Registrant)

 

 

 

 

 

 

 

 

 

May 8, 2001


 

/s/ Stephen L. Gulis, Jr.


Date

 

Stephen L. Gulis, Jr.
Executive Vice President, Chief Financial Officer and
     Treasurer
(Principal Financial Officer and Duly Authorized
     Signatory for Registrant)

 

 

 

 

 

 

 

 

 

May 8, 2001


 

/s/ Nicholas P. Ottenwess


Date

 

Nicholas P. Ottenwess
Corporate Controller
(Principal Accounting Officer and Duly Authorized
     Signatory for Registrant)










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EXHIBIT INDEX

Exhibit
Number


Document

 

 

3.1

Certificate of Incorporation, as amended. Previously filed as Exhibit 3.1 to the Company's Quarterly Report of Form 10-Q for the period ended June 14, 1997. Here incorporated by reference.

 

 

3.2

Amended and Restated Bylaws. Previously filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1999. Here incorporated by reference.















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