WOLVERINE WORLD WIDE INC / DE / Management report and analysis of the financial situation and operating results (form 10-Q)

The following is a discussion of the Company's results of operations and
liquidity and capital resources. This section should be read in conjunction with
the Company's consolidated condensed financial statements and related notes
included elsewhere in this Quarterly Report.
BUSINESS OVERVIEW
The Company is a leading global designer, marketer and licensor of branded
footwear, apparel and accessories. The Company's vision statement is "to build a
family of the most admired performance and lifestyle brands on earth" and the
Company seeks to fulfill this vision by offering innovative products and
compelling brand propositions; complementing its footwear brands with strong
apparel and accessories offerings; expanding its global consumer-direct
footprint; and delivering supply chain excellence.
The Company's brands are marketed in approximately 170 countries and territories
at October 2, 2021, including through owned operations in the U.S., Canada, the
United Kingdom and certain countries in continental Europe and Asia Pacific. In
other regions (Latin America, portions of Europe and Asia Pacific, the Middle
East and Africa), the Company relies on a network of third-party distributors,
licensees and joint ventures. At October 2, 2021, the Company operated 144
retail stores in the U.S., U.K. and Canada and 65 consumer-direct eCommerce
sites.
On July 31, 2021, the Company entered into a definitive agreement to acquire
100% of the outstanding shares of Lady Leisure InvestCo Limited (the "Acquired
Company"). The acquisition was completed on August 2, 2021 for $417.8 million,
which is 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.
The acquisition was funded with cash on hand and borrowings under the Company's
revolving credit facility.
Known Trends Impacting Our Business
The global impact of the COVID-19 pandemic continues to impact the Company's
business. Most importantly, the Company remains focused on the health and safety
of our employees, customers and partners around the world. In accordance with
regulatory guidance and protocols promulgated by health authorities and
government officials, the Company continues to execute a number of enhanced
business practices including temporary office closures, travel restrictions,
enhanced cleaning procedures and social distancing designed to protect all
employees, customers and partners.
Following the onset of the pandemic, the Company further prioritized brand
investments in the Company's owned eCommerce sites. The Company's brands'
on-line growth accelerated due to the investments in this channel and consumer
preference changes in favor of digital purchases. The Company continues to
prioritize eCommerce investments including digital leadership, marketing
investments in digital platforms, developing richer content and storytelling,
and optimizing digital user experiences to increase conversion. The Company is
offering incremental exclusive products through owned eCommerce sites and the
Company has enhanced the customer shopping experience.
During the third quarter of 2021, a significant portion of the Company's
contract manufacturer's production capacity in Vietnam was subject to government
mandated shutdowns due to COVID-19. Contract manufacturers in certain other Asia
Pacific countries were also subject to closures, reduced capacity, and
production delays due to COVID-19. Factories reopened during October 2021,
although some did not reopen at full capacity. These production capacity
restraints significantly impacted, and are expected to continue to,
significantly impact the Company's previously planned inventory production and
in turn, deliveries to wholesale customers.
The COVID-19 pandemic has had a material adverse impact, and is expected to
continue to have an impact, on the Company's financial results. In addition to
certain contract manufacturer closures during the third quarter, disruption in
the global supply chain due to vessel shortages, containers damaged and lost in
transit, labor and container shortages, and U.S. port congestion resulted in
transportation delays that interrupted the flow of the Company's inventory and
caused delays of shipments to wholesale partners during the first three quarters
of 2021. The Company expects certain aspects of the disruption in the global
supply chain to continue, which may negatively impact results for the remaining
portion of fiscal 2021. Expenses related to the COVID-19 pandemic incurred in
the third quarter and first three quarters of 2021 included $7.0 million and
$22.0 million, respectively, of incremental air freight cost to expedite the
delivery of inventory resulting from production and shipping delays. Expenses in
the third quarter and first three quarters of 2020 related to the COVID-19
pandemic included $7.8 million and $26.5 million, respectively, of costs related
to severance expenses, credit loss expenses and other costs.
The Company continues to monitor the ongoing impacts of COVID-19, including
developments that are outside the Company's control, such as the planned pace of
re-opening and return to full production of factories in Vietnam and certain
other Asia Pacific countries and the planned shift of production capacity to
other countries following factory closures. These developments
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and other potential impacts of COVID-19, such as new or prolonged factory
closures and other adverse impacts on the global supply chain effecting the
planned delivery of inventory, could materially adversely impact revenue growth
as well as profitability in future periods.
2021 FINANCIAL OVERVIEW
•Revenue was $636.7 million for the third quarter of 2021, representing an
increase of 29.1% compared to the third quarter of 2020. The change in revenue
reflected a 13.1% increase from the Michigan Group and a 33.5% increase from the
Boston Group. Changes in foreign exchange rates increased revenue by $4.7
million during the third quarter of 2021. Owned eCommerce revenue increased
during the third quarter of 2021 by 44.7% compared to the third quarter of 2020,
including a 31.4% contribution from the Sweaty Betty® acquisition.
•Gross margin was 43.2% in the third quarter of 2021 compared to 41.0% in the
third quarter of 2020.
•The effective tax rates in the third quarters of 2021 and 2020 were (11.6)% and
28.5%, respectively.
•Diluted earnings per share for the third quarter of 2021 was $0.00 per share
compared to diluted loss per share of $0.27 per share for the third quarter of
2020.
•The Company declared cash dividends of $0.10 per share in both the third
quarters of 2021 and 2020.
•Cash flow provided by operating activities was $17.0 million and $135.5 million
for the first three quarters of 2021 and 2020, respectively, and cash flow used
by operating activities was $34.7 million for the third quarter of 2021 compared
to cash flow provided by operating activities of $96.5 million for the third
quarter of 2020.
•Compared to the third quarter of 2020, inventory increased $86.3 million, or
26.5%. Sweaty Betty contributed 16.1% to the increase versus the prior year.
RESULTS OF OPERATIONS
                                                              Quarter Ended                                                 Year-To-Date Ended
                                         October 2,           September 26,            Percent            October 2,           September 26,            Percent
(In millions, except per share data)        2021                  2020                  Change               2021                  2020                 Change
Revenue                                $     636.7          $        493.1                 29.1  %       $  1,779.3          $      1,281.5                38.8  %
Cost of goods sold                           361.9                   291.1                 24.3             1,011.8                   750.5                34.8

Gross profit                                 274.8                   202.0                 36.0               767.5                   531.0                44.5
Selling, general and administrative
expenses                                     215.0                   157.5                 36.5               591.2                   457.2             

29.3

Environmental and other related costs,
net of recoveries                             17.3                     1.9                810.5                11.9                     6.8                75.0
Operating profit                              42.5                    42.6                 (0.2)              164.4                    67.0               145.4
Interest expense, net                          9.6                    12.8                (25.0)               28.9                    31.1                (7.1)
Debt extinguishment and other costs           34.0                       -                    -                34.0                     0.2                *
Other expense (income), net                   (0.4)                   (0.6)                33.3                 2.5                    (2.9)              186.2
Earnings (loss) before income taxes           (0.7)                   30.4               (102.3)               99.0                    38.6               156.5
Income tax expense                             0.1                     8.7                (98.9)               17.0                     6.0               183.3
Net earnings (loss)                           (0.8)                   21.7               (103.7)               82.0                    32.6               151.5
Less: net loss attributable to
noncontrolling interests                      (0.8)                   (0.7)                   -                (1.2)                   (1.2)            

Net earnings attributable to Wolverine
World Wide, Inc.                       $         -          $         22.4               (100.0) %       $     83.2          $         33.8               146.2  %

Diluted earnings per share             $      0.00          $         0.27               (100.0) %       $     0.98          $         0.41               139.0  %


* Percentage change not meaningful
REVENUE
Revenue was $636.7 million for the third quarter of 2021, representing an
increase of 29.1% compared to the third quarter of 2020. The change in revenue
reflected a 13.1% increase from the Michigan Group and a 33.5% increase from the
Boston Group. The Michigan Group's revenue increase was driven by mid-single
digit increase from Merrell®, high-thirties increase from Cat®, mid-teens
increase from Wolverine®, and high-nineties increase from Hush Puppies®. The
Boston Group's revenue increase was driven by low-forties increase from
Saucony®, mid-forties increase from Sperry®, and low-twenties increase from
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Kids'. Changes in foreign exchange rates increased revenue by $4.7 million
during the third quarter of 2021. Owned eCommerce revenue increased during the
third quarter of 2021 by 44.7% compared to the third quarter of 2020, including
a 31.4% contribution from the Sweaty Betty® acquisition.
Revenue was $1,779.3 million for the first three quarters of 2021, representing
an increase of 38.8% compared to the first three quarters of 2020. The change in
revenue reflected a 29.8% increase from the Michigan Group and a 44.0% increase
from the Boston Group. The Michigan Group's revenue increase was driven by
low-thirties increase from Merrell®, low-forties increase from Cat®,
low-thirties increase from Wolverine®, low-thirties increase from Hush Puppies®,
low-twenties increase from Bates®, and low-twenties increase from
Harley-Davidson®. The Boston Group's revenue increase was driven by high-sixties
increase from Saucony®, high-thirties increase from Sperry®, and high-twenties
increase from Kids'. Changes in foreign exchange rates increased revenue by
$25.0 million during the first three quarters of 2021. Owned eCommerce revenue
increased during the first three quarters of 2021 by 31.3% compared to the first
three quarters of 2020, including a 10.4% contribution from the Sweaty Betty®
acquisition.
GROSS MARGIN
Gross margin was 43.2% in the third quarter of 2021 compared to 41.0% in the
third quarter of 2020. The gross margin increase in the third quarter was driven
by the contribution from the Sweaty Betty® acquisition (180 basis points),
reduced closeout sales (100 basis points), and favorable product mix and average
selling price through the Company's direct to consumer channel (50 basis
points), partially offset by incremental air freight costs resulting from
production and shipping delays caused by the COVID-19 pandemic (140 basis
points).
Gross margin was 43.1% in the first three quarters of 2021 compared to 41.4%
during the first three quarters of 2020. The gross margin increase in the first
three quarters was driven by favorable product mix and average selling price
across the Company's brands mainly attributable to Merrell®, Saucony®, and
Wolverine® (110 basis points), favorable product mix and average selling price
through the Company's direct to consumer channel (110 basis points), the
contribution from the Sweaty Betty® acquisition (70 basis points), and reduced
closeout sales (70 basis points), partially offset by incremental air freight
costs resulting from production and shipping delays caused by the COVID-19
pandemic (170 basis points).
OPERATING EXPENSES
Operating expenses increased $72.9 million, from $159.4 million in the third
quarter of 2020 to $232.3 million in the third quarter of 2021. The increase was
primarily driven by higher general and administrative costs ($22.9 million),
higher advertising costs ($15.7 million), higher environmental and other related
costs, net of insurance recoveries ($15.4 million), higher selling costs
($11.0 million), higher distribution costs ($7.3 million), acquisition costs
($6.9 million), and higher product development costs ($3.5 million), partially
offset by lower non-operating costs incurred due to the COVID-19 pandemic
($6.0 million) and lower incentive compensation costs ($3.9 million).
Environmental and other related costs were $17.8 million and $3.1 million in the
third quarter of 2021 and 2020, respectively.
Operating expenses increased $139.1 million, from $464.0 million in the first
three quarters of 2020 to $603.1 million in the first three quarters of 2021.
The increase was primarily driven by higher general and administrative costs
($46.0 million), higher advertising costs ($39.7 million), higher incentive
compensation costs ($25.9 million), higher selling costs ($24.0 million), higher
distribution costs ($11.6 million), acquisition costs ($6.9 million), higher
environmental and other related costs, net of insurance recoveries
($5.1 million), and higher product development costs ($4.4 million), partially
offset by lower non-operating costs incurred due to the COVID-19 pandemic
($24.6 million). Environmental and other related costs were $28.1 million and
$13.8 million in the first three quarters of 2021 and 2020, respectively.
INTEREST, OTHER AND INCOME TAXES
Net interest expense was $9.6 million in the third quarter of 2021 compared to
$12.8 million in the third quarter of 2020. Net interest expense was $28.9
million in the first three quarters of 2021 compared to $31.1 million in the
first three quarters of 2020. Reduction in interest expense is due to the
redemption and replacement of the 6.375% senior notes due in 2025 and 5.000%
senior notes due in 2026 with the 4.000% senior notes in August 2021.
The Company incurred $34.0 million of debt extinguishment and other costs in
connection with the extinguishment of the $250.0 million senior notes due on
September 1, 2026 and $300.0 million senior notes due on May 15, 2025.
Other income was $0.4 million in the third quarter of 2021, compared to $0.6
million in the third quarter of 2020. Other expense was $2.5 million in the
first three quarters of 2021, compared to other income of $2.9 million in the
first three quarters of 2020.
The effective tax rates in the third quarter of 2021 and 2020 were (11.6)% and
28.5%, respectively. The effective tax rates in the first three quarters of 2021
and 2020 were 17.1% and 15.5%, respectively. The lower quarter-to-date effective
tax rate is a
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reflection of lower pretax income in the quarter as well as discrete benefits
having a larger impact due to the lower pretax income. The higher year-to-date
effective tax rate is due to larger discrete benefits in the prior year in
addition to lower pretax income resulting in the discrete benefits having a
larger impact to the prior year tax rate.
REPORTABLE SEGMENTS
The Company's brands are organized into the following two operating segments,
which the Company has determined to be reportable segments.
•Wolverine Michigan Group, consisting of Merrell® footwear and apparel, Cat®
footwear, Wolverine® footwear and apparel, Chaco® footwear, Hush Puppies®
footwear and apparel, Bates® uniform footwear, Harley-Davidson® footwear and
Hytest® safety footwear; and
•Wolverine Boston Group, consisting of Sperry® footwear, Saucony® footwear and
apparel, Keds® footwear, and the Kids' footwear business, which includes the
Stride Rite® licensed business, as well as Kids' footwear offerings from
Saucony®, Sperry®, Keds®, Merrell®, Hush Puppies® and Cat®.
The Company also reports "Other" and "Corporate" categories. The Other category
consists of the Sweaty Betty® activewear business, the Company's leather
marketing operations, sourcing operations that include third-party commission
revenues and multi-branded consumer-direct retail stores. The Corporate category
consists of unallocated corporate expenses, such as corporate employee costs,
COVID-19 related costs and environmental and other related costs.
The reportable segment results are as follows:
                                                           Quarter Ended                                                                  Year-To-Date Ended
                              October 2,           September 26,                             Percent           October 2,           September 26,                             Percent
(In millions)                    2021                  2020                Change            Change               2021                  2020                Change            Change
REVENUE

Wolverine Michigan Group $ 324.8 $ 287.3 $ 37.5

                13.1  %       $    976.9          $        752.5          $ 224.4                29.8  %
Wolverine Boston Group            258.8                   193.8             65.0                33.5  %            717.7                   498.4            219.3                44.0  %
Other                              53.1                    12.0             41.1               342.5  %             84.7                    30.6             54.1               176.8  %
Total                       $     636.7          $        493.1          $ 143.6                29.1  %       $  1,779.3          $      1,281.5          $ 497.8                38.8  %
OPERATING PROFIT (LOSS)
Wolverine Michigan Group    $      61.3          $         52.3          $   9.0                17.2  %       $    196.0          $        133.8          $  62.2                46.5  %
Wolverine Boston Group             44.1                    33.0             11.1                33.6  %            125.2                    60.4             64.8               107.3  %
Other                               2.4                     0.7              1.7               242.9  %              3.9                     1.0              2.9               290.0  %
Corporate                         (65.3)                  (43.4)           (21.9)              (50.5) %           (160.7)                 (128.2)           (32.5)               25.4  %
Total                       $      42.5          $         42.6          $  (0.1)               (0.2) %       $    164.4          $         67.0          $  97.4               145.4  %


Further information regarding the reportable segments can be found in Note 16 to
the consolidated condensed financial statements.
Wolverine Michigan Group
The Michigan Group's revenue increased $37.5 million, or 13.1%, in the third
quarter of 2021 compared to the third quarter of 2020. The revenue increase was
driven by mid-single digit increase from Merrell®, high-thirties increase from
Cat®, mid-teens increase from Wolverine®, and high-nineties increase from Hush
Puppies®. The Michigan Group's revenue increased $224.4 million, or 29.8% in the
first three quarters of 2021 compared to the first three quarters of 2020. The
revenue increase was driven by low-thirties increase from Merrell®, low-forties
increase from Cat®, low-thirties increase from Wolverine®, low-thirties increase
from Hush Puppies®, low-twenties increase from Bates®, and low-twenties increase
from Harley-Davidson®. The increase across all brands in the third quarter and
the first three quarters is due to economic recovery from the effects of the
COVID-19 pandemic experienced in the prior period including as a result of the
closure of brick-and-mortar stores and due to accelerated growth from Merrell®,
Cat® and Wolverine® resulting from strength in the outdoor and work categories.
The Michigan Group's operating profit increased $9.0 million in the third
quarter of 2021 compared to the third quarter of 2020. The operating profit
increase was due to the revenue increases and a 210 basis point increase in
gross margin, partially offset by a $13.0 million increase in selling, general
and administrative costs. The increase in gross margin in the current year
period was due to improved product mix and average selling price, partially
offset by higher air freight costs resulting from production and shipping delays
caused by the COVID-19 pandemic. The increase in selling, general and
administrative expenses in the current year period was primarily due to higher
advertising costs and higher employee costs.
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The Michigan Group's operating profit increased $62.2 million in the first three
quarters of 2021 compared to the first three quarters of 2020. The operating
profit increase was due to the revenue increases and by a 70 basis point
increase in gross margin, partially offset by a $39.8 million increase in
selling, general and administrative costs. The increase in gross margin in the
current year period was due to improved product mix and average selling price
including higher margin eCommerce sales and lower closeout sales, partially
offset by higher air freight costs resulting from production and shipping delays
caused by the COVID-19 pandemic. The increase in selling, general and
administrative expenses in the current year period was primarily due to higher
advertising costs and higher employee costs.
Wolverine Boston Group
The Boston Group's revenue increased $65.0 million, or 33.5%, during the third
quarter of 2021 compared to the third quarter of 2020. The revenue increase was
driven by low-forties increase from Saucony®, mid-forties increase from Sperry®,
and low-twenties increase from Kids'. The Boston Group's revenue increased by
$219.3 million, or 44.0%, during the first three quarters of 2021 compared to
the first three quarters of 2020. The revenue increase included high-sixties
increase from Saucony®, high-thirties increase from Sperry®, and high-twenties
increase from Kids'. The increase across all brands in the third quarter and the
first three quarters is due to economic recovery from the effects of the
COVID-19 pandemic experienced in the prior period, including as a result of
closure of brick-and-mortar stores and due to accelerated growth from Saucony®
resulting from strength in the running category and innovative product launches.

The Boston Group's operating profit increased $11.1 million in the third quarter
of 2021 compared to the third quarter of 2020. The operating profit increase was
due to the revenue increases, partially offset by a 130 basis point decrease in
gross margin and by a $14.1 million increase in selling, general and
administrative costs. The decrease in gross margin in the current year period
was due to increased closeout sales and higher air freight costs resulting from
production and shipping delays caused by the COVID-19 pandemic, partially offset
by favorable product mix and average selling price including higher margin
eCommerce sales. The increase in selling, general and administrative expenses in
the current year period was primarily due to higher advertising costs and higher
employee costs.
The Boston Group's operating profit increased $64.8 million in the first three
quarters of 2021 compared to the first three quarters of 2020. The operating
profit increase was due to the revenue increases and a 120 basis point increase
in gross margin, partially offset by a $37.4 million increase in selling,
general and administrative costs. The increase in gross margin in the current
year period was due to improved product mix and average selling price including
higher margin eCommerce sales, partially offset by higher air freight costs
resulting from production and shipping delays caused by the COVID-19 pandemic.
The increase in selling, general and administrative expenses in the current year
period was primarily due to higher advertising costs and higher employee costs.
Other
The Other category's revenue increased $41.1 million, or 342.5%, in the third
quarter of 2021 compared to the third quarter of 2020. The revenue increase was
driven by low-twenties increase in the performance leathers business and $39.1
million contribution from the Sweaty Betty® acquisition. The Other category's
revenue increased $54.1 million, or 176.8%, during the first three quarters of
2021 compared to the first three quarters of 2020. The revenue increase was
driven by low-fifties increase in the performance leathers business and a $39.1
million contribution from the Sweaty Betty® acquisition.
Corporate
Corporate expenses increased $21.9 million in the third quarter of 2021 compared
to the third quarter of 2020 primarily due to higher environmental and other
related costs, net of insurance recoveries ($15.4 million), acquisition costs
($6.9 million), and higher employee costs ($3.9 million), partially offset by
lower non-operating costs incurred due to the COVID-19 pandemic ($6.0 million).
Corporate expenses increased $32.5 million in the first three quarters of 2021
compared to the first three quarters of 2020 primarily due to higher incentive
compensation costs ($29.6 million), higher employee costs ($21.0 million),
acquisition costs ($6.9 million), and higher environmental and other related
costs, net of insurance recoveries ($5.1 million), partially offset by lower
non-operating costs incurred due to the COVID-19 pandemic ($24.5 million) and
lower bad debt expense ($0.9 million).
LIQUIDITY AND CAPITAL RESOURCES
                                           October 2,       January 2,       September 26,
(In millions)                                 2021             2021               2020
Cash and cash equivalents                 $     183.6      $     347.4      $        342.0
Debt                                          1,024.4            722.5               876.6
Available revolving credit facility (1)         484.1            793.9      

794.0

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(1)Amounts are net of both borrowings, if any, and outstanding standby letters
of credit in accordance with the terms of the Revolving Credit Facility.
Liquidity
Cash and cash equivalents of $183.6 million as of October 2, 2021 were $158.4
million lower compared to September 26, 2020. The decrease is due primarily to
business acquisitions of $417.8 million, cash dividends paid of $33.4 million,
share repurchases of $26.9 million, and additions to property, plant and
equipment of $14.3 million, partially offset by cash provided by operating
activities during the previous four quarters of $190.6 million and net debt
borrowings of $147.5 million. The Company had $484.1 million of borrowing
capacity available under the Revolving Credit Facility as of October 2, 2021. On
October 21, 2021, the Company entered into a Replacement Amendment and
Reaffirmation to the Amended Senior Credit Facility, which, among other things,
increased the borrowing capacity under the Revolving Senior Credit Facility by
an additional $200.0 million, as discussed in Note 18. Cash and cash equivalents
located in foreign jurisdictions totaled $170.9 million as of October 2, 2021.
In connection with the Company's acquisition of the Sweaty Betty® brand, on
August 2, 2021, the Company funded the purchase price through a combination of
cash on hand and borrowings on the revolving credit facility.

Cash flow from operating activities is expected to be sufficient to meet the
Company's working capital needs for the foreseeable future. Any excess cash flow
from operating activities is expected to be used to fund organic growth
initiatives, reduce debt, pay dividends, pursue acquisitions and for general
corporate purposes.
The Company may purchase up to an additional $460.6 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 particular amount of
shares and may be suspended at any time. The Company repurchased $26.9 million
and $21.0 million of shares in the first three quarters of 2021 and 2020,
respectively.
A detailed discussion of environmental remediation costs is found in Note 15 to
the consolidated condensed financial statements. The Company has established a
reserve for estimated environmental remediation costs based upon an evaluation
of currently available facts with respect to each individual site. As of
October 2, 2021, the Company had a reserve of $80.7 million, of which $28.5
million is expected to be paid in the next 12 months and is recorded as a
current obligation in other accrued liabilities with the remaining $52.2 million
recorded in other liabilities expected to be paid over the course of up to 25
years. The Company's remediation activity at its former Tannery site and sites
where the Company disposed of Tannery byproducts is ongoing. It is difficult to
estimate the cost of environmental compliance and remediation given the
uncertainties regarding the interpretation and enforcement of applicable
environmental laws and regulations, the extent of environmental contamination
and the existence of alternative cleanup methods.
Note 15 to the consolidated condensed financial statements also includes a
detailed discussion of environmental litigation matters. The Company has
established a reserve of $10.6 million with respect to certain of these matters,
as discussed in Note 15.
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 future impact of the COVID-19 pandemic on the Company's statement of
operations and cash flows remains uncertain. The actions the Company has taken
and continues to take to improve the Company's liquidity are discussed above in
this Item 2 and below under "Financing Arrangements."
Financing Arrangements
On May 5, 2020, the Company entered into a Second Amendment (the "Amendment")
which amended its senior credit facility, which had previously been amended and
restated as of December 6, 2018 (as so amended by the Amendment, the "Amended
Senior Credit Facility"). In connection with the Amendment, the Company borrowed
$171.0 million in aggregate principal amount of an incremental term loan. The
incremental term loan was fully repaid by the end of 2020. On October 21, 2021,
the Company entered into a Replacement Amendment and Reaffirmation Agreement to
the Amended Senior Credit Facility, refer to Note 18 for additional information.
The Amended Senior Credit Facility also includes a $200.0 million term loan
facility and an $800.0 million Revolving Credit Facility, both with maturity
dates of December 6, 2023, that remained unchanged as a result of the Amendment.
The Amended Senior Credit Facility's debt capacity is limited to an aggregate
debt amount (including outstanding term loan principal and revolver commitment
amounts in addition to permitted incremental debt) not to exceed $1,750.0
million, unless certain
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specified conditions set forth in the Amended Senior Credit Facility are met.
Term Loan A requires quarterly principal payments with a balloon payment due on
December 6, 2023.
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.
As of October 2, 2021, the Company was in compliance with all covenants and
performance ratios under the Amended Senior Credit Facility.
The Company's debt at October 2, 2021 totaled $1,024.4 million compared to
$722.5 million at January 2, 2021. The Company expects to use the current
borrowings to fund organic growth initiatives, reduce debt, pay dividends,
pursue acquisitions and for general corporate purposes. The increased debt
position resulted from borrowings under the Revolving Credit Facility to fund
the Sweaty Betty® acquisition partially offset by the required payments on Term
Loan A made during the first three quarters of 2021 and increased unamortized
debt issuance costs.
Cash Flows
The following table summarizes cash flow activities:
                                                               Year-To-Date Ended
                                                         October 2,        September 26,
(In millions)                                               2021                2020
Net cash provided by operating activities             $    17.0           $ 

135.5

Net cash provided by (used in) investing activities      (429.7)            

9.6

Net cash provided by financing activities                 249.7             

15.4

Additions to property, plant and equipment                 10.0                      6.0
Depreciation and amortization                              23.1                     23.8


Operating Activities
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.
For the first three quarters of 2021, an increase in net working capital
represented a use of cash of $118.3 million. Working capital balances were
unfavorably impacted by an increase in inventories of $124.6 million and an
increase in accounts receivable of $90.3 million, partially offset by an
increase in accounts payable of $68.4 million, an increase in other operating
liabilities of $14.8 million, a decrease in other operating assets of $7.7
million, and an increase in income taxes payable of $5.7 million. Operating cash
flows were favorably impacted by stock-based compensation expense of $30.0
million, depreciation and amortization expense of $23.1 million and pension
expense of $10.5 million, partially offset by environmental and other related
costs of $8.5 million.
Investing Activities
The Company acquired the Sweaty Betty® brand and activewear business during Q3
2021, resulting in a net cash payment of $417.8 million. The Company also made
capital expenditures of $10.0 million and $6.0 million in the first three
quarters of 2021 and 2020, respectively, for building improvements, new retail
stores, distribution operations improvements and information system
enhancements. The Company also received $25.6 million of proceeds during the
second quarter of 2020 related to a company-owned life insurance policy. During
the first quarter of 2020, the Company made a contingent consideration payment
of $5.5 million related to the Saucony® Italy distributor acquisition.
Financing Activities
The current year debt activity includes net borrowings under the Revolving
Credit Facility of $310.0 million, partially offset by payments of debt issuance
costs of $7.4 million. The current year revolver borrowings were used to fund a
portion of the Sweaty Betty® brand acquisition. On August 26, 2021, the Company
issued $550.0 million aggregate principal amount of senior notes and the
proceeds from these senior notes were used to extinguish the Company's $250.0
million senior notes due on September 1, 2026 and $300.0 million senior notes
due on May 15, 2025. The prior year activity included long term debt borrowings
under the Amended Senior Credit Facility and issuance of senior notes of $471.0
million partially offset by net revolving credit payments of $360.0 million and
payments of debt issuance costs of $6.4 million. The Company paid $7.5 million
in principal payments associated with Term Loan A during each of the first three
quarters of 2021 and 2020,
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respectively. The Company also paid $13.7 million and $20.1 million in the first
three quarters of 2021 and 2020, respectively, in connection with shares or
units withheld to pay employee taxes related to awards under stock incentive
plans and received $15.6 million and $4.0 million in proceeds from the exercise
of stock options in the first three quarters of 2021 and 2020, respectively. The
Company also repurchased $26.9 million and $21.0 million of its common stock
during the first three quarters of 2021 and 2020, respectively. The Company
received $4.8 million and $1.8 million in the first three quarters of 2021 and
2020 from noncontrolling owners of the Company's China joint venture to support
the growth of the joint venture.
The Company declared cash dividends of $0.30 per share in the first three
quarters of 2021 and 2020. Dividends paid in the first three quarters totaled
$25.2 million and $25.4 million for 2021 and 2020, respectively. A quarterly
dividend of $0.10 per share was declared on November 3, 2021 to shareholders of
record on January 3, 2022.
CRITICAL ACCOUNTING POLICIES
The preparation of the Company's consolidated condensed financial statements,
which have been prepared in accordance with U.S. GAAP, requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. On an ongoing basis, management evaluates
these estimates. Estimates are based on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Historically, actual results have not been materially different from
the Company's estimates. However, actual results may differ materially from
these estimates under different assumptions or conditions.
The Company has identified the critical accounting policies used in determining
estimates and assumptions in the amounts reported and for information regarding
our critical accounting policies refer to Management Discussion and Analysis of
Financial Conditions and Results of Operations in the 2020 Form 10-K. Management
believes there have been no material changes in those critical accounting
policies.
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