Wolverine World Wide Inc.

Company Overview

Business Model: Wolverine World Wide, Inc. is a leading global designer, marketer, and licensor of a diverse range of quality casual, performance outdoor, athletic, kids', industrial work, and uniform footwear and apparel. The Company's portfolio includes recognizable brand names such as Bates, Cat, Chaco, Harley-Davidson, Hush Puppies, HYTEST, Merrell, Saucony, Sweaty Betty, and Wolverine. The Company generates revenue through owned operations in the United States, Canada, the United Kingdom, and certain countries in continental Europe and Asia Pacific, as well as through a network of third-party distributors, licensees, and joint ventures in other regions. Revenue is also generated from direct-to-consumer channels, including eCommerce sites and retail stores.

Market Position: The Company's primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings, comfort technologies, wide range of distribution channels, and diversified manufacturing and sourcing base. Merrell is positioned as a global leader in hiking footwear, with a growing presence in trail running and lifestyle. Saucony is a leading purpose-driven performance running lifestyle brand, recognized for award-winning design, innovation, and performance technology. Sweaty Betty is a global women’s activewear and lifestyle brand. The Company operates in a highly competitive and fragmented environment, particularly within the non-athletic footwear and apparel markets where no single company holds a dominant market position.

Recent Strategic Developments:

• 2024:
  • Entered global multi-year licensing agreements for Merrell and Saucony kids footwear and Merrell apparel and accessories (May 4, 2024).
  • Completed the sale of the global Sperry business to ABG Intermediate Holdings 2 LLC and Aldo U.S. Inc. for $97.4 million in cash (January 10, 2024).
  • Completed the sale of the Company’s equity interests in the Merrell and Saucony China joint venture entities to Xtep for $22.0 million in cash (January 1, 2024).
  • Completed a sale-leaseback transaction for the Courtland Drive facility in Rockford, Michigan, for $10.5 million, recognizing an $8.5 million gain (September 17, 2024).
• 2023:
  • Completed the sale of the U.S. Wolverine Leathers business to New Balance for $4.0 million, recognizing a $1.9 million gain (August 23, 2023).
  • Completed the sale of the Asia-based Leathers business to Interhides Public Company Limited for $8.2 million (December 28, 2023).
  • Entered a multi-year licensing agreement for the Hush Puppies brand in the United States and Canada (Q3 2023).
  • Completed the sale of the Hush Puppies trademarks, patents, copyrights, and domains in China, Hong Kong, and Macau to Beijing Jiaman Dress Co., Ltd. for $58.8 million, recognizing a $55.8 million gain (September 14, 2023).
  • Completed a sale-leaseback transaction for the Louisville Distribution Facility for $23.5 million, recognizing a $12.6 million gain (December 28, 2023).
  • Completed the sale of the global Keds business to Designer Brands, Inc. for $83.4 million, recognizing a $20.1 million gain (February 4, 2023).

Geographic Footprint: The Company markets its products in approximately 170 countries and territories. Owned operations are maintained in the United States, Canada, the United Kingdom, and certain countries in continental Europe and Asia Pacific. Third-party distributors, licensees, and joint ventures facilitate market access in Latin America, other parts of Europe and Asia Pacific, the Middle East, and Africa. In 2024, the United States accounted for 50.9% of total revenue, with foreign territories contributing 49.1%. Key foreign revenue regions included Europe, Middle East and Africa (30.2%), Asia Pacific (8.6%), Canada (4.7%), and Latin America (5.6%). Tangible long-lived assets are primarily located in the United States ($117.6 million) and foreign countries ($74.2 million).

Financial Performance

Revenue Analysis

Profitability Metrics (2024):

• Gross Margin: 44.5%
• Operating Margin: 5.8%
• Net Margin: 2.9%

Investment in Growth:

• R&D Expenditure: Product development costs decreased by $7.8 million in 2024. Advertising expenses were $140.3 million in 2024.
• Capital Expenditures: $20.2 million in 2024.
• Strategic Investments: Proceeds from divestitures (Sperry, China joint ventures, Leathers businesses, Hush Puppies China intellectual property, and Keds) were utilized to reduce debt and fund organic growth initiatives.

Business Segment Analysis

Active Group

Financial Performance:

• Revenue: $1,246.1 million (-13.4% YoY)
• Operating Margin: 14.8%
• Key Growth Drivers: The revenue decrease was primarily driven by declines in Saucony (-$89.3 million), Merrell (-$77.4 million), Chaco (-$21.4 million), and Sweaty Betty (-$4.9 million). Saucony's decline was attributed to lower end-of-life inventory sales, the divestiture of the China joint venture entity, and the licensing of its kids' footwear. Merrell's decrease was due to lower end-of-life inventory sales, softer consumer demand in U.S. wholesale and international channels, and kids' footwear licensing, partially offset by growth from new products (Moab Speed, Speed Strike) and core franchises (Moab 3, Jungle Moc). Operating profit increased due to a 520 basis point improvement in gross margin (driven by decreased closeout sales, lower product costs, and lower supply chain costs) and a $58.9 million reduction in selling, general, and administrative costs.

Product Portfolio: Merrell footwear and apparel, Saucony footwear and apparel, Sweaty Betty activewear, and Chaco footwear. Kids' footwear offerings from Saucony and Merrell are included within the segment.

Market Dynamics: Merrell is a global leader in hiking footwear with a growing presence in trail running and lifestyle. Saucony is a leading performance running lifestyle brand known for award-winning design and innovation. Sweaty Betty is a global women’s activewear and lifestyle brand.

Sub-segment Breakdown (2024 Revenue Impact):

• Saucony: Revenue decreased by $89.3 million.
• Merrell: Revenue decreased by $77.4 million.
• Chaco: Revenue decreased by $21.4 million.
• Sweaty Betty: Revenue decreased by $4.9 million.

Work Group

Financial Performance:

• Revenue: $455.3 million (-5.3% YoY)
• Operating Margin: 15.2%
• Key Growth Drivers: The revenue decrease was primarily driven by declines in Cat (-$9.0 million), Wolverine (-$8.1 million), Bates (-$3.3 million), Harley-Davidson (-$2.6 million), and HYTEST (-$2.3 million). Cat's decrease was due to shipment timing, lower closeout sales, and softer direct-to-consumer demand, partially offset by U.S. wholesale growth. Wolverine's decline was mainly due to lower closeout sales. Operating profit increased due to a 180 basis point improvement in gross margin (from decreased closeout sales, lower product cost, and favorable average selling price) and an $11.1 million reduction in selling, general, and administrative costs.

Product Portfolio: Wolverine footwear and apparel, Cat footwear, Bates uniform footwear, Harley-Davidson footwear, and HYTEST safety footwear. Kids' footwear offerings from Cat are included within the segment.

Market Dynamics: Wolverine designs durable footwear, apparel, and accessories for core trades. Cat Footwear is the exclusive global footwear licensee of Caterpillar Inc. Bates is a leading supplier of tactical and uniform footwear for first responders. HYTEST specializes in high-quality work boots and shoes with safety features.

Sub-segment Breakdown (2024 Revenue Impact):

• Cat: Revenue decreased by $9.0 million.
• Wolverine: Revenue decreased by $8.1 million.
• Bates: Revenue decreased by $3.3 million.
• Harley-Davidson: Revenue decreased by $2.6 million.
• HYTEST: Revenue decreased by $2.3 million.

Other

Financial Performance:

• Revenue: $53.6 million (-83.4% YoY)
• Operating Margin: 58.4%
• Key Growth Drivers: The significant revenue decline was primarily driven by divestitures and licensing activities, including Sperry (-$191.9 million), the performance leathers business (-$37.0 million), Hush Puppies (-$25.7 million), and Keds (-$6.5 million). The operating profit decrease was partially offset by a $90.0 million reduction in selling, general, and administrative costs resulting from these strategic actions.

Product Portfolio: Hush Puppies footwear and apparel, sourcing operations, multi-branded direct-to-consumer retail stores, and the Stride Rite licensed business. (Sperry, Keds, and the Company’s leather marketing operations were divested in 2023 and 2024).

Market Dynamics: Hush Puppies is a globally licensed brand. Stride Rite is an industry leader in kids' footwear, operating under a global license arrangement.

Sub-segment Breakdown (2024 Revenue Impact):

• Sperry: Revenue decreased by $191.9 million (divested January 2024).
• Performance Leathers Business: Revenue decreased by $37.0 million (U.S. business divested August 2023, Asia-based business divested December 2023).
• Hush Puppies: Revenue decreased by $25.7 million (U.S. and Canada licensing agreement in Q3 2023, China IP sold September 2023).
• Keds: Revenue decreased by $6.5 million (divested February 2023).

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: The Company did not repurchase any shares of its common stock in 2024 or 2023. On March 7, 2024, the Board of Directors authorized a $150.0 million common stock repurchase program over a three-year period, but no repurchases have been made under this program to date.
• Dividend Payments: The Company paid $32.5 million in dividends in 2024 and $32.6 million in 2023. A quarterly dividend of $0.10 per share was declared in 2024 and 2023.
• Future Capital Return Commitments: A $150.0 million common stock repurchase program was authorized on March 7, 2024.

Balance Sheet Position (as of December 28, 2024):

• Cash and Equivalents: $152.1 million
• Total Debt: $648.0 million (decreased from $920.8 million at December 30, 2023)
• Net Cash Position: -$495.9 million (Net Debt: $495.9 million)
• Debt Maturity Profile: The Company's debt maturities include $80.0 million in 2025, $22.5 million in 2026, and $550.0 million in 2029 (related to 4.000% senior notes). The Senior Credit Facilities mature on October 21, 2026.

Cash Flow Generation:

• Operating Cash Flow: $180.1 million in 2024 (compared to $121.8 million in 2023).
• Free Cash Flow: $159.9 million in 2024 (Operating Cash Flow of $180.1 million minus Capital Expenditures of $20.2 million).
• Cash Conversion Metrics: Cash flow from operating activities in 2024 was favorably impacted by a decrease in net working capital, including a $127.1 million decrease in inventories and a $16.7 million decrease in accounts receivable. Inventory decreased by $133.0 million, or 35.6%, as of year-end 2024 compared to the prior year.

Operational Excellence

Production & Service Model: The Company designs and creates footwear, apparel, and accessories, emphasizing contemporary styling with proprietary technologies for comfort and performance. Manufacturing is primarily conducted by numerous third-party facilities in the Asia Pacific region, allowing the Company to benefit from lower manufacturing costs, state-of-the-art facilities, and global raw material sourcing, while avoiding capital expenditures for owned factories. This strategy aims to balance timely shipments, high-quality products, and competitive pricing.

Supply Chain Architecture: Key Suppliers & Partners:

• Third-Party Manufacturers: Numerous third-party manufacturers, predominantly located in the Asia Pacific region, are responsible for producing substantially all of the Company's footwear and apparel units. The Company maintains offices in the Asia Pacific region to manage sourcing strategies and monitors manufacturers for product quality, labor practices, and financial viability.
• Distribution & Licensing Partners: A network of third-party distributors, licensees, and joint ventures supports international operations and market access in various regions.

Facility Network:

• Manufacturing: Primarily relies on third-party manufacturers in the Asia Pacific region.
• Research & Development: Not explicitly detailed as separate facilities, but product development is a key function.
• Distribution: Operates through leased distribution facilities, including a 720,000 square foot facility in Beaumont, California; a 468,000 square foot facility in Howard City, Michigan; a 215,000 square foot facility in Ontario, Canada; and a 125,000 square foot facility in Heerhugowaard, Netherlands.
• Corporate & Sales: Maintains an owned administration, sales, and marketing facility of approximately 307,000 square feet in Rockford, Michigan, along with leased facilities in Rockford, Michigan (117,000 sq ft), Boston, Massachusetts (11,000 sq ft), and the United Kingdom (32,000 sq ft). The Company also leases offices, showrooms, and other facilities across the U.S., Canada, the U.K., continental Europe, Hong Kong, and China.
• Retail: Operates 119 retail stores, primarily through leases, in the U.S., United Kingdom, and Italy, collectively occupying approximately 260,000 square feet.

Operational Metrics: Inventory decreased by $133.0 million, or 35.6%, as of year-end 2024 compared to the prior year, reflecting improved inventory management.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Utilizes a dedicated sales force, customer service team, brick and mortar retail stores, and branded eCommerce sites.
• Channel Partners: Engages third-party sales representatives and maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, and uniform outlets. Volume direct programs are used for major retail, catalog, mass merchant, and government customers.
• International Channels: Leverages third-party distributors, licensees, and joint ventures for market penetration in regions outside of its owned operations.
• Digital Platforms: Employs an omni-channel, always-on approach with an active presence on global social media platforms and digital marketing initiatives to drive demand and connect consumers with brand content and products.

Customer Portfolio:

• Customer Concentration: No single customer accounts for more than 10% of the Company's consolidated revenue, indicating a diversified customer base.

Geographic Revenue Distribution (2024):

• United States: 50.9% of total revenue
• Foreign: 49.1% of total revenue
  • Europe, Middle East and Africa: 30.2% of total revenue
  • Asia Pacific: 8.6% of total revenue
  • Canada: 4.7% of total revenue
  • Latin America: 5.6% of total revenue

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The Company operates in a highly competitive and fragmented footwear and apparel industry. It competes with numerous domestic and international designers and marketers, some of whom possess larger customer bases and greater financial, technical, or marketing resources. The non-athletic footwear and apparel markets are particularly fragmented, with no single company holding a dominant market position. The industry is subject to rapid changes in consumer preferences and style trends.

Competitive Positioning Matrix:

Competitive Response Strategy: The Company strives to maintain its competitive position through strategic promotions designed to increase brand awareness, continuous improvements in manufacturing and sourcing efficiencies, and a focus on the style, comfort, and value of its products to meet evolving consumer preferences.

Risk Assessment Framework

Strategic & Market Risks

• Market Dynamics: The Company's operating results are vulnerable to its ability to maintain positive brand images and to anticipate, understand, and respond to changing footwear and apparel trends and consumer preferences. Failure to do so could lead to loss of market share, reduced sales, excess inventory, and lower gross margins.
• Technology Disruption: While not explicitly stated as a risk of obsolescence, the need to respond to changing trends implies a risk of technological disruption if the Company fails to innovate.
• Customer Concentration: A significant reduction in purchases by wholesale customers, demands for more favorable terms, or delayed payments could adversely affect the Company. However, no single customer accounts for more than 10% of consolidated revenue.
• Economic Sensitivity: Sales, costs, and operating results are sensitive to general economic conditions, inflation, employment rates, credit availability, interest rates, consumer confidence, and tax policies, which affect consumer disposable income and spending patterns.
• Competitive Environment: Operates in highly competitive industries with numerous players, some with greater resources, posing risks to market share and profitability if the Company cannot effectively respond to competitive pressures.

Operational & Execution Risks

• Supply Chain Vulnerabilities: A substantial majority of products are sourced from third-party manufacturers in the Asia Pacific region, exposing the Company to risks such as capacity constraints, production/distribution disruptions, quality issues, price increases, work stoppages, transportation delays, political instability, and changes in trade relations or governmental policies.
• Pandemics: Infectious disease outbreaks could adversely affect the workforce, disrupt consumer spending and global supply chains, and increase financial market volatility.
• Labor Disruptions: Labor disputes affecting manufacturing, shipping, or distribution could lead to inventory shortages, delayed orders, or unanticipated inventory accumulation.
• Talent Retention: The Company's success depends on its ability to attract, retain, and develop qualified personnel, particularly in product, eCommerce, and leadership roles, in an intense competitive environment.
• Wholesale Customer Reliance: Dependence on wholesale customers, whose purchases are often order-to-order and subject to cancellation, poses a risk if major customers experience downturns or reduce purchases.
• Direct-to-Consumer Operations: Requires substantial fixed investment and resources, with risks including significant lease termination costs, write-offs from poor store performance, and the need to adapt to evolving consumer shopping preferences and omni-channel retailing.
• IT Systems Disruption: The Company's eCommerce platform and other IT systems are critical, and any material interruption, unauthorized access, or malfunction could severely impact business operations, sales, and financial reporting.
• Logistics and Distribution: Relies on owned and independently operated distribution facilities, which are subject to risks from system failures, natural disasters, or third-party service disruptions, potentially affecting product delivery and costs.
• Acquisitions & Divestitures: Growth strategies involving acquisitions carry risks of integration challenges, loss of key personnel, diversion of management attention, and potential debt or dilution. Divestitures also involve challenges, costs, and potential negative impacts on employee morale.
• International Operations: Subject to legal, regulatory, political, and economic risks, including compliance with foreign laws (e.g., FCPA), new tariffs, social/political instability, and restrictions on repatriating foreign currency.

Financial & Regulatory Risks

• Inventory Management: Inability to effectively manage inventory levels and accurately forecast demand can lead to shortages (lost sales, diminished brand loyalty) or excess inventory (lower gross margins due to discounting).
• Duties, Tariffs, and Trade Restrictions: Products imported are subject to customs duties, and future increases or new restrictions could raise costs and adversely affect sales and profitability.
• Raw Material Costs: Increases in the cost of commodities (cotton, leather, rubber, petroleum) and other raw materials, labor, and services can negatively impact results if not offset by cost savings or price increases.
• Tax Rate Changes: Changes in tax rates in jurisdictions where the Company generates income, or in tax rules/regulations, could unfavorably affect the effective tax rate. Tax examinations by authorities could also result in adjustments.
• Goodwill and Intangibles Impairment: Goodwill and indefinite-lived intangible assets (e.g., trade names) are subject to annual impairment tests. Significant estimation uncertainty in fair value determinations, particularly for the Sweaty Betty reporting unit and trade name, poses a risk of future impairment charges.
• Indebtedness: The Company's debt under its Senior Credit Facilities and senior notes imposes restrictive covenants that may limit business flexibility, financing options, and certain corporate actions. Failure to comply with financial covenants could lead to adverse consequences.
• Intellectual Property: Inability to secure and protect trademarks, patents, and other IP rights, or being found to infringe on others' IP, could harm brand value and profitability. Expiration or termination of key license agreements (e.g., Cat, Harley-Davidson) also poses a risk.
• Employment Laws and Pension Costs: Changes in employment laws, health care costs, and actuarial assumptions for defined benefit pension plans can increase employment and pension expenses.
• ESG Scrutiny: Increasing scrutiny and evolving expectations from stakeholders regarding ESG practices may impose additional costs, expose the Company to new risks, and negatively impact reputation or stock price if not adequately addressed.
• Data Privacy and Cybersecurity: Risks of breaches to databases containing personal information and payment card data, leading to adverse publicity, litigation, fines, and competitive disadvantage. Non-compliance with evolving privacy laws (GDPR, CCPA) and industry standards (PCI DSS) could negatively impact business.
• Environmental and Workplace Safety Laws: Operations are subject to various environmental and safety regulations, with risks of non-compliance, enforcement actions, fines, and remediation costs (e.g., ongoing PFAS litigation and remediation at former Tannery sites).

Geopolitical & External Risks

• Geopolitical Exposure: Global political and economic uncertainties, including acts of terrorism, regional/international conflicts, and public health threats, can adversely affect consumer demand, foreign sourcing, shipping, and sales in foreign markets.
• Trade Relations: Changes in diplomatic and trade relationships, particularly with key trading partners like China, Canada, and Mexico, can lead to new tariffs or trade barriers impacting the Company's business.

Innovation & Technology Leadership

Research & Development Focus: Core Technology Areas: The Company's products generally feature proprietary technologies designed to provide maximum comfort and performance. Specific innovations highlighted include Saucony's INCREDIRun foam, PWRRUN™ PB, PWRRUN+™ cushioning foam, and SPEEDROLL™ Technology, which are engineered for exceptional efficiency, energy return, and faster transitions in performance footwear. Innovation Pipeline: Merrell maintains a persistent focus on innovation, design, and testing to remain a global leader in hiking footwear. Saucony targets elite and casual runners through award-winning design, innovation, and performance technology.

Intellectual Property Portfolio:

• Patent Strategy: The Company holds a significant portfolio of registered and common law trademarks, design and utility patents, copyrights, and various other proprietary rights. It has a policy of registering and vigorously defending its primary trademarks against infringement.
• Licensing Programs: The Company has footwear marketing and distribution rights under the Cat and Harley-Davidson trademarks through license arrangements. It also licenses its Stride Rite brand globally and licenses some of its owned brands for use on non-footwear products (e.g., Hush Puppies apparel, Wolverine eyewear).
• IP Litigation: The Company faces risks of intellectual property lawsuits, which could be costly and distract management.

Leadership & Governance

Executive Leadership Team (as of January 31, 2025)

Leadership Continuity: The Company's annual talent planning process is designed to identify and mitigate succession gaps through hiring and development, contributing to leadership continuity.

Board Composition: The Company's Board of Directors, in coordination with the Audit Committee, oversees the enterprise risk management process, including cybersecurity risks. The Board has a classified structure, with one-third of directors standing for election each year.

Human Capital Strategy

Workforce Composition: As of December 28, 2024, Wolverine World Wide, Inc. had approximately 3,100 domestic and foreign employees across retail, distribution, office, and sales functions.

Talent Management: Acquisition & Retention: The Company's talent strategy focuses on attracting, developing, engaging, investing in, and retaining top employees. This includes using modern recruitment systems, providing a seamless onboarding experience, and offering a comprehensive and competitive compensation and benefits package tailored to geographic regions. Benefits include annual and long-term incentive programs, health and wellness benefits, and on-site amenities at corporate headquarters such as a fitness center, child care, and doggie day care. Retention Metrics: The Company utilizes regular pulse and check-in surveys to understand employee needs and develop strategies to maintain positive employee sentiment and well-being. An annual talent planning process helps retain key talent through career planning.

Diversity & Development:

• Diversity Metrics: The Company is committed to creating an inclusive culture where all employees feel valued, respected, and have equal opportunities to succeed. The UN1TED initiative aims to advance inclusion and belonging.
• Development Programs: Leadership development programs are offered at all career stages, from new managers (in partnership with Harvard Business School) to executives (through internal global leadership programs and executive coaching). Employees also have access to a vast library of expert-led courses and professional coaching for career development.
• Culture & Engagement: Internal Employee Resource Groups connect, celebrate, and support communities across the organization, complemented by a comprehensive inclusion learning program.

Environmental & Social Impact

Environmental Commitments: Climate Strategy: The Company's "Engagement Criteria for Partners and Sources" policy requires its domestic and foreign manufacturers, licensees, and distributors to commit to environmentally safe practices. Supply Chain Sustainability: The "Engagement Criteria for Partners and Sources" policy mandates ethical business standards and compliance with applicable health and safety laws and regulations for all partners and sources.

Social Impact Initiatives:

• Community Investment: The Sweaty Betty Foundation aims to empower girls by increasing access to activities, promoting active lifestyles.
• Product Impact: The Saucony Run For Good brand platform and charitable foundation strengthens connections with consumers and elevates the brand's positioning through purpose-driven initiatives.

Business Cyclicality & Seasonality

Demand Patterns: The Company experiences moderate fluctuations in sales volume throughout the year, with current seasonal sales patterns expected to continue. Working capital requirements typically increase near the end of the first and third fiscal quarters as inventory is built for peak shipping periods. Historically, cash provided by operating activities is higher in the second half of the fiscal year due to the collection of wholesale channel receivables and increased direct-to-consumer sales during the holiday season.

Economic Sensitivity: The Company's results of operations are sensitive to factors affecting consumer disposable income and spending patterns, such as general economic conditions, inflation, employment rates, credit availability, business conditions, interest rates, consumer confidence, and tax policies.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations: The Company's operations are subject to various federal, state, and local laws and regulations related to environmental protection (e.g., governing pollutant discharge, hazardous waste management, remediation) and workplace safety. It also collects and uses consumer data, making it subject to evolving international, federal, and state laws and industry standards concerning privacy, cybersecurity, data protection (e.g., GDPR, CCPA), and consumer protection. International Compliance: Compliance with U.S. laws relating to foreign operations, such as the U.S. Foreign Corrupt Practices Act (FCPA), and various foreign laws and regulations, including trade and labor restrictions, is required.

Trade & Export Controls: The Company's products manufactured overseas and imported into other countries are subject to customs duties. It faces risks from potential increases or changes in duties, tariffs, quotas, anti-dumping duties, safeguard measures, cargo restrictions, and other trade barriers, as well as changes in trade relations.

Legal Proceedings: The Company is involved in litigation and legal matters arising in the normal course of business, including significant environmental compliance activities.

• PFAS Litigation: The Company has been involved in civil and regulatory actions by EGLE and EPA concerning PFAS releases from its former Tannery and House Street sites in Michigan. A Consent Decree (2020) with EGLE and local townships obligates the Company to contribute up to $69.5 million for municipal water system extensions and continue remediation efforts. The Company also settled individual and class action lawsuits related to PFAS claims with plaintiffs and 3M Company in 2022 and 2023.
• Environmental Liabilities: As of December 28, 2024, the Company had a reserve of $39.7 million for estimated environmental remediation costs ($19.4 million current, $20.3 million long-term) and $10.1 million in liabilities for certain environmental litigation matters.
• Other Litigation: The Company is also a party to other litigation incidental to its business, including matters related to employment, intellectual property, and consumer claims.

Tax Strategy & Considerations

Tax Profile: The Company's effective tax rate was 16.3% in 2024, a significant decrease from 70.7% in 2023, primarily due to tax benefits related to the generation and utilization of a capital loss in 2023. A significant portion of the Company's earnings are generated by its Canadian, European, and Asia Pacific subsidiaries, which are taxed at rates generally lower than the U.S. federal statutory rate. Geographic Tax Planning: The Company intends to repatriate cash held in foreign jurisdictions and has recorded a deferred tax liability for estimated state taxes and foreign withholding taxes on future dividends. It intends to permanently reinvest non-cash undistributed earnings outside of the U.S., with $37.9 million in such earnings at December 28, 2024, for which no deferred tax liability has been established.

Insurance & Risk Transfer

Risk Management Framework: The Company maintains a cybersecurity program guided by the ISO 27001 standard, designed to protect its information and that of its customers from cybersecurity threats. The Board of Directors, in coordination with the Audit Committee, oversees enterprise risk management, including cybersecurity. A Chief Information Security Officer (CISO) leads a cross-functional team responsible for implementing and monitoring cybersecurity practices, supported by an Incident Response Plan (IRP) for security incidents. Insurance Coverage: The Company maintains cybersecurity insurance coverage to help mitigate financial losses from information security breaches. It also recognized recoveries from legacy insurance policies in 2024 and 2023 related to environmental litigation, following a lawsuit filed against its historic liability insurers which was dismissed in December 2024 after the last recovery payment.