Wolverine World Wide Inc: Form 10-Q for the period ended Sep 28, 2024

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 strategic vision is to build and grow high-energy footwear, apparel and accessories brands that inspire and empower consumers to explore and enjoy their active lives. 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 direct-to-consumer footprint; and delivering supply chain excellence.

The Company’s brands are marketed in approximately 170 countries and territories at September 28, 2024, 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 September 28, 2024, the Company operated 120 retail stores in the U.S., Europe and Canada and 39 direct-to-consumer eCommerce sites.

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

In the third quarter of fiscal 2023, the Company entered into a multi-year licensing agreement of the Hush Puppies® brand in the United States and Canada. In addition, the Company completed the sale of the Hush Puppies® trademarks, patents, copyrights, and domains in China, Hong Kong, and Macau. The Company will continue to own the Hush Puppies® brand throughout the rest of the world.

Effective August 23, 2023, the Company completed the sale of the U.S. Leathers business and effective December 28, 2023, the Company completed the sale of the Asia-based Leathers business.

Effective January 1, 2024, the Company completed the sale of the Company’s equity interest in the Merrell® and Saucony® joint venture entities.

Effective January 10, 2024, the Company completed the sale of the Sperry® business.

Effective May 4, 2024, the Company entered into global multi-year licensing agreements of the Merrell® and Saucony® kids footwear and Merrell® apparel and accessories.

2024 FINANCIAL OVERVIEW

• Revenue was $440.2 million for the third quarter of 2024, representing a decrease of 16.6% compared to the third quarter of 2023.
• Gross margin was 45.3% in the third quarter of 2024 compared to 40.8% in the third quarter of 2023.
• The effective tax rates in the third quarters of 2024 and 2023 were 17.7% and 4.6%, respectively.
• Diluted earnings per share for the third quarter of 2024 were $0.28 per share compared to diluted earnings per share of $0.11 per share for the third quarter of 2023.
• The Company declared cash dividends of $0.10 per share in the third quarters of both 2024 and 2023.
• Cash flow provided by operating activities was $97.7 million for the first three quarters of 2024 compared to cash flow provided by operating activities of $7.0 million for the first three quarters of 2023.
• Compared to the third quarter of 2023, inventory as of the third quarter of 2024 decreased $278.3 million, or 49.4%.

RESULTS OF OPERATIONS

(In millions, except per share data)

* Percentage change not meaningful

REVENUE

Revenue was $440.2 million for the third quarter of 2024, representing a decrease of $87.5 million compared to the third quarter of 2023. The change in revenue reflected a $9.9 million, or 3.0%, decrease from the Active Group, a $13.9 million, or 11.3%, decrease from the Work Group, and a $63.7 million, or 83.7%, decrease from Other. The Active Group’s revenue decrease was primarily driven by a decrease of $11.5 million from Saucony® and $2.0 million from Chaco® partially offset by an increase of $2.2 million from Merrell® and $1.4 million from Sweaty Betty®. The Work Group’s revenue decrease was primarily driven by a decrease of $6.9 million from Wolverine®, $4.6 million from Cat®, and $0.9 million from Bates®. The decrease in Other revenue was primarily driven by a decrease in revenue from businesses that were sold in 2023 and 2024 and the licensing of the Hush Puppies® business, which includes decreases of $45.8 million from Sperry®, $8.2 million from the performance leathers business and $7.7 million from Hush Puppies®. Changes in foreign exchange rates increased revenue by $1.9 million during the third quarter of 2024. Direct-to-consumer revenue decreased during the third quarter of 2024 by $24.2 million, or 17.7%, compared to the third quarter of 2023.

Revenue was $1,260.3 million for the first three quarters of 2024, representing a decrease of $455.9 million compared to the first three quarters of 2023. The change in revenue reflected a $183.4 million, or 16.7%, decrease from the Active Group, a $51.1 million, or 14.4%, decrease from the Work Group, and a $221.4 million, or 84.2%, decrease from Other. The Active Group’s revenue decrease was primarily driven by a decrease of $83.8 million from Saucony®, $79.0 million from Merrell®, and $19.7 million from Chaco®. The Work Group’s revenue decrease was primarily driven by a decrease of $18.7 million from Wolverine®, $18.7 million from Cat®, $6.4 million from HYTEST®, $4.0 million from Harley-Davidson® and $3.3 million from Bates®. The decrease in Other revenue was primarily driven by a decrease in revenue from businesses that were sold in 2023 and 2024 and the licensing of the Hush Puppies® business, which includes decreases of $162.0 million from Sperry®, $31.5 million from the performance leathers business, $24.1 million from Hush Puppies® and $6.5 million from Keds®. Changes in foreign exchange rates increased revenue by $4.3 million during the first three quarters of 2024. Direct-to-consumer revenue decreased during the first three quarters of 2024 by $63.3 million, or 16.0%, compared to the first three quarters of 2023.

GROSS MARGIN

Gross margin was 45.3% in the third quarter of 2024 compared to 40.8% in the third quarter of 2023. The gross margin increase in the third quarter was primarily driven by less end-of-life inventory sales and lower supply chain costs.

Gross margin was 44.7% in the first three quarters of 2024 compared to 39.6% during the first three quarters of 2023. The gross margin increase in the first three quarters of 2024 was primarily driven by favorable distribution channel mix, less end-of-life inventory sales, lower supply chain costs and lower product costs.

OPERATING EXPENSES

Operating expenses decreased $24.1 million, from $188.1 million in the third quarter of 2023 to $164.0 million in the third quarter of 2024. The decrease was primarily driven by lower impairment of long-lived and intangible assets ($40.2 million), lower selling costs ($12.6 million), lower advertising costs ($7.3 million), lower distribution costs ($7.2 million), lower general and administrative costs ($6.5 million), lower reorganization costs ($3.7 million), lower product development costs ($1.7 million), and lower environmental and other related costs, net of insurance recoveries ($1.0 million), partially offset by lower gains on the sale of businesses, trademarks, and intangible assets ($49.2 million) and higher incentive compensation costs ($8.2 million). Environmental and other related costs were $2.2 million and $2.3 million in the third quarter of 2024 and 2023, respectively.

Operating expenses decreased $58.2 million, from $560.8 million in the first three quarters of 2023 to $502.6 million in the first three quarters of 2024. The decrease was primarily driven by lower impairment of long-lived and intangible assets ($46.5 million), lower selling costs ($35.2 million), lower advertising costs ($27.5 million), lower general and administrative costs ($27.0 million), lower distribution costs ($20.7 million), and lower product development costs ($5.9 million), partially offset by lower gains on the sale of businesses, trademarks, and intangible assets ($69.3 million), higher incentive compensation costs ($17.0 million), higher environmental and other related costs, net of insurance recoveries ($15.2 million), and higher reorganization costs ($4.3 million). Environmental and other related costs were $15.0 million and $6.0 million in the first three quarters of 2024 and 2023, respectively.

INTEREST, OTHER AND INCOME TAXES

Net interest expense was $9.6 million in the third quarter of 2024 compared to $15.5 million in the third quarter of 2023. Net interest expense was $33.5 million in the first three quarters of 2024 compared to $47.4 million in the first three quarters of 2023. The decrease in interest expense for both the quarter-to-date and year-to-date periods is due to lower average principal balances of variable rate debt and lower weighted average interest rates on variable rate debt.

Other income was $3.8 million in the third quarter of 2024, compared to other expense of $2.4 million in the third quarter of 2023. Other income was $5.4 million in the first three quarters of 2024, compared to other expense of $3.2 million in the first three quarters of 2023.

The effective tax rates in the third quarter of 2024 and 2023 were 17.7% and 4.6%, respectively. The effective tax rates in the first three quarters of 2024 and 2023 were 21.1% and 24.5%, respectively. The increase in the effective tax rate between 2024 and 2023 for the quarter-to-date period is due to discrete tax expenses recognized in the current year compared to discrete tax benefits in the prior year period. The decrease in the effective tax rate between 2024 and 2023 for the year-to-date period is primarily driven by lower discrete tax expenses in the current year.

REPORTABLE SEGMENTS

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

• Active Group, consisting of Merrell® footwear and apparel, Saucony® footwear and apparel, Sweaty Betty® activewear, and Chaco® footwear; and
• Work Group, consisting of Wolverine® footwear and apparel, Cat® footwear, Bates® uniform footwear, Harley-Davidson® footwear and HYTEST® safety footwear;

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

The Company also reports “Other” and “Corporate” categories. The Other category consists of Sperry® footwear, Keds® footwear, Hush Puppies® footwear and apparel, the Company’s leather marketing operations, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores and the Stride Rite® licensed business. The Corporate category consists of gains on the sale of businesses and trademarks, unallocated corporate expenses, such as corporate employee costs, corporate facility costs, reorganization activities, impairment of long-lived assets and environmental and other related costs.

The reportable segment results are as follows:

(In millions)

Further information regarding the reportable segments can be found in Note 16 to the consolidated condensed financial statements.

Active Group

The Active Group’s revenue decreased $9.9 million, or 3.0%, in the third quarter of 2024 compared to the third quarter of 2023. The revenue decrease was primarily driven by decreases of $11.5 million from Saucony® and $2.0 million from Chaco®, partially offset by increases of $2.2 million from Merrell® and $1.4 million from Sweaty Betty®. The Saucony® decrease was primarily driven by the divestiture of the China joint venture entity, effective January 1, 2024 and lower Saucony® kids revenue resulting from licensing the brand in the United States and Canada starting in the second quarter of 2024. The Chaco® decrease was primarily due to softer consumer demand. The Merrell® increase was primarily due to new products including Moab Speed and Speed Strike partially offset by lower Merrell® kids revenue resulting from licensing the brand in the United States and Canada starting in the second quarter of 2024. The Sweaty Betty® increase was primarily driven by U.K. market customer growth and foreign exchange benefits, partially offset by declines in the U.S. direct-to-consumer and wholesale channels.

The Active Group’s revenue decreased $183.4 million, or 16.7%, in the first three quarters of 2024 compared to the first three quarters of 2023. The revenue decrease was primarily driven by decreases of $83.8 million from Saucony®, $79.0 million from Merrell®, and $19.7 million from Chaco®. The Saucony® decrease was primarily driven by lower end of life inventory sales compared to the prior year, the divestiture of the China joint venture entity, effective January 1, 2024, and lower Saucony® kids revenue resulting from licensing the brand in the United States and Canada starting in the second quarter of 2024. The Merrell® decrease was primarily due to lower end of life inventory sales compared to the prior year, softer consumer demand in the U.S. wholesale and International channels and lower Merrell® kids revenue resulting from licensing the brand in the United States and Canada starting in the second quarter of 2024. The Chaco® decrease was primarily due to lower closeout and end of life inventory sales compared to the prior year and softer consumer demand.

The Active Group’s operating profit increased $20.6 million, or 63.0%, in the third quarter of 2024 compared to the third quarter of 2023. The operating profit increase was due to a 320 basis point increase in gross margin and a $14.5 million decrease in selling, general and administrative expenses, partially offset by revenue decreases. The Active Group’s operating profit increased $7.0 million, or 5.6%, in the first three quarters of 2024 compared to the first three quarters of 2023. The operating profit increase was due to a 420 basis point increase in gross margin and a $45.3 million decrease in selling, general and administrative expenses, partially offset by revenue decreases. The increase in gross margin in the current year period was due to decreased closeout sales, lower product costs, and lower supply chain costs. The decrease in selling, general and administrative expenses in the current year periods was primarily due to lower advertising costs, selling expenses and distribution costs.

Work Group

The Work Group’s revenue decreased $13.9 million, or 11.3%, during the third quarter of 2024 compared to the third quarter of 2023. The revenue decrease was primarily driven by decreases of $6.9 million from Wolverine®, $4.6 million from Cat®, and $0.9 million from Bates®. The Work Group’s revenue decreased $51.1 million, or 14.4%, during the first three quarters of 2024 compared to the first three quarters of 2023. The revenue decrease was primarily driven by decreases of $18.7 million from Wolverine®, $18.7 million from Cat®, $6.4 million from HYTEST®, $4.0 million from Harley-Davidson® and $3.3 million from Bates®. The Wolverine® decrease was primarily due to softer consumer demand in the U.S. wholesale channel, inventory shortages resulting from supply chain constraints, and lower closeout sales compared to the prior year. The Cat® decrease was primarily due to timing of shipments in the U.S. and international channels, lower closeout sales versus the prior year and softer consumer demand in the international wholesale and direct-to-consumer channels. The HYTEST® decrease was primarily due to lower closeout sales compared to the prior year. The Harley-Davidson® decrease was primarily due to declines in top dealer accounts. The Bates® decrease was primarily due to softer consumer demand in the U.S. direct-to-consumer channels, high inventory levels at certain retail customers, and lower closeout sales versus the prior year.

The Work Group’s operating profit increased $0.9 million, or 5.8%, in the third quarter of 2024 compared to the third quarter of 2023. The operating profit increase was due to a 140 basis point increase in gross margin and a $4.2 million decrease in selling, general and administrative expenses, partially offset by revenue decreases. The Work Group’s operating profit decreased $2.1 million, or 4.6%, in the first three quarters of 2024 compared to the first three quarters of 2023. The operating profit decrease was due to revenue decreases, partially offset by a 190 basis point increase in gross margin and a $9.5 million decrease in selling, general and administrative expenses. The increase in gross margin in the current year periods was due to decreased closeout sales, product mix and favorable average selling price. The decrease in selling, general and administrative expenses in the current year periods was primarily due to lower advertising costs and selling expenses.

Other

The Other category’s revenue decreased $63.7 million, or 83.7%, in the third quarter of 2024 compared to the third quarter of 2023. The revenue decrease was primarily driven by decreases of $45.8 million from Sperry®, $8.2 million from the performance leathers business and $7.7 million from Hush Puppies®. The Other category’s revenue decreased $221.4 million, or 84.2%, in the first three quarters of 2024 compared to the first three quarters of 2023. The revenue decrease was primarily driven by decreases of $162.0 million from Sperry®, $31.5 million from the performance leathers business, $24.1 million from Hush Puppies® and $6.5 million from Keds®. The Sperry® decrease is due to the divestiture of the business effective January 10, 2024. The performance leathers business decrease is due to the divestiture of the U.S. leathers business, effective August 23, 2023 and the Asia-based leathers business, effective December 28, 2023. The Hush Puppies® decrease is due to the licensing of the brand in the United States and Canada starting in the third quarter of 2023. The Keds® decrease is due to the divestiture of the business, effective February 4, 2023.

Other operating profit increased $0.1 million, or 1.2%, in the third quarter of 2024 compared to the third quarter of 2023. The operating profit increase was due to a $21.1 million decrease in selling, general and administrative costs, partially offset by revenue decreases. Other operating profit decreased $7.2 million, or 25.8%, in the first three quarters of 2024 compared to the first three quarters of 2023. The operating profit decrease was due to revenue decreases, partially offset by a $71.0 million decrease in selling, general and administrative costs. The decrease in selling, general and administrative expenses in the current year period was primarily due to the divestiture of the Sperry® business, performance leathers business, and Keds® business, along with the licensing of the Hush Puppies® business.

Corporate

Corporate expenses increased $13.7 million in the third quarter of 2024 compared to the third quarter of 2023, primarily due to lower gains on the sale of businesses, trademarks, and intangible assets ($49.2 million) and higher incentive compensation costs ($6.4 million) and higher corporate general and administrative costs ($4.1 million), partially offset by lower impairment of long-lived and intangible assets ($40.2 million), lower reorganization activities ($3.7 million), lower employee costs ($2.6 million) and lower environmental and other related costs ($1.0 million).

Corporate expenses increased $55.2 million in the first three quarters of 2024 compared to the first three quarters of 2023, primarily due to lower gains on the sale of businesses, trademarks, and intangible assets ($69.3 million), higher incentive compensation costs ($16.2 million), higher environmental and other related costs ($15.2 million), and higher reorganization costs ($4.3 million), partially offset by lower impairment of long-lived and intangible assets ($46.5 million) and lower employee costs ($6.0 million).

LIQUIDITY AND CAPITAL RESOURCES

(In millions)

(1) Cash and cash equivalents at December 30, 2023 and September 30, 2023 includes $5.6 million and $4.3 million, respectively, of cash and cash equivalents that are classified as held for sale that are not included in cash and cash equivalents in the consolidated condensed balance sheets.

(2) 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 $140.2 million as of September 28, 2024 were $24.5 million lower compared to September 30, 2023. The decrease is due primarily to repayments less borrowings of debt of $395.0 million, cash dividends paid of $32.5 million, and additions to property, plant and equipment of $8.3 million, partially offset by cash provided by operating activities of $212.5 million, proceeds from divestitures of $155.3 million, contributions from noncontrolling interests of $29.1 million, proceeds from company-owned life insurance policy liquidations of $7.9 million and financing proceeds from company-owned life insurance policies of $7.0 million. The Company had $867.9 million of borrowing capacity available under the revolving facility as of September 28, 2024. Cash and cash equivalents located in foreign jurisdictions totaled $130.1 million as of September 28, 2024.

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 and for general corporate purposes.

The Company did not repurchase shares during the first three quarters of both 2024 and 2023.

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 September 28, 2024, the Company had a reserve of $40.6 million, of which $18.8 million is expected to be paid in the next 12 months and is recorded as a current obligation in other accrued liabilities, and the remaining $21.8 million is recorded in other liabilities and is expected to be paid over the course of up to 25 years. 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.

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.

Financing Arrangements

The Company’s Credit Agreement provides for a term loan A facility (the “Term Facility”) and for a revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facilities”). The maturity date of the loans under the Senior Credit Facilities is October 21, 2026. The Credit Agreement provides for a debt capacity of up to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $2.0 billion unless certain specified conditions set forth in the Credit Agreement are met. The Revolving Facility allowed the Company to borrow up to an aggregate amount of $1.0 billion.

The Company’s $550.0 million 4.0% senior notes issued on August 26, 2021 are due on August 15, 2029. Related interest payments are due semi-annually. The senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries.

As of September 28, 2024, the Company was in compliance with all covenants and performance ratios under the Credit Agreement.

The Company’s debt at September 28, 2024 totaled $702.8 million compared to $920.8 million at December 30, 2023. The reduced debt position primarily resulted from repayments of debt using net cash provided by operating activities and proceeds received from the sale of the Sperry® business and Courtland Drive facility.

Cash Flows

The following table summarizes cash flow activities:

(In millions)

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 2024, a decrease in net working capital represented a source of cash of $31.8 million. Working capital balances were favorably impacted by a decrease in inventories of $87.2 million and an increase in accounts payable of $22.3 million, partially offset by a decrease in other operating liabilities of $46.7 million, an increase in other operating assets of $15.4 million, an increase in accounts receivable of $10.8 million and a decrease in income taxes payable of $4.8 million. Operating cash flows included depreciation and amortization expense adjustment of $19.4 million, impairment of long-lived assets of $9.3 million, stock-based compensation expense adjustment of $15.0 million, environmental and other related costs, net of cash payments and recoveries received cash outflow of $10.1 million, gain on sale of business of $8.5 million, and deferred income taxes of $23.5 million.

Investing Activities

The Company made capital expenditures of $12.2 million and $18.5 million in the first three quarters of 2024 and 2023, respectively, for corporate headquarters improvements, eCommerce sites, distribution operations improvements and information systems and technology. The current year investing activity includes proceeds from divestitures of $102.4 million.

Financing Activities

The current year activity includes net payments under the Revolving Facility of $180.0 million. The Company paid $39.2 million and $7.5 million in principal payments associated with its financing arrangements during the first three quarters of 2024 and 2023, respectively. The Company paid $2.0 million and $5.8 million during the first three quarters of 2024 and 2023, respectively, in connection with shares or units withheld to pay employee taxes related to awards under stock incentive plans. The Company did not repurchase shares in the first three quarters of 2024 or 2023.

The Company declared cash dividends of $0.30 per share during the first three quarters of 2024 and 2023. Dividends paid in the first three quarters of 2024 and 2023 totaled $24.4 million and $24.5 million, respectively. A quarterly dividend of $0.10 per share was declared on October 30, 2024 to shareholders of record on January 2, 2025.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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. For information regarding our critical accounting policies refer to Part II, Item 7: “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in the Company’s 2023 Form 10-K. Management believes there have been no material changes in those critical accounting policies.

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. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. 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 Quarterly Report on Form 10-Q, the Company does not know of any material change in the near-term in the general nature of its primary market risk exposure.

Under the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 815, Derivatives and Hedging, the Company is required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings.

The Company conducts wholesale operations outside of the U.S. in Canada, continental Europe, United Kingdom, Hong Kong, China and Mexico where the functional currencies are primarily the Canadian dollar, euro, British pound, Hong Kong dollar, Chinese renminbi and Mexican peso, respectively. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business as well as to manage foreign currency translation exposure. As of September 28, 2024 and September 30, 2023, the Company had outstanding forward currency exchange contracts to purchase primarily U.S. dollars in the amounts of $258.6 million and $267.8 million, respectively, with maturities ranging up to 538 and 531 days, respectively.

The Company also has sourcing locations in Asia, where financial statements reflect the U.S. dollar as the functional currency. However, operating costs are paid in the local currency. Revenue generated by the Company from third-party foreign licensees is calculated in the local currencies but paid in U.S. dollars. Accordingly, the Company’s reported results are subject to foreign currency exposure for this stream of revenue and expenses. Any associated foreign currency gains or losses on the settlement of local currency amounts are reflected within the Company's consolidated condensed statement of operations and comprehensive income.

Assets and liabilities outside the U.S. are primarily located in the United Kingdom, Canada and the Netherlands. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. As of September 28, 2024, a weaker U.S. dollar compared to certain foreign currencies increased the value of these investments in net assets by $1.9 million from their value as of December 30, 2023. As of September 30, 2023, a stronger U.S. dollar compared to certain foreign currencies decreased the value of these investments in net assets by $9.2 million from their value as of December 31, 2022.

The Company is exposed to interest rate changes primarily as a result of interest expense on the term loan borrowings and any borrowings under the Revolving Facility. The Company’s total variable-rate debt was $157.5 million at September 28, 2024 and the Company held a forward-dated interest rate swap agreement, denominated in U.S. dollars, that effectively converts $38.0 million of this amount to fixed-rate debt.

The Company does not enter into contracts for speculative or trading purposes, nor is it a party to any leveraged derivative instruments.

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on, and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures, as defined in Securities Exchange Act Rule 13a-15(e), were effective as of the end of the period covered by this report. There have been no changes during the quarter ended September 28, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes in the assessment of the Company’s risk factors from those set forth in the Company’s Annual Report on Form 10-K for the year ended December 30, 2023, filed with the SEC on February 22, 2024.