FINANCIAL HIGHLIGHTS
The following represent the financial performance highlights of fiscal year 2008 compared to 2007:
• Record revenue and earnings per share for the eighth consecutive year.

• Revenue for 2008 of $1.221 billion, a 1.8% increase over 2007 revenue of $1.199 billion.

• Diluted earnings per share grew to $1.90 per share for 2008 compared to $1.70 per share for 2007, an increase of 11.8%.

• Accounts receivable decreased 6.7% in 2008 compared to 2007 on a reported 3.2% decrease in fourth quarter revenue.

• Inventory turnover increased to 3.8 turns in 2008 from 3.7 turns in the prior year.

• Solid operating results generated $93.5 million of cash from operating activities for 2008, compared to $123.3 million for 2007.

• The Company ended 2008 with $89.5 million of cash on hand and interest-bearing debt of $59.5 million, for a net cash position of $30.0 million.

• During 2008, the Company repurchased 2.8 million shares of its stock for $74.1 million.

• The Company declared cash dividends of $0.44 per share in 2008, a 22.2% increase over the $0.36 per share declared in 2007.

RECENT DEVELOPMENTS
Strategic Restructuring Plan
On January 7, 2009, the Company's Board of Directors approved management's request to implement a strategic restructuring plan. This plan will allow the Company to create significant operating efficiencies, improve its supply chain, and create a stronger global brand platform.
The Company has provided preliminary estimated ranges for expected costs and benefits of the restructuring plan and will provide further disclosure as appropriate.
In 2009, the implementation costs to consolidate key manufacturing, distribution and global operations functions are estimated to range from $31.0 million to $36.0 million. Approximately $9.0 million to $10.0 million of this estimate represents non-cash charges. Continuing annualized pretax benefits once all initiatives are fully implemented are estimated to be $17.0 million to $19.0 million. The strategic restructuring plan is expected to be completed in 2009.
Cushe® Footwear Brand
On January 8, 2009, the Company announced the acquisition of the Cushe® footwear brand, an acquisition that is expected to drive new global opportunities and leverage the strength of the Company's business model and operating infrastructure. Cushe® is a part of The Hush Puppies Company. Chaco® Footwear Brand
On January 22, 2009, the Company announced the acquisition of Chaco®, a performance outdoor footwear brand based in Colorado with a unique heritage and strong consumer following. This acquisition represents an excellent opportunity for the Company to leverage its world-class sourcing and logistics infrastructure, building upon Chaco®'s leadership in the U.S. market while expanding its business internationally. Chaco® is a part of the Outdoor Group.

OUTLOOK FOR 2009
Looking ahead, the Company expects that 2009 will be a difficult economic environment, with unpredictable consumer spending.
The Company's backlog of future orders is lower than the prior year as retailers remain cautious in the face of global economic uncertainty. Future orders are not necessarily indicative of the Company's expected revenue growth for 2009, as the mix of orders can shift between future and at-once orders. As economic turmoil continues, the Company anticipates that retailers will increasingly expect wholesalers to maintain sufficient inventory balances to meet near-term consumer demand. In addition, foreign exchange rate fluctuations, variable order cancellations and discounts can cause differences between future orders for a given period and actual revenues ultimately recorded in that period. As such, the Company views backlog as an increasingly less relevant predictor of future sales.
The Company expects that the U.S. dollar will continue to strengthen against the British pound, euro, and Canadian dollar in 2009. As a result, the Company anticipates that foreign exchange will negatively impact revenue by approximately $90.0 million and earnings per share by approximately $0.15 per share in 2009 compared to 2008.
The Company's defined benefit pension plans, which were more than fully funded at the beginning of 2008, experienced a significant decline in the value of pension assets during the year. As a result, the Company will record approximately $9.0 million of additional pension expense in 2009.
In light of these current challenging economic conditions, the Company is taking actions through its strategic restructuring plan, its recent acquisitions, and a thorough examination of all sources of profit growth. While 2009 will likely present some challenges, the Company believes it has a strong competitive position and views the current environment as an opportunity to emerge as an even stronger player in its industry.

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 financial statements and related notes included elsewhere in this Annual Report.
RESULTS OF OPERATIONS - FISCAL 2008 COMPARED TO FISCAL 2007

FINANCIAL SUMMARY - 2008 VERSUS 2007

                                                       2008                      2007                   Change
                                                              % of                      % of                   % of
(Millions of Dollars, Except Per Share Data)       $          Total          $          Total        $        Total
Revenue
Branded footwear, apparel, and licensing       $ 1,106.1        90.6 %   $ 1,099.2        91.7 %   $  6.9        0.6 %
Other business units                               114.5         9.4 %        99.8         8.3 %     14.7       14.8 %

Total Revenue                                  $ 1,220.6       100.0 %   $ 1,199.0       100.0 %   $ 21.6        1.8 %




                                                 % of                       % of                       % of
                                      $         Revenue          $         Revenue          $        Revenue
Gross Profit
Branded footwear, apparel, and
licensing                          $ 444.7          40.2 %    $ 434.6          39.5 %    $  10.1          2.3 %
Other business units                  41.3          36.1 %       37.3          37.4 %        4.0         10.7 %

Total Gross Profit                 $ 486.0          39.8 %    $ 471.9          39.4 %    $  14.1          3.0 %


Selling, General, and
Administrative expenses            $ 345.2          28.3 %    $ 333.2          27.8 %    $  12.0          3.6 %
Interest (income) expense - net        1.1           0.1 %       (0.7 )        (0.1 %)       1.8        264.6 %
Other (income) expense - net          (0.9 )        (0.1 %)       0.8           0.1 %       (1.7 )     (196.2 %)
Earnings before income taxes       $ 140.6          11.5 %    $ 138.6          11.6 %    $   2.0          1.5 %
Net Earnings                       $  95.8           7.9 %    $  92.9           7.7 %    $   2.9          3.2 %

Diluted earnings per share         $  1.90             -      $  1.70             -      $  0.20         11.8 %

The Company has one reportable segment that is engaged in manufacturing, sourcing, marketing, licensing, and distributing branded footwear, apparel, and accessories. Within the branded footwear, apparel, and licensing segment, the Company has identified four primary operating units, consisting of the Outdoor Group (consisting of the Merrell® and Patagonia® Footwear brands), the Wolverine Footwear Group (consisting of the Wolverine®, HyTest®, Bates® Footwear and Stanley®Footgear brands and certain private label branded products), the Heritage Brands Group (consisting of the Cat® Footwear, Harley-Davidson® Footwear and Sebago® brands), The Hush Puppies Company, and Other. The Company's other business units, which do not collectively comprise a second reportable segment, consist of Wolverine Retail and Wolverine Leathers (comprised of the tannery and procurement operations). The following is supplemental information on total revenue:

TOTAL REVENUE

                                   2008                        2007                      Change
(Millions of Dollars)         $             %             $             %            $            %

Outdoor Group             $   428.4         35.1 %    $   416.7         34.8 %    $  11.7          2.8 %
Wolverine Footwear
Group                         261.9         21.5 %        256.6         21.4 %        5.3          2.1 %
Heritage Brands Group         242.3         19.8 %        241.0         20.1 %        1.3          0.5 %
The Hush Puppies
Company                       160.9         13.2 %        174.1         14.5 %      (13.2 )       (7.6 %)
Other                          12.6          1.0 %         10.8          0.9 %        1.8         17.2 %

Total branded
footwear, apparel, and
licensing revenue         $ 1,106.1         90.6 %    $ 1,099.2         91.7 %    $   6.9          0.6 %
Other business units          114.5          9.4 %         99.8          8.3 %       14.7         14.8 %

Total Revenue             $ 1,220.6        100.0 %    $ 1,199.0        100.0 %    $  21.6          1.8 %

REVENUE
Revenue for 2008 exceeded revenue for 2007 by $21.6 million. Changes in product mix and changes in selling price for the branded footwear, apparel, and licensing operations, as discussed below, contributed $16.7 million of the revenue increase. The impact of translating foreign-denominated revenue to U.S. dollars increased revenue by $3.2 million. These increases were partially offset by a decrease of $13.0 million due to the planned phase-out of the Hush Puppies® slippers, Stanley®Footgear, and private label businesses. The other business units contributed $14.7 million to the revenue increase. International revenue represented 40.2% of total revenue in 2008 compared to 39.0% in 2007. The Outdoor Group earned revenue of $428.4 million for 2008, an $11.7 million increase over 2007. The Merrell® brand grew revenue at a low single-digit rate over the prior year, due primarily to the inclusion of a full year of sales of Merrell® Apparel, which was introduced in the second half of 2007. Patagonia® Footwear grew its revenue at a rate in the low teens in 2008, its second full year of operation. The solid revenue growth, which is primarily attributable to increased sales of Patagonia® Footwear products in the performance category, demonstrates the brand's appeal for outdoor enthusiasts.
The Wolverine Footwear Group recorded revenue of $261.9 million for 2008, a $5.3 million increase from 2007. Despite the challenging retail environment in the United States, revenue from the Wolverine® brand increased at a low single-digit rate for 2008 compared to 2007 due primarily to the success of the premium-priced Contour WeltTM collection. The Bates® military and civilian uniform footwear business delivered a strong performance in 2008, growing its revenue at a rate in the mid teens due to increased civilian business and U.S. Department of Defense contract shipments compared to 2007. HyTest® grew revenue at a high single-digit rate over the prior year due primarily to a successful contract bid for one of its distributors. Revenue from the Stanley®Footgear and private label businesses decreased by $11.4 million in 2008 compared to 2007 as a result of the planned phase-out of these businesses. The Stanley® Footgear license expired on June 30, 2008.
The Heritage Brands Group generated revenue of $242.3 million during 2008, a $1.3 million increase over 2007. Cat® Footwear's revenue increased at a low single-digit rate in 2008 as a result of solid revenue growth in the United States, Canada, and globally through the international distribution network, partially offset by a decrease in Europe as a result of the challenging retail climate. Harley-Davidson® Footwear revenue decreased at a mid single-digit rate in 2008 due primarily to the planned repositioning of the brand in the United States market and resulting distribution channel modifications. Revenue for the Sebago® brand increased slightly from 2007, as strong revenue growth in the United States was offset by lower sales in international markets.

The Hush Puppies Company recorded revenue of $160.9 million in 2008, a $13.2 million decrease from 2007. Revenue earned by the international licensing business grew at a rate in the mid teens during 2008 due to positive response to Hush Puppies® product offerings. Decreases in the United States, Europe, and Canada more than offset this increase, driven by bankruptcies of key retailers in the United States and United Kingdom, soft retail conditions, production delays resulting from factory closures, and a planned exit of a highly-promotional department store customer in Canada. Hush Puppies® 2008 revenue also declined by $1.6 million from 2007 as a result of the planned phase-out of the slipper business.
Within the Company's other business units, Wolverine Retail reported a high single-digit sales increase in comparison to 2007 as a result of growth from the Company's e-commerce channel. Wolverine Retail operated 90 retail stores in North America at the end of both 2008 and 2007. The Wolverine® Leathers operation reported a revenue growth rate in the mid twenties for 2008, primarily due to an increase in orders placed by key customers and increased demand for its proprietary products.
The Company's ending backlog for 2008 decreased at a high single-digit rate on a pair basis in comparison to 2007.
GROSS MARGIN
Gross margin for 2008 of 39.8% was 40 basis points higher than the prior year. Benefits from foreign exchange were partially offset by higher freight and product costs from third-party manufacturers and service providers and the variation in the business mix.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES Selling, general, and administrative expenses of $345.2 million for 2008 increased $12.0 million from $333.2 million in 2007. Continued investment in brand development through product, marketing, and retail placement initiatives increased costs in 2008 by $4.7 million in comparison to 2007. The remaining increase related primarily to increased selling costs due to the increase in revenue and an increase in corporate general and administrative expenses, partially driven by costs associated with the consolidation of the Company's European operations in new London-based offices.
INTEREST, OTHER, AND TAXES
The change in net interest (income) expense reflected increased borrowings to fund the repurchase of the Company's stock throughout 2008.
The change in other (income) expense primarily related to the change in realized gains or losses on foreign denominated assets and liabilities.
The Company's effective tax rate for 2008 was 31.8% compared to 33.0% in 2007. In the fourth quarter of 2008, the research and development tax credit was extended by the U.S. Congress and as a result the Company recognized an income tax benefit in the fourth quarter. In addition, the reduced rate reflects a higher portion of earnings from lower-taxed foreign jurisdictions. The annualized effective tax rate for fiscal 2009 is projected in the range of 31.5% to 32.5%.
NET EARNINGS
As a result of the revenue, gross margin, and expense changes discussed above, the Company achieved net earnings of $95.8 million in 2008 compared to $92.9 million in 2007, an increase of $2.9 million. Basic net earnings per share increased 10.7% in 2008 to $1.96 from $1.77 in 2007, and diluted net earnings per share increased 11.8% in 2008 to $1.90 from $1.70 in 2007. In addition to the increase in net earnings, the increase in earnings per share is attributable to fewer shares outstanding throughout 2008 as a result of the repurchase of the Company's common stock.
Inflation has not had a significant impact on revenue or net earnings.

RESULTS OF OPERATIONS - FISCAL 2007 COMPARED TO FISCAL 2006
FINANCIAL SUMMARY - 2007 VERSUS 2006

                                                       2007                      2006                   Change
                                                              % of                      % of                   % of
(Millions of Dollars, Except Per Share Data)       $          Total          $          Total        $        Total
Revenue
Branded footwear, apparel, and licensing       $ 1,099.2        91.7 %   $ 1,036.9        90.8 %   $ 62.3        6.0 %
Other business units                                99.8         8.3 %       105.0         9.2 %     (5.2 )     (4.9 %)

Total Revenue                                  $ 1,199.0       100.0 %   $ 1,141.9       100.0 %   $ 57.1        5.0 %




                                                 % of                       % of                      % of
                                      $         Revenue          $         Revenue         $        Revenue
Gross Profit
Branded footwear, apparel, and
licensing                          $ 434.6          39.5 %    $ 402.3          38.8 %   $  32.3          8.0 %
Other business units                  37.3          37.4 %       39.2          37.4 %      (1.9 )       (4.9 %)

Total Gross Profit                 $ 471.9          39.4 %    $ 441.5          38.7 %   $  30.4          6.9 %


Selling, General, and
Administrative expenses            $ 333.2          27.8 %    $ 318.2          27.9 %   $  15.0          4.7 %
Interest income - net                 (0.7 )        (0.1 %)      (0.2 )         0.0 %      (0.5 )     (227.1 % )
Other expense - net                    0.8           0.1 %        1.2           0.1 %      (0.4 )      (27.6 %)
Earnings before income taxes       $ 138.6          11.6 %    $ 122.3          10.7 %   $  16.3         13.3 %
Net Earnings                       $  92.9           7.7 %    $  83.6           7.3 %   $   9.3         11.0 %

Diluted earnings per share         $  1.70             -      $  1.47             -     $  0.23         15.6 %

The following is supplemental information on total revenue:

TOTAL REVENUE

                                   2007                        2006                      Change
(Millions of Dollars)         $             %             $             %            $            %
Outdoor Group             $   416.7         34.8 %    $   358.8         31.4 %    $  57.9         16.1 %
Wolverine Footwear
Group                         256.6         21.4 %        275.8         24.2 %      (19.2 )       (6.9 %)
Heritage Brands Group         241.0         20.1 %        226.8         19.8 %       14.2          6.3 %
The Hush Puppies
Company                       174.1         14.5 %        169.9         14.9 %        4.2          2.4 %
Other                          10.8          0.9 %          5.6          0.5 %        5.2         92.5 %

Total branded
footwear, apparel, and
licensing revenue         $ 1,099.2         91.7 %    $ 1,036.9         90.8 %    $  62.3          6.0 %
Other business units           99.8          8.3 %        105.0          9.2 %       (5.2 )       (4.9 %)

Total Revenue             $ 1,199.0        100.0 %    $ 1,141.9        100.0 %    $  57.1          5.0 %

REVENUE
Revenue for 2007 increased $57.1 million over 2006. Increases in unit volume, changes in product mix, and changes in selling price for the branded footwear, apparel, and licensing segment operations, as discussed below, contributed $39.5 million of the revenue increase. The impact of translating foreign-denominated revenue to U.S. dollars improved revenue by $22.8 million. The other business units' revenue decreased $5.2 million. Both domestic and international revenue increased, with international revenue accounting for 39.0% of total revenue in 2007 compared to 36.8% in 2006.
The Outdoor Group reported an increase in revenue of $57.9 million over 2006. The Merrell®footwear business realized a $41.8 million increase over the prior year, as revenue increases were achieved across substantially all geographies. Strong sales in the multi-sport and trail running categories, along with strong performance from women's casual product, drove the majority of the increase. The brand also continued to experience growth with its network of international distributors. The Merrell® Apparel division, which launched in the second half of 2007, contributed $4.6 million in revenue. In the first full year of business, Patagonia® experienced strong sell-through, especially in men's product, and contributed approximately $11.5 million to the increase. The Wolverine Footwear Group recorded a $19.2 million decrease in revenue for 2007, compared to 2006. The Wolverine® business, which includes the HyTest® brand, experienced an increase of $5.2 million during 2007 due to higher demand in the mobile distribution channel, strong reorder activity on the MultiShox® comfort technology product, the successful introduction of the Contour WeltTM technology, and the launch of the Wolverine® Apparel business. The Bates®division recognized a decrease in revenue from 2006 of $7.2 million due to a planned reduction in demand from the U.S. Department of Defense. Lower sales due to the planned phase out of Stanley®Footgear and private label businesses decreased revenue by $5.2 million and $12.0 million, respectively.
The Heritage Brands Group experienced a $14.2 million revenue increase in 2007, compared to 2006. Cat® Footwear's revenue increased $7.4 million, driven by strong revenue growth in the United States and through its international distribution network. Positive momentum has been driven through continued focus on strong integrated product marketing concepts including the Legendary Raw Collection and iTechnology™ collection. The Harley-Davidson® Footwear brand experienced a $0.3 million revenue decrease in 2007 as the brand refocused its distribution in the United States. The Sebago® brand experienced an increase in revenue of $7.1 million during 2007 due to strong consumer and retail response across all categories including marine, dress casual, sandals, and kids.

The Hush Puppies Company's revenue increased $4.2 million in 2007. The majority of the revenue growth was driven by increased wholesale shipments in the Canadian and European markets, as well as higher royalty income generated by international licensees. Strong response to the Hush Puppies®product fueled a revenue increase of $2.3 million in Canada and an increase of $8.7 million in Europe. Revenue for the brand in the U.S. market decreased $6.5 million from 2006 due to the internal reorganization of the SoftStyle® business, a weak spring sandal season, and the decision to reduce inventories to limit retail risk. A $3.9 million revenue decrease in the slipper operations was experienced as the Company decided to phase out of this business. International licensing revenue increased $3.6 million in 2007 as global demand for Hush Puppies® product continued to grow.
Within the Company's other business units, Wolverine Retail reported a $4.8 million increase in revenue as a result of a mid-single digit same-store sales increases and the net addition of eight stores compared to 2006. The Wolverine Leathers operation reported a $10.0 million revenue decrease, primarily due to decreased demand for the Company's proprietary suede products. The Company ended 2007 with an increase in order backlog of nearly 10% above 2006 year-end levels. This backlog principally reflected demand for the first half of 2008.
GROSS MARGIN
Gross margin in 2007 of 39.4% was a 70 basis point increase over the prior year. Higher initial margins, strong inventory reduction programs, and improvements in sourcing and manufacturing operations increased margin by 110 basis points. Offsetting a portion of this improvement were inventory reserve increases associated with apparel inventory and domestically produced footwear. Benefits from favorable foreign exchange contract rates associated with the Company's foreign entity inventory purchases added 60 basis points. These improvements were partially offset by a reduction of 20 basis points due to increased product costs sold into Europe related to new anti-dumping duties imposed on products sourced from China and Vietnam and a reduction of 80 basis points due to increased shipments to lower gross margin international distributors.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES Selling, general, and administrative expenses of $333.2 million for 2007 increased $15.0 million from $318.2 million in 2006. Selling, general, and administrative expenses as a percentage of revenue decreased 10 basis points compared to the prior year reflecting improvements in overall distribution costs and reductions in employee benefit expenses of $7.0 million. The Company invested an incremental $9.4 million in product development, selling, advertising, and administrative costs on the new Merrell® Apparel and Patagonia® Footwear initiatives in 2007 compared to 2006. Additional brand development initiatives during the year increased selling and advertising costs by $9.5 million. The remaining increases related primarily to selling and distribution costs that vary with the increase in revenue.
INTEREST, OTHER, AND TAXES
The change in net interest reflected lower average outstanding amounts on senior notes.
The decrease in other expense primarily related to the change in realized gains or losses on foreign denominated assets and liabilities.
The Company's effective income tax rate for 2007 was 33.0% compared to 31.6% in 2006. In the fourth quarter of 2006, the Company recognized a one-time net income tax benefit of $1.5 million resulting from the closure of prior year income tax audits.

NET EARNINGS
As a result of the revenue, gross margin, and expense changes discussed above, the Company achieved net earnings of $92.9 million compared to $83.6 million in 2006, an increase of $9.3 million.