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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-16255
JOHNSON OUTDOORS INC.
(Exact name of Registrant as specified in its charter)
Wisconsin
(State or other jurisdiction of 39-1536083
incorporation or organization) (I.R.S. Employer Identification No.)
1326 Willow Road, Sturtevant, Wisconsin 53177
(Address of principal executive offices)
(262) 884-1500
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
As of April 26, 2001, 6,945,762 shares of Class A and 1,222,729 shares of Class
B common stock of the Registrant were outstanding.
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JOHNSON OUTDOORS INC.
Index Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations - Three months
and six months ended March 30, 2001 and March 31, 2000 1
Consolidated Balance Sheets - March 30, 2001,
September 29, 2000 and March 31, 2000 2
Consolidated Statements of Cash Flows - Six months
ended March 30, 2001 and March 31, 2000 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 13
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
JOHNSON OUTDOORS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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(thousands, except per share data) Three Months Ended Six Months Ended
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March 30 March 31 March 30 March 31
2001 2000 2001 2000
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Net sales $ 96,765 $ 96,703 $ 154,384 $ 152,903
Cost of sales 59,361 57,633 94,787 91,921
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Gross profit 37,404 39,070 59,597 60,982
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Operating expenses:
Marketing and selling 19,294 18,398 32,929 31,532
Administrative management, finance and
information systems 7,918 7,108 14,784 13,172
Research and development 2,089 1,819 3,912 3,470
Amortization and write-down of intangibles 696 740 3,923 1,501
Profit sharing 812 753 1,023 864
Strategic charges -- 668 -- 720
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Total operating expenses 30,809 29,486 56,571 51,259
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Operating profit 6,595 9,584 3,026 9,723
Interest income (123) (144) (287) (249)
Interest expense 2,867 2,912 4,949 5,185
Other expense (income), net 135 86 54 (126)
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Income (loss) from continuing operations before
income taxes 3,716 6,730 (1,690) 4,913
Income tax expense (benefit) 1,513 2,834 (664) 2,052
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Income (loss) from continuing operations before
cumulative effect of change in accounting
principle 2,203 3,896 (1,026) 2,861
Loss from discontinued operations, net of tax of $563 -- -- -- (940)
Loss on disposal of discontinued operations, net of
tax of $2,801 -- (1,309) -- (24,418)
Cumulative effect of change in accounting principle,
net of tax of $845 -- -- 1,755 --
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Net income (loss) $ 2,203 $ 2,587 $ 729 $ (22,497)
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BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ 0.27 $ 0.48 $ (0.13) $ 0.35
Discontinued operations -- (0.16) -- (3.12)
Cumulative effect of change in accounting
principle -- -- 0.22 --
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Net income (loss) $ 0.27 $ 0.32 $ 0.09 (2.77)
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The accompanying notes are an integral part of the consolidated financial
statements.
-1-
JOHNSON OUTDOORS INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
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March 30 September 29 March 31
(thousands, except share data) 2001 2000 2000
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ASSETS
Current assets:
Cash and temporary cash investments $ 6,699 $ 17,363 $ 3,189
Accounts receivable, less allowance for doubtful accounts of
$3,645, $3,895 and $3,625, respectively 80,743 54,825 78,918
Inventories 81,525 62,708 76,166
Deferred income taxes 3,827 4,613 7,796
Other current assets 5,767 4,685 5,563
Net assets of discontinued operations -- -- 12,444
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Total current assets 178,561 144,194 184,076
Property, plant and equipment 37,167 37,369 37,170
Deferred income taxes 17,411 17,311 15,479
Intangible assets 54,026 57,866 59,811
Other assets 993 1,231 2,214
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Total assets $ 288,158 $ 257,971 $ 298,750
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $ 109,213 $ 59,462 $ 99,009
Accounts payable 17,119 12,928 22,488
Accrued liabilities:
Salaries and wages 5,684 7,421 5,172
Income taxes -- 140 --
Other 14,447 26,452 19,744
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Total current liabilities 146,463 106,403 146,413
Long-term debt, less current maturities 40,372 45,857 47,826
Other liabilities 4,619 4,879 4,761
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Total liabilities 191,454 157,139 199,000
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Shareholders' equity:
Preferred stock: none issued -- -- --
Common stock:
Class A shares issued:
March 30, 2001, 6,945,762;
September 29, 2000, 6,924,630;
March 31, 2000, 6,924,630 347 346 346
Class B shares issued (convertible into Class A): 1,222,729 61 61 61
Capital in excess of par value 44,410 44,291 44,291
Retained earnings 75,526 74,797 69,282
Contingent compensation (96) (77) (115)
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustment (23,544) (18,586) (14,115)
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Total shareholders' equity 96,704 100,832 99,750
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Total liabilities and shareholders' equity $ 288,158 $ 257,971 $ 298,750
===============================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
JOHNSON OUTDOORS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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(thousands) Six Months Ended
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March 30 March 31
2001 2000
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CASH USED FOR OPERATIONS
Net income (loss) $ 729 $ (22,497)
Less loss from discontinued operations -- (25,358)
Less income from cumulative effect of change in accounting principle 1,755 --
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Income (loss) from continuing operations before cumulative effect of change in
accounting principle (1,026) 2,861
Adjustments to reconcile income (loss) from continuing operations to net cash
used for operating activities of continuing operations :
Depreciation and amortization 6,300 6,504
Deferred income taxes 645 (2,836)
Impairment of goodwill 2,526 --
Change in assets and liabilities, net of effect of businesses acquired or sold:
Accounts receivable (26,967) (31,625)
Inventories (19,630) (19,033)
Accounts payable and accrued liabilities (10,303) 3,248
Other, net (1,919) 2,654
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(50,374) (38,227)
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CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Proceeds from sale of business, net of cash -- 33,126
Payments for purchase of business, net of cash acquired (339) (706)
Net additions to property, plant and equipment (5,196) (7,308)
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(5,535) 25,112
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CASH PROVIDED BY FINANCING ACTIVITIES
Principal payments on senior notes and other long-term debt (6,000) (20,729)
Net change in short-term debt 51,146 46,734
Common stock transactions 70 98
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45,216 26,103
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Effect of foreign currency fluctuations on cash 29 (774)
Net cash used for discontinued operations -- (18,999)
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Decrease in cash and temporary cash investments (10,664) (6,785)
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 17,363 9,974
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End of period $ 6,699 $ 3,189
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The accompanying notes are an integral part of the consolidated financial
statements.
-3-
JOHNSON OUTDOORS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1 Basis of Presentation
The consolidated financial statements included herein are unaudited. In
the opinion of management, these statements contain all adjustments
(consisting of only normal recurring items) necessary to present fairly
the financial position of Johnson Outdoors Inc. and subsidiaries (the
Company) as of March 30, 2001 and the results of operations and cash flows
for the three months and six months ended March 30, 2001. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 2000 Annual Report on Form 10-K.
Because of seasonal and other factors, the results of operations for the
three months and six months ended March 30, 2001 are not necessarily
indicative of the results to be expected for the full year.
All monetary amounts, other than share and per share amounts, are stated
in thousands.
Certain amounts as previously reported have been reclassified to conform
with the current period presentation. See Note 7.
2 Change in Accounting Principle
Effective September 30, 2000, the Company adopted SFAS 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and
for hedging activities. All derivatives, whether designated in hedging
relationships or not, are required to be recorded on the balance sheet at
fair value. If the derivative is designated as a fair value hedge, the
changes in the fair value of the derivative and the hedged item are
recognized in earnings. If the derivative is designated as a cash flow
hedge, changes in the fair value of the derivative are recorded in other
comprehensive income and are recognized in the income statement when the
hedged item affects earnings.
The adoption of SFAS 133 resulted in a decrease in net loss of $1,755, a
decrease in deferred income tax assets of $845, an increase in accrued
liabilities of $374 and a reduction in accumulated other comprehensive
income of $2,974 for derivative instruments not designated as hedging
instruments. Unrealized gains on certain derivative instruments were
previously recorded as a component of accumulated other comprehensive
income. See additional disclosures under the Market Risk Management
section of Item 2.
3 Income Taxes
The provision for income taxes includes deferred taxes and is based upon
estimated annual effective tax rates in the tax jurisdictions in which the
Company operates.
-4-
JOHNSON OUTDOORS INC.
4 Inventories
Inventories related to continuing operations at the end of the respective
periods consist of the following:
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March 30 September 29 March 31
2001 2000 2000
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Raw materials $ 26,295 $ 23,122 $ 27,716
Work in process 2,851 2,238 2,428
Finished goods 55,419 40,297 50,502
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84,565 65,657 80,646
Less reserves 3,040 2,949 4,480
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$ 81,525 $ 62,708 $ 76,166
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5 Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per common share from continuing operations before cumulative
effect of change in accounting principle:
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Three Months Ended Six Months Ended
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March 30 March 31 March 30 March 31
2001 2000 2001 2000
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Income (loss) from continuing operations
before cumulative effect of change in
accounting principle for basic and
diluted earnings per share $ 2,203 $ 3,896 $ (1,026) $ 2,861
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Weighted average common shares
outstanding 8,161,989 8,134,478 8,154,674 8,131,318
Less nonvested restricted stock 18,033 19,429 16,267 19,965
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Basic average common shares 8,143,956 8,115,049 8,138,407 8,111,353
Dilutive stock options and restricted stock 23,313 7,187 -- 10,826
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Diluted average common shares 8,167,269 8,122,236 8,138,407 8,122,179
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Basicand diluted earnings (loss) per
common share from continuing
operations before cumulative effect of
change in accounting principle $ 0.27 $ 0.48 $ (0.13) $ 0.35
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6 Stock Ownership Plans
A summary of stock option activity related to the Company's plans is as
follows:
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Weighted Average
Shares Exercise Price
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Outstanding at September 29, 2000 952,230 $12.08
Granted 210,000 5.42
Cancelled (42,101) 22.83
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Outstanding at March 30, 2001 1,120,129 $10.43
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-5-
JOHNSON OUTDOORS INC.
Options to purchase 924,395 shares of common stock with a weighted average
exercise price of $12.53 per share were outstanding at March 31, 2000.
7 Sale of Fishing Business
In March 2000, the Company sold its Fishing business. As a result,
operations and related assets and liabilities of the Fishing group have
been classified as discontinued for all periods presented herein. The sale
price totaled $47,279, including $14,056 of accounts receivable retained
by the Company and $2,367 of debt assumed by the buyer. The Company
recorded a loss of $24,418, net of tax, related to the sale of the
business, taking into account operating results from the measurement date
to the date of disposal. In addition, the Company recorded an after tax
loss from operations up to the measurement date of $940 in the six months
ended March 31, 2000.
8 Strategic Charges
In the prior year second quarter, the Company recorded severance and other
exit costs totaling $668, relating primarily to the closure and relocation
of a manufacturing facility in the Motors business. Total charges related
to this action were approximately $2,100 and approximately 90 employees
were impacted. As of March 30, 2001, unexpended funds related to this
action were approximately $170. There were no strategic charges recorded
in the current year.
9 Comprehensive Income
Comprehensive income includes net income and changes in shareholders'
equity from non-owner sources. For the Company, the elements of
comprehensive income excluded from net income are represented primarily by
the cumulative foreign currency translation adjustment.
Comprehensive income (loss) for the respective periods consists of the
following:
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Three Months Ended Six Months Ended
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March 30 March 31 March 30 March 31
2001 2000 2001 2000
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Net income (loss) $ 2,203 $ 2,587 $ 729 $ (22,497)
Translation adjustment (5,025) (2,197) (1,984) (5,875)
Translation adjustment reclassified
to cumulative effect of change in
accounting principle -- -- (2,974) --
Translation adjustment reclassified
to loss on disposal of
discontinued operations -- 809 -- 809
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Comprehensive income (loss) $ (2,822) $ 1,199 $ (4,229) $ (28,372)
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10 Segments of Business
The Company conducts its worldwide operations through separate global
business units, each of which represent major product lines. Operations
are conducted in the United States and various foreign countries,
primarily in Europe, Canada and the Pacific Basin. The Company does not
believe it has unusual risk related to concentrations in volume of
business with a particular customer or supplier, or concentrations in
revenue from a particular product.
Net sales and operating profit include both sales to customers, as
reported in the Company's consolidated statements of operations, and
interunit transfers, which are priced to recover cost plus
-6-
JOHNSON OUTDOORS INC.
an appropriate profit margin. Identifiable assets represent assets that
are used in the Company's operations in each business unit at the end of
the periods presented.
A summary of the Company's operations by business unit is presented below:
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Three Months Ended Six Months Ended
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March 30 March 31 March 30 March 31
2001 2000 2001 2000
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Net sales:
Outdoor equipment:
Unaffiliated customers $ 32,362 $ 29,394 $ 53,420 $ 47,401
Interunit transfers 33 20 46 22
Diving:
Unaffiliated customers 20,317 20,717 36,325 36,751
Interunit transfers -- 2 5 2
Watercraft:
Unaffiliated customers 21,579 21,616 32,128 31,692
Interunit transfers 149 253 185 269
Motors:
Unaffiliated customers 22,505 24,569 32,480 35,930
Interunit transfers 257 813 421 1,183
Other 2 405 31 1,130
Eliminations (439) (1,086) (657) (1,477)
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$ 96,765 $ 96,703 $ 154,384 $ 152,903
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Operating profit (loss):
Outdoor equipment $ 3,683 $ 2,957 $ 4,981 $ 3,617
Diving 1,669 1,924 3,485 3,403
Watercraft 1,514 3,748 400 4,022
Motors 2,300 3,036 (1,001) 2,235
Other (2,571) (2,081) (4,839) (3,554)
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$ 6,595 $ 9,584 $ 3,026 $ 9,723
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Identifiable assets (end of period):
Outdoor equipment $ 57,490 $ 55,711
Diving 83,634 89,702
Watercraft 83,948 76,650
Motors 39,210 40,524
Discontinued operations, net -- 12,444
Other 23,876 23,719
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$ 288,158 $ 298,750
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-7-
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion includes comments and analysis relating to the
Company's results of operations and financial condition as of and for the three
months and six months ended March 30, 2001 and March 31, 2000. This discussion
should be read in conjunction with the consolidated financial statements and
related notes that immediately precede this section, as well as the Company's
2000 Annual Report on Form 10-K.
Forward Looking Statements
Certain matters discussed in this Form 10-Q are "forward-looking statements,"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement includes phrases such as the Company "expects," "believes" or other
words of similar meaning. Similarly, statements that describe the Company's
future plans, objectives or goals are also forward-looking statements. Such
forward-looking statements are subject to certain risks and uncertainties which
could cause actual results or outcomes to differ materially from those currently
anticipated. Factors that could affect actual results or outcomes include
changes in consumer spending patterns, actions of companies that compete with
the Company, the Company's success in managing inventory, movements in foreign
currencies or interest rates and adverse weather conditions. Shareholders,
potential investors and other readers are urged to consider these factors in
evaluating the forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements. The forward-looking statements
included herein are only made as of the date of this Form 10-Q and the Company
undertakes no obligation to publicly update such forward-looking statements to
reflect subsequent events or circumstances.
Results of Continuing Operations
Net sales for the three months ended March 30, 2001 totaled $96.8 million,
compared to $96.7 million in the three months ended March 31, 2000. Two of the
four business units (Outdoor Equipment and Diving) showed sales growth over the
prior year on a volume basis (excluding the impact of currency fluctuations),
lead primarily by the Outdoor Equipment group which had a $3.5 million increase
in military tent sales.
Net sales for the six months ended March 30, 2001 totaled $154.4 million, an
increase of 1.0% or $1.5 million, compared to $152.9 million in the six months
ended March 31, 2000. Three of the four business units (Outdoor Equipment,
Diving and Watercraft) showed sales growth over the prior year on a volume
basis, lead primarily by the Outdoor Equipment group which had a $6.3 million
increase in military tent sales and a $1.5 million increase in Jack Wolfskin
sales. The Motors business experienced a sales decline of 11% versus the year
ago period, due primarily to two reasons: first, the bankruptcy of Outboard
Marine Corporation and second, sales in the six months ended March 31, 2000
reflected a build-up as the Company prepared to exit the third-party OEM motor
business at its Lake Electric plant. Excluding those two items, sales were flat
compared with the prior year period. Unseasonable weather and softness in the
economy has impacted sales for the Company and for the outdoor recreation
industry as a whole.
Relative to the U.S. dollar, the average values of most currencies of the
countries in which the Company has operations were lower for the three months
and six months ended March 30, 2001 as compared to the corresponding period of
the prior year. The Diving and Outdoor Equipment businesses were adversely
impacted by foreign currency movements. Excluding the impact of fluctuations in
foreign currencies, net sales for the Company increased 2% and 4% for the three
months and six months ended March 30, 2001, respectively.
-8-
Gross profit as a percentage of sales was 38.7% for the three months ended March
30, 2001 compared to 40.4% for the corresponding period of the prior year.
Margin declines in the Watercraft and Motors businesses more than offset margin
improvement in the Diving and Outdoor Equipment businesses.
Gross profit as a percentage of sales was 38.6% for the six months ended March
30, 2001 compared to 39.9% for the corresponding period of the prior year.
Margin declines in the Watercraft business and, to a lesser extent, the Motors
business, more than offset margin improvement in the Diving and Outdoor
Equipment businesses. The Watercraft business was impacted by labor and overhead
absorption issues due to lower than projected sales volume. Product mix,
emphasizing higher margin regulators, buoyancy compensators and fins,
contributed to improved margins for the Diving business. The Outdoor Equipment
business benefited from higher sales volume from military tents and Jack
Wolfskin in Europe.
The Company recognized an operating profit of $6.6 million for the three months
ended March 30, 2001, compared to an operating profit of $9.6 million for the
corresponding period of the prior year. For the six months ended March 30, 2001,
operating profit declined to $3 million, from $9.7 million in the prior year.
Included in the operating profit for the six months ended March 30, 2001 is a
$2.5 million write-down for impaired goodwill identified while considering the
divestiture of a small non-strategic business in the Motors business. Excluding
this item, our operating profit was $5.6 million. The decline from the prior
year period is related to the Watercraft business, which saw operating profit
decline $3.6 million. In addition to margin shortfalls, additional investments
in marketing, distribution, research and development, and finance to support
recent growth of the business unit, contributed to this decline. Operating
profits for Outdoor Equipment were strong, increasing $1.4 million over the
prior year period.
Interest expense totaled $2.9 million and $4.9 million for the three months and
six months ended March 30, 2001, respectively, compared to $2.9 million and $5.2
million for the corresponding period of the prior year. In the current year, the
Company unwound a foreign currency swap agreement related to the 1998 senior
note commitment. The gain realized from this action approximated the gain
recorded from the adoption of SFAS 133. The Company's effective tax rate for the
six months ended March 30, 2001 was 39.3%, down from 41.8% for the corresponding
period of the prior year due to the geographic mix of earnings occurring in
lower tax jurisdictions.
The Company recognized income from continuing operations before cumulative
effect of change in accounting principle of $2.2 million in the three months
ended March 30, 2001, compared to income of $3.9 million in the corresponding
period of the prior year. Diluted earnings per common share from continuing
operations before cumulative effect of change in accounting principle totaled
$0.27 for the three months ended March 30, 2001 compared to $0.48 in the prior
year. The Company recognized a loss from continuing operations before cumulative
effect of change in accounting principle of $1.0 million in the six months ended
March 30, 2001, compared to income of $2.9 million in the corresponding period
of the prior year. Diluted earnings per common share from continuing operations
before cumulative effect of change in accounting principle totaled $(0.13) for
the six months ended March 30, 2001 compared to $0.35 in the prior year.
Discontinued Operations
In March 2000, the Company sold its Fishing business. As a result, operations
and related assets and liabilities of the Fishing group have been classified as
discontinued for all periods presented herein. The sale price totaled $47.3
million, including $14.1 million of accounts receivable retained by the Company
and $2.4 million of debt assumed by the buyer. The Company recorded a loss of
$24.4 million, net of tax, related to the sale of the business, taking into
account operating results from the measurement date to the date of disposal. In
addition, the Company recorded an after tax loss from operations up to the
measurement date of $0.9 million in the six months ended March 31, 2000.
-9-
Change in Accounting Principle
Effective September 30, 2000, the Company adopted SFAS 133 which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
All derivatives, whether designated in hedging relationships or not, are
required to be recorded on the balance sheet at fair value. If the derivative is
designated as a fair value hedge, the changes in the fair value of the
derivative and the hedged item are recognized in the earnings. If the derivative
is designated as a cash flow hedge, changes in the fair value of the derivative
are recorded in other comprehensive income and are recognized in the income
statement when the hedged item affects earnings.
The adoption of SFAS 133 resulted in a decrease in net loss of $1.8 million, a
decrease in deferred income tax assets of $0.8 million, an increase in accrued
liabilities of $0.4 million and a reduction in accumulated other comprehensive
income of $3 million for derivative instruments not designated as hedging
instruments. Unrealized gains on certain derivative instruments were previously
recorded as a component of accumulated other comprehensive income.
Net income (Loss)
Net income for the three months ended March 30, 2001 was $2.2 million or $0.27
per diluted share compared to $2.6 million or $0.32 per diluted share for the
corresponding period of the prior year. Net income for the six months ended
March 30, 2001 was $0.7 million or $0.09 per diluted share compared to a loss of
$(22.5) million or $(2.77) per diluted share for the corresponding period of the
prior year.
Financial Condition
The following discusses changes in the Company's liquidity and capital resources
related to continuing operations.
Operations
Cash flows used for operations totaled $50.4 million for the six months ended
March 30, 2001 and $38.2 million for the corresponding period of the prior year.
Accounts receivable seasonally increased $27.0 million for the six months ended
March 30, 2001 and $31.6 million for the corresponding period of the prior year
due to sales growth. Average days of sales outstanding are equal to the prior
year. Seasonal growth in inventories of $19.6 million for the six months ended
March 30, 2001 and $19.0 million for the corresponding period of the prior year
also accounted for a significant portion of the net usage of funds. Inventory
turns, on a twelve month rolling average basis, are down slightly as of March
30, 2001 compared to the corresponding period of the prior year. The Company has
increased production of its products in order to meet seasonal demand, primarily
in Watercraft and Outdoor Equipment.
Accounts payable and accrued liabilities decreased $10.3 million for the six
months ended March 30, 2001 and increased $3.2 million for the corresponding
period of the prior year. The Company paid employee benefits, which were higher
than prior year levels due to the Company's improved performance, and paid
amounts related to the sale of the Fishing business.
Depreciation and amortization charges were $6.3 million for the six months ended
March 30, 2001, compared to $6.5 million for the corresponding period of the
prior year.
Deferred income tax assets decreased $0.6 million for the six months ended March
30, 2001, compared to an increase of $2.8 million in the prior year. In the
current year, the Company recorded a write-down of impaired goodwill for $2.5
million related to the potential divestiture of a small, non-strategic business
in the Motors group.
-10-
Investing Activities
Expenditures for property, plant and equipment were $5.2 million for the six
months ended March 30, 2001 and $7.3 million for the corresponding period of the
prior year. The Company's recurring investments are made primarily for tooling
for new products and enhancements. The decrease in capital expenditures in the
current year is due primarily to investments to increase manufacturing capacity
in the Company's Watercraft business included in the prior year. In 2001,
capitalized expenditures are anticipated to total approximately $9.1 million.
These expenditures are expected to be funded by working capital or existing
credit facilities. The Company acquired a small business in the first quarter of
the current year, which increased tangible and intangible assets by $0.3
million, net of cash acquired and liabilities assumed.
Financing Activities
Cash flows from financing activities totaled $45.2 million for the six months
ended March 30, 2001 and $26.1 million for the corresponding period of the prior
year. The Company made principal payments on senior notes of $6.0 million in the
current year and $20.7 million in the prior year. The increase in short-term
debt was used to fund the operating and investing activities.
Market Risk Management
The Company is exposed to market risk stemming from changes in foreign exchange
rates, interest rates and, to a lesser extent, commodity prices. Changes in
these factors could cause fluctuations in earnings and cash flows. In the normal
course of business, exposure to certain of these market risks is managed by
entering into hedging transactions authorized under Company policies that place
controls on these activities. Hedging transactions involve the use of a variety
of derivative financial instruments. Derivatives are used only where there is an
underlying exposure, not for trading or speculative purposes.
Foreign Operations
The Company has significant foreign operations, for which the functional
currencies are denominated primarily in Swiss and French francs, German marks,
Italian lire, Japanese yen and Canadian dollars. As the values of the currencies
of the foreign countries in which the Company has operations increase or
decrease relative to the U.S. dollar, the sales, expenses, profits, assets and
liabilities of the Company's foreign operations, as reported in the Company's
Consolidated Financial Statements, increase or decrease, accordingly. The
Company mitigates a portion of the fluctuations in certain foreign currencies
through the purchase of foreign currency swaps, forward contracts and options to
hedge known commitments, primarily for purchases of inventory and other assets
denominated in foreign currencies. As of March 30, 2001, the Company had forward
contracts to sell German marks and purchase U.S. dollars with a notional value
of $7.0 million.
Interest Rates
The Company's debt structure and interest rate risk are managed through the use
of fixed and floating rate debt. The Company's primary exposure is to United
States interest rates. The Company also periodically enters into interest rate
swaps, caps or collars to hedge its exposure and lower financing costs. In the
first quarter, the Company unwound a foreign currency swap agreement related to
their 1998 senior note commitment. As a result, the fixed effective interest
rate to be paid on the note became 7.15%. As of March 30, 2001, there are no
interest rate instruments in place.
-11-
Commodities
Certain components used in the Company's products are exposed to commodity price
changes. The Company manages this risk through instruments such as purchase
orders and non-cancelable supply contracts. Primary commodity price exposures
are metals and packaging materials.
Sensitivity to Changes in Value
The estimates that follow are intended to measure the maximum potential fair
value or earnings the Company could lose in one year from adverse changes in
foreign exchange rates or market interest rates under normal market conditions.
The calculations are not intended to represent actual losses in fair value or
earnings that the Company expects to incur. The estimates do not consider
favorable changes in market rates. Further, since the hedging instrument (the
derivative) inversely correlates with the underlying exposure, any loss or gain
in the fair value of derivatives would be generally offset by an increase or
decrease in the fair value of the underlying exposures. The positions included
in the calculations are foreign exchange forwards, currency swaps and fixed rate
debt. The calculations do not include the underlying foreign exchange positions
that are hedged by these market risk sensitive instruments. The table below
presents the estimated maximum potential one year loss in fair value and
earnings before income taxes from a 10% movement in foreign currencies and a 100
basis point movement in interest rates on market risk sensitive instruments
outstanding at March 30, 2001:
- --------------------------------------------------------------------------------------------------------------
(millions) Estimated Impact on
- --------------------------------------------------------------------------------------------------------------
Earnings Before
Fair Value Income Taxes
- --------------------------------------------------------------------------------------------------------------
Foreign exchange rate instruments $0.7 $0.7
Interest rate instruments 1.3 0.4
- --------------------------------------------------------------------------------------------------------------
Other Factors
The Company has not been significantly impacted by inflationary pressures over
the last several years. The Company anticipates that changing costs of basic raw
materials may impact future operating costs and, accordingly, the prices of its
products. The Company is involved in continuing programs to mitigate the impact
of cost increases through changes in product design and identification of
sourcing and manufacturing efficiencies. Price increases and, in certain
situations, price decreases are implemented for individual products, when
appropriate.
Pending Accounting Changes
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). An
amendment in June 2000 delayed the effective date for the Company until the
fourth quarter of 2001, which is when the Company will adopt the bulletin. The
impact of adopting SAB 101 is still being evaluated and the Company does not
currently believe its adoption will have a material impact on the consolidated
financial statements.
In September 2000, the Financial Accounting Standards Board's Emerging Issues
Task Force (EITF) reached a consensus on Issue No. 00-10, Accounting for
Shipping and Handling Fees and Costs. This issue addresses the definition of
shipping and handling costs and the income statement classification of these
costs and amounts billed to customers for shipping and handling costs. The
Company will adopt this consensus in the fourth quarter of 2001. Upon adoption,
shipping and handling costs billed to customers and reported as marketing and
selling expenses in the income statement will be reclassified and reported as a
component of net sales. The Company is still evaluating the amount of the
reclassification.
-12-
In May 2000, the EITF reached a consensus on Issue No. 00-14, Accounting for
Certain Sales Incentives. This issue addresses the recognition, measurement, and
income statement classification for various types of sales incentives including
discounts, coupons, rebates and free products. The Company will adopt this
consensus in the second quarter of 2002. The impact of this consensus is still
being evaluated and the Company does not currently believe its adoption will
have a material impact on the consolidated financial statements.
In April 2001, the EITF reached a consensus on Issue No. 00-25, Vendor Income
Statement Characterization of Consideration to a Purchaser of the Vendor's
Products or Services. This Issue addresses when consideration from a vendor to a
retailer or distributor in connection with the purchase of the vendor's products
to promote sales of the vendor's products should be classified in the vendor's
income statement as a reduction of revenue or expense. The Company will adopt
this consensus in the second fiscal quarter of 2002. The impact of this
consensus is still being evaluated and the Company does not currently believe
its adoption will have a material impact on the consolidated financial
statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to this item is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations under the heading
"Market Risk Management."
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting on January 31, 2001, the shareholders voted to
elect the following individuals as directors for terms that expire at the next
annual meeting and voted against a shareholder proposal:
- ------------------------------------------------------------------------------------------------------------------------
Votes Cast Broker
Votes Cast For Against Votes Withheld Abstentions Non-Votes
- ------------------------------------------------------------------------------------------------------------------------
Class A Directors:
- -----------------
Glenn N. Rupp 6,313,545 0 58,918 0 0
Terry E. London 6,313,108 0 59,355 0 0
Class B Directors:
- -----------------
Samuel C. Johnson 1,102,557 0 0 0 0
Helen P. Johnson-Leipold 1,102,557 0 0 0 0
Thomas F. Pyle, Jr. 1,102,557 0 0 0 0
Gregory E. Lawton 1,102,557 0 0 0 0
Shareholder proposal to sell the
Company 314,405 15,685,069 0 105,551 1,293,008
Votes cast for or against and abstentions with respect to the proposal reflects
that holders of Class B shares are entitled to 10 votes per share for matters
other than the election of directors.
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-Q
None
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months ended
March 30, 2001.
-13-
JOHNSON OUTDOORS INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHNSON OUTDOORS INC.
Date: May 14, 2001
/s/ Helen P. Johnson-Leipold
-------------------------------------------
Helen P. Johnson-Leipold
Chairman and Chief Executive Officer
/s/ Scott M. Vos
-------------------------------------------
Scott M. Vos
Corporate Controller
(Principal Accounting Officer)
-14-
