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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 June 29, 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 39-1536083
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 July 24, 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 nine months ended June 29, 2001 and
June 30, 2000 1
Consolidated Balance Sheets - June 29, 2001,
September 29, 2000 and June 30, 2000 2
Consolidated Statements of Cash Flows - Nine
months ended June 29, 2001 and June 30, 2000 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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 Nine Months Ended
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June 29 June 30 June 29 June 30
2001 2000 2001 2000
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Net sales $ 111,421 $ 114,003 $ 265,805 $ 266,906
Cost of sales 67,375 68,666 162,162 160,587
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Gross profit 44,046 45,337 103,643 106,319
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Operating expenses:
Marketing and selling 20,084 19,025 53,013 50,558
Administrative management, finance and
information systems 7,173 7,324 21,957 20,497
Research and development 1,730 2,273 5,642 5,744
Amortization and write-down of intangibles 668 723 4,591 2,224
Profit sharing 1,091 1,465 2,114 2,325
Strategic charges 300 615 300 1,336
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Total operating expenses 31,046 31,425 87,617 82,684
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Operating profit 13,000 13,912 16,026 23,635
Interest income (116) (101) (403) (350)
Interest expense 2,336 2,423 7,285 7,608
Other expense, net 166 289 220 164
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Income from continuing operations before income
taxes 10,614 11,301 8,924 16,213
Income tax expense 4,331 5,343 3,667 7,395
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Income from continuing operations before cumulative
effect of change in accounting principle 6,283 5,958 5,257 8,818
Loss from discontinued operations, net of tax of $563 -- -- -- (940)
Loss on disposal of discontinued operations, net of tax
of $2,801 -- -- -- (24,418)
Cumulative effect of change in accounting principle, net
of tax of $845 -- -- 1,755 --
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Net income (loss) $ 6,283 $ 5,958 $ 7,012 $ (16,540)
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BASIC EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ 0.77 $ 0.73 $ 0.64 $ 1.09
Discontinued operations -- -- -- (3.12)
Cumulative effect of change in accounting principle -- -- 0.22 --
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Net income (loss) $ 0.77 $ 0.73 $ 0.86 $ (2.03)
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DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ 0.77 $ 0.73 $ 0.64 $ 1.08
Discontinued operations -- -- -- (3.12)
Cumulative effect of change in accounting principle -- -- 0.22 --
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Net income (loss) $ 0.77 $ 0.73 $ 0.86 $ (2.04)
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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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June 29 September 29 June 30
(thousands, except share data) 2001 2000 2000
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ASSETS
Current assets:
Cash and cash equivalent $ 16,927 $ 17,363 $ 6,806
Accounts receivable, less allowance for doubtful accounts of
$3,768, $3,895 and $3,727, respectively 74,178 54,825 78,144
Inventories 67,183 62,708 71,537
Deferred income taxes 3,849 4,613 7,804
Other current assets 4,476 4,685 3,252
Net assets of discontinued operations -- -- 1,038
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Total current assets 166,613 144,194 168,581
Property, plant and equipment 36,855 37,369 37,940
Deferred income taxes 17,473 17,311 15,492
Intangible assets 52,809 57,866 60,450
Other assets 1,138 1,231 1,381
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Total assets $ 274,888 $ 257,971 $ 283,844
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $ 94,911 $ 59,462 $ 76,382
Accounts payable 12,989 12,928 18,286
Accrued liabilities:
Salaries and wages 5,803 7,421 6,821
Other 15,428 26,592 23,412
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Total current liabilities 129,131 106,403 124,901
Long-term debt, less current maturities 39,225 45,857 48,013
Other liabilities 4,754 4,879 4,871
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Total liabilities 173,110 157,139 177,785
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Shareholders' equity:
Preferred stock: none issued -- -- --
Common stock:
Class A shares issued:
June 29, 2001, 6,945,762;
September 29, 2000, 6,924,630;
June 30, 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 81,809 74,797 75,240
Unearned compensation (70) (77) (96)
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustment (24,779) (18,586) (13,783)
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Total shareholders' equity 101,778 100,832 106,059
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Total liabilities and shareholders' equity $ 274,888 $ 257,971 $ 283,844
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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) Nine Months Ended
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June 29 June 30
2001 2000
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CASH USED FOR OPERATIONS
Net income (loss) $ 7,012 $ (16,541)
Less loss from discontinued operations -- (25,359)
Less income from cumulative effect of change in accounting principle 1,755
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Income from continuing operations before cumulative effect of change in
accounting principle 5,257 8,818
Adjustments to reconcile income from continuing operations to net cash
used for operating activities of continuing operations:
Depreciation and amortization 9,424 9,241
Deferred income taxes 634 (2,631)
Impairment of goodwill 2,526 --
Change in assets and liabilities, net of effect of businesses acquired or sold:
Accounts receivable (20,783) (30,875)
Inventories (5,753) (14,377)
Accounts payable and accrued liabilities (13,140) 5,373
Other, net (565) 4,047
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(22,400) (20,404)
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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 (573) (835)
Net additions to property, plant and equipment (7,465) (9,895)
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(8,038) 22,396
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CASH PROVIDED BY FINANCING ACTIVITIES
Principal payments on senior notes and other long-term debt (6,000) (21,500)
Net change in short-term debt 36,010 25,048
Issuance of common stock 70 98
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30,080 3,646
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Effect of foreign currency fluctuations on cash (78) (805)
Net cash used for discontinued operations -- (8,001)
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Decrease in cash and temporary cash investments (436) (3,168)
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 17,363 9,974
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End of period $ 16,927 $ 6,806
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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 June
29, 2001 and the results of operations and cash flows for the three months
and nine months ended June 29, 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 nine months ended June 29, 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-
4 Inventories
Inventories related to continuing operations at the end of the respective
periods consist of the following:
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June 29 September 29 June 30
2001 2000 2000
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Raw materials $ 22,365 $ 23,122 $ 27,659
Work in process 2,843 2,238 2,865
Finished goods 45,410 40,297 45,749
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70,618 65,657 76,273
Less reserves 3,435 2,949 4,736
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$ 67,183 $ 62,708 $ 71,537
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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 Nine Months Ended
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June 29 June 30 June 29 June 30
2001 2000 2001 2000
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Income from continuing operations before
cumulative effect of change in
accounting principle for basic and
diluted earnings per share $ 6,283 $ 5,958 $ 5,257 $ 8,818
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Weighted average common shares
outstanding 8,168,491 8,147,359 8,159,279 8,136,665
Less nonvested restricted stock (14,143) (14,632) (15,549) (18,187)
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Basic average common shares 8,154,348 8,132,727 8,143,730 8,118,478
Dilutive stock options and restricted stock 30,701 9,618 19,655 10,423
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Diluted average common shares 8,185,049 8,142,345 8,163,385 8,128,901
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Basic earnings per common share from
continuing operations before cumulative
effect of change in accounting principle $ 0.77 $ 0.73 $ 0.64 $ 1.09
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Diluted earnings per common share from
continuing operations before cumulative
effect of change in accounting principle $ 0.77 $ 0.73 $ 0.64 $ 1.08
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-5-
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 235,000 5.05
Cancelled (81,434) 18.82
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Outstanding at June 29, 2001 1,105,796 $10.19
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Options to purchase 957,229 shares of common stock with a weighted average
exercise price of $12.25 per share were outstanding at June 30, 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 nine months ended June
30, 2000.
8 Strategic Charges
In June 2001, the Company recorded severance and other exit costs totaling
$300, related to the closure and relocation of a manufacturing facility in
the Watercraft business. The Company expects charges related to this action
will total approximately $500 in fiscal 2001. Approximately 15 employees
were impacted by this action.
In the prior year second and third quarters, the Company recorded severance
and other exit costs totaling $1,336, 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 June 29, 2001, unexpended funds related
to this action were approximately $135.
-6-
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 Nine Months Ended
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June 29 June 30 June 29 June 30
2001 2000 2001 2000
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Net income (loss) $ 6,283 $ 5,958 $ 7,012 $ (16,541)
Translation adjustment (1,235) 332 (3,219) (5,543)
Translation adjustment reclassified
to cumulative effect of change in
accounting principle -- -- (2,974) --
Translation adjustment reclassified
to loss on disposal of
discontinued operations -- -- -- 809
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Comprehensive income (loss) $ 5,048 $ 6,290 $ 819 $ (21,275)
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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 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.
-7-
A summary of the Company's operations by business unit is presented below:
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Three Months Ended Nine Months Ended
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June 29 June 30 June 29 June 30
2001 2000 2001 2000
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Net sales:
Outdoor equipment:
Unaffiliated customers $ 34,295 $ 31,069 $ 87,715 $ 78,471
Interunit transfers 30 18 76 41
Watercraft:
Unaffiliated customers 32,627 33,070 64,755 64,762
Interunit transfers 124 93 309 362
Diving:
Unaffiliated customers 22,897 23,769 59,222 60,520
Interunit transfers (3) 1 2 3
Motors:
Unaffiliated customers 21,598 26,085 54,078 62,015
Interunit transfers 98 183 519 1,366
Other 4 10 35 1,138
Eliminations (249) (295) (906) (1,772)
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$ 111,421 $ 114,003 $ 265,805 $ 266,906
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Operating profit (loss):
Outdoor equipment $ 4,177 $ 3,208 $ 9,158 $ 6,825
Watercraft 4,411 6,648 4,811 10,670
Diving 4,178 3,607 7,663 7,011
Motors 2,569 2,807 1,568 5,043
Other (2,335) (2,358) (7,174) (5,914)
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$ 13,000 $ 13,912 $ 16,026 $ 23,635
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Identifiable assets (end of period):
Outdoor equipment $ 58,589 $ 54,635
Watercraft 78,286 74,367
Diving 88,346 91,080
Motors 26,661 37,736
Discontinued operations, net -- 1,038
Other 23,006 24,993
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$ 274,888 $ 283,844
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-8-
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 nine months ended June 29, 2001 and June 30, 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 June 29, 2001 totaled $111.4 million,
compared to $114.0 million in the three months ended June 30, 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 $1.7 million increase
in military tent sales and a $1.5 million increase in Jack Wolfskin sales.
Net sales for the nine months ended June 29, 2001 totaled $265.8 million, a
decrease of less than 1%, compared to $266.9 million in the nine months ended
June 30, 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 $7.9 million increase in
military tent sales and a $3.0 million increase in Jack Wolfskin sales. The
Motors business experienced a sales decline of 12.8% versus the year ago period,
due primarily to two reasons: first, the bankruptcy of a major customer and
second, sales in the nine months ended June 30, 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 down 1.2% 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 nine months ended June 29, 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 decreased 0.3% and increased 2.2%
for the three months and nine months ended June 29, 2001, respectively.
Gross profit as a percentage of sales was 39.5% for the three months ended June
29, 2001 compared to 39.8% for the corresponding period of the prior year. Most
of the decline for the quarter is due to the
-9-
disposal of some excess/obsolete inventory and heavier closeout discounting in
our Jack Wolfskin operations. Our North American Outdoor Equipment business made
good progress, delivering margins that were 430 basis points higher than prior
year.
Gross profit as a percentage of sales was 39.0% for the nine months ended June
29, 2001 compared to 39.8% 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 $13.0 million for the three months
ended June 29, 2001, compared to an operating profit of $13.9 million for the
corresponding period of the prior year. The majority of the decline can be
attributed to the shortfall in sales between quarters. Operating expenses were
below prior year levels for the first time this year. The quarter also included
a $0.3 million charge for the closing of a manufacturing facility in the
Watercraft business. For the nine months ended June 29, 2001, operating profit
declined to $16.0 million, from $23.6 million in the prior year. Included in the
operating profit for the nine months ended June 29, 2001 was 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,
operating profit was $18.5 million. The decline from the prior year period is
related to the Watercraft business, which saw operating profit decline $5.9
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 $2.3 million over the prior year period due to
increased sales and improved gross margins.
Interest expense totaled $2.3 million and $7.3 million for the three months and
nine months ended June 29, 2001, respectively, compared to $2.4 million and $7.6
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
nine months ended June 29, 2001 was 41.1%, down from 45.6% 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 $6.3 million in the three months
ended June 29, 2001, compared to $6.0 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 $0.77 for the three
months ended June 29, 2001 compared to $0.73 in the prior year. The Company
recognized income from continuing operations before cumulative effect of change
in accounting principle of $5.3 million in the nine months ended June 29, 2001,
compared to a loss of $8.8 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 $0.64 for the nine
months ended June 29, 2001 compared to $1.08 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.
-10-
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 $3.0 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 June 29, 2001 was $6.3 million or $0.77
per diluted share compared to $6.0 million or $0.73 per diluted share for the
corresponding period of the prior year. Net income for the nine months ended
June 29, 2001 was $7.0 million or $0.86 per diluted share compared to $(16.5)
million or $(2.04) 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 $22.4 million for the nine months ended
June 29, 2001 and $20.4 million for the corresponding period of the prior year.
Accounts receivable seasonally increased $20.8 million for the nine months ended
June 29, 2001 and $30.9 million for the corresponding period of the prior year.
Average days of sales outstanding are two days higher than the prior year.
Seasonal growth in inventories of $5.8 million for the nine months ended June
29, 2001 and $14.4 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 June 29, 2001
compared to the corresponding period of the prior year. Lower than planned sell
through contributed to the reduced turn rate.
Accounts payable and accrued liabilities decreased $13.1 million for the nine
months ended June 29, 2001 and increased $5.4 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 $9.4 million for the nine months
ended June 29, 2001, compared to $9.2 million for the corresponding period of
the prior year.
Deferred income tax assets decreased $0.6 million for the nine months ended June
29, 2001, compared to a increase of $2.6 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.
-11-
Investing Activities
Cash flows used for investing activities were $8.0 million for the nine months
ended June 29, 2001 compared to cash provided of $22.4 million for the
corresponding period of the prior year.
Expenditures for property, plant and equipment were $7.5 million for the nine
months ended June 29, 2001 and $9.9 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 two small businesses in the first and
second quarters of the current year, which increased tangible and intangible
assets by $0.6 million, net of cash acquired and liabilities assumed. The prior
year included proceeds from the sale of the Fishing business for $33.1 million.
Financing Activities
Cash flows from financing activities totaled $30.1 million for the nine months
ended June 29, 2001 and $3.6 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 $21.5 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 June 29, 2001, the Company had forward
contracts to sell German marks and purchase U.S. dollars with a notional value
of $3.0 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 June 29, 2001, there are no
interest rate instruments in place.
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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 June 29, 2001:
- -------------------------------------------------------------------------------
(millions) Estimated Impact on
- -------------------------------------------------------------------------------
Earnings Before
Fair Value Income Taxes
- -------------------------------------------------------------------------------
Foreign exchange rate instruments $0.3 $0.3
Interest rate instruments 1.0 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.
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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.
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS 141,
Business Combinations and SFAS 142, Goodwill and Other Intangible Assets. SFAS
141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting. The Company has been
using this method in accounting for its acquisitions.
SFAS 142 eliminates the amortization of goodwill over its estimated useful life.
However, goodwill will be subject to at least an annual assessment for
impairment by applying a fair-value-based test. The Company has been recognizing
amortization expense related to goodwill of approximately $2.5 million annually.
The Company does not have any negative goodwill recorded on the books. The
Company is assessing the impact of the impairment testing requirements, but has
not yet determined whether or the extent to which it will affect the financial
statements.
The Company plans to adopt SFAS 141 and SFAS 142 at the start of the new fiscal
year in October 2001.
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 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
June 29, 2001.
-14-
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: August 13, 2001
/s/ Helen P. Johnson-Leipold
----------------------------------------
Helen P. Johnson-Leipold
Chairman and Chief Executive Officer
/s/ Paul A. Lehmann
-----------------------------------------
Paul A. Lehmann
Vice President and Chief Financial Officer
(Principal Financial Officer)
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