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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 December 28, 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 January 31, 2002, 6,947,360 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.
- ----------------------------------------------------------------- -----------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations - Three months
ended December 28, 2001 and December 29, 2000 1
Consolidated Balance Sheets - December 28, 2001,
September 28, 2001 and December 29, 2000 2
Consolidated Statements of Cash Flows - Three months
ended December 28, 2001 and December 29, 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 12
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
JOHNSON OUTDOORS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
- -------------------------------------------------------------------------------------------------------
(thousands, except per share data) Three Months Ended
- -------------------------------------------------------------------------------------------------------
December 28 December 29
2001 2000
- -------------------------------------------------------------------------------------------------------
Net sales $ 59,738 $ 58,751
Cost of sales 34,448 34,945
- -------------------------------------------------------------------------------------------------------
Gross profit 25,290 23,806
- -------------------------------------------------------------------------------------------------------
Operating expenses:
Marketing and selling 15,015 15,248
Administrative management, finance
and information systems 6,932 6,866
Research and development 1,615 1,823
Amortization and write-down of intangibles 83 3,227
Profit sharing 193 211
Strategic charges 461 --
- -------------------------------------------------------------------------------------------------------
Total operating expenses 24,299 27,375
- -------------------------------------------------------------------------------------------------------
Operating profit (loss) 991 (3,569)
Interest income (146) (164)
Interest expense 1,552 2,082
Other (income) expense, net 245 (81)
- -------------------------------------------------------------------------------------------------------
Loss before income taxes (660) (5,406)
Income tax benefit (264) (2,177)
- -------------------------------------------------------------------------------------------------------
Loss before cumulative effect of change in
accounting principle (396) (3,229)
Cumulative effect of change in accounting principle,
net of tax of $845 -- 1,755
- -------------------------------------------------------------------------------------------------------
Net loss $ (396) $ (1,474)
=======================================================================================================
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Loss before cumulative effect of change in
accounting principle $ (0.05) $ (0.40)
Cumulative effect of change in accounting principle -- 0.22
- -------------------------------------------------------------------------------------------------------
Net loss $ (0.05) $ (0.18)
=======================================================================================================
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Loss before cumulative effect of change in
accounting principle $ (0.05) $ (0.40)
Cumulative effect of change in accounting principle -- 0.22
- -------------------------------------------------------------------------------------------------------
Net loss $ (0.05) $ (0.18)
=======================================================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
-1-
JOHNSON OUTDOORS INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
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December 28 September 28 December 29
(thousands, except share data) 2001 2001 2000
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and temporary cash investments $ 9,719 $ 16,069 $ 14,896
Accounts receivable, less allowance for
doubtful accounts of $3,586, $3,739
and $4,048, respectively 48,165 45,585 55,829
Inventories 68,327 61,700 80,106
Deferred income taxes 5,262 5,269 3,822
Other current assets 7,779 4,557 5,198
- -------------------------------------------------------------------------------------------------------------------
Total current assets 139,252 133,180 159,851
Property, plant and equipment 29,606 35,879 37,569
Deferred income taxes 19,619 19,577 17,256
Intangible assets 54,736 55,288 56,895
Other assets 910 989 1,470
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 244,123 $ 244,913 $ 273,041
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of
long-term debt $ 26,535 $ 12,985 $ 97,068
Accounts payable 13,685 12,157 13,933
Accrued liabilities:
Salaries and wages 5,775 5,968 5,926
Income taxes (665) 1,206 (3,274)
Other 14,083 17,237 14,088
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 59,413 49,553 127,741
Long-term debt, less current maturities 78,272 84,550 40,829
Other liabilities 4,442 5,031 5,038
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 142,127 139,134 173,608
- -------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock: none issued -- -- --
Common stock:
Class A shares issued:
December 28, 2001, 6,947,360;
September 28, 2001, 6,946,012;
December 29, 2000, 6,924,630 347 347 346
Class B shares issued (convertible into Class A):
1,222,729 61 61 61
Capital in excess of par value 44,411 44,411 44,291
Retained earnings 79,766 80,162 73,323
Contingent compensation (19) (44) (69)
Accumulated other comprehensive income:
Cumulative foreign currency translation
adjustment (22,570) (19,158) (18,519)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 101,996 105,779 99,433
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 244,123 $ 244,913 $ 273,041
===================================================================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
-2-
JOHNSON OUTDOORS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------------
(thousands) Three Months Ended
- ----------------------------------------------------------------------------------------------------------------------------
December 28 December 29
2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
CASH USED FOR OPERATIONS
Net loss $ (396) $ (1,474)
Less income from cumulative effect of change in accounting principle -- 1,755
- ----------------------------------------------------------------------------------------------------------------------------
Loss before cumulative effect of change in accounting principle (396) (3,229)
Adjustments to reconcile income to net cash used for operating activities:
Depreciation and amortization 2,446 3,100
Deferred income taxes 7 660
Impairment of goodwill -- 2,526
Change in assets and liabilities, net of effect of businesses acquired or sold:
Accounts receivable (3,365) (176)
Inventories (7,544) (15,642)
Accounts payable and accrued liabilities (3,721) (17,522)
Other, net (4,434) (923)
- ----------------------------------------------------------------------------------------------------------------------------
(17,007) (31,206)
- ----------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment 4,982 --
Payments for purchase of business, net of cash acquired -- (339)
Net additions to property, plant and equipment (1,207) (2,662)
- ----------------------------------------------------------------------------------------------------------------------------
3,775 (3,001)
- ----------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES
Issuance of senior notes 50,000 --
Principal payments on senior notes and other long-term debt (8,000) (6,000)
Net change in short-term debt (34,706) 36,947
- ----------------------------------------------------------------------------------------------------------------------------
7,294 30,947
- ----------------------------------------------------------------------------------------------------------------------------
Effect of foreign currency fluctuations on cash (412) 793
- ----------------------------------------------------------------------------------------------------------------------------
Decrease in cash and temporary cash investments (6,350) (2,467)
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 16,069 17,363
- ----------------------------------------------------------------------------------------------------------------------------
End of period $ 9,719 $ 14,896
============================================================================================================================
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 December 28, 2001 and the results of operations and cash
flows for the three months ended December 28, 2001. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 2001
Annual Report on Form 10-K.
Because of seasonal and other factors, the results of operations for the
three months ended December 28, 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.
2 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 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 earnings when the hedged item affects
earnings.
The adoption of SFAS 133 resulted in an effect of change in accounting
principle after tax gain of $1,755 in 2001.
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 Inventories
Inventories related to continuing operations at the end of the respective
periods consist of the following:
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December 28 September 28 December 29
2001 2001 2000
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Raw materials $ 23,259 $ 19,892 $ 28,477
Work in process 2,634 2,592 2,947
Finished goods 45,534 42,620 51,584
-------------------------------------------------------------------------
71,427 65,104 83,008
Less reserves 3,100 3,404 2,902
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$ 68,327 $ 61,700 $ 80,106
=========================================================================
-4-
5 Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per common share before cumulative effect of change in accounting
principle:
------------------------------------------------------------------------
Three Months Ended
------------------------------------------------------------------------
December 28 December 29
2001 2000
------------------------------------------------------------------------
Loss before cumulative effect of
change in accounting principle
for basic and diluted earnings
per share $ (396) $(3,229)
------------------------------------------------------------------------
Weighted average common shares
outstanding 8,168,934 8,147,359
Less nonvested restricted stock 14,193 14,500
------------------------------------------------------------------------
Basic and diluted average common shares 8,154,741 8,132,859
------------------------------------------------------------------------
Basic and diluted earnings per
common share before cumulative
effect of change in accounting
principle $ (0.05) $(0.40)
------------------------------------------------------------------------
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
-------------------------------------------------------------------------
Outstanding at September 28, 2001 1,086,795 $10.20
Granted 248,280 7.42
Cancelled (100,899) 16.25
-------------------------------------------------------------------------
Outstanding at December 28, 2001 1,234,176 $ 9.14
=========================================================================
Options to purchase 1,131,497 shares of common stock with a weighted
average exercise price of $10.88 per share were outstanding at December
29, 2000.
7 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 loss for the respective periods consists of the following:
-------------------------------------------------------------------------
Three Months Ended
-------------------------------------------------------------------------
December 28 December 29
2001 2000
-------------------------------------------------------------------------
Net loss $ (396) $ (1,474)
Translation adjustment (3,412) 3,041
Reclassification adjustment for
change in accounting principle -- (2,974)
-------------------------------------------------------------------------
Comprehensive loss $ (3,808) $ (1,407)
=========================================================================
-5-
8 Related Party Transaction
On November 30, 2001, the Company entered into a sale/leaseback
transaction for its headquarters facility with a related party. The
Company sold the facility for $4,982 in cash and entered into a
month-to-month lease agreement with the related party. The Company and the
related party engaged an independent appraiser to determine the sale price
of the facility. Additionally, due to the related party nature of the
transaction, the Company deferred the gain on the sale and will recognize
it over the useful life of the facility. The deferred gain is recorded as
a contra-asset within the property, plant and equipment section of the
balance sheet.
9 Accounting Change
Effective September 29, 2001 the Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets" (SFAS 142). In response to the adoption of
this new standard, the Company ceased the amortization of goodwill. As
such, net income for fiscal 2002 will be increased by approximately $1,500
when compared to fiscal 2001. As required under SFAS 142, the Company has
performed a phase one goodwill impairment test at September 29, 2001,
which identified the reporting units with potential for goodwill
impairment. The phase two analysis, used to measure the amount of any
impairment loss, will be completed by the end of the second quarter of
fiscal 2002. The preliminary analysis indicates a range of potential
goodwill impairment of $5,000 to $25,000. Any adjustment will be recorded
as a cumulative effect of a change in accounting principle net of tax and
reflected as of the beginning of the fiscal year, with the first quarter
10-Q restated accordingly.
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.
-6-
A summary of the Company's operations by business unit is presented below:
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Three Months Ended
--------------------------------------------------------------------------
December 28 December 29
2000 2000
--------------------------------------------------------------------------
Net sales:
Outdoor equipment:
Unaffiliated customers $ 22,715 $ 21,165
Interunit transfers 10 14
Diving:
Unaffiliated customers 13,823 16,167
Interunit transfers -- 1
Motors:
Unaffiliated customers 12,492 10,005
Interunit transfers 61 164
Watercraft:
Unaffiliated customers 10,703 11,385
Interunit transfers 33 35
Other 5 29
Eliminations (104) (214)
--------------------------------------------------------------------------
$ 59,738 $ 58,751
==========================================================================
Operating profit (loss):
Outdoor equipment $ 2,586 $ 1,298
Diving 1,484 1,816
Motors 550 (3,301)
Watercraft (1,348) (1,114)
Other (2,281) (2,268)
--------------------------------------------------------------------------
$ 991 $ (3,569)
==========================================================================
Identifiable assets (end of period):
Outdoor equipment $ 46,623 $ 47,848
Diving 81,912 95,178
Motors 28,816 32,985
Watercraft 70,638 74,220
Other 16,134 22,810
--------------------------------------------------------------------------
$ 244,123 $ 273,041
==========================================================================
-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 for the three months
ended December 28, 2001 and December 29, 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 2001 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 obligations to publicly update such forward-looking statements to
reflect subsequent events or circumstances.
Results of Operations
Net sales for the three months ended December 28, 2001 totaled $59.7 million, an
increase of 1.7% or $1.0 million, compared to $58.8 million in the three months
ended December 29, 2000. Foreign currency translations did not have a material
impact on first quarter sales volume. Two of the four business units showed
sales growth over the prior year, led by the Motors business which had a $2.4
million increase due to a shift in distributor buying patterns and recovery in
the OEM market. The Outdoor Equipment business had an increase of $1.5 million
driven by strong growth in the Jack Wolfskin business. The Diving business was
adversely impacted by reduced travel as the market reacts to recent global
events.
Gross profit as a percentage of sales was 42.3% for the three months ended
December 28, 2001 compared to 40.5% in the corresponding period in the prior
year. Margins in the Watercraft, Outdoor Equipment and Motors businesses were
improved over the prior year, while the Diving business saw margins decline. The
Watercraft business experienced operational improvements from business changes
implemented over the prior year. The Outdoor Equipment business benefited from
improved pricing driven by smaller average order quantities on its military
contracts. The Motors business benefited from new products and mix.
The Company recognized operating profit of $1.0 million for the three months
ended December 28, 2001 compared to an operating loss of $3.6 million for the
corresponding period of the prior year. Included in the operating loss for the
three months ended December 29, 2000 was a $2.5 million write-down for impaired
goodwill related to the Airguide brand in the Motors business. The current
quarter benefited from a $0.6 million reduction in amortization expense related
to the adoption of SFAS No. 142. The current quarter also included $0.5 million
of strategic charges related to the ongoing restructuring efforts in the
Watercraft business. On a comparable basis, excluding the unusual items noted
above, operating expenses decreased $0.4 million and operating profit rose by
$1.9 million in the first quarter versus a year ago.
Strong gross profits in the Motors and Outdoor Equipment business drove the
increase in operating profits. Watercraft operating profit was flat with prior
year, on lower sales volume, excluding the impact of
-8-
SFAS No. 142 and strategic charges. The Diving business reduced operating
expenses by $1.0 million, mitigating a portion of the impact of sales and margin
declines on operating profits.
Interest expense totaled $1.6 million for the three months ended December 28,
2001 compared to $2.1 million for the corresponding period of the prior year. In
the current year, the Company benefited from reductions in overall debt due to
reductions in working capital. In addition, the Company benefited from declining
interest rates on the floating rate facilities.
The Company's effective tax rate for the three months ended December 28, 2001
was 40.0%, consistent with the effective tax rate for the corresponding period
of the prior year.
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 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 earnings when the hedged
item affects earnings.
The adoption of SFAS 133 resulted in an effect of change in accounting principle
after tax gain of $1.8 million in 2001.
Net loss
Net loss for the three months ended December 28, 2001 was $0.4 million, or $0.05
per diluted share, compared to a loss of $1.5 million, or $0.18 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 $17.0 million for the three months ended
December 28, 2001 and $31.2 million for the corresponding period of the prior
year.
Accounts receivable seasonally increased $3.4 million for the three months ended
December 28, 2001, compared to an increase of $0.2 million in the year ago
period. However, the end-of-period balance is over $7 million lower than the
corresponding period of the prior year due to improved management of working
capital assets. Average days of sales outstanding are lower than the prior year
by 12 days. The Company has also worked to reduce inventory levels at all
businesses. Inventories increased by $7.5 million for the three months ended
December 28, 2001 compared to an increase of $15.6 million in the prior year
period. Inventories at December 28, 2001 were $12.2 million lower than the same
period a year ago. The Company is producing products at levels adequate to meet
consumer demand for the upcoming outdoor season.
Accounts payable and accrued liabilities decreased $3.7 million for the three
months ended December 28, 2001 and decreased $17.5 million for the corresponding
period of the prior year.
Depreciation and amortization charges were $2.4 million for the three months
ended December 28, 2001 and $3.1 million for the corresponding period of the
prior year. The decline from prior year is primarily related to the adoption of
SFAS No. 142.
-9-
The Company recorded a write-down of impaired goodwill for $2.5 million related
to the Airguide brand in the Motors business during the quarter ended December
29, 2000.
Investing Activities
Expenditures for property, plant and equipment were $1.3 million for the three
months ended December 28, 2001 and $2.7 million for the corresponding period of
the prior year. The Company's recurring investments are made primarily for
tooling for new products and enhancements. In 2002, capitalized expenditures are
anticipated to be consistent with those of the prior year. These expenditures
are expected to be funded by working capital or existing credit facilities. The
Company sold its headquarters facility to a related party in the first quarter.
Proceeds from the sale were $5.0 million. A gain on the sale is being deferred
due to the related party nature of the transaction.
Financing Activities
Cash flows from financing activities totaled $7.3 million for the three months
ended December 28, 2001 and $30.9 million for the corresponding period of the
prior year. The Company made principal payments on senior notes of $8.0 million
in the current year and $6.0 million in the prior year. The Company consummated
a private placement of long-term debt totaling $50.0 million during the first
quarter. Proceeds from the private placement were used to reduce outstanding
indebtedness under the Company's primary revolving credit facility.
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.
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.
-10-
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, plastics 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 December 28, 2001:
- --------------------------------------------------------------------------------
(millions) Estimated Impact on
- --------------------------------------------------------------------------------
Earnings Before Income
Fair Value Taxes
- --------------------------------------------------------------------------------
Foreign exchange rate instruments $0.2 $0.2
Interest rate instruments 2.1 0.7
================================================================================
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.
Accounting Change
Effective September 29, 2001 the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets" (SFAS 142). In response to the adoption of this new
standard, the Company ceased the amortization of goodwill. As such, net income
for fiscal 2002 will be increased by approximately $1.5 million when compared to
fiscal 2001. As required under SFAS 142, the Company has performed a phase one
goodwill impairment test at September 29, 2001, which identified the reporting
units with potential for goodwill impairment. The phase two analysis, used to
measure the amount of any impairment loss, will be completed by the end of the
second quarter of fiscal 2002. The preliminary analysis indicates a range of
potential goodwill impairment of $5 to $25 million. Any adjustment will be
recorded as a cumulative effect of a change in accounting principle net of tax
and reflected as of the beginning of the fiscal year, with the first quarter
10-Q restated accordingly.
-11-
Pending Accounting Change
In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets (SFAS 144). SFAS 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and provides
additional implementation guidance for assets to be held and used and assets to
be disposed of other than by sale. There will be no financial implication
related to the adoption of SFAS 144, and the guidance will be applied on a
prospective basis. The Company is required to adopt SFAS 144 in the first
quarter of fiscal 2003.
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 exhibits 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
December 28, 2001.
-12-
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: February 11, 2002
/s/ Helen P. Johnson-Leipold
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Helen P. Johnson-Leipold
Chairman and Chief Executive Officer
/s/ Paul A. Lehmann
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Paul A. Lehmann
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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