18    Fair Value Measurements

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy has been established based on three levels of inputs, of which the first two are considered observable and the last unobservable.

 

●		Level 1 - Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.
●		Level 2 - Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments.
●		Level 3 - Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

 

The carrying amounts of cash, cash equivalents, accounts receivable, and accounts payable approximated fair value at April 2, 2010, October 2, 2009 and April 3, 2009 due to the short maturities of these instruments. When indicators of impairment are present, the Company may be required to value certain long-lived assets such as property, plant, and equipment, and other intangibles at fair value.

 

 

 

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JOHNSON OUTDOORS INC.

 

Valuation Techniques

Over the Counter Derivative Contracts

The value of over the counter derivative contracts, such as interest rate swaps and foreign currency forward contracts, are derived using pricing models, which take into account the contract terms, as well as other inputs, including, where applicable, the notional values of the contracts, payment terms, maturity dates, credit risk, interest rate yield curves, and contractual and market currency exchange rates.  The pricing model used for valuing interest rate swaps does not entail material subjectivity because the methodologies employed do not necessitate significant judgment, and the pricing inputs are observed from actively quoted markets, as is the case with the generic interest rate swap the Company held during the year.

Rabbi Trust Assets

Rabbi trust assets are classified as trading securities and are comprised of marketable debt and equity securities that are marked to fair value based on unadjusted quoted prices in active markets.

 

Goodwill and Other Intangible Assets

In assessing the recoverability of the Company's goodwill and other intangible assets, the Company estimates the future discounted cash flows of the businesses to which the goodwill relates.  When estimated future discounted cash flows are less than the carrying value of the net assets and related goodwill, an impairment test is performed to measure and recognize the amount of the impairment loss, if any.  In determining estimated future cash flows, the Company makes assumptions regarding anticipated financial position, future earnings and other factors to determine the fair value of the respective assets.

The following table summarizes the Company’s financial assets and liabilities recorded on its balance sheet at fair value on a recurring basis as of April 2, 2010:

		Level 1				Level 2				Level 3				Total
Assets:
Rabbi trust assets		$	5,039			$	-			$	-			$	5,039
Foreign currency forward contracts			-				41				-				41
Liabilities:
Foreign currency forward contracts		$	-			$	216			$	-			$	216

The mark to market adjustments of the Rabbi trust assets are recorded in “Other (income) expense” in the Company’s condensed consolidated statement of operations. 

The fair value of the foreign exchange forward contracts reported above were measured using the market value approach.

The following table summarizes the amount of total gains or losses in the periods noted below attributable to the changes in fair value of the instruments noted above:

 

 

 

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JOHNSON OUTDOORS INC.

 

 

			Three Months Ended April 2, 2010				Six Months Ended April 2, 2010
	Location of income (loss) recognized in statement of operations		Amount of income (loss) recognized				Amount of income (loss) recognized
Rabbi trust assets	Other (income) expense		$	197			$	571
Foreign exchange forward contracts	Other (income) expense		$	(549	)		$	(695	)

Certain assets and liabilities are measured at fair value on a non-recurring basis in periods subsequent to their initial recognition.  

During the six months ended April 2, 2010, the Company recognized impairment on a warehouse facility in Casarza – Ligure, Italy of $114 to write the asset down to its fair value of $656.  The impairment charge was included in the “Administrative management, finance and information systems” line in the Company’s condensed consolidated statements of operations and in the Diving segment.  This facility was sold in March 2010 for $634.

19    Subsequent Events

The Company has evaluated subsequent events through the date which the Company’s condensed consolidated financial statements were issued.  Subsequent events are events or transactions that occur after the balance sheet date, but before the financial statements are issued.  Subsequent events can be one of two types:  recognized or non-recognized.  Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including estimates inherent in the process of preparing financial statements.  Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet, but arose before the financial statements are issued. There were no subsequ ent events as of the date the Company’s condensed consolidated financial statements were issued.

20    Segments of Business

The Company conducts its worldwide operations through separate business units, each of which represents major product lines. Operations are conducted in the United States and various foreign countries, primarily in Europe, Canada and the Pacific Basin. The Company had no single customer that represented more than 10% of its total net sales during the three and six month periods ended April 2, 2010 and April 3, 2009.

Net sales and operating profit include both sales to customers, as reported in the Company's condensed consolidated statements of operations, and interunit transfers, which are priced to recover cost plus an appropriate profit margin. Total assets represent assets that are used in the Company's operations in each business segment at the end of the periods presented.

 

 

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JOHNSON OUTDOORS INC.

 

A summary of the Company’s operations by business unit is presented below:

 

		Three Months Ended								Six Months Ended
		April 2 2010				April 3 2009				April 2 2010				April 3 2009
Net sales:
Marine electronics
Unaffiliated customers		$	61,970			$	58,675			$	95,045			$	90,642
Interunit transfers			126				57				146				68
Outdoor equipment
Unaffiliated customers			13,727				8,465				22,476				19,690
Interunit transfers			11				10				24				22
Watercraft
Unaffiliated customers			16,170				21,631				26,425				32,671
Interunit transfers			30				41				44				48
Diving
Unaffiliated customers			20,920				17,763				39,252				33,236
Interunit transfers			274				72				437				149
Other/Corporate			110				96				159				147
Eliminations			(441	)			(180	)			(651	)			(287	)
		$	112,897			$	106,630			$	183,357			$	176,386
Operating profit (loss):
Marine electronics		$	8,084			$	7,147			$	7,591			$	6,178
Outdoor equipment			1,935				405				2,665				1,330
Watercraft			134				(245	)			(1,011	)			(1,844	)
Diving			300				294				216				(903	)
Other/Corporate			(2,399	)			(1,809	)			(4,962	)			(4,192	)
		$	8,054			$	5,792			$	4,499			$	569
Total assets (end of period):
Marine electronics										$	122,986			$	116,624
Outdoor equipment											21,504				20,424
Watercraft											45,042				53,715
Diving											66,339				59,425
Other/Corporate											13,623				12,803
										$	269,494			$	262,991

 

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JOHNSON OUTDOORS INC.

 

 

Item 2     Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) includes comments and analysis relating to the results of operations and financial condition of Johnson Outdoors Inc. and its subsidiaries (the Company) as of and for the three and six month periods ended April 2, 2010 and April 3, 2009. All monetary amounts, other than share and per share amounts, are stated in millions.

 

Our MD&A is presented in the following sections:

 

●		Forward Looking Statements
●		Trademarks
●		Overview
●		Results of Operations
●		Liquidity and Financial Condition
●		Obligations and Off Balance Sheet Arrangements
●		Market Risk Management
●		Critical Accounting Policies and Estimates
●		New Accounting Pronouncements

 

This discussion should be read in conjunction with the condensed consolidated financial statements and related notes that immediately precede this section, as well as the Company’s Annual Report on Form 10-K for the fiscal year ended October 2, 2009 which was filed with the Securities and Exchange Commission on December 11, 2009.

 

Forward Looking Statements

 

Certain matters discussed in this Form 10-Q are “forward-looking statements,” and the Company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of those safe harbor provisions. These forward-looking statements can generally be identified as such because they include phrases such as the Company “expects,” “believes,” “anticipates” 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 diff er materially from those currently anticipated. Factors that could affect actual results or outcomes include the matters described under the caption "Risk Factors" in Item 1A of the Company’s Form 10-K which was filed with the Securities and Exchange Commission on December 11, 2009 and the following:  changes in consumer spending patterns; the Company’s success in implementing its strategic plan, including its focus on innovation and on cost-cutting and revenue enhancement initiatives; actions of and disputes with companies that compete with the Company; the Company’s success in managing inventory; the risk that the Company’s lenders may be unwilling to provide a waiver or amendment if the Company is in violation of its financial covenants and the cost to the Company of obtaining any waiver or amendment the lenders would be willing to provide; the risk of future writedowns of goodwill or other intangible assets; movements in foreign currencies or interest rates; fluctua tions in the prices of raw materials or the availability of raw materials; the Company’s success in restructuring certain of its operations; the success of suppliers and customers; the ability of the Company to deploy its capital successfully; unanticipated outcomes related to outsourcing certain manufacturing processes; unanticipated outcomes related to outstanding litigation matters; 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 filing. The Company assumes no obligation, and disclaims any obligation, to update such forward-looking statements to reflect subsequent events or circumstances.

 

 

 

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JOHNSON OUTDOORS INC.

 

Trademarks

 

We have registered the following trademarks, which may be used in this report: Minn Kota®, Cannon®, Humminbird®, Fishin' Buddy®, Silva®, Eureka!®, Tech4O™, Geonav®, Old Town®, Ocean Kayak™, Necky®, Lendal™, Extrasport®, Carlisle®, Scubapro®, UWATEC®, SUBGEAR® and SEEMANN™.

 

Overview

 

The Company is a leading global manufacturer and marketer of branded seasonal outdoor recreation products used primarily for fishing, diving, paddling and camping.  The Company’s portfolio of well-known consumer brands has attained leading market positions due to continuous innovation, marketing excellence, product performance and quality.  Company values and culture support entrepreneurialism in all areas, promoting and leveraging best practices and synergies within and across its subsidiaries to advance the Company’s strategic vision set by executive management and approved by the Board of Directors.  The Company is controlled by Helen P. Johnson-Leipold, Chairman and Chief Executive Officer, members of her family and related entities.

 

Highlights

 

The Company experienced a 5.9% increase in net sales for the quarter ended April 2, 2010 over the same period in the prior year and a 37.9% increase in operating profit.

 

Key changes in the quarter included:

 

■		Marine Electronics net sales increased 5.8% from the prior year quarter due to growth in the Minn Kota®, Cannon®, and Humminbird® brands across key channels in both the domestic and international boat markets.
■		Outdoor Equipment net sales were up 61.2% from the prior year quarter due to growth in all segments as military tent sales more than doubled and consumer camping revenues increased 42.7% versus the prior year quarter.
■		Watercraft net sales were 25.3% below the prior year quarter largely due to a change in pre-season sales programs primarily in the specialty channel, which adjust shipment dates to coincide more closely with the customer’s retail selling season.
■		Diving net sales were up 19.1% primarily due to significant growth in European markets and favorable currency translation of 4.8%.

 

Gross profit margins were 40.2% for the quarter ended April 2, 2010, compared to 37.5% in the prior year quarter.  The increase in the gross profit margin was due primarily to improved operating efficiency, cost savings and a more favorable product mix.

 

Operating expenses for the quarter ended April 2, 2010 were up $3.2 million from the prior year quarter.  The increase was driven primarily by variable costs associated with higher sales, increased research and development spending and bonus and profit sharing expense. 

 

Seasonality

 

The Company’s business is seasonal in nature. The second quarter falls within the Company’s primary selling season. The table below sets forth a historical view of the Company’s seasonality during the last three fiscal years.

 

 

 

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JOHNSON OUTDOORS INC.

 

		Year Ended
		October 2, 2009								October 3, 2008								September 28, 2007
		Net				Operating				Net				Operating				Net				Operating
Quarter Ended		Sales				Profit (Loss)				Sales				Profit (Loss)				Sales				Profit (Loss)
December			20	%			(1918	)%			18	%			(12	)%			17	%			(11	)%
March			30	%			2127	%			29	%			10	%			28	%			23	%
June			32	%			3888	%			34	%			38	%			35	%			74	%
September			18	%			(3997	)%			19	%			(136	)%			20	%			14	%
			100	%			100	%			100	%			(100	)%			100	%			100	%

 

Results of Operations

The Company’s net sales and operating profit (loss) by segment for the periods shown below are summarized as follows:

		Three Months Ended								Six Months Ended
		April 2				April 3				April 2				April 3
(millions)		2010				2009				2010				2009
Net sales:
Marine Electronics		$	62.1			$	58.7			$	95.2			$	90.7
Outdoor Equipment			13.7				8.5				22.5				19.7
Watercraft			16.2				21.7				26.5				32.7
Diving			21.2				17.8				39.7				33.4
Other/eliminations			(0.3	)			(0.1	)			(0.5	)			(0.1	)
Total		$	112.9			$	106.6			$	183.4			$	176.4
Operating profit (loss):
Marine Electronics		$	8.1			$	7.1			$	7.6			$	6.2
Outdoor Equipment			1.9				0.4				2.7				1.3
Watercraft			0.1				(0.2	)			(1.0	)			(1.8	)
Diving			0.3				0.3				0.2				(0.9	)
Other/eliminations			(2.4	)			(1.8	)			(5.0	)			(4.2	)
Total		$	8.0			$	5.8			$	4.5			$	0.6

 

See “Note 20 – Segments of Business” of the notes to the condensed consolidated financial statements for the definition of segment net sales and operating profit.

 

 

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JOHNSON OUTDOORS INC.

 

 

Net Sales

 

Net sales on a consolidated basis for the three months ended April 2, 2010 were $112.9 million, an increase of $6.3 million compared to $106.6 million for the three months ended April 3, 2009. Currency translation had a positive $2.3 million impact on consolidated net sales during the current quarter.

 

Net sales for the three months ended April 2, 2010 for the Marine Electronics business were $62.1 million, up $3.4 million or 5.8% from $58.7 million in the prior year quarter. Growth was seen primarily in the Minn Kota® brand in key channels versus the prior year quarter.  Currency had a $0.7 million positive impact in the current quarter.

 

Net sales for the Outdoor Equipment business were $13.7 million for the current quarter, an increase of $5.2 million or 61.2% from the prior year quarter sales of $8.5 million primarily as a result of increases in all business lines.

 

Net sales for the Watercraft business were $16.2 million, a decrease of $5.5 million or 25.3%, compared to $21.7 million in the prior year quarter, which decrease was primarily due to a change in pre-season sales programs which adjust shipment dates to coincide more closely with the customer’s retail selling season.  Currency translation had a $0.5 million positive impact on net sales in the current quarter.

 

Net sales for the Diving business were $21.2 million this quarter versus $17.8 million in the prior year quarter, an increase of $3.4 million or 19.1%.  The increase was primarily due to strong sales in Europe and favorable currency translation which had a $0.9 million positive impact on net sales in the current quarter.

 

Net sales on a consolidated basis for the six months ended April 2, 2010 were $183.4 million, an increase of $7.0 million compared to $176.4 million for the six months ended April 3, 2009. Currency translation had a positive $4.6 million impact on consolidated net sales during the current period.

 

Net sales for the six months ended April 2, 2010 for the Marine Electronics business were $95.2 million, up $4.5 million or 5.0% from $90.7 million in the prior year to date period. Growth was seen primarily in distributor channel sales versus the prior year to date period.  Currency translation had a positive $1.2 million impact on net sales in the current year.

 

Net sales for the Outdoor Equipment business were $22.5 million for the current year to date period, an increase of $2.8 million or 14.2% from the prior year to date period sales of $19.7 million.  The increase was primarily due to an increase in military tent and consumer camping orders.

 

Net sales for the Watercraft business year to date period were $26.5 million, a decrease of $6.2 million or 19.0%, compared to $32.7 million in the prior year to date period, which was primarily due to a change in pre-season sales programs which adjust shipment dates to coincide more closely with the customer’s retail selling season.  Currency translation had a $0.9 million positive impact on net sales in the current year to date period.

 

Net sales for the Diving business were $39.7 million year to date versus $33.4 million in the prior year to date period, an increase of $6.3 million or 18.9%.  The increase was due to strong sales in all markets  and an increase in favorable currency translation which had a $2.2 million positive impact on net sales in the current year.

 

Gross Profit Margin

 

Gross profit as a percentage of net sales was 40.2% on a consolidated basis for the three month period ended April 2, 2010 compared to 37.5% in the prior year quarter. The increase in gross profit margin was primarily due to improved operating efficiencies, favorable product mix and aggressive cost savings efforts undertaken in the current year.

 

Gross profit as a percentage of net sales was 39.1% on a consolidated basis for the six month period ended April 2, 2010 compared to 36.9% in the prior year to date period. The increase in gross profit margin was primarily due to improved operating efficiencies and aggressive cost savings efforts undertaken in the current year.

 

 

 

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JOHNSON OUTDOORS INC.

 

Operating Expenses

 

Operating expenses were $37.3 million for the quarter ended April 2, 2010, an increase of $3.1 million over the prior year quarter amount of $34.2 million.  Primary factors driving the increase in operating expenses were variable costs associated with higher sales, bonus and profit sharing expense in the current year quarter versus a reversal of expense in the same period in the prior year, a $0.2 million increase in deferred compensation expense and a $0.6 million increase in research and development spending.  The $0.2 million increase in deferred compensation expense is directly related to a $0.2 million gain on the assets related to the non-qualified deferred compensation plan recorded in other income and expense as discussed below.

 

Operating expenses were $67.2 million for the six months ended April 2, 2010, an increase of $2.7 million over the prior year period amount of $64.5 million.

 

Operating Profit/Loss

 

Operating profit on a consolidated basis for the three months ended April 2, 2010 was $8.1 million compared to $5.8 million in the prior year quarter, an improvement of $2.3 million.  The improvement in the Company’s operating profit in the current period from the prior year period was due to the factors impacting gross profit and operating expenses discussed above.

 

Operating profit on a consolidated basis for the six months ended April 2, 2010 was $4.5 million compared to an operating profit of $0.6 million in the prior year quarter due to the factors impacting gross profit and operating expenses discussed above.

 

Interest and Other Income and Expense

Interest expense totaled $1.4 million for the three months ended April 2, 2010, compared to $3.1 million in the corresponding period of the prior year.  For the six months ended April 2, 2010, interest expense totaled $2.6 million compared to $4.7 million in the corresponding period of the prior year.  The decreases from prior year are due primarily to the reduction in interest rates and overall debt levels in addition to an expense of $0.7 million incurred during the second quarter of the prior year to mark the Company’s interest rate swaps to market. See “Note 13 – Derivative Instruments and Hedging Activities” to the Company’s condensed consolidated financial statements for further discussion.

 

Interest income was less than $0.1 million for the three and six months ended April 2, 2010 as well as the three months ended April 3, 2009.  For the six months ended April 3, 2009, interest income was $0.1 million.

 

Other income/expense included a $0.2 million and $0.6 million market gain on the assets related to the non-qualified deferred compensation plan for the three and six month periods ended April 2, 2010, respectively.  Foreign currency exchange losses included in other income/expense were $0.5 million and $0.2 million for the three and six month periods ended April 2, 2010, respectively.   Foreign currency exchange gains for the three month period ended April 3, 2009 were $0.5 million.  For the six month period ended April 3, 2009, foreign currency exchange losses were $0.6 million.  See “Note 13 – Derivative Instruments and Hedging Activities” to the Company’s condensed consolidated financial statements for further discussion.

 

Income Tax Expense

 

The Company’s provision for income taxes is based upon estimated annual effective tax rates in the tax jurisdictions in which the Company operates. The Company’s effective tax rate for the three and six months ended April 2, 2010 was 3.4% and 17.8%, respectively, compared to 22.2% and 4.1% in the corresponding periods of the prior year. Significant items contributing to changes in the effective rate versus the prior year quarter primarily relate to an decrease in the valuation allowance in the current year quarter.

 

 

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JOHNSON OUTDOORS INC.

 

 

Net Income / Loss

Net income for the three months ended April 2, 2010 was $6.2 million, or $0.64 per diluted common class A and B share, compared to net income of $2.5 million, or $0.27 per diluted common class A and B share for the corresponding period of the prior year due to the factors discussed above.  Prior year earnings per share have been restated to reflect the adoption of new accounting guidance.  See “Note 4 – Earnings Per Share” to the Company’s condensed consolidated financial statements for further discussion.

 

Net income for the six months ended April 2, 2010 was $1.9 million, or $0.20 per diluted common class A and B share, compared to a net loss of $4.4 million or $0.49 per diluted common class A and B share for the corresponding period of the prior year due to the factors discussed above.

 

Liquidity and Financial Condition

 

Debt, net of cash balances, was $53.4 million as of April 2, 2010 compared to $51.4 million as of April 3, 2009.  The Company's debt-to-total capitalization ratio has increased to 39% as of April 2, 2010 from 37% as of April 3, 2009. The Company’s debt balance was $74.0 million as of April 2, 2010 compared to $65.3 million as of April 3, 2009.  See “Note 17 – Indebtedness” to the Company’s condensed consolidated financial statements for further discussion.

 

Accounts receivable, net of allowance for doubtful accounts, were $104.7 million as of April 2, 2010, an increase of $4.2 million compared to $100.5 million as of April 3, 2009. The increase year over year was primarily due to increased sales as well as the effect of foreign currency translation of $1.9 million.

 

Inventories, net of inventory reserves, were $69.1 million as of April 2, 2010, a decrease of $6.3 million compared to $75.4 million as of April 3, 2009. The decrease year over year was primarily due to a concerted effort to continue to reduce inventory levels through strict controls and improved processes partially offset by the effect of foreign currency translation of $2.1 million.

 

Accounts payable were $26.9 million compared to $34.4 million as of April 3, 2009. The decrease year over year was largely due to extended vendor payment cycles in the prior year offset somewhat by the effect of foreign currency translation of $0.6 million.

 

The Company’s cash flow from operating, investing and financing activities, as reflected in the condensed consolidated statements of cash flows, is summarized in the following table:

 

(millions)		Six Months Ended
		April 2  2010				April 3 2009
Cash provided by (used for):
Operating activities		$	(46.4	)		$	(24.9	)
Investing activities			(3.3	)			(5.7	)
Financing activities			42.2				2.9
Effect of exchange rate changes on cash and cash equivalents			0.2				(0.2	)
Decrease in cash and cash equivalents		$	(7.3	)		$	(27.9	)

Operating Activities

Cash flows used by operations totaled $46.4 million for the six months ended April 2, 2010 compared with $24.9 million used for operations during the corresponding period of the prior fiscal year.

 

The increase in accounts receivable for the six months ended April 2, 2010 totaled $62.2 million, compared with $48.6 million in the prior fiscal year period. Cash flows used by inventories totaled $9.3 million for the six months ended April 2, 2010 compared to reductions in inventory which provided $9.7 million in the prior year period. The year to date increase in inventory cash flow usage year over year was due primarily to increased production in the six month period ended April 2, 2010 in response to the stabilization of the outdoor recreational products market. Cash flows provided by accounts payable and accrued liabilities were $14.9 million for the six months ended April 2, 2010 versus $12.9 million for the corresponding period of the prior year.

 

 

 

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JOHNSON OUTDOORS INC.

 

 

Amortization of deferred financing costs, depreciation and other amortization charges were $5.0 million for the six month period ended April 2, 2010 compared to $5.2 million for the corresponding period of the prior year.

 

Investing Activities

Cash used for investing activities totaled $3.3 million for the six months ended April 2, 2010 and $5.7 million for the corresponding period of the prior year.  Current year cash usage related entirely to capital expenditures net of proceeds from sales of property, plant and equipment.  Capital expenditures for the six months ended April 3, 2009 were $3.0 million.  Cash used in the prior year also included payments of $1.8 million under interest rate swap contracts as well as $0.9 million of payments for the purchase of the Navicontrol business. The Company’s recurring investments are made primarily for tooling for new products and enhancements on existing products. Any additional expenditures in fiscal 2010 are expected to be funded by working capital or existing credit facilities.

Financing Activities

Cash flows provided by financing activities totaled $42.2 million and $2.9 million for the six months ended April 2, 2010 and April 3, 2009, respectively. The Company made principal payments on senior notes and other long-term debt of $0.3 million during the six month period ended April 2, 2010 and $0 during the same period of the prior year.

 

The Company had outstanding borrowings of $54.6 million on revolving credit facilities as of April 2, 2010 versus $0 million of borrowings against revolving credit facilities as of April 3, 2009.  Other short term borrowings outstanding were $2.8 million as of April 2, 2010 versus $4.6 million as of April 3, 2009.  The Company had outstanding borrowings on long term debt (net of current maturities) of $16.0 million and $60.7 million as of April 2, 2010 and April 3, 2009, respectively.

 

New Debt Agreements

 

On September 29, 2009 the Company and certain of its subsidiaries entered into new Term Loan Agreements (the "Term Loan Agreements" or "Term Loans") between the Company or one of its subsidiaries and Ridgestone Bank ("Ridgestone"), replacing the Company’s Amended and Restated Credit Agreement of $60.0 million that was due to mature on October 7, 2010.  The new Term Loan Agreements provide for initial aggregate term loan borrowings of $15.9 million with maturity dates ranging from 15 to 25 years from the date of the applicable Term Loan Agreement.  Each Term Loan requires monthly payments of principal and interest.  Interest on $9.3 million of the initial aggregate outstanding amount of the Term Loans is based on the prime rate plus 2.0%, and the remainder on the prime rate plus 2.75%.  The prime ra te was 3.25% at April 2, 2010.  The Term Loans are guaranteed in part under the United States Department of Agriculture Rural Development program and are secured with a first priority lien on land, buildings, machinery and equipment of the Company's domestic subsidiaries and a second lien on working capital assets and certain patents and trademarks of the Company and its subsidiaries.  Any proceeds from the sale of secured property is first applied against the related Term Loan and then against the Revolver (which is described below).  Certain of the Term Loans covering $9.3 million of the aggregate borrowings are subject to a pre-payment penalty.  In the first year of such Term Loan Agreements, the penalty is 10% of the pre-payment amount, decreasing by 1% annually.

 

On September 29, 2009 the Company also entered into a new Revolving Credit and Security Agreement (the "Revolving Credit Agreement" or "Revolver" and collectively, with the Term Loans and the Canadian Revolver described below, the "Debt Agreements") among the Company, certain of the Company's subsidiaries, PNC Bank, National Association, as lender, administrative agent and collateral agent, and the other lenders named therein, replacing the Company’s Amended and Restated Revolving Credit Agreement of $30.0 million (formerly $75.0 million) that was due to mature on October 7, 2010. The new Revolving Credit Agreement, maturing in September 2012, provides for funding of up to $69.0 million.  

 

 

 

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JOHNSON OUTDOORS INC.

 

 

On November 5, 2009, the Company closed on its Canadian asset backed credit facility (“Canadian Revolver” or collectively, with the Revolving Credit Agreement, “Revolvers”), increasing its total seasonal debt availability by $4.0 million for the period July 15th through November 15th, and by $6.0 million for the period November 16th through July 14th.  

 

Borrowing availability under the Revolvers is based on certain eligible working capital assets, primarily accounts receivable and inventory of the Company and its subsidiaries. The Revolvers contain a seasonal line reduction that reduces the maximum amount of borrowings to $50.0 million from mid-July to mid-November, consistent with the Company's reduced working capital needs throughout that period, and require an annual seasonal pay down to $25.0 million for 60 consecutive days.  The Company’s remaining borrowing availability under the Revolvers was approximately $13.2 million at April 2, 2010.  The Revolvers are secured with a first priority lien on working capital assets and certain patents and trademarks of the Company and its subsidiaries and a second lien on land, buildings, machinery and equipment of the Company's domestic subsidiaries.  As cash collections related to secured assets are applied against the balance outstanding under the Revolvers, the liability is classified as current.  The interest rate on the Revolvers is based primarily on LIBOR plus 3.25% with a minimum LIBOR floor of 2.0%.

 

Under the terms of the Debt Agreements, the Company is required to comply with certain financial and non-financial covenants.  Among other restrictions, the Company is restricted in its ability to pay dividends, incur additional debt and make acquisitions or divestitures above certain amounts.  The key financial covenants include a minimum fixed charge coverage ratio, limits on minimum net worth and EBITDA, a limit on capital expenditures, and a seasonal pay-down requirement.

 

The Company incurred less than $0.1 million and approximately $0.2 million of financing fees during the three and six month periods ended April 2, 2010, respectively, in conjunction with the execution of its Canadian Revolver which were capitalized and will be amortized over the life of the related debt.  The Company incurred and capitalized $0.1 million and $1.3 million of financing fees during the three and six month periods ended April 3, 2009, respectively, in conjunction with the December 31, 2008 loan modification to the Company’s then-existing debt agreements.

 

At April 2, 2010, the Company had borrowings outstanding under the Revolvers of $54.6 million and other short term borrowings outstanding of $2.8 million.

 

Interest Rate Swaps

 

Historically, the Company has used interest rate swaps in order to maintain a mix of floating rate and fixed rate debt such that permanent working capital needs are largely funded with fixed rate debt and seasonal working capital needs are funded with floating rate debt. To manage this risk in a cost efficient manner, the Company may enter into interest rate swaps in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount.

 

On October 29, 2007, the Company entered into a forward starting interest rate swap (the “Swap”) with a notional amount of $60.0 million receiving a floating three month LIBOR interest rate while paying at a fixed rate of 4.685% over a five year period beginning on December 14, 2007. Interest on the Swap was settled quarterly, starting on March 14, 2008.  The purpose of entering into the Swap transaction was to lock the interest rate on the Company’s $60.0 million of three-month floating rate LIBOR debt at 4.685%, before applying the applicable margin.  At the time the Swap was entered into, it was effective as a hedge.  As a result of the amendment and restatement of the Company’s then-existing debt agreements on January 2, 2009 and the related imposition of a LIBOR floor in the terms of those restated debt agreements, the Swap was no longer an effective economic hedge against the impact on interest payments of changes in the three-month LIBOR benchmark rate.  Prior to becoming ineffective, the effective portion of the Swap was recorded in accumulated other comprehensive income (“AOCI”), a component of shareholders’ equity on the Company’s consolidated balance sheets. As a result of this cash flow hedge becoming ineffective on January 2, 2009, $5.9 million of unrealized loss in AOCI was frozen and all subsequent changes in the fair value of the Swap were recorded directly to interest expense in the statement of operations.  The effective portion frozen in AOCI is amortized over the period of the originally hedged transaction.  The remaining amount held in AOCI shall be immediately recognized as interest expense if it ever becomes probable that the Company will not have interest bearing debt through December 14, 2012, the period over which the o riginally forecasted hedged transactions were expected to occur.  The Company expects that approximately $1.4 million of the $3.0 million remaining in AOCI at April 2, 2010 will be amortized into interest expense over the next 12 months.  During the three and six month periods ended April 2, 2010, $0.5 million and $0.9 million, respectively, was amortized into interest expense.

 

 

 

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JOHNSON OUTDOORS INC.

 

In the third quarter of fiscal 2009, the Company terminated all of its interest rate swap contracts.  As such, as of April 2, 2010, the Company remained unhedged with respect to interest rate risk on its floating rate debt.  The Company had no derivative instruments designated as hedging instruments as of April 2, 2010.

 

Obligations and Off Balance Sheet Arrangements

The Company has obligations and commitments to make future payments under debt agreements and operating leases. The following schedule details these obligations at April 2, 2010.

		Payment Due by Period
(millions)		Total				Remainder 2010					2011/12				2013/14			2015 & After
Long-term debt		$	15.7			$	0.3			$	0.9			$	1.0			$	13.5
Short-term debt			57.4				57.4				-				-				-
Operating lease obligations			21.4				3.2				7.7				5.0				5.5
Capital lease obligations			0.9				0.1				0.4				0.4				-
Open purchase orders			56.5				56.5				-				-				-
Contractually obligated interest payments			11.2				0.8				1.7				1.6				7.1
Total contractual obligations		$	163.1			$	118.3			$	10.7			$	8.0			$	26.1

Interest obligations on short-term debt are included in the category "contractually obligated interest payments" noted above only to the extent accrued as of April 2, 2010. Future interest costs on the Company’s Revolvers cannot be estimated due to the variability of the amount of borrowings and the interest rates on these facilities. Estimated future interest payments on the $15.7 million floating rate bank term debt and the $57.4 million revolving credit facilities and other short term debt were calculated under the terms of the debt agreements in place at April 2, 2010 using the market rates applicable in the current period and assuming that this rate would not change over the life of the term loan.

 

The Company also utilizes letters of credit primarily as security for the payment of future claims under its workers compensation insurance. Letters of credit outstanding at April 2, 2010 were $2.8 million compared to $2.2 million at April 3, 2009.

 

The Company anticipates making contributions to its defined benefit pension plans of $1.3 million through October 1, 2010.

 

The Company has no other off-balance sheet arrangements.

 

 

 

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JOHNSON OUTDOORS INC.

 

 

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. The Company may reduce exposure to certain of these market risks 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 euros, Swiss francs, 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, losses, assets and liabilities of the Company’s foreign operations, as reported in the Company’s consolidated financial statements, increase or decrease, accordingly. Approximately 26% of the Company’s revenues for the six months ended April 2, 2010 were denominated in currencies other than the U.S. dollar. Approximately 15% were denominated in euros, with the remaining 11% denominated in various other foreign currencies.

 

The Company mitigates, when appropriate, a portion of the fluctuations in certain foreign currencies through the purchase of foreign currency swaps, forward contracts and options.  These can be used to hedge the effect of changes in foreign currency exchange rates on financial instruments and known commitments for purchases of inventory and other assets denominated in foreign currencies.  As of April 2, 2010, the Company held foreign currency forward contracts with notional values of 10.4 million Swiss francs to hedge the effect of changes in foreign currency exchange rates on foreign currency denominated short term notes payable.  As of April 3, 2009, the Company held foreign currency forward contracts denominated in Japanese yen, Swiss francs, and euros.  See “Note 13 – Derivative Inst ruments and Hedging Activities” to the Company’s condensed consolidated financial statements for further information.

 

Interest Rates

The Company may use interest rate swaps, caps or collars in order to maintain a mix of floating rate and fixed rate debt such that permanent working capital needs are largely funded with fixed rate debt and seasonal working capital needs are funded with floating rate debt. The Company’s primary exposure is to changes in U.S. interest rates.  See “Financing Activities” above and “Note 13 – Derivative Instruments and Hedging Activities” to the Company’s condensed consolidated financial statements for a further discussion of the nature and use of these instruments.

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 include costs associated with metals, resins and packaging materials.

Sensitivity to Changes in Value

The estimated maximum potential loss from a 100 basis point movement in interest rates on the Company's term loan and short term borrowings outstanding at April 2, 2010 is $0 in fair value and $0.7 million in annual income before income taxes.  These estimates are intended to measure the maximum potential fair value or earnings the Company could lose in one year from adverse changes in market interest rates.  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 or the effect of interest rate floors.

 

 

 

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JOHNSON OUTDOORS INC.

 

 

The Company had $15.7 million outstanding in term loans, with maturities ranging from 15 to 25 years, with interest and principal payable monthly.  The term loans bear interest at the Prime rate plus a margin, which is reset each quarter at the prevailing rate.  The fair market value of these term loans was $15.7 million as of April 2, 2010.

 

Critical Accounting Policies and Estimates

 

The Company’s critical accounting policies are identified in the Company’s Annual Report on Form 10-K for the fiscal year ending October 2, 2009 in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Critical Accounting Policies and Estimates.” There were no significant changes to the Company’s critical accounting policies during the three months ended April 2, 2010.

 

New Accounting Pronouncements

In June 2008, the FASB issued guidance codified under ASC Topic 260 “Earnings Per Share” to clarify that instruments granted in share-based payment transactions can be participating securities prior to the requisite service having been rendered. This guidance applies to the calculation of earnings per share (“EPS”) for share-based payment awards with rights to dividends or dividend equivalents. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company adopted th is guidance effective October 3, 2009.   All prior-period EPS data presented has been adjusted retrospectively. The Company’s adoption of this guidance did not have a material impact on its condensed 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.”

 

Item 4T.  Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission’s rules and forms, and that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its Chief Executive Officer and Chie Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective at reaching a level of reasonable assurance. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. The Company has designed its disclosure controls and procedures to reach a level of reasonable assurance of achieving the desired control objectives.

 

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

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JOHNSON OUTDOORS INC.

 

PART II     OTHER INFORMATION

Item 6. Exhibits

See Exhibit Index to this Form 10-Q report.

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.
Signatures Dated:  May 10, 2010
	/s/ Helen P. Johnson-Leipold
	Helen P. Johnson-Leipold Chairman and Chief Executive Officer (Principal Executive Officer)
	/s/ David W. Johnson
	David W. Johnson Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

 

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Exhibit Index to Quarterly Report on Form 10-Q

Exhibit Number	Description
31.1	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 (1)	Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

_______________________________________

 

(1) This certification is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

 

 

 31

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Exhibit 31.1

Certification of Chief Executive Officer

 

Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under

the Securities Exchange Act of 1934

 

 

I, Helen P. Johnson-Leipold, certify that:

 

1)		I have reviewed this Quarterly Report on Form 10-Q of Johnson Outdoors Inc.;
2)		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
		a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
		b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
		c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5)		The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
		a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:	May 10, 2010		/s/ Helen P. Johnson-Leipold
			Helen P. Johnson-Leipold Chairman and Chief Executive Officer

 

 

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Exhibit 31.2

Certification of Chief Financial Officer

 

Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under

the Securities Exchange Act of 1934

 

I, David W. Johnson, certify that:

 

1)		I have reviewed this Quarterly Report on Form 10-Q of Johnson Outdoors Inc.;
2)		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
		a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
		b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
		c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5)		The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
		a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date:	May 10, 2010		/s/ David W. Johnson
			David W. Johnson Vice President and Chief Financial Officer Treasurer

 

 

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Exhibit 32.1

Written Statement of the Chairman and Chief Executive Officer

 

Pursuant to 18 U.S.C. Section 1350

 

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Chairman and Chief Executive Officer of Johnson Outdoors Inc. (the “Company”), hereby certify that the Quarterly Report on Form 10-Q of the Company for the quarter ended January 1, 2010 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Helen P. Johnson-Leipold                                     

Helen P. Johnson-Leipold Chairman and Chief Executive Officer May 10, 2010

 

Written Statement of the Vice President and Chief Financial Officer

 

Pursuant to 18 U.S.C. Section 1350

 

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Vice President and Chief Financial Officer of Johnson Outdoors Inc. (the “Company”), hereby certify that the Quarterly Report on Form 10-Q of the Company for the year ended January 1, 2010 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David W. Johnson                                                 

David W. Johnson Vice President and Chief Financial Officer Treasurer May 10, 2010

 

The above certifications are made solely for the purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.

 

 

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