UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[
X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the
fiscal year ended September 29, 2006
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
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
555
Main Street, Racine, Wisconsin 53403
(Address
of principal executive offices, including zip code)
(262)
631-6600
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of Each Class
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Name
of Exchange on
Which
Registered
|
|
|
Class
A Common Stock, $.05 par value
|
NASDAQ
Global MarketSM
|
Securities
registered pursuant to section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
Yes
[ ] No [ X ]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
[ ] No [ X ]
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 [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment
to
this Form 10-K. [ ]
Large
Accelerated Filer [
]
Accelerated
Filer [ X
]
Non-Accelerated
Filer [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
[ ] No [ X ]
As
of
November 1, 2006, 7,858,800 shares of Class A and 1,217,977 shares
of
Class B common stock of the registrant were outstanding. The aggregate market
value of voting and non-voting common stock of the registrant held by
nonaffiliates of the registrant was approximately $80,251,321 on March 31,
2006
(the last business day of the registrant’s most recently completed second
quarter). For purposes of this calculation only, shares of all voting stock
are
deemed to have a market value of $17.90 per share, the closing price of the
Class A common stock as reported on the NASDAQ Global MarketSM
on March
31, 2006. Shares
of
common stock held by any executive officer or director of the registrant and
any
person who beneficially owns 10% or more of the outstanding common stock have
been excluded from this computation because such persons may be deemed to be
affiliates. This determination of affiliate status is not a conclusive
determination for other purposes.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Proxy Statement for the 2007 Annual Meeting of the Shareholders of the
Registrant are incorporated by reference into Part III of this
report.
As
used
in this report, the terms "we," "us," "our," "Johnson Outdoors" and the
"Company" mean Johnson Outdoors Inc. and its subsidiaries, unless the context
indicates another meaning.
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TABLE
OF CONTENTS
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F-1
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Forward
Looking Statements
Certain
matters discussed in this Form 10-K 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 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 the
matters described under the caption "Risk Factors" in Item 1A of this
report and the following: changes in consumer spending patterns; the Company’s
success in implementing its strategic plan, including its focus on innovation;
actions of companies that compete with the Company; the Company’s success in
managing inventory; movements in foreign currencies or interest rates;
unanticipated issues related to the Company’s military tent business; 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; successful integration of acquisitions; adverse weather
conditions; and unanticipated events related to the terminated buy-out proposal.
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.
Trademarks
We
have
registered the following trademarks, which are used in this Form 10-K: Minn
Kota®, Cannon®, Humminbird®, Bottom Line®, Fishin' Buddy®, Silva®, Eureka!®, Old
Town®, Ocean Kayak™,
Necky®,
Escape®, Lendal™,
Extrasport®, Carlisle®, Scubapro®, and UWATEC®.
1
PART
I
|
ITEM
1.
|
The
Company designs, manufactures and markets outdoor recreation products in four
businesses: Marine Electronics, Outdoor Equipment, Watercraft, and Diving.
The
Company’s primary focus is market leading innovation - meeting consumer needs
with breakthrough products that stand apart from the competition and advance
the
Company’s strong brand names. Our subsidiaries operate as a network that is
intended to promote entrepreneurialism and leverage best practices and
synergies, following the strategic vision set by senior managers and approved
by
the Company’s Board of Directors. The Company is controlled by Helen P.
Johnson-Leipold, (our Chairman and Chief Executive Officer), members of her
family and related entities.
The
Company was incorporated in Wisconsin in 1987 as successor to various
businesses.
Marine
Electronics
The
Company manufactures, under its Minn
Kota
brand,
battery-powered electric motors used on fishing boats and other boats for quiet
trolling power or primary propulsion. The Company’s Minn
Kota
motors
and related accessories are sold in the United States (U.S.), Canada, Europe,
South America and the Pacific Basin through large retail store chains such
as
Wal-Mart, catalogs such as Bass Pro Shops and Cabelas, sporting goods specialty
stores, marine distributors, international distributors and original equipment
manufacturers (OEM) including Ranger® Boats, Skeeter Boats, and
Stratos/Champion. Consumer advertising and promotion includes advertising on
television and in outdoor, general interest and sports magazines, as well as
tournament sponsorships. Packaging and point-of-purchase materials are used
to
increase consumer appeal and sales.
The
Company has the leading market share of the U.S. electric fishing motor market.
Although this market has generally been flat over a number of years, the Company
has been able to gain market share by emphasizing marketing, product innovation
and quality.
On
October 3, 2005, the Company acquired the Cannon
downrigger and Bottom
Line
fishfinder brands and related assets for $9.9 million from Computrol, Inc.,
a
wholly owned subsidiary of Armstrong International. The Cannon and Bottom Line
brands are sold through the same channels as the Company’s other products in its
Marine Electronics business.
On
May 5,
2004, the Company acquired all of the outstanding common stock of Techsonic
Industries, Inc. (Techsonic), and certain other assets from the parent company
of Techsonic, Teleflex Incorporated, for $28.2 million. Techsonic is a
manufacturer and marketer of underwater sonar and GPS technology equipment.
The
acquisition added the Humminbird
fishfinder brand to the Company’s Marine Electronics portfolio. The Humminbird
brand is sold through the same channels as the Company’s other products in its
Marine Electronics business.
Outdoor
Equipment
The
products sold by the Company’s Outdoor Equipment business include Eureka!
military, commercial and consumer tents, sleeping bags and backpacks and
Silva
field
compasses and digital instruments.
Eureka!
consumer
tents, sleeping bags and backpacks compete primarily in the mid- to high-price
range and are sold in the U.S. and Canada through independent sales
representatives, primarily to sporting goods stores, catalog and mail order
houses and camping and backpacking specialty stores. Marketing of the Company’s
tents, sleeping bags and backpacks is focused on building the Eureka!
brand
name and establishing the Company as a leader in tent design and innovation.
Although the Company’s camping tents, sleeping bags and backpacks are produced
primarily by third-party manufacturing sources, design and innovation is
conducted at the Company's Binghamton, New York business location. Eureka!
camping
products are sold under license in Japan, Australia and Europe.
Eureka!
commercial tents include party tents, sold primarily to general rental stores,
and other commercial tents sold directly to tent erectors. Commercial tents
are
manufactured by the Company in the U.S. and the Company’s tent products range
from 10’x10’ canopies to 120’ wide pole tents and other large scale frame
structures.
2
Eureka!
also
designs and manufactures large, heavy-duty tents and lightweight backpacking
tents for the military. Current tents in production are a lightweight one-person
tent, a four-person four season tent and a modular, general purpose tent. Total
military tent sales by the Company in fiscal 2007 are expected to be in the
$25-$30 million range, compared to total sales in fiscal 2006 of approximately
$32 million.
Silva
field
compasses and digital instruments, which are manufactured by third parties,
are
marketed exclusively in North America, the area for which the Company owns
Silva
trademark rights.
Watercraft
The
Company manufactures and markets kayaks, canoes, paddles, oars, specialty
watercraft, personal flotation devices and small thermoformed recreational
boats
under the brand names Old
Town,
Carlisle
Paddles,
Ocean
Kayak, Pacific
Kayak,
Canoe
Sports, Necky,
Escape,
Extrasport,
Lendal Paddle,
Waterquest
and
Dimension.
The
Company’s Old
Town
Canoe
business produces high quality kayaks, canoes and accessories for family
recreation, touring and tripping. The Company uses a rotational-molding process
for manufacturing polyethylene kayaks and canoes to compete in the high volume,
low and mid-priced range of the market. These kayaks and canoes feature stiffer
and more durable hulls than higher priced boats. The Company also manufactures
canoes from fiberglass, Royalex (ABS) and wood. Carlisle
Paddles,
a
marketer of canoe and kayak paddles and rafting oars, supplies paddles and
oars
to the Company’s other watercraft businesses and also distributes directly to
the Company’s customers.
The
Company is a leading manufacturer of sit-on-top kayaks under the Ocean
Kayak
brand.
In addition, the
Company
manufactures and markets high
quality Necky
sea
touring and whitewater kayaks.
The
Company designs and markets small
thermoformed recreational boats, including canoes, pedal boats, deck boats
and
tenders, under the Waterquest
and
Escape
brands;
the Dimension
brand of
kayaks; and other paddle and watercraft accessory brands, including Extrasport
personal
flotation devices and wearable paddle gear. These
products are produced primarily by third-party sources.
The
Company’s kayaks, canoes and accessories are sold primarily to specialty stores
and marine dealers, sporting goods stores and catalog and mail order houses
such
as L. L. Bean® in the U.S. and Europe. Escape
and
Waterquest
products
are sold through marine dealers, resort & rental outlets and large retail
chains under several brand identities.
The
Company manufactures its Watercraft products in two locations in the U.S.,
one
in New Zealand and one in Scotland. The Company also contracts for manufacturing
of Watercraft products with third parties in Michigan, Tunisia and the Czech
Republic.
The
North
American market for kayaks and canoes has stabilized over the past year. The
Company believes, based on industry and other data, that it has grown market
share and continues to be a leading manufacturer of kayaks and canoes in the
U.S. in both unit and dollar sales.
On
October 3, 2006, the Company acquired all of the outstanding common stock of
Lendal Products Ltd. (Lendal) from that company’s founders for $1.4 million.
Lendal, which is located in Scotland, manufactures and markets premium
performance sea touring, whitewater and surf paddles and blades. Lendal products
are sold through the same channels as the Company’s other products in its
Watercraft business.
Diving
The
Company manufactures and markets underwater diving products for technical and
recreational divers, which it sells and distributes under the Scubapro
and
UWATEC
brand
names. The Company markets a complete line of underwater diving and snorkeling
equipment, including regulators, stabilizing jackets, dive computers and gauges,
wetsuits, masks, fins, snorkels and other accessories. Scubapro
and
UWATEC
products
are marketed to the high quality, premium segment of the market via selected
distribution to independent specialty dive stores worldwide. These specialty
dive stores generally provide a wide range of services to divers, including
sales, service and repair, diving education and travel.
3
The
Company focuses on maintaining Scubapro
and
UWATEC
as the
market leaders in innovation. The Company maintains research and development
functions in the U.S. and Europe and holds a number of patents on proprietary
products. The Company’s consumer communication focuses on building the brand and
highlighting exclusive product features and consumer benefits of the
Scubapro
and
UWATEC
product
lines. The Company’s communication and distribution reinforce the Scubapro
and
UWATEC
brands’
position as the industry’s quality and innovation leader. The Company markets
its equipment in diving magazines, via websites and through dive specialty
stores.
The
Company maintains manufacturing and assembly facilities in Switzerland, Italy
and Indonesia. The Company sources stabilizing jackets from a third-party
manufacturer in Mexico. The majority of the Company’s rubber, proprietary
materials, plastic products and other components are also sourced from
third-parties.
Financial
Information for Business Segments
As
noted
above, the Company has four reportable business segments. See Note 12 to the
Consolidated Financial Statements included elsewhere in this report for
financial information concerning each business segment.
International
Operations
See
Note
12 to the Consolidated Financial Statements included elsewhere in this report
for financial information comparing the Company’s domestic and international
operations. See Note 1, subheading “Foreign Operations and Related Derivative
Financial Instruments,” to the Consolidated Financial Statements included
elsewhere in this report for information respecting risks related to the
Company’s foreign operations.
Research
and Development
The
Company commits significant resources to research and new product development.
The Company expenses research and development costs as incurred except for
costs
of software development for new fishfinder products which are capitalized once
technological feasibility is established. These costs are then amortized over
the expected life of the software. The amounts expensed by the Company in
connection with research and development activities for each of the last three
fiscal years are set forth in the Company’s Consolidated Statements of
Operations included elsewhere in this report.
Competition
The
Company believes its products compete favorably on the basis of product
innovation, product performance and marketing support and, to a lesser extent,
price.
Marine
Electronics:
The main competitor in electric trolling motors is Motor Guide, owned by
Brunswick Corporation, which manufactures and sells a full range of trolling
motors and accessories. Competition in this business is focused on product
quality/durability as well as product benefits and features for fishing. The
main competitors in the charger market are Dual Pro from Charging Systems
International, Guest from Marinco and ProMariner from Professional Mariner.
Competition in this business is focused on charging time, safety, performance
and durability. The main competitors in the fishfinder market are Lowrance,
Garmin, Navman, and Ray Marine. Competition in this business is focused on
quality of sonar imaging and display as well as the integration of mapping
and
GPS technology. The main competitors in the downrigger market are Big Jon,
Walker and Scotty. Competition in this business focuses on ease of operation,
speed and durability.
Outdoor
Equipment:
The Company’s brands and products compete in the sporting goods and specialty
segments of the outdoor equipment market. Competitive brands with a strong
position in the sporting goods channel include Coleman and private label brands.
The Company also competes with specialty companies such as The North Face and
Kelty on the basis of materials and innovative designs for consumers who want
performance products priced at a value. The Company also competes in the
commercial tent market with Anchor Industries and Aztec for tension and frame
tents along with canopies based on structure and styling. The Company also
competes for military tent contracts under the U.S. Government bidding process;
competitors include Base-X, DHS Systems and Alaska Structures, Camel,
Outdoor Ventures, and Diamond Brands.
4
Watercraft:
The Company primarily competes in the paddle sport segment of kayaks and canoes.
The main competitors are Confluence Watersports/Watermark and Wenonah Canoe
which compete on the basis of their design, performance and
quality.
Diving:
The main competitors in Diving include Aqualung/U.S. Divers, Oceanic, Mares,
Cressi-sub, and Suunto, each of which competes on the basis of product
innovation, performance, quality and safety.
Employees
At
September 29, 2006, the Company had approximately 1,300 permanent employees.
The
Company considers its employee relations to be excellent. Temporary employees
are utilized to manage peaks in the seasonal manufacturing of
products.
Backlog
Unfilled
orders for future delivery of products totaled approximately $51.2 million
at
September 29, 2006 and $37.5 million at September 30, 2005. For the majority
of
its products, the Company’s businesses do not receive significant orders in
advance of expected shipment dates, with the exception of the military tent
business which has orders outstanding based on contractual
agreements.
Patents,
Trademarks and Proprietary Rights
The
Company owns no single patent that is material to its business as a whole.
However, the Company holds various patents, principally for diving products,
electric motors and fishfinders and regularly files applications for patents.
The Company has numerous trademarks and trade names which it considers important
to its business, many of which are noted on the preceding pages. The Company
vigorously defends its intellectual property rights.
Sources
and Availability of Materials
The
Company’s products are made using materials that are generally in adequate
supply and are available from a variety of third-party suppliers.
The
Company has an exclusive supply contract with a single vendor for materials
used
in its military tent business. Interruption or loss in the availability of
these
materials could have a material adverse impact on the sales and operating
results of the Company’s Outdoor Equipment business.
Seasonality
The
Company’s business is seasonal. The following table shows, for the past three
fiscal years, the total net sales and operating profit or loss of the Company
for each quarter, as a percentage of the total year.
|
Year
Ended
|
|||||||||||||||||||
|
September
29, 2006
|
September
30, 2005
|
October
1, 2004
|
|||||||||||||||||
|
Quarter
Ended
|
Net
Sales
|
Operating
Profit
(Loss)
|
|
Net
Sales
|
Operating
Profit
(Loss)
|
|
Net
Sales
|
|
Operating
Profit
(Loss)
|
|
|||||||||
|
December
|
19
|
%
|
(4
|
)%
|
20
|
%
|
—
|
%
|
18
|
%
|
7
|
%
|
|||||||
|
March
|
27
|
40
|
28
|
54
|
27
|
45
|
|||||||||||||
|
June
|
34
|
67
|
32
|
76
|
34
|
72
|
|||||||||||||
|
September
|
20
|
(3
|
)
|
20
|
(30
|
)
|
21
|
(24
|
)
|
||||||||||
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
||||||||
5
Available
Information
The
Company maintains a website at www.johnsonoutdoors.com. On its website, the
Company makes available, free of charge, its Annual Report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to
those reports, as soon as reasonably practical after the reports have been
electronically filed or furnished
to the Securities and Exchange Commission. In addition, the Company makes
available on its website, free of charge, its (a) Code of Business Conduct;
(b)
Code of Ethics for its Chief Executive Officer and Senior Financial and
Accounting Officers; and (c) the charters for the following committees of the
Board of Directors: Audit; Compensation; Executive; and Nominating and Corporate
Governance. The Company is not including the information contained on or
available through its website as a part of, or incorporating such information
by
reference into, this Annual Report on Form 10-K. This
report includes all material information about the Company that is included
on
the Company’s website and is otherwise required to be included in this
report.
ITEM
1A. RISK
FACTORS
The
risks
described below are not the only risks we face. Additional risks that we do
not
yet know of or that we currently think are immaterial may also impair our future
business operations. If any of the events or circumstances described in the
following risks actually occur, our business, financial condition or results
of
operations could be materially adversely affected. In such cases, the trading
price of our common stock could decline.
Our
net sales and profitability depend on our ability to continue to conceive,
design and market products that appeal to our consumers.
The
introduction of new products is critical in our industry and to our growth
strategy. Our business depends on our ability to continue to conceive, design,
manufacture and market new products and upon continued market acceptance of
our
product offering. Rapidly changing consumer preferences and trends make it
difficult to predict how long consumer demand for our existing products will
continue or what new products will be successful. Our current products may
not
continue to be popular or new products that we may introduce may not achieve
adequate consumer acceptance for us to recover development, manufacturing,
marketing and other costs. A decline in consumer demand for our products, our
failure to develop new products on a timely basis in anticipation of changing
consumer preferences or the failure of our new products to achieve and sustain
consumer acceptance could reduce our net sales and profitability.
Competition
in our markets could reduce our net sales and
profitability.
We
operate in highly competitive markets. We compete with several large domestic
and foreign companies such as Brunswick, Lowrance, Confluence and Aqualung/U.S.
Divers, with private label products sold by many of our retail customers and
with other producers of outdoor recreation products. Some of our competitors
have longer operating histories, stronger brand recognition and greater
financial, technical, marketing and other resources than us. In addition, we
may
face competition from new participants in our markets because the outdoor
recreation product industries have limited barriers to entry. We experience
price competition for our products, and competition for shelf space at
retailers, all of which may increase in the future. If we cannot compete
successfully in the future, our net sales and profitability will likely
decline.
Trademark
infringement or other intellectual property claims relating to our products
could increase our costs.
Our
industry is susceptible to litigation regarding trademark and patent
infringement and other intellectual property rights. We could be either a
plaintiff or defendant in trademark and patent infringement claims and claims
of
breach of license from time to time. The prosecution or defense of intellectual
property litigation is both costly and disruptive of the time and resources
of
our management even if the claim or defense against us is without merit. We
could also be required to pay substantial damages or settlement costs to resolve
intellectual property litigation.
Sales
of our products are seasonal, which causes our operating results to vary from
quarter to quarter.
Sales
of
our products are seasonal. Historically, our net sales and profitability have
peaked in the second and third fiscal quarters due to the buying patterns of
our
customers. Seasonal variations in operating results may cause our results to
fluctuate significantly in the first and fourth quarters and may tend to depress
our stock price during the first and fourth quarters.
6
The
trading price of shares of our common stock fluctuates and investors in our
common stock may experience substantial losses.
The
trading price of our common stock has been volatile and may continue to be
volatile in the future. The trading price of our common stock could decline
or
fluctuate in response to a variety of factors, including:
|
·
|
the
timing of our announcements or those of our competitors concerning
significant product developments, acquisitions or financial
performance;
|
|
·
|
fluctuation
in our quarterly operating results;
|
|
·
|
announcements
concerning new contracts with the U.S. Military;
|
|
·
|
substantial
sales of our common stock;
|
|
·
|
general
stock market conditions; or
|
|
·
|
other
economic or external factors.
|
You
may
be unable to sell your stock at or above your purchase price.
A
limited number of our shareholders can exert significant influence over the
Company.
As
of
November 1, 2006, Helen P. Johnson-Leipold, members of her family and related
entities (hereinafter the Johnson Family) held approximately 78% of the voting
power of both classes of our common stock taken as a whole. This voting power
would permit these shareholders, if they chose to act together, to exert
significant influence over the outcome of shareholder votes, including votes
concerning the election of directors, by-law amendments, possible mergers,
corporate control contests and other significant corporate
transactions.
We
may experience difficulties in integrating strategic
acquisitions.
As
part
of our growth strategy, we intend to pursue acquisitions that are consistent
with our mission and that will enable us to leverage our competitive strengths.
We have acquired:
|
·
|
Techsonic
Industries, Inc. effective May 5, 2004, including, without limitation
certain intellectual property used in its business.
|
|
·
|
Certain
assets of Computrol, Inc. on October 3, 2005, including, without
limitation certain intellectual property used in its
business.
|
|
·
|
Lendal
Products Ltd. on October 3, 2006, including, without limitation certain
intellectual property used in its
business.
|
Risks
associated with integrating strategic acquisitions include:
|
·
|
the
acquired business may experience losses which could adversely affect
our
profitability;
|
|
·
|
unanticipated
costs relating to the integration of acquired businesses may increase
our
expenses;
|
|
·
|
possible
failure to obtain any necessary consents to the transfer of licenses
or
other agreements of the acquired company;
|
|
·
|
possible
failure to maintain customer, licensor and other relationships after
the
closing of the transaction of the acquired company;
|
|
·
|
difficulties
in achieving planned cost-savings and synergies may increase our
expenses;
|
|
·
|
diversion
of our management’s attention could impair their ability to effectively
manage our other business operations; and
|
|
·
|
unanticipated
management or operational problems or liabilities may adversely affect
our
profitability and financial
condition.
|
7
We
are dependent upon certain key members of management.
Our
success will depend to a significant degree on the abilities and efforts of
our
senior management. Moreover, our success depends on our ability to attract,
retain and motivate qualified management, marketing, technical and sales
personnel. These people are in high demand and often have competing employment
opportunities. The labor market for skilled employees is highly competitive
due
to limited supply, and we may lose key employees or be forced to increase their
compensation to retain these people. Employee turnover could significantly
increase our training and other related employee costs. The loss of key
personnel, or the failure to attract additional personnel, could have a material
adverse effect on our business, financial condition or results of operations
and
on the value of our securities.
Sources
of and fluctuations in market prices of raw materials can affect our operating
results.
The
primary raw materials we use are metals, resins and packaging materials. These
materials are generally available from a number of suppliers, but we have chosen
to concentrate our sourcing with a limited number of vendors for each commodity
or purchased component. We believe our sources of raw materials are reliable
and
adequate for our needs. However, the development of future sourcing issues
related to the availability of these materials as well as significant
fluctuations in the market prices of these materials may have an adverse affect
on our financial results.
We
are subject to environmental and safety regulations.
We
are
subject to federal, state, local and foreign laws and other legal requirements
related to the generation, storage, transport, treatment and disposal of
materials as a result of our manufacturing and assembly operations. These laws
include the Resource Conservation and Recovery Act (as amended), the Clean
Air
Act (as amended) and the Comprehensive Environmental Response, Compensation
and
Liability Act (as amended). We believe that our existing environmental
management system is adequate and we have no current plans for substantial
capital expenditures in the environmental area. We do not currently anticipate
any material adverse impact on our results of operations, financial condition
or
competitive position as a result of compliance with federal, state, local and
foreign environmental laws or other legal requirements. However, risk of
environmental liability and changes associated with maintaining compliance
with
environmental laws is inherent in the nature of our business and there is no
assurance that material liabilities or changes would not arise.
Our
debt covenants may limit our ability to complete acquisitions, incur debt,
make
investments, sell assets, merge or complete other significant
transactions.
Our
credit agreement includes provisions that place limitations on a number of
our
activities, including our ability to:
|
·
|
incur
additional debt;
|
|
·
|
create
liens on our assets or make
guarantees;
|
|
·
|
make
certain investments or loans;
|
|
·
|
pay
dividends; or
|
|
·
|
dispose
of or sell assets or enter into a merger or similar
transaction.
|
These
debt covenants could restrict our ability to pursue opportunities to expand
our
business operations, including engaging in strategic acquisitions.
Our
shares of common stock are
thinly traded and our stock price may be more
volatile.
Because
our common stock is thinly traded, its market price may fluctuate significantly
more than the stock market in general or the stock prices of similar companies,
which are exchanged, listed or quoted on NASDAQ. Our public float is
4,195,829 shares
of
Class A common stock. Thus, our common stock will be less liquid than the stock
of companies with broader public ownership, and as a result, the trading prices
for our shares of common stock may be more volatile. Among other things, trading
of a relatively small volume of our common stock may have a greater impact
on
the trading price for our stock than would be the case if our public float
were
larger.
|
ITEM
1B.
|
UNRESOLVED
STAFF
COMMENTS
|
None.
8
|
ITEM
2.
|
The
Company maintains both leased and owned manufacturing, warehousing, distribution
and office facilities throughout the world. The Company believes that its
facilities are well maintained and have capacity adequate to meet its current
needs.
See
Note
5 to the Consolidated Financial Statements included elsewhere in this report
for
a discussion of the Company’s lease obligations.
The
Company’s principal manufacturing (identified with an asterisk) and other
locations are:
|
Alpharetta,
Georgia (Marine Electronics)
|
Eufaula,
Alabama* (Marine Electronics)
|
|
Antibes,
France (Diving)
|
Ferndale,
Washington* (Watercraft)
|
|
Bad
Säkingen,
Germany (Diving)
|
Genoa,
Italy* (Diving)
|
|
Barcelona,
Spain (Diving)
|
Grand
Rapids, Michigan (Watercraft)
|
|
Basingstoke,
Hampshire, England (Diving)
|
Great
Yarmouth, Norfolk, United Kingdom (Watercraft)
|
|
Batam,
Indonesia* (Diving and Outdoor Equipment)
|
Hallwil,
Switzerland* (Diving)
|
|
Binghamton,
New York* (Outdoor Equipment)
|
Henggart,
Switzerland (Diving)
|
|
Brignais,
France (Watercraft)
|
Mankato,
Minnesota* (Marine Electronics)
|
|
Burlington,
Ontario, Canada (Marine Electronics,
Outdoor
Equipment)
|
Napier,
New Zealand* (Watercraft)
|
|
Old
Town, Maine* (Watercraft)
|
|
|
Chatswood,
Australia (Diving)
|
Prestwick,
Ayrshire, United Kingdom* (Watercraft)
|
|
Chi
Wan, Hong Kong (Diving)
|
Silverdale,
New Zealand* (Watercraft)
|
|
El
Cajon, California (Diving)
|
Tokyo
(Kawasaki), Japan (Diving)
|
The
Company’s corporate headquarters is located in a leased facility in Racine,
Wisconsin.
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
See
Note
14 to the Consolidated Financial Statements included elsewhere in this report
for a discussion of legal proceedings.
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended September 29, 2006.
9
PART
II
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
Certain
information with respect to this item is included in Notes 9 and 10 to the
Company's Consolidated Financial Statements included elsewhere in this report.
The Company’s Class A common stock is traded on the NASDAQ Global
MarketSM
under
the symbol: JOUT. There is no public market for the Company’s Class B common
stock. However, the Class B common stock is convertible at all times at the
option of the holder into shares of Class A common stock on a share for share
basis. As of November 1, 2006, the Company had 706 holders of record of its
Class A common stock and 56 holders of record of its Class B common stock.
We
believe the beneficial owners of our Class A common stock on that date were
substantially greater. The Company has never paid a dividend on either class
of
its common stock.
A
summary
of the high and low prices for the Company’s Class A common stock during each
quarter of the years ended September 29, 2006 and September 30, 2005 is as
follows:
|
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||||||||||
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
||||
|
Stock
prices:
|
|||||||||||||||||||||||||
|
High
|
$
|
17.47
|
$
|
20.70
|
$
|
18.24
|
$
|
20.64
|
$
|
18.35
|
$
|
20.45
|
$
|
17.81
|
$
|
20.51
|
|||||||||
|
Low
|
16.05
|
19.02
|
16.69
|
17.85
|
15.97
|
16.64
|
16.52
|
16.40
|
|||||||||||||||||
The
following limitations apply to the ability of the Company to pay
dividends:
|
·
|
Pursuant
to the Company’s revolving credit agreement, dated as of October 7, 2005,
by and among the Company, the subsidiary borrowers from time to time
parties thereto and JPMorgan Chase Bank N.A., the Company is limited
in
the amount of restricted payments (primarily dividends and purchase
of
treasury stock) made during each fiscal year. The limitation is
approximately $23 million for the fiscal year ending September 28,
2007.
|
|
·
|
The
Company’s Articles of Incorporation provide that no dividend, other than
a
dividend payable in shares of the Company’s common stock, may be declared
or paid upon the Class B common stock unless such dividend is declared
or
paid upon both classes of common stock. Whenever a dividend (other
than a
dividend payable in shares of Company common stock) is declared or
paid
upon any shares of Class B common stock, at the same time there must
be
declared and paid a dividend on shares of Class A common stock equal
in
value to 110% of the amount per share of the dividend declared and
paid on
shares of Class B common stock. Whenever a dividend is payable in
shares
of Company common stock, such dividend must be declared or paid at
the
same rate on the Class A common stock and the Class B common
stock.
|
10
|
ITEM
6.
|
SELECTED
CONSOLIDATED FINANCIAL
DATA
|
The
following table presents selected consolidated financial data, which should
be
read along with the Company’s consolidated financial statements and the notes to
those statements and with “Item 7 - Management’s Discussion and Analysis of
Financial Condition and Results of Operations”. The consolidated statements of
operations for the years ended September 29, 2006, September 30, 2005 and
October 1, 2004, and the consolidated balance sheet data as of September 29,
2006 and September 30, 2005, are derived from the Company’s audited consolidated
financial statements included elsewhere herein. The consolidated statements
of
operations for the years ended October 3, 2003 and September 27, 2002, and
the
consolidated balance sheet data as of October 1, 2004, October 3, 2003 and
September 27, 2002, are derived from the Company’s audited consolidated
financial statements which are not included herein.
|
|
Year
Ended
|
|||||||||||||||
|
(thousands,
except per share data)
|
September
29
2006(6)
|
September
30
2005
|
|
|
October
1
2004(5)
|
|
|
October
3
2003
|
|
|
September
27
2002
|
|||||
|
Operating
Results (1)
|
||||||||||||||||
|
Net
sales
|
$
|
395,790
|
$
|
380,690
|
$
|
355,274
|
$
|
315,892
|
$
|
342,532
|
||||||
|
Gross
profit
|
165,216
|
156,354
|
147,618
|
127,989
|
141,054
|
|||||||||||
|
Operating
expenses
|
144,591
|
140,710
|
128,269
|
116,167
|
121,094
|
|||||||||||
|
Operating
profit
|
20,625
|
15,644
|
19,349
|
11,822
|
19,960
|
|||||||||||
|
Interest
expense
|
4,989
|
4,792
|
5,283
|
5,374
|
6,839
|
|||||||||||
|
Other
income (2)
|
(128
|
)
|
(1,250
|
)
|
(670
|
)
|
(3,254
|
)
|
(27,372
|
)
|
||||||
|
Income
from continuing operations before income taxes and
before
cumulative effect of change in accounting principle
|
15,764
|
12,102
|
14,736
|
9,702
|
40,493
|
|||||||||||
|
Income
tax expense
|
7,049
|
5,001
|
6,047
|
4,281
|
10,185
|
|||||||||||
|
Income
from continuing operations before cumulative effect of
change
in accounting principle
|
8,715
|
7,101
|
8,689
|
5,421
|
30,308
|
|||||||||||
|
Income
on disposal of discontinued operations
|
—
|
—
|
—
|
—
|
495
|
|||||||||||
|
Loss
from change in accounting principle
|
—
|
—
|
—
|
—
|
(22,876
|
)
|
||||||||||
|
Net
income
|
$
|
8,715
|
$
|
7,101
|
$
|
8,689
|
$
|
5,421
|
$
|
7,927
|
||||||
|
Basic
earnings (loss) per common share:
|
||||||||||||||||
|
Continuing
operations
|
$
|
0.97
|
$
|
0.82
|
$
|
1.01
|
$
|
0.64
|
$
|
3.69
|
||||||
|
Discontinued
operations
|
—
|
—
|
—
|
—
|
0.06
|
|||||||||||
|
Effect
of change in accounting principle
|
—
|
—
|
—
|
—
|
(2.79
|
)
|
||||||||||
|
Net
income
|
$
|
0.97
|
$
|
0.82
|
$
|
1.01
|
$
|
0.64
|
$
|
0.96
|
||||||
|
Diluted
earnings (loss) per common share:
|
||||||||||||||||
|
Continuing
operations
|
$
|
0.95
|
$
|
0.81
|
$
|
0.99
|
$
|
0.63
|
$
|
3.59
|
||||||
|
Discontinued
operations
|
—
|
—
|
—
|
—
|
0.06
|
|||||||||||
|
Effect
of change in accounting principle
|
—
|
—
|
—
|
—
|
(2.71
|
)
|
||||||||||
|
Net
income
|
$
|
0.95
|
$
|
0.81
|
$
|
0.99
|
$
|
0.63
|
$
|
0.94
|
||||||
|
Diluted
average common shares outstanding
|
9,161
|
8,795
|
8,774
|
8,600
|
8,430
|
|||||||||||
|
Balance
Sheet Data
|
||||||||||||||||
|
Current
assets (3)
|
$
|
184,897
|
$
|
186,035
|
$
|
194,641
|
$
|
195,135
|
$
|
192,137
|
||||||
|
Total
assets
|
284,226
|
283,318
|
293,714
|
277,657
|
271,285
|
|||||||||||
|
Current
liabilities (4)
|
57,650
|
56,196
|
59,110
|
50,031
|
53,589
|
|||||||||||
|
Long-term
debt, less current maturities
|
20,807
|
37,800
|
50,797
|
67,886
|
80,195
|
|||||||||||
|
Total
debt
|
37,807
|
50,800
|
67,019
|
77,473
|
88,253
|
|||||||||||
|
Shareholders’
equity
|
180,881
|
166,434
|
160,644
|
144,194
|
124,145
|
|||||||||||
|
(1)
|
The
year ended October 3, 2003 included 53 weeks. All other years include
52
weeks. The Company sold its European Jack Wolfskin business during
2002;
2002 includes ten months of results from this
business.
|
|
(2)
|
Includes
gain on sale of the European Jack Wolfskin business of $27,251 in
2002.
|
|
(3)
|
Includes
cash and temporary cash investments of $51,689, $72,111, $69,572,
$88,910,
and $100,830 as of the years ended 2006, 2005, 2004, 2003 and 2002,
respectively.
|
|
(4)
|
Excluding
short-term debt and current maturities of long-term
debt.
|
|
(5)
|
The
results in 2004 contain five months of operating results of the acquired
Humminbird business.
|
|
(6)
|
The
results in 2006 contain a full year of operating results of the acquired
Cannon/Bottom Line business.
|
11
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Executive
Overview
The
Company designs, manufactures and markets top-quality outdoor recreational
products for the whole family. Through a combination of breakthrough products,
strong marketing and key distribution relationships, the Company meets the
needs
of the consumer, setting itself apart from the competition. Its subsidiaries
operate as a network that promotes entrepreneurialism and leverages best
practices and synergies, following the strategic vision set by executive
management and approved by the Company’s Board of Directors.
The
4%
increase in net sales for the 2006 fiscal year resulted from growth in the
Company’s core consumer brands, off set by anticipated lower military revenues.
Key factors impacting the year-over-year sales results included:
|
§
|
The
successful integration of Cannon and Bottom Line brands into the
Company’s
Marine Electronics business, which added $9.8 million to the business’ net
sales, along with double-digit growth in the Humminbird brand and
increased international sales, drove the 13.2% increase in Marine
Electronics revenues.
|
|
§
|
The
Watercraft business grew 8.0% year-over-year as a result of a strong
line-up of new canoes and kayaks which drove double-digit growth
in key
international markets and among the business’ top 30 domestic customers
for the second year in a row.
|
|
§
|
The
Diving business’ sales were down slightly with strong performances in
North American and Asian markets almost offsetting unfavorable currency
translations and weakness in European markets.
|
|
§
|
The
Outdoor Equipment business reported a year-over-year decline of 12.5%
due
to a 33.5% reduction in military sales. This decline was partially
offset
by increased revenues in both Consumer and Commercial
businesses.
|
Operating
profit for the year was $20.6 million compared to $15.6 million in 2005. The
2005 results reflected $2.7 million in charges related to a terminated buy-out
proposal. Other key factors driving the year-over-year changes in operating
profit included:
|
§
|
Significant
growth in Marine Electronics and Watercraft sales due to successful
new
product introductions.
|
|
§
|
Reduced
restructuring and severance costs.
|
|
§
|
Reduced
overhead costs at corporate and operational levels.
|
|
§
|
Charges
totaling $1.5 million in fiscal 2006 related to the temporary closure
of
the Company’s Outdoor Equipment operations due to flooding caused by heavy
rains in the Northeast.
|
|
§
|
The
conclusion of contracts for higher margin military tents and the
overall
decrease in military sales.
|
Debt-to-total
capitalization stands at 17% at September 29, 2006, improved from 23% at
September 30, 2005. Cash, net of debt, decreased $7.4 million to $13.9 million
by year end. Depreciation and amortization expenses were $9.2 million in fiscal
2006 compared with $9.4 million in the prior year. Capital spending totaled
$8.9
million in 2006 compared with last year’s $6.8 million.
The
following discussion includes comments and analysis relating to the Company’s
results of operations and financial condition for the three years ended
September 29, 2006. This discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto attached to this
report.
12
Results
of Operations
Summary
consolidated financial results from continuing operations are as
follows:
|
(millions,
except per share data)
|
2006(2)
|
|
2005
|
2004(1)
|
|
|||||
|
Operating
Results
|
||||||||||
|
Net
sales
|
$
|
395.8
|
$
|
380.7
|
$
|
355.3
|
||||
|
Gross
profit
|
165.2
|
156.4
|
147.6
|
|||||||
|
Operating
expenses
|
144.6
|
140.7
|
128.3
|
|||||||
|
Operating
profit
|
20.6
|
15.6
|
19.3
|
|||||||
|
Interest
expense
|
5.0
|
4.8
|
5.3
|
|||||||
|
Net
income
|
8.7
|
7.1
|
8.7
|
|||||||
|
Diluted
earnings per common share
|
$
|
0.95
|
$
|
0.81
|
$
|
0.99
|
|
(1)
|
The
results in 2004 contain five months of operating results of the acquired
Humminbird business.
|
(2) The
results in 2006 contain a full year of operating results of the acquired
Cannon/Bottom Line business.
The
Company’s sales and operating earnings by business segment are summarized as
follows:
|
(millions)
|
2006
|
2005
|
2004(1)
|
|
||||||
|
Net
sales:
|
||||||||||
|
Marine
Electronics
|
$
|
164.5
|
$
|
145.2
|
$
|
109.8
|
||||
|
Outdoor
Equipment
|
65.9
|
75.3
|
90.2
|
|||||||
|
Watercraft
|
87.3
|
80.8
|
76.0
|
|||||||
|
Diving
|
78.5
|
79.4
|
80.1
|
|||||||
|
Other/Corporate/eliminations
|
(0.4
|
)
|
—
|
(0.7
|
)
|
|||||
|
Total
|
$
|
395.8
|
$
|
380.7
|
$
|
355.3
|
||||
|
Operating
profit:
|
||||||||||
|
Marine
Electronics
|
$
|
21.6
|
$
|
21.6
|
$
|
17.8
|
||||
|
Outdoor
Equipment
|
8.2
|
11.2
|
16.4
|
|||||||
|
Watercraft
|
(2.6
|
)
|
(4.4
|
)
|
(9.8
|
)
|
||||
|
Diving
|
5.6
|
4.9
|
9.9
|
|||||||
|
Other/Corporate/eliminations
|
(12.2
|
)
|
(17.7
|
)
|
(15.0
|
)
|
||||
|
Total
|
$
|
20.6
|
$
|
15.6
|
$
|
19.3
|
See
Note
12 in the notes to the consolidated financial statements included elsewhere
in
this report for the definition of segment net sales and operating
profits.
2006
vs 2005
Net
Sales
Net
sales
totaled $395.8 million in 2006 compared to $380.7 million in 2005, an increase
of 4.0% or $15.1 million. Foreign currency translations unfavorably impacted
2006 net sales by $1.2 million in comparison to 2005. Sales growth in the
Company’s Marine Electronics and Watercraft business units overcame declines in
the Outdoor Equipment and Diving business units.
Net
sales
for the Marine Electronics business increased $19.2 million, or 13.2% primarily
due to the successful integration of the Cannon and Bottom Line brands, which
added $9.8 million, and 19.2% growth in the Humminbird brand. Net sales for
the
Company’s Watercraft business increased $6.5 million, or 8.0%, as a result of a
strong line-up of new canoe, kayak and paddle sport product offerings. The
Company believes this growth in its core brands is reflective of solid product
innovation in those categories.
13
Net
sales
in the Company’s Outdoor Equipment business declined $9.4 million, or 12.5%,
primarily due to the decline in total military tent sales. The declines in
military tent sales were partially offset by strong sales in the Consumer and
Commercial businesses. The Consumer business specifically benefited from strong
sales in its specialty markets totaling $6.8 million which are not expected
to
recur in future years. The Diving business’ net sales in 2006 declined $0.9
million, or 1.2%, as compared to 2005. Additionally, sales growth in the U.S.
and Far East for the Company's Diving business was offset by declines in
European sales and a $1.9 million unfavorable currency translation impact.
Operating
Results
The
Company recognized an operating profit of $20.6 million in fiscal 2006 compared
to an operating profit of $15.6 million in fiscal 2005. Improved results in
the
Watercraft and Diving business units were offset by a decline in the Outdoor
Equipment business. Operating profit in the Marine Electronics business was
flat
as compared to the prior year. Company gross profit margins improved to 41.7%
in
fiscal 2006 from 41.1% in fiscal 2005. Higher commodity costs for components
negatively affected all businesses. Copper increases and product mix in the
Marine Electronics business and resin increases in the Watercraft business
significantly pressured margins in those segments. Cost saving efforts,
increased product selling prices, as well as business and product mix offset
the
negative effects of higher commodity costs.
Operating
expenses totaled $144.6 million, or 36.5% of net sales, in fiscal 2006 compared
to $140.7 million, or 37.0% of net sales, in fiscal 2005. Included in 2005
was
$2.7 million of costs related to the terminated buy-out transaction.
Additionally, declines in Sarbanes-Oxley compliance costs and lower
restructuring costs in the Diving and Watercraft business units impacted the
change in overall operating expenses. Included in 2006 results is $1.5 million
in net costs related to the flooding of the Company’s facility in Binghamton, NY
in late June of 2006.
Effective
October 1, 2005, the Company adopted the fair value recognition and measurements
provisions of SFAS No. 123(R), using the modified-prospective-transition method.
As a result of adopting SFAS 123(R), the Company’s income before income taxes
and net income was less than $0.1 million lower than if the Company had
continued to account for share-based compensation under APB Opinion No. 25.
Basic and fully diluted earnings per share would not have changed for 2006
if
the Company had not adopted SFAS No. 123(R). Total share-based compensation
under stock-based incentive plans, including stock options, restricted stock,
phantom stock and employee stock purchase plans was $0.7 million for
2006.
The
Marine Electronics business had operating profit of $21.6 million in fiscal
2006, which operating profit remained flat when compared to fiscal 2005. The
incremental profit of the Cannon and Bottom Line brands and increase in
Humminbird profits were offset by declines in the Minn Kota brand where profit
reductions were primarily driven by increases in commodity costs, increased
investments in research and development and increased promotional expenses.
The
Outdoor Equipment business operating profit decreased by $3.0 million, or 26.5%,
in fiscal 2006 when compared to fiscal 2005. The Outdoor Equipment business
declines were attributable to the significant decline in total military tent
sales. This decline was partially offset by improvements in profitability in
the
Consumer and Commercial businesses.
On
June
29, 2006, the Company announced a temporary closing of its Binghamton, New
York
manufacturing facility due to extensive flooding which occurred in the State
of
New York in June of 2006. The Company reopened this manufacturing facility
on
August 25, 2006. The Company’s finished goods warehouse in Binghamton was
unaffected by the floods and remained open for business. The Company has
incurred $4.7 million in losses and expenses associated with clean up, repair,
impairment of inventory, impairment of property and equipment and payroll
related to idle labor due to the flood. The Company has received $3.0 million
in
insurance reimbursements associated with these costs, has expensed $1.5 million
of these costs and has booked a receivable of $0.2 million at September 29,
2006. The Company does not expect to incur any further expenses that will not
be
reimbursed by its insurance providers. The Company is negotiating insurance
recoveries related to business continuation insurance and fixed asset
replacement. The amounts of these recoveries can not be estimated at September
29, 2006 and therefore will be recorded as income upon resolution of the gain
contingencies.
14
The
Watercraft business incurred an operating loss of $2.6 million in fiscal 2006
compared to an operating loss of $4.4 million in fiscal 2005. The reduced
operating loss in fiscal 2006 was the result of improvements in operating
efficiencies, a decline in the impact of restructuring charges ($1.3 million
in
fiscal 2005) and from a strong line-up of new canoe, kayak and paddle sport
product offerings. The Company continued to invest in its Escape
brand.
The
Diving business saw operating profit improve $0.7 million, or 14.3%, in fiscal
2006. Improved operating profits in the U.S. and the Far East were offset by
declining profits in European markets. Restructuring charges of $0.4 million
were incurred in fiscal 2006 compared to $1.1 million in 2005. These charges
related to warehouse consolidation and management reorganization in the
Company’s European diving operations.
Other
Income and Expenses
Interest
income in 2006 was flat compared to the prior year at $0.5 million. Interest
expense increased $0.2 million in fiscal 2006. Favorability resulting from
lower
amounts of term debt outstanding for the year was offset by higher short term
borrowings incurred to fund working capital needs. The Company realized currency
losses of $0.2 million in fiscal 2006 as compared to gains of $0.8 million
in
fiscal 2005.
Pretax
Income and Income Taxes
The
Company recognized pretax income of $15.8 million in fiscal 2006, compared
to
$12.1 million in fiscal 2005. The Company recorded income tax expense of $7.0
million in fiscal 2006, an effective rate of 44.7%, compared to $5.0 million
in
fiscal 2005, an effective rate of 41.3%. The effective tax rate for 2006 was
negatively impacted by recognition of charges related to additional foreign
tax
contingency reserves and a reduction in the rate used to record deferred tax
assets offset by a release of a valuation reserve for certain research and
development tax credits.
At
September 29, 2006, the Company had U.S. federal operating loss carryforwards
of
approximately $21.0 million, which begin to expire in 2013, as well as various
state net operating loss carryforwards. In addition, certain of the Company’s
foreign subsidiaries have operating loss carryforwards totaling $2.3 million.
These operating loss carryforwards are available to offset future taxable income
over the next 3 to approximately 20 years. The Company believes it will realize
its net deferred tax assets through the generation of future taxable income,
tax
planning strategies and reversals of deferred tax liabilities.
Net
Income
The
Company recognized net income of $8.7 million in fiscal 2006, or $0.95 per
diluted share, compared to net income of $7.1 million in fiscal 2005, or $0.81
per diluted share.
2005
vs 2004
Net
Sales
Net
sales
totaled $380.7 million in 2005 compared to $355.3 million in 2004, an increase
of 7.2% or $25.4 million. Foreign currency translations favorably impacted
2005
net sales by $3.3 million in comparison to 2004. Sales growth in the Company’s
Marine Electronics and Watercraft business units overcame a 20.9% decline in
total military tent sales and the continued decline in consumer tent sales.
The
decline in military tent sales was less than expected due to the award of new
contracts during fiscal 2005. While the outdoor equipment market continued
to
decline in 2005, the diving market was flat and the Company saw growth in the
marine electronics and watercraft markets.
Net
sales
for the Marine Electronics business increased $35.4 million (32.3%) primarily
from the addition of the Humminbird business, which added $33.4 million in
incremental sales for the full year compared with five months in fiscal 2004.
Net sales for the Company’s Watercraft business increased $4.8 million, or 6.4%,
as a result of a strong line-up of new canoe, kayak and paddle sport accessories
as well as successful new boat offerings. The Company believes much of its
growth in the Watercraft and Marine Electronics business units exceeded the
market due to solid product innovation in those categories.
Net
sales
in the Company’s Outdoor Equipment business declined $14.9 million, or 16.5%,
primarily due to the decline in total military tent sales and the consumer
tent
business. The Diving business’ net sales declined $0.7 million (0.8%) despite a
$2.0 million favorable currency translation impact and strong sales growth
in
North America.
Weak sales in Europe continued to challenge the Diving business. Overall, the
Company benefited from a $3.3 million favorable currency translation impact
on
net sales as reported.
15
Operating
Results
The
Company recognized an operating profit of $15.6 million in fiscal 2005 compared
to an operating profit of $19.3 million in fiscal 2004. Improved results in
the
Marine Electronics and Watercraft business units were offset by declines in
the
Outdoor Equipment and Diving business units. The Marine Electronics business
benefited from the inclusion of the Humminbird business for the full year
compared with five months during fiscal 2004. Company gross profit margins
fell
to 41.1% in fiscal 2005 from 41.6% in fiscal 2004. Significant commodity cost
increases negatively impacted the Marine Electronics and Watercraft business
units. However, the Watercraft business showed a net improvement due to
operational efficiencies arising from restructuring actions and the favorable
impact of new product sales. Outdoor Equipment gross margins declined as higher
priced urgent need military tent orders expired and Diving gross margins were
down slightly due to unfavorable geographical mix and close out pricing on
older
model products.
Operating
expenses totaled $140.7 million, or 37.0% of net sales, in fiscal 2005 compared
to $128.3 million, or 36.2% of net sales, in fiscal 2004 which 2004 results
benefited from a $2.0 million litigation settlement from a former employee.
Operating expenses in fiscal 2005 included $4.1 million in restructuring,
severance and integration costs in the Watercraft, Diving and Outdoor Equipment
business units and in the Corporate offices (compared to $2.9 million in fiscal
2004), $2.7 million of costs related to the terminated buy-out transaction
(compared with $1.5 in fiscal 2004) and $1.2 million paid to external auditors
and consultants related to Sarbanes-Oxley section 404 compliance.
The
Marine Electronics business had operating profit of $21.6 million in fiscal
2005
compared to $17.8 million in fiscal 2004. This increase was due to the
profitability of the Humminbird business which added $4.5 million in incremental
profit in fiscal 2005. Additionally, product innovations drove success in both
of the Company’s Minn Kota and Humminbird brands. The Marine Electronics
business was negatively affected by $2.6 million in higher commodity costs,
but
continued to deliver significant profit for the Company.
The
Outdoor Equipment business operating profit decreased by $5.2 million, or 31.5%,
in fiscal 2005 when compared to the prior year. The Outdoor Equipment business
declines were mainly attributable to the significant decline in total military
tent sales and the related personnel layoff costs of $0.4 million as well as
continued softness in sales of consumer tents.
The
Watercraft business incurred an operating loss of $4.4 million in fiscal 2005
compared to an operating loss of $9.8 million in fiscal 2004. The reduced
operating loss in fiscal 2005 was the result of improvements in operating
efficiencies, a decline in the impact of restructuring charges (from $2.5
million last year to $1.3 million in fiscal 2005) and from successful new
product launches. The restructuring charges were in accordance with the plan
to
outsource manufacturing at the Company’s Grand Rapids, Michigan facility and to
shift production from Mansonville, Canada to the Company’s Old Town, Maine
operation. Total restructuring charges in fiscal 2005 included $0.3 million
from
one-time termination costs, $0.8 million in costs associated with lease
terminations and $0.2 million from impairment or disposal of equipment and
inventory.
The
Diving business saw operating profit decline $5.0 million in fiscal 2005 due
in
part to a favorable $2.0 million legal settlement from a former employee
received in fiscal 2004. Operating profit declines versus fiscal 2004 were
also
the result of weak demand in international markets and $1.1 million spent to
start warehouse consolidation and management reorganization in the Company’s
European operations. The Company incurred an additional $0.4 million related
to
this restructuring in fiscal 2006.
Other
Income and Expenses
Interest
income was flat compared to the prior year at $0.5 million. Interest expense
decreased $0.5 million in fiscal 2005, resulting from lower amounts of debt
outstanding for the year. The Company realized currency gains of $0.8 million
in
fiscal 2005 as compared to $0.1 million in fiscal 2004.
16
Pretax
Income and Income Taxes
The
Company recognized pretax income of $12.1 million in fiscal 2005, compared
to
$14.7 million in fiscal 2004. The Company recorded income tax expense of $5.0
million in fiscal 2005, an effective rate of 41.3%, compared to $6.0 million
in
fiscal 2004, an effective rate of 41.0%.
Net
Income
The
Company recognized net income of $7.1 million in fiscal 2005, or $0.81 per
diluted share, compared to net income of $8.7 million in fiscal 2004, or $0.99
per diluted share.
Financial
Condition, Liquidity and Capital Resources
The
Company’s cash flow from operating, investing and financing activities, as
reflected in the consolidated statements of cash flows, is summarized in the
following table:
|
(millions)
|
2006
|
2005
|
2004
|
|||||||
|
Cash
provided by (used for):
|
||||||||||
|
Operating
activities
|
$
|
7.5
|
$
|
26.2
|
$
|
22.2
|
||||
|
Investing
activities
|
(18.6
|
)
|
(6.4
|
)
|
(35.5
|
)
|
||||
|
Financing
activities
|
(12.8
|
)
|
(15.0
|
)
|
(7.7
|
)
|
||||
|
Effect
of exchange rate changes
|
3.5
|
(2.3
|
)
|
1.7
|
||||||
|
Increase
(decrease) in cash and temporary cash investments
|
$
|
(20.4
|
)
|
$
|
2.5
|
$
|
(19.3
|
)
|
The
Company's debt to total capitalization ratio declined to 17% as of September
29,
2006 from 23% as of September 30, 2005.
Operating
Activities
The
following table sets forth the Company’s working capital position at the end of
each of the past three years:
|
(millions)
|
2006
|
2005
|
2004
|
|||||||
|
Current
assets (1)
|
$
|
184.9
|
$
|
186.0
|
$
|
194.6
|
||||
|
Current
liabilities (2)
|
57.7
|
56.2
|
59.1
|
|||||||
|
Working
capital (2)
|
$
|
127.2
|
$
|
129.8
|
$
|
135.5
|
||||
|
Current
ratio (2)
|
3.2:1
|
3.3:1
|
3.3:1
|
(1) 2006,
2005 and 2004 information includes cash and temporary cash investments of $51.7,
$72.1 and $69.6 million, respectively.
(2) Excludes
short-term debt and current maturities of long-term debt.
Cash
flows provided by operations totaled $7.5 million, $26.2 million and $22.2
million in fiscal 2006, 2005 and 2004, respectively. The major driver in the
decline of cash flows from operations in fiscal 2006 was created by an increase
in working capital. Increases in accounts receivable of $3.6 million and
inventory of $10.6 million offset by increases in accounts payable and other
accrued liabilities of $1.2 million reflect the increase in working capital.
The
major driver in the improvement of cash flows from operations in fiscal 2005
was
created by internal working capital management. Decreases in accounts receivable
of $0.8 million and inventory of $7.8 million offset by decreases in accounts
payable and other accrued liabilities of $1.3 million reflect the improved
working capital management. Major drivers in the improvement of cash flows
from
operations in fiscal 2004 were improved profitability, increases in accounts
payable and other accrued liabilities of $2.3 million and a decrease in accounts
receivable of $3.4 million. These improvements were offset by an increase in
inventory of $3.6 million from 2004 to 2005.
17
Depreciation
and amortization charges were $9.2 million in fiscal 2006, $9.4
million
in fiscal 2005 and $8.7 million in fiscal 2004.
Investing
Activities
Cash
flows used for investing activities were $18.6 million, $6.4 million and $35.5
million in fiscal 2006, 2005 and 2004, respectively. The acquisition of
Cannon/Bottom Line used $9.9 million in fiscal 2006 while the acquisition of
Humminbird used $28.2 million in fiscal 2004. Expenditures for property, plant
and equipment were $8.9 million, $6.8 million and $7.8 million in fiscal 2006,
2005 and 2004, respectively. The Company’s recurring expenditures are primarily
related to tooling for new products, facilities and information systems
improvements. In 2007, capital expenditures are anticipated to be somewhat
higher than in 2006 due to systems work in the U.S. and Europe and investments
in tooling in the U.S. These expenditures are expected to be funded by working
capital or existing credit facilities.
Financing
Activities
The
following table sets forth the Company’s debt and capital structure at the end
of the past three fiscal years:
|
(millions)
|
2006
|
2005
|
2004
|
|||||||
|
Current
debt
|
$
|
17.0
|
$
|
13.0
|
$
|
16.2
|
||||
|
Long-term
debt
|
20.8
|
37.8
|
50.8
|
|||||||
|
Total
debt
|
37.8
|
50.8
|
67.0
|
|||||||
|
Shareholders’
equity
|
180.9
|
166.4
|
160.6
|
|||||||
|
Total
capitalization
|
$
|
218.7
|
$
|
217.2
|
$
|
227.6
|
||||
|
Total
debt to total capitalization
|
17.3
|
%
|
23.4
|
%
|
29.4
|
%
|
Cash
flows used for financing activities totaled $12.8 million, $15.0 million and
$7.7 million in fiscal 2006, 2005 and 2004, respectively. Payments on long-term
debt were $13.0 million, $16.2 million and $9.6 million in fiscal 2006, 2005
and
2004, respectively.
On
October 7, 2005, the Company entered into a $75 million
unsecured revolving credit facility agreement expiring October 7, 2010.
Available credit under this agreement, along with cash provided by operating
activities, is expected to provide adequate funding for the Company’s operations
through October 7, 2010.
Contractual
Obligations and Off Balance Sheet Arrangements
The
Company has contractual obligations and commitments to make future payments
under its existing credit facility, including interest, operating leases and
open purchase orders. The following schedule details these significant
contractual obligations at September 29, 2006.
|
|
Payment
Due by Period
|
|||||||||||||||
|
(millions)
|
Total
|
Less
than
1
year
|
2-3
years
|
4-5
years
|
After
5 years
|
|||||||||||
|
Long-term
debt
|
$
|
37.8
|
$
|
17.0
|
$
|
20.8
|
$
|
—
|
$
|
—
|
||||||
|
Operating
lease obligations
|
26.1
|
5.4
|
7.6
|
5.2
|
7.9
|
|||||||||||
|
Open
purchase orders
|
56.1
|
56.1
|
—
|
—
|
—
|
|||||||||||
|
Contractually
obligated interest payments
|
4.0
|
2.4
|
1.6
|
—
|
—
|
|||||||||||
|
Total
contractual obligations
|
$
|
124.0
|
$
|
80.9
|
$
|
30.0
|
$
|
5.2
|
$
|
7.9
|
||||||
The
Company also utilizes letters of credit for trade financing purposes. Letters
of
credit outstanding at September 29, 2006 totaled $2.0 million.
18
The
Company anticipates making contributions to the defined benefit pension plans
of
$0.2 million through October 15, 2007.
The
Company has no other off-balance sheet arrangements.
Market
Risk Management
The
Company is exposed to market risk stemming from changes in foreign currency
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, assets and liabilities of the Company’s foreign
operations, as reported in the Company’s Consolidated Financial Statements,
increase or decrease, accordingly. In the past, the Company has mitigated 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. However, no significant transactions of these types
were
entered during fiscal years 2006 and 2005.
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 U.S. interest
rates. The Company also periodically enters into interest rate swaps, caps
or
collars to hedge its exposure and lower financing costs. The Company had no
interest rate swaps, caps or collars outstanding as of the fiscal 2006 and
2005
year ends.
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
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 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. The table below presents the
estimated maximum potential loss in fair value and annual earnings before income
taxes from a 100 basis point movement in interest rates on the Company's senior
notes outstanding at September 29, 2006:
|
Estimated
Impact on
|
||
|
(millions)
|
Fair
Value
|
Earnings
Before Income Taxes
|
|
Interest
rate instruments
|
$0.3
|
$0.4
|
The
Company has outstanding $37.8 million in unsecured senior notes as of September
29, 2006. The senior notes bear interest at rates that range from 7.15% to
7.82%
and are to be repaid through December 2008. The fair market value of the
Company’s fixed rate debt was $39.6 million as of September 29,
2006.
19
Other
Factors
The
Company experienced inflationary pressures during fiscal 2006 on energy, metals,
resins and freight charges. 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.
Critical
Accounting Policies and
Estimates
The
Company’s management discussion and analysis of its financial condition and
results of operations are based upon the Company’s consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the U.S. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of its assets, liabilities, sales and expenses, and related footnote
disclosures. On an on-going basis, the Company evaluates its estimates for
product returns, bad debts, inventories, intangible assets, income taxes,
warranty obligations, pensions and other post-retirement benefits, and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
The
Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements. Management has discussed these policies with the Audit
Committee of the Company’s Board of Directors.
Allowance
for Doubtful Accounts
The
Company recognizes revenue when title and risk of ownership have passed to
the
buyer. Allowances for doubtful accounts are estimated by the individual
operating companies based on estimates of losses related to customer receivable
balances. Estimates are developed by using standard quantitative measures based
on historical losses, adjusting for current economic conditions and, in some
cases, evaluating specific customer accounts for risk of loss. The establishment
of reserves requires the use of judgment and assumptions regarding the potential
for losses on receivable balances. Though the Company considers these balances
adequate and proper, changes in economic conditions in specific markets in
which
the Company operates and any specific customer collection issues the Company
identifies could have a favorable or unfavorable effect on reserve balances
required.
Inventories
The
Company values inventory at the lower of cost (determined using the first-in
first-out method) or market. Management’s judgment is required to determine the
reserve for obsolete or excess inventory. Inventory on hand may exceed future
demand either because the product is outdated or because the amount on hand
is
more than will be used to meet future needs. Inventory reserves are estimated
by
the individual operating companies using standard quantitative measures based
on
criteria established by the Company. The Company also considers current forecast
plans, as well as, market and industry conditions in establishing reserve
levels. Though the Company considers these balances to be adequate, changes
in
economic conditions, customer inventory levels or competitive conditions could
have a favorable or unfavorable effect on reserve balances
required.
Deferred
Taxes
The
Company records a valuation allowance to reduce its deferred tax assets to
the
amount that is more likely than not to be realized. While the Company has
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event
the
Company were to determine that it would not be able to realize all or part
of
its net deferred tax assets in the future, an adjustment to the deferred tax
assets would be charged to income in the period such determination was made.
Likewise, should the Company determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded amount, an
adjustment to the deferred tax assets would increase income in the period such
determination was made.
20
Goodwill
and Intangible Impairment
In
assessing the recoverability of the Company's goodwill and other intangibles,
the Company must make assumptions regarding estimated future cash flows and
other factors to determine the fair value of the respective assets. If these
estimates or their related assumptions change in the future, the Company may
be
required to record impairment charges for these assets not previously recorded.
Warranties
The
Company accrues a warranty reserve for estimated costs to provide warranty
services. Warranty reserves are estimated by the individual operating companies
using standard quantitative measures based on criteria established by the
Company. Estimates of costs to service its warranty obligations are based on
historical experience, expectation of future conditions and known product
issues. To the extent the Company experiences increased warranty claim activity
or increased costs associated with servicing those claims, revisions to the
estimated warranty reserve would be required. The Company engages in product
quality programs and processes, including monitoring and evaluating the quality
of its suppliers, to help minimize warranty obligations.
New
Accounting Pronouncements
In
July
2006, the Financial Accounting Standards Board (FASB) issued Interpretation
48
(“FIN 48”), Accounting
for Uncertainty in Income Taxes - an Interpretation of FASB Statement No
109.
The
Interpretation provides a consistent recognition threshold and measurement
attribute, as well as clear criteria for recognizing, derecognizing and
measuring uncertain tax positions for financial statement purposes. The
Interpretation also requires expanded disclosure with respect to the uncertainty
in income tax positions. FIN 48 will be effective beginning in fiscal year
2008
for the Company. Management is currently assessing the effect of this
pronouncement on the Company’s consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements.
This
statement defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. SFAS No. 157 clarifies
the definition of exchange price as the price between market participants in
an
orderly transaction to sell an asset or transfer a liability in the market
in
which the reporting entity would transact for the asset or liability, which
is
the principal or most advantageous market for the asset or liability. The
Company will be required to adopt SFAS No. 157 beginning in fiscal 2009. The
Company is currently assessing the effect of SFAS No. 157 on the Company’s
consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 158, Employers’
Accounting for Defined Pension and Other Postretirement Plans.
This
Statement requires recognition of the funded status of a single-employer defined
benefit postretirement plan as an asset or liability in its statement of
financial position. Funded status is determined as the difference between the
fair value of plan assets and the benefit obligation. Changes in that funded
status will be recognized in other comprehensive income. This recognition
provision and the related disclosures are effective in fiscal 2007 for the
Company. The Statement also requires the measurement of plan assets and benefit
obligations as of the date of the fiscal year-end balance sheet. This
measurement provision is effective for fiscal 2009 for the Company. Management
is currently assessing the effect of this pronouncement on the Company’s
consolidated financial statements.
|
ITEM
7A.
|
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
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA
|
Information
with respect to this item is included in the Company’s consolidated financial
statements attached to this report on pages F-1 to F-29.
21
ITEM
9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
|
ITEM
9A.
|
CONTROLS
AND
PROCEDURES
|
|
(a)
|
Evaluation
of Disclosure Controls and
Procedures
|
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 Company’s Chief Executive Officer and Chief Financial Officer, of
the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended). 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 in recording, processing, summarizing
and
reporting on a timely basis information required to be disclosed by the Company
in reports that the Company files with or submits to the Securities and Exchange
Commission. 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 and based on the evaluation described above,
the
Company’s Chief Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective at reaching that
level of reasonable assurance.
|
(b)
|
Changes
in Internal Control over Financial
Reporting.
|
There
was
no change in the Company’s internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934,
as
amended) during the Company’s most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
|
(c)
|
Management’s
Annual Report on Internal Control over Financial
Reporting
|
The
annual report of management required under this Item 9A is contained in the
section titled “Item 8. Financial Statements and Supplementary Data” under the
heading “Management’s Report on Internal Control over Financial
Reporting”.
|
(d)
|
Attestation
Report of Independent Registered Public Accounting
Firm
|
Ernst
& Young LLP, the independent registered public accounting firm who audited
the Company's consolidated financial statements, has issued an attestation
report on management's assessment of the Company's internal control over
financial reporting, which is contained in the Company's consolidated financial
statements under the heading “Report of Independent Registered Public Accounting
Firm on Internal Control over Financial Reporting.”
|
ITEM
9B.
|
OTHER
INFORMATION
|
None.
22
PART
III
ITEM
10. DIRECTORS AND EXECUTIVE
OFFICERS OF THE
REGISTRANT
Information
with respect to this item is incorporated herein by reference to the discussion
under the heading “Election of Directors,” “Executive Officers,” “Section 16(a)
Beneficial Ownership Reporting Compliance” and “Audit Committee Matters - Audit
Committee Financial Expert” in the Company's Proxy Statement for the 2007 Annual
Meeting of Shareholders, which will be filed with the Commission on or before
January 27, 2007. Information regarding the Company’s Code of Business
Ethics is incorporated herein by reference to the discussion under “Corporate
Governance Matters - Employee Code of Conduct and Code of Ethics and Procedures
for Reporting of Accounting Concerns” in the Company's Proxy Statement for the
2007 Annual Meeting of Shareholders.
The
Audit
Committee of the Company's Board of Directors is an “audit committee” for
purposes of Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
members of the Audit Committee are Terry E. London (Chairman), Thomas F. Pyle,
Jr. and John M. Fahey, Jr.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
Information
with respect to this item is included in the Company’s Proxy Statement for its
March 1, 2007 Annual Meeting of Shareholders, which, upon filing with the
Securities and Exchange Commission, will be incorporated herein by reference
and
will be filed with the Commission on or before January 27, 2007, under the
headings -“Compensation of Directors” and “Executive Compensation;” provided,
however, that the subsection entitled “Executive Compensation - Compensation
Committee Report on Executive Compensation” shall not be deemed to be
incorporated herein by reference.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
Information
with respect to this item is incorporated herein by reference to the discussion
under the heading “Stock Ownership of Management and Others” in the Company's
Proxy Statement for the 2007 Annual Meeting of Shareholders, which will be
filed
with the Commission on or before January 27, 2007.
Equity
Compensation Plan Information
The
following table summarizes share information, as of September 29, 2006, for
the
Company’s equity compensation plans, including the Johnson Outdoors Inc. 2003
Non-Employee Director Stock Ownership Plan, the Johnson Outdoors Inc. 2000
Long-Term Stock Incentive Plan, and the Johnson Outdoors Inc. 1987 Employees’
Stock Purchase Plan. All of these plans have been approved by the Company’s
shareholders.
|
Plan
Category
|
Number
of
Common
Shares to Be
Issued
Upon Exercise
of
Outstanding
Options,
Warrants
and Rights
|
Weighted-average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
|
Number
of
Common
Shares
Available
for Future
Issuance
Under
Equity
Compensation
Plans
|
|
Equity
compensation plans approved by
shareholders
|
332,533
|
$9.03
|
645,869 (1)
|
|
Equity
compensation plans not approved by shareholders
|
—
|
—
|
—
|
|
Total
|
332,533
|
$9.03
|
645,869 (1)
|
(1)
All
of the available shares under the 2003 Non-Employee Director Stock Ownership
Plan (116,257) and under the 2000 Long-Term Stock Incentive Plan (454,055)
may
be issued upon the exercise of stock options or granted as restricted stock,
and, in the case of the 2000 Long-Term Stock Incentive Plan, as share units.
There are 75,557 shares available for issuance under the Johnson Outdoors Inc.
1987 Employees’ Stock Purchase Plan, as amended.
23
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
|
Information
with respect to this item is incorporated herein by reference to the discussion
under the heading “Certain Relationships and Related Transactions” in the
Company's Proxy Statement for the 2007 Annual Meeting of Shareholders, which
will be filed with the Commission on or before January 27,
2007.
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES
|
Information
with resepct to this item is incorproated by reference to the discussion
under
the heading "Audit Committee Matters - Fees of Independent Registered Public
Accounting Firm" in the Company's Proxy Statement fot the 2007 Annual Meeting
of
Sharehodlers, which will be filed with the Commission on or before January
27,
2007.
PART
IV
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
The
following documents are filed as a part of this Form 10-K:
Financial
Statements
Included
in Item 8 of Part II of this Form 10-K are the following:
|
·
|
Management’s
Report on Internal Control over Financial Reporting
|
|
·
|
Report
of Independent Registered Public Accounting Firm on Internal Control
over
Financial Reporting
|
|
·
|
Report
of Independent Registered Public Accounting Firm on Consolidated
Financial
Statements
|
|
·
|
Consolidated
Balance Sheets - September 29, 2006 and September 30,
2005
|
|
·
|
Consolidated
Statements of Operations - Years ended September 29, 2006, September
30,
2005 and October 1, 2004
|
|
·
|
Consolidated
Statements of Shareholders’ Equity - Years ended September 29, 2006,
September 30, 2005 and October 1, 2004
|
|
·
|
Consolidated
Statements of Cash Flows - Years ended September 29, 2006, September
30,
2005 and October 1, 2004
|
|
·
|
Notes
to Consolidated Financial
Statements
|
Financial
Statement Schedules
All
schedules are omitted because they are not applicable, are not required or
equivalent information has been included in the Consolidated Financial
Statements or notes thereto.
Exhibits
See
Exhibit Index.
24
Pursuant
to the requirements of Section 13 or 15(d) 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, in the City of Racine and State
of
Wisconsin, on the
11th
day of
December 2006.
|
JOHNSON
OUTDOORS INC.
(Registrant)
|
|
|
By
|
/s/ Helen P.
Johnson-Leipold
|
|
Helen P. Johnson-Leipold
Chairman and Chief Executive
Officer
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed by the following persons on behalf of the registrant and in the
capacities indicated on the
11th
day of
December 2006.
|
/s/
Helen P. Johnson-Leipold
|
Chairman
and Chief Executive Officer
|
|
|
(Helen
P. Johnson-Leipold)
|
and
Director
|
|
|
(Principal
Executive Officer)
|
||
|
/s/
Thomas F. Pyle, Jr.
|
Vice
Chairman of the Board
|
|
|
(Thomas
F. Pyle, Jr.)
|
and
Director
|
|
|
/s/
Terry E. London
|
Director
|
|
|
(Terry
E. London)
|
||
|
/s/
John M. Fahey, Jr.
|
Director
|
|
|
(John
M. Fahey, Jr.)
|
||
|
/s/
W. Lee McCollum
|
Director
|
|
|
(W.
Lee McCollum)
|
||
|
/s/
Edward F. Lang, III
|
Director
|
|
|
(Edward
F. Lang, III)
|
||
|
/s/
David W. Johnson
|
Vice
President and Chief Financial Officer
|
|
|
(David
W. Johnson)
|
(Principal
Financial and Accounting
Officer)
|
25
EXHIBIT
INDEX
|
Exhibit
|
Title
|
|
2
|
Agreement
and Plan of Merger, dated October 28, 2004, by and between JO
Acquisition
Corp. and Johnson Outdoors Inc (Filed as Exhibit 2 to the Company’s Form
8-K dated October 28, 2004 and incorporated herein by
reference.)
|
|
3.1
|
Articles
of Incorporation of the Company as amended
through February 17, 2000.
(Filed as Exhibit 3.1(a) to the Company’s Form 10-Q for the quarter ended
March 31, 2000 and incorporated herein by reference.)
|
|
3.2
|
Bylaws
of the Company as amended through December 4, 2003.
(Filed as Exhibit 3.2(a) to the Company’s Form 10-K for the year ended
October 3, 2003
and incorporated herein by reference.)
|
|
4.1
|
Note
Agreement dated October 1, 1995. (Filed as Exhibit 4.1 to the
Company’s
Form 10-Q for the quarter ended December 29, 1995 and incorporated
herein
by reference.)
|
|
4.2
|
First
Amendment dated October 11, 1996 to Note Agreement dated October
1, 1995.
(Filed as Exhibit 4.3 to the Company’s Form 10-Q for the quarter ended
December 27, 1996 and incorporated herein by reference.)
|
|
4.3
|
Second
Amendment dated September 30, 1997 to Note Agreement dated October
1,
1995. (Filed as Exhibit 4.8 to the Company’s Form 10-K for the year ended
October 1, 1997 and incorporated herein by reference.)
|
|
4.4
|
Third
Amendment dated October 1, 1997 to Note Agreement dated October
1, 1995.
(Filed as Exhibit 4.9 to the Company’s Form 10-K for the year ended
October 1, 1997 and incorporated herein by reference.)
|
|
4.5
|
Fourth
Amendment dated January 10, 2000 to Note Agreement dated October
1, 1995.
(Filed as Exhibit 4.9 to the Company’s Form 10-Q for the quarter ended
March 31, 2000 and incorporated herein by reference.)
|
|
4.6
|
Fifth
Amendment dated December 13, 2001 to Note Agreement dated October
1, 1995.
(Filed as Exhibit 4.6 to the Company’s Form 10-K for the year ended
October 3, 2003 and incorporated herein by reference.)
|
|
4.7
|
Consent
and Amendment dated September 6, 2002 to Note Agreement dated October
1, 1995. (Filed as Exhibit 4.7 to the Company’s Form 10-K for the year
ended October 3, 2003 and incorporated herein by
reference.)
|
|
4.8
|
Note
Agreement dated as of September 15, 1997. (Filed as Exhibit 4.15
to the
Company’s Form 10-K for the year ended October 1, 1997 and incorporated
herein by reference.)
|
|
4.9
|
First
Amendment dated January 10, 2000 to Note Agreement dated September
15,
1997. (Filed as Exhibit 4.10 to the Company’s Form 10-Q for the quarter
ended March 31, 2000 and incorporated herein by
reference.)
|
|
4.10
|
Second
Amendment dated December 13, 2001 to Note Agreement dated September
15,
1997. (Filed as Exhibit 4.9 to the Company’s Form 10-K for the year ended
October 3, 2003 and incorporated herein by reference.)
|
|
4.11
|
Consent
and Amendment dated as of September 6, 2002 to Note Agreement dated
September 15, 1997. (Filed as Exhibit 4.11 to the Company’s Form 10-K for
the year ended October 3, 2003 and incorporated herein by
reference.)
|
|
4.12
|
Note
Agreement dated as of December 13, 2001. (Filed as Exhibit 4.12
to the
Company’s Form 10-K for the year ended October 3, 2003 and incorporated
herein by reference.)
|
|
4.13
|
Consent
and Amendment dated of September 6, 2002 to Note Agreement dated as
of December 13, 2001. (Filed as Exhibit 4.15 to the Company’s Form 10-K
for the year ended October 3, 2003 and incorporated herein by
reference.)
|
|
4.14
|
Revolving
Credit Agreement, dated as of October 7, 2005, by and among Johnson
Outdoors Inc. and, among others, JPMorgan Chase Bank, N.A. (Filed
as
Exhibit 4.15 to the Company’s Form 10-Q for the quarter ended December 30,
2005 and incorporated herein by
reference.)
|
26
|
9.1
|
Johnson
Outdoors Inc. Class B common stock Voting Trust Agreement, dated
December
30, 1993 (Filed as Exhibit 9 to the Company’s Form 10-Q for the quarter
ended December 31, 1993 and incorporated herein by reference.)
|
|
9.2
|
Amendment
to Johnson Outdoors Inc. Class B common stock Voting Trust Agreement,
dated December 30, 1993. (Filed as Exhibit 99.7 to Amendment
No. 4 to the
Schedule 13D filed jointly by Helen P. Johnson-Leipold, Imogene
P. Johnson
and the Samuel C. Johnson 1988 Trust Number One u/a September
14, 1988 on
June 28, 2004 and incorporated herein by reference.)
|
|
10.1
|
Stock
Purchase Agreement, dated as of January 12, 2000, by and between
Johnson
Outdoors Inc. and Berkley Inc. (Filed as Exhibit 2.1 to the Company’s Form
8-K dated March 31, 2000 and incorporated herein by
reference.)
|
|
10.2
|
Amendment
to Stock Purchase Agreement, dated as of February 28, 2000, by
and between
Johnson Outdoors Inc. and Berkley Inc. (Filed as Exhibit 2.2
to the
Company’s Form 8-K dated March 31, 2000 and incorporated herein by
reference.)
|
|
10.3+
|
Johnson
Outdoors Inc. Amended and Restated 1986 Stock Option Plan. (Filed
as
Exhibit 10 to the Company’s Form 10-Q for the quarter ended July 2, 1993
and incorporated herein by reference.)
|
|
10.4
|
Registration
Rights Agreement regarding Johnson Outdoors Inc. common stock
issued to
the Johnson family prior to the acquisition of Johnson Diversified,
Inc.
(Filed as Exhibit 10.6 to the Company’s Form S-1 Registration Statement
No. 33-16998 and incorporated herein by reference.)
|
|
10.5
|
Registration
Rights Agreement regarding Johnson Outdoors Inc. Class A common
stock held
by Mr. Samuel C. Johnson. (Filed as Exhibit 28 to the Company’s Form 10-Q
for the quarter ended March 29, 1991 and incorporated herein
by
reference.)
|
|
10.6+
|
Form
of Restricted Stock Agreement. (Filed as Exhibit 10.8 to the
Company’s
Form S-1 Registration Statement No. 33-23299 and incorporated
herein by
reference.)
|
|
10.7+
|
Form
of Supplemental Retirement Agreement of Johnson Diversified,
Inc. (Filed
as Exhibit 10.9 to the Company’s Form S-1 Registration Statement No.
33-16998 and incorporated herein by reference.)
|
|
10.8+
|
Johnson
Outdoors Retirement and Savings Plan. (Filed as Exhibit 10.9
to the
Company’s Form 10-K for the year ended September 29, 1989 and incorporated
herein by reference.)
|
|
10.9+
|
Form
of Agreement of Indemnity and Exoneration with Directors and
Officers.
(Filed as Exhibit 10.11 to the Company’s Form S-1 Registration Statement
No. 33-16998 and incorporated herein by reference.)
|
|
10.10
|
Consulting
and administrative agreements with S. C. Johnson & Son, Inc. (Filed as
Exhibit 10.12 to the Company’s Form S-1 Registration Statement No.
33-16998 and incorporated herein by reference.)
|
|
10.11+
|
Johnson
Outdoors Inc. 1994 Long-Term Stock Incentive Plan. (Filed as
Exhibit 4 to
the Company’s Form S-8 Registration Statement No. 333-88091 and
incorporated herein by reference.)
|
|
10.12+
|
Johnson
Outdoors Inc. 1994 Non-Employee Director Stock Ownership Plan.
(Filed as
Exhibit 4 to the Company’s Form S-8 Registration Statement No. 333-88089
and incorporated herein by reference.)
|
|
10.13+
|
Johnson
Outdoors Economic Value Added Bonus Plan (Filed as Exhibit 10.15
to the
Company’s Form 10-K for the year ended October 1, 1997 and incorporated
herein by reference.)
|
|
10.14+
|
Johnson
Outdoors Inc. 2000 Long-Term Stock Incentive Plan. (Filed as
Exhibit 99.1
to the Company’s Current Report on Form 8-K dated July 29, 2005 and
incorporated herein by
reference.)
|
27
|
10.15+
|
Share
Purchase and Transfer Agreement, dated as of August 28, 2002,
by and
between, among others, Johnson Outdoors Inc. and an affiliate
of Bain
Capital Fund VII-E (UK), Limited Partnership. (Filed as Exhibit
2.1 to the
Company’s Form 8-K dated September 9, 2002 and incorporated herein by
reference.)
|
|
10.16+
|
Johnson
Outdoors Inc. Worldwide Key Executive Phantom Share Long-Term
Incentive
Plan (Filed as Exhibit 10.1 to the Company’s Form 10-Q dated March 28,
2003 and incorporated herein by reference.)
|
|
10.17+
|
Johnson
Outdoors Inc. Worldwide Key Executives’ Discretionary Bonus Plan. (Filed
as Exhibit 99.3 to the Company’s Current Report on Form 8-K dated July 29,
2005 and incorporated herein by reference.)
|
|
10.18
|
Stock
Purchase Agreement by and between Johnson Outdoors Inc. and TFX
Equities
Incorporated. (Filed as Exhibit 2.1 to the Company’s Form 10-Q dated April
2, 2004 and incorporated herein by reference.)
|
|
10.19
|
Intellectual
Property Purchase Agreement by and among Johnson Outdoors Inc.,
Technology
Holding Company II and Teleflex Incorporated. (Filed as Exhibit
2.2 to the
Company’s Form 10-Q dated April 2, 2004 and incorporated herein by
reference.)
|
|
10.20+
|
Johnson
Outdoors Inc. 1987 Employees’ Stock Purchase Plan as amended. (Filed as
Exhibit 99.2 to the Company’s Current Report on Form 8-K dated July 29,
2005 and incorporated herein by reference.)
|
|
10.21+
|
Johnson
Outdoors Inc. 2003 Non-Employee Director Stock Ownership Plan.
(Filed as
Exhibit 10.2 to the Company’s Form 10-Q dated April 2, 2004 and
incorporated herein by reference.)
|
|
10.22+
|
Form
of Restricted Stock Agreement under Johnson Outdoors Inc. 2003
Non-Employee Director Stock Ownership Plan. (Filed as Exhibit
4.2 to the
Company’s Form S-8 Registration Statement No. 333-115298 and incorporated
herein by reference.)
|
|
10.23+
|
Form
of Stock Option Agreement under Johnson Outdoors Inc. 2003 Non-Employee
Director Stock Ownership Plan. (Filed as Exhibit 10.2 to the
Company’s
Form S-8 Registration Statement No. 333-115298 and incorporated
herein by
reference.)
|
|
10.24+
|
Severance
Agreement and Release between Jervis B. Perkins and Johnson Outdoors
Inc. dated as of May 5, 2006. (Filed as Exhibit 99.1 to the Company's
Current Report on Form 8-K dated May 10, 2006 and incorporated
by reference.)
|
|
11
|
Statement
regarding computation of per share earnings. (Note 15 to the
Consolidated
Financial Statements of the Company’s 2001 Form 10-K is incorporated
herein by reference.)
|
|
21
|
|
|
23
|
|
|
31.1
|
|
|
31.2
|
|
|
32.1(1)
|
|
|
32.2(1)
|
|
+
A
management contract or compensatory plan or arrangement.
(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.
28
|
CONSOLIDATED
FINANCIAL
STATEMENTS
|
||
|
Table
of Contents
|
Page
|
|
|
|
F-1
|
|
|
|
F-1
|
|
|
|
F-2
|
|
|
|
F-4
|
|
|
|
F-5
|
|
|
|
F-6
|
|
|
|
F-7
|
|
|
|
F-8
|
|
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The
management of Johnson Outdoors Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term
is
defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. The Company’s
internal control over financial reporting is designed to provide reasonable
assurance to the Company’s management and board of directors regarding the
preparation and fair presentation of published financial statements. The
Company’s internal control over financial reporting includes those policies and
procedures that:
|
(a)
|
pertain
to the maintenance of records that, in reasonable detail, accurately
and
fairly reflect the transactions and dispositions of the assets of
the
Company;
|
|
(b)
|
provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with generally
accepted
accounting principles, and that receipts and expenditures of the
Company
are being made only in accordance with authorizations of management
and
directors of the Company; and
|
|
(c)
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Therefore, even those systems determined to
be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation
of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of September 29, 2006. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal
Control-Integrated Framework.
Based
on our assessment, management believes that, as of September 29, 2006, the
Company’s internal control over financial reporting was effective based on those
criteria.
The
Company’s independent registered public accounting firm, Ernst & Young LLP,
has issued an attestation report on management’s assessment of the Company’s
internal control over financial reporting. This attestation report is set forth
immediately following this report.
|
/s/
Helen P.
Johnson-Leipold
|
/s/
David W.
Johnson
|
|
Helen
P. Johnson-Leipold
|
David
W. Johnson
|
|
Chairman
and Chief Executive Officer
|
Vice
President and Chief Financial Officer
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
Shareholders
and Board of Directors
Johnson
Outdoors Inc.:
We
have
audited management’s assessment, included in the accompanying Management’s
Report on Internal Control over Financial Reporting, that Johnson Outdoors
Inc.
(the Company) maintained effective internal control over financial reporting
as
of September 29, 2006, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). The Company’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management’s
assessment and an opinion on the effectiveness of the Company’s internal control
over financial reporting based on our audit.
F-1
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed 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. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management’s assessment that the Company maintained effective internal
control over financial reporting as of September 29, 2006, is fairly stated,
in
all material respects, based on the COSO criteria. Also, in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of September 29, 2006, based on the COSO criteria.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Johnson
Outdoors Inc. as of September 29, 2006 and September 30, 2005, and the related
consolidated statements of operations, shareholders’ equity and cash flows for
each of the three years in the period ended September 29, 2006 of Johnson
Outdoors Inc. and our report dated December 11,
2006
expressed an unqualified opinion thereon.
|
/s/
Ernst & Young LLP
|
|
|
Ernst
& Young LLP
|
|
|
Milwaukee,
Wisconsin
|
|
|
December
11, 2006
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS
Shareholders
and Board of Directors
Johnson
Outdoors Inc.:
We
have
audited the accompanying consolidated balance sheets of Johnson Outdoors Inc.
as
of September 29, 2006 and September 30, 2005, and the related consolidated
statements of operations, shareholders’ equity, and cash flows for each of the
three years in the period ended September 29, 2006. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
F-2
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Johnson Outdoors
Inc.
as of September 29, 2006 and September 30, 2005 and the consolidated results
of
its operations and its cash flows for each of the three years in the period
ended September 29, 2006 in conformity with U.S. generally accepted accounting
principles.
As
discussed in Note 1 of the consolidated financial statements, effective October
1, 2005 the Company changed its method of accounting for share-based payments.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of September 29, 2006, based on criteria
established in Internal Control-Integrated Framework issued by the Committee
of
Sponsoring Organizations of the Treadway Commission and our report dated
December 11, 2006 expressed an unqualified opinion thereon.
|
/s/
Ernst & Young LLP
|
|
|
Ernst
& Young LLP
|
|
|
Milwaukee,
Wisconsin
|
|
|
December
11, 2006
|
F-3
CONSOLIDATED
BALANCE SHEETS
|
(thousands,
except share data)
|
September
29
2006
|
September
30
2005
|
|||||
|
Assets
|
|||||||
|
Current
assets:
|
|||||||
|
Cash
and temporary cash investments
|
$
|
51,689
|
$
|
72,111
|
|||
|
Accounts
receivable less allowance for doubtful
accounts
of $2,318 and $2,546, respectively
|
52,844
|
48,274
|
|||||
|
Inventories
|
63,828
|
51,885
|
|||||
|
Income
taxes refundable
|
¾
|
746
|
|||||
|
Deferred
income taxes
|
9,462
|
8,118
|
|||||
|
Other
current assets
|
7,074
|
4,901
|
|||||
|
Total
current assets
|
184,897
|
186,035
|
|||||
|
Property,
plant and equipment, net
|
31,600
|
31,393
|
|||||
|
Deferred
income taxes
|
14,576
|
19,675
|
|||||
|
Goodwill
|
42,947
|
37,733
|
|||||
|
Other
intangible assets, net
|
4,590
|
3,534
|
|||||
|
Other
assets
|
5,616
|
4,948
|
|||||
|
Total
assets
|
$
|
284,226
|
$
|
283,318
|
|||
|
Liabilities
And Shareholders’ Equity
|
|||||||
|
Current
liabilities:
|
|||||||
|
Current
maturities of long-term debt
|
$
|
17,000
|
$
|
13,000
|
|||
|
Accounts
payable
|
17,506
|
17,872
|
|||||
|
Accrued
liabilities:
|
|||||||
|
Salaries,
wages and benefits
|
16,577
|
17,052
|
|||||
|
Accrued
discounts and returns
|
5,047
|
4,613
|
|||||
|
Accrued
interest payable
|
1,118
|
1,804
|
|||||
|
Income
taxes payable
|
1,258
|
—
|
|||||
|
Other
|
16,144
|
14,855
|
|||||
|
Total
current liabilities
|
74,650
|
69,196
|
|||||
|
Long-term
debt, less current maturities
|
20,807
|
37,800
|
|||||
|
Other
liabilities
|
7,888
|
9,888
|
|||||
|
Total
liabilities
|
103,345
|
116,884
|
|||||
|
Shareholders’
equity:
|
|||||||
|
Preferred
stock: none issued
|
—
|
—
|
|||||
|
Common
stock:
|
|||||||
|
Class
A shares issued:
September
29, 2006, 7,858,800;
September
30, 2005, 7,796,340
|
393
|
390
|
|||||
|
Class
B shares issued (convertible into Class A):
September
29, 2006, 1,217,977;
September
30, 2005, 1,219,667
|
61
|
61
|
|||||
|
Capital
in excess of par value
|
55,459
|
55,279
|
|||||
|
Retained
earnings
|
118,015
|
109,300
|
|||||
|
Deferred
compensation
|
¾
|
(598
|
)
|
||||
|
Accumulated
other comprehensive income
|
6,953
|
2,002
|
|||||
|
Total
shareholders’ equity
|
180,881
|
166,434
|
|||||
|
Total
liabilities and shareholders’ equity
|
$
|
284,226
|
$
|
283,318
|
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-4
CONSOLIDATED
STATEMENTS OF
OPERATIONS
|
Year
Ended
|
||||||||||||||
|
(thousands,
except per share data)
|
September
29
2006
|
September
30
2005
|
October
1
2004
|
|||||||||||
|
Net
sales
|
$
|
395,790
|
$
|
380,690
|
$
|
355,274
|
||||||||
|
Cost
of sales
|
230,574
|
224,336
|
207,656
|
|||||||||||
|
Gross
profit
|
165,216
|
156,354
|
147,618
|
|||||||||||
|
Operating
expenses:
|
||||||||||||||
|
Marketing
and selling
|
93,002
|
85,632
|
79,900
|
|||||||||||
|
Administrative
management, finance and information systems
|
36,497
|
42,257
|
37,225
|
|||||||||||
|
Research
and development
|
11,536
|
10,481
|
9,023
|
|||||||||||
|
Losses
related to New York flood
|
1,500
|
—
|
—
|
|||||||||||
|
Profit
sharing
|
2,056
|
2,340
|
2,121
|
|||||||||||
|
Total
operating expenses
|
144,591
|
140,710
|
128,269
|
|||||||||||
|
Operating
profit
|
20,625
|
15,644
|
19,349
|
|||||||||||
|
Interest
income
|
(504
|
)
|
(455
|
)
|
(464
|
)
|
||||||||
|
Interest
expense
|
4,989
|
4,792
|
5,283
|
|||||||||||
|
Other
expense (income), net
|
376
|
(795
|
)
|
(206
|
)
|
|||||||||
|
Income
before income taxes
|
15,764
|
12,102
|
14,736
|
|||||||||||
|
Income
tax expense
|
7,049
|
5,001
|
6,047
|
|||||||||||
|
Net
income
|
$
|
8,715
|
$
|
7,101
|
$
|
8,689
|
||||||||
|
Basic
earnings per common share
|
$
|
0.97
|
$
|
0.82
|
$
|
1.01
|
||||||||
|
Diluted
earnings per common share
|
$
|
0.95
|
$
|
0.81
|
$
|
0.99
|
||||||||
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-5
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’
EQUITY
|
|
Accumulated
Other Comprehensive Income (loss)
|
|||||||||||||||||||||||||||
|
(thousands)
|
Common
Stock
|
Capital
in Excess
of
Par
Value
|
Retained
Earnings
|
Deferred
Compensation
|
Cumulative
Translation
Adjustment
|
Minimum
Pension
Liability
|
Comprehensive
Income
(Loss
|
)
|
||||||||||||||||||||
|
BALANCE
AT OCTOBER 3, 2003
|
$
|
430
|
$
|
50,093
|
$
|
93,510
|
$
|
(20
|
)
|
$
|
451
|
$
|
(270
|
)
|
||||||||||||||
|
Net
income
|
—
|
—
|
8,689
|
—
|
—
|
—
|
$
|
8,689
|
||||||||||||||||||||
|
Issuance
of restricted stock
|
—
|
50
|
—
|
(50
|
)
|
—
|
—
|
—
|
||||||||||||||||||||
|
Exercise
of stock options (1)
|
10
|
2,119
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Issuance
of stock under employee stock purchase plan
|
1
|
378
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Amortization
of deferred compensation
|
—
|
—
|
—
|
50
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Translation
adjustment
|
—
|
—
|
—
|
—
|
5,654
|
—
|
5,654
|
|||||||||||||||||||||
|
Additional
minimum pension liability (2)
|
—
|
—
|
—
|
—
|
—
|
(451
|
)
|
(451
|
)
|
|||||||||||||||||||
|
BALANCE
AT OCTOBER 1, 2004
|
441
|
52,640
|
102,199
|
(20
|
)
|
6,105
|
(721
|
)
|
$
|
13,892
|
||||||||||||||||||
|
Net
income
|
—
|
—
|
7,101
|
—
|
—
|
—
|
$
|
7,101
|
||||||||||||||||||||
|
Issuance
of restricted stock
|
2
|
678
|
—
|
(680
|
)
|
—
|
—
|
—
|
||||||||||||||||||||
|
Exercise
of stock options (1)
|
7
|
1,400
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Issuance
of stock under employee stock purchase plan
|
1
|
158
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Non-cash
compensation
|
—
|
403
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Amortization
of deferred compensation
|
—
|
—
|
—
|
102
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Translation
adjustment
|
—
|
—
|
—
|
—
|
(2,264
|
)
|
—
|
(2,264
|
)
|
|||||||||||||||||||
|
Additional
minimum pension liability (2)
|
—
|
—
|
—
|
—
|
—
|
(1,118
|
)
|
(1,118
|
)
|
|||||||||||||||||||
|
BALANCE
AT SEPTEMBER 30, 2005
|
451
|
55,279
|
109,300
|
(598
|
)
|
3,841
|
(1,839
|
)
|
$
|
3,719
|
||||||||||||||||||
|
Net
income
|
—
|
—
|
8,715
|
—
|
—
|
—
|
$
|
8,715
|
||||||||||||||||||||
|
Exercise
of stock options (1)
|
¾
|
65
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Issuance
of stock under employee stock purchase plan
|
1
|
109
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Stock-based
compensation and award of restricted shares
|
2
|
604
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Adoption
of SFAS 123 (R)
|
—
|
(598
|
)
|
—
|
598
|
—
|
—
|
—
|
||||||||||||||||||||
|
Translation
adjustment
|
—
|
—
|
—
|
—
|
3,454
|
—
|
3,454
|
|||||||||||||||||||||
|
Additional
minimum pension liability (2)
|
—
|
—
|
—
|
—
|
—
|
1,497
|
1,497
|
|||||||||||||||||||||
|
BALANCE
AT SEPTEMBER 29, 2006
|
$
|
454
|
$
|
55,459
|
$
|
118,015
|
$
|
¾
|
$
|
7,295
|
$
|
(342
|
)
|
$
|
13,666
|
|||||||||||||
|
(1)
|
Includes
tax benefit related to exercise of stock options of $25, $336 and
$565 for
2006, 2005 and 2004, respectively.
|
|
(2)
|
Net
of tax provision of $771, $578 and $232 for 2006, 2005 and 2004,
respectively.
|
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-6
CONSOLIDATED
STATEMENTS OF CASH
FLOWS
|
|
Year
Ended
|
|||||||||||
|
(thousands)
|
September
29
2006
|
September
30
2005
|
October
1
2004
|
|||||||||
|
CASH
PROVIDED BY OPERATING ACTIVITIES
|
||||||||||||
|
Net
income
|
$
|
8,715
|
$
|
7,101
|
$
|
8,689
|
||||||
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
||||||||||||
|
Depreciation
|
8,813
|
9,142
|
8,247
|
|||||||||
|
Amortization
of intangible assets and deferred financing costs
|
351
|
260
|
411
|
|||||||||
|
Loss
on sale of property, plant and equipment
|
107
|
73
|
1,243
|
|||||||||
|
Provision
(benefit) for doubtful accounts receivable
|
629
|
379
|
(16
|
)
|
||||||||
|
Provision
for inventory reserves
|
2,163
|
431
|
1,073
|
|||||||||
|
Stock-based
compensation
|
686
|
653
|
460
|
|||||||||
|
Deferred
income taxes
|
3,755
|
(555
|
)
|
97
|
||||||||
|
Change
in operating assets and liabilities, net of effect of businesses
acquired
or sold:
|
||||||||||||
|
Accounts
receivable
|
(3,591
|
)
|
841
|
3,410
|
||||||||
|
Inventories
|
(10,617
|
)
|
7,831
|
(3,568
|
)
|
|||||||
|
Accounts
payable and accrued liabilities
|
1,166
|
(1,309
|
)
|
2,321
|
||||||||
|
Other,
net
|
(4,647
|
)
|
1,410
|
(210
|
)
|
|||||||
|
7,530
|
26,257
|
22,157
|
||||||||||
|
CASH
USED FOR INVESTING ACTIVITIES
|
||||||||||||
|
Payments
for purchase of business
|
(9,863
|
)
|
—
|
(28,187
|
)
|
|||||||
|
Additions
to property, plant and equipment
|
(8,865
|
)
|
(6,803
|
)
|
(7,844
|
)
|
||||||
|
Proceeds
from sale of property, plant and equipment
|
139
|
422
|
532
|
|||||||||
|
(18,589
|
)
|
(6,381
|
)
|
(35,499
|
)
|
|||||||
|
CASH
USED FOR FINANCING ACTIVITIES
|
||||||||||||
|
Borrowings
on long-term debt
|
7
|
—
|
—
|
|||||||||
|
Principal
payments on senior notes and other long-term debt
|
(13,000
|
)
|
(16,223
|
)
|
(9,572
|
)
|
||||||
|
Excess
tax benefits from stock-based compensation
|
25
|
—
|
—
|
|||||||||
|
Common
stock transactions
|
150
|
1,230
|
1,887
|
|||||||||
|
(12,818
|
)
|
(14,993
|
)
|
(7,685
|
)
|
|||||||
|
Effect
of foreign currency fluctuations on cash
|
3,455
|
(2,344
|
)
|
1,689
|
||||||||
|
Increase
(decrease) in cash and temporary cash investments
|
(20,422
|
)
|
2,539
|
(19,338
|
)
|
|||||||
|
CASH
AND TEMPORARY CASH INVESTMENTS
|
||||||||||||
|
Beginning
of year
|
72,111
|
69,572
|
88,910
|
|||||||||
|
End
of year
|
$
|
51,689
|
$
|
72,111
|
$
|
69,572
|
||||||
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-7
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Johnson
Outdoors Inc. is an integrated, global outdoor recreation products company
engaged in the design, manufacture and marketing of brand name outdoor
equipment, diving, watercraft and marine
electronics
products.
All
amounts, other than share and per share amounts, are stated in
thousands.
|
1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Principles
of Consolidation
The
Consolidated Financial Statements include the accounts of Johnson Outdoors
Inc.
and all majority owned subsidiaries (the Company) and are stated in conformity
with U.S. generally accepted accounting principles. Significant intercompany
accounts and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements requires management to make estimates and
assumptions that impact the reported amounts of assets, liabilities and
operating results and the disclosure of commitments and contingent liabilities.
Actual results could differ significantly from those estimates. For the Company,
significant estimates include the allowance for doubtful accounts receivable,
reserves for inventory valuation, recoverability of goodwill, reserves for
sales
returns, reserves for warranty service, pension actuarial assumptions and the
valuation allowance for deferred tax assets.
Fiscal
Year
The
Company’s fiscal year ends on the Friday nearest September 30. The fiscal years
ended September 29, 2006 (hereinafter 2006), September 30, 2005 (hereinafter
2005) and October 1, 2004 (hereinafter 2004) each comprised 52 weeks.
Cash
and Temporary Cash Investments
The
Company considers all short-term investments in interest-bearing bank accounts,
securities and other instruments with an original maturity of three months
or
less to be equivalent to cash.
The
Company maintains cash in bank accounts in excess of insured limits. The Company
has not experienced any losses and does not believe that significant credit
risk
exists as a result of this practice.
Accounts
Receivable
Accounts
receivable are stated net of an allowance for doubtful accounts. The valuation
of the allowance for doubtful accounts is based on a combination of factors.
In
circumstances where specific identification exists, a reserve is established
to
value the account receivable to what is believed will be collected. For all
other customers, the Company recognizes allowances for bad debts based on
historical experience of bad debts as a percent of accounts receivable for
each
business unit. Uncollectible accounts are written off against the allowance
for
doubtful accounts after collection efforts have been exhausted. The Company
typically does not require collateral on its accounts receivable.
F-8
Inventories
Inventories
are stated at the lower of cost (determined using the first-in, first-out
method) or market.
Inventories
at the end of the respective years consist of the following:
|
2006
|
2005
|
||||||
|
Raw
materials
|
$
|
24,895
|
$
|
20,195
|
|||
|
Work
in process
|
4,194
|
2,886
|
|||||
|
Finished
goods
|
38,185
|
31,367
|
|||||
|
67,274
|
54,448
|
||||||
|
Less
reserves
|
3,446
|
2,563
|
|||||
|
$
|
63,828
|
$
|
51,885
|
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation.
Depreciation of plant and equipment is determined by straight-line methods
over
the following estimated useful lives:
|
Property
improvements
|
5-20
years
|
|
Buildings
and improvements
|
20-40
years
|
|
Furniture,
fixtures and equipment
|
3-10
years
|
Upon
retirement or disposition, cost and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is recognized in
operating results.
Property,
plant and equipment at the end of the respective years consist of the following:
|
2006
|
2005
|
||||||
|
Property
and improvements
|
$
|
1,307
|
$
|
1,355
|
|||
|
Buildings
and improvements
|
22,051
|
21,460
|
|||||
|
Furniture,
fixtures and equipment
|
87,971
|
81,972
|
|||||
|
111,329
|
104,787
|
||||||
|
Less
accumulated depreciation
|
79,729
|
73,394
|
|||||
|
$
|
31,600
|
$
|
31,393
|
Impairment
of Property, Plant and Equipment
The
Company assesses annually or on an interim basis, if indicators of impairment
are identified, the recoverability of property, plant and equipment, by
determining whether the net book value of the underlying assets can be recovered
through projected undiscounted future operating cash flows of the related
businesses. The amount of impairment, if any, is measured primarily based on
the
deficiency of projected discounted future operating cash flows relative to
the
value of the assets, using a discount rate reflecting the Company’s cost of
capital, which approximates 10%. There was no impairment of property, plant
and
equipment during 2006, 2005 or 2004, except as discussed in Note 2 Restructuring
and Note 15 Significant Event.
Impairment
of Goodwill and Other Indefinite Lived Intangibles
The
Company annually assesses the carrying value of goodwill using a number of
criteria, including the value of the overall enterprise as of the end of each
fiscal year. In assessing the recoverability of the Company's goodwill and
other
indefinite lived intangibles, the Company must make assumptions regarding
estimated future cash flows and other factors to determine the fair value of
the
respective assets. If these estimates or their related assumptions change in
the
future, the Company may be required to record impairment charges for those
assets not previously recorded. There were no goodwill impairment charges
recorded during 2006, 2005 or 2004.
F-9
During
2006, the final allocation of the purchase price related to the Cannon/Bottom
Line acquisition was completed resulting in goodwill of $4,582 and an indefinite
lived trademark of $940. The remaining changes in 2006 in goodwill relates
to
translation adjustments for goodwill denominated in foreign currencies. There
were no other changes in indefinite lived intangible assets.
Other
Intangible Assets
Intangible
assets are stated at cost less accumulated amortization. Amortization is
computed using the straight-line method over periods ranging from 3 to 16 years
for patents and other intangible assets. Intangible assets at the end of the
respective years consist of the following:
|
2006
|
2005
|
||||||
|
Patents,
trademarks and other
|
$
|
7,914
|
$
|
6,998
|
|||
|
Less
accumulated amortization
|
3,324
|
3,464
|
|||||
|
Net
patents, trademarks and other
|
$
|
4,590
|
$
|
3,534
|
Patents,
trademarks and other at September 29, 2006 contain $4,190 in trademarks which
have indefinite lives and are not amortized. Amortization of patents and other
intangible assets was $172, $148 and $190 for 2006, 2005 and 2004, respectively.
Amortization of these intangible assets is expected to be approximately $75
per
year until fully amortized (the unamortized value of these assets was $400
and
$530 as of September 29, 2006 and September 30, 2005, respectively).
Warranties
The
Company has recorded product warranty accruals of $3,844 and $3,287 as of
September 29, 2006 and September 30, 2005, respectively. The Company provides
for warranties of certain products as they are sold. The following table
summarizes the warranty activity for the three years in the period ended
September 29, 2006.
|
Balance
October 3, 2003
|
$
|
2,680
|
||
|
Expense
accruals for warranties issued during the year
|
3,152
|
|||
|
Reserves
for businesses acquired
|
171
|
|||
|
Less
current year warranty claims paid
|
2,826
|
|||
|
Balance
at October 1, 2004
|
3,177
|
|||
|
Expense
accruals for warranties issued during the year
|
2,999
|
|||
|
Less
current year warranty claims paid
|
2,889
|
|||
|
Balance
at September 30, 2005
|
3,287
|
|||
|
Expense
accruals for warranties issued during the year
|
3,915
|
|||
|
Reserves
for businesses acquired
|
100
|
|||
|
Less
current year warranty claims paid
|
3,458
|
|||
|
Balance
at September 29, 2006
|
$
|
3,844
|
Earnings
per Share
Basic
earnings per share is computed by dividing net income by the weighted-average
number of common shares outstanding. Diluted earnings per share is computed
by
dividing net income by the weighted-average number of common shares outstanding,
adjusted for the net effect of dilutive stock options and restricted
stock.
F-10
The
following table sets forth the computation of basic and diluted earnings per
common share:
|
2006
|
2005
|
2004
|
||||||||
|
Net
income
|
$
|
8,715
|
$
|
7,101
|
$
|
8,689
|
||||
|
Basic
weighted average common shares outstanding
|
8,989,348
|
8,617,746
|
8,563,978
|
|||||||
|
Dilutive
stock options and restricted stock
|
171,480
|
177,359
|
209,877
|
|||||||
|
Diluted
weighted average common shares
|
9,160,828
|
8,795,105
|
8,773,855
|
|||||||
|
Basic
earnings per common
|
$
|
0.97
|
$
|
0.82
|
$
|
1.01
|
||||
|
Diluted
earnings per common share
|
$
|
0.95
|
$
|
0.81
|
$
|
0.99
|
Stock
options that could potentially dilute earnings per share in the future that
were
not included in the fully diluted computation for 2006, 2005 and 2004 because
they would have been antidilutive totaled 19,750, 13,750
and
18,750, respectively.
Stock-Based
Compensation
Prior
to
October 1, 2005, the Company accounted for its employee stock awards under
the
recognition and measurement provisions of APB Opinion No. 25, Accounting
for Stock Issued to Employees,
and
related Interpretations, as permitted by SFAS No. 123, Accounting
for Stock-Based Compensation.
See
Note 10 of the Notes to Consolidated Financial Statements for information
regarding the Company’s stock-based incentive plans, including stock options,
restricted stock, phantom stock and employee stock purchase plans. Generally,
no
stock option-based employee compensation cost was recognized in the Company’s
Consolidated Statements of Operations prior to October 1, 2005, as stock options
granted under those plans had an exercise price equal to the market value of
the
underlying common stock on the date of grant. In addition, prior to October
1,
2005, the Company recorded unearned stock-based compensation for nonvested
restricted stock awards as “unearned compensation” in the Company’s Consolidated
Statement of Shareholders’ Equity.
Effective
October 1, 2005, the Company adopted the fair value recognition and measurements
provisions of SFAS No. 123(R), using the modified-prospective-transition method.
Under that transition method, compensation cost for stock options recognized
in
fiscal 2006 includes compensation cost for all options granted prior to, but
not
vested as of October 1, 2005, based on the grant date fair value estimated
in
accordance with the provisions of SFAS No. 123. Compensation cost will be
recorded for all options granted, if any, subsequent to October 1, 2005, based
on the grant-date fair value estimated in accordance with the provisions of
SFAS
No. 123(R). Results for prior periods have not been restated.
In
accordance with SFAS No. 123(R), cash flows from income tax benefits resulting
from tax deductions in excess of the compensation cost recognized for
stock-based awards have been classified as financing cash flows prospectively
from October 1, 2005. Prior to adoption of SFAS No. 123(R), such excess income
tax benefits were presented as operating cash flows.
F-11
As
a
result of adopting SFAS 123(R) on October 1, 2005, the Company’s income before
income taxes for 2006 was $76 lower and net income for 2006 was $46 lower than
if the Company had continued to account for share-based compensation under
APB
Opinion No. 25. Basic and fully diluted earnings per share would not have
changed for 2006 if the Company had not adopted SFAS No. 123(R). Basic and
fully
diluted earnings per share for 2005 would have been impacted as shown in the
pro
forma information shown below, determined using the fair value method based
on
provisions of SFAS No. 123, Accounting
for Stock-Based Compensation,
as
amended by SFAS No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosure.
|
2005
|
2004
|
|||||||
|
Net
income
|
$
|
7,101
|
$
|
8,689
|
||||
|
Total
stock-based compensation expense included in net income, net of tax
|
431
|
376
|
||||||
|
Total
stock-based compensation expense determined under fair value method
for
all awards, net of tax
|
(218
|
) |
|
(386
|
)
|
|||
|
Pro
forma net income
|
$
|
7,314
|
$
|
8,679
|
||||
|
Basic
earnings per common share
|
||||||||
|
As
reported
|
$
|
0.82
|
$
|
1.01
|
||||
|
Pro
forma
|
$
|
0.85
|
$
|
1.01
|
||||
|
Diluted
earnings per common share
|
||||||||
|
As
reported
|
$
|
0.81
|
$
|
0.99
|
||||
|
Pro
forma
|
$
|
0.84
|
$
|
0.99
|
For
purposes of calculating pro forma operating results, the fair value of each
option grant was estimated using the Black-Scholes option pricing model with
an
expected volatility of approximately 21% in 2005 and 35% in 2004, a risk free
rate equivalent to five year U.S. Treasury securities, an expected life of
five
years and no dividends. Based on these assumptions, the weighted average fair
market value of options granted during the year was $4.78 in 2005 and $5.13
in
2004. No stock options were granted in 2006.
Income
Taxes
The
Company provides for income taxes currently payable and deferred income taxes
resulting from temporary differences between financial statement and taxable
income.
In
assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion, or all of the deferred
tax
assets, will not be realized. The ultimate realization of deferred tax assets
is
dependent upon the generation of future taxable income during the years in
which
those temporary differences become deductible. The Company considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment.
Federal
and state income taxes are provided on foreign subsidiary income distributed
to,
or taxable in, the U.S. during the year. At September 29, 2006, net
undistributed earnings of foreign subsidiaries total approximately $98,402.
The
Company considers these unremitted earnings to be permanently invested abroad
and no provision for federal or state income taxes has been made on these
amounts. In the future, if foreign earnings are returned to the U.S., provision
for U.S. income taxes will be made.
The
Company’s U.S. entities file a consolidated federal income tax
return.
Employee
Benefits
The
Company and certain of its subsidiaries have various retirement and profit
sharing plans. Pension obligations, which are generally based on compensation
and years of service, are funded by payments to pension fund trustees. The
Company’s policy is generally to fund the minimum amount required under the
Employee Retirement Income Security Act of 1974 for plans subject thereto.
Profit sharing and other retirement costs are funded at least
annually.
F-12
Foreign
Operations and Related Derivative Financial Instruments
The
functional currencies of the Company’s foreign operations are the local
currencies. Accordingly, assets and liabilities of foreign operations are
translated into U.S. Dollars at the rate of exchange existing at the end of
the
year. Results of operations are translated at monthly average exchange rates.
Adjustments resulting from the translation of foreign currency financial
statements are classified as accumulated other comprehensive income (loss),
a
separate component of shareholders’ equity.
Currency
gains and losses are realized as assets and liabilities of foreign operations,
denominated in other than the local currency, are first adjusted based on the
denominated currency. Additionally, currency gains and losses are realized
through the settlement of transactions denominated in other than the local
currency. The Company realized currency gains (losses) from transactions of
($221), $781 and $119 for 2006, 2005 and 2004, respectively.
The
Company operates internationally, which gives rise to exposure to market risk
from movements in foreign currency exchange rates. To minimize the effect of
fluctuating foreign currencies on its income, the Company periodically enters
into foreign currency forward contracts. The Company primarily hedges assets,
inventory purchases and loans denominated in foreign currencies. The Company
does not enter into foreign exchange contracts for trading purposes. Gains
and
losses on unhedged exposures are recorded in operating results.
The
foreign currency forward contracts are used to hedge known foreign currency
transactions on a continuing basis for periods consistent with the Company’s
exposures. The effective portion of the gain or loss on the foreign currency
forward contract is reported as a component of other comprehensive income and
reclassified into earnings in the same period during which the hedged
transaction affects earnings. The remaining gain or loss on the forward
contract, if any, is recognized in current earnings during the period of
changes.
At
September 29, 2006 and September 30, 2005, the Company had no foreign currency
forward contracts.
Revenue
Recognition
Revenue
from sales is recognized when all substantial risk of ownership transfers to
the
customer, which is generally upon shipment of products. Estimated costs of
returns and allowances are accrued as an offset to sales when revenue is
recognized.
Advertising
The
Company expenses substantially all costs related to production of advertising
the first time the advertising takes place. Cooperative promotional arrangements
are accrued in relation to revenues.
Advertising
expense in 2006, 2005 and 2004 totaled $21,300, $18,476 and $16,612,
respectively. Capitalized costs at September 29, 2006 and September 30, 2005
totaled $1,071
and $984, respectively, and primarily include catalogs and costs of advertising
which have not yet run for the first time.
Shipping
and Handling Costs
Shipping
and handling fees billed to customers are included in net sales. Shipping and
handling costs are included in marketing and selling expense and totaled
$14,965, $13,728 and $11,990 for 2006, 2005 and 2004, respectively.
Research
and Development
The
Company commits significant resources to research and new product development.
The Company expenses research and development costs as incurred except for
costs
of software development for new fishfinder products which are capitalized once
technological feasibility is established. These costs are then amortized over
the expected life of the software. The amounts expensed by the Company in
connection with research and development activities for each of the last three
fiscal years are set forth in the Company's Consolidated Statements of
Operations.
F-13
Fair
Values
The
carrying amounts of cash, temporary cash investments, receivables, and accounts
payable approximated fair value at September 29, 2006 and September 30, 2005.
See the indebtedness footnote for the fair value of long-term debt.
New
Accounting Pronouncements
In
July
2006, the Financial Accounting Standards Board (FASB) issued Interpretation
48
(“FIN 48”), Accounting
for Uncertainty in Income Taxes - an Interpretation of FASB Statement No
109.
The
Interpretation provides a consistent recognition threshold and measurement
attribute, as well as clear criteria for recognizing, derecognizing and
measuring uncertain tax positions for financial statement purposes. The
Interpretation also requires expanded disclosure with respect to the uncertainty
in income tax positions. FIN 48 will be effective beginning in fiscal year
2008
for the Company. Management is currently assessing the effect of this
pronouncement on the Company’s consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements.
This
statement defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. SFAS No. 157 clarifies
the definition of exchange price as the price between market participants in
an
orderly transaction to sell an asset or transfer a liability in the market
in
which the reporting entity would transact for the asset or liability, which
market is the principal or most advantageous market for the asset or liability.
The Company will be required to adopt SFAS No. 157 beginning in fiscal 2009.
The
Company is currently assessing the effect of SFAS No. 157 on the Company’s
consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 158, Employers’
Accounting for Defined Pension and Other Postretirement Plans.
This
Statement requires recognition of the funded status of a single-employer defined
benefit postretirement plan as an asset or liability in its statement of
financial position. Funded status is determined as the difference between the
fair value of plan assets and the benefit obligation. Changes in that funded
status will be recognized in other comprehensive income. This recognition
provision and the related disclosures are effective in fiscal 2007 for the
Company. The Statement also requires the measurement of plan assets and benefit
obligations as of the date of the fiscal year-end balance sheet. This
measurement provision is effective for fiscal 2009 for the Company. Management
is currently assessing the effect of this pronouncement on the Company’s
consolidated financial statements.
Reclassifications
Certain
reclassifications have been made to prior years’ amounts to conform to the
current year presentation.
F-14
2
Restructuring
Diving
In
September 2005, the Company’s executive management approved a plan to
consolidate distribution in Europe. These actions resulted in the closure of
warehouses in Germany, Italy and Switzerland and office space in France during
2006. Additionally, actions were taken during fiscal 2005 to reorganize the
European management structure to unify the marketing and sales efforts across
Europe. Total charges in 2006 were $352 consisting of $51 in employee
termination benefits and related costs and $301 of building reconfiguration,
moving and other costs. Total charges in 2005 were $1,124 consisting of
$983 in employee termination benefits and related costs and $141 in consulting
fees and losses on assets disposed. This decision resulted in the reduction
of
14 positions. These charges are included in the “Administrative management,
finance and information systems” line in the Company's Consolidated Statement of
Operations.
A
summary
of charges, payments and accruals for fiscal 2006 and 2005 are as
follows:
|
Actual
charges during the year ended September 30, 2005
|
$
|
1,124
|
||
|
Settlement
payments
|
406
|
|||
|
Accrued
liabilities as of September 30, 2005
|
718
|
|||
|
Actual
charges during the year ended September 29, 2006
|
352
|
|||
|
Settlement
payments
|
1,070
|
|||
|
Accrued
liabilities as of September 29, 2006
|
$
|
—
|
Watercraft
In
July
2004, the Company announced plans to outsource manufacturing previously engaged
in at its Grand Rapids, Michigan facility and to shift production from
Mansonville, Canada to its Old Town, Maine facility as part of the Company’s
ongoing efforts to increase efficiency and improve profitability of its
Watercraft business unit. The Company ceased manufacturing operations at both
locations in September 2004. The decision resulted in the reduction of 71
positions. Costs and charges associated with these actions were $3,794 and
were
incurred across fiscal years 2005 and 2004. There were no charges associated
with these actions impacting fiscal 2006 operating results.
A
summary
of charges, payments and accruals for fiscal 2006, 2005 and 2004 were as
follows:
|
Actual
charges during the year ended October 1, 2004
|
$
|
2,468
|
||
|
Settlement
payments
|
1,275
|
|||
|
Accrued
liabilities as of October 1, 2004
|
1,193
|
|||
|
Actual
charges during the year ended September 30, 2005
|
1,326
|
|||
|
Settlement
payments
|
1,993
|
|||
|
Accrued
liabilities as of September 30, 2005
|
526
|
|||
|
Settlement
payments
|
526
|
|||
|
Accrued
liabilities as of September 29, 2006
|
$
|
—
|
F-15
|
3
|
ACQUISITIONS
|
Lendal
Products Ltd.
On
October 3, 2006, the Company acquired all of the outstanding common stock of
Lendal Products Ltd. (Lendal) from Lendal's founders for $1,404. The transaction
was funded using existing cash on hand and was acquired to add to the breadth
of
the Watercraft product lines. Lendal, which is located in Scotland, manufactures
and markets premium performance sea touring, whitewater and surf paddles and
blades. The Lendal products are sold through the same channels as the Company’s
other Watercraft products and will be included in the Company’s Watercraft
segment.
The
acquisition will be accounted for using the purchase method and, accordingly,
the Consolidated Financial Statements will include the results of operations
subsequent to the date of acquisition.
The
Company is not required to prepare pro forma financial information with respect
to the Lendal acquisition due to the materiality of the
transaction.
Cannon/Bottom
Line
On
October 3, 2005, the Company acquired the assets of Cannon downriggers and
Bottom Line fishfinders (Cannon/Bottom Line) from Computrol, Inc., a wholly
owned subsidiary of Armstrong International. The cash purchase price was $9,863.
The transaction was funded using existing cash on hand. Cannon/Bottom Line
is
included in the Company’s Marine Electronics segment and was acquired to add to
the breadth of the Marine Electronic product lines.
The
following table summarizes the final allocation of the purchase price, fair
values of the assets acquired and liabilities assumed, and the resulting net
intangible assets acquired at the date of the Cannon/Bottom Line acquisition.
No
additional purchase price adjustments are expected with regard to this
transaction.
|
Total
current assets
|
$
|
4,348
|
||
|
Property,
plant and equipment
|
260
|
|||
|
Trademark
|
940
|
|||
|
Patents
|
195
|
|||
|
Goodwill
|
4,582
|
|||
|
Net
assets acquired
|
10,325
|
|||
|
Total
liabilities assumed
|
462
|
|||
|
Net
purchase price
|
$
|
9,863
|
The
goodwill acquired is not subject to amortization for financial reporting
purposes, but is deductible for tax purposes.
The
acquisition was accounted for using the purchase method and, accordingly, the
Company's Consolidated Financial Statements include the results of operations
since the date of acquisition.
The
Company is not required to prepare pro forma financial information with respect
to the Cannon/Bottom Line acquisition due to the materiality of the
transaction.
Techsonic
Industries, Inc.
On
May 5,
2004, the Company acquired all of the issued and outstanding capital stock
of
Techsonic Industries, Inc. (Techsonic) and certain registered patents and
trademarks used by Techsonic in its business of manufacturing and marketing
underwater sonar and GPS technology equipment under the Humminbird
brand. The final purchase price paid was $28,187, including acquisition
expenses. Techsonic is part of the Company’s Marine Electronics Group and was
acquired to add to the breadth of the Marine Electronic product lines. Techsonic
is commonly referred to as the Humminbird brand.
F-16
The
following table summarizes the final allocation of the purchase price, fair
values of the assets acquired and liabilities assumed, and the resulting net
intangible assets acquired at the date of the acquisition. No additional
purchase price adjustments are expected with regard to this
transaction.
|
Total
current assets
|
$
|
16,963
|
||
|
Property,
plant and equipment
|
5,649
|
|||
|
Trademark
|
3,250
|
|||
|
Goodwill
|
8,387
|
|||
|
Other
assets
|
276
|
|||
|
Net
assets acquired
|
34,525
|
|||
|
Total
liabilities assumed
|
6,338
|
|||
|
Net
purchase price
|
$
|
28,187
|
The
acquisition was accounted for using the purchase method and, accordingly, the
Consolidated Financial Statements include the results of operations since the
date of acquisition.
The
Company is not required to prepare pro forma financial information with respect
to the Techsonic acquisition due to the materiality of the
transaction.
|
4
|
INDEBTEDNESS
|
The
Company has in place a $75,000 unsecured revolving credit agreement dated
October 7, 2005 which expires October 7, 2010. At September 29, 2006, the
Company had no outstanding borrowings under the October 7, 2005 revolving credit
agreement. Had the Company had borrowings under this agreement the rate of
interest would have been approximately 6.0%.
The
Company utilizes letters of credit for trade financing purposes which totaled
$2,008 at September 29, 2006.
The
Company has total unsecured lines of credit, both foreign and domestic, with
availability totaling $80,699 as of September 29, 2006.
Long-term
debt at the end of the respective years consisted of the following:
|
2006
|
2005
|
||||||
|
2001
senior notes
|
$
|
30,000
|
$
|
40,000
|
|||
|
1998
senior notes
|
7,800
|
10,800
|
|||||
|
Other
|
7
|
—
|
|||||
|
37,807
|
50,800
|
||||||
|
Less
current maturities
|
17,000
|
13,000
|
|||||
|
$
|
20,807
|
$
|
37,800
|
The
2001
senior notes are unsecured and have an interest rate of 7.82%. The 2001 senior
notes have annual principal payments of $10,000 with a final payment due
December 2008.
The
1998
senior notes are unsecured and have an interest rate of 7.15%. The 1998 senior
notes have annual principal payments of $800 to $7,000 with a final payment
due
October 2007.
F-17
The
Company’s policy is to manage interest cost using a mix of fixed and
variable-rate debt. To manage this risk in a cost efficient manner, the Company
enters 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. The Company
formally documents all relationships between hedging instruments and hedged
items, as well as its risk-management objectives and strategies for
understanding hedge transactions. Interest rate swaps that met specific
conditions under SFAS No. 133 are accounted for as fair value hedges. The
mark-to-market values of both the fair value hedging instruments and the
underlying debt obligations are recorded as equal and offsetting gains and
losses in the interest expense component of the Company's Consolidated Statement
of Operations. The Company had no outstanding interest rate swap agreements
at
September 29, 2006 or September 30, 2005.
Aggregate
scheduled maturities of long-term debt in each of the next three years ending
September 2009 are as follows:
|
Year
|
|
|
2007
|
17,000
|
|
2008
|
10,804
|
|
2009
|
10,003
|
Interest
paid was $5,496, $4,929 and $5,577 for 2006, 2005 and 2004,
respectively.
Based
on
the borrowing rates currently available to the Company for debt with similar
terms and maturities, the fair value of the Company’s long-term debt as of
September 29, 2006 and September 30, 2005 was approximately $39,635 and $54,696,
respectively. The carrying value of all other financial instruments approximates
their fair value.
Certain
of the Company’s loan agreements require that Helen P. Johnson-Leipold, members
of her family and related entities (hereinafter the Johnson Family) continue
to
own stock having votes sufficient to elect a 51% majority of the directors.
At
November 1, 2006, the Johnson Family held approximately 3,582,732 shares or
approximately 45% of the Class A common stock, approximately 1,204,946 shares
or
approximately 99% of the Class B common stock and approximately 78% of the
voting power of both classes of common stock taken as a whole. The agreements
also contain restrictive covenants regarding the Company’s net worth,
indebtedness, fixed charge coverage and distribution of earnings. As of the
date
of this report, the Company was in compliance with the restrictive covenants
of
such agreements, as amended from time to time.
|
5
|
LEASES
AND OTHER COMMITMENTS
|
The
Company leases certain facilities and machinery and equipment under long-term,
noncancelable operating leases. Future minimum rental commitments under
noncancelable operating leases with an initial lease term in excess of one
year
at September 29, 2006 were as follows:
|
Year
|
Related
parties
included
in total
|
Total
|
|||||
|
2007
|
$
|
747
|
$
|
5,449
|
|||
|
2008
|
674
|
4,495
|
|||||
|
2009
|
557
|
3,139
|
|||||
|
2010
|
577
|
2,705
|
|||||
|
2011
|
597
|
2,514
|
|||||
|
Thereafter
|
—
|
7,900
|
Rental
expense under all leases was approximately $7,162, $7,652 and $7,814 for 2006,
2005 and 2004, respectively.
The
Company makes commitments in a broad variety of areas, including capital
expenditures, contracts for services, sponsorship of broadcast media and supply
of finished products and components, all of which are in the ordinary course
of
business.
F-18
6
INCOME
TAXES
Income
tax expense (benefit) for the respective years consisted of the
following:
|
2006
|
2005
|
2004
|
|||||||||
|
Current:
|
|||||||||||
|
Federal
|
$
|
¾
|
$
|
(315
|
)
|
$
|
315
|
||||
|
State
|
159
|
91
|
48
|
||||||||
|
Foreign
|
3,919
|
4,938
|
4,346
|
||||||||
|
Deferred
|
2,971
|
287
|
1,338
|
||||||||
|
$
|
7,049
|
$
|
5,001
|
$
|
6,047
|
The
net
deferred tax asset was increased $1,495 and $691 in 2005 and 2004, respectively,
as a result of the allocation of the purchase price on the Techsonic
acquisition.
The
tax
effects of temporary differences that give rise to deferred tax assets and
deferred tax liabilities at the end of the respective years are presented
below:
|
2006
|
2005
|
||||||
|
Deferred
tax assets:
|
|||||||
|
Inventories
|
$
|
2,795
|
$
|
2,316
|
|||
|
Compensation
|
6,151
|
6,956
|
|||||
|
Foreign
tax credit carryforwards
|
224
|
—
|
|||||
|
Goodwill
and other intangibles
|
—
|
424
|
|||||
|
Net
operating loss carryforwards
|
11,019
|
17,330
|
|||||
|
Other
|
8,095
|
6,212
|
|||||
|
Total
gross deferred tax assets
|
28,284
|
33,238
|
|||||
|
Less
valuation allowance
|
3,260
|
4,568
|
|||||
|
25,024
|
28,670
|
||||||
|
Deferred
tax liabilities:
|
|||||||
|
Goodwill
and other intangibles
|
80
|
—
|
|||||
|
Foreign
statutory reserves
|
906
|
877
|
|||||
|
Net
deferred tax assets
|
$
|
24,038
|
$
|
27,793
|
The
net
deferred tax assets are recorded as $9,462 in current and $14,576 in non-current
assets for 2006 and $8,118 in current and $19,675 in non-current assets for
2005.
Following
is the income before income taxes for domestic and foreign
operations:
|
2006
|
2005
|
2004
|
||||||||
|
United
States
|
$
|
7,911
|
$
|
3,794
|
$
|
5,399
|
||||
|
Foreign
|
7,853
|
8,308
|
9,337
|
|||||||
|
$
|
15,764
|
$
|
12,102
|
$
|
14,736
|
F-19
The
significant differences between the statutory federal tax rate for the Company
and its effective income tax rates are as follows:
|
2006
|
2005
|
2004
|
||||||||
|
Statutory
U.S. federal income tax rate
|
34.0
|
%
|
34.0
|
%
|
34.0
|
%
|
||||
|
Foreign
rate differential
|
8.4
|
9.2
|
5.2
|
|||||||
|
Reduction
in valuation reserve for research and development tax
credits
|
(5.2
|
)
|
—
|
—
|
||||||
|
Reduction
in effective rate utilized to record deferred taxes
|
4.9
|
—
|
—
|
|||||||
|
Other
|
2.6
|
(1.9
|
)
|
1.8
|
||||||
|
44.7
|
%
|
41.3
|
%
|
41.0
|
%
|
The
foreign rate differential of 8.4%, 9.2% and 5.2% for 2006, 2005 and 2004,
respectively, is comprised of several foreign tax related items including the
statutory rate differential in each year and additional contingency reserves
in
2005 and 2006. The Company reduced a valuation reserve related to research
and
development tax credits for 2006 which resulted in the 5.2% favorable impact
on
the effective rate. Additionally, the Company reduced the state income tax
rate
used in valuing deferred tax assets, negatively impacting the 2006 effective
rate by 4.9%.
At
September 29, 2006, the Company has U.S. federal operating loss carryforwards
of
$21,048 which begin to expire in 2013, as well as various state net operating
loss carryforwards. In addition, certain of the Company’s foreign subsidiaries
have operating loss carryforwards totaling $2,347. These operating loss
carryforwards are available to offset future taxable income over the next 3
to
approximately 20 years. They are anticipated to be fully utilized during this
period except that the Company has established a valuation allowance for the
expected under-utilization of certain state operating loss carryforwards and
foreign tax credit carryforwards.
Taxes
paid were $2,074, $5,746 and $4,922 for 2006, 2005 and 2004,
respectively.
|
7
|
EMPLOYEE
BENEFITS
|
Net
periodic pension cost, for significant noncontributory defined benefit pension
plans, includes the following components.
|
2006
|
2005
|
2004
|
||||||||
|
Service
cost
|
$
|
703
|
$
|
628
|
$
|
574
|
||||
|
Interest
on projected benefit obligation
|
925
|
943
|
886
|
|||||||
|
Estimated
return on plan assets
|
(871
|
)
|
(825
|
)
|
(764
|
)
|
||||
|
Amortization
of unrecognized:
|
||||||||||
|
Net
loss
|
268
|
111
|
100
|
|||||||
|
Prior
service cost
|
9
|
24
|
26
|
|||||||
|
Transition
asset
|
(2
|
)
|
(2
|
)
|
(42
|
)
|
||||
|
Net
periodic pension cost
|
$
|
1,032
|
$
|
879
|
$
|
780
|
F-20
The
following provides a reconciliation of the changes in the plans’ benefit
obligation and fair value of assets for 2006 and 2005 and a statement of the
funded status at the end of each year:
|
2006
|
2005
|
||||||
|
Projected
benefit obligation:
|
|||||||
|
Projected
benefit obligation at beginning of year
|
$
|
19,340
|
$
|
15,317
|
|||
|
Service
cost
|
703
|
628
|
|||||
|
Interest
cost
|
925
|
943
|
|||||
|
Actuarial
(gain) loss
|
(4,211
|
)
|
3,147
|
||||
|
Benefits
paid
|
(717
|
)
|
(695
|
)
|
|||
|
Projected
benefit obligation at end of year
|
$
|
16,040
|
$
|
19,340
|
|||
|
Fair
value of plan assets:
|
|||||||
|
Fair
value of plan assets at beginning of year
|
$
|
10,860
|
$
|
9,989
|
|||
|
Actual
return on plan assets
|
649
|
940
|
|||||
|
Company
contributions
|
802
|
626
|
|||||
|
Benefits
paid
|
(717
|
)
|
(695
|
)
|
|||
|
Fair
value of plan assets at end of year
|
$
|
11,594
|
$
|
10,860
|
|||
|
Funded
status:
|
|||||||
|
Funded
status of the plan
|
$
|
(4,448
|
)
|
$
|
(8,480
|
)
|
|
|
Unrecognized
net loss
|
2,424
|
6,681
|
|||||
|
Unrecognized
prior service cost
|
12
|
21
|
|||||
|
Unrecognized
transition asset
|
(3
|
)
|
(5
|
)
|
|||
|
Net
liability recognized
|
$
|
(2,015
|
)
|
$
|
(1,783
|
)
|
The
accumulated benefit obligation for all plans was $13,553 and $15,452 at
September 29, 2006 and September 30, 2005, respectively.
At
September 29, 2006, the aggregate accumulated benefit obligation and aggregate
fair value of plan assets for plans with benefit obligations in excess of plan
assets was $10,662 and $8,486, respectively, and the aggregate accumulated
benefit obligation and aggregate fair value of plan assets for plans with plan
assets in excess of benefit obligations was $2,891 and $3,108, respectively.
At
September 30, 2005 the aggregate accumulated benefit obligation exceeded the
aggregate fair market value of plan assets for all plans.
The
following summarizes the components of the net liability recognized in the
consolidated balance sheets at the end of the respective years:
|
2006
|
2005
|
||||||
|
Accrued
benefit liability
|
$
|
(2,533
|
)
|
$
|
(4,592
|
)
|
|
|
Intangible
asset
|
¾
|
21
|
|||||
|
Accumulated
other comprehensive income
|
518
|
2,788
|
|||||
|
Net
liability recognized
|
$
|
(2,015
|
)
|
$
|
(1,783
|
)
|
The
Company anticipates making contributions to the defined benefit pension plans
of
$248 through October 15, 2007.
F-21
Estimated
benefit payments from the defined benefit plans to participants for the next
five years ending September 2011 and five years thereafter are as
follows:
| Year | ||||
|
2007
|
$
|
702
|
||
|
2008
|
690
|
|||
|
2009
|
678
|
|||
|
2010
|
666
|
|||
|
2011
|
723
|
|||
|
Five
years thereafter
|
4,040
|
Actuarial
assumptions used to determine the projected benefit obligation are as
follows:
|
2006
|
2005
|
2004
|
||||||||
|
Discount
rate
|
6.25
|
%
|
5.25
|
%
|
6.25
|
%
|
||||
|
Long-term
rate of return
|
8
|
8
|
8
|
|||||||
|
Average
salary increase rate
|
4
|
4
|
4
|
The
impact of the change in discount rates resulted in an actuarial gain of $2,844
and a loss of $3,029 in 2006 and 2005, respectively. The remainder of the change
in actuarial gains or losses for each year results from adjustments to mortality
tables and other modifications to actuarial assumptions.
To
determine the long-term rate of return assumption for plan assets, the Company
studies historical markets and preserves the long-term historical relationships
between equities and fixed-income securities consistent with the widely accepted
capital market principle that assets with higher volatility generate a greater
return over the long run. The Company evaluates current market factors such
as
inflation and interest rates before it determines long-term capital market
assumptions and reviews peer data and historical returns to check for
reasonableness and appropriateness. The Company uses measurement dates of
October 1 to determine pension expenses for each year and August 31 to determine
the fair value of the pension assets.
The
Company’s pension plans weighted average asset allocations at September 29, 2006
and September 30, 2005, by asset category were as follows:
|
2006
|
2005
|
||||||
|
Equity
securities
|
51
|
%
|
54
|
%
|
|||
|
Fixed
income securities
|
47
|
44
|
|||||
|
Other
securities
|
2
|
2
|
|||||
|
Total
|
100
|
%
|
100
|
%
|
The
Company’s primary investment objective for the Plan’s assets is to maximize the
profitability of meeting the Plans’ actuarial target rate of return of 8%, with
a secondary goal of returning 4% above the rate of inflation. These return
objectives are targeted while simultaneously striving to minimize risk to the
Plans’ assets. The investment horizon over which the investment objectives are
expected to be met is a full market cycle or five years, whichever is
greater.
The
Company’s investment strategy for the Plans is to invest in a diversified
portfolio that will generate average long-term returns commensurate with the
aforementioned objectives while minimizing risk.
A
majority of the Company’s full-time employees are covered by defined
contribution programs. Expense attributable under the defined contribution
programs was approximately $2,600, $2,700 and $2,600 for 2006, 2005 and 2004,
respectively.
F-22
8
PREFERRED
STOCK
The
Company is authorized to issue 1,000,000 shares of preferred stock in various
classes and series, of which there are none currently issued or
outstanding.
9
COMMON
STOCK
The
number of authorized and outstanding shares of each class of the Company's
common stock at the end of the respective years was as follows:
|
2006
|
2005
|
||||||
|
Class
A, $.05 par value:
|
|||||||
|
Authorized
|
20,000,000
|
20,000,000
|
|||||
|
Outstanding
|
7,858,800
|
7,796,340
|
|||||
|
Class
B, $.05 par value:
|
|||||||
|
Authorized
|
3,000,000
|
3,000,000
|
|||||
|
Outstanding
|
1,217,977
|
1,219,667
|
Holders
of Class A common stock are entitled to elect 25% of the members of the Board
of
Directors and holders of Class B common stock are entitled to elect the
remaining directors. With respect to matters other than the election of
directors or any matters for which class voting is required by law, holders
of
Class A common stock are entitled to one vote per share while holders of Class
B
common stock are entitled to ten votes per share. If any dividends (other than
dividends paid in shares of the Company’s stock) are paid by the Company on its
common stock, a dividend would be paid on each share of Class A common stock
equal to 110% of the amount paid on each share of Class B common stock. Each
share of Class B common stock is convertible at any time into one share of
Class
A common stock. During 2006, 2005 and 2004, respectively, 1,690, 2,048 and
932
shares of Class B common stock were converted into Class A common
stock.
|
10
|
STOCK
OWNERSHIP PLANS
|
The
Company’s current stock ownership plans provide for issuance of options to
acquire shares of Class A common stock by key executives and non-employee
directors. Current plans also allow for issuance of restricted stock or stock
appreciation rights in lieu of options. Shares available for grant to key
executives and non-employee directors are 570,312 at September 29,
2006.
Stock
Options
All
stock
options have been granted at a price not less than fair market value at the
date
of grant and become exercisable over periods of one to three years from the
date
of grant. Stock options generally have a term of 10 years.
Total
stock compensation expense for stock options granted prior to October 1, 2005,
calculated pursuant to SFAS 123(R), and recognized by the Company during 2006
was $54, or approximately $32, net of taxes. The Company’s stock options
outstanding are all fully vested, with no further compensation expense expected.
There were no grants of stock options in 2006.
During
2005, the terms of options granted to a former officer of the Company were
modified. These modifications resulted in non-cash compensation expense of
$403,
or approximately $241, net of taxes.
F-23
A
summary
of stock option activity related to the Company’s plans is as follows:
|
|
Shares
|
Weighted
Average Exercise Price
|
Weighted
Average
Remaining
Contractual Term (in years
|
)
|
Aggregate
Intrinsic
Value
|
|||||||||
|
Outstanding
at October 3, 2003
|
690,885
|
$
|
8.80
|
|||||||||||
|
Granted
|
9,750
|
$
|
19.88
|
|||||||||||
|
Exercised
|
(189,201
|
)
|
$
|
8.21
|
||||||||||
|
Cancelled
|
(30,668
|
)
|
$
|
19.63
|
||||||||||
|
Outstanding
at October 1, 2004
|
480,766
|
$
|
8.56
|
|||||||||||
|
Granted
|
11,520
|
$
|
17.07
|
|||||||||||
|
Exercised
|
(144,252
|
)
|
$
|
7.44
|
||||||||||
|
Cancelled
|
(5,000
|
)
|
$
|
21.75
|
||||||||||
|
Outstanding
at September 30, 2005
|
343,034
|
$
|
9.13
|
|||||||||||
|
Exercised
|
(6,501
|
)
|
$
|
6.28
|
||||||||||
|
Cancelled
|
(4,000
|
)
|
$
|
22.06
|
||||||||||
|
Outstanding
and exercisable at September 29, 2006
|
332,533
|
$
|
9.03
|
3.7
|
$
|
2,786
|
The
range
of options outstanding at September 29, 2006 is as follows:
|
Price
Range per
Share
|
Number
of Options
Outstanding
and Exercisable
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Life (in years
|
)
|
||||||
|
$
5.31
- 7.65
|
159,883
|
$
|
6.86
|
4.3
|
||||||
|
$
7.66
- 10.00
|
106,780
|
$
|
8.33
|
2.6
|
||||||
|
$10.01
- 22.06
|
65,870
|
$
|
15.43
|
3.7
|
||||||
|
332,533
|
$
|
9.03
|
3.7
|
Restricted
Stock
All
restricted stock has been granted at fair market value on the date of grant
and
vests either immediately or over three years. The Company granted 69,754, 39,094
and 2,515 shares of restricted stock with a total value of $1,165, $680 and
$50
during 2006, 2005 and 2004, respectively. Restricted stock forfeitures totaled
22,770 shares during 2006. These forfeited restricted shares had an original
fair market value at date of grant of $385. Amortization expense related to
the
restricted stock was $530, $102 and $50, respectively, during 2006, 2005 and
2004. Unvested restricted stock issued and outstanding as of September 29,
2006
and September 20, 2005 totaled 76,120 and 36,164 shares, respectively, having
a
gross unamortized value of $849 and $598, respectively, which will be amortized
to expense through November 2008.
The
accounting treatment in prior periods for amortization of compensation expense
related to grants of restricted stock was consistent with the current treatment
under SFAS 123(R). As a result of adopting SFAS 123(R) on October 1, 2005,
the
Company no longer records restricted stock in the balance sheet upon grant,
with
a debit to contingent compensation, but rather records compensation expense,
with a credit to capital in excess of par value, as the restricted stock is
earned over the applicable vesting period. Previously recorded contingent
compensation was reversed against capital in excess of par value on October
1,
2005 and will be amortized to expense, with a credit to capital in excess of
par
value, over the remaining vesting period for such restricted stock.
F-24
A
summary
of unvested restricted stock activity for 2006 related to the Company’s plans is
as follows:
|
Shares
|
Weighted
Average
Grant
Price
|
||||||
|
Unvested
restricted stock at September 30, 2005
|
36,164
|
$
|
17.42
|
||||
|
Restricted
stock grants
|
69,754
|
16.70
|
|||||
|
Restricted
stock cancelled
|
(22,770
|
)
|
16.91
|
||||
|
Restricted
stock vested
|
(7,028
|
)
|
17.78
|
||||
|
Unvested
restricted stock at September 29, 2006
|
76,120
|
$
|
16.88
|
Phantom
Stock Plan
The
Company adopted a phantom stock plan during fiscal 2003. Under this plan,
certain employees earn cash bonus awards based upon the performance of the
Company’s Class A common stock. The Company recognized expense under the phantom
stock plan during 2006, 2005 and 2004 of $80, $148 and $410, respectively.
The
Company made payments of $411 to participants in the plan during 2006 and $295
of liabilities remain at September 29, 2006. There were no grants of phantom
shares in fiscal 2006 or 2005 and the Company does not anticipate further grants
of phantom shares going forward.
Employee
Stock Purchase Plan
The
Company’s employees’ stock purchase plan provides for the issuance of shares of
Class A common stock at a purchase price of not less than 85% of the fair market
value of such shares on the date of grant or at the end of the offering period,
whichever is lower. During 2006, 2005 and 2004, 7,285, 11,115 and 22,872 shares,
respectively, were issued under this plan. Compensation expense calculated
pursuant to SFAS 123(R) of $22 for the employees’ stock purchase plan was
recorded during 2006. Shares available for purchase by employees under this
plan
were 75,557 at September 29, 2006.
|
11
|
RELATED
PARTY TRANSACTIONS
|
The
Company conducts transactions with certain related parties including
organizations controlled by the Johnson family and other related parties. These
include consulting services, aviation services, office rental, royalties and
certain administrative activities. Total net costs of these transactions were
$1,838, $2,436 and $1,865 for 2006, 2005 and 2004, respectively. Amounts due
to/from related parties were immaterial at September 29, 2006 and September
30,
2005, respectively.
|
12
|
SEGMENTS
OF BUSINESS
|
The
Company conducts its worldwide operations through separate global business
segments, each of which represent major product lines. Operations are conducted
in the U.S. and various foreign countries, primarily in Europe, Canada and
the
Pacific Basin.
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 costs 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 years presented.
F-25
A
summary
of the Company’s operations by business segment is presented below:
|
2006
|
2005
|
2004
|
||||||||||
|
Net
sales:
|
||||||||||||
|
Marine
Electronics:
|
||||||||||||
|
Unaffiliated
customers
|
$
|
164,362
|
$
|
145,051
|
$
|
109,317
|
||||||
|
Interunit
transfers
|
110
|
181
|
461
|
|||||||||
|
Outdoor
Equipment:
|
||||||||||||
|
Unaffiliated
customers
|
65,903
|
75,286
|
90,139
|
|||||||||
|
Interunit
transfers
|
45
|
55
|
54
|
|||||||||
|
Watercraft:
|
||||||||||||
|
Unaffiliated
customers
|
87,127
|
80,374
|
75,172
|
|||||||||
|
Interunit
transfers
|
175
|
475
|
791
|
|||||||||
|
Diving:
|
||||||||||||
|
Unaffiliated
customers
|
77,880
|
79,363
|
80,059
|
|||||||||
|
Interunit
transfers
|
590
|
41
|
15
|
|||||||||
|
Other/Corporate
|
518
|
616
|
587
|
|||||||||
|
Eliminations
|
(920
|
)
|
(752
|
)
|
(1,321
|
)
|
||||||
|
$
|
395,790
|
$
|
380,690
|
$
|
355,274
|
|||||||
|
Operating
profit (loss):
|
||||||||||||
|
Marine
Electronics
|
$
|
21,583
|
$
|
21,572
|
$
|
17,762
|
||||||
|
Outdoor
Equipment
|
8,236
|
11,208
|
16,365
|
|||||||||
|
Watercraft
|
(2,573
|
)
|
(4,353
|
)
|
(9,787
|
)
|
||||||
|
Diving
|
5,604
|
4,901
|
9,949
|
|||||||||
|
Other/Corporate
|
(12,225
|
)
|
(17,684
|
)
|
(14,940
|
)
|
||||||
|
$
|
20,625
|
$
|
15,644
|
$
|
19,349
|
|||||||
|
Depreciation
and amortization expense:
|
||||||||||||
|
Marine
Electronics
|
$
|
3,195
|
$
|
2,865
|
$
|
1,950
|
||||||
|
Outdoor
Equipment
|
358
|
368
|
380
|
|||||||||
|
Watercraft
|
2,525
|
2,643
|
2,896
|
|||||||||
|
Diving
|
1,646
|
2,100
|
2,170
|
|||||||||
|
Other/Corporate
|
1,440
|
1,426
|
1,262
|
|||||||||
|
$
|
9,164
|
$
|
9,402
|
$
|
8,658
|
|||||||
|
Additions
to property, plant and equipment:
|
||||||||||||
|
Marine
Electronics
|
$
|
4,583
|
$
|
2,856
|
$
|
1,918
|
||||||
|
Outdoor
Equipment
|
321
|
217
|
408
|
|||||||||
|
Watercraft
|
1,336
|
2,080
|
2,569
|
|||||||||
|
Diving
|
1,547
|
776
|
1,793
|
|||||||||
|
Other/Corporate
|
1,078
|
874
|
1,156
|
|||||||||
|
$
|
8,865
|
$
|
6,803
|
$
|
7,844
|
|||||||
|
Total
assets:
|
||||||||||||
|
Marine
Electronics
|
$
|
75,728
|
$
|
56,926
|
||||||||
|
Outdoor
Equipment
|
25,283
|
23,901
|
||||||||||
|
Watercraft
|
56,213
|
50,096
|
||||||||||
|
Diving
|
96,968
|
91,488
|
||||||||||
|
Other/Corporate
|
30,034
|
60,907
|
||||||||||
|
$
|
284,226
|
$
|
283,318
|
|||||||||
|
Goodwill,
net:
|
||||||||||||
|
Marine
Electronics
|
$
|
14,596
|
$
|
10,013
|
||||||||
|
Outdoor
Equipment
|
563
|
563
|
||||||||||
|
Watercraft
|
5,518
|
5,600
|
||||||||||
|
Diving
|
22,270
|
21,557
|
||||||||||
|
$
|
42,947
|
$
|
37,733
|
F-26
A
summary
of the Company’s operations by geographic area is presented below:
|
2006
|
2005
|
2004
|
|||||||||
|
Net
sales:
|
|||||||||||
|
United
States:
|
|||||||||||
|
Unaffiliated
customers
|
$
|
315,828
|
$
|
301,796
|
$
|
276,893
|
|||||
|
Interarea
transfers
|
11,123
|
7,294
|
7,016
|
||||||||
|
Europe:
|
|||||||||||
|
Unaffiliated
customers
|
46,192
|
48,233
|
48,919
|
||||||||
|
Interarea
transfers
|
12,527
|
13,320
|
11,601
|
||||||||
|
Other:
|
|||||||||||
|
Unaffiliated
customers
|
33,769
|
30,662
|
29,462
|
||||||||
|
Interarea
transfers
|
1,561
|
1,230
|
2,480
|
||||||||
|
Eliminations
|
(25,210
|
)
|
(21,845
|
)
|
(21,097
|
)
|
|||||
|
$
|
395,790
|
$
|
380,690
|
$
|
355,274
|
||||||
|
Total
assets:
|
|||||||||||
|
United
States
|
$
|
160,203
|
$
|
166,901
|
|||||||
|
Europe
|
95,448
|
91,374
|
|||||||||
|
Other
|
28,575
|
25,043
|
|||||||||
|
$
|
284,226
|
$
|
283,318
|
||||||||
|
Long-term
assets(1):
|
|||||||||||
|
United
States
|
$
|
55,058
|
$
|
47,559
|
|||||||
|
Europe
|
27,332
|
27,461
|
|||||||||
|
Other
|
2,363
|
2,588
|
|||||||||
|
$
|
84,753
|
$
|
77,608
|
||||||||
|
(1)Long-term
assets consist of net property, plant and equipment, net intangible
assets, goodwill and other assets excluding deferred income
taxes.
|
|||||||||||
The
Company had no single customer that accounted for more than 10% of its net
sales
in 2006. The Company’s Outdoor Equipment business recognized sales to the U.S.
military totaling $45,126 and $55,678 in 2005 and 2004,
respectively.
F-27
13
VALUATION
AND QUALIFYING ACCOUNTS
The
following summarizes changes to valuation and qualifying accounts for 2006,
2005
and 2004:
|
|
Balance
at
Beginning
of
Year
|
Additions
Charged
to
Costs
and
Expenses
|
Reserves
of
Businesses
Acquired
|
Less
Deductions
|
Balance
at
End
of
Year
|
||||||||||||
|
Year
ended September 29, 2006:
|
|||||||||||||||||
|
Allowance
for doubtful accounts
|
$
|
2,546
|
$
|
629
|
$
|
—
|
$
|
857
|
$
|
2,318
|
|||||||
|
Reserves
for inventory valuation
|
2,563
|
2,163
|
—
|
1,280
|
3,446
|
||||||||||||
|
Valuation
of deferred tax assets
|
4,568
|
224
|
—
|
1,532
|
3,260
|
||||||||||||
|
Reserves
for sales returns
|
1,323
|
583
|
78
|
961
|
1,023
|
||||||||||||
|
Year
ended September 30, 2005:
|
|||||||||||||||||
|
Allowance
for doubtful accounts
|
2,807
|
379
|
—
|
640
|
2,546
|
||||||||||||
|
Reserves
for inventory valuation
|
2,642
|
431
|
—
|
510
|
2,563
|
||||||||||||
|
Valuation
of deferred tax assets
|
5,353
|
—
|
—
|
785
|
4,568
|
||||||||||||
|
Reserves
for sales returns
|
1,456
|
1,023
|
—
|
1,156
|
1,323
|
||||||||||||
|
Year
ended October 1, 2004:
|
|||||||||||||||||
|
Allowance
for doubtful accounts
|
4,214
|
(16
|
)
|
269
|
1,660
|
2,807
|
|||||||||||
|
Reserves
for inventory valuation
|
3,842
|
1,073
|
—
|
2,273
|
2,642
|
||||||||||||
|
Valuation
of deferred tax assets
|
6,527
|
—
|
—
|
1,174
|
5,353
|
||||||||||||
|
Reserves
for sales returns
|
1,016
|
1,112
|
526
|
1,198
|
1,456
|
||||||||||||
|
Deductions
include the net impact of foreign currency fluctuations on the respective
accounts.
|
|||||||||||||||||
|
14
|
LITIGATION
|
The
Company is subject to various legal actions and proceedings in the normal course
of business, including those related to product liability, intellectual property
and environmental matters. The Company is insured against loss for certain
of
these matters. Although litigation is subject to many uncertainties and the
ultimate exposure with respect to these matters cannot be ascertained,
management does not believe the final outcome of any pending litigation will
have a material adverse effect on the financial condition, results of
operations, liquidity or cash flows of the Company.
|
15
|
SIGNIFICANT
EVENT
|
On
June
29, 2006, the Company announced a temporary closing of its Binghamton, New
York
manufacturing facility due to extensive flooding which occurred in the State
of
New York in June of 2006. The Company reopened this manufacturing facility
on
August 25, 2006. The Company’s finished goods warehouse in Binghamton was
unaffected by the floods and remained open for business. The Company has
incurred $4,740 in losses and expenses associated with clean up, repair,
impairment of inventory, impairment of property and equipment and payroll
related to idle labor due to the flood. The Company has received $3,039 in
insurance reimbursements associated with these costs, has expensed $1,500 of
these costs and has booked a receivable of $201 at September 29, 2006. The
Company does not expect to incur any further expenses that will not be
reimbursed by its insurance providers. The Company is negotiating insurance
recoveries related to business continuation insurance and fixed asset
replacement relating to this event. The amount of these recoveries can not
be
estimated at September 29, 2006 and therefore will be recorded as income upon
resolution of the gain contingencies.
F-28
16
QUARTERLY
FINANCIAL SUMMARY (UNAUDITED)
The
following summarizes quarterly operating results:
|
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||||||||||
|
2006
|
2005
|
2006
|
2005
|
2006
|
2005
|
2006
|
2005
|
||||||||||||||||||
|
Net
sales
|
$
|
72,563
|
$
|
74,982
|
$
|
107,374
|
$
|
106,168
|
$
|
135,540
|
$
|
122,445
|
$
|
80,314
|
$
|
77,095
|
|||||||||
|
Gross
profit
|
29,429
|
30,272
|
44,341
|
45,774
|
57,407
|
51,718
|
34,040
|
28,590
|
|||||||||||||||||
|
Operating
profit (loss)
|
(812
|
)
|
(47
|
)
|
8,271
|
8,426
|
13,912
|
11,848
|
(744
|
)
|
(4,583
|
)
|
|||||||||||||
|
Net
income (loss)
|
$
|
(1,094
|
)
|
$
|
(1,031
|
)
|
$
|
4,174
|
$
|
4,738
|
$
|
6,563
|
$
|
6,794
|
$
|
(924
|
)
|
$
|
(3,398
|
)
|
|||||
|
Basic
earnings (loss) per common share:
|
$
|
(0.12
|
)
|
$
|
(0.12
|
)
|
$
|
0.46
|
$
|
0.55
|
$
|
0.73
|
$
|
0.79
|
$
|
(0.10
|
)
|
$
|
(0.39
|
)
|
|||||
|
Diluted
earnings (loss) per common share:
|
$
|
(0.12
|
)
|
$
|
(0.12
|
)
|
$
|
0.46
|
$
|
0.54
|
$
|
0.72
|
$
|
0.77
|
$
|
(0.10
|
)
|
$
|
(0.39
|
)
|
|||||
Due
to
changes in stock prices during the year and timing of issuance of shares, the
cumulative total of quarterly net income (loss) per share amounts may not equal
the net income per share for the year. Each of the fiscal quarters in 2006
and
2005 was thirteen weeks long, ending on the Friday nearest to the calendar
quarter end.
F-29
EXHIBIT
21
JOHNSON
OUTDOORS INC. AND SUBSIDIARIES
The
following lists the principal direct and indirect subsidiaries of Johnson
Outdoors Inc. as of September 29, 2006. Inactive subsidiaries are not
presented:
|
Name
of Subsidiary(1)(2)
|
Jurisdiction
in
which
Incorporated
|
|
Johnson
Outdoors Canada Inc.
|
Canada
|
|
Old
Town Canoe Company
|
Delaware
|
|
Leisure
Life Limited (d/b/a Johnson Outdoors Watercraft Sport and Leisure
Group)
|
Michigan
|
|
Techsonic
Industries, Inc. (d/b/a Humminbird)
|
Alabama
|
|
Under
Sea Industries, Inc.
|
Delaware
|
|
JWA
Holding B.V.
|
Netherlands
|
|
Johnson
Beteiligungsgesellschaft GmbH
|
Germany
|
|
Scubapro
Taucherauser GmbH
|
Germany
|
|
Uwatec
AG
|
Switzerland
|
|
Scubapro
Asia Pacific Ltd.
|
Hong
Kong
|
|
Uwatec
Batam
|
Indonesia
|
|
Scubapro
Asia, Ltd.
|
Japan
|
|
Scubapro
Espana, S.A.(3)
|
Spain
|
|
Scubapro
Eu AG
|
Switzerland
|
|
Scubapro
Europe Benelux, S.A.
|
Belgium
|
|
Johnson
Outdoors France
|
France
|
|
Scubapro/Uwatec
S.A.
|
France
|
|
Scubapro
Europe S.r.l
|
Italy
|
|
Scubapro
Italy S.r.l.
|
Italy
|
|
Scubapro
(UK) Ltd.(4)
|
United
Kingdom
|
|
Scubapro-Uwatec
Australia Pty. Ltd.
|
Australia
|
|
Johnson
Outdoors Watercraft UK
|
United
Kingdom
|
|
Johnson
Outdoors Watercraft Ltd.
|
New
Zealand
|
|
(1)
|
Unless
otherwise indicated in brackets, each company does business only
under its
legal name.
|
|
(2)
|
Unless
otherwise indicated by footnote, each company is a wholly-owned subsidiary
of Johnson Outdoors Inc. (through direct
or
indirect ownership).
|
|
(3)
|
Percentage
of stock owned is 98%.
|
|
(4)
|
Percentage
of stock owned is 99%.
|
EXHIBIT
23
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors
Johnson
Outdoors Inc.:
We
consent to incorporation by reference in the Registration Statements (Form
S-8
Nos. 33-19804, 33-19805, 33-35309, 33-50680, 33-52073, 33-54899, 33-59325,
33-61285, 333-88089, 333-88091, 333-84480, 333-84414, 333-107354 and 333-115298)
pertaining to various employee benefit programs of Johnson Outdoors Inc. of
our
reports dated December 11, 2006 with respect to the consolidated financial
statements of Johnson Outdoors Inc., Johnson Outdoors Inc. management’s
assessment of the effectiveness of internal control over financial reporting,
and the effectiveness of internal control over financial reporting of Johnson
Outdoors Inc., included in the Annual Report on Form 10-K for the year ended
September 29, 2006.
/s/
Ernst
& Young LLP
Ernst
& Young LLP
Milwaukee,
Wisconsin
December
11, 2006
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 Annual Report on Form 10-K 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(s) 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(s) 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 the 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:
|
December
11, 2006
|
/s/
Helen P.
Johnson-Leipold
|
|
|
Helen
P. Johnson-Leipold
Chairman
and Chief Executive Officer
|
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 Annual Report on Form 10-K 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(s) 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(s) 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 the 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:
|
December
11, 2006
|
/s/ David W. Johnson | |
|
David
W. Johnson
Vice
President and Chief Financial
Officer
|
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 Annual Report on Form 10-K of the Company for the year
ended September 29, 2006 (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
December
11, 2006
|
The
above
certification are made solely for the purpose of 18 U.S.C. Section 1250, subject
to the knowledge standard contained therein, and not for any other
purpose.
EXHIBIT
32.2
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 Annual Report on Form 10-K of the Company
for the year ended September 29, 2006 (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
December
11, 2006
|
The
above
certification are made solely for the purpose of 18 U.S.C. Section 1250, subject
to the knowledge standard contained therein, and not for any other
purpose.