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 28, 2007
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)
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Wisconsin
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39-1536083
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|
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer Identification No.)
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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:
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Title
of Each Class
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Name
of Exchange on
Which
Registered
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|
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Class
A Common Stock, $.05 par value
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NASDAQ
Global MarketSM
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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. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check
one):
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, 2007, 7,959,617 shares of Class A and 1,217,409 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 $83,578,748 on March 30, 2007 (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 $18.58 per share, the closing price of the Class A common stock as
reported on the NASDAQ Global MarketSM on March
30, 2007.
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 2008 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; and adverse weather
conditions. Shareholders, potential investors and other readers are urged to
consider these factors in evaluating the forward-looking statements and are
cautioned not to place undue reliance on such forward-looking statements. The
forward-looking statements included herein are only made as of the date of
this
filing. The Company assumes no obligation, and disclaims any obligation, to
update such forward-looking statements to reflect subsequent events or
circumstances.
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!®,
Geonav®, Old Town®, Ocean Kayak™, Necky®, Escape®,
Lendal™,
Extrasport®, Carlisle®, Scubapro®, UWATEC® and Seemann™.
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, under its Humminbird
brand, underwater sonar and GPS technology equipment and under its
Cannon brand, downriggering fishing equipment. Together these
brands comprise the Marine Electronics segment. The Company’s Marine Electronics
brands and related accessories are sold in the United States (U.S.), Canada,
Europe, South America and the Pacific Basin through large outdoor specialty
store chains such as Bass Pro Shops and Cabelas, large retail store chains,
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 been able to gain market
share by emphasizing marketing, product innovation and quality.
On
November 16, 2007, the Company acquired Geonav S.r.l. (Geonav), a marine
electronics company in Europe for approximately $6.3 million, including assumed
debt and transaction costs. Geonav is a major European brand of chart plotters
based in Viareggio, Italy. Also sold under the Geonav brand are marine
autopilots, VHF radios and fish finders
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.
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 and
Tech40
performance measurement 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.
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, 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.
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 thermoformed recreational canoes, under the Rogue
River name, small electric powered boats under the Escape name,
and other paddle and watercraft accessory brands, including
Extrasport personal flotation devices and wearable paddle gear,
as well as Carlisle and Lendal branded
paddles. 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 products are
sold through marine dealers, resort and rental outlets and large retail
chains.
The
Company manufactures its Watercraft products in two locations in the U.S. and
one in New Zealand. The Company also contracts for manufacturing of Watercraft
products with third parties in Michigan, Tunisia and the Czech
Republic.
The
Company believes, based on industry and other data, that it has grown global
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,
plus $0.1 million in transaction costs. Lendal, which was 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. During 2007, the Company
ceased manufacturing operations in Scotland, relocating the manufacturing of
the
Lendal product to one of its existing U.S. manufacturing locations.
Diving
The
Company manufactures and markets underwater diving products for technical and
recreational divers, which it sells and distributes under the
SCUBAPRO, UWATEC and Seemann
brand names. On April 2, 2007, the Company purchased the business assets and
related liabilities of Seemann Sub GmbH & Co. KG (Seemann) from Seemann’s
founders for $7.8 million, plus $0.1 million in transaction costs. The purchase
agreement provides for up to $0.7 million in additional purchase price
consideration based on the attainment of specific integration success criteria.
Seemann, located in Wendelstein, Germany, is one of that country’s largest dive
equipment providers. The purchase of the Seemann Sub brand will expand the
Company’s product line with dive gear for the price-driven
consumer.
3
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 accessories. SCUBAPRO and
UWATEC
quality diving equipment is marketed to the premium segment of the market for
both diving enthusiasts and more technical, advanced divers.
Seemann products are marketed to the recreational diver
interested in owning quality equipment at an affordable price. Products are
sold
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.
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.
Seemann’s full-line of dive equipment and accessories are
marketed and sold primarily in Europe. Seemann products compete
in the mid-market on the basis of quality at an affordable price.
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 regarding 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 Income
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 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, Pelican, Wenonah Canoe and
Legacy Paddlesports 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 28, 2007, the Company had approximately 1,400 regular, full-time
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 $36.0 million
at
September 28, 2007 and $44.8 million September 29, 2006. 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. Historically,
the Company has vigorously defended its intellectual property rights. and the
Company expects to continue to do so.
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.
5
Seasonality
The
Company’s products are outdoor recreation related which results in seasonal
variations in sales and profitability. This seasonal variability is due to
customers increasing their inventories in the quarters ending March and June,
the primary selling season for the Company's outdoor recreation products. 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
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||||||||||||||||||||||||
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September
28, 2007
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September
29, 2006
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September
30, 2005
|
||||||||||||||||||||||
|
Quarter
Ended
|
Net
Sales
|
Operating
Profit
(Loss)
|
Net
Sales
|
Operating
Profit
(Loss)
|
Net
Sales
|
Operating
Profit
(Loss)
|
||||||||||||||||||
|
December
|
17 | % | (15 | )% | 19 | % | (4 | )% | 20 | % | — | % | ||||||||||||
|
March
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28
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23
|
27
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40
|
28
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54
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||||||||||||||||||
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June
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35
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82
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34
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67
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32
|
76
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||||||||||||||||||
|
September
|
20
|
10
|
20
|
(3 | ) |
20
|
(30 | ) | ||||||||||||||||
| 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||
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.
|
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.
6
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.
In
July
2007, we reached a settlement agreement with Confluence Holdings Corp. that
ended a long-standing intellectual property dispute between the two companies.
While the terms of the agreement are confidential, the settlement did not
constitute an admission of wrongdoing by either party and included a one-time
payment by Johnson Outdoors of $4.4 million which had an unfavorable impact
on
our earnings in the third fiscal quarter.
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.
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, 2007, 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:
| ● |
Certain
assets of Computrol, Inc. on October 3, 2005, including, without
limtiationcertain intallectual property used in its
business.
|
|
|
|
7
| ● |
Lendal
Products Ltd. on October 3, 2006, including, without limitation certain
intellectual property used in its
business.
|
| ● |
Seemann
Sub GmbH & Co. KG on April 2, 2007, including, without limitation
certain intellectual property used in its
business.
|
|
●
|
Geonav
S.r.l. on November 16, 2007, 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 elating to the integration of acqjired 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.
|
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.
8
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 and certain other of our debt instruments 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. We believe there are 4,370,113
shares of our Class A common stock held by nonaffiliates. 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.
|
None.
|
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) (1)
|
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)
|
|
|
Brussels,
Belgium (Diving)
|
Napier,
New Zealand* (Watercraft)
|
|
|
Burlington,
Ontario, Canada (Marine Electronics, Outdoor Equipment)
|
Old
Town, Maine* (Watercraft)
|
|
|
Prestwick,
Ayrshire, United Kingdom* (Watercraft) (2)
|
||
|
Chatswood,
Australia (Diving)
|
Silverdale,
New Zealand* (Watercraft)
|
|
|
Chai
Wan, Hong Kong (Diving)
|
Wendelstein,
Germany (Diving) (1)
|
|
|
El
Cajon, California (Diving)
|
Yokohama,
Japan (Diving)
|
|
|
(1)This
facility was closed at the end of fiscal 2007 and sales, service
and back
office support was relocated to the Seemann Sub facility in
Wendelstein,
Germany.
(2)This
facility will be vacated as of October 31, 2007 and the lease will
be
terminated as of that date. Manufacturing operations formerly
engaged
in at this facility are being transferred to our Old Town, Maine
facility.
|
||
9
The
Company’s corporate headquarters is located in a leased facility in Racine,
Wisconsin.
|
ITEM
3.
|
See
Note
14 to the Consolidated Financial Statements included elsewhere in this report
for a discussion of legal proceedings.
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended September 28, 2007.
10
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, 2007, the Company had 734 holders of record of its Class A common stock
and
51 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.
A
summary
of the high and low prices for the Company’s Class A common stock during each
quarter of the years ended September 28, 2007 and September 29, 2006 is as
follows:
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||||||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||||||||||||||
|
Stock
prices:
|
||||||||||||||||||||||||||||||||
|
High
|
$ |
19.13
|
$ |
17.47
|
$ |
18.83
|
$ |
18.24
|
$ |
20.25
|
$ |
18.35
|
$ |
23.91
|
$ |
17.81
|
||||||||||||||||
|
Low
|
17.06
|
16.05
|
17.00
|
16.69
|
18.02
|
15.97
|
17.00
|
16.52
|
||||||||||||||||||||||||
In
fiscal
2007, the Company declared the following dividends:
| ● |
A
cash dividend declared on June 14, 2007, with a record date of July
12,
2007, payable on July 26, 2007 of $0.055 per share to Class A common
stockholders and $0.05 per share to Class B common
stockholders.
|
| ● |
A
cash dividend declared on September 19, 2007, with a record date
of
October 11, 2007, payable on October 25, 2007 of $0.055 per share
to Class
A common stockholders and $0.05 per share to Class B common
stockholders.
|
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 purchases
of
treasury stock) made during each fiscal year. The limitation was
approximately $27 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.
|
11
Total
Shareholder Return
The
graph
below compares on a cumulative basis the yearly percentage change since
September 27, 2002 in the total return (assuming reinvestment of dividends)
to
shareholders on the Class A common stock with (a) the total return (assuming
reinvestment of dividends) on The NASDAQ Stock Market-U.S. Index; (b) the total
return (assuming reinvestment of dividends) on the Russell 2000 Index; and
(c)
the total return (assuming reinvestment of dividends) on a self-constructed
peer
group index. This year, the Company is transitioning to a new peer group which
consists of Arctic Cat Inc., Brunswick Corporation, Callaway Golf Company,
Escalade
Inc.,
Marine Products Corporation and Nautilus, Inc. In previous years, the
peer group consisted of Arctic Cat Inc., Brunswick Corporation, Callaway Golf
Company, K2 Inc., and Nautilus, Inc. The graph assumes $100 was invested on
September 27, 2002 in Class A common stock, The NASDAQ Stock Market-U.S. Index,
the Russell 2000 Index and the peer group indices.
|
9/27/02
|
10/3/03
|
10/1/04
|
9/30/05
|
9/29/06
|
9/28/07
|
|||||||||||||||||||
|
Johnson
Outdoors
|
100.00
|
123.85
|
177.06
|
152.84
|
158.62
|
199.22
|
||||||||||||||||||
|
NASDAQ
Composite
|
100.00
|
151.68
|
163.78
|
186.68
|
197.57
|
237.83
|
||||||||||||||||||
|
Russell
2000 Index
|
100.00
|
136.50
|
162.12
|
191.23
|
210.20
|
236.14
|
||||||||||||||||||
|
Old
Peer Group
|
100.00
|
120.75
|
173.44
|
160.24
|
131.75
|
111.92
|
||||||||||||||||||
|
New
Peer Group
|
100.00
|
121.98
|
177.03
|
163.28
|
134.75
|
115.47
|
||||||||||||||||||
The
information in this section titled "Total Shareholder Return" shall not be
deemed to be "soliciting material" or "filed" with the Securities and Exchange
Commission or subject to Regulation 14A or 14C promulgated by the Securities
and
Exchange Commission or subject to the liabilities of section 18 of the
Securities Exchange Act of 1934, as amended, and this information shall not
be
deemed to be incorporated by reference into any filing under the Securities
Act
of 1933, as amended, or the Securities Exchange Act of 1934, as
amended."
12
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” included or referred to elsewhere
in this report. The consolidated statements of income for the years ended
September 28, 2007, September 29, 2006 and September 30, 2005, and the
consolidated balance sheet data as of September 28, 2007 and September 29,
2006,
are derived from the Company’s audited consolidated financial statements
included elsewhere herein. The consolidated statements of income for the years
ended October 1, 2004 and October 3, 2003, and the consolidated balance sheet
data as of September 30, 2005, October 1, 2004 and October 3, 2003, are derived
from the Company’s audited consolidated financial statements which are not
included herein.
|
Year
Ended
|
||||||||||||||||||||
|
(thousands,
except per share data)
|
September
28
2007
|
(6) |
September
29
2006
|
(5) |
September
30
2005
|
October
1
2004
|
(4) |
October
3
2003
|
||||||||||||
|
Operating
Results (1)
|
||||||||||||||||||||
|
Net
sales
|
$ |
432,060
|
$ |
395,790
|
$ |
380,690
|
$ |
355,274
|
$ |
315,892
|
||||||||||
|
Gross
profit
|
174,883
|
165,216
|
156,354
|
147,618
|
127,989
|
|||||||||||||||
|
Operating
expenses
|
156,944
|
144,591
|
140,710
|
128,269
|
116,167
|
|||||||||||||||
|
Operating
profit
|
17,939
|
20,625
|
15,644
|
19,349
|
11,822
|
|||||||||||||||
|
Interest
expense
|
5,162
|
4,989
|
4,792
|
5,283
|
5,374
|
|||||||||||||||
|
Other
income
|
(193 | ) | (128 | ) | (1,250 | ) | (670 | ) | (3,254 | ) | ||||||||||
|
Income
before income taxes
|
13,708
|
15,764
|
12,102
|
14,736
|
9,702
|
|||||||||||||||
|
Income
tax expense
|
4,474
|
7,049
|
5,001
|
6,047
|
4,281
|
|||||||||||||||
|
Net
income
|
$ |
9,234
|
$ |
8,715
|
$ |
7,101
|
$ |
8,689
|
$ |
5,421
|
||||||||||
|
Basic
earnings per common share
|
$ |
1.02
|
$ |
0.97
|
$ |
0.82
|
$ |
1.01
|
$ |
0.64
|
||||||||||
|
Diluted
earnings per common share
|
$ |
1.00
|
$ |
0.95
|
$ |
0.81
|
$ |
0.99
|
$ |
0.63
|
||||||||||
|
Diluted
average common shares outstanding
|
9,254
|
9,161
|
8,795
|
8,774
|
8,600
|
|||||||||||||||
|
Balance
Sheet Data
|
||||||||||||||||||||
|
Current
assets (2)
|
$ |
204,951
|
$ |
184,897
|
$ |
186,035
|
$ |
194,641
|
$ |
195,135
|
||||||||||
|
Total
assets
|
319,679
|
284,226
|
283,318
|
293,714
|
277,657
|
|||||||||||||||
|
Current
liabilities (3)
|
66,255
|
57,650
|
56,196
|
59,110
|
50,031
|
|||||||||||||||
|
Long-term
debt, less current maturities
|
10,006
|
20,807
|
37,800
|
50,797
|
67,886
|
|||||||||||||||
|
Total
debt
|
42,806
|
37,807
|
50,800
|
67,019
|
77,473
|
|||||||||||||||
|
Shareholders’
equity
|
200,165
|
180,881
|
166,434
|
160,644
|
144,194
|
|||||||||||||||
|
(1)
|
The
year ended October 3, 2003 included 53 weeks. All other years include
52
weeks.
|
|
(2)
|
Includes
cash and temporary cash investments of $39,232, $51,689, $72,111,
$69,572
and $88,910, as of the years ended 2007, 2006, 2005, 2004 and 2003,
respectively.
|
|
(3)
|
Excluding
short-term debt and current maturities of long-term
debt.
|
|
(4)
|
The
results in 2004 contain five months of operating results of the acquired
Humminbird business.
|
|
(5)
|
The
results in 2006 contain a full year of operating results of the acquired
Cannon/Bottom Line business.
|
|
(6)
|
The
results in 2007 contain a full year of operating results of the acquired
Lendal Products Ltd. business and six months of operating results
of the
acquired Seemann Sub Gmbh & Co.
business.
|
13
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Executive
Overview
The
Company designs, manufactures and markets top-quality recreational products
for
the outdoor enthusiast. 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.
Total
Company net sales were $432.1 million, a 9.2% increase over $395.8 million
in
the prior year. Key factors impacting the year-over-year sales results
included:
|
|
●
|
In
Marine Electronics, strong new product introductions and marketing
programs drove a 20.4% increase in net sales over the prior
year.
|
|
|
●
|
In
Diving, stabilization and growth in Europe, including a successful
new
diving computer launch, the addition of Seemann Sub and favorable
currency
translation together contributed to a 13.0% increase in net sales
over the
prior year.
|
|
|
●
|
In
Watercraft, favorable response to new paddle sport innovations and
double-digit growth in key international markets led to a 3.4% increase
in
net sales for the year.
|
|
|
●
|
In
Outdoor Equipment, net sales fell 15.3% due to the expected slow-down
in
military tent sales, and non-recurring specialty market sales of
$5.3
million in the prior year.
|
Operating
profit for the year was $17.9 million compared to $20.6 million in the prior
year. Key factors driving the year-over-year changes in operating profit
included:
|
|
●
|
A
one-time $4.4 million litigation settlement payment in Watercraft
partially off-set by increased paddle sport brand
sales.
|
|
|
●
|
The
recovery of $2.9 million in flood-related costs in Outdoor
Equipment.
|
|
|
●
|
The
anticipated 20.9% decline in military
sales.
|
|
|
●
|
Lower
gross margins in Marine Electronics due to increased labor costs
incurred
to meet high demand for new
product.
|
|
|
●
|
Corporate
expenditures of $2.0 million, investing in strategic profitable growth
initiatives.
|
Income
tax expense was $4.5 million in fiscal 2007, an effective rate of 32.6%,
compared to $7.0 million in fiscal 2006, an effective rate of 44.7%. Key factors
driving the year-over-year changes in the effective tax rate
included:
|
|
●
|
Benefit
from a German tax law change
|
|
|
●
|
An
increased tax rate used to record federal deferred tax assets and
research
and development tax credits.
|
Net
income was $9.2 million, or $1.00 per diluted share, versus net income of $8.7
million, or $0.95 per diluted share, in the prior year.
Debt-to-total
capitalization stood at 18% at September 28, 2007, up from 17% at September
29,
2006. Debt net of cash, decreased $17.5 million to $3.6 million by year end.
Depreciation and amortization expenses were $9.4 million in 2007 compared with
$9.2 million in the prior year. Capital spending totaled $13.4 million in 2007
compared with last year’s $8.9 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 28, 2007. This discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto attached to this
report.
14
Results
of Operations
Summary
consolidated financial results from continuing operations for the fiscal years
presented were as follows:
|
(millions,
except per share data)
|
2007
|
(1) |
2006
|
(2) |
2005
|
|||||||
|
Operating
Results
|
||||||||||||
|
Net
sales
|
$ |
432.1
|
$ |
395.8
|
$ |
380.7
|
||||||
|
Gross
profit
|
174.9
|
165.2
|
156.4
|
|||||||||
|
Operating
expenses
|
156.9
|
144.6
|
140.7
|
|||||||||
|
Operating
profit
|
17.9
|
20.6
|
15.6
|
|||||||||
|
Interest
expense
|
5.2
|
5.0
|
4.8
|
|||||||||
|
Net
income
|
9.2
|
8.7
|
7.1
|
|||||||||
|
Diluted
earnings per common share
|
$ |
1.00
|
$ |
0.95
|
$ |
0.81
|
||||||
|
(1)
|
The
results in 2007 contain a full year of operating results of the acquired
Lendal Products Ltd. business and six months of operating results
of the
acquired Seemann Sub Gmbh & Co.
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)
|
2007
|
2006
|
2005
|
|||||||||
|
Net
sales:
|
||||||||||||
|
Marine
Electronics
|
$ |
198.0
|
$ |
164.5
|
$ |
145.2
|
||||||
|
Outdoor
Equipment
|
55.9
|
65.9
|
75.3
|
|||||||||
|
Watercraft
|
90.3
|
87.3
|
80.8
|
|||||||||
|
Diving
|
88.7
|
78.5
|
79.4
|
|||||||||
|
Other/Corporate/eliminations
|
(0.8 | ) | (0.4 | ) |
—
|
|||||||
|
Total
|
$ |
432.1
|
$ |
395.8
|
$ |
380.7
|
||||||
|
Operating
profit:
|
||||||||||||
|
Marine
Electronics
|
$ |
22.9
|
$ |
21.6
|
$ |
21.6
|
||||||
|
Outdoor
Equipment
|
8.5
|
8.2
|
11.2
|
|||||||||
|
Watercraft
|
(6.3 | ) | (2.6 | ) | (4.4 | ) | ||||||
|
Diving
|
6.9
|
5.6
|
4.9
|
|||||||||
|
Other/Corporate/eliminations
|
(14.1 | ) | (12.2 | ) | (17.7 | ) | ||||||
|
Total
|
$ |
17.9
|
$ |
20.6
|
$ |
15.6
|
||||||
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.
2007
vs 2006
Net
Sales
Net
sales
totaled $432.1 million in 2007 compared to $395.8 million in 2006, an increase
of 9.2% or $36.3 million. Foreign currency translations favorably impacted
2007
net sales by $3.9 million in comparison to 2006. Sales growth in the Company’s
Marine Electronics, Watercraft and Diving business units overcame a decline
in
the Outdoor Equipment business unit.
Net
sales
for the Marine Electronics business increased $33.5 million, or 20.4% primarily
due to the successful launch of new products across the Marine Electronics
brands. Net sales for the Company’s Watercraft business increased $3.0 million,
or 3.4%, as a result of new product introductions and product offerings in
the
U.S. and improved volumes in international markets. Net sales for the Diving
business increased $10.2 million, or 13.0% primarily due to an increase of
$4.6
million from the acquired Seemann Sub business, increased volume in Europe
and
the
far east and a $2.8 million favorable currency translation. Net sales in the
Company’s Outdoor Equipment business declined $10.0 million, or 15.2%, primarily
due to the expected decline in total military tent sales and a $5.3 million
decline in specialty market sales. The declines in military tent sales and
specialty market sales were partially offset by strong sales in the Consumer
and
Commercial businesses.
15
Operating
Results
The
Company recognized an operating profit of $17.9 million in fiscal 2007 compared
to an operating profit of $20.6 million in fiscal 2006. Company gross profit
margins decreased to 40.5% in fiscal 2007 from 41.7% in fiscal 2006. Primary
factors driving the decrease in gross profit margins were production
inefficiencies in Marine Electronics and Diving supply chain challenges in
Europe. Operating expenses totaled $156.9 million, or 36.3% of net sales in
fiscal 2007 compared to $144.6 million, or 36.5% of net sales in fiscal
2006.
Marine
Electronics operating profit improved by $1.3 million, or 6.0%, in fiscal 2007
from the prior year. The increase was driven by favorable net sales volume
on
successful launch of new products across the Marine Electronics brands, slightly
offset by increased labor due to production inefficiencies incurred in meeting
higher new product demand.
Diving
operating profit increased $1.3 million, or 23.7%, due primarily to operating
profit provided by the acquired Seemann Sub business along with improved
profitability on increased sales volume in far east markets. Additionally,
the
Diving business incurred $0.6 million in restructuring costs related to the
closure of its Wendelstein, Germany facility.
Outdoor
Equipment operating profit increased $0.3 million, or 3.7%, mainly due to the
insurance recoveries related to the 2006 Binghamton, New York flood. The Company
recognized gains on the recoveries of $2.9 million compared to losses incurred
in the prior year of $1.5 million. No additional costs or recoveries are
expected related to this event. Without the insurance recoveries the Outdoor
Equipment business operating profits would have declined as a result of lower
military tent sales and $5.3 million of specialty market sales occurring in
2006
which did not recur in 2007.
Watercraft
operating losses widened by $3.7 million from the prior year to $6.3 million
for
fiscal 2007. However fiscal 2007 operating losses for this segment included
a
one-time legal settlement of $4.4 million,. Nonetheless, Watercraft saw
improvements in its core Paddlesports business and continues to strategically
invest in the Escape business and product line.
Other
Income and Expenses
Interest
income in 2007 increased $0.2 million to $0.7 million in fiscal 2007. Interest
expense increased $0.2 million to $5.2 million. 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 $0.6 million in fiscal 2007 as compared to $0.2 million
in
fiscal 2006.
Pretax
Income and Income Taxes
The
Company recognized pretax income of $13.7 million in fiscal 2007, compared
to
$15.8 million in fiscal 2006. The Company recorded income tax expense of $4.5
million in fiscal 2007, an effective rate of 32.6%, compared to $7.0 million
in
fiscal 2006, an effective rate of 44.7%. The effective tax rate for 2007
benefited from a German tax law change, an increased tax rate used to record
federal deferred tax assets and research and development tax
credits.
At
September 28, 2007, the Company had U.S. federal operating loss carryforwards
of
approximately $4.0 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 $1.5 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 deferred tax assets, net of the valuation allowance, through the generation
of future taxable income, tax planning strategies and reversals of deferred
tax
liabilities.
16
Net
Income
The
Company recognized net income of $9.2 million in fiscal 2007, or $1.00 per
diluted share, compared to net income of $8.7 million in fiscal 2006, or $0.95
per diluted share.
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.
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.
17
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 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 received $3.0 million in insurance
reimbursements associated with these costs, expensed $1.5 million of these
costs
and had a receivable of $0.2 million at September 29, 2006.
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 allowance 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.
18
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)
|
2007
|
2006
|
2005
|
|||||||||
|
Cash
provided by (used for):
|
||||||||||||
|
Operating
activities
|
$ |
1.4
|
$ |
7.5
|
$ |
26.2
|
||||||
|
Investing
activities
|
(22.8 | ) | (18.6 | ) | (6.4 | ) | ||||||
|
Financing
activities
|
5.3
|
(12.8 | ) | (15.0 | ) | |||||||
|
Effect
of exchange rate changes
|
3.6
|
3.5
|
(2.3 | ) | ||||||||
|
Increase
(decrease) in cash and temporary cash investments
|
$ | (12.5 | ) | $ | (20.4 | ) | $ |
2.5
|
||||
The
Company's debt to total capitalization ratio increased to 18% as of September
28, 2007 from 17% as of September 29, 2006.
Operating
Activities
The
following table sets forth the Company’s working capital position at the end of
each of the past three years:
|
(millions)
|
2007
|
2006
|
2005
|
|||||||||
|
Current
assets (1)
|
$ |
205.0
|
$ |
184.9
|
$ |
186.0
|
||||||
|
Current
liabilities (2)
|
66.3
|
57.7
|
56.2
|
|||||||||
|
Working
capital (2)
|
$ |
138.7
|
$ |
127.2
|
$ |
129.8
|
||||||
|
Current
ratio (2)
|
3.1:1
|
3.2:1
|
3.3:1
|
|||||||||
|
(1)
|
2007,
2006 and 2005 information includes cash and temporary cash investments
of
$39.2, $51.7 and $72.1 million,
respectively.
|
(2)
Excludes short-term debt and current maturities of long-term
debt.
Cash
flows provided by operations totaled $1.4 million, $7.5 million and $26.2
million in fiscal 2007, 2006 and 2005, respectively. The major driver in the
decline of cash flows from operations in fiscal 2007 was created by an increase
in working capital. Increases in accounts receivable of $3.1 million and
inventory of $22.6 million offset by increases in accounts payable and other
accrued liabilities of $5.4 million reflect the increase in working capital.
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.
Depreciation
and amortization charges were $9.4 million in fiscal 2007, $9.2 million in
fiscal 2006 and $9.4 million in fiscal 2005.
Investing
Activities
Cash
flows used for investing activities were $22.8 million, $18.6 million and $6.4
million in fiscal 2007, 2006 and 2005, respectively. The acquisition of Lendal
used $1.5 million of cash and the acquisition of Seemann used $7.9 million
of
cash in fiscal 2007. The acquisition of Cannon/Bottom Line used $9.9 million
of
cash in fiscal 2006. Expenditures for property, plant and equipment were $13.4
million, $8.9 million and $6.8 million in fiscal 2007, 2006 and 2005,
respectively. The increase in expenditures for property, plant and equipment
in
2007 was mainly to support tooling for new products and building of a flood
wall
to protect the Company’s Binghamton, New York facility.
In general, the Company’s ongoing expenditures are primarily related to tooling
for new products, facilities and information systems improvements. In 2008,
capital expenditures are anticipated to be approximately $12.0 million, lower
than the fiscal 2007 expenditures noted above.
19
Financing
Activities
The
following table sets forth the Company’s debt and capital structure at the end
of the past three fiscal years:
|
(millions)
|
2007
|
2006
|
2005
|
|||||||||
|
Current
debt
|
$ |
32.8
|
$ |
17.0
|
$ |
13.0
|
||||||
|
Long-term
debt
|
10.0
|
20.8
|
37.8
|
|||||||||
|
Total
debt
|
42.8
|
37.8
|
50.8
|
|||||||||
|
Shareholders’
equity
|
200.2
|
180.9
|
166.4
|
|||||||||
|
Total
capitalization
|
$ |
243.0
|
$ |
218.7
|
$ |
217.2
|
||||||
|
Total
debt to total capitalization
|
17.6 | % | 17.3 | % | 23.4 | % | ||||||
Cash
flows provided by (used for) financing activities totaled $5.3 million, ($12.8)
million and ($15.0) million in fiscal 2007, 2006 and 2005, respectively.
Payments on long-term debt were $17.0 million, $13.0 million and $16.2 million
in fiscal 2007, 2006 and 2005, respectively.
On
October 7, 2005, the Company entered into a $75 million
unsecured revolving credit facility agreement expiring October 7, 2010. The
Company had $22.0 million in borrowings outstanding on this credit facility
as
of September 28, 2007.
On
February 1, 2007, the Company entered into an additional $10.0 million unsecured
revolving credit facility agreement to satisfy the Company's working capital
requirements. The Company repaid and closed this credit facility in May 2007
as
it was no longer needed.
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 28, 2007.
|
Payment
Due by Period
|
||||||||||||||||||||
|
(millions)
|
Total
|
Less
than
1
year
|
2-3
years
|
4-5
years
|
After
5 years
|
|||||||||||||||
|
Long-term
debt
|
$ |
20.8
|
$ |
10.8
|
$ |
10.0
|
$ |
—
|
$ |
—
|
||||||||||
|
Short-term
debt
|
22.0
|
22.0
|
—
|
—
|
—
|
|||||||||||||||
|
Operating
lease obligations
|
27.8
|
5.9
|
8.0
|
5.6
|
8.3
|
|||||||||||||||
|
Open
purchase orders
|
61.8
|
61.8
|
—
|
—
|
—
|
|||||||||||||||
|
Contractually
obligated interest payments
|
1.7
|
1.3
|
0.4
|
—
|
—
|
|||||||||||||||
|
Total
contractual obligations
|
$ |
134.1
|
$ |
101.8
|
$ |
18.4
|
$ |
5.6
|
$ |
8.3
|
||||||||||
The
Company also utilizes letters of credit for trade financing purposes. Letters
of
credit outstanding at September 28, 2007 totaled $2.7 million.
The
Company anticipates making contributions to its defined benefit pension plans
of
$0.4 million through October 15, 2008.
The
Company has no other off-balance sheet arrangements.
20
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 into during fiscal years 2007 and 2006.
Interest
Rates
The
Company uses interest rate swaps, caps or collars in order to maintain a mix
of
floating rate and fixed rate debt such that permanent working capital needs
are
largely funded with fixed rate debt and seasonal working capital needs are
funded with floating rate debt. The Company’s primary exposure is to U.S.
interest rates. The Company had no interest rate swaps, caps or collars
outstanding as of the fiscal 2007 and 2006 year ends. On October 29, 2007 the
Company entered into a forward starting interest rate swap (the “Swap”) with a
notional amount of $60.0 million, receiving a floating three month LIBOR
interest rate while paying at a fixed rate of 4.685% over an accruing period
beginning December 14, 2007 and ending December 14, 2012. Interest will be
payable quarterly. The Swap has been designated as a cash flow hedge of a
forecasted floating rate debt issuance of approximately $60.0 million and is
expected to be an effective hedge of the impact on interest payments due to
changes in the three-month LIBOR benchmark rate.
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 income before income
taxes from a 100 basis point movement in interest rates on the Company's senior
notes outstanding at September 28, 2007:
|
Estimated
Impact on
|
||||||||
|
(millions)
|
Fair
Value
|
Income
Before
Income
Taxes
|
||||||
|
Interest
rate instruments
|
$ |
0.2
|
$ |
0.2
|
||||
The
Company has outstanding $20.8 million in unsecured senior notes as of September
28, 2007. The senior notes bear interest at rates of 7.15% or 7.82% and are
to
be repaid through December 2008. The fair market value of the Company’s fixed
rate debt was $21.5 million as of September 28, 2007.
21
Other
Factors
The
Company experienced inflationary pressures during fiscal 2007 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 accounts
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
required reserve balances.
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 required reserve
balances.
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.
22
Goodwill
and Other Intangible Assets Impairment
In
assessing the recoverability of the Company's goodwill and other intangible
assets, the Company makes 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. FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 will be effective for the Company beginning
in
fiscal 2008. The Company is evaluating the requirements of FIN 48 and expects
its impact on the Company’s consolidated financial statements will not be
significant.
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. The impact of adopting SFAS No. 158
on
September 28, 2007 increased total assets by $0.5 million, increased total
liabilities by $1.3 million and decreased total stockholders’ equity by $0.8
million.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities – Including an Amendment of FASB
Statement No. 115. This standard permits an entity to choose to measure
many financial instruments and certain other items at fair value. The fair
value
option permits a company to choose to measure eligible items at fair value
at
specified election dates. A company will report unrealized gains and losses
on
items for which the fair value option has been elected in earnings after
adoption. SFAS No. 159 will be effective for the Company beginning in fiscal
2009. The Company is currently assessing the effect of SFAS No. 159 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”.
23
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-30.
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
|
ITEM
9A.
|
(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 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.
|
None.
24
PART
III
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 2008 Annual
Meeting of Shareholders, which will be filed with the Commission on or before
January 28, 2008. 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 2008
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.
|
Information
with respect to this item is included in the Company’s Proxy Statement for its
February 28, 2008 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 28, 2008, under the
headings –“Compensation of Directors” and “Executive Compensation.”
The
information incorporated by reference from the “Report of the Compensation
Committee” in the Company’s Proxy Statement for the 2008 Annual Meeting of
Shareholders shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, nor shall it be deemed incorporated by
reference in any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except as shall be expressly set forth by specific
reference in such filing.
|
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 2008 Annual Meeting of Shareholders, which will be
filed
with the Commission on or before January 28, 2008.
25
Equity
Compensation Plan Information
The
following table summarizes share information, as of September 28, 2007, 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
|
286,393
|
$ |
8.66
|
601,760 | (1) | |||||||
|
Equity
compensation plans not approved by shareholders
|
—
|
—
|
—
|
|||||||||
|
Total
|
286,393
|
$ |
8.66
|
601,760 | (1) | |||||||
(1)
All of the available shares under the 2003 Non-Employee Director Stock Ownership
Plan (111,357) and under the 2000 Long-Term Stock Incentive Plan (425,073)
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 65,330 shares available for issuance under the Johnson Outdoors Inc.
1987 Employees’ Stock Purchase Plan, as amended.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS, DIRECTOR
INDEPENDENCE
|
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 2008 Annual Meeting of Shareholders, which
will be filed with the Commission on or before January 28, 2008. Information
regarding director independence is incorporated by reference to the discussions
under “Corporate Governance Matters-Director Independence” in the Company’s
Proxy Statement for the 2008 Annual Meeting of Shareholders, which will be
filed
with the Commission on or before January 28, 2008.
Information
with respect to this item is incorporated herein by reference to the discussion
under the heading “Audit Committee Matters – Fees of Independent Registered
Public Accounting Firm” in the Company's Proxy Statement for the 2008 Annual
Meeting of Shareholders, which will be filed with the Commission on or before
January 28, 2008.
26
PART
IV
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 28, 2007 and September 29,
2006
|
|
●
|
Consolidated
Statements of Income - Years ended September 28, 2007, September
29, 2006
and September 30, 2005
|
|
●
|
Consolidated
Statements of Shareholders’ Equity - Years ended September 28, 2007,
September 29, 2006 and September 30,
2005
|
|
●
|
Consolidated
Statements of Cash Flows - Years ended September 28, 2007, September
29,
2006 and September 30, 2005
|
|
●
|
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.
27
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 12th day of
December
2007.
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 12th day of
December
2007.
|
/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)
|
28
|
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.)
|
29
|
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.)
|
30
|
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.)
|
|
21
|
|
|
23
|
|
|
31.1
|
|
|
31.2
|
|
|
32.1(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.
31
|
|
||
|
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 28, 2007. 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 28, 2007,
the
Company’s internal control over financial reporting was effective based on those
criteria.
|
/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
|
ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
Shareholders
and Board of Directors
Johnson
Outdoors Inc.:
We
have
audited Johnson Outdoors Inc.’s internal control over financial reporting as of
September 28, 2007, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Johnson Outdoors Inc.’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 included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.
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, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that
our
audit provides a reasonable basis for our opinion.
F-1
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, Johnson Outdoors Inc. maintained, in all material respects, effective
internal control over financial reporting as of September 28, 2007, 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 28, 2007 and September 29, 2006, and the related
consolidated statements of income, shareholders’ equity, and cash flows for each
of the three years in the period ended September 28, 2007 of Johnson Outdoors
Inc. and our report dated December 12, 2007 expressed an unqualified opinion
thereon.
|
/s/
Ernst & Young
LLP
|
|
|
Ernst
& Young LLP
|
|
|
Milwaukee,
Wisconsin
|
|
|
December
12, 2007
|
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 28, 2007 and September 29, 2006, and the related consolidated
statements of income, shareholders’ equity, and cash flows for each of the three
years in the period ended September 28, 2007. 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.
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 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.
F-2
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 28, 2007 and September 29, 2006, and the consolidated results
of
its operations and its cash flows for each of the three years in the period
ended September 28, 2007, in conformity with U.S. generally accepted accounting
principles.
As
discussed in Note 1 of the financial statements, in the year ended September
28,
2007, the Company changed its method of accounting for pensions and other
post-retirement benefits.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Johnson Outdoors
Inc.’s internal control over financial reporting as of September 28, 2007, 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 12, 2007, expressed an unqualified opinion thereon.
|
/s/
Ernst & Young
LLP
|
|
|
Ernst
& Young LLP
|
|
|
Milwaukee,
Wisconsin
|
|
|
December
12, 2007
|
F-3
|
(thousands,
except share data)
|
September
28
2007
|
September
29
2006
|
||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and temporary cash investments
|
$ |
39,232
|
$ |
51,689
|
||||
|
Accounts
receivable less allowance for doubtful
accounts
of $2,352 and $2,318, respectively
|
57,605
|
52,844
|
||||||
|
Inventories
|
88,833
|
63,828
|
||||||
|
Deferred
income taxes
|
11,029
|
9,462
|
||||||
|
Other
current assets
|
8,252
|
7,074
|
||||||
|
Total
current assets
|
204,951
|
184,897
|
||||||
|
Property,
plant and equipment, net
|
36,670
|
31,600
|
||||||
|
Deferred
income taxes
|
13,097
|
14,576
|
||||||
|
Goodwill
|
51,454
|
42,947
|
||||||
|
Other
intangible assets, net
|
6,638
|
4,590
|
||||||
|
Other
assets
|
6,869
|
5,616
|
||||||
|
Total
assets
|
$ |
319,679
|
$ |
284,226
|
||||
|
Liabilities
And Shareholders’ Equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Short-term
notes payable
|
$ |
22,000
|
$ |
—
|
||||
|
Current
maturities of long-term debt
|
10,800
|
17,000
|
||||||
|
Accounts
payable
|
23,988
|
17,506
|
||||||
|
Accrued
liabilities:
|
||||||||
|
Salaries,
wages and benefits
|
17,326
|
16,577
|
||||||
|
Accrued
discounts and returns
|
5,524
|
5,047
|
||||||
|
Accrued
interest payable
|
610
|
1,118
|
||||||
|
Income
taxes payable
|
2,192
|
1,258
|
||||||
|
Other
|
16,615
|
16,144
|
||||||
|
Total
current liabilities
|
99,055
|
74,650
|
||||||
|
Long-term
debt, less current maturities
|
10,006
|
20,807
|
||||||
|
Other
liabilities
|
10,453
|
7,888
|
||||||
|
Total
liabilities
|
119,514
|
103,345
|
||||||
|
Shareholders’
equity:
|
||||||||
|
Preferred
stock: none issued
|
—
|
—
|
||||||
|
Common
stock:
|
||||||||
|
Class
A shares issued and outstanding:
September
28, 2007, 7,949,617;
September
29, 2006, 7,858,800
|
397
|
393
|
||||||
|
Class
B shares issued and outstanding (convertible into Class A):
September
28, 2007, 1,217,409;
September
29, 2006, 1,217,977
|
61
|
61
|
||||||
|
Capital
in excess of par value
|
56,835
|
55,459
|
||||||
|
Retained
earnings
|
126,253
|
118,015
|
||||||
|
Accumulated
other comprehensive income
|
16,619
|
6,953
|
||||||
|
Total
shareholders’ equity
|
200,165
|
180,881
|
||||||
|
Total
liabilities and shareholders’ equity
|
$ |
319,679
|
$ |
284,226
|
||||
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-4
|
Year
Ended
|
||||||||||||
|
(thousands,
except per share data)
|
September
28
2007
|
September
29
2006
|
September
30
2005
|
|||||||||
|
Net
sales
|
$ |
432,060
|
$ |
395,790
|
$ |
380,690
|
||||||
|
Cost
of sales
|
257,177
|
230,574
|
224,336
|
|||||||||
|
Gross
profit
|
174,883
|
165,216
|
156,354
|
|||||||||
|
Operating
expenses:
|
||||||||||||
|
Marketing
and selling
|
101,828
|
93,002
|
85,632
|
|||||||||
|
Administrative
management, finance and information systems
|
38,913
|
36,497
|
42,257
|
|||||||||
|
Research
and development
|
12,448
|
11,536
|
10,481
|
|||||||||
|
Litigation
settlement
|
4,400
|
—
|
—
|
|||||||||
|
(Gains)
losses related to New York flood
|
(2,874 | ) |
1,500
|
—
|
||||||||
|
Profit
sharing
|
2,229
|
2,056
|
2,340
|
|||||||||
|
Total
operating expenses
|
156,944
|
144,591
|
140,710
|
|||||||||
|
Operating
profit
|
17,939
|
20,625
|
15,644
|
|||||||||
|
Interest
income
|
(738 | ) | (504 | ) | (455 | ) | ||||||
|
Interest
expense
|
5,162
|
4,989
|
4,792
|
|||||||||
|
Other
expense (income), net
|
57
|
376
|
(795 | ) | ||||||||
|
Income
before income taxes
|
13,708
|
15,764
|
12,102
|
|||||||||
|
Income
tax expense
|
4,474
|
7,049
|
5,001
|
|||||||||
|
Net
income
|
$ |
9,234
|
$ |
8,715
|
$ |
7,101
|
||||||
|
Basic
earnings per common share
|
$ |
1.02
|
$ |
0.97
|
$ |
0.82
|
||||||
|
Diluted
earnings per common share
|
$ |
1.00
|
$ |
0.95
|
$ |
0.81
|
||||||
|
Cash
dividends declared per Class A common share
|
$ |
0.11
|
$ |
—
|
$ |
—
|
||||||
|
Cash
dividends declared per Class B common share
|
$ |
0.10
|
$ |
—
|
$ |
—
|
||||||
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-5
|
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 1, 2004
|
$ |
441
|
$ |
52,640
|
$ |
102,199
|
$ | (20 | ) | $ |
6,105
|
$ | (721 | ) | ||||||||||||||
|
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)
|
—
|
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
|
—
|
7,295
|
(342 | ) |
13,666
|
||||||||||||||||||||
|
Net
income
|
—
|
—
|
9,234
|
—
|
—
|
—
|
$ |
9,234
|
||||||||||||||||||||
|
Dividends
declared
|
—
|
—
|
(996 | ) |
—
|
—
|
—
|
—
|
||||||||||||||||||||
|
Exercise
of stock options (1)
|
1
|
591
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Issuance
of stock under employee stock purchase plan
|
1
|
160
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Stock-based
compensation and award of restricted shares
|
2
|
625
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Translation
adjustment
|
—
|
—
|
—
|
—
|
10,379
|
—
|
10,379
|
|||||||||||||||||||||
|
Additional
minimum pension liability (2)
|
—
|
—
|
—
|
—
|
—
|
45
|
45
|
|||||||||||||||||||||
|
Comprehensive
income
|
—
|
—
|
—
|
—
|
—
|
—
|
$ |
19,658
|
||||||||||||||||||||
|
Adoption
of SFAS 158(3)
|
—
|
—
|
—
|
—
|
—
|
(758 | ) | |||||||||||||||||||||
|
Balance
at September 28, 2007
|
$ |
458
|
$ |
56,835
|
$ |
126,253
|
$ |
—
|
$ |
17,674
|
$ | (1,055 | ) | |||||||||||||||
|
|
(1)Includes
tax benefit related to exercise of stock options of $111, $25 and
$336 for
2007, 2006 and 2005, respectively.
|
|
|
(2)Net
of tax provision of $33, $771 and $578 for 2007, 2006 and 2005,
respectively.
|
|
|
(3)Net
of tax provision of $560 for 2007.
|
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-6
|
Year
Ended
|
||||||||||||
|
(thousands)
|
September
28
2007
|
September
29
2006
|
September
30
2005
|
|||||||||
|
Cash
Provided By Operating Activities
|
||||||||||||
|
Net
income
|
$ |
9,234
|
$ |
8,715
|
$ |
7,101
|
||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
|
9,079
|
8,813
|
9,142
|
|||||||||
|
Amortization
of intangible assets and deferred financing costs
|
323
|
351
|
260
|
|||||||||
|
Loss
on sale of property, plant and equipment
|
12
|
107
|
73
|
|||||||||
|
Provision
for doubtful accounts receivable
|
990
|
629
|
379
|
|||||||||
|
Provision
for inventory reserves
|
1,687
|
2,163
|
431
|
|||||||||
|
Stock-based
compensation
|
651
|
686
|
653
|
|||||||||
|
Deferred
income taxes
|
(88 | ) |
3,755
|
(555 | ) | |||||||
|
Change
in operating assets and liabilities, net of effect of businesses
acquired
or sold:
|
||||||||||||
|
Accounts
receivable
|
(3,063 | ) | (3,591 | ) |
841
|
|||||||
|
Inventories
|
(22,550 | ) | (10,617 | ) |
7,831
|
|||||||
|
Accounts
payable and accrued liabilities
|
5,366
|
1,166
|
(1,309 | ) | ||||||||
|
Other,
net
|
(247 | ) | (4,647 | ) |
1,410
|
|||||||
|
1,394
|
7,530
|
26,257
|
||||||||||
|
Cash
Used For Investing Activities
|
||||||||||||
|
Payments
for purchase of business
|
(9,409 | ) | (9,863 | ) |
—
|
|||||||
|
Additions
to property, plant and equipment
|
(13,418 | ) | (8,865 | ) | (6,803 | ) | ||||||
|
Proceeds
from sale of property, plant and equipment
|
78
|
139
|
422
|
|||||||||
| (22,749 | ) | (18,589 | ) | (6,381 | ) | |||||||
|
Cash
Provided By (Used For) Financing Activities
|
||||||||||||
|
Net
borrowings on short-term debt
|
22,000
|
—
|
—
|
|||||||||
|
Borrowings
on long-term debt
|
—
|
7
|
—
|
|||||||||
|
Principal
payments on senior notes and other long-term debt
|
(17,001 | ) | (13,000 | ) | (16,223 | ) | ||||||
|
Excess
tax benefits from stock-based compensation
|
111
|
25
|
—
|
|||||||||
|
Dividends
paid
|
(498 | ) |
—
|
—
|
||||||||
|
Common
stock transactions
|
642
|
150
|
1,230
|
|||||||||
|
5,254
|
(12,818 | ) | (14,993 | ) | ||||||||
|
Effect
of foreign currency fluctuations on cash
|
3,644
|
3,455
|
(2,344 | ) | ||||||||
|
Increase
(decrease) in cash and temporary cash investments
|
(12,457 | ) | (20,422 | ) |
2,539
|
|||||||
|
Cash
And Temporary Cash Investments
|
||||||||||||
|
Beginning
of year
|
51,689
|
72,111
|
69,572
|
|||||||||
|
End
of year
|
$ |
39,232
|
$ |
51,689
|
$ |
72,111
|
||||||
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-7
SEPTEMBER
28, 2007
(in
thousands except share and per share amounts)
|
1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Business
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.
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. 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 28, 2007 (hereinafter 2007), September 29, 2006 (hereinafter
2006) and September 30, 2005 (hereinafter 2005) 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, when purchased, 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 allowance
for doubtful accounts is based on a combination of factors. In circumstances
where specific collection concerns exist, a reserve is established to reduce
the
amount recorded to an amount the Company believes will be collected. For all
other customers, the Company recognizes allowances for doubtful accounts 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:
|
2007
|
2006
|
|||||||
|
Raw
materials
|
$ |
34,914
|
$ |
24,895
|
||||
|
Work
in process
|
3,850
|
4,194
|
||||||
|
Finished
goods
|
54,735
|
38,185
|
||||||
|
93,499
|
67,274
|
|||||||
|
Less
reserves for inventory valuation
|
4,666
|
3,446
|
||||||
| $ |
88,833
|
$ |
63,828
|
|||||
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 the
results of operations.
Property,
plant and equipment at the end of the respective years consist of the
following:
|
2007
|
2006
|
|||||||
|
Property
and improvements
|
$ |
1,307
|
$ |
1,307
|
||||
|
Buildings
and improvements
|
22,731
|
22,051
|
||||||
|
Furniture,
fixtures and equipment
|
101,862
|
87,971
|
||||||
|
125,900
|
111,329
|
|||||||
|
Less
accumulated depreciation
|
89,230
|
79,729
|
||||||
| $ |
36,670
|
$ |
31,600
|
|||||
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 makes assumptions regarding estimated
discounted future operating 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 in the future. There were no goodwill impairment charges
recorded during 2007, 2006 or 2005.
During
2007, the final allocation of the purchase price related to the Lendal Products
Ltd. acquisition was completed resulting in goodwill of $710 and an indefinite
lived trademark of $175 and the preliminary allocation of the purchase price
related to the Seemann Sub GmbH & Co. acquisition was completed resulting in
goodwill of $5,520 and an indefinite lived trademark of $935.
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.
F-9
The
remaining changes in 2007 and 2006 in goodwill relates to translation
adjustments for goodwill denominated in foreign currencies. There were no other
changes in indefinite lived intangible assets in 2007 and 2006.
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:
|
2007
|
2006
|
|||||||
|
Patents
|
$ |
3,443
|
$ |
2,836
|
||||
|
Trademarks
|
5,997
|
4,506
|
||||||
|
Other
|
744
|
572
|
||||||
|
10,184
|
7,914
|
|||||||
|
Less
accumulated amortization
|
3,546
|
3,324
|
||||||
|
Net
patents, trademarks and other
|
$ |
6,638
|
$ |
4,590
|
||||
Trademarks
at September 28, 2007 contain $5,382 in trademarks ($4,190 at September 29,
2006) which have indefinite lives and are not amortized. Amortization of patents
and other intangible assets was $150, $172 and $148 for 2007, 2006 and 2005,
respectively. Amortization of these intangible assets is expected to be
approximately $150 per year until fully amortized (the unamortized value of
these assets was $1,256 and $400 as of September 28, 2007 and September 29,
2006, respectively).
Warranties
The
Company has product warranty accruals of $4,290 and $3,844 as of September
28,
2007 and September 29, 2006, 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 28,
2007.
|
Balance
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
|
|||
|
Reserve
for businesses acquired
|
100
|
|||
|
Less
current year warranty claims paid
|
3,458
|
|||
|
Balance
at September 29, 2006
|
3,844
|
|||
|
Expense
accruals for warranties issued during the year
|
4,006
|
|||
|
Less
current year warranty claims paid
|
3,560
|
|||
|
Balance
at September 28, 2007
|
$ |
4,290
|
F-10
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.
The
following table sets forth the computation of basic and diluted earnings per
common share:
|
2007
|
2006
|
2005
|
||||||||||
|
Net
income
|
$ |
9,234
|
$ |
8,715
|
$ |
7,101
|
||||||
|
Basic
weighted average common shares outstanding
|
9,065,658
|
8,989,348
|
8,617,746
|
|||||||||
|
Dilutive
stock options and restricted stock
|
188,190
|
171,480
|
177,359
|
|||||||||
|
Diluted
weighted average common shares
|
9,253,848
|
9,160,828
|
8,795,105
|
|||||||||
|
Basic
earnings per common
|
$ |
1.02
|
$ |
0.97
|
$ |
0.82
|
||||||
|
Diluted
earnings per common share
|
$ |
1.00
|
$ |
0.95
|
$ |
0.81
|
||||||
Stock
options that could potentially dilute earnings per share in the future which
were not included in the fully diluted computation for 2006 and 2005 because
they would have been antidilutive totaled 19,750 and 13,750, respectively.
There
were no antidilutive stock options for 2007.
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 Income 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
Prior
to
adopting SFAS 123(R) on October 1, 2005, the Company’s 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
|
||||
|
Net
income
|
$ |
7,101
|
||
|
Total
stock-based compensation expense included in net income, net of
tax
|
431
|
|||
|
Total
stock-based compensation expense determined under fair value method
for
all awards, net of tax
|
(218 | ) | ||
|
Pro
forma net income
|
$ |
7,314
|
||
|
Basic
earnings per common share
|
||||
|
As
reported
|
$ |
0.82
|
||
|
Pro
forma
|
$ |
0.85
|
||
|
Diluted
earnings per common share
|
||||
|
As
reported
|
$ |
0.81
|
||
|
Pro
forma
|
$ |
0.84
|
||
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, 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 2005 was $4.78. No stock options were granted in 2007
or
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.
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. The Company does not have any foreign retirement 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 to annually
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.
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
($584), ($221) and $781 for 2007, 2006 and 2005, respectively.
F-12
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 ineffective portion of the gain or loss on
the
forward contract, if any, is recognized in current earnings during the period
of
changes.
At
September 28, 2007 and September 29, 2006, 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 the production of
advertising the first time the advertising takes place. Cooperative promotional
arrangements are accrued as related revenue is earned.
Advertising
expense in 2007, 2006 and 2005 totaled $22,835, $21,300 and $18,476,
respectively. Capitalized costs at September 28, 2007 and September 29, 2006
totaled $1,194 and $1,071, 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
$15,246, $14,965 and $13,728 for 2007, 2006 and 2005, respectively.
Research
and 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. The amount capitalized related to
software development for new fishfinders was $2,227, less accumulated
amortization of $712 at September 28, 2007. These costs are 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
Income.
Fair
Values
The
carrying amounts of cash, temporary cash investments, accounts receivable,
and
accounts payable approximated fair value at September 28, 2007 and September
29,
2006 due to the short maturities of these instruments. See Note 4 for the fair
value of long-term debt.
New
Accounting Pronouncements
In
June
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. FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure
and transition. FIN 48 will be effective for the Company beginning in fiscal
2008. The Company is evaluating the requirements of FIN 48 and expects its
impact on the Company’s consolidated financial statements will not be
significant.
F-13
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. The impact of adopting SFAS No. 158
on
September 28, 2007 increased total assets by $502, increased total liabilities
by $1,260 and decreased total stockholders’ equity by $758.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities – Including an Amendment of FASB
Statement No. 115. This standard permits an entity to choose to measure
many financial instruments and certain other items at fair value. The fair
value
option permits a company to choose to measure eligible items at fair value
at
specified election dates. A company will report unrealized gains and losses
on
items for which the fair value option has been elected in earnings after
adoption. SFAS No. 159 will be effective for the Company beginning in fiscal
2009. The Company is currently assessing the effect of SFAS No. 159 on the
Company’s consolidated financial statements.
|
2
|
RESTRUCTURING
|
Diving
In
May
2007, the Company announced plans to consolidate the operations of the Scubapro
facility in Bad Säkingen, Germany into the recently purchased Seemann operations
in Wendelstein, Germany. This closure resulted in the reduction of 21 positions.
The closure related costs are included in the “Administrative management,
finance and information systems” line in the Company’s Consolidated Statements
of Income. Costs to complete the restructuring program, consisting of other
exit
costs, are estimated and will be expensed as incurred in fiscal
2008.
A
summary
of charges, payments and accruals for 2007 is as follows:
|
Employee
Termination
Costs
|
Contract
Exit
Costs
|
Other
Exit
Costs
|
Total
|
|||||||||||||
|
Accrued
liabilities as of September 29, 2006
|
$ |
—
|
$ |
—
|
$ |
—
|
$ |
—
|
||||||||
|
Activity
during the year ended
September
28, 2007:
|
||||||||||||||||
|
Charges
to earnings
|
428
|
130
|
20
|
578
|
||||||||||||
|
Settlement
payments
|
(281 | ) | (14 | ) | (20 | ) | (315 | ) | ||||||||
|
Accrued
liabilities as of September 28, 2007
|
$ |
147
|
$ |
116
|
$ |
—
|
$ |
263
|
||||||||
|
Estimated
completion costs
|
$ |
—
|
$ |
—
|
$ |
50
|
$ |
50
|
||||||||
In
September 2005, the Company 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 2005 to reorganize the European management structure to unify
the marketing and sales efforts across Europe. 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 Income.
F-14
A
summary
of charges, payments and accruals for 2006 and 2005 are as follows:
|
Employee
Termination
Costs
|
Contract
Exit
Costs
|
Other
Exit
Costs
|
Total
|
|||||||||||||
|
Accrued
liabilities as of October 1, 2004
|
$ |
—
|
$ |
—
|
$ |
—
|
$ |
—
|
||||||||
|
Activity
during the year ended
September
30, 2005:
|
||||||||||||||||
|
Charges
to earnings
|
983
|
43
|
98
|
1,124
|
||||||||||||
|
Settlement
payments
|
(308 | ) |
—
|
(98 | ) | (406 | ) | |||||||||
|
Accrued
liabilities as of September 30, 2005
|
$ |
675
|
$ |
43
|
$ |
—
|
$ |
718
|
||||||||
|
Activity
during the year ended
September
29, 2006:
|
||||||||||||||||
|
Charges
to earnings
|
51
|
9
|
292
|
352
|
||||||||||||
|
Settlement
payments
|
(726 | ) | (52 | ) | (292 | ) | (1,070 | ) | ||||||||
|
Accrued
liabilities as of September 29, 2006
|
$ |
—
|
$ |
—
|
$ |
—
|
$ |
—
|
||||||||
Watercraft
In
July
2004, the Company announced plans to outsource manufacturing previously
performed 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.
A
summary
of charges, payments and accruals for 2006 and 2005 were as
follows:
|
Employee
Termination
Costs
|
Contract
Exit
Costs
|
Other
Exit
Costs
|
Total
|
|||||||||||||
|
Accrued
liabilities as of October 1, 2004
|
$ |
501
|
$ |
423
|
$ |
269
|
$ |
1,193
|
||||||||
|
Activity
during the year ended
September
30, 2005:
|
||||||||||||||||
|
Charges
to earnings
|
334
|
789
|
203
|
1,326
|
||||||||||||
|
Settlement
payments
|
(835 | ) | (737 | ) | (421 | ) | (1,993 | ) | ||||||||
|
Accrued
liabilities as of September 30, 2005
|
$ |
—
|
$ |
475
|
$ |
51
|
$ |
526
|
||||||||
|
Activity
during year ended
September
29, 2006:
|
||||||||||||||||
|
Settlement
payments
|
—
|
(475 | ) | (51 | ) | (526 | ) | |||||||||
|
Accrued
liabilities as of September 29, 2006
|
$ |
—
|
$ |
—
|
$ |
—
|
$ |
—
|
||||||||
|
3
|
ACQUISITIONS
|
Seemann
Sub GmbH & Co.
On
April
2, 2007, the Company purchased the assets and assumed related liabilities of
Seemann Sub GmbH & Co. KG (Seemann) from Seemann’s founders for $7,757, plus
$142 in transaction costs. The purchase agreement provides for up to $669 in
additional purchase price consideration based on the attainment of specific
integration success
criteria. The transaction was funded using cash on hand and was made to add
to
the breadth of the Diving product lines. Seemann, located in Wendelstein,
Germany, is one of that country’s largest dive equipment providers. The purchase
of the Seemann Sub brand will expand the Company’s product line with dive gear
for the price-driven consumer. The Seemann product line will be sold through
the
same channels as the Company’s other diving products and will be included in the
Company’s Diving segment.
F-15
The
following table summarizes the preliminary allocation of the purchase price,
fair values of the assets acquired and liabilities assumed, and the resulting
goodwill acquired at the date of the Seemann acquisition.
|
Total
current assets
|
$ |
1,829
|
||
|
Property,
plant and equipment
|
143
|
|||
|
Trademark
|
935
|
|||
|
Customer
list
|
264
|
|||
|
Goodwill
|
5,520
|
|||
|
Total
assets acquired
|
8,691
|
|||
|
Total
liabilities assumed
|
792
|
|||
|
Net
purchase price
|
$ |
7,899
|
The
goodwill acquired 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 present pro forma financial information with respect
to the Seemann acquisition due to the materiality of the
transaction.
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, plus $106
in
transaction costs. The transaction was funded using cash on hand and was made
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
following table summarizes the final allocation of the purchase price, fair
values of the assets acquired and liabilities assumed, and the resulting
goodwill acquired at the date of the Lendal acquisition.
|
Total
current assets
|
$ |
623
|
||
|
Property,
plant and equipment
|
122
|
|||
|
Trademark
|
175
|
|||
|
Patents
|
75
|
|||
|
Customer
list
|
49
|
|||
|
Goodwill
|
710
|
|||
|
Total
assets acquired
|
1,754
|
|||
|
Total
liabilities assumed
|
244
|
|||
|
Net
purchase price
|
$ |
1,510
|
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 present pro forma financial information with respect
to the Lendal acquisition due to the materiality of the
transaction.
F-16
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 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
goodwill acquired at the date of the Cannon/Bottom Line
acquisition.
|
Total
current assets
|
$ |
4,348
|
||
|
Property,
plant and equipment
|
260
|
|||
|
Trademark
|
940
|
|||
|
Patents
|
195
|
|||
|
Goodwill
|
4,582
|
|||
|
Total
assets acquired
|
10,325
|
|||
|
Total
liabilities assumed
|
462
|
|||
|
Net
purchase price
|
$ |
9,863
|
The
goodwill acquired 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 present pro forma financial information with respect
to the Cannon/Bottom Line acquisition due to the materiality of the
transaction.
Geonav
S.r.l.
On
November 16, 2007, the Company acquired Geonav S.r.l. (Geonav), a marine
electronics company in Europe for approximately $6,300 including assumed debt
and transaction costs. Geonav is a major European brand of chart plotters based
in Viareggio, Italy. Also sold under the Geonav brand are marine autopilots,
VHF
radios and fish finders.
|
4
|
INDEBTEDNESS
|
The
Company has in place a $75,000 unsecured revolving credit facility agreement
dated October 7, 2005 which expires October 7, 2010. At September 28, 2007,
the Company had borrowings outstanding under the revolving credit agreement
of
$22,000 ($13,000 at an interest rate of 6.25%, $7,000 at an interest rate of
6.5625% and $2,000 at an interest rate of 7.75%).
On
February 1, 2007, the Company entered into an additional $10.0 million unsecured
revolving credit facility agreement. The Company repaid and closed this credit
facility in May 2007 as it was no longer needed.
The
Company has in place $7,078 in unsecured revolving credit facilities at its
foreign subsidiaries, There was no borrowing outstanding on any of these
facilities during the year ended September 28, 2007
The
Company utilizes letters of credit for trade financing purposes which totaled
$2,658 at September 28, 2007.
The
Company has total unsecured lines of credit, both foreign and domestic, with
availability totaling $57,420 as of September 28, 2007.
F-17
Long-term
debt at the end of the respective years consisted of the following:
|
2007
|
2006
|
|||||||
|
2001
senior notes
|
$ |
20,000
|
$ |
30,000
|
||||
|
1998
senior notes
|
800
|
7,800
|
||||||
|
Other
|
6
|
7
|
||||||
|
20,806
|
37,807
|
|||||||
|
Less
current maturities
|
10,800
|
17,000
|
||||||
| $ |
10,006
|
$ |
20,807
|
|||||
The
2001
senior notes are unsecured, bear interest at 7.82%, and require annual principal
payments of $10,000 through December 2008.
The
1998
senior notes are unsecured, bear interest at 7.15%, and require a final
principal payment of $800 in October 2007.
The
Company uses interest rate swaps in order to maintain a mix of floating rate
and
fixed rate debt such that permanent working capital needs are largely funded
with fixed rate debt and seasonal working capital needs are funded with floating
rate debt. To manage this risk in a cost efficient manner, the Company 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 meet 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 Income. The Company had
no
outstanding interest rate swap agreements at September 28, 2007 or September
29,
2006. On October 29, 2007 the Company entered into a forward starting interest
rate swap (the “Swap”) with a notional amount of $60.0 million, receiving a
floating three month LIBOR interest rate while paying at a fixed rate of 4.685%
over an accruing period beginning on December 14, 2007 and ending on December
14, 2012. Interest will be payable quarterly. The Swap has been designated
as a
cash flow hedge of a forecasted floating rate debt issuance of approximately
$60.0 million and is expected to be an effective hedge of the impact on interest
payments due to changes in the three-month LIBOR benchmark rate.
Aggregate
scheduled maturities of long-term debt are as follows:
|
Year
|
||||
|
2008
|
$ |
10,800
|
||
|
2009
|
10,004
|
|||
|
2010
|
2
|
|||
Interest
paid was $5,498, $5,496 and $4,929 for 2007, 2006 and 2005,
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 28, 2007 and September 29, 2006 was approximately $21,522 and $39,635,
respectively.
Certain
of the Company’s loan agreements require that the Company’s Chief Executive
Officer, 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, 2007, the Johnson
Family held 3,711,960 shares or approximately 47% of the Class A common stock,
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.
F-18
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 28, 2007 were as follows:
|
Year
|
Related
parties
included
in total
|
Total
|
||||||
|
2008
|
$ |
695
|
$ |
5,905
|
||||
|
2009
|
558
|
4,391
|
||||||
|
2010
|
577
|
3,613
|
||||||
|
2011
|
597
|
3,244
|
||||||
|
2012
|
—
|
2,309
|
||||||
|
Thereafter
|
—
|
8,318
|
||||||
Rental
expense under all leases was approximately $8,257, $7,162 and $7,652 for 2007,
2006 and 2005, 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.
|
6
|
INCOME
TAXES
|
Income
tax expense for the respective years consisted of the following:
|
2007
|
2006
|
2005
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ |
—
|
$ |
—
|
$ | (315 | ) | |||||
|
State
|
109
|
159
|
91
|
|||||||||
|
Foreign
|
3,410
|
3,919
|
4,938
|
|||||||||
|
Deferred
|
955
|
2,971
|
287
|
|||||||||
| $ |
4,474
|
$ |
7,049
|
$ |
5,001
|
|||||||
F-19
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:
|
2007
|
2006
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Inventories
|
$ |
3,303
|
$ |
2,859
|
||||
|
Compensation
|
7,387
|
6,151
|
||||||
|
Tax
credit carryforwards
|
2,333
|
1,340
|
||||||
|
Net
operating loss carryforwards
|
5,965
|
11,019
|
||||||
|
Depreciation
and amortization
|
4,838
|
1,893
|
||||||
|
Accrued
liabilities
|
3,762
|
3,648
|
||||||
|
Other
|
1,583
|
1,375
|
||||||
|
Total
gross deferred tax assets
|
29,171
|
28,285
|
||||||
|
Less
valuation allowance
|
3,437
|
3,260
|
||||||
|
25,734
|
25,025
|
|||||||
|
Deferred
tax liabilities:
|
||||||||
|
Goodwill
and other intangibles
|
652
|
80
|
||||||
|
Foreign
statutory reserves
|
956
|
906
|
||||||
|
Net
deferred tax assets
|
$ |
24,126
|
$ |
24,038
|
||||
The
net
deferred tax assets are recorded as $11,029 in current and $13,097 in
non-current assets for 2007 and $9,462 in current and $14,576 in non-current
assets for 2006.
Income
before income taxes for the respective years consists of the
following:
|
2007
|
2006
|
2005
|
||||||||||
|
United
States
|
$ |
3,632
|
$ |
7,911
|
$ |
3,794
|
||||||
|
Foreign
|
10,076
|
7,853
|
8,308
|
|||||||||
| $ |
13,708
|
$ |
15,764
|
$ |
12,102
|
|||||||
The
significant differences between the statutory federal tax rate and the effective
income tax rates for the Company for the respective years are as
follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Statutory
U.S. federal income tax rate
|
34.0 | % | 34.0 | % | 34.0 | % | ||||||
|
Foreign
rate differential
|
3.9
|
8.4
|
9.2
|
|||||||||
|
Tax
law change
|
(4.0 | ) |
—
|
—
|
||||||||
|
Reduction
in valuation reserve for research and development tax
credits
|
—
|
(5.2 | ) |
—
|
||||||||
|
Reduction
(increase) in rate utilized to record deferred
taxes
|
(2.9 | ) |
4.9
|
—
|
||||||||
|
Other
|
1.6
|
2.6
|
(1.9 | ) | ||||||||
| 32.6 | % | 44.7 | % | 41.3 | % | |||||||
The
foreign rate differential of 3.9%, 8.4% and 9.2% for 2007, 2006 and 2005,
respectively, is comprised of several foreign tax related items including the
statutory rate differential in each year, settlement of tax audits and
additional contingency reserves in 2007, 2006 and 2005, respectively.
Additionally, the Company increased the U.S. federal rate used in valuing
deferred tax assets from 34% to 35% during 2007, positively impacting the 2007
effective tax rate by 2.9% and the Company reduced state income tax rate used
in
valuing deferred tax assets during December of 2006, negatively impacting the
2006 effective tax rate by 4.9%. Deferred tax assets have been recorded at
the
maximum federal income tax rate in effect in the future year(s), when they
are
anticipated to be utilized. A German tax
law
change (Revised Reorganization Tax Code) has resulted in a tax receivable
recorded by the Company that reduced the effective tax rate by 4%.
F-20
At
September 28, 2007, the Company has federal operating loss carryforwards of
$3,977 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 $1,452. These operating loss
carryforwards are available to offset future taxable income over the next 3
to
approximately 20 years. All operating loss carryforwards 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 $2,823, $2,074 and $5,746 for 2007, 2006 and 2005,
respectively.
Federal
and state income taxes are provided on foreign subsidiary income distributed
to,
or taxable in, the U.S. during the year. At September 28, 2007, net
undistributed earnings of foreign subsidiaries totaled approximately $117,002.
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.
|
7
|
EMPLOYEE
BENEFITS
|
Effective
September 28, 2007, the Company adopted SFAS No. 158 Employers’ Accounting
for Defined Pension and Other Postretirement Plans. SFAS No. 158
requires the recognition of the funded status of defined benefit and other
postretirement benefit plans in the accompanying Consolidated Balance Sheets,
with changes in the funded status recognized through “Accumulated other
comprehensive income (loss),” net of tax. SFAS No. 158 also requires the
measurement of the funded status to be the same as the balance sheet date by
2008. The Company currently uses its fiscal year-end as its
measurement date. The adoption of SFAS No. 158 did not change the amount of
net periodic benefit cost included in the Company’s Consolidated Statements of
Income.
The
impact of adopting SFAS No. 158 on the Consolidated Balance Sheets at
September 28, 2007 is summarized in the following table:
|
Before
Application
of
SFAS
No. 158
|
Incremental
Effect
of
Application
of
SFAS
No. 158
|
After
Application
of
SFAS
No. 158
|
||||||||||
|
Deferred
income taxes
|
$ |
12,592
|
$ |
505
|
$ |
13,097
|
||||||
|
Other
intangible assets, net
|
6,641
|
(3 | ) |
6,638
|
||||||||
|
Total
assets
|
319,177
|
502
|
319,679
|
|||||||||
|
Other
liabilities
|
9,193
|
1,260
|
10,453
|
|||||||||
|
Accumulated
other comprehensive income
|
17,377
|
(758 | ) |
16,619
|
||||||||
|
Total
shareholders’ equity
|
200,923
|
(758 | ) |
200,165
|
||||||||
|
Total
liabilities and shareholders’ equity
|
319,177
|
502
|
319,679
|
|||||||||
F-21
Net
periodic pension cost, for significant noncontributory defined benefit pension
plans, for the respective years includes the following components:
|
2007
|
2006
|
2005
|
||||||||||
|
Service
cost
|
$ |
630
|
$ |
703
|
$ |
628
|
||||||
|
Interest
on projected benefit obligation
|
1,005
|
925
|
943
|
|||||||||
|
Estimated
return on plan assets
|
(923 | ) | (871 | ) | (825 | ) | ||||||
|
Amortization
of unrecognized:
|
||||||||||||
|
Net
loss
|
92
|
268
|
111
|
|||||||||
|
Prior
service cost
|
9
|
9
|
24
|
|||||||||
|
Transition
asset
|
(2 | ) | (2 | ) | (2 | ) | ||||||
|
Net
periodic pension cost
|
$ |
811
|
$ |
1,032
|
$ |
879
|
||||||
The
following provides a reconciliation of the changes in the plans’ benefit
obligation and fair value of assets for 2007 and 2006 and a statement of the
funded status at the end of each year:
|
2007
|
2006
|
|||||||
|
Projected
benefit obligation:
|
||||||||
|
Projected
benefit obligation at beginning of year
|
$ |
16,040
|
$ |
19,340
|
||||
|
Service
cost
|
630
|
703
|
||||||
|
Interest
cost
|
1,005
|
925
|
||||||
|
Actuarial
gain
|
(266 | ) | (4,211 | ) | ||||
|
Benefits
paid
|
(733 | ) | (717 | ) | ||||
|
Projected
benefit obligation at end of year
|
$ |
16,676
|
$ |
16,040
|
||||
|
Fair
value of plan assets:
|
||||||||
|
Fair
value of plan assets at beginning of year
|
$ |
11,594
|
$ |
10,860
|
||||
|
Actual
return on plan assets
|
1,230
|
649
|
||||||
|
Company
contributions
|
538
|
802
|
||||||
|
Benefits
paid
|
(733 | ) | (717 | ) | ||||
|
Fair
value of plan assets at end of year
|
$ |
12,629
|
$ |
11,594
|
||||
|
Funded
status:
|
||||||||
|
Funded
status of the plan
|
$ | (4,047 | ) | $ | (4,448 | ) | ||
|
Unrecognized
net loss
|
—
|
2,424
|
||||||
|
Unrecognized
prior service cost
|
—
|
12
|
||||||
|
Unrecognized
transition asset
|
—
|
(3 | ) | |||||
|
Net
liability recognized
|
$ | (4,047 | ) | $ | (2,015 | ) | ||
| Components of accumulated other comprehensive income: | ||||||||
|
Net
actuarial loss (gain)
|
$ | 1,756 | $ | 518 | ||||
|
Prior
service cost (credit)
|
4
|
—
|
||||||
| Accumulated other comprehensive income | $ | 1,760 | $ | 518 | ||||
F-22
The
accumulated benefit obligation for all plans was $13,916 and $13,553 at
September 28, 2007 and September 29, 2006, respectively.
At
September 28, 2007, the aggregate accumulated benefit obligation and aggregate
fair value of plan assets for plans with benefit obligations in excess of plan
assets was $1,678 and $0, 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 $12,238 and $12,629, 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.
The
following summarizes the components of the net liability recognized in the
consolidated balance sheets at the end of the respective years:
|
2007
|
2006
|
|||||||
|
Accrued
benefit liability
|
$ | (4,047 | ) | $ | (2,533 | ) | ||
|
Accumulated
other comprehensive income
|
1,760
|
518
|
||||||
|
Net
liability recognized
|
$ | (2,287 | ) | $ | (2,015 | ) | ||
The
Company anticipates making contributions to the defined benefit pension plans
of
$374 through October 15, 2008.
Estimated
benefit payments from the defined benefit plans to participants for the next
five years ending September 2012 and five years thereafter are as
follows:
|
Year
|
||||
|
2008
|
$ |
722
|
||
|
2009
|
714
|
|||
|
2010
|
708
|
|||
|
2011
|
729
|
|||
|
2012
|
731
|
|||
|
Five
years thereafter
|
4,386
|
|||
Actuarial
assumptions used to determine the projected benefit obligation are as
follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Discount
rate
|
6.50 | % | 6.25 | % | 5.25 | % | ||||||
|
Long-term
rate of return
|
8.00
|
8.00
|
8.00
|
|||||||||
|
Average
salary increase rate
|
4.00
|
4.00
|
4.00
|
|||||||||
The
impact of the change in discount rates resulted in an actuarial gain of $668 and
$2,844 in 2007 and 2006, respectively. The remainder of the change in actuarial
gains for each year results from adjustments to mortality tables, other
modifications to actuarial assumptions and investment return greater than
estimated.
To
determine the discount rate assumption used in our pension valuation, the
Company identified a benefit payout stream based on the demographics of
the pension plans and constructed a hypothetical bond portfolio using
high-quality corporate bonds with cash flows that matched that benefit payout
stream. A yield curve was calculated based on this hypothetical portfolio
which was used for the discount rate determination.
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.
F-23
The
Company’s pension plans weighted average asset allocations at September 28, 2007
and September 29, 2006, by asset category were as follows:
|
2007
|
2006
|
|||||||
|
Equity
securities
|
71 | % | 51 | % | ||||
|
Fixed
income securities
|
27
|
47
|
||||||
|
Other
securities
|
2
|
2
|
||||||
|
Total
|
100 | % | 100 | % | ||||
The
Company’s primary investment objective for the Plan’s assets is to maximize the
probability 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 $2,800, $2,600 and $2,700 for 2007, 2006 and 2005,
respectively.
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:
|
2007
|
2006
|
|||||||
|
Class
A, $.05 par value:
|
||||||||
|
Authorized
|
20,000,000
|
20,000,000
|
||||||
|
Outstanding
|
7,949,617
|
7,858,800
|
||||||
|
Class
B, $.05 par value:
|
||||||||
|
Authorized
|
3,000,000
|
3,000,000
|
||||||
|
Outstanding
|
1,217,409
|
1,217,977
|
||||||
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 2007, 2006 and 2005, respectively, 568, 1,690 and 2,048
shares of Class B common stock were converted into Class A common
stock.
F-24
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 536,430 at September 28,
2007.
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.
All
of
the Company’s stock options outstanding are fully vested, with no further
compensation expense expected. There were no grants of stock options in 2007
or
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.
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 1, 2004
|
480,766
|
$ |
8.56
|
||||||||||
|
Granted
|
11,520
|
17.07
|
|||||||||||
|
Exercised
|
(144,252 | ) |
7.44
|
$ |
1,626
|
||||||||
|
Cancelled
|
(5,000 | ) |
21.75
|
||||||||||
|
Outstanding
at September 30, 2005
|
343,034
|
$ |
9.13
|
||||||||||
|
Exercised
|
(6,501 | ) |
6.28
|
$ |
75
|
||||||||
|
Cancelled
|
(4,000 | ) |
22.06
|
||||||||||
|
Outstanding
at September 29, 2006
|
332,533
|
$ |
9.03
|
||||||||||
|
Exercised
|
(44,190 | ) |
10.94
|
$ |
326
|
||||||||
|
Cancelled
|
(1,950 | ) |
19.88
|
||||||||||
|
Outstanding
and exercisable at
September
28, 2007
|
286,393
|
$ |
8.66
|
3.0
|
$ |
3,713
|
|||||||
The
range
of options outstanding at September 28, 2007 is as follows:
|
Price
Range
per
Share
|
Number
of Options
Outstanding
and Exercisable
|
Weighted
Average
Exercise
Price
|
Weighted
Average Remaining
Contractual
Life (in years)
|
|||||||||
|
$0.01
–
8.00
|
150,383
|
$ |
6.87
|
3.4
|
||||||||
|
$8.01
–
10.00
|
95,390
|
8.24
|
1.7
|
|||||||||
|
$10.01 –
20.00
|
40,620
|
16.20
|
4.3
|
|||||||||
|
286,393
|
$ |
8.66
|
3.0
|
|||||||||
Restricted
Stock
All
restricted stock has been granted at fair market value on the date of grant
and
vests either immediately or in three to five years. The Company
granted 43,328, 69,754 and 39,094 shares of restricted stock with a total value
of $798, $1,165 and $680 during 2007, 2006 and 2005, respectively. Restricted
stock forfeitures totaled 7,496, 22,770 and 0 shares during 2007, 2006 and
2005,
respectively. These forfeited restricted shares had an original fair market
value at date of grant of $130, $385 and $0, respectively. Amortization expense
related to the restricted stock was $596, $530 and $102, respectively, during
2007, 2006 and 2005. Unvested restricted stock issued and outstanding as
of September
28, 2007 and September 29, 2006 totaled 105,102 and 76,120 shares, respectively,
having a gross unamortized value of $921 and $849, respectively, which will
be
amortized to expense through April 2012.
F-25
A
summary
of unvested restricted stock activity for 2007 and 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
|
|||||
|
Restricted
stock grants
|
43,328
|
18.42
|
||||||
|
Restricted
stock cancelled
|
(7,496 | ) |
17.35
|
|||||
|
Restricted
stock vested
|
(6,850 | ) |
18.25
|
|||||
|
Unvested
restricted stock at September 28, 2007
|
105,102
|
$ |
17.39
|
|||||
Phantom
Stock Plan
The
Company adopted a phantom stock plan during fiscal 2003. Under this plan,
certain employees were entitled to 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 of $24, $80 and $148 during 2007, 2006
and
2005, respectively. The Company made payments of $319 and $411 to participants
in the plan during 2007 and 2006, respectively. There were no grants of phantom
shares by the Company in fiscal 2007, 2006 or 2005 and the Company does not
anticipate grants of phantom shares in the future. No further payments are
expected to be made under this Plan.
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. Shares available for purchase by employees under this plan
were 65,330 at September 28, 2007. The Company issued 10,227 and 7,285 shares
under the plan on April 30, 2007 and April 19, 2006, respectively. The Company
recognized expense under the employees’ stock purchase plan of $31 and $22,
respectively during 2007 and 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 costs of these transactions were
$1,833, $1,838 and $2,436 for 2007, 2006 and 2005, respectively. Amounts due
to/from related parties were immaterial at September 28, 2007 and September
29,
2006.
|
12
|
SEGMENTS
OF BUSINESS
|
The
Company conducts its worldwide operations through separate 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 Income, 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-26
A
summary
of the Company’s operations by business segment is presented below:
|
2007
|
2006
|
2005
|
||||||||||
|
Net
sales:
|
||||||||||||
|
Marine
Electronics:
|
||||||||||||
|
Unaffiliated
customers
|
$ |
197,728
|
$ |
164,362
|
$ |
145,051
|
||||||
|
Interunit
transfers
|
321
|
110
|
181
|
|||||||||
|
Outdoor
Equipment:
|
||||||||||||
|
Unaffiliated
customers
|
55,786
|
65,903
|
75,286
|
|||||||||
|
Interunit
transfers
|
76
|
45
|
55
|
|||||||||
|
Watercraft:
|
||||||||||||
|
Unaffiliated
customers
|
90,088
|
87,127
|
80,374
|
|||||||||
|
Interunit
transfers
|
216
|
175
|
475
|
|||||||||
|
Diving:
|
||||||||||||
|
Unaffiliated
customers
|
87,881
|
77,880
|
79,363
|
|||||||||
|
Interunit
transfers
|
797
|
590
|
41
|
|||||||||
|
Other/Corporate
|
577
|
518
|
616
|
|||||||||
|
Eliminations
|
(1,410 | ) | (920 | ) | (752 | ) | ||||||
| $ |
432,060
|
$ |
395,790
|
$ |
380,690
|
|||||||
|
Operating
profit (loss):
|
||||||||||||
|
Marine
Electronics
|
$ |
22,933
|
$ |
21,583
|
$ |
21,572
|
||||||
|
Outdoor
Equipment
|
8,464
|
8,236
|
11,208
|
|||||||||
|
Watercraft
|
(6,307 | ) | (2,573 | ) | (4,353 | ) | ||||||
|
Diving
|
6,933
|
5,604
|
4,901
|
|||||||||
|
Other/Corporate
|
(14,084 | ) | (12,225 | ) | (17,684 | ) | ||||||
| $ |
17,939
|
$ |
20,625
|
$ |
15,644
|
|||||||
|
Depreciation
and amortization expense:
|
||||||||||||
|
Marine
Electronics
|
$ |
3,647
|
$ |
3,195
|
$ |
2,865
|
||||||
|
Outdoor
Equipment
|
442
|
358
|
368
|
|||||||||
|
Watercraft
|
2,182
|
2,525
|
2,643
|
|||||||||
|
Diving
|
1,663
|
1,646
|
2,100
|
|||||||||
|
Other/Corporate
|
1,296
|
1,440
|
1,426
|
|||||||||
| $ |
9,230
|
$ |
9,164
|
$ |
9,402
|
|||||||
|
Additions
to property, plant and equipment:
|
||||||||||||
|
Marine
Electronics
|
$ |
6,149
|
$ |
4,583
|
$ |
2,856
|
||||||
|
Outdoor
Equipment
|
2,615
|
321
|
217
|
|||||||||
|
Watercraft
|
1,832
|
1,336
|
2,080
|
|||||||||
|
Diving
|
1,199
|
1,547
|
776
|
|||||||||
|
Other/Corporate
|
1,623
|
1,078
|
874
|
|||||||||
| $ |
13,418
|
$ |
8,865
|
$ |
6,803
|
|||||||
|
Total
assets:
|
||||||||||||
|
Marine
Electronics
|
$ |
95,725
|
$ |
75,728
|
||||||||
|
Outdoor
Equipment
|
23,739
|
25,283
|
||||||||||
|
Watercraft
|
59,014
|
56,213
|
||||||||||
|
Diving
|
114,091
|
96,968
|
||||||||||
|
Other/Corporate
|
27,110
|
30,034
|
||||||||||
| $ |
319,679
|
$ |
284,226
|
|||||||||
|
Goodwill,
net:
|
||||||||||||
|
Marine
Electronics
|
$ |
14,596
|
$ |
14,596
|
||||||||
|
Outdoor
Equipment
|
563
|
563
|
||||||||||
|
Watercraft
|
6,586
|
5,518
|
||||||||||
|
Diving
|
29,709
|
22,270
|
||||||||||
| $ |
51,454
|
$ |
42,947
|
|||||||||
F-27
A
summary
of the Company’s operations by geographic area is presented below:
|
2007
|
2006
|
2005
|
|||||||||
|
Net
sales:
|
|||||||||||
|
United
States:
|
|||||||||||
|
Unaffiliated
customers
|
$ |
334,286
|
$ |
315,828
|
$ |
301,796
|
|||||
|
Interarea
transfers
|
12,890
|
11,123
|
7,294
|
||||||||
|
Europe:
|
|||||||||||
|
Unaffiliated
customers
|
59,976
|
46,192
|
48,233
|
||||||||
|
Interarea
transfers
|
13,187
|
12,527
|
13,320
|
||||||||
|
Other:
|
|||||||||||
|
Unaffiliated
customers
|
37,798
|
33,769
|
30,662
|
||||||||
|
Interarea
transfers
|
2,037
|
1,561
|
1,230
|
||||||||
|
Eliminations
|
(28,114 | ) | (25,210 | ) | (21,845 | ) | |||||
| $ |
432,060
|
$ |
395,790
|
$ |
380,690
|
||||||
|
Total
assets:
|
|||||||||||
|
United
States
|
$ |
180,761
|
$ |
160,203
|
|||||||
|
Europe
|
109,580
|
95,448
|
|||||||||
|
Other
|
29,338
|
28,575
|
|||||||||
| $ |
319,679
|
$ |
284,226
|
||||||||
|
Long-term
assets (1):
|
|||||||||||
|
United
States
|
$ |
60,327
|
$ |
55,058
|
|||||||
|
Europe
|
38,556
|
27,332
|
|||||||||
|
Other
|
2,748
|
2,363
|
|||||||||
| $ |
101,631
|
$ |
84,753
|
||||||||
|
(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 2007 and 2006. The Company’s Outdoor Equipment business recognized sales to
the U.S. military totaling $45,126 in 2005.
F-28
|
13
|
VALUATION
AND QUALIFYING ACCOUNTS
|
The
following summarizes changes to valuation and qualifying accounts for 2007,
2006
and 2005:
|
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 28, 2007:
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$ |
2,318
|
$ |
990
|
$ |
39
|
$ |
995
|
$ |
2,352
|
||||||||||
|
Reserves
for inventory valuation
|
3,446
|
1,687
|
—
|
467
|
4,666
|
|||||||||||||||
|
Valuation
of deferred tax assets
|
3,260
|
663
|
—
|
486
|
3,437
|
|||||||||||||||
|
Reserves
for sales returns
|
1,023
|
2,648
|
—
|
2,357
|
1,314
|
|||||||||||||||
|
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
|
|||||||||||||||
|
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.
On
July
10, 2007, after considering the costs, risks and business distractions
associated with continued litigation, the Company reached a settlement agreement
with Confluence Holdings Corp. that ended a long-standing intellectual property
dispute between the two companies. While the terms of the agreement are
confidential, the settlement does not constitute an admission of wrongdoing
by
either party and includes a one-time payment by the Company to Confluence
Holdings Corp. of $4,400. The Company has submitted a claim for reimbursement
with its insurer for this matter, which is currently under
dispute.
|
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 recognized losses of $1,500 during the year
ended September 29, 2006. During the year ended September 28, 2007, the Company
recognized gains of $2,874 as a result of insurance recoveries of $1,136 related
to asset losses and $1,738 related to business interruption claims from the
flood The Company does not anticipate further expenses, insurance recoveries
related to this matter.
F-29
|
16
|
QUARTERLY
FINANCIAL SUMMARY
(unaudited)
|
The
following summarizes quarterly operating results:
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||||||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||||||||||||||
|
Net
sales
|
$ |
71,701
|
$ |
72,563
|
$ |
122,124
|
$ |
107,374
|
$ |
150,570
|
$ |
135,540
|
$ |
87,666
|
$ |
80,314
|
||||||||||||||||
|
Gross
profit
|
28,480
|
29,429
|
47,085
|
44,341
|
63,862
|
57,407
|
35,455
|
34,040
|
||||||||||||||||||||||||
|
Operating
profit (loss)
|
(2,641 | ) | (812 | ) |
4,071
|
8,271
|
14,677
|
13,912
|
1,830
|
(744 | ) | |||||||||||||||||||||
|
Net
income (loss)
|
$ | (1,569 | ) | $ | (1,094 | ) | $ |
1,593
|
$ |
4,174
|
$ |
8,268
|
$ |
6,563
|
$ |
942
|
$ | (924 | ) | |||||||||||||
|
Basic
earnings (loss)
per
common share:
|
$ | (0.18 | ) | $ | (0.12 | ) | $ |
0.18
|
$ |
0.46
|
$ |
0.91
|
$ |
0.73
|
$ |
0.11
|
$ | (0.10 | ) | |||||||||||||
|
Diluted
earnings (loss)
per
common share:
|
$ | (0.18 | ) | $ | (0.12 | ) | $ |
0.17
|
$ |
0.46
|
$ |
0.89
|
$ |
0.72
|
$ |
0.11
|
$ | (0.10 | ) | |||||||||||||
During
the fourth quarter of 2007, the Company made a tax adjustment related to a
tax
law change in Germany. The amount of this adjustment was $543 and should have
been recorded as a first quarter 2007 event. The amounts previously reported
for
the first and fourth quarters for net income (loss), $(2,112) and $1,485, basic
earnings (loss) per common share, $(0.23) and $0.16, and diluted earnings (loss)
per common share, $(0.23) and $0.16, have been restated above to reflect the
impact of this adjustment.
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 2007
and
2006 was thirteen weeks long, ending on the Friday nearest to the calendar
quarter end.
F-30
EXHIBIT
21
JOHNSON
OUTDOORS INC. AND SUBSIDIARIES
The
following lists the principal direct and indirect subsidiaries of Johnson
Outdoors Inc. as of September 28, 2007. 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
|
| Lendal Products Ltd. | Scotland |
|
(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
We
consent to the 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 the various employee benefit programs
of Johnson Outdoors Inc. of our reports dated December 12, 2007 with respect
to
the consolidated financial statements of Johnson Outdoors Inc. 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 28, 2007.
Milwaukee,
Wisconsin
December
12, 2007
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 and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant’s internal control over financial
reporting; and
|
|
5)
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting,
to
the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent
functions):
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
|
Date:
|
December
12, 2007
|
/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 and I are responsible for
establishing and maintaining disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including
its
consolidated subsidiaries, is made known to us by others within
those
entities, particularly during the period in which this report is
being
prepared;
|
|
b)
|
Designed
such internal control over financial reporting, or caused such
internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant’s internal control over financial
reporting; and
|
|
5)
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting,
to
the registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent
functions):
|
|
a)
|
All
significant deficiencies and material weaknesses in the design
or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
|
Date:
|
December
12, 2007
|
/s/
David W.
Johnson
|
|
|
David
W. Johnson
Vice
President and Chief Financial Officer
Treasurer
|
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 28, 2007 (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
12, 2007
|
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
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 28, 2007 (the “Report”) fully complies with
the requirements of Section 13(a) of the Securities Exchange Act of 1934
and
that information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
/s/
David W.
Johnson
|
|
David
W. Johnson
Vice
President and Chief Financial Officer
Treasurer
December
12, 2007
|
The
above
certifications are made solely for the purpose of 18 U.S.C. Section 1350,
subject to the knowledge standard contained therein, and not for any other
purpose.