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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, 2001
OR
[____] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-16255
JOHNSON OUTDOORS INC.
(Exact name of Registrant as specified in its charter)
Wisconsin 39-1536083
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1326 Willow Road, Sturtevant, Wisconsin 53177
(Address of principal executive offices)
(262) 884-1500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Class A common stock, $.05 par value
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. [ ]
As of November 1, 2001, 6,946,012 shares of Class A and 1,222,729
shares of Class B common stock of the Registrant were outstanding. The aggregate
market value of voting stock of the Registrant held by nonaffiliates of the
Registrant was approximately $25,182,136 on November 1, 2001.
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DOCUMENTS INCORPORATED BY REFERENCE
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Part and Item Number of Form
Document 10-K into which Incorporated
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Johnson Outdoors Inc. Notice of Annual Part III, Items 10, 11, 12
Meeting of Shareholders and Proxy Statement and 13
for the Annual Meeting of Shareholders to be
held February 19, 2002.
Table of Contents Page
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Business 1
Properties 5
Legal Proceedings 5
Submission of Matters to a Vote of Security Holders 5
Market for Registrant's Common Equity and Related
Stockholder Matters 6
Selected Financial Data 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Quantitative and Qualitative Disclosures about Market Risk 14
Financial Statements and Supplementary Data 14
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 14
Directors and Executive Officers of the Registrant 14
Executive Compensation 14
Security Ownership of Certain Beneficial Owners and
Management 14
Certain Relationships and Related Transactions 14
Exhibits, Financial Statement Schedules and Reports on
Form 8-K 14
Signatures 16
Exhibit Index 17
Consolidated Financial Statements F-1
Forward Looking Statements
Certain matters discussed in this 2001 Form 10-K and in the accompanying 2001
Annual Report are "forward-looking statements," intended to qualify for the safe
harbors from liability established by the Private Securities Litigation Reform
Act of 1995. These forward-looking statements can generally be identified as
such because the context of the statement includes phrases such as the Company
"expects," "believes" or other words of similar meaning. Similarly, statements
that describe the Company's future plans, objectives or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which could cause actual results or outcomes to
differ materially from those currently anticipated. Factors that could affect
actual results or outcomes include changes in consumer spending patterns,
actions of companies that compete with the Company, the Company's success in
managing inventory, movements in foreign currencies or interest rates and
adverse weather conditions. Shareholders, potential investors and other readers
are urged to consider these factors in evaluating the forward-looking statements
and are cautioned not to place undue reliance on such forward-looking
statements. The forward-looking statements included herein are only made as of
the date of this 2001 Form 10-K and in the accompanying 2001 Annual Report and
the Company undertakes no obligations to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
PART I
ITEM 1. BUSINESS
Johnson Outdoors Inc. and its subsidiaries (the "Company") design, manufacture
and market outdoor recreation products in four businesses: Diving, Watercraft,
Outdoor Equipment and Motors. The Company's primary focus is innovation--meeting
consumer needs with breakthrough products that stand apart from the competition
and advance the Company's strong brand names. Its subsidiaries are organized in
a network that promotes entrepreneurialism and leverages best practices and
synergies, following the strategic vision set by headquarters. The Company is
controlled by Samuel C. Johnson, members of his family and related entities.
The Company was incorporated in Wisconsin in 1987 as successor to various
businesses.
Diving
The Company is one of the world's largest manufacturers and distributors of
technical underwater diving products, which it sells under the Scubapro and
SnorkelPro names. The Company markets a full line of underwater diving and
snorkeling equipment, including regulators, stabilizing jackets, tanks, depth
gauges, masks, fins, snorkels, diving electronics and other accessories. The
Company is also a leading manufacturer of dive computers and other electronics
sold under the Aladin and Uwatec brands. Scubapro, Aladin and Uwatec products
are marketed to the high quality, premium priced segment of the market via
limited distribution to independent specialty diving shops worldwide. These
diving shops generally provide a wide range of services to divers, including
instruction and repair service.
The Company focuses on maintaining Scubapro, Aladin and Uwatec as the market
leaders in innovation and new products. The Company maintains research and
development functions both in the United States and Europe and holds several
patents on products and features. Consumer advertising focuses on building the
brand names and the Company's position as the industry's high quality and
innovation leader. The Company advertises its equipment in diving magazines and
through in-store displays.
The Company also manufactures and markets diving buoyancy compensators primarily
for the original equipment market, under the Soniform name.
The Company maintains manufacturing and assembly facilities in Switzerland,
Mexico, Italy and Indonesia and procures a majority of its rubber and plastic
products and components from third-party manufacturers.
Watercraft
The Company manufactures and markets canoes, kayaks, paddles, oars, recreational
sailboats, 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, Swiftwater, Leisure Life and Dimension.
The Company's Old Town Canoe subsidiary produces high quality canoes, kayaks and
accessories for family recreation, touring and tripping. The Company uses a
patented rotational-molding process for manufacturing polyethylene kayaks and
canoes to compete in the high volume, low and mid-priced range of the market.
These kayaks and canoes feature stiffer and more durable hulls than higher
priced boats. The Company also manufactures canoes from fiberglass, Royalex
(ABS) and wood. Carlisle Paddles, a manufacturer of canoe and kayak paddles and
rafting oars, supplies paddles and oars to the Company's other watercraft
businesses and also distributes directly through the accessories channels
mentioned below under the Carlisle brand.
The Company is a leading manufacturer of sit-on-top kayaks under the Ocean Kayak
and Pacific Kayak brands. In addition, the Company manufactures and markets high
quality Necky sea touring and whitewater kayaks; Escape recreational sailboats;
Extrasport and Swiftwater personal flotation devices; small thermoformed
recreational boats, including canoes, pedal boats, deck boats and tenders, under
the Leisure Life brand; and the Dimension brand of kayaks.
-1-
In April 2001, the Company completed the acquisition of Fibrekraft Manufacturers
Ltd., a manufacturer of paddles and watercraft accessories based in Napier, New
Zealand.
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(R), in the United States and Europe. Leisure Life
products are sold through marine dealers and large retail chains under several
brand identities.
The Company manufactures its Watercraft products in six locations in the United
States, two locations in Canada and in New Zealand. Ocean Kayak products are
also manufactured and sold under license in Europe.
The North American market for kayaks is exhibiting strong growth, while the
canoe market is growing modestly. The Company believes, based on industry and
other data, that it is a leading manufacturer of canoes and kayaks in the United
States in both unit and dollar sales.
Outdoor Equipment
The Company's Outdoor Equipment products include Jack Wolfskin high quality
technical outdoor clothing, innovative footwear, camping tents, backpacks,
travel gear and accessories; Eureka! military, commercial and consumer tents;
Camp Trails backpacks; and Silva field compasses.
Jack Wolfskin, based in Germany, distributes its products primarily through
specialized outdoor stores, selected sporting goods dealers and a number of
franchised Jack Wolfskin stores. Jack Wolfskin has a strong position in Germany
with additional distribution in the key European markets of Great Britain,
Benelux, Switzerland and Austria. The product is also sold in Canada and the
United States and, under license, in Japan. Jack Wolfskin utilizes the latest in
fabric technology to produce products that are both comfortable and protective
for outdoor related activities. The products compete in the premium segments.
Eureka! consumer tents and Camp Trails backpacks compete primarily in the mid-
to high-price range and are sold in the United States 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 and backpacks is focused on building the Eureka! and Camp
Trails brand names and establishing the Company as a leader in tent design and
innovation. The Company's camping tents and backpacks are produced primarily by
third-party manufacturing sources.
Eureka! camping tents have outside self-supporting aluminum frames, allowing
quicker and easier set-up, a design approach the Company originated. Most
Eureka! tents are made from breathable nylon. Eureka! camping products are sold
under license in Japan and Korea. 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 United States.
Eureka! designs and manufactures large, heavy-duty tents and lightweight
backpacking tents for the military. The Company has three contracts for
production of both camping and commercial tents with the U.S. Armed Forces. In
1997, the Company was awarded contracts to produce a lightweight, two-man combat
tent for the Marine Corps and a modular, general purpose tent for the Army. The
Marine Corps contract was for 60 months and expires in August 2002. The Company
has shipped more than 80% of the contract's maximum order quantities. The Army
contract was for five years (base year and an option for four additional
ordering periods). The first two optional ordering periods were exercised and
the Army is currently in optional ordering period three, which expires in
December 2001. The Company believes the final ordering period will be exercised
and would expire in December 2002. All material terms and obligations of these
contracts have been and continue to be satisfied. In September 2001, the Company
was awarded a five-year contract (base year and four optional years) to produce
a four-person, extreme cold weather tent for the Marine Corps. The Company has
submitted bids on additional contracts and expects decisions on contract awards
to be made in 2002.
Camp Trails backpacks consist primarily of internal and external frame backpacks
for hiking and mountaineering, but also include soft back bags, day packs and
travel packs.
-2-
Silva field compasses, which are manufactured by third parties, are marketed
exclusively in North America, the area for which the Company owns Silva
trademark rights.
Motors
The Company manufactures, under its Minn Kota name, battery powered motors used
on fishing boats and other boats for quiet trolling power or primary propulsion.
The Company's Minn Kota motors and related accessories are sold in the United
States, Canada, Europe and the Pacific Basin through large retail store chains
such as Wal Mart and K-Mart, catalogs such as Bass Pro Shops and Cabelas,
sporting goods specialty stores, marine dealers, and original equipment
manufacturers (OEM) including Ranger(R) Boats, Lowe, Stratos/Javilin, Four
Winns, Triton Boats, Lund Boats, Smoker Craft, Alumacraft, Skeeter, Express
Boats and Tracker. Consumer advertising and promotion include advertising on
regional television and in outdoor, general interest and sports magazines.
Packaging and point-of-purchase materials are used to increase consumer appeal
and sales.
The Company has the leading market share of the U.S. electric fishing motor
market. While the overall motors market has been stagnant in recent years, the
Company has been able to gain share by emphasizing marketing, product innovation
and original equipment manufacturer sales.
The Company's line of Airguide marine, weather and automotive instruments is
distributed primarily in the United States through large retail store chains and
OEMs. Airguide products are manufactured by the Company or sourced from
third-party manufacturers. In 2001, the Company exited the weather and
automotive instrument categories.
Fishing
In March 2000, the Company sold its Fishing business (consisting of the
marketing of rods, reels, lures, spoons and fishing line). As a result, the
operations and related assets and liabilities of the Fishing business have been
restated as discontinued for financial reporting purposes. A significant loss on
the sale of the business was recognized, but the tangible net worth of the
Company was not adversely impacted. See Note 4 to the Consolidated Financial
Statements for financial information.
Financial Information for Business Segments
See Note 13 to the Consolidated Financial Statements for financial information
comparing each business segment.
International Operations
See Note 13 to the Consolidated Financial Statements for financial information
comparing the Company's domestic and international operations.
Research and Development
The Company commits significant resources to research and new product
development. The Company expenses research and development costs as incurred.
The amounts expended by the Company in connection with research and development
activities for each of the last three fiscal years are set forth in the
Consolidated Statements of Operations.
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.
Diving: The main competitors in Diving include Oceanic, Aqualung and Suunto,
each of which competes on the basis of product innovation, performance, quality
and safety.
Watercraft: The Company primarily competes in the paddle sport segment of canoes
and kayaks. Main competitors are Watermark and Confluence, who also make a full
range of boats. These companies compete on the basis of their design,
performance and quality.
-3-
Outdoor Equipment: The Company's brands and products compete in the specialty
segments of the outdoor equipment market and not in the mass market. Coleman,
Jansport and private label brands have a strong position in tents and packs sold
in mass outlets, and the Company does not intend to compete head on with these
manufacturers. The Company intends to compete with the specialty companies such
as North Face and Kelty on the basis of materials and innovative designs for
consumers who want performance products priced at a value.
Motors: The main competitor in electric trolling motors is Motor Guide from
Brunswick, who manufactures and sells a full range of trolling motors and
accessories. Competition in this segment is focused on product benefits and
features for fishing.
Employees
At September 28, 2001, the Company had approximately 1,400 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 of continuing operations totaled
approximately $51.6 million at September 28, 2001 and $61.0 million at September
29, 2000. The Company's businesses do not receive significant orders in advance
of expected shipment dates for the majority of their products.
Patents, Trademarks and Proprietary Rights
The Company owns no single patent that is material to its business as a whole.
However, the Company holds several patents, principally for diving products,
rotational-molded canoes and electric motors, 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 discussed on the
preceding pages. The Company vigorously defends its intellectual property
rights.
Sources and Availability of Materials
The Company's products use materials that are generally in adequate supply.
Seasonality
The Company's business is seasonal. The following table shows, for the past
three fiscal years, total net sales and operating profit or loss related to
continuing operations of the Company for each quarter, as a percentage of the
total year. Strategic charges totaling $1.4 million, $2.4 million and $2.8
million impacted operating results in 2001, 2000 and 1999, respectively.
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Year Ended
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September 28, 2001 September 29, 2000 October 1, 1999
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Net Operating Net Operating Net Operating
Quarter Ended Sales Profit (Loss) Sales Profit Sales Profit (Loss)
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December 17% (23)% 16% 1% 16% (16)%
March 29 42 28 39 28 43
June 33 83 33 56 33 70
September 21 (2) 23 4 23 3
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100% 100% 100% 100% 100% 100%
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Executive Officers
The following list sets forth certain information, as of December 1, 2001,
regarding the executive officers of the Company.
-4-
Helen P. Johnson-Leipold, age 44, became Chairman and Chief Executive Officer of
the Company in March 1999. From September 1998 until March 1999, Ms.
Johnson-Leipold was Vice President, Worldwide Consumer Products-Marketing of S.
C. Johnson & Son, Inc. (SCJ). From October 1997 to September 1998, she was Vice
President, Personal and Home Care Products of SCJ. From October 1995 until July
1997, Ms. Johnson-Leipold was Executive Vice President - North American
Businesses of the Company. From 1992 to September 1995, she was Vice President -
Consumer Marketing Services Worldwide of SCJ.
Patrick J. O'Brien, age 43, became President and Chief Operating Officer of the
Company in April 1999. From October 1997 until March 1999, Mr. O'Brien was Vice
President and General Manager, Home Storage of SCJ. From July 1997 until October
1997, Mr. O'Brien was Vice President - Strategic Business of SCJ; from April
1996 until June 1997, he was Vice President - North American Sales of SCJ; from
June 1995 until March 1996, he was Director - North American Sales of SCJ and
from January 1993 until May 1995, he was National Sales Manager of SCJ.
Paul A. Lehmann, age 48, became Vice President and Chief Financial Officer of
the Company in May 2001. From October 1999 to May 2001, Mr. Lehmann was Vice
President, Finance and Strategic Planning of Steelcase North America (SCNA).
From June 1997 to October 1999, Mr. Lehmann was Vice President, Operations
Finance of SCNA. From November 1995 to June 1997, he was Director of Customer
Pricing and Contracts for SCNA.
Mamdouh Ashour, age 63, has been a Group Vice President of the Company since
October 1997 and President - Worldwide Diving since August 1996. From 1994 to
August 1996, he served as President of Scubapro Europe. He has been employed by
the Company since 1973.
There are no family relationships between the above executive officers.
ITEM 2. PROPERTIES
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 6 to the Consolidated Financial Statements for a discussion of lease
obligations.
The Company's principal manufacturing (identified with an asterisk) and other
locations are:
Albany, New Zealand (Watercraft) Grand Rapids, Michigan* (Watercraft)
Antibes, France (Diving) Grayling, Michigan* (Watercraft)
Bad Sakingen, Germany (Diving) Hallwil, Switzerland* (Diving)
Barcelona, Spain (Diving) Hamburg, Germany (Diving)
Basingstoke, Hampshire, England Henggart, Switzerland (Diving)
(Diving)
Batam, Indonesia* (Diving) Idstein, Germany (Outdoor Equipment)
Binghamton, New York* (Outdoor Mankato, Minnesota* (Motors)
Equipment)
Burlington, Ontario, Canada (Motors, Mansonville, Quebec, Canada*
Outdoor Equipment) (Watercraft)
Miami, Florida* (Watercraft)
Chatswood, Australia (Diving) Napier, New Zealand (Watercraft)
Chi Wan, Hong Kong (Diving) Nykoping, Sweden (Diving)
El Cajon, California (Diving) Old Town, Maine* (Watercraft)
Ferndale, Washington* (Watercraft) Tijuana, Mexico* (Motors, Diving)
Genoa, Italy* (Diving) Tokyo (Kawasaki), Japan (Diving)
The Company's corporate headquarters is located in Mount Pleasant, Wisconsin.
The Company's mailing address is Sturtevant, Wisconsin.
ITEM 3. LEGAL PROCEEDINGS
See Note 16 to the Consolidated Financial Statements for a discussion of legal
proceedings.
-5-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the last
quarter of the year ended September 28, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Certain information with respect to this item is included in Notes 5, 9, 10 and
11 to the Consolidated Financial Statements. The Company's Class A common stock
is traded on The Nasdaq Stock Market(R) 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, 2001, the
Company had 755 holders of record of its Class A common stock and 58 holders of
record of its Class B common stock. The Company has never paid, and has no
current intention to pay, a dividend on its common stock.
A summary of the high and low prices for the Company's Class A common stock
during each quarter of the years ended September 28, 2001 and September 29, 2000
is as follows:
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First Quarter Second Quarter Third Quarter Fourth Quarter
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2001 2000 2001 2000 2001 2000 2001 2000
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Stock prices:
High $7.00 $9.19 $7.56 $8.50 $8.49 $9.69 $7.39 $7.94
Low 4.75 6.13 5.50 6.13 5.90 6.13 5.98 5.75
Last 5.88 7.10 6.13 6.19 6.74 7.06 6.47 6.94
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-6-
ITEM 6. SELECTED FINANCIAL DATA
A summary of the Company's operating results and key balance sheet data for each
of the years in the five-year period ended September 28, 2001 is presented
below. All periods have been restated to reflect the discontinuation of the
Company's Fishing business.
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Year Ended
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September 28 September 29 October 1 October 2 October 3
(thousands, except per share data) 2001 2000 1999 1998 1997
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OPERATING RESULTS (1)
Net sales $ 345,637 $ 354,889 $ 310,198 $ 274,005 $ 242,351
Gross profit 136,703 142,813 125,774 110,789 94,147
Operating expenses (2) 120,985 118,094 106,261 92,433 80,266
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Operating profit 15,718 24,719 19,513 18,356 13,881
Interest expense 9,085 9,799 9,565 9,631 8,413
Other expense (income), net 543 (160) (71) (539) (624)
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Income from continuing operations before
income taxes 6,090 15,080 10,019 9,264 6,092
Income tax expense 2,480 6,705 4,158 3,885 2,721
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Income from continuing operations before
cumulative effect of change in
accounting principle 3,610 8,375 5,861 5,379 3,371
Income (loss) from discontinued operations -- (940) 1,161 (167) (1,315)
Loss on disposal of discontinued operations -- (24,418) -- -- --
Effect of change in accounting principle 1,755 -- -- -- --
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Net income (loss) $ 5,365 $ (16,983) $ 7,022 $ 5,212 $ 2,056
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Basic earnings (loss) per common share:
Continuing operations $ 0.44 $ 1.03 $ 0.72 $ 0.66 $ 0.42
Discontinued operations -- (3.12) 0.15 (0.02) (0.17)
Effect of change in accounting principle 0.22 -- -- -- --
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Net income (loss) $ 0.66 $ (2.09) $ 0.87 $ 0.64 $ 0.25
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Diluted earnings (loss) per common share:
Continuing operations $ 0.44 $ 1.03 $ 0.72 $ 0.66 $ 0.42
Discontinued operations -- (3.12) 0.15 (0.02) (0.17)
Effect of change in accounting principle 0.22 -- -- -- --
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Net income (loss) $ 0.66 $ (2.09) $ 0.87 $ 0.64 $ 0.25
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Diluted average common shares outstanding 8,170 8,130 8,108 8,114 8,115
=======================================================================================================================
BALANCE SHEET DATA
Current assets (3) $ 133,180 $ 144,194 $ 185,733 $ 188,224 $ 184,555
Total assets 244,913 257,971 299,025 292,380 272,605
Current liabilities (4) 36,568 46,941 45,072 39,448 36,772
Long-term debt, less current maturities 84,550 45,857 72,744 81,508 87,926
Total debt 97,535 105,319 122,071 124,001 113,676
Shareholders' equity 105,779 100,832 127,178 124,386 117,731
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(1) The year ended October 3, 1997 includes 53 weeks. All other years include 52 weeks.
(2) Includes strategic charges of $1,448, $2,369, $2,773, $1,388 and $335 in
2001, 2000, 1999, 1998 and 1997, respectively.
(3) Includes net assets of discontinued operations of $56,114, $58,462 and $66,507 in 1999, 1998 and 1997,
respectively.
(4) Excluding short-term debt and current maturities of long-term debt.
-7-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion includes comments and analysis relating to the
Company's results of operations and financial condition for the three years
ended September 28, 2001. Unless otherwise noted, the discussion refers to
continuing operations. This discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto.
Results of Operations
Summary consolidated financial results from continuing operations are as
follows:
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(millions, except per share data) 2001 2000 1999
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Net sales $345.6 $354.9 $310.2
Gross profit 136.7 142.8 125.8
Operating expenses (1) 121.0 118.1 106.3
Operating profit 15.7 24.7 19.5
Interest expense 9.1 9.8 9.6
Income from continuing operations 3.6 8.4 5.9
Diluted earnings per common share from continuing operations
before change in accounting principle 0.44 1.03 0.72
- --------------------------------------------------------------------------------------------------------------------
(1) Includes strategic charges of $1.4 million, $2.4 million and $2.8 million in
2001, 2000 and 1999, respectively.
2001 vs 2000
Net Sales
Net sales totaled $345.6 million in 2001 compared to $354.9 million in 2000, a
decrease of 3%. Sales as measured in U.S. dollars were impacted by the effects
of foreign currencies relative to the U.S. dollar in comparison to 2000.
Excluding the effects of foreign currency movements, sales were nearly flat when
compared with 2000. The flat trend in sales was a result of a soft economy both
in the United States (U.S.) and abroad. Sales were impacted by customer
bankruptcies in both the Motors and Diving businesses. The Company believes
these bankruptcies impacted sales in 2001 by approximately $4.8 million. As a
result of the soft economy, we saw marginal growth or even contraction in the
markets of our businesses. However, market data indicated that the Company
gained market share in nearly all of our businesses.
The Outdoor Equipment business was strong, increasing sales 10% over 2000,
primarily related to strong performances by Jack Wolfskin and military tents.
Diving sales were down 3% from 2000, primarily related to the negative impact of
foreign currency movements from 2000. Excluding the effects of foreign currency
movements, Diving sales increased 3% from 2000. The Watercraft and Motors
businesses were impacted the most by the soft economy, with sales declines of 5%
and 16%, respectively. The Motors business gained market share in a contracting
market and lost approximately $4.0 million in sales related to the bankruptcy of
a large OEM customer. However, the Company feels a majority of these sales will
return in 2002, as the OEM customer was sold out of bankruptcy and has begun
placing orders. The Watercraft business saw a significant decline in market
growth after three plus years of double digit growth in that category.
Operating Results
The Company recognized an operating profit of $15.7 million in 2001 compared to
an operating profit of $24.7 million in 2000. Gross profit margins decreased
from 40.2% in 2000 to 39.6% in 2001, as improvements in the Diving and Outdoor
Equipment businesses were more than offset by declines in the Watercraft and
Motors businesses. Shortfalls in sales volume for 2001 negatively impacted gross
profits by $3.4 million due to unfavorable manufacturing labor and overhead
variances, primarily in the Watercraft business, and to a lesser extent, the
Motors business.
-8-
Operating expenses, excluding strategic charges, totaled $119.5 million, or
34.6% of sales, in 2001 compared to $115.7, or 32.6% of sales in 2000.
Amortization of acquisition costs were $5.3 million in 2001, which included a
$2.5 million write-down for impaired goodwill related to the Airguide brand in
the Motors business, compared to $3.0 million in 2000. Bad debt expense related
to the previously mentioned customer bankruptcies added approximately $0.9
million to operating expenses in 2001.
The Outdoor Equipment business increased operating profit by $3.8 million, or
47%, to $12.0 million in 2001 compared to $8.2 million in 2000. Strong results
by Jack Wolfskin and military tents more than offset softness in the consumer
and commercial tent businesses. The Diving business was also strong, increasing
operating profits by 7% to $11.6 million in 2001, despite a sales decline, by
improving product mix towards higher margin products along with a decline in
operating expenses. Excluding the $2.5 million write-down for impaired goodwill,
the Motors business had operating profits of $2.8 million in 2001 compared to
$3.9 million in 2000. A decline in operating expense, excluding strategic
charges, of $1.0 million versus the prior year, helped mitigate the decline in
operating profit.
The Watercraft business was impacted by several issues, resulting in a decline
in operating profits in 2001 to $1.3 million from operating profits of $10.3
million in 2000. The business experienced the trailing affects of significant
growth, over-capacity and the impacts of too much complexity in this segment of
our business. In addition to the gross profit issues described above, operating
expenses grew by $3.1 million, or 11% from 2000 levels due to investment in
infrastructure to support the previous significant growth of the business and
additional costs supporting the complex structure of the business. The Company
believes the issues related to Watercraft can and are being fixed, as evidenced
by the closure and relocation of two manufacturing facilities in 2001. The
Company is in the process of streamlining U.S. East coast distribution from five
warehouses down to one and has hired both a new general manager and operations
manager at our Old Town Canoe business, to drive improved results from this
important operation in the Watercraft business. The Company will continue to
investigate synergistic opportunities in this business over the next year.
The Company recognized strategic charges totaling $1.4 million in 2001 for
severance, moving and other costs related to the closure and relocation of two
manufacturing facilities in the Watercraft business. The Company believes that
these actions will save approximately $1.5 million in operating expenses on an
annual basis after completion. The Company anticipates incurring additional
strategic charges related to these actions of approximately $0.7 million in
2002. In 2000, the Company incurred strategic charges of $2.4 million from
severance, moving and other costs related to the closure and relocation of a
manufacturing facility in the Motors business and for severance, relocation and
recruitment costs in the North American Outdoor Equipment business.
Other Income and Expenses
Interest expense decreased $0.7 million in 2001, reflecting a decline in
interest rates from prior year levels and a reduction in working capital needs
versus 2000 levels. Foreign currency translation losses related to the mark to
market of foreign currency denominated debt and foreign currency forward
contracts resulted in an increase of $0.7 million in translation losses over the
prior year levels.
Results From Continuing Operations
The Company recognized income from continuing operations before cumulative
effect of change in accounting principle of $3.6 million in 2001 or $0.44 per
diluted share, compared to $8.4 million in 2000 or $1.03 per diluted share. The
Company recorded income tax expense of $2.5 million in 2001, an effective tax
rate of 40.7%. This decreased rate (from 44.5% in 2000) is mainly the result of
changes in mix of earnings from jurisdictions with higher tax rates to those
with lower tax rates.
Discontinued Operations
In March 2000, the Company sold its Fishing business. The Company recorded a
loss on disposal of a discontinued business, net of tax, of $24.4 million in
2000, taking into account operating results of the business from the measurement
date to the date of disposal. In addition, the Company recorded an after tax
loss from operations up to the measurement date of $0.9 million in 2000.
-9-
Change in Accounting Principle
Effective September 30, 2000, the Company adopted SFAS 133, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
All derivatives, whether designated in hedging relationships or not, are
required to be recorded on the balance sheet at fair value. If the derivative is
designated as a fair value hedge, the changes in fair value of the derivative
and the hedged item are recognized in earnings. If the derivative is designated
as a cash flow hedge, changes in the fair value of the derivative are recorded
in other comprehensive income and are recognized in earnings when the hedged
item affects earnings.
The adoption of SFAS 133 resulted in an effect of change in accounting principle
after tax gain of $1.8 million in 2001.
Net Income (Loss)
The Company recognized net income of $5.4 million in 2001, or $0.66 per diluted
share, compared to a net loss of $17.0 million in 2000, or $2.09 per diluted
share.
2000 vs 1999
Net Sales
Net sales totaled $354.9 million in 2000 compared to $310.2 million in 1999, an
increase of 14%. Sales as measured in U.S. dollars were impacted by the effect
of foreign currencies relative to the U.S. dollar in comparison to 1999.
Excluding the effects of foreign currency movements, sales increased 17% from
1999. The increase was partially driven by the introduction of innovative new
products in the Watercraft and Motors businesses, as well as growth in sales of
existing products in Watercraft, Motors and Outdoor Equipment.
Operating Results
The Company recognized an operating profit of $24.7 million in 2000 compared to
an operating profit of $19.5 million in 1999. Gross profit margins decreased
from 40.5% in 1999 to 40.2% in 2000, as significant improvements in the Diving
and Outdoor Equipment businesses, as well as improvement in the Motors business
(due to emphasis on higher margin products, increases in volume and improved
production efficiencies) were offset by a decline in Watercraft (due to
production issues related to a 26.4% growth in Watercraft revenues).
Operating expenses, excluding strategic charges, totaled $115.7 million, or
32.6% of sales, in 2000 compared to $103.5 million, or 33.3% of sales, in 1999.
The 12% growth in operating expenses in 2000 was less than the growth rate of
sales, which contributed to the improved operating results. Nearly all items in
operating expenses declined as a percentage of sales from 1999.
The Company recognized strategic charges totaling $2.4 million in 2000 and $2.8
million in 1999. These charges resulted from severance, moving and other costs
related primarily to the closure and relocation of a manufacturing facility in
the Motors business and for severance, relocation and recruitment costs in the
North American Outdoor Equipment business.
Other Income and Expenses
Interest expense increased $0.2 million in 2000, reflecting higher working
capital levels primarily from accounts receivable and inventory, as well as
higher interest rates.
Results from Continuing Operations
The Company recognized income from continuing operations of $8.4 million in
2000, or $1.03 per diluted share, compared to $5.9 million, or $0.72 per diluted
share, in 1999. The Company recorded income tax expense of $6.7 million in 2000,
an effective rate of 44.5%. The increased rate from 41.5% in 1999 is due to an
increase in state income tax and change in expected recoverability of state net
operating losses.
-10-
Discontinued Operations
In March 2000, the Company sold its Fishing business. As a result, operations
and related assets and liabilities of the Fishing group have been classified as
discontinued for all periods presented herein. The sale price totaled $47.3
million, including $14.1 million of accounts receivable retained by the Company
and $2.4 million of debt assumed by the buyer. The Company recorded a loss of
$24.4 million, net of tax, related to the sale of the business, taking into
account operating results from the measurement date to the date of disposal. In
addition, the Company recorded an after tax loss from operations up to the
measurement date of $0.9 million in 2000 and an after tax gain of $1.2 million
in 1999.
Net Income
The Company recognized a net loss of $17.0 million, or $2.09 per diluted share
in 2000, compared to net income of $7.0 million, or $0.87 per diluted share in
1999.
Financial Condition
The following discusses changes in the Company's liquidity and capital
resources.
Operations
The following table sets forth the Company's working capital position related to
continuing operations at the end of each of the past three years:
- --------------------------------------------------------------------------------------------------------------------
(millions) 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Current assets (1) $ 133.2 $ 144.2 $ 129.6
Current liabilities (2) 36.6 46.9 45.1
- --------------------------------------------------------------------------------------------------------------------
Working capital $ 96.6 $ 97.3 $ 84.5
- --------------------------------------------------------------------------------------------------------------------
Current ratio 3.6:1 3.1:1 2.9:1
- --------------------------------------------------------------------------------------------------------------------
(1) Excludes net assets of discontinued operations.
(2) Excludes short-term debt and current maturities of long-term debt.
Cash flows provided by operations totaled $15.5 million in 2001, $9.8 million in
2000 and $24.8 million in 1999. The Company's profitability and decreases in
accounts receivable of $6.8 million, contributed to the positive cash flows in
2001. Decreases in accounts payable and other accrued liabilities of $11.4
million reduced the overall positive cash flows provided by operations in 2001.
Profitability and increases in accounts payable and other accrued liabilities of
$3.9 million, contributed to the positive cash flows in 2000 and 1999. Growth in
accounts receivable and inventories of $10.7 million and $8.4 million,
respectively, reduced the overall positive cash flows provided by operations in
2000. Accounts receivable growth of $3.5 million reduced the overall positive
cash flows provided by operations in 1999.
Depreciation and amortization charges were $13.5 million in 2001, $12.5 million
in 2000 and $12.6 million in 1999. Amortization of intangible assets from the
Company's acquisitions and increased depreciation from capital spending
accounted for the increase from 2000 to 2001. The Company recorded a charge for
impairment of goodwill of $2.5 million in 2001.
Investing Activities
Cash flows provided by (used for) investing activities were ($9.6) million,
$20.0 million and ($26.1) million in 2001, 2000 and 1999, respectively.
Expenditures for property, plant and equipment were ($9.8) million in 2001,
($14.1) million in 2000 and ($13.0) million in 1999. The Company's recurring
investments are primarily related to tooling for new products, facilities and
information systems improvements. In 2002, capital expenditures are anticipated
not to exceed 2001 levels. These expenditures are expected to be funded by
working capital or existing credit facilities.
-11-
The Company received $33.1 million in proceeds from the sale of their Fishing
business in 2000, which contributed to the cash flows provided by investing
activities for that year. These proceeds were used to reduce both short-term and
long-term debt. The Company paid, net of cash acquired, $0.6 million for two
small businesses acquired in 2001, $0.9 million for one business acquired in
2000 and $13.6 million for three businesses acquired in 1999. In November 2001,
subsequent to the end of the 2001 fiscal year, the Company completed the sale
and leaseback of their headquarters facility in Sturtevant, Wisconsin.
Approximately $5.0 million of additional cash flow was provided by this
transaction.
Financing Activities
The following table sets forth the Company's debt and capital structure at the
end of the past three years:
- --------------------------------------------------------------------------------------------------------
(millions) 2001 2000 1999
- --------------------------------------------------------------------------------------------------------
Current debt $ 13.0 $ 59.5 $ 49.4
Short-term debt to be refinanced 50.0 -- --
Long-term debt 34.5 45.8 72.7
- --------------------------------------------------------------------------------------------------------
Total debt 97.5 105.3 122.1
Shareholders' equity 105.8 100.8 127.2
- --------------------------------------------------------------------------------------------------------
Total capitalization $ 203.3 $ 206.1 $ 249.3
- --------------------------------------------------------------------------------------------------------
Total debt to total capitalization 48.0% 51.1% 49.0%
- --------------------------------------------------------------------------------------------------------
Cash flows used for financing activities totaled $7.9 million in 2001, $12.5
million in 2000 and $0.8 million in 1999. Payments on long-term debt were $6.8
million, $22.0 million and $7.7 million, in 2001, 2000 and 1999, respectively.
Included in 2000 was $15.1 million in payments from the proceeds of the sales of
the Fishing business.
In December 2001, subsequent to the end of the 2001 fiscal year, the Company
consummated a private placement of long-term debt totaling $50.0 million. As a
result of this financing, short-term debt to be repaid totaling $50.0 million at
September 28, 2001 was classified as long-term. At September 28, 2001, the
Company had available unused credit facilities in excess of $33.8 million, which
is believed to be adequate for its needs.
Market Risk Management
The Company is exposed to market risk stemming from changes in foreign exchange
rates, interest rates and, to a lesser extent, commodity prices. Changes in
these factors could cause fluctuations in earnings and cash flows. In the normal
course of business, exposure to certain of these market risks is managed by
entering into hedging transactions authorized under Company policies that place
controls on these activities. Hedging transactions involve the use of a variety
of derivative financial instruments. Derivatives are used only where there is an
underlying exposure: not for trading or speculative purposes.
Foreign Operations
The Company has significant foreign operations, for which the functional
currencies are denominated primarily in Swiss and French francs, German marks,
Italian lire, Japanese yen and Canadian dollars. As the values of the currencies
of the foreign countries in which the Company has operations increase or
decrease relative to the U.S. dollar, the sales, expenses, profits, assets and
liabilities of the Company's foreign operations, as reported in the Company's
Consolidated Financial Statements, increase or decrease, accordingly. The
Company mitigates a portion of the fluctuations in certain foreign currencies
through the purchase of foreign currency swaps, forward contracts and options to
hedge known commitments, primarily for purchases of inventory and other assets
denominated in foreign currencies.
-12-
Interest Rates
The Company's debt structure and interest rate risk are managed through the use
of fixed and floating rate debt. The Company's primary exposure is to United
States interest rates. The Company also periodically enters into interest rate
swaps, caps or collars to hedge its exposure and lower financing costs.
Commodities
Certain components used in the Company's products are exposed to commodity price
changes. The Company manages this risk through instruments such as purchase
orders and non-cancelable supply contracts. Primary commodity price exposures
are metals and packaging materials.
Sensitivity to Changes in Value
The estimates that follow are intended to measure the maximum potential fair
value or earnings the Company could lose in one year from adverse changes in
foreign exchange rates or market interest rates under normal market conditions.
The calculations are not intended to represent actual losses in fair value or
earnings that the Company expects to incur. The estimates do not consider
favorable changes in market rates. Further, since the hedging instrument (the
derivative) inversely correlates with the underlying exposure, any loss or gain
in the fair value of derivatives would be generally offset by an increase or
decrease in the fair value of the underlying exposures. The positions included
in the calculations are foreign exchange forwards, currency swaps and fixed rate
debt. Certain instruments are included in both categories of risk exposure
calculated below. The calculations do not include the underlying foreign
exchange positions that are hedged by these market risk sensitive instruments.
The table below presents the estimated maximum potential one year loss in fair
value and earnings before income taxes from a 10% movement in foreign currencies
and a 100 basis point movement in interest rate market risk sensitive
instruments outstanding at September 28, 2001:
- -------------------------------------------------------------------------------
Estimated Impact on
- -------------------------------------------------------------------------------
Earnings Before
(millions) Fair Value Income Taxes
- -------------------------------------------------------------------------------
Foreign exchange rate instruments $0.7 $0.7
Interest rate instruments 1.1 0.3
- -------------------------------------------------------------------------------
Other Factors
The Company has not been significantly impacted by inflationary pressures over
the last several years. The Company anticipates that changing costs of basic raw
materials may impact future operating costs and, accordingly, the prices of its
products. The Company is involved in continuing programs to mitigate the impact
of cost increases through changes in product design and identification of
sourcing and manufacturing efficiencies. Price increases and, in certain
situations, price decreases are implemented for individual products, when
appropriate.
Pending Accounting Changes
In June 2001, the FASB issued SFAS No. 142 Goodwill and Other Intangibles (SFAS
142). SFAS 142 addresses financial accounting and reporting for goodwill and
other intangible assets subsequent to their acquisition. Upon adoption of SFAS
142, goodwill will no longer be subject to amortization over its estimated
useful life. Rather, goodwill will be subject to at least an annual assessment
for impairment by applying a fair-value-based test. Other intangible assets will
be required to be separately recognized if the benefit of the intangible asset
can be sold, transferred, licensed, rented, or exchanged. Amortization of these
intangibles over their useful lives is required. The Company has elected to
adopt SFAS 142 as of the beginning of fiscal 2002. The Company is currently
assessing the impact of adopting SFAS 142 and believes, excluding impairments,
net income for fiscal year 2002 will be increased, since goodwill is no longer
subject to amortization, by approximately $2.5 million.
In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets (SFAS 144). SFAS 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and
-13-
provides additional implementation guidance for assets to be held and used and
assets to be disposed of other than by sale. There will be no financial
implication related to the adoption of SFAS 144, and the guidance will be
applied on a prospective basis. The Company is required to adopt SFAS 144 in the
first quarter of fiscal 2003.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information with respect to this item is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations under the heading
"Market Risk Management."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is included on pages F-1 to F-21.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this item, except for certain information on
executive officers (which appears at the end of Part I of this report) is
included in the Company's Proxy Statement for its February 19, 2002 Annual
Meeting of Shareholders, which is incorporated herein by reference, under the
headings "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance," provided, however, that the subsection entitled "Election
of Directors - Audit Committee Report" shall not be deemed to be incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is included in the Company's Proxy
Statement for its February 19, 2002 Annual Meeting of Shareholders, which is
incorporated herein by reference, under the headings "Election of Directors -
Compensation of Directors" and "Executive Compensation;" provided, however, that
the subsection entitled "Executive Compensation - Compensation Committee Report
on Executive Compensation" shall not be deemed to be incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item is included in the Company's Proxy
Statement for its February 19, 2002 Annual Meeting of Shareholders, which is
incorporated herein by reference, under the heading "Stock Ownership of
Management and Others."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item is included in the Company's Proxy
Statement for its February 19, 2002 Annual Meeting of Shareholders, which is
incorporated herein by reference, under the heading "Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as a part of this Form 10-K:
-14-
Financial Statements
Included in Item 8 of Part II of this Form 10-K are the following
Reports of Independent Public Accountants
Consolidated Balance Sheets - September 28, 2001 and September 29, 2000
Consolidated Statements of Operations - Years ended September 28, 2001,
September 29, 2000 and October 1, 1999
Consolidated Statements of Shareholders' Equity - Years ended September 28,
2001, September 29, 2000 and October 1, 1999
Consolidated Statements of Cash Flows - Years ended September 28, 2001,
September 29, 2000 and October 1, 1999
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.
Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended September 28,
2001.
-15-
SIGNATURES
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 Town of Mount
Pleasant and State of Wisconsin, on the 13th day of December 2001.
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 in the capacities indicated on the 13th
day of December 2001.
/s/ Helen P. Johnson-Leipold Chairman and Chief Executive Officer
- --------------------------------- and Director
(Helen P. Johnson-Leipold) (Principal Executive Officer)
/s/ Thomas F. Pyle, Jr. Vice Chairman of the Board
- --------------------------------- and Director
(Thomas F. Pyle, Jr.)
/s/ Samuel C. Johnson Director
- ---------------------------------
(Samuel C. Johnson)
/s/ Gregory E. Lawton Director
- ---------------------------------
(Gregory E. Lawton)
/s/ Glenn N. Rupp Director
- ---------------------------------
(Glenn N. Rupp)
/s/ Terry E. London Director
- ---------------------------------
(Terry E. London)
- ---------------------------------
(John M. Fahey, Jr.) Director
/s/ Paul A. Lehmann Vice President and Chief Financial Officer
- --------------------------------- (Principal Financial and Accounting Officer)
(Paul A. Lehmann)
-16-
EXHIBIT INDEX
Exhibit Title Page No.
- --------------------------------------------------------------------------------
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 March 22, 2000. *
(Filed as Exhibit 3.2(a) to the Company's Form 10-Q for the
quarter ended March 31, 2000 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 31, 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 3, 1997 and incorporated
herein by reference.)
4.4 Third Amendment dated October 3, 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 3, 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.
4.7 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 3, 1997 and incorporated herein by reference.)
4.8 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.)
4.9 Second Amendment dated December 13, 2001 to Note
Agreement dated September 15, 1997.
4.10 3-Year Revolving Credit Agreement dated as of August 31, 2001.
4.11 Amendment No. 1 to 3-Year Revolving Credit Agreement
dated as of December 18, 2001.
4.12 Note Agreement dated as of December 13, 2001.
9 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.)
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.)
-17-
EXHIBIT INDEX
Exhibit Title Page No.
- --------------------------------------------------------------------------------
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 3, 1997 and incorporated
herein by reference.)
10.14+ Johnson Outdoors Inc. 2000 Long-Term Stock Incentive *
Plan. (Filed as Exhibit 10.16 to the Company's Form
10-Q for the quarter ended March 31, 2000 and
incorporated herein by reference.)
11. Statement regarding computation of per share earnings. (Note *
15 to the Consolidated Financial Statements of the Company's
2001 Form 10-K is incorporated herein by reference.)
21. Subsidiaries of the Company as of September 28, 2001.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG LLP
99. Definitive Proxy Statement for the 2002 Annual Meeting *
of Shareholders. Except to the extent specifically
incorporated herein by reference, the Proxy Statement for
the 2002 Annual Meeting of Shareholders shall not be deemed
to be filed with the Securities and Exchange Commission as
part of this Form 10-K. The Proxy Statement for the 2002
Annual Meeting of Shareholders will be filed with the
Securities and Exchange Commission under regulation 14A
within 120 days after the end of the Company's fiscal year.
- -----------------
* Incorporated herein by reference.
+ A management contract or compensatory plan or arrangement.
-18-
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents Page
- ------------------------------------------------------------------------ ------
Report of Management F-1
Reports of Independent Public Accountants F-1
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
REPORT OF MANAGEMENT
The management of Johnson Outdoors Inc. is responsible for the preparation and
integrity of all financial statements and other information contained in this
Form 10-K. We rely on a system of internal financial controls to meet the
responsibility of providing accurate financial statements. The system provides
reasonable assurances that assets are safeguarded, that transactions are
executed in accordance with management's authorization and that the financial
statements are prepared on a worldwide basis in accordance with accounting
principles generally accepted in the United States of America.
The financial statements for each of the years covered in this Form 10-K have
been audited by independent public accountants, who have provided an independent
assessment as to the fairness of the financial statements, after obtaining an
understanding of the Company's systems and procedures and performing such other
tests as deemed necessary.
The Audit Committee of the Board of Directors, which is composed solely of
directors who are not officers of the Company, meets with management and the
independent public accountants to review the results of their work and to
satisfy itself that their respective responsibilities are being properly
discharged. The independent public accountants have full and free access to the
Audit Committee and have regular discussions with the Committee regarding
appropriate auditing and financial reporting matters.
Helen P. Johnson-Leipold Paul A. Lehmann
Chairman and Chief Executive Officer Vice President and Chief Financial
Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Johnson Outdoors Inc.:
We have audited the consolidated balance sheet of Johnson Outdoors Inc. and
subsidiaries as of September 28, 2001 and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Johnson Outdoors
Inc. and subsidiaries as of September 28, 2001 and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
As explained in Note 1 to the consolidated financial statements, effective
September 30, 2000, the Company changed its method of accounting for derivative
instruments.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Milwaukee, Wisconsin
November 8, 2001, except for Notes 5 and 17,
as to which the date is December 21, 2001.
F-1
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Johnson Outdoors Inc.:
We have audited the consolidated balance sheet of Johnson Outdoors Inc. and
subsidiaries as of September 29, 2000 and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
two-year period ended September 29, 2000. 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 audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Johnson Outdoors
Inc. and subsidiaries as of September 29, 2000 and the results of their
operations and their cash flows for each of the years in the two-year period
ended September 29, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
KPMG LLP
Milwaukee, Wisconsin
November 6, 2000
F-2
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------
September 28 September 29
(thousands, except share data) 2001 2000
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and temporary cash investments $ 16,069 $ 17,363
Accounts receivable less allowance for doubtful
accounts of $3,739 and $3,895, respectively 45,585 54,825
Inventories 61,700 62,708
Deferred income taxes 5,269 4,613
Other current assets 4,557 4,685
- --------------------------------------------------------------------------------------------------------------------
Total current assets 133,180 144,194
Property plant and equipment, net 35,879 37,369
Deferred income taxes 19,577 17,311
Intangible assets, net 55,288 57,866
Other assets 989 1,231
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 244,913 $ 257,971
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $ 12,985 $ 59,462
Accounts payable 12,157 12,928
Accrued liabilities:
Salaries and wages 5,968 7,421
Income taxes 1,206 140
Other 17,237 26,452
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 49,553 106,403
Long-term debt, less current maturities 84,550 45,857
Other liabilities 5,031 4,879
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 139,134 157,139
- --------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock: none issued -- --
Common stock:
Class A shares issued:
September 28, 2001, 6,946,012;
September 29, 2000, 6,924,630 347 346
Class B shares issued (convertible into Class A shares):
September 28, 2001, 1,222,729;
September 29, 2000, 1,222,729 61 61
Capital in excess of par value 44,411 44,291
Retained earnings 80,162 74,797
Contingent compensation (44) (77)
Accumulated other comprehensive loss - cumulative translation
adjustment (19,158) (18,586)
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 105,779 100,832
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 244,913 $ 257,971
====================================================================================================================
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
Year Ended
- --------------------------------------------------------------------------------------------------------------------
September 28 September 29 October 1
(thousands, except per share data) 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Net sales $ 345,637 $ 354,889 $ 310,198
Cost of sales 208,934 212,076 184,424
- --------------------------------------------------------------------------------------------------------------------
Gross profit 136,703 142,813 125,774
- --------------------------------------------------------------------------------------------------------------------
Operating expenses:
Marketing and selling 76,114 73,685 64,930
Administrative management, finance and information
systems 29,138 28,442 26,372
Research and development 7,565 7,854 6,878
Amortization of acquisition costs 5,288 2,951 2,912
Profit sharing 1,432 2,793 2,396
Strategic charges 1,448 2,369 2,773
- --------------------------------------------------------------------------------------------------------------------
Total operating expenses 120,985 118,094 106,261
- --------------------------------------------------------------------------------------------------------------------
Operating profit 15,718 24,719 19,513
Interest income (548) (421) (294)
Interest expense 9,085 9,799 9,565
Other expense, net 1,091 261 223
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes and before cumulative
effect of change in accounting
principle 6,090 15,080 10,019
Income tax expense 2,480 6,705 4,158
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations before cumulative
effect of change in accounting principle 3,610 8,375 5,861
Income (loss) from discontinued operations, net of income
tax expense (benefit) of $(563), and $771 for 2000
and 1999, respectively. -- (940) 1,161
Loss on disposal of discontinued operations, net of
income tax benefit of $1,840. -- (24,418) --
Effect of change in accounting principle, net of income
tax expense of $845 1,755 -- --
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 5,365 $ (16,983) $ 7,022
====================================================================================================================
Basic earnings (loss) per common share:
Continuing operations $ 0.44 $ 1.03 $ 0.72
Discontinued operations -- (3.12) 0.15
Net effect of change in accounting principle 0.22 -- --
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.66 $ (2.09) $ 0.87
====================================================================================================================
Diluted earnings (loss) per common share:
Continuing operations $ 0.44 $ 1.03 $ 0.72
Discontinued operations -- (3.12) 0.15
Net effect of change in accounting principle 0.22 -- --
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.66 $ (2.09) $ 0.87
====================================================================================================================
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------- -----------------
Accumulated
Other
Comprehensive
Capital in Loss - Cumulative
Common Excess of Retained Contingent Translation Treasury Comprehensive
(thousands) Stock Par Value Earnings Compensation Adjustment Stock Income (Loss)
- ---------------------------------------------------------------------------------------------------------------- -----------------
BALANCE AT OCTOBER 2, 1998 $406 $44,205 $85,068 $ (27) $(4,651) $ (615)
Net income -- -- 7,022 -- -- -- $ 7,022
Issuance of restricted stock -- (137) (182) -- 319 --
Issuance of stock under
employee stock purchase
plan -- -- (121) -- -- 214 --
Amortization of contingent
compensation -- -- -- 75 -- -- --
Translation adjustment -- -- -- -- (4,398) -- (4,398)
- ---------------------------------------------------------------------------------------------------------------- -----------------
BALANCE AT OCTOBER 1, 1999 406 44,205 91,832 (134) (9,049) (82) $ 2,624
=================
Net loss -- -- (16,983) -- -- -- $ (16,983)
Issuance of restricted stock -- 19 -- (19) -- -- --
Issuance of stock under
employee stock purchase
plan 1 67 (52) -- -- 82 --
Amortization of contingent
compensation -- -- -- 76 -- -- --
Translation adjustment -- -- -- -- (10,346) -- (10,346)
Translation adjustment
reclassified to net loss on
sale of Fishing business -- -- -- -- 809 -- --
- ---------------------------------------------------------------------------------------------------------------- -----------------
BALANCE AT SEPTEMBER 29, 2000 407 44,291 74,797 (77) (18,586) -- $ (27,329)
=================
Net income -- -- 5,365 -- -- -- $ 5,365
Issuance of restricted stock -- 50 -- (50) -- -- --
Issuance of stock under employee
stock purchase plan 1 70 -- -- -- -- --
Amortization of contingent
compensation -- -- -- 83 -- -- --
Translation adjustment -- -- -- -- 2,402 -- 2,402
Translation adjustment
reclassified to cumulative
effect of change in accounting -- -- -- -- (2,974) -- --
principle
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 28, 2001 $408 $44,411 $80,162 $(44) $(19,158) $-- $ 7,767
====================================================================================================================================
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------
Year Ended
- ------------------------------------------------------------------------------------------------------------------
September 28 September 29 October 1
(thousands) 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS
Net income (loss) $ 5,365 $ (16,983) $ 7,022
Less income (loss) from discontinued operations -- (25,358) 1,161
Less income from cumulative effect of change in
accounting principle 1,755 -- --
- ------------------------------------------------------------------------------------------------------------------
Income from continuing operations 3,610 8,375 5,861
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities
of continuing operations:
Depreciation and amortization 13,516 12,523 12,597
Provision for doubtful accounts receivable 2,460 1,812 2,162
Provision for inventory reserves 1,529 853 801
Deferred income taxes (2,922) (374) (48)
Impairment of goodwill 2,526 -- --
Change in assets and liabilities, net of effect of
businesses acquired or sold:
Accounts receivable 6,780 (10,728) (3,466)
Inventories 124 (8,358) 1,012
Accounts payable and accrued liabilities (11,391) 3,910 5,975
Other, net (760) 1,738 (106)
- ------------------------------------------------------------------------------------------------------------------
15,472 9,751 24,788
- ------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Proceeds from sale of business, net of cash -- 33,126 --
Payments for purchase of businesses, net of cash acquired (573) (864) (13,584)
Net additions to property, plant and equipment (9,765) (14,075) (13,035)
Sales of property, plant and equipment 730 1,838 501
- ------------------------------------------------------------------------------------------------------------------
(9,608) 20,025 (26,118)
- ------------------------------------------------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES
Principal payments on senior notes and other long-term debt (6,784) (21,969) (7,705)
Net change in short-term debt (1,143) 9,351 6,764
Common stock transactions 71 97 94
- ------------------------------------------------------------------------------------------------------------------
(7,856) (12,521) (847)
- ------------------------------------------------------------------------------------------------------------------
Effect of foreign currency fluctuations on cash 698 (1,790) (541)
Net cash provided by (used for) discontinued operations -- (8,076) 2,361
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and temporary cash investments (1,294) 7,389 (357)
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of year 17,363 9,974 10,331
- ------------------------------------------------------------------------------------------------------------------
End of year $ 16,069 $ 17,363 $ 9,974
==================================================================================================================
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Johnson Outdoors Inc. is an integrated, global outdoor recreation products
company engaged in the design, manufacture and marketing of brand name outdoor
equipment, diving, watercraft and motors products.
All monetary amounts, other than share and per share amounts, are stated in
thousands and are from continuing operations.
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Johnson Outdoors
Inc. and all majority owned subsidiaries (the Company) and are stated in
conformity with accounting principles generally accepted in the United States of
America. Significant intercompany accounts and transactions have been eliminated
in consolidation.
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, reserves for sales returns and the valuation
allowance for deferred tax assets.
The Company's fiscal year ends on the Friday nearest September 30. The fiscal
years ended September 28, 2001 (hereinafter 2001) and September 29, 2000
(hereinafter 2000) and October 1, 1999 (hereinafter 1999) each comprise 52
weeks.
Cash and Temporary Cash Investments
For purposes of the consolidated statements of cash flows, the Company considers
all short-term investments in interest-bearing bank accounts, securities and
other instruments with an original maturity of three months or less to be
equivalent to cash.
The Company maintains cash in bank accounts in excess of insured limits. The
Company has not experienced any losses as a result of this practice and does not
believe that significant credit risk exists.
Inventories
Inventories are stated at the lower of cost (determined using the first-in,
first-out method) or market.
Inventories attributable to continuing operations at the end of the respective
years consist of the following:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Raw materials $ 19,892 $ 23,122
Work in process 2,592 2,238
Finished goods 42,620 40,297
- --------------------------------------------------------------------------------
65,104 65,657
Less reserves 3,404 2,949
- --------------------------------------------------------------------------------
$ 61,700 $ 62,708
- --------------------------------------------------------------------------------
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 and
accelerated methods over estimated useful lives, which range from 3 to 30 years.
Upon retirement or disposition, cost and the related accumulated depreciation
are removed from the accounts and any resulting gain or loss is recognized in
operating results.
F-7
Property, plant and equipment attributable to continuing operations at the end
of the respective years consist of the following:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Property and improvements $ 1,423 $ 1,423
Buildings and improvements 21,861 19,303
Furniture, fixtures and equipment 86,221 82,994
- --------------------------------------------------------------------------------
109,505 103,720
Less accumulated depreciation 73,626 66,351
- --------------------------------------------------------------------------------
$ 35,879 $ 37,369
- --------------------------------------------------------------------------------
Intangible Assets
Intangible assets are stated at cost less accumulated amortization. Amortization
is computed using the straight-line method with periods ranging from 15 to 40
years for goodwill and 3 to 16 years for patents, trademarks and other
intangible assets.
Intangible assets attributable to continuing operations at the end of the
respective years consist of the following:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Goodwill $ 68,830 $ 69,546
Patents, trademarks and other 4,275 4,122
- --------------------------------------------------------------------------------
73,105 73,668
Less accumulated amortization 17,817 15,802
- --------------------------------------------------------------------------------
$ 55,288 $ 57,866
- --------------------------------------------------------------------------------
Impairment of Long-Lived Assets
The Company annually assesses the recoverability of property, plant and
equipment and intangible assets, primarily by determining whether the
depreciation and amortization of the balance over its remaining life can be
recovered through projected undiscounted future operating cash flows of the
related businesses. The amount of impairment, if any, is measured primarily
based on the deficiency of projected discounted future operating cash flows
relative to the value of the assets, using a discount rate reflecting the
Company's cost of capital, which currently approximates 10%. In 2001, the
Company recognized a $2.5 million write-down for impaired goodwill related to
the Airguide brand in the Motors business.
Income Taxes
The Company provides for income taxes currently payable, and deferred income
taxes resulting from temporary differences between financial statement and
taxable income, using the asset and liability method.
In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion, or all of the deferred tax
assets, will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the years in which
those temporary differences become deductible. The Company considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment.
Federal and state income taxes are provided on foreign subsidiary income
distributed to, or taxable in, the United States during the year. At September
28, 2001, net undistributed earnings of foreign subsidiaries total approximately
$63,200. A substantial portion of these unremitted earnings have been
permanently invested abroad and no provision for federal or state taxes is made
on these amounts. With respect to that portion of foreign earnings which may be
returned to the United States, provision is made for taxes if the amounts are
significant.
The Company's United States entities file a consolidated federal income tax
return.
F-8
Employee Benefits
The Company and certain of its subsidiaries have various retirement and profit
sharing plans. Pension obligations, which are generally based on compensation
and years of service, are funded by payments to pension fund trustees. The
Company's policy is generally to fund the minimum amount required under the
Employee Retirement Income Security Act of 1974 for plans subject thereto.
Profit sharing and other retirement costs are funded at least annually.
Foreign Operations and Derivative Financial Instruments
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. Gains and losses resulting from
the translation of foreign currency financial statements are classified as
accumulated other comprehensive income (loss), a separate component of
shareholders' equity.
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 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 contracts are used to hedge known foreign currency transactions on a
continuing basis for periods consistent with the Company's exposures. Beginning
September 30, 2000 upon the adoption of SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of SFAS Statement No. 133 and SFAS 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, the effective portion of the gain or
loss on the foreign currency forward contact is reported as a component of other
comprehensive income and reclassified into earnings in the same period during
which the hedged transaction affects earnings. The remaining gain or loss on the
futures contact, if any, is recognized in current earnings during the period of
changes. Adoption of these new accounting standards resulted in a cumulative
after-tax gain of approximately $1.8 million and an accumulated other compre-
hensive loss of approximately $3.0 million in the first quarter of fiscal 2001.
At September 28, 2001, foreign currency contracts with contractual amounts
totaling approximately $6,500 are in place, hedging existing and anticipated
transactions. The contracts, which are executed with major financial institu-
tions, generally mature within one year with no credit loss anticipated for
failure of the counterparties to perform. At September 28, 2001, the fair value
of these instruments is approximately $200 greater than the contractual amount.
Revenue Recognition
Revenue from sales is recognized when all substantial risk of ownership trans-
fers to the customer, which is generally upon shipment of products. Estimated
costs of returns and allowances are accrued when revenue is recognized.
Advertising
The Company expenses substantially all costs related to production of
advertising the first time the advertising takes place. Cooperative promotional
arrangements are accrued in relation to sales.
Advertising expense attributable to continuing operations in 2001, 2000 and 1999
totaled $18,282, $18,435 and $16,258, respectively. Capitalized costs
attributable to continuing operations at September 28, 2001 and September 29,
2000 totaled $1,653 and $1,360, respectively, and primarily include catalogs and
costs of advertising which has not yet run for the first time.
Shipping and Handling Costs
In July 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue
00-10, Accounting for Shipping and Handling Fees and Costs. EITF 00-10 requires
companies to classify as revenues shipping and handling fees billed to
customers. Previously, shipping revenues and shipping expenses were included in
marketing and selling expenses. All periods presented in the Consolidated
Statements of Operations have been reclassified to conform to
F-9
the current year presentation. The adoption of this statement increased net
sales and marketing and selling expenses by $7,114, $7,601 and $5,104 for 2001,
2000 and 1999, respectively.
Shipping and handling expense attributable to continuing operations included in
marketing and selling expense was $12,821, $13,007 and $9,525 for 2001, 2000 and
1999, respectively.
Research and Development
Research and development costs are expensed as incurred.
Stock-Based Compensation
The Company accounts for stock options using the intrinsic value based method.
Accordingly, compensation cost is generally recognized only for stock options
issued with an exercise price lower than the market price on the date of grant.
The Company's practice is to issue options with an exercise price equal to the
fair market value on the date of the grant. The fair value of restricted shares
awarded in excess of the amount paid for such shares is recognized as contingent
compensation and is amortized over 1 to 3 years from the date of award, the
period after which all restrictions generally lapse.
Pending Accounting Changes
In June 2001, the FASB issued SFAS No. 142 Goodwill and Other Intangibles (SFAS
142). SFAS 142 addresses financial accounting and reporting for goodwill and
other intangible assets subsequent to their acquisition. Upon adoption of SFAS
142, goodwill will no longer be subject to amortization over its estimated
useful life. Rather, goodwill will be subject to at least an annual assessment
for impairment by applying a fair-value-based test. Other intangible assets will
be required to be separately recognized if the benefit of the intangible asset
can be sold, transferred, licensed, rented, or exchanged. Amortization of these
intangibles over their useful lives is required. The Company has elected to
adopt SFAS 142 as of the beginning of fiscal 2002. The Company is currently
assessing the impact of adopting SFAS 142 and believes, excluding impairments,
net income for fiscal year 2002 will be increased, since goodwill is no longer
subject to amortization, by approximately $2,500.
In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets (SFAS 144). SFAS 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and provides
additional implementation guidance for assets to be held and used and assets to
be disposed of other than by sale. There will be no financial implication
related to the adoption of SFAS 144, and the guidance will be applied on a
prospective basis. The company is required to adopt SFAS 144 in the first
quarter of fiscal 2003.
Reclassifications
Certain reclassifications have been made to prior years' amounts to conform with
the current year presentation.
2 STRATEGIC CHARGES
In 2001, 2000 and 1999, the Company recorded strategic charges totaling $1,448,
$2,369 and $2,773, respectively.
In 2001 strategic charges included severance, moving and other exit costs
related primarily to the closure and relocation of manufacturing facilities in
the Watercraft business. Severance costs included in the strategic charges
totaled $660 and approximately 88 employees were impacted by these actions.
Unexpended funds at year end related to these actions were approximately $1,020.
In 2000 strategic charges included severance, moving and other exit costs
related primarily to the closure and relocation of a manufacturing facility in
the Motors business. Severance costs included in the strategic charges totaled
$1,469 and approximately 95 employees were impacted by these actions. There are
no unexpended funds related to this action as of the end of 2001.
In 1999, a portion of the charges included severance, moving and recruiting
costs related to the relocation of certain sales and marketing functions of the
Company's Outdoor Equipment business. The balance of the charges were related to
the integration of acquired businesses. Severance costs included in these
charges totaled $1,101 and
F-10
approximately 30 employees were impacted. There are no unexpended funds related
to this action as of the end of 2001.
3 ACQUISITIONS
During 2001, the Company completed the acquisition of two small businesses which
manufacture paddles and marine accessories. The initial purchase price,
including direct expenses, for the acquisitions was approximately $600, of which
approximately $420 was recorded as intangible assets and is being amortized over
25 years.
During 2000, the Company completed the acquisition of the common stock of
Pacific Kayak Ltd., a manufacturer of sit-on-top and sea touring kayaks located
in Auckland, New Zealand. The initial purchase price, including direct expenses,
for the acquisition was approximately $962, of which approximately $584 was
recorded as intangible assets and is being amortized over 25 years. An
additional payment of approximately $70 was earned in 2001 based upon
achievement of specified levels of sales of the acquired business.
During 1999, the Company completed the acquisition of the common stock of
Extrasport, Inc., a privately held manufacturer and marketer of personal
flotation devices. The initial purchase price, including direct expenses, for
the acquisition was approximately $3,300, of which approximately $2,500 was
recorded as intangible assets and is being amortized over 25 years. Additional
payments of approximately $150 for both 2000 and 2001 were earned based upon
achievement of specified levels of sales. An additional payment in 2002 is
dependent upon achievement of specified levels of sales of the acquired
business.
Also during 1999, the Company completed the acquisition of substantially all of
the assets and the assumption of certain liabilities of Escape Sailboat Company
LLC, a privately held manufacturer and marketer of recreational sailboats. The
initial purchase price, including direct expenses, for the acquisition was
approximately $4,800, of which approximately $3,100 was recorded as intangible
assets and is being amortized over 25 years.
In December 1998, the Company completed the acquisition of substantially all of
the assets and the assumption of certain liabilities of True North Paddle &
Necky Kayaks Ltd., a privately held manufacturer and marketer of Necky kayaks,
and an affiliated entity. The initial purchase price, including direct expenses,
for the acquisition was approximately $5,700, of which approximately $3,200 was
recorded as intangible assets and is being amortized over 25 years. Additional
payments of approximately $170 and $600 were earned in 2000 and 1999,
respectively. Additional payments in the years 2002 and 2003 are dependent upon
the achievement of specified levels of sales and profitability of the acquired
business.
All acquisitions were accounted for using the purchase method and, accordingly,
the Consolidated Financial Statements include the results of operations since
the respective dates of acquisition. Additional payments, if required, will
increase intangible assets.
4 Sale of Fishing Business
In March 2000, the Company sold its Fishing business. As a result, operations
and related assets and liabilities of the Fishing group have been classified as
discontinued for all periods presented herein. The sale price totaled $47,279,
including $14,056 of accounts receivable retained by the Company and $2,367 of
debt assumed by the buyer. The Company recorded a loss of $24,418, net of tax,
related to the sale of the business, taking into account operating results from
the measurement date to the date of disposal. In addition, the Company recorded
an after tax loss from operations up to the measurement date of $940 in 2000, an
after tax gain of $1,161 in 1999.
Net sales of the Fishing group were $32,667 and $59,184 for 2000 and 1999,
respectively. Interest expense of $90 and $154 that is directly attributable to
the Fishing group is allocated to discontinued operations.
F-11
5 INDEBTEDNESS
Short-term debt at the end of the respective years consists of the following:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Commercial paper and bank loans $ 49,643 $ 53,434
Current maturities of long-term debt 13,342 6,028
Less short-term debt to be refinanced 50,000 --
- --------------------------------------------------------------------------------
$ 12,985 $ 59,462
- --------------------------------------------------------------------------------
Short-term credit facilities provide for borrowings with interest rates set
periodically by reference to market rates. Commercial paper rates are set by
competitive bidding. The weighted average interest rate on short-term
indebtedness was 5.8% and 7.6% at September 28, 2001 and September 29, 2000,
respectively. The Company's primary facility is a $70,000 revolving credit
agreement expiring in 2004, which includes a maximum amount of $30,000 in
support of commercial paper issuance. The Company has lines of credit, both
foreign and domestic, totaling $92,500 of which $33,825 is available at
September 28, 2001. The Company also utilizes letters of credit for trade
financing purposes.
Long-term debt at the end of the respective years consists of the following:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
1998 senior notes $ 18,800 $ 16,176
1996 senior notes 23,700 29,700
Short-term debt to be refinanced 50,000 --
Other long-term notes, maturing through
January 2002 5,392 6,009
- --------------------------------------------------------------------------------
97,892 51,885
Less current maturities 13,342 6,028
- --------------------------------------------------------------------------------
$ 84,550 $ 45,857
- --------------------------------------------------------------------------------
In December 2001, subsequent to the end of the 2001 fiscal year, the Company
issued unsecured notes totaling $50,000 with an interest rate of 7.82%. The
senior notes have annual principal payments of $10,000 beginning December 13,
2004 with a final payment due December 13, 2008. Proceeds from the issuance of
the senior notes were used to reduce outstanding indebtedness under the
Company's primary revolving credit facility. Outstanding short-term debt
totaling $50,000 at September 28, 2001 is classified as long-term in
anticipation of refinancing with the proceeds of the senior notes.
In 1998, the Company issued unsecured senior notes totaling $25,000 with an
interest rate of 7.15%. Simultaneous with the commitment of the 1998 senior
notes, the Company executed a foreign currency swap, denominating in Swiss
francs all principal and interest payments required under the 1998 senior notes.
The effective interest rate paid on the 1998 senior notes as a result of the
currency swap was 4.32%. The Company terminated the currency swap in December
2000. A portion of the proceeds from the divestiture of the Fishing business was
used to make an unscheduled principal payment of $5,335 in March 2000. The 1998
senior notes have annual principal payments of $2,000 to $7,000 beginning
October 2001 with a final payment due October 2007.
The Company financed a portion of the initial purchase price for the common
stock of Uwatec AG in 1997 with a note from the sellers. Interest on the
deferred amount is payable annually at 6%. This obligation is denominated in
Swiss francs. The outstanding balance of $5,214 is due in 2002. A corresponding
amount of the Company's primary revolving credit facility is reserved in support
of this obligation through issuance of a letter of credit.
In 1996, the Company issued unsecured senior notes totaling $30,000 with an
interest rate of 7.77% and $15,000 with an interest rate of 6.98%. A portion of
the proceeds from the divestiture of the Fishing business was used to make an
unscheduled principal payment of $9,800 in March 2000. Total annual principal
payments ranging from $5,500 to $7,500 are due beginning in October 2000 through
2006.
F-12
Aggregate scheduled maturities of long-term debt in each of the five years
ending September 2006 are as follows:
- --------------------------------------------------------------------------------
Year
- --------------------------------------------------------------------------------
2002 $13,342
2003 8,050
2004 9,500
2005 15,700
2006 13,500
Thereafter 37,800
- --------------------------------------------------------------------------------
Interest paid was $9,178, $10,471 and $9,740 for 2001, 2000 and 1999,
respectively.
Based on the borrowing rates currently available to the Company for debt with
similar terms and average maturities, the fair value of the Company's long-term
debt as of September 28, 2001 and September 29, 2000 is approximately $98,300
and $53,000, respectively. The carrying value of all other financial instruments
approximates the fair value.
Certain of the Company's loan agreements require that Samuel C. Johnson, members
of his family and related entities (hereinafter the Johnson Family) continue to
own stock having votes sufficient to elect a 51% majority of the directors. At
September 28, 2001, the Johnson Family held approximately 3,380,000 shares or
49% of the Class A common stock, approximately 1,168,000 shares or 96% 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. The Company is in compliance with the restrictive
covenants of such agreements, as amended from time to time.
6 Leases and Other Commitments
The Company leases certain operating facilities and machinery and equipment
under long-term, noncancelable operating leases. Future minimum rental
commitments under noncancelable operating leases attributable to continuing
operations having an initial term in excess of one year at September 28, 2001
are as follows:
- --------------------------------------------------------------------------------
Year
- --------------------------------------------------------------------------------
2002 $5,600
2003 3,800
2004 2,600
2005 2,200
2006 2,100
Thereafter 7,600
- --------------------------------------------------------------------------------
Rental expense attributable to continuing operations under all leases was
approximately $6,739, $6,727 and $6,438 for 2001, 2000 and 1999, respectively.
The Company makes commitments in a broad variety of areas, including capital
expenditures, contracts for services, sponsorship of broadcast media and supply
of finished products and components, all of which are in the ordinary course of
business.
F-13
7 INCOME TAXES
Income tax expense (benefit) attributable to continuing operations for the
respective years consists of the following:
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Current:
Federal $ -- $ 17 $ 34
State 101 490 683
Foreign 5,301 6,572 3,489
Deferred (2,922) (374) (48)
- --------------------------------------------------------------------------------
$ 2,480 $ 6,705 $ 4,158
- --------------------------------------------------------------------------------
The significant components of deferred tax expense (benefit) attributable to
continuing operations are as follows:
- --------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Deferred tax expense (benefit) (exclusive of effects of
other components listed below) $ (3,185) $ (822) $ 89
Increase (decrease) in beginning of the year balance of
the valuation allowance for deferred tax assets 263 448 (137)
- --------------------------------------------------------------------------------------------------------------------
$ (2,922) $ (374) $ (48)
- --------------------------------------------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities attributable to continuing
operations at the end of the respective years are presented below:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Deferred tax assets:
Inventories $ 2,089 $ 1,966
Compensation 2,978 3,502
Foreign tax credit carryforwards 3,761 3,791
Net operating loss carryforwards 21,562 16,808
Other 5,138 5,869
- --------------------------------------------------------------------------------
Total gross deferred tax assets 35,528 31,936
Less valuation allowance 8,046 7,783
- --------------------------------------------------------------------------------
27,482 24,153
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Foreign statutory reserves 1,867 1,952
Goodwill and other intangibles 769 277
- --------------------------------------------------------------------------------
Total deferred tax liabilities 2,636 2,229
- --------------------------------------------------------------------------------
Net deferred tax asset $ 24,846 $ 21,924
- --------------------------------------------------------------------------------
Deferred tax assets relating to net operating losses of discontinued operation
of $5,555 has been reflected as assets of continuing operations in 2000 as the
benefit will ultimately be realized by the continuing operations.
F-14
Following is the income (loss) from continuing operations before income taxes
for domestic and foreign operations:
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
United States $ (5,719) $ (1,436) $ (1,269)
Foreign 11,809 16,516 11,288
- --------------------------------------------------------------------------------
$ 6,090 $ 15,080 $ 10,019
- --------------------------------------------------------------------------------
The significant differences between the statutory federal tax rate and the
effective income tax rates for income from continuing operations are as follows:
- --------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Statutory U.S. federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit 0.9 3.8 0.7
Foreign rate differential 1.3 1.4 5.1
Change in beginning of year valuation allowance 4.3 3.0 --
Foreign operating losses -- 0.6 1.9
Other 0.2 1.7 (0.2)
- --------------------------------------------------------------------------------------------------------------------
40.7% 44.5% 41.5%
- --------------------------------------------------------------------------------------------------------------------
At September 28, 2001, the Company has $3,761 of foreign tax credit
carryforwards available to be offset against future U.S. tax liability. The
credits expire in 2002 through 2007 if not utilized. These carryforwards have
been fully reserved for in the valuation allowance.
At September 28, 2001, the Company has a U.S. federal operating loss
carryforward of $40,542 and various state net operating loss carryforwards.
During 2001, 2000 and 1999, foreign net operating loss carryforwards were
utilized, resulting in a reduction in income tax expense of $32, $152 and $137,
respectively. In addition, certain of the Company's foreign subsidiaries have
net operating loss carryforwards totaling $3,120. These amounts are available to
offset future taxable income over the next 14 to 20 years and are anticipated to
be utilized during this period.
Taxes paid attributable to continuing operations were $4,337, $9,935 and $6,648
for 2001, 2000 and 1999, respectively.
8 EMPLOYEE BENEFITS
Net periodic pension cost for noncontributory defined benefit pension plans
includes the following components.
- -----------------------------------------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Service cost $ 343 $ 315 $ 273
Interest on projected benefit obligation 792 763 713
Less return on plan assets 631 592 558
Amortization of unrecognized:
Net loss 1 4 4
Prior service cost 26 26 26
Transition asset (80) (81) (81)
- -----------------------------------------------------------------------------------------------------
Net amount recognized $ 451 $ 435 $ 377
- -----------------------------------------------------------------------------------------------------
F-15
The following provides a reconciliation of the changes in the plans benefit
obligation and fair value of assets for 2001 and 2000 and a statement of the
funded status at the end of each year:
- ---------------------------------------------------------------------------------------------------
2001 2000
- ---------------------------------------------------------------------------------------------------
Benefit obligation:
Benefit obligation at beginning of year $ 10,332 $ 9,604
Service cost 343 315
Interest cost 792 763
Actuarial (gain) loss 1,094 259
Benefits paid (632) (609)
- ---------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 11,929 $ 10,332
- ---------------------------------------------------------------------------------------------------
Fair value of plan assets:
Fair value of plan assets at beginning of year $ 8,620 $ 8,070
Actual return on plan assets (582) 888
Company contributions 278 271
Benefits paid (632) (609)
- ---------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 7,684 $ 8,620
- ---------------------------------------------------------------------------------------------------
Funded status:
Funded status of the plan $ (4,245) $ (1,712)
Unrecognized net (gain) loss 2,084 80
Unrecognized prior service cost 123 148
Unrecognized transition asset (211) (291)
- ---------------------------------------------------------------------------------------------------
Net liability recognized $ (2,249) $ (1,775)
- ---------------------------------------------------------------------------------------------------
The following summarizes the components of the net liability recognized in the
consolidated balance sheets at the end of the respective years:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Prepaid benefit cost $ -- $ --
Accrued benefit liability (2,249) (1,775)
- --------------------------------------------------------------------------------
Net liability recognized $ (2,249) $ (1,775)
- --------------------------------------------------------------------------------
Plan assets are invested primarily in stock and bond mutual funds and insurance
contracts.
Actuarial assumptions used to determine the projected benefit obligation are as
follows:
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Discount rate 7.25% 8% 8%
Long-term rate of return 8 8 8
Average salary increase rate 5 5 5
- --------------------------------------------------------------------------------
A majority of the Company's full-time employees are covered by profit sharing
and defined contribution programs. Participating entities determine profit
sharing distributions under various performance and service based formulas.
9 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.
F-16
10 COMMON STOCK
Common stock at the end of the respective years were as follows:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Class A, $.05 par value:
Authorized 20,000,000 20,000,000
Outstanding 6,946,012 6,924,630
Class B, $.05 par value:
Authorized 3,000,000 3,000,000
Outstanding 1,222,729 1,222,729
- --------------------------------------------------------------------------------
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) 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 2001, no shares of Class B common stock were converted into Class
A common stock. During 2000 and 1999, respectively, 132 and 1,000 shares of
Class B common stock were converted into Class A common stock.
11 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. 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
four years from the date of grant. Stock options generally have a term of 10
years. Current plans also allow for issuance of restricted stock or stock
appreciation rights in lieu of options. Grants of restricted shares are not
significant in any year presented. No stock appreciation rights have been
granted.
A summary of stock option activity related to the Company's plans is as follows:
- --------------------------------------------------------------------------------
Weighted Average
Shares Exercise Price
- --------------------------------------------------------------------------------
Outstanding at October 2, 1998 602,061 $17.43
Granted 353,000 8.53
Cancelled (176,224) 14.67
- --------------------------------------------------------------------------------
Outstanding at October 1, 1999 778,837 14.02
Granted 268,500 7.58
Cancelled (95,107) 15.23
- --------------------------------------------------------------------------------
Outstanding at September 29, 2000 952,230 $12.08
Granted 235,000 5.50
Cancelled (100,435) 17.00
- --------------------------------------------------------------------------------
Outstanding at September 28, 2001 1,086,795 $10.20
- --------------------------------------------------------------------------------
F-17
The range of options outstanding at September 28, 2001 is as follows:
- ---------------------------------------------------------------------------------------------------------------------
Price Range Number of Options Weighted Average Exercise Weighted Average Remaining
per Share Outstanding/Exercisable Price Outstanding/Exercisable Contractual Life (in years)
- ---------------------------------------------------------------------------------------------------------------------
$ 5.31 - 11.50 820,999/331,461 $ 7.47/$8.59 8.20
$12.94 - 17.50 156,222/156,222 $ 16.59/$16.59 5.75
$18.63 - 24.38 109,574/109,574 $ 21.54/$21.54 2.92
- ---------------------------------------------------------------------------------------------------------------------
1,086,795/597,257 $ 10.20/$13.06 7.31
- ---------------------------------------------------------------------------------------------------------------------
The weighted average fair market value of options granted during the year was
$2.18 in 2001, $3.20 in 2000 and $3.31 in 1999.
Had compensation cost for the Company's stock options been determined using the
fair value method, the Company's pro forma operating results would have been as
follows:
- -------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 3,112 $ 7,744 $ 5,221
Diluted earnings per common share from continuing operations $ 0.38 $ 0.95 $ 0.64
- -------------------------------------------------------------------------------------------------------------------
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 35%, a risk free rate equivalent to five year U.S.
Treasury securities and an expected life of five years. The pro forma operating
results reflect only options granted after 1995.
The Company's employee stock purchase plan provides for the issuance of up to
150,000 shares of Class A common stock at a purchase price of not less than 85%
of the fair market value at the date of grant. During 2001, 2000 and 1999
13,382, 16,701, 13,722 shares, respectively, were issued under this plan.
12 RELATED PARTY Transactions
Various transactions are conducted between the Company and organizations
controlled by the Johnson Family. These include consulting services, office
rental, royalties and certain administrative activities. Total net costs of
these transactions are $546, $542, $474 for 2001, 2000 and 1999, respectively.
13 SEGMENTS OF BUSINESS
The Company conducts its worldwide operations through separate global business
units, each of which represent major product lines. Operations are conducted in
the United States and various foreign countries, primarily in Europe, Canada and
the Pacific Basin.
Net sales and operating profit include both sales to customers, as reported in
the Company's consolidated statements of operations, and interunit transfers,
which are priced to recover cost plus an appropriate profit margin. Identifiable
assets represent assets that are used in the Company's operations in each
business unit at the end of the years presented. There were no concentrations in
revenue from a particular customer, product or geographic area in each of the
years presented.
F-18
A summary of the Company's continuing operations by business segment is
presented below:
- -----------------------------------------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Net sales:
Outdoor equipment:
Unaffiliated customers $ 114,875 $ 104,052 $ 92,951
Interunit transfers 89 67 14
Watercraft:
Unaffiliated customers 85,841 90,178 70,160
Interunit transfers 343 397 260
Diving:
Unaffiliated customers 80,426 82,840 80,610
Interunit transfers 62 5 9
Motors:
Unaffiliated customers 64,446 76,680 64,671
Interunit transfers 539 1,363 1,783
Other 49 1,139 1,806
Eliminations (1,033) (1,832) (2,066)
- -----------------------------------------------------------------------------------------------------
$ 345,637 $ 354,889 $ 310,198
=====================================================================================================
Operating profit (loss):
Outdoor equipment $ 12,015 $ 8,182 $ 3,546
Watercraft 1,293 10,327 12,598
Diving 11,638 10,832 4,749
Motors 231 3,936 3,497
Other (9,459) (8,558) (4,877)
- -----------------------------------------------------------------------------------------------------
$ 15,718 $ 24,719 $ 19,513
=====================================================================================================
Identifiable assets:
Outdoor equipment $ 49,027 $ 49,512
Watercraft 65,147 63,394
Diving 85,393 87,818
Motors 22,819 30,208
Other 22,527 27,039
- ---------------------------------------------------------------------------------
$ 244,913 $ 257,971
=================================================================================
F-19
A summary of the Company's continuing operations by geographic area is presented
below:
- -----------------------------------------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Net sales:
United States:
Unaffiliated customers $ 228,491 $ 239,079 $ 195,461
Interarea transfers 5,828 6,540 6,622
Europe:
Unaffiliated customers 89,995 88,567 90,772
Interarea transfers 7,267 7,800 6,510
Other 27,151 27,243 23,965
Interarea transfers 7,170 7,863 5,495
Eliminations (20,265) (22,203) (18,627)
- -----------------------------------------------------------------------------------------------------
$ 345,637 $ 354,889 $ 310,198
=====================================================================================================
Identifiable assets:
United States $ 133,659 $ 148,186
Europe 94,490 91,684
Other 16,764 18,101
- ---------------------------------------------------------------------------------
$ 244,913 $ 257,971
=================================================================================
14 VALUATION AND QUALIFYING ACCOUNTS
The following summarizes changes to valuation and qualifying accounts:
- --------------------------------------------------------------------------------------------------------------------
Additions Reserves of
Balance at Charged to Businesses Balance
Beginning Costs and Acquired Less at End
of Year Expenses or Sold Deductions of Year
- --------------------------------------------------------------------------------------------------------------------
Year ended September 28, 2001:
Allowance for doubtful accounts $ 3,895 $ 2,460 $ -- $ 2,616 $ 3,739
Reserves for inventory valuation 2,949 1,529 -- 1,074 3,404
Year ended September 29, 2000
Allowance for doubtful accounts 3,236 1,812 -- 1,153 3,895
Reserves for inventory valuation 4,911 853 -- 2,815 2,949
Year ended October 1, 1999:
Allowance for doubtful accounts 2,153 2,161 14 1,092 3,236
Reserves for inventory valuation 5,196 801 -- 1,086 4,911
- --------------------------------------------------------------------------------------------------------------------
Deductions include the net impact of foreign currency fluctuations on the
respective accounts.
F-20
15 EARNINGS PER SHARE
Basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share.
The following sets forth the computation of basic and diluted earnings per
common share:
- --------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations before cumulative
effect of change in accounting principle for
basic and diluted earnings per share $3,610 $8,375 $5,861
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 8,161,624 8,139,340 8,108,781
Less nonvested restricted stock 15,162 17,265 12,206
- --------------------------------------------------------------------------------------------------------------------
Basic average common shares 8,146,462 8,122,075 8,096,575
Dilutive stock options and restricted stock 23,227 8,208 11,653
- --------------------------------------------------------------------------------------------------------------------
Diluted average common shares 8,169,739 8,130,283 8,108,228
- --------------------------------------------------------------------------------------------------------------------
Basic earnings per common share from continuing operations
before cumulative effect of change in accounting principle $0.66 $1.03 $0.72
- --------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share from continuing operations
before cumulative effect of change in accounting principle $0.66 $1.03 $0.72
- --------------------------------------------------------------------------------------------------------------------
16 LITIGATION
The Company is subject to various legal actions and proceedings in the normal
course of business, including those related to 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 will have a material adverse effect on the financial condition,
results of operations, liquidity or cash flows of the Company.
17 SUBSEQUENT EVENT
In November 2001, subsequent to the end of the 2001 fiscal year, the Company
completed the sale and leaseback of their headquarters facility in Sturtevant,
Wisconsin to an affiliated party. Proceeds from the sale were $5.0 million.
F-21
18 QUARTERLY FINANCIAL SUMMARY (unaudited)
The following summarizes quarterly operating results:
- ---------------------------------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
- ---------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Net sales $ 58,750 $ 57,299 $ 98,719 $ 98,734 $ 113,927 $ 116,662 $ 74,241 $ 82,194
Gross profit 23,324 23,010 39,358 41,101 46,552 47,996 27,469 30,706
Operating profit (loss) (3,569) 139 6,595 9,584 13,000 13,912 (308) 1,084
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations before
cumulative effect of change
in accounting principle
(3,229) (1,035) 2,203 3,896 6,283 5,958 (1,647) (444)
Loss from discontinued
operations -- (940) -- -- -- -- -- --
Loss on disposal of
discontinued operations -- (23,109) -- (1,309) -- -- -- --
Cumulative effect of change
in accounting principle,
net of tax 1,755 -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,474) $ (25,084)$ 2,203 $ 2,587 $ 6,283 $ 5,958 $ (1,647) $ (444)
- ---------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per
common share:
Continuing operations $ (0.40) $ (0.13) $ 0.27 $ 0.48 $ 0.77 $ 0.73 $ (0.20) $ (0.05)
Discontinued operations -- (2.96) -- (0.16) -- -- -- --
Cumulative effect of
change in accounting
principle, net of tax 0.22 -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.18) $ (3.09) $ 0.27 $ 0.32 $ 0.77 $ 0.73 $ (0.20) $ (0.05)
- ---------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per
common share:
Continuing operations $ (0.40) $ (0.13) $ 0.27 $ 0.48 $ 0.77 $ 0.73 $ (0.20) $ (0.05)
Discontinued operations -- (2.96) -- (0.16) -- -- -- --
Cumulative effect of
change in accounting
principle, net of tax 0.22 -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.18) $ (3.09) $ 0.27 $ 0.32 $ 0.77 $ 0.73 $ (0.20) $ (0.05)
- ---------------------------------------------------------------------------------------------------------------------
F-22