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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 27, 2002
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)
555 Main Street, Racine, Wisconsin 53403
(Address of principal executive offices)
(262) 631-6600
(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. [ X ]
As of November 1, 2002, 7,112,488 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 $35,653,472 on November 1, 2002.
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [ ] No [ X ]
The aggregate market value of voting stock of the Registrant held by
nonaffiliates of the Registrant was approximately $45,075,294 on March 29, 2002.
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DOCUMENTS INCORPORATED BY REFERENCE
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Part and Item Number of Form 10-K into
Document which Incorporated
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Johnson Outdoors Inc. Notice of Part III, Items 10, 11, 12 and 13
Annual Meeting of Shareholders
and Proxy Statement for the Annual
Meeting of Shareholders to be
held February 19, 2003.
* * * * * * * * * * * * * * * * * * *
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 16
Financial Statements and Supplementary Data 17
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 17
Directors and Executive Officers of the Registrant 17
Executive Compensation 17
Security Ownership of Certain Beneficial Owners and Management 17
Certain Relationships and Related Transactions 18
Controls and Procedures 18
Exhibits, Financial Statement Schedules and Reports on Form 8-K 18
Signatures 20
Certifications 21
Exhibit Index 23
Consolidated Financial Statements F-1
Forward Looking Statements
Certain matters discussed in this 2002 Form 10-K and in the accompanying 2002
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, the
success of suppliers and customers, the ability of the Company to deploy its
capital successfully 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 2002 Form 10-K and in the accompanying 2002
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 dive stores worldwide. These
specialty dive stores generally provide a wide range of services to divers,
including sales, instruction, travel 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 hundreds of
patents on proprietary products. Consumer advertising focuses on building the
brand and communicating exclusive features and benefits of the Scubapro/Uwatec
product lines. The companies advertising and dealer network reinforce the
Scubapro/Uwatec brands position as the industry's high quality and innovation
leader. The Company advertises its equipment in diving magazines, via website
and through dive specialty stores.
The Company also manufactures and markets diving buoyancy compensators under the
Scubapro brand.
The Company maintains manufacturing and assembly facilities in Switzerland,
Mexico, Italy and Indonesia and procures a majority of its proprietary 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; the Dimension brand of kayaks; and other paddle and
watercraft accessory brands.
-1-
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 five locations in the United
States, one location in Canada and in New Zealand. The Company is also active in
Europe with most of the brands noted above.
The North American market for both canoes and kayaks has slowed over the past
year along with the economy. The Company believes, based on industry and other
data, that it has grown market share and continues to be 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 Eureka! military, commercial
and consumer tents and backpacks; Camp Trails backpacks; and Silva field
compasses.
Eureka! consumer tents and packs 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 and fiberglass
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 Australia as well as by
distribution agreement in Europe. Eureka! commercial tents include party tents,
sold primarily to general rental stores, and other commercial tents sold
directly to tent erectors. Commercial tents are manufactured by the Company in
the 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 expired in August 2002. The Company
has open deliveries on orders placed before the contract expired. The Army
contract was for five years (base year and an option for four additional
ordering periods). The first three optional ordering periods were exercised and
the Army is currently in the final ordering period, which expires 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 U.S. Armed Forces are a significant
customer to the Outdoor Equipment business. Interruption or loss of the military
business could have a significant impact on sales and operating results of this
business. The Company has submitted a bid on a replacement contract for the
largest portion of its current military business and, based on its excellent
relationship and past performance, is optimistic regarding the potential for
additional contracts. The Company expects a decision on the open bid to be made
in 2003.
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.
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.
In September 2002, the Company sold its Jack Wolfskin business (consisting of
the marketing of high quality technical outdoor clothing, footwear, camping
tents, backpacks, travel gear and accessories). The Company's North American
Jack Wolfskin operations were not included in the sale. The Company plans to
exit these operations over the next year. See Note 4 to the Consolidated
Financial Statements for additional information.
-2-
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, catalogs such as Bass Pro Shops and Cabelas, sporting goods
specialty stores, marine distributors, and original equipment manufacturers
(OEM) including Ranger(R) Boats, Lowe, Stratos/Javilin. 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 generally been flat over a number of
years, the Company has been able to gain share by emphasizing marketing, product
innovation and original equipment manufacturer sales.
In 2002, the Company rebranded its compass line of products to Minn Kota and
discontinued use of the Airguide product line. The Minn Kota compasses are sold
through the same channels as the Company's Motors business. 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 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 5 to the Consolidated Financial Statements for financial
information.
Financial Information for Business Segments
See Note 14 to the Consolidated Financial Statements for financial information
comparing each business segment.
International Operations
See Note 14 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.
Outdoor Equipment: The Company's brands and products compete in the sporting
goods and specialty segments of the outdoor equipment market. Competitive brands
with a strong position in the sporting goods channel include Coleman, Jansport
and private label brands. The Company also competes 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.
-3-
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 27, 2002, the Company had approximately 1,300 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 $34.8 million at September 27, 2002 and $51.6 million at September
28, 2001. 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.
The Company has an exclusive supply contract with a single vendor for materials
used in its military business. Interruption or loss in the availability of this
material could have an impact on sales and operating results of the Outdoor
Equipment business.
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, generally associated with consolidation and
closure of facilities, totaling $1.7 million, $1.4 million and $2.4 million
impacted operating results in 2002, 2001 and 2000, respectively.
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Year Ended
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September 27, 2002 September 28, 2001 September 29, 2000
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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% 5% 17% (23)% 16% 1%
March 29 42 29 42 28 39
June 34 66 33 83 33 56
September 20 (13) 21 (2) 23 4
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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, 2002,
regarding the executive officers of the Company.
Helen P. Johnson-Leipold, age 45, became Chairman and Chief Executive Officer of
the Company in March 1999. Prior to joining the Company, Ms. Johnson-Leipold was
employed by S.C. Johnson & Son, Inc. (SCJ) for twelve
-4-
years. From September 1998 until March 1999, Ms. Johnson-Leipold was Vice
President, Worldwide Consumer Products-Marketing of SCJ. From October 1997 to
September 1998, she was Vice President, Personal and Home Care Products of SCJ.
Patrick J. O'Brien, age 44, became President and Chief Operating Officer of the
Company in April 1999. Prior to joining the Company, Mr. O'Brien was employed by
SCJ for eighteen years. From October 1997 until March 1999, Mr. O'Brien was Vice
President and General Manager, Home Storage of SCJ.
Paul A. Lehmann, age 49, became Vice President and Chief Financial Officer of
the Company in May 2001. Prior to joining the Company, Mr. Lehmann was employed
by Steelcase North America, Inc. (SCNA) for seven years. From October 1999 to
May 2001, Mr. Lehmann was Vice President, Finance and Strategic Planning of
SCNA. From June 1997 to October 1999, Mr. Lehmann was Vice President, Operations
Finance of SCNA.
Mamdouh Ashour, age 64, has been a Group Vice President of the Company since
October 1997 and President - Worldwide Diving since August 1996. He has been
employed by the Company since 1973.
In December 2002, the Company announced the appointment of Jerry Perkins as the
new Chief Operating Officer effective January 6, 2003. Mr. Perkins succeeds
Patrick J. O'Brien, who accepted a position with S.C. Johnson & Son, Inc. as
Executive Vice President - Europe & Africa Near East effective January 27, 2003.
Mr. O'Brien will remain with the Company through January 24, 2003 to facilitate
the transition.
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 7 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) Genoa, Italy* (Diving)
Antibes, France (Diving) Grand Rapids, Michigan* (Watercraft)
Bad Sakingen, Germany (Diving) Grayling, Michigan* (Watercraft)
Barcelona, Spain (Diving) Greenville, South Carolina (Watercraft)
Basingstoke, Hampshire, Hallwil, Switzerland* (Diving)
England (Diving) Henggart, Switzerland (Diving)
Batam, Indonesia* (Diving) Mankato, Minnesota* (Motors)
Binghamton, New York* Mansonville, Quebec, Canada* (Watercraft)
(Outdoor Equipment) Miami, Florida* (Watercraft)
Burlington, Ontario, Canada Napier, New Zealand (Watercraft)
(Motors, Outdoor Equipment) Old Town, Maine* (Watercraft)
Chatswood, Australia (Diving) Tijuana, Mexico* (Motors, Diving)
Chi Wan, Hong Kong (Diving) Tokyo (Kawasaki), Japan (Diving)
El Cajon, California (Diving)
Ferndale, Washington*
(Watercraft)
The Company's corporate headquarters is located in Racine, Wisconsin.
ITEM 3. LEGAL PROCEEDINGS
See Note 17 to the Consolidated Financial Statements for a discussion of legal
proceedings.
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 27, 2002.
-5-
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 6, 10, 11 and
12 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, 2002, the
Company had 707 holders of record of its Class A common stock and 60 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 27, 2002 and September 28, 2001
is as follows:
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First Quarter Second Quarter Third Quarter Fourth Quarter
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2002 2001 2002 2001 2002 2001 2002 2001
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Stock prices:
High $9.04 $7.00 $10.49 $7.56 $20.20 $8.49 $17.32 $7.39
Low 6.21 4.75 7.47 5.50 9.90 5.90 9.83 5.98
Last 7.95 5.88 9.85 6.13 16.83 6.74 10.90 6.47
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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 27, 2002 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 27 September 28 September 29 October 1 October 2
(thousands, except per share data) 2002 2001 2000 1999 1998
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OPERATING RESULTS (1)
Net sales $ 342,532 $ 345,637 $ 354,889 $ 310,198 $ 274,005
Gross profit 141,054 138,781 144,574 125,774 110,789
Operating expenses (2) 121,303 123,063 119,855 106,261 92,433
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Operating profit 19,751 15,718 24,719 19,513 18,356
Interest expense 6,630 9,085 9,799 9,565 9,631
Other expense (income), net (3) (27,372) 543 (160) (71) (539)
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Income from continuing operations before
income taxes and before cumulative
effect of change in accounting principle 40,493 6,090 15,080 10,019 9,264
Income tax expense 10,185 2,480 6,705 4,158 3,885
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Income from continuing operations before
cumulative effect of change in
accounting principle 30,308 3,610 8,375 5,861 5,379
Income (loss) from discontinued operations -- -- (940) 1,161 (167)
Income (loss) on disposal of discontinued
operations 495 -- (24,418) -- --
Income (loss) from change in accounting
principle (22,876) 1,755 -- -- --
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Net income (loss) $ 7,927 $ 5,365 $ (16,983) $ 7,022 $ 5,212
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Basic earnings (loss) per common share:
Continuing operations $ 3.69 $ 0.44 $ 1.03 $ 0.72 $ 0.66
Discontinued operations 0.06 -- (3.12) 0.15 (0.02)
Effect of change in accounting principle (2.79) 0.22 -- -- --
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Net income (loss) $ 0.96 $ 0.66 $ (2.09) $ 0.87 $ 0.64
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Diluted earnings (loss) per common share:
Continuing operations $ 3.59 $ 0.44 $ 1.03 $ 0.72 $ 0.66
Discontinued operations 0.06 -- (3.12) 0.15 (0.02)
Effect of change in accounting principle (2.71) 0.22 -- -- --
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Net income (loss) $ 0.94 $ 0.66 $ (2.09) $ 0.87 $ 0.64
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Diluted average common shares outstanding 8,430 8,170 8,130 8,108 8,114
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BALANCE SHEET DATA As of
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Current assets (4) $ 192,137 $ 133,180 $ 144,194 $ 185,733 $ 188,224
Total assets 271,285 244,913 257,971 299,025 292,380
Current liabilities (5) 53,589 36,568 46,941 45,072 39,448
Long-term debt, less current maturities 80,195 84,550 45,857 72,744 81,508
Total debt 88,253 97,535 105,319 122,071 124,001
Shareholders' equity 124,145 105,779 100,832 127,178 124,386
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(1) All years include 52 weeks. 2002 includes ten months of the European Jack
Wolfskin business.
(2) Includes strategic charges of $1,707, $1,448, $2,369, $2,773 and $1,388 in
2002, 2001, 2000, 1999 and 1998, respectively.
(3) Includes gain on sale of subsidiary of $27,251 in 2002.
(4) Includes cash of $100,830 in 2002 and net assets of discontinued operations
of $56,114 and $58,462 in 1999 and 1998, respectively.
(5) 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 27, 2002. 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) 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Net sales $342.5 $345.6 $354.9
Gross profit 141.1 138.8 144.6
Operating expenses (1) 121.3 123.1 119.9
Operating profit 19.8 15.7 24.7
Interest expense 6.6 9.1 9.8
Gain on sale of subsidiary 27.3 - -
Income from continuing operations before cumulative effect of
change in accounting principle 30.3 3.6 8.4
Diluted earnings per common share from continuing operations
before cumulative effect of change in accounting
principle (2) 3.59 0.44 1.03
- --------------------------------------------------------------------------------------------------------------------
(1) Includes strategic charges of $1.7 million, $1.4 million and $2.4 million in
2002, 2001 and 2000, respectively.
(2) In 2002, the after tax gain on sale of subsidiary was $2.65 per diluted
share.
2002 vs 2001
Net Sales
Net sales totaled $342.5 million in 2002 compared to $345.6 million in 2001, a
decrease of 0.9%. Sales as measured in United States (U.S.) dollars were
positively impacted by the effects of foreign currencies relative to the U.S.
dollar in comparison to 2001. Excluding the effects of foreign currency
movements, sales decreased 1.5% when compared with 2001. Sales were also
impacted by the sale of the Jack Wolfskin business. In 2002, Jack Wolfskin
sales, which contain ten months of the European Jack Wolfskin business, were
$44.9 million compared to a full year in 2001 of $47.2 million. With the
continued soft economy both in the U.S. and abroad, the Company saw marginal
growth or even contraction in most of its markets. The Company, however, was
able to maintain or increase its share in those markets. Sales were positively
impacted in the Motors business from growth in this category, strong sales from
new products and a recovery in the OEM market, while in the Diving business the
market continued to be negatively impacted by a sluggish travel industry.
Outdoor Equipment business sales decreased 7.4% from 2001 levels. Excluding the
results of the Jack Wolfskin business, sales decreased 9.2% from 2001. The
Outdoor Equipment business benefited from sales in its military tent business,
which increased 2.1% over 2001, while the commercial and consumer businesses had
double digit declines. The consumer tent business is experiencing competition
from the low-price mass market and private label segment of the category. Diving
sales were down 9.8% from 2001, primarily related to declines in the travel
industry. Declines were broad-based as all Diving operating companies in the
U.S. and Europe were down versus prior year. The Motors business was very
strong, with a sales increase of $16.4 million (25.0%) versus the prior year
primarily due to market share gains related to strong new product sales and
recovery in the OEM markets. The Watercraft business experienced continued soft
markets with sales down 3% from a year ago. Sales were also impacted by
transition issues related to the integration of the Necky/Ocean Kayak
operations.
-8-
Operating Results
The Company recognized an operating profit of $19.8 million in 2002 compared to
an operating profit of $15.7 million in 2001. Gross profit margins increased to
41.2% in 2002 from 40.2% in 2001, as improvements in the Motors and Outdoor
Equipment businesses were partially offset by declines in the Watercraft and
Diving businesses. Lower sales volume for 2002 negatively impacted gross margins
in Diving and Watercraft due to unfavorable manufacturing labor and overhead
variances.
Operating expenses, excluding strategic charges, totaled $119.6 million, or
34.9% of sales, in 2002 compared to $121.6 million, or 35.2% of sales, in 2001.
Amortization of acquisition costs were $0.4 million in 2002, compared to $5.3
million in 2001. This decline is the result of the adoption of Financial
Accounting Standard Board No. 142, Goodwill and Other Intangibles (SFAS 142),
during 2002 and a writedown of goodwill of $2.5 million related to the Company's
Airguide brand during 2001. The adoption of SFAS 142 ceased the amortization of
goodwill, which resulted in a decrease in operating expenses of approximately
$2.4 million in 2002.
The Outdoor Equipment business operating profit decreased by $0.1 million, or
1.1%, to $11.9 million in 2002 compared to $12.0 million in 2001. Excluding the
results of the Jack Wolfskin business, operating profit was flat versus 2001.
The Outdoor Equipment business benefited from strength in military tents, offset
by softness in the consumer and commercial tent businesses. The Diving business
saw operating profit decline by $1.1 million in 2002, in line with the sales
decline. Declines in gross profit due to lower sales volume were partially
offset by reductions in operating expenses resulting in an operating profit
margin equal to 2001 at 14.5% of sales. The Motors business had operating
profits of $8.2 million in 2002 compared to $0.2 million in 2001. The increase
was driven by improved gross profit related to production efficiencies from
higher volume, cost savings and improved pricing yield resulting from favorable
changes in product mix and the impact of new products. In addition, 2001
contained a $2.5 million write-down of goodwill related to the Company's
Airguide brand.
The Watercraft business had a decline in operating profit in 2002 to $1.2
million from operating profits of $1.3 million in 2001. Declines in gross profit
related to lower volume and operating company integration issues were nearly
offset by reductions in operating expenses. The decline reveals some successes
in recent restructuring and cost savings measures implemented in the business
over the past year. However, operating profit levels remain significantly lower
than 2000 as the Company continues to work on the trailing affects of
significant growth, over-capacity and the impacts of too much complexity in this
segment of our business. The Company believes the issues related to Watercraft
can and are being fixed, as evidenced by the progress made by Leisure Life,
which had operating profit improvement of $2.0 million over 2001, turning an
operating loss into a modest profit. Improving the Watercraft business is a top
priority. While there remains work to do, the list of challenges is shorter and
less complex than is has been in the past. The Company will continue to
investigate synergistic opportunities in this business over the next year.
The Company recognized strategic charges totaling $1.7 million in 2002, versus
$1.4 million in 2001. In 2002, the Company incurred strategic charges of $0.5
million primarily to increase reserves for doubtful accounts receivable and
excess inventory related to the North American Jack Wolfskin business. The
balance of the 2002 strategic charges were related to the closure and relocation
of two manufacturing facilities in the Watercraft business announced at the end
of 2001. The Company does not anticipate incurring additional strategic charges
related to these actions. In 2001, the Company incurred strategic charges of
$1.4 million from severance, moving and other costs related to the closure and
relocation of a Watercraft manufacturing facility.
Other Income and Expenses
Interest expense decreased $2.5 million in 2002, reflecting a decline in
interest rates from prior year levels and a reduction in working capital needs
versus 2001 levels. Interest income increased $0.4 million to $1.0 million in
2002 from $0.5 million in 2001 due to improved cash flow and proceeds from the
sale of the Jack Wolfskin business. In 2002, the Company recorded a pretax gain
from the sale of the Jack Wolfskin business of $27.3 million.
Results from Continuing Operations
The Company recognized income from continuing operations before cumulative
effect of change in accounting principle of $30.3 million in 2002 or $3.59 per
diluted share, compared to $3.6 million in 2001 or $0.44 per diluted
-9-
share. Included in 2002 income from continuing operations before cumulative
effect of change in accounting principle was a gain on the sale of the Jack
Wolfskin business of $22.4 million, after tax, or $2.65 per diluted share. The
Company recorded income tax expense of $10.2 million in 2002, an effective tax
rate of 25.2%. The decline in the effective tax rate (from 40.7% in 2001) is
mainly due to favorable tax treatment on the sale of the Jack Wolfskin business.
Excluding the impact on the effective tax rate from the sale transaction, the
Company's effective tax rate declined approximately 1.4% due to changes in the
mix of earnings from jurisdictions with higher tax rates to those with lower tax
rates.
Discontinued Operations
In March 2002, the Company recognized a gain from the disposal of discontinued
operations of $0.5 million, net of tax, related to the final accounting on the
sale of the Fishing business, which was sold in March of 2000.
Change in Accounting Principles
Effective September 29, 2001, the Company adopted SFAS 142. In accordance with
the adoption of this new standard, the Company ceased the amortization of
goodwill. If SFAS 142 had been in effect for the prior periods presented, the
Company's income from continuing operations before cumulative effect of change
in accounting principle would have been $6.0 million or $0.73 per diluted share
for the year ended September 28, 2001 and $10.6 million or $1.31 per diluted
share for the year ended September 29, 2000.
As required under SFAS 142, the Company performed an assessment of the carrying
value of goodwill using a number of criteria, including the value of the overall
enterprise as of September 29, 2001. This assessment resulted in a write off of
goodwill totaling $22.9 million, net of tax ($2.71 per diluted share) and has
been reflected as a change in accounting principle. The write off is associated
with the Watercraft ($12.9 million) and Diving ($10.0 million) business units.
Future impairment charges from existing operations or other acquisitions, if
any, will be reflected as an operating expense in the statement of operations.
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 a cumulative effect of change in accounting
principle after tax gain of $1.8 million in 2001.
Net Income
The Company recognized net income of $7.9 million in 2002, or $0.94 per diluted
share, compared to net income of $5.4 million in 2001, or $0.66 per diluted
share.
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 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.
-10-
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 40.7% in 2000 to 40.2% 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.
Operating expenses, excluding strategic charges, totaled $121.6 million, or
35.2% of sales, in 2001 compared to $117.5, or 33.1% 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 streamlined U.S. East coast distribution from five warehouses down to
one and 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. 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.
-11-
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.
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 a cumulative 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.
Results Adjusted for Sale of Subsidiary
The following tables show the adjusted results of the Company's continuing
businesses excluding the gain on the sale, the North America exit costs and the
operating results of the Jack Wolfskin subsidiaries.
Adjusted Results of Continuing Businesses:
- ----------------------------------------------------------------------------------------------
2002 2001 2000
- ----------------------------------------------------------------------------------------------
Net sales $295,718 $295,987 $309,724
Gross profit 122,687 119,736 124,988
Operating profit 14,822 10,621 19,607
Income from continuing businesses before cumulative
effect of change in accounting principle 5,563 798 5,245
Diluted EPS - Continuing businesses $ 0.66 $ 0.10 $ 0.65
- ----------------------------------------------------------------------------------------------
-12-
Reconciliation of Adjusted Earnings per Diluted Share:
- ---------------------------------------------------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------------------------
Income from continuing operations
(according to GAAP) $ 3.59 $ 0.44 $ 1.03
Add back (subtract):
Gain on sale of Jack Wolfskin (2.65) - -
Closing cost for North American Jack Wolfskin
operations 0.05 - -
Jack Wolfskin operating results (0.33) (0.34) (0.38)
- ---------------------------------------------------------------------------------------------
Adjusted income from continuing businesses $ 0.66 $ 0.10 $ 0.65
- ---------------------------------------------------------------------------------------------
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) 2002 2001 2000
- ---------------------------------------------------------------------------
Current assets (1) $ 192.1 $ 133.2 $ 144.2
Current liabilities (2) 53.6 36.6 46.9
- ---------------------------------------------------------------------------
Working capital (2) $ 138.5 $ 96.6 $ 97.3
- ---------------------------------------------------------------------------
Current ratio (2) 3.6:1 3.6:1 3.1:1
- ---------------------------------------------------------------------------
(1) 2002 includes cash of $100.8 million; 2000 excludes net assets of
discontinued operations.
(2) Excludes short-term debt and current maturities of long-term debt.
Cash flows provided by operations totaled $33.8 million in 2002, $15.5 million
in 2001 and $9.8 million in 2000. The Company's improved profitability and
working capital management, contributed to the positive cash flows in 2002.
Increases in accounts payable and other accrued liabilities of $15.2 million and
declines in inventory of $4.8 million contributed to the overall positive cash
flows provided by operations in 2002. The changes in 2002 are exclusive of
changes resulting from the disposal of the Jack Wolfskin business. 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. 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 from profitability and increases in accounts
payable and other accrued liabilities.
Depreciation and amortization charges were $9.1 million in 2002, $13.5 million
in 2001 and $12.5 million in 2000. The adoption of SFAS 142, which ceased the
amortization of goodwill, as well as reduced capital spending accounted for the
decrease in 2002 from 2001. 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 $56.8 million,
($9.6) million and $20.0 million in 2002, 2001 and 2000, respectively. Proceeds
from the sale of the Jack Wolfskin business contributed $59.3 million to the
Company's investing activities, while proceeds from the sale of the Company's
former headquarters facility contributed $5.0 million. Expenditures for
property, plant and equipment were ($7.7) million in 2002, ($9.8) million
-13-
in 2001 and ($14.1) million in 2000. The Company's recurring investments are
primarily related to tooling for new products, facilities and information
systems improvements. In 2003, capital expenditures are anticipated to be
consistent with 2001 levels. These expenditures are expected to be funded by
working capital or existing credit facilities.
The Company received $33.1 million in proceeds from the sale of its 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 and $0.9 million for one business acquired in
2000.
Financing Activities
The following table sets forth the Company's debt and capital structure at the
end of the past three years:
- --------------------------------------------------------------------------------
(millions) 2002 2001 2000
- --------------------------------------------------------------------------------
Current debt $ 8.0 $ 13.0 $ 59.5
Long-term debt 80.2 84.5 45.8
- --------------------------------------------------------------------------------
Total debt 88.2 97.5 105.3
Shareholders' equity 124.1 105.8 100.8
- --------------------------------------------------------------------------------
Total capitalization $ 212.3 $ 203.3 $ 206.1
- --------------------------------------------------------------------------------
Total debt to total capitalization 41.5% 48.0% 51.1%
- --------------------------------------------------------------------------------
Cash flows used for financing activities totaled $8.4 million in 2002, $7.9
million in 2001 and $12.5 million in 2000. In December 2001 the Company
consummated a private placement of long-term debt totaling $50.0 million. Cash
provided by the private placement debt was used to pay down short-term debt of
$48.4 million in 2002. Payments on long-term debt were $11.6 million, $6.8
million and $22.0 million, in 2002, 2001 and 2000, respectively. Included in
2000 was $15.1 million in payments from the proceeds of the sales of the Fishing
business.
At September 27, 2002, the Company had available unused credit facilities in
excess of $77.0 million, which is believed to be adequate for its needs for the
foreseeable future.
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 Euro dollars, Swiss francs, Japanese yen
and Canadian dollars. As the values of the currencies of the foreign countries
in which the Company has operations increase or decrease relative to the U.S.
dollar, the sales, expenses, profits, assets and liabilities of the Company's
foreign operations, as reported in the Company's Consolidated Financial
Statements, increase or decrease, accordingly. 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.
-14-
Interest Rates
The Company's debt structure and interest rate risk are managed through the use
of fixed and floating rate debt. The Company's primary exposure is to U.S.
interest rates. The Company also periodically enters into interest rate swaps,
caps or collars to hedge its exposure and lower financing costs.
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 27, 2002:
- -----------------------------------------------------------------------------
Estimated Impact on
- -----------------------------------------------------------------------------
Earnings Before Income
(millions) Fair Value Taxes
- -----------------------------------------------------------------------------
Foreign exchange rate instruments - -
Interest rate instruments $2.3 $0.9
- -----------------------------------------------------------------------------
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.
Critical Accounting Policies and Estimates
The Company's management discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
footnote disclosures. On an on-going basis, the Company evaluates its estimates,
including those related to customer programs and incentives, product returns,
bad debts, inventories, intangible assets, income taxes, warranty obligations,
pensions and other post-retirement benefits, and litigation. The Company bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
-15-
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Allowance for Doubtful Accounts
The Company recognizes revenue when title and risk of ownership have passed to
the buyer. Allowances for doubtful accounts are estimated at the individual
operating companies based on estimates of losses related to customer receivable
balances. Estimates are developed by using standard quantitative measures based
on historical losses, adjusting for current economic conditions and, in some
cases, evaluating specific customer accounts for risk of loss. The establishment
of reserves requires the use of judgment and assumptions regarding the potential
for losses on receivable balances. Though the Company considers these balances
adequate and proper, changes in economic conditions in specific markets in which
the Company operates could have a favorable or unfavorable effect on reserve
balances required.
Inventories
The Company values inventory at the lower of cost (determined using the first-in
first-out method) or market. Management judgment is required to determine the
reserve for obsolete or excess inventory. Inventory on hand may exceed future
demand either because the product is outdated or because the amount on hand is
more than can be used to meet future needs. Inventory reserves are estimated at
the individual operating companies using standard quantitative measures based on
criteria established by the Company. The Company also considers current forecast
plans, as well as, market and industry conditions in establishing reserve
levels. Though the Company considers these balances to be adequate, changes in
economic conditions, customer inventory levels or competitive conditions could
have a favorable or unfavorable effect on reserve balances required.
Deferred Taxes
The Company records a valuation allowance to reduce its deferred tax assets to
the amount that is more likely than not to be realized. While the Company has
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event the
Company were to determine that it would not be able to realize all or part of
its net deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period such determination was made.
Likewise, should the Company determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded amount, an
adjustment to the deferred tax asset would increase income in the period such
determination was made.
Goodwill and Intangible Impairment
In assessing the recoverability of the Company's goodwill and other intangibles
the Company must make assumptions regarding estimated future cash flows and
other factors to determine the fair value of the respective assets. If these
estimates or their related assumptions change in the future, the Company may be
required to record impairment charges for these assets not previously recorded.
On September 28, 2001 the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," and was required to
analyze its goodwill for impairment issues during the first six months of fiscal
2002, and then on a periodic basis thereafter. As a result of this analysis, the
Company recorded a goodwill impairment charge of $22.9 million, net of tax, in
the second quarter of fiscal 2002.
Warranties
The Company accrues a warranty reserve for estimated costs to provide warranty
services. The Company's estimate of costs to service its warranty obligations is
based on historical experience, expectation of future conditions and known
product issues. To the extent the Company experiences increased warranty claim
activity or increased costs associated with servicing those claims, revisions to
the estimated warranty reserve would be required. The Company engages in product
quality programs and processes, including monitoring and evaluating the quality
of its suppliers, to help minimize warranty obligations.
Pending Accounting Changes
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 are not expected to be any financial
implications related to the adoption of SFAS 144, and the guidance
-16-
will be applied on a prospective basis. The Company is required to adopt SFAS
144 in the first quarter of fiscal 2003.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB No. 4, 44 and
64, Amendment of FASB No. 13, and Technical Corrections (SFAS 145). SFAS 145
clarifies updates and simplifies existing accounting pronouncements related to
gains and losses on extinguishments of debt and lease modifications, among other
items. There are not expected to be any financial implications related to the
adoption of SFAS 145, and the guidance will be applied on a prospective basis.
The Company is required to adopt SFAS 145 in the first quarter of fiscal 2003.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146). SFAS 146 requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. The Company does not anticipate a
significant impact on its results of operations from adopting SFAS 146. The
Company is required to adopt SFAS 146 for exit or disposal activities that are
initiated after December 31, 2002.
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-24.
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, 2003 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, 2003 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 Item 403 of Regulation S-K is included in the
Company's Proxy Statement for its February 19, 2003 Annual Meeting of
Shareholders, which is incorporated herein by reference, under the heading
"Stock Ownership of Management and Others."
Information with respect to Item 201(d) of Regulation S-K as of September 27,
2002 is as follows.
-17-
Equity Compensation Plan Information
- -------------------------------------------------------------------------------------------------------------------
Number of shares remaining
available for future
issuance under equity
Number of shares to be Weighted average compensation plans
issued upon exercise of exercise price of (excluding shares reflected
outstanding options outstanding options in Column A)
- -------------------------------------------------------------------------------------------------------------------
A B C
- -------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans
approved by
shareholders 1,064,019 $9.06 136,602(1)
Equity Compensation Plans not
approved by shareholders
- - -
- -------------------------------------------------------------------------------------------------------------------
(1) All of the available shares under the 1994 Non-Employee Director Stock
Ownership Plan (44,432) and under the 2000 Long-Term Stock Incentive Plan
(92,170) may be issued upon the exercise of stock options or granted as
restricted stock, and, in the case of the 2000 Long-Term Stock Incentive
Plan, as share units.
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, 2003 Annual Meeting of Shareholders, which is
incorporated herein by reference, under the heading "Certain Transactions."
PART IV
ITEM 14. CONTROLS AND PROCEDURES
(a) Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our
management, including the Company's principal executive officer and
principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange
Act Rule 13a-15. Based upon that evaluation, the Company's principal
executive officer and principal financial officer concluded that our
disclosure controls and procedures are effective in alerting them in a
timely manner to material information relating to our Company (including
our consolidated subsidiaries) required to be included in our periodic SEC
filings.
(b) There have been no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to
the date we carried out this evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as a part of this Form 10-K:
Financial Statements
Included in Item 8 of Part II of this Form 10-K are the following
Reports of Independent Auditors
Consolidated Balance Sheets - September 27, 2002 and September 28, 2001
Consolidated Statements of Operations - Years ended September 27, 2002,
September 28, 2001 and September 29, 2000
Consolidated Statements of Shareholders' Equity - Years ended September 27,
2002, September 28, 2001 and September 29, 2000
-18-
Consolidated Statements of Cash Flows - Years ended September 27, 2002,
September 28, 2001 and September 29, 2000
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
On September 13, 2002, the Company filed a Current Report on Form 8-K dated
September 9, 2002 to reflect (under Item 2 of Form 8-K) the Company's
disposition of its Jack Wolfskin business to an affiliate of Bain Capital Fund
VII-E (UK), Limited Partnership pursuant to a Share Purchase and Transfer
Agreement, dated as of August 28, 2002. The report included (under Item 7 of
Form 8-K) the following financial statements: Unaudited Pro Forma Condensed
Consolidated Balance Sheet at June 28, 2002 and Pro Forma Condensed Consolidated
Statements of Operations for the year ended September 28, 2001 and the nine
months ended June 28, 2002.
-19-
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 City of Racine and
State of Wisconsin, on the 16th day of December 2002.
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 16th
day of December 2002.
/s/ Helen P. Johnson-Leipold
- ---------------------------------- Chairman and Chief Executive Officer
(Helen P. Johnson-Leipold) and Director
(Principal Executive Officer)
/s/ Thomas F. Pyle, Jr.
- ---------------------------------- Vice Chairman of the Board
(Thomas F. Pyle, Jr.) and Director
/s/ Samuel C. Johnson Director
- ----------------------------------
(Samuel C. Johnson)
/s/ Gregory E. Lawton Director
- ----------------------------------
(Gregory E. Lawton)
/s/ Terry E. London Director
- ----------------------------------
(Terry E. London)
/s/ John M. Fahey, Jr. Director
- ----------------------------------
(John M. Fahey, Jr.)
/s/ Paul A. Lehmann
- ---------------------------------- Vice President and Chief Financial Officer
(Paul A. Lehmann) (Principal Financial and Accounting Officer)
-20-
CERTIFICATIONS
I, Helen P. Johnson-Leipold, certify that:
1) I have reviewed this Annual Report on Form 10-K of Johnson Outdoors Inc.;
2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report are our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 26, 2002 /s/ Helen P. Johnson-Leipold
-------------------------- ------------------------------------
Helen P. Johnson-Leipold
Chairman and Chief Executive Officer
-21-
I, Paul A. Lehmann, certify that:
1) I have reviewed this Annual Report on Form 10-K of Johnson Outdoors Inc.;
2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report are our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 26, 2002 /s/ Paul A. Lehmann
--------------------------- ------------------------------------------
Paul A. Lehmann
Vice President and Chief Financial Officer
-22-
EXHIBIT INDEX
Exhibit Title
- --------------------------------------------------------------------------------
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(a) Bylaws of the Company as amended through December 16, 2002
3.2(b) Amendment to Bylaws of the Company dated as of
December 16, 2002
3.2(b) Amendment to Bylaws of the Company dated as of
December 16, 2002
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. (Filed as Exhibit 4.6 to the
Company's Form 10-K for the year ended September 28, 2001
and incorporated herein by reference.)
4.7 Consent and Amendment dated of September 6, 2002 to Note
Agreement dated October 1, 1995.
4.8 Note Agreement dated as of September 15, 1997. (Filed as *
Exhibit 4.15 to the Company's Form 10-K for the year
ended October 3, 1997 and incorporated herein by reference.)
4.9 First Amendment dated January 10, 2000 to Note Agreement *
dated September 15, 1997. (Filed as Exhibit 4.10 to the
Company's Form 10-Q for the quarter ended March 31, 2000 and
incorporated herein by reference.)
4.10 Second Amendment dated December 13, 2001 to Note Agreement *
dated September 15, 1997. (Filed as Exhibit 4.9 to the
Company's Form 10-K for the year ended September 28, 2001
and incorporated herein by reference.)
4.11 Consent and Amendment dated as of September 6, 2002 to Note
Agreement dated September 15, 1997.
4.12 3-Year Revolving Credit Agreement dated as of August 31, *
2001. (Filed as Exhibit 4.10 to the Company's Form 10-K
for the year ended September 28, 2001 and incorporated
herein by reference.)
4.13 Amendment No. 1 to 3-Year Revolving Credit Agreement dated *
as of December 18, 2001. (Filed as Exhibit 4.11 to the
Company's Form 10-K for the year ended September 28, 2001
and incorporated herein by reference.)
4.14 Note Agreement dated as of December 13, 2001. (Filed as *
Exhibit 4.12 to the Company's Form 10-K for the year
ended September 28, 2001 and incorporated herein by
reference.)
4.15 Consent and Amendment dated as of September 6, 2002 to 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.)
-23-
Exhibit Title
- --------------------------------------------------------------------------------
10.1 Stock Purchase Agreement, dated as of January 12, 2000, by *
and between Johnson Outdoors Inc. and Berkley Inc.
(Filed as Exhibit 2.1 to the Company's Form 8-K dated March
31, 2000 and incorporated herein by reference.)
10.2 Amendment to Stock Purchase Agreement, dated as of February *
28, 2000, by and between Johnson Outdoors Inc. and
Berkley Inc. (Filed as Exhibit 2.2 to the Company's Form 8-K
dated March 31, 2000 and incorporated herein by reference.)
10.3+ Johnson Outdoors Inc. Amended and Restated 1986 Stock Option *
Plan. (Filed as Exhibit 10 to the Company's Form 10-Q
for the quarter ended July 2, 1993 and incorporated herein
by reference.)
10.4 Registration Rights Agreement regarding Johnson Outdoors *
Inc. common stock issued to the Johnson family prior to
the acquisition of Johnson Diversified, Inc. (Filed as
Exhibit 10.6 to the Company's Form S-1 Registration
Statement No. 33-16998 and incorporated herein by
reference.)
10.5 Registration Rights Agreement regarding Johnson Outdoors *
Inc. Class A common stock held by Mr. Samuel C. Johnson.
(Filed as Exhibit 28 to the Company's Form 10-Q for the
quarter ended March 29, 1991 and incorporated herein by
reference.)
10.6+ Form of Restricted Stock Agreement. (Filed as Exhibit 10.8 *
to the Company's Form S-1 Registration Statement No.
33-23299 and incorporated herein by reference.)
10.7+ Form of Supplemental Retirement Agreement of Johnson *
Diversified, Inc. (Filed as Exhibit 10.9 to the
Company's Form S-1 Registration Statement No. 33-16998 and
incorporated herein by reference.)
10.8+ Johnson Outdoors Retirement and Savings Plan. (Filed as *
Exhibit 10.9 to the Company's Form 10-K for the year
ended September 29, 1989 and incorporated herein by
reference.)
10.9+ Form of Agreement of Indemnity and Exoneration with *
Directors and Officers. (Filed as Exhibit 10.11 to the
Company's Form S-1 Registration Statement No. 33-16998 and
incorporated herein by reference.)
10.10 Consulting and administrative agreements with S. C. Johnson *
& Son, Inc. (Filed as Exhibit 10.12 to the Company's
Form S-1 Registration Statement No. 33-16998 and
incorporated herein by reference.)
10.11+ Johnson Outdoors Inc. 1994 Long-Term Stock Incentive Plan. *
(Filed as Exhibit 4 to the Company's Form S-8
Registration Statement No. 333-88091 and incorporated herein
by reference.)
10.12+ Johnson Outdoors Inc. 1994 Non-Employee Director Stock *
Ownership Plan. (Filed as Exhibit 4 to the Company's
Form S-8 Registration Statement No. 333-88089 and
incorporated herein by reference.)
10.13+ Johnson Outdoors Economic Value Added Bonus Plan (Filed as *
Exhibit 10.15 to the Company's Form 10-K for the year
ended October 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.)
10.15+ Share Purchase and Transfer Agreement, dated as of
August 28, 2002, by and between, among others, Johnson
Outdoors Inc. and an affiliate of Bain Capital Fund VII-E
(UK), Limited Partnership. (Filed as Exhibit 2.1 to the
Company's Form 8-K dated September 9, 2002 and incorporated
herein by reference.)
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 27, 2002. 23.1
Consent of Ernst & Young LLP.
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG LLP.
-24-
Exhibit Title
- --------------------------------------------------------------------------------
99.1 Definitive Proxy Statement for the 2003 Annual Meeting of *
Shareholders. Except to the extent specifically
incorporated herein by reference, the Proxy Statement for
the 2003 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 2003
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.
99.2 Certification of Chairman and CEO pursuant to 18
U.S.C.ss.1350
99.3 Certification of Vice President and CFO pursuant to 18
U.S.C.ss.1350
- -----------------
* Incorporated herein by reference.
+ A management contract or compensatory plan or arrangement.
-25-
Consolidated Financial Statements
Table of Contents Page
- ---------------------------------------------------------- -----------
Report of Management F-1
Reports of Independent Auditors F-1
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
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 auditors, 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 auditors to review the results of their work and to satisfy itself
that their respective responsibilities are being properly discharged. The
independent auditors 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 Vice President and Chief Financial
Officer Officer
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Johnson Outdoors Inc.:
We have audited the accompanying consolidated balance sheet of Johnson Outdoors
Inc. and subsidiaries as of September 27, 2002 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. The financial statements
of Johnson Outdoors Inc. as of September 28, 2001, and for the year then ended
were audited by other auditors who have ceased operations. Those auditors
expressed an unqualified opinion on those financial statements in their report
dated November 8, 2001, except for Notes 5 and 17 as to which the date is
December 21, 2001.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Johnson Outdoors
Inc. and subsidiaries as of September 27, 2002 and the consolidated results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
As discussed above, the financial statements of Johnson Outdoors Inc. as of
September 28, 2001, and for the year then ended were audited by other auditors
who have ceased operations. As described in Note 1, these financial statements
have been revised to include the transitional disclosures required by Statement
of Financial Accounting Standards (Statement) No. 142, Goodwill and Other
Intangible Assets, which was adopted by the Company as of September 29, 2001.
Our audit procedures with respect to the disclosures in Note 1 with respect to
2001 included (a) agreeing the previously reported net income to the previously
issued financial statements and the adjustments to reported net income
representing amortization expense (including any related tax effects) recognized
in those periods
F-1
related to goodwill, as a result of initially applying Statement No. 142 to the
Company's underlying records obtained from management, and (b) testing the
mathematical accuracy of the reconciliation of adjusted net income to reported
net income, and the related earnings-per-share amounts. In our opinion, the
disclosures for 2001 in Note 1 are appropriate. However, we were not engaged to
audit, review, or apply any procedures to the 2001 financial statements of the
Company other than with respect to such disclosures and, accordingly, we do not
express an opinion or any other form of assurance on the 2001 financial
statements taken as a whole.
As explained in Note 1 to the consolidated financial statements, effective
September 29, 2001, the Company changed its method of accounting for goodwill
and other intangible assets.
Ernst & Young LLP
Milwaukee, Wisconsin
November 8, 2002
F-2
The following report is a copy of a report previously issued by Arthur Andersen
LLP in connection with the Company's Annual Report on Form 10-K for the year
ended September 28, 2001. This opinion has not been reissued by Arthur Andersen
LLP.
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.
Arthur Andersen LLP
Milwaukee, Wisconsin
November 8, 2001, except for Notes 5 and 17, as to which the date is December
21, 2001.
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Johnson Outdoors Inc.:
We have audited the consolidated statements of operations, shareholders' equity,
and cash flows for the year 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 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 results of operations of Johnson Outdoors
Inc. and subsidiaries and their cash flows for the year ended September 29,
2000, in conformity with accounting principles generally accepted in the United
States of America.
KPMG LLP
Milwaukee, Wisconsin
November 6, 2000
F-3
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------
September 27 September 28
(thousands, except share data) 2002 2001
- -------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and temporary cash investments $ 100,830 $ 16,069
Accounts receivable less allowance for doubtful
accounts of $4,028 and $3,739, respectively 39,972 45,585
Inventories 42,231 61,700
Deferred income taxes 5,083 5,269
Other current assets 4,021 4,557
- -------------------------------------------------------------------------------------------------------
Total current assets 192,137 133,180
Property, plant and equipment, net 29,611 35,879
Deferred income taxes 19,588 19,577
Intangible assets, net 27,139 55,288
Other assets 2,810 989
- -------------------------------------------------------------------------------------------------------
Total assets $ 271,285 $ 244,913
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $ 8,058 $ 12,985
Accounts payable 13,589 12,157
Accrued liabilities:
Salaries and wages 9,428 5,968
Income taxes 6,567 1,206
Other 24,005 17,237
- -------------------------------------------------------------------------------------------------------
Total current liabilities 61,647 49,553
Long-term debt, less current maturities 80,195 84,550
Other liabilities 5,298 5,031
- -------------------------------------------------------------------------------------------------------
Total liabilities 147,140 139,134
- -------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock: none issued -- --
Common stock:
Class A shares issued:
September 27, 2002, 7,112,155;
September 28, 2001, 6,946,012 355 347
Class B shares issued (convertible into Class A shares):
September 27, 2002, 1,222,729;
September 28, 2001, 1,222,729 61 61
Capital in excess of par value 47,583 44,411
Retained earnings 88,089 80,162
Deferred compensation (22) (44)
Accumulated other comprehensive loss (11,921) (19,158)
- -------------------------------------------------------------------------------------------------------
Total shareholders' equity 124,145 105,779
- -------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 271,285 $ 244,913
- -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-4
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
Year Ended
- --------------------------------------------------------------------------------------------------------------------
September 27 September 28 September 29
(thousands, except per share data) 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Net sales $ 342,532 $ 345,637 $ 354,889
Cost of sales 201,478 206,856 210,315
- --------------------------------------------------------------------------------------------------------------------
Gross profit 141,054 138,781 144,574
- --------------------------------------------------------------------------------------------------------------------
Operating expenses:
Marketing and selling 78,224 78,192 75,446
Administrative management, finance and information
systems 31,929 29,138 28,442
Research and development 6,729 7,565 7,854
Amortization of acquisition costs 374 5,288 2,951
Profit sharing 2,340 1,432 2,793
Strategic charges 1,707 1,448 2,369
- --------------------------------------------------------------------------------------------------------------------
Total operating expenses 121,303 123,063 119,855
- --------------------------------------------------------------------------------------------------------------------
Operating profit 19,751 15,718 24,719
Interest income (968) (548) (421)
Interest expense 6,630 9,085 9,799
Gain on sale of subsidiary (27,251) - -
Other expense, net 847 1,091 261
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes and
cumulative effect of change in accounting principle 40,493 6,090 15,080
Income tax expense 10,185 2,480 6,705
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations before cumulative
effect of change in accounting principle 30,308 3,610 8,375
Loss from discontinued operations, net of income tax
benefit of $563 -- -- (940)
Income (loss) from disposal of discontinued operations,
net of income tax expense (benefit) of $255 and
$(1,840) for 2002 and 2000, respectively 495 -- (24,418)
Income (loss) from effect of change in accounting
principle, net of income tax expense (benefit) of
$(2,200) and $845 for 2002 and 2001, respectively (22,876) 1,755 --
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 7,927 $ 5,365 $ (16,983)
- --------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per common share:
Continuing operations $ 3.69 $ 0.44 $ 1.03
Discontinued operations 0.06 -- (3.12)
Net effect of change in accounting principle (2.79) 0.22 --
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.96 $ 0.66 $ (2.09)
- --------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per common share:
Continuing operations $ 3.59 $ 0.44 $ 1.03
Discontinued operations 0.06 -- (3.12)
Net effect of change in accounting principle (2.71) 0.22 --
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.94 $ 0.66 $ (2.09)
- --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------- -----------------
Accumulated
Capital in Other
Common Excess of Retained Deferred Comprehensive Treasury Comprehensive
(thousands) Stock Par Value Earnings Compensation Loss Stock Income (Loss)
- ------------------------------------------------------------------------------------------------------------- -----------------
BALANCE AT OCTOBER 1, 1999 $406 $44,205 $ 91,832 $ (134) $(9,049) $(82)
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 deferred
compensation -- -- -- 76 -- -- --
Translation adjustment -- -- -- -- (10,346) -- (10,346)
Translation adjustment recognized
in 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 deferred
compensation -- -- -- 83 -- -- --
Translation adjustment -- -- -- -- 2,402 -- 2,402
Translation adjustment recognized
in the cumulative effect of
change in accounting principle -- -- -- -- (2,974) -- --
- ------------------------------------------------------------------------------------------------------------- -----------------
BALANCE AT SEPTEMBER 28, 2001 408 44,411 80,162 (44) (19,158) -- $ 7,767
-----------------
Net income -- -- 7,927 -- -- -- $ 7,927
Issuance of restricted stock -- 60 -- (60) -- -- --
Exercise of stock options 7 1,735 -- -- -- -- --
Issuance of stock under employee
stock purchase plan 1 75 -- -- -- -- --
Amortization of deferred
compensation -- -- -- 82 -- -- --
Translation adjustment -- -- -- -- 4,378 -- 4,378
Translation adjustment recognized
in the gain on sale of Jack
Wolfskin subsidiary -- -- -- -- 3,057 -- --
Additional minimum pension
liability -- -- -- -- (198) -- (198)
Building gain -- 1,302 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------- -----------------
BALANCE AT SEPTEMBER 27, 2002 $416 $47,583 $88,089 $(22) $(11,921) $-- $ 12,107
- ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------
Year Ended
- ------------------------------------------------------------------------------------------------------------------
September 27 September 28 September 29
(thousands) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS
Net income (loss) $ 7,927 $ 5,365 $ (16,983)
Less income (loss) from discontinued operations 495 -- (25,358)
Less income (loss) from cumulative effect of change in
accounting principle (22,876) 1,755 --
- ------------------------------------------------------------------------------------------------------------------
Income from continuing operations before cumulative effect
of change in accounting principle 30,308 3,610 8,375
Adjustments to reconcile income from continuing operations
before cumulative effect of change in accounting
principle to net cash provided by operating
activities of continuing operations:
Depreciation and amortization 9,096 13,516 12,523
Provision for doubtful accounts receivable 1,937 2,460 1,812
Provision for inventory reserves 1,798 1,529 853
Deferred income taxes 4,026 (2,922) (374)
Gain on sale of subsidiary (27,251) -- --
Impairment of goodwill -- 2,526 --
Change in assets and liabilities, net of effect of businesses
acquired or sold:
Accounts receivable (4,488) 6,780 (10,728)
Inventories 4,821 124 (8,358)
Accounts payable and accrued liabilities 15,218 (11,391) 3,910
Other, net (1,661) (760) 1,738
- ------------------------------------------------------------------------------------------------------------------
33,804 15,472 9,751
- ------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Proceeds from sale of business, net of cash 59,295 -- 33,126
Payments for purchase of businesses, net of cash acquired -- (573) (864)
Net additions to property, plant and equipment (7,697) (9,765) (14,075)
Proceeds from sale of property, plant and equipment 5,182 730 1,838
- ------------------------------------------------------------------------------------------------------------------
56,780 (9,608) 20,025
- ------------------------------------------------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES
Proceeds from issuance of senior notes 50,000 -- --
Principal payments on senior notes and other long-term debt (11,604) (6,784) (21,969)
Net change in short-term debt (48,364) (1,143) 9,351
Common stock transactions 1,536 71 97
- ------------------------------------------------------------------------------------------------------------------
(8,432) (7,856) (12,521)
- ------------------------------------------------------------------------------------------------------------------
Effect of foreign currency fluctuations on cash 2,609 698 (1,790)
Net cash used for discontinued operations -- -- (8,076)
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and temporary cash investments 84,761 (1,294) 7,389
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of year 16,069 17,363 9,974
- ------------------------------------------------------------------------------------------------------------------
End of year $ 100,830 $ 16,069 $ 17,363
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated
Financial Statements.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Johnson Outdoors Inc. is an integrated, global outdoor recreation products
company engaged in the design, manufacture and marketing of brand name outdoor
equipment, diving, watercraft and 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.
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, recoverability of goodwill, reserves for sales
returns, reserves for warranty service 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 27, 2002 (hereinafter 2002), September 28, 2001
(hereinafter 2001) and September 27, 2000 (hereinafter 2000) each comprise 52
weeks.
Cash and Temporary Cash Investments
The Company considers all short-term investments in interest-bearing bank
accounts, securities and other instruments with an original maturity of three
months or less to be equivalent to cash.
The Company maintains cash in bank accounts in excess of insured limits. The
Company has not experienced any losses 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:
- ------------------------------------------------------------------------------
2002 2001
- ------------------------------------------------------------------------------
Raw materials $ 17,709 $ 19,892
Work in process 1,072 2,592
Finished goods 25,633 42,620
- ------------------------------------------------------------------------------
44,414 65,104
Less reserves 2,183 3,404
- ------------------------------------------------------------------------------
$ 42,231 $ 61,700
- ------------------------------------------------------------------------------
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-8
Property, plant and equipment at the end of the respective years consist of the
following:
- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Property and improvements $ 1,103 $ 1,423
Buildings and improvements 18,920 21,861
Furniture, fixtures and equipment 80,315 86,221
- --------------------------------------------------------------------------------
100,338 109,505
Less accumulated depreciation 70,727 73,626
- --------------------------------------------------------------------------------
$ 29,611 $ 35,879
- --------------------------------------------------------------------------------
Impairment of Property, Plant and Equipment
The Company annually assesses the recoverability of property, plant and
equipment, primarily by determining whether the depreciation 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%. There was no impairment of property, plant and equipment
during 2002.
Intangible Assets
Intangible assets are stated at cost less accumulated amortization. Amortization
is computed using the straight-line method with periods ranging from 3 to 16
years for patents, trademarks and other intangible assets. Subsequent to
September 28, 2001, goodwill is not subject to amortization.
Intangible assets at the end of the respective years consist of the following:
- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Goodwill $ 38,541 $ 68,830
Patents, trademarks and other 4,840 4,275
- --------------------------------------------------------------------------------
43,381 73,105
Less accumulated amortization 16,242 17,817
- --------------------------------------------------------------------------------
$ 27,139 $ 55,288
- --------------------------------------------------------------------------------
Impairment of Goodwill and Other Intangibles
Effective September 29, 2001, the Company adopted SFAS 142. In accordance with
the adoption of this new standard, the Company ceased the amortization of
goodwill. If SFAS 142 had been in effect for the prior periods presented, the
Company's income from continuing operations before cumulative effect of change
in accounting principle would have been $5,950 or $0.73 per diluted share for
the year ended September 28, 2001 and $10,631 or $1.31 per diluted share for the
year ended September 29, 2000.
As required under SFAS 142, the Company has performed an assessment of the
carrying value of goodwill using a number of criteria, including the value of
the overall enterprise as of September 29, 2001. This assessment resulted in a
write off of goodwill totaling $22,876, net of tax ($2.71 per diluted share) and
has been reflected as a change in accounting principle. The write off is
associated with the Watercraft ($12,900) and Diving ($10,000) business units.
Future impairment charges from existing operations or other acquisitions, if
any, will be reflected as an operating expense in the statement of operations.
In 2001, under the guidance prior to the adoption of SFAS 142, the Company
recognized in operating expenses a $2,526 write-down for impaired goodwill
related to the Airguide brand in the Motors business.
F-9
Income Taxes
The Company provides for income taxes currently payable, and deferred income
taxes resulting from temporary differences between financial statement and
taxable income.
In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion, or all of the deferred tax
assets, will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the years in which
those temporary differences become deductible. The Company considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment.
Federal and state income taxes are provided on foreign subsidiary income
distributed to, or taxable in, the U.S. during the year. At September 27, 2002,
net undistributed earnings of foreign subsidiaries total approximately $91,692.
The Company considers these unremitted earnings to be permanently invested
abroad and no provision for federal or state taxes have been made on these
amounts. In the future, if foreign earnings are returned to the U.S., provision
for income taxes will be made.
The Company's U.S. entities file a consolidated federal income tax return.
Employee Benefits
The Company and certain of its subsidiaries have various retirement and profit
sharing plans. Pension obligations, which are generally based on compensation
and years of service, are funded by payments to pension fund trustees. The
Company's policy is generally to fund the minimum amount required under the
Employee Retirement Income Security Act of 1974 for plans subject thereto.
Profit sharing and other retirement costs are funded at least annually.
Foreign Operations and Related 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 periodically enters
into foreign currency forward contracts. The Company primarily hedges assets,
inventory purchases and loans denominated in foreign currencies. The Company
does not enter into foreign exchange contracts for trading purposes. Gains and
losses on unhedged exposures are recorded in operating results.
The 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
comprehensive loss of approximately $3.0 million in the first quarter of fiscal
2001.
At September 27, 2002, the Company had no foreign currency contracts.
At September 28, 2001, foreign currency contracts with contractual amounts
totaling approximately $6,500 were in place, hedging existing and anticipated
transactions. The contracts, which were executed with major financial
institutions, 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 was approximately $200 greater than the contractual
amount.
F-10
Revenue Recognition
Revenue from sales is recognized when all substantial risk of ownership
transfers to the customer, which is generally upon shipment of products.
Estimated costs of returns and allowances are accrued 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 2002, 2001 and 2000
totaled $16,340, $18,282 and $18,435, respectively. Capitalized costs at
September 27, 2002 and September 28, 2001 totaled $726 and $1,653, respectively,
and primarily include catalogs and costs of advertising which has not yet run
for the first time.
Shipping and Handling Costs
Shipping and handling expense attributable to continuing operations included in
marketing and selling expense was $12,208, $12,821 and $13,007 for 2002, 2001
and 2000, 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
granted with an exercise price lower than the market price on the date of grant.
The Company's practice is to grant 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
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 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 are not expected to be any financial
implications 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.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB No. 4, 44 and
64, Amendment of FASB No. 13, and Technical Corrections (SFAS 145). SFAS 145
clarifies, updates and simplifies existing accounting pronouncements related to
gains and losses on extinguishments of debt and lease modifications, among other
items. There are not expected to be any financial implications related to the
adoption of SFAS 145, and the guidance will be applied on a prospective basis.
The Company is required to adopt SFAS 145 in the first quarter of fiscal 2003.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146). SFAS 146 requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. The Company does not anticipate a
significant impact on its results of operations from adopting this Statement.
The Company is required to adopt SFAS 146 for exit or disposal activities that
are initiated after December 31, 2002.
Reclassifications
Certain reclassifications have been made to prior years' amounts to conform with
the current year presentation.
F-11
2 STRATEGIC CHARGES
In 2002, 2001 and 2000, the Company recorded strategic charges totaling $1,707,
$1,448 and $2,369, respectively.
In 2002 strategic charges included moving and other exit costs related to the
relocation of manufacturing facilities in the Watercraft business and increased
reserves for doubtful accounts receivable and excess inventory related to the
North American Jack Wolfskin closure. Unexpended funds at year end related to
these actions were approximately $450.
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.
There are no unexpended funds related to this action as of the end of 2002.
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 2002.
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.
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. An additional payment of approximately $70 was
earned in 2001 based upon achievement of specified levels of sales of the
acquired business. There are no additional payments available after 2002.
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. Additional payments of approximately $150 for
2000, 2001 and 2002 were earned based on minimum payment amounts in the purchase
agreement. There are no additional payments available after 2002.
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. Additional payments of approximately $170 and
$600 were earned in 2000 and 1999, respectively. An additional payment in 2003
is 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 Jack Wolfskin Business
In September 2002, the Company sold its Jack Wolfskin business. The sale price
totaled 60,320 Euros ($59,295 U.S. dollars) after an adjustment based on net
working capital of the business as finally determined. The Company recorded a
gain on the sale of $22,351, after tax. In connection with the sale, the Company
will exit its North American Jack Wolfskin operations. The Company recorded
strategic charges amounting to $450 related to exiting these operations.
F-12
5 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.
In March 2002, the Company recognized a gain from discontinued operations of
$495, net of tax, related to the final accounting for the sale of the Fishing
business.
Net sales of the Fishing group were $32,667 for 2000. Interest expense of $90
for 2000 that is directly attributable to the Fishing group is allocated to
discontinued operations.
6 INDEBTEDNESS
Short-term debt at the end of the respective years consists of the following:
- -------------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------------
Commercial paper and bank loans $ - $ 49,643
Current maturities of long-term debt 8,058 13,342
Less short-term debt refinanced,
2001 Senior Notes - 50,000
- -------------------------------------------------------------------------------
$ 8,058 $ 12,985
- -------------------------------------------------------------------------------
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% at September 28, 2001. The Company's primary facility is a
$70,000 unsecured revolving credit agreement expiring in 2004, which includes a
maximum amount of $30,000 in support of commercial paper issuance. At September
27, 2002, the Company's market rate was LIBOR plus 150 basis points. The Company
has lines of credit, both foreign and domestic, totaling $80,700, of which
$77,000 is available at September 27, 2002. The Company also utilizes letters of
credit for trade financing purposes. Letters of credit outstanding at September
27, 2002 are $1,909.
Long-term debt at the end of the respective years consists of the following:
- -----------------------------------------------------------------------------
2002 2001
- -----------------------------------------------------------------------------
2001 senior notes $ 50,000 $ 50,000
1998 senior notes 16,800 18,800
1996 senior notes 17,700 23,700
Other long-term notes 1,988 5,392
- -----------------------------------------------------------------------------
86,488 97,892
Fair value adjustment of hedged debt 1,765 -
- -----------------------------------------------------------------------------
88,253 97,892
Less current maturities 8,058 13,342
- -----------------------------------------------------------------------------
$ 80,195 $ 84,550
- -----------------------------------------------------------------------------
In December 2001, the Company issued unsecured senior notes totaling $50,000
with an interest rate of 7.82%. The senior notes have annual principal payments
of $10,000 beginning December 2004 with a final payment due December 2008.
Proceeds from the issuance of the senior notes were used to reduce outstanding
indebtedness under the Company's primary revolving credit facility.
F-13
In 1998, the Company issued unsecured senior notes totaling $25,000 with an
interest rate of 7.15%. The 1998 senior notes have remaining annual principal
payments of $800 to $7,000 with a final payment due October 2007.
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%. The 1996
senior notes have remaining annual principal payments of $500 to $7,500 with a
final payment due October 2004.
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%. The obligation is denominated in
Swiss francs. The current outstanding balance of $1,811 is unsecured, and will
be settled upon expiration of the warranty provisions limitation period
negotiated pursuant to the original purchase contract.
The Company's policy is to manage interest cost using a mix of fixed and
variable-rate debt. To manage this risk in a cost efficient manner, the Company
enters into interest rate swaps in which the Company agrees to exchange, at
specified intervals, the difference between fixed and variable interest amounts
calculated by reference to an agreed upon notional principal amount. The Company
formally documents all relationships between hedging instruments and hedged
items, as well as its risk-management objectives and strategies for
understanding hedge transactions.
Interest rate swaps that met specific conditions under SFAS No. 133 are
accounted for as fair value hedges. Accordingly, the changes in the fair value
of these instruments are immediately recorded in earnings. The mark-to-market
values of both the fair value hedging instruments and the underlying debt
obligations are recorded as equal and offsetting gains and losses in the
interest expense component of the statement of operations. The fair value of the
Company's interest rate swap agreements was approximately $1,765 at September
27, 2002 and included in other assets on the consolidated balance sheet. All
existing fair value hedges are 100% effective. As a result, there is no impact
to earnings due to hedge ineffectiveness.
In January 2002, the Company entered into the interest rate swap agreements
described below, which effectively convert some of the fixed rate senior notes
to variable rate debt.
- -------------------------------------------------------------------------------------------------------
Hedged Debt Notional Amount Effective Fiscal Year Swap Fair Value
of Swap Interest Rate (1) Expiration
- -------------------------------------------------------------------------------------------------------
2001 senior notes - 7.82% $20,000 4.89% 2006 $1,066
1998 senior notes - 7.15% 9,000 4.95% 2006 331
1996 senior notes - 7.77% 12,300 5.99% 2005 269
1996 senior notes - 6.98% 5,400 5.24% 2005 99
- -------------------------------------------------------------------------------------------------------
$1,765
- -------------------------------------------------------------------------------------------------------
(1) Effective rate for the year ended September 27, 2002 of notional amount of senior notes based on interest
rate swaps entered into in January 2002
F-14
Aggregate scheduled maturities of long-term debt in each of the next five years
ending September 2007 are as follows:
- --------------------------------------------------------------------------------
Year
- --------------------------------------------------------------------------------
2003 $ 8,058
2004 9,611
2005 15,700
2006 13,500
2007 17,000
Thereafter 22,619
- --------------------------------------------------------------------------------
Interest paid was $6,214, $9,178, and $10,471 for 2002, 2001 and 2000,
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 27, 2002 and September 28, 2001 is approximately $89,900
and $98,300, 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 27, 2002, the Johnson Family held approximately 3,286,000 shares or
46% of the Class A common stock, approximately 1,168,000 shares or 96% of the
Class B common stock and approximately 77% 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.
7 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 having an
initial term in excess of one year at September 27, 2002 are as follows:
- --------------------------------------------------------------------------------
Year
- --------------------------------------------------------------------------------
2003 $5,390
2004 3,992
2005 3,027
2006 2,587
2007 2,054
Thereafter 6,232
- --------------------------------------------------------------------------------
Future minimum rental commitments to related parties are $623, $623, $456 and
$132 for 2003, 2004, 2005 and 2006, respectively. Rental expense attributable to
continuing operations under all leases was approximately $6,830, $6,739 and
$6,727 for 2002, 2001 and 2000, 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.
8 INCOME TAXES
Income tax expense (benefit) attributable to continuing operations for the
respective years consists of the following:
- ---------------------------------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------
Current:
- ---------------------------------------------------------------------------
F-15
Federal $ 204 $ -- $ 17
State 74 101 490
Foreign 9,732 5,301 6,572
Deferred 175 (2,922) (374)
- ---------------------------------------------------------------------------
$ 10,185 $ 2,480 $ 6,705
- ---------------------------------------------------------------------------
The significant components of deferred tax expense (benefit) attributable to
continuing operations are as follows:
- ---------------------------------------------------------------------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------
Deferred tax benefit (exclusive of effects
of other components listed below) $ (177) $ (3,185) $ (822)
Increase in beginning of the year balance of the
valuation allowance for deferred tax assets 352 263 448
- ---------------------------------------------------------------------------------------------------------------
$ 175 $ (2,922) $ (374)
- ---------------------------------------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Deferred tax assets:
Inventories $ 1,838 $ 2,089
Compensation 4,800 2,978
Foreign tax credit carryforwards 2,240 3,761
Goodwill and other intangibles 1,579 -
Net operating loss carryforwards 19,758 21,562
Other 2,869 5,138
- --------------------------------------------------------------------------------
Total gross deferred tax assets 33,084 35,528
Less valuation allowance 8,398 8,046
- --------------------------------------------------------------------------------
24,686 27,482
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Foreign statutory reserves 15 1,867
Goodwill and other intangibles - 769
- --------------------------------------------------------------------------------
Total deferred tax liabilities 15 2,636
- --------------------------------------------------------------------------------
Net deferred tax asset $ 24,671 $ 24,846
- --------------------------------------------------------------------------------
The net deferred tax asset is recorded as $5,083 in current and $19,588 in
non-current assets for 2002 and $5,269 in current and $19,577 in non-current
assets for 2001.
Following is the income (loss) from continuing operations before income taxes
and before cumulative effect of change in accounting principle for domestic and
foreign operations:
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
United States $ (1,477) $ (5,719) $ (1,436)
Foreign 41,970 11,809 16,516
- --------------------------------------------------------------------------------
$ 40,493 $ 6,090 $ 15,080
- --------------------------------------------------------------------------------
F-16
The significant differences between the statutory federal tax rate and the
effective income tax rates for income from continuing operations are as follows:
- --------------------------------------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
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
Foreign rate differential (8.8) 1.3 1.4
Change in beginning of year valuation allowance 0.1 4.3 3.0
Foreign operating losses 0.1 -- 0.6
Other (0.2) 0.2 1.7
- --------------------------------------------------------------------------------------------------------------
25.2% 40.7% 44.5%
- --------------------------------------------------------------------------------------------------------------
At September 27, 2002, the Company has $2,240 of foreign tax credit
carryforwards available to be offset against future U.S. tax liability. The
credits expire in 2003 through 2008 if not utilized. These carryforwards have
been fully reserved for in the valuation allowance. The balance of the valuation
allowance related to state and foreign net operating loss carryforwards and
other tax credits.
At September 27, 2002, the Company has a U.S. federal operating loss
carryforward of $36,676 which begin to expire in 2012, and various state net
operating loss carryforwards. During 2002, 2001 and 2000, foreign net operating
loss carryforwards were utilized, resulting in a reduction in income tax expense
of $27, $32 and $152, respectively. In addition, certain of the Company's
foreign subsidiaries have net operating loss carryforwards totaling $1,453.
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 $4,663, $4,337, $9,935 for
2002, 2001 and 2000, respectively.
9 EMPLOYEE BENEFITS
Net periodic pension cost for noncontributory defined benefit pension plans
includes the following components.
- ----------------------------------------------------------------------------------------------------
2002 2001 2000
- ----------------------------------------------------------------------------------------------------
Service cost $ 471 $ 343 $ 315
Interest on projected benefit obligation 841 792 763
Less estimated return on plan assets 652 631 592
Amortization of unrecognized:
Net loss 28 1 4
Prior service cost 26 26 26
Transition asset (80) (80) (81)
- ----------------------------------------------------------------------------------------------------
Net amount recognized $ 634 $ 451 $ 435
- ----------------------------------------------------------------------------------------------------
F-17
The following provides a reconciliation of the changes in the plans benefit
obligation and fair value of assets for 2002 and 2001 and a statement of the
funded status at the end of each year:
- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Benefit obligation:
Benefit obligation at beginning of year $ 11,929 $ 10,332
Service cost 471 343
Interest cost 841 792
Actuarial loss 21 1,094
Benefits paid (681) (632)
- --------------------------------------------------------------------------------
Benefit obligation at end of year $ 12,581 $ 11,929
- --------------------------------------------------------------------------------
Fair value of plan assets:
Fair value of plan assets at beginning of year $ 7,684 $ 8,620
Actual return on plan assets (298) (582)
Company contributions 332 278
Benefits paid (681) (632)
- --------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 7,037 $ 7,684
- --------------------------------------------------------------------------------
Funded status:
Funded status of the plan $ (5,544) $ (4,245)
Unrecognized net loss 2,702 2,084
Unrecognized prior service cost 97 123
Unrecognized transition asset (130) (211)
- --------------------------------------------------------------------------------
Net liability recognized $ (2,875) $ (2,249)
- --------------------------------------------------------------------------------
The following summarizes the components of the net liability recognized in the
consolidated balance sheets at the end of the respective years:
- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Prepaid benefit cost $ -- $ --
Accrued benefit liability (3,269) (2,249)
Intangible asset 90 --
Accumulation of other comprehensive income 304 --
- --------------------------------------------------------------------------------
Net liability recognized $ (2,875) $ (2,249)
- --------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Discount rate 7.25% 7.25% 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.
Expense attributable to continuing operations under the defined contribution
programs was approximately $2,300, $2,200 and $1,900 for 2002, 2001 and 2000,
respectively.
F-18
10 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.
11 COMMON STOCK
Common stock at the end of the respective years was as follows:
- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Class A, $.05 par value:
Authorized 20,000,000 20,000,000
Outstanding 7,112,155 6,946,012
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 2002 and 2001, no shares of Class B common stock were converted
into Class A common stock. During 2000, 132 shares of Class B common stock were
converted into Class A common stock.
12 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 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
Granted 277,755 7.64
Exercised (148,952) 10.15
Cancelled (151,579) 13.54
- --------------------------------------------------------------------------------
Outstanding at September 27, 2002 1,064,019 $ 9.06
- --------------------------------------------------------------------------------
F-19
Shares available for grant to key executives and non-employee directors are
136,602 at September 27, 2002.
The range of options outstanding at September 27, 2002 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 - 11.50 896,797/451,676 $ 7.28/7.59 7.94
12.94 - 17.50 107,222/104,222 16.59/16.64 4.79
18.63 - 24.38 60,000/60,000 22.15/22.15 2.04
- ---------------------------------------------------------------------------------------------------------------------
1,064,019/615,898 $ 9.06/10.54 7.29
- ---------------------------------------------------------------------------------------------------------------------
The weighted average fair market value of options granted during the year was
$2.90 in 2002, $2.18 in 2001, $3.20 in 2000.
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:
- -------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations before cumulative effect of
change in accounting principle $ 29,858 $3,112 $ 7,744
Diluted earnings per common share from continuing operations
before cumulative effect of change in accounting principle $ 3.54 $ 0.38 $ 0.95
- -------------------------------------------------------------------------------------------------------------------
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 Class A
common stock at a purchase price of not less than 85% of the fair market value
at the date of grant. During 2002, 2001 and 2000, 10,378, 13,382 and 16,701
shares, respectively, were issued under this plan. Shares available for purchase
by employees under this plan are 66,414 at September 27, 2002.
13 RELATED PARTY Transactions
Various transactions are conducted between the Company and other organizations
controlled by the Johnson Family. These include consulting services, aviation
services, office rental, royalties and certain administrative activities. Total
net costs of these transactions are $1,219, $546 and $542 for 2002, 2001 and
2000, respectively. The majority of the increase in 2002 resulted from a new
three year lease agreement with a Johnson Family controlled entity for the
Company's new headquarters facility.
On November 30, 2001, the Company entered into a sale/leaseback transaction for
its prior headquarters facility with a related party. The Company sold the
facility for $4,982 in cash and related furniture and fixtures for $200 in cash
and entered into a month-to-month lease agreement with the related party, which
terminated May 31, 2002. The Company and the related party engaged an
independent appraiser to determine the sale price of the facility. The gain of
$1,302, net of income tax of $675, was recorded as an additional contribution to
equity. The gain on the sale could not be recognized in the statement of
operations due to the related party nature of the transaction.
14 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 U.S. and various foreign countries, primarily in Europe, Canada and the
Pacific Basin.
F-20
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.
A summary of the Company's continuing operations by business segment is
presented below:
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Net sales:
Outdoor equipment:
Unaffiliated customers $ 106,318 $ 114,875 $ 104,052
Interunit transfers 141 89 67
Watercraft:
Unaffiliated customers 82,865 85,841 90,178
Interunit transfers 534 343 397
Diving:
Unaffiliated customers 72,565 80,426 82,840
Interunit transfers 25 62 5
Motors:
Unaffiliated customers 80,577 64,446 76,680
Interunit transfers 761 539 1,363
Other 207 49 1,139
Eliminations (1,461) (1,033) (1,832)
- --------------------------------------------------------------------------------
$ 342,532 $ 345,637 $ 354,889
- --------------------------------------------------------------------------------
Operating profit (loss):
Outdoor equipment $ 11,882 $ 12,015 $ 8,182
Watercraft 1,162 1,293 10,327
Diving 10,502 11,638 10,832
Motors 8,248 231 3,936
Other (12,043) (9,459) (8,558)
- --------------------------------------------------------------------------------
$ 19,751 $ 15,718 $ 24,719
- --------------------------------------------------------------------------------
Identifiable assets:
Outdoor equipment $ 23,114 $ 49,027
Watercraft 54,480 65,147
Diving 78,403 85,393
Motors 21,423 22,819
Other 93,865 22,527
- ---------------------------------------------------------------
$ 271,285 $ 244,913
- ---------------------------------------------------------------
F-21
A summary of the Company's continuing operations by geographic area is presented
below:
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Net sales:
United States:
Unaffiliated customers $ 232,383 $ 228,491 $ 239,079
Interarea transfers 5,947 5,828 6,540
Europe:
Unaffiliated customers 83,696 89,995 88,567
Interarea transfers 7,993 7,267 7,800
Other 26,453 27,151 27,243
Interarea transfers 4,032 7,170 7,863
Eliminations (17,972) (20,265) (22,203)
- --------------------------------------------------------------------------------
$ 342,532 $ 345,637 $ 354,889
- --------------------------------------------------------------------------------
Identifiable assets:
United States $ 114,198 $ 133,659
Europe 136,007 94,490
Other 21,080 16,764
- -----------------------------------------------------------------
$ 271,285 $ 244,913
- -----------------------------------------------------------------
15 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 27, 2002:
Allowance for doubtful accounts $ 3,739 $ 1,937 $ (438) $ 1,210 $ 4,028
Reserves for inventory valuation 3,404 1,798 (848) 2,171 2,183
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 27, 2000:
Allowance for doubtful accounts 3,236 1,812 -- 1,153 3,895
Reserves for inventory valuation 4,911 853 -- 2,815 2,949
- --------------------------------------------------------------------------------------------------------------------
Deductions include the net impact of foreign currency fluctuations on the
respective accounts.
F-22
16 EARNINGS PER SHARE
Basic earnings per share exclude any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share are similar to the previously
reported fully diluted earnings per share.
The following sets forth the computation of basic and diluted earnings per
common share:
- --------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations before cumulative effect
of change in accounting principle for basic and diluted
earnings per share $30,308 $3,610 $8,375
- --------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 8,224,655 8,161,624 8,139,340
Less nonvested restricted stock 10,194 15,162 17,265
- --------------------------------------------------------------------------------------------------------------------
Basic average common shares 8,214,461 8,146,462 8,122,075
Dilutive stock options and restricted stock 215,308 23,277 8,208
- --------------------------------------------------------------------------------------------------------------------
Diluted average common shares 8,429,769 8,169,739 8,130,283
- --------------------------------------------------------------------------------------------------------------------
Basic earnings per common share from continuing operations
before cumulative effect of change in accounting principle $3.69 $0.44 $1.03
- --------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share from continuing operations
before cumulative effect of change in accounting principle $3.59 $0.44 $1.03
- --------------------------------------------------------------------------------------------------------------------
Stock options that could potentially dilute basic earnings per share in the
future that were not included in the fully diluted computation for 2002 because
they would have been antidilutive were 186,222.
17 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 of any pending litigation will have a material adverse effect on
the financial condition, results of operations, liquidity or cash flows of the
Company.
F-23
18 QUARTERLY FINANCIAL SUMMARY (unaudited)
The following summarizes quarterly operating results:
- ---------------------------------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
- ---------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
Net sales $59,738 $58,750 $97,718 $98,719 $116,699 $113,927 $68,377 $74,241
Gross profit 25,290 23,806 40,741 39,829 49,382 47,064 25,641 28,082
Operating profit (loss) 991 (3,569) 8,258 6,595 12,974 13,000 (2,472) (308)
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations before
cumulative effect of change
in accounting principle (396) (3,229) 3,889 2,203 6,433 6,283 20,382 (1,647)
Gain on disposal of
discontinued operations,
net of tax -- -- 495 -- -- -- -- --
Income (loss) from cumulative
effect of change in
accounting principle, net
of tax (22,876) 1,755 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $(23,272) $(1,474) $4,384 $2,203 $6,433 $6,283 $20,382 $(1,647)
- ---------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per
common share:
Continuing operations $(0.05) $(0.40) $0.48 $0.27 $0.78 $0.77 $2.45 $(0.20)
Discontinued operations -- -- 0.06 -- -- -- -- --
Cumulative effect of
change in accounting
principle, net of tax (2.80) 0.22 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $(2.85) $(0.18) $0.54 $0.27 $0.78 $0.77 $2.45 $(0.20)
- ---------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per
common share:
Continuing operations $(0.05) $(0.40) $0.46 $0.27 $0.75 $0.77 $2.38 $(0.20)
Discontinued operations -- -- 0.06 -- -- -- -- --
Cumulative effect of
change in accounting
principle, net of tax (2.80) 0.22 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $(2.85) $(0.18) $0.52 $0.27 $0.75 $ 0.77 $2.38 $(0.20)
- ---------------------------------------------------------------------------------------------------------------------
F-24