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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2003
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)
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 whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of July 24, 2003, 7,239,482 shares of Class A and 1,222,647 shares of Class B
common stock of the Registrant were outstanding.
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JOHNSON OUTDOORS INC.
Index Page No.
---------------------- --------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations - Three
months and nine months ended June 27, 2003 and
June 28, 2002 1
Consolidated Balance Sheets - June 27, 2003,
September 27, 2002 and June 28, 2002 2
Consolidated Statements of Cash Flows - Nine
months ended June 27, 2003 and June 28, 2002 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Item 4. Controls and Procedures 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 21
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
(thousands, except per share data) Three Months Ended Nine Months Ended
------------------ -----------------
June 27 June 28 June 27 June 28
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net sales $ 108,546 $ 116,699 $ 246,706 $ 274,155
Cost of sales 65,038 67,317 143,322 158,742
---------- ---------- ---------- ----------
Gross profit 43,508 49,382 103,384 115,413
---------- ---------- ---------- ----------
Operating expenses:
Marketing and selling 23,025 24,800 56,511 60,798
Administrative management, finance and
information systems 9,033 8,517 24,839 23,450
Research and development 1,575 1,824 4,738 5,082
Amortization and write-down of intangibles 58 98 222 274
Profit sharing 898 1,103 1,865 2,369
Strategic charges -- 66 -- 1,217
---------- ---------- ---------- ----------
Total operating expenses 34,589 36,408 88,175 93,190
---------- ---------- ---------- ----------
Operating profit 8,919 12,974 15,209 22,223
Interest income (135) (88) (713) (464)
Interest expense 1,326 1,703 4,036 5,164
Other (income) expense, net (644) 872 (3,115) 1,209
---------- ---------- ---------- ----------
Income from continuing operations before income
taxes and cumulative effect of change in
accounting principle 8,372 10,487 15,001 16,314
Income tax expense 3,312 4,054 5,924 6,388
---------- ---------- ---------- ----------
Income from continuing operations before cumulative
effect of change in accounting principle
5,060 6,433 9,077 9,926
Gain on disposal of discontinued operations, net of
tax of $255 -- -- -- 495
Cumulative effect of change in accounting principle,
net of tax of $(2,200) -- -- -- (22,876)
---------- ---------- ---------- ----------
Net income (loss) $ 5,060 $ 6,433 $ 9,077 $ (12,455)
========== ========== ========== ==========
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ 0.60 $ 0.78 $ 1.08 $ 1.21
Discontinued operations -- -- -- 0.06
Cumulative effect of change in accounting
principle -- -- -- (2.79)
---------- ---------- ---------- ----------
Net income (loss) $ 0.60 $ 0.78 $ 1.08 $ (1.52)
========== ========== ========== ==========
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ 0.59 $ 0.75 $ 1.06 $ 1.18
Discontinued operations -- -- -- 0.06
Cumulative effect of change in accounting
principle -- -- -- (2.73)
---------- ---------- ---------- ----------
Net income (loss) $ 0.59 $ 0.75 $ 1.06 $ (1.49)
========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
-1-
JOHNSON OUTDOORS INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 27 September 27 June 28
(thousands, except share data) 2003 2002 2002
- ------------------------------ ---------- ---------- ----------
ASSETS
Current assets:
Cash and temporary cash investments $ 62,696 $ 100,830 $ 27,297
Accounts receivable, less allowance for doubtful accounts of
$4,316, $4,028 and $4,279, respectively 75,888 39,972 74,678
Inventories 51,606 42,231 60,718
Deferred income taxes 5,209 5,083 4,972
Other current assets 5,190 4,021 4,588
---------- ---------- ----------
Total current assets 200,589 192,137 172,253
Property, plant and equipment 30,520 29,611 29,345
Deferred income taxes 19,478 19,588 21,647
Intangible assets 29,459 27,139 33,698
Other assets 2,960 2,810 1,154
---------- ---------- ----------
Total assets $ 283,006 $ 271,285 $ 258,097
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $ 9,591 $ 8,058 $ 23,233
Accounts payable 16,619 13,589 17,350
Accrued liabilities:
Salaries and wages 8,029 9,428 8,507
Income taxes 5,192 6,567 4,775
Other 24,859 24,005 19,576
---------- ---------- ----------
Total current liabilities 64,290 61,647 73,441
Long-term debt, less current maturities 68,444 80,195 78,496
Other liabilities 5,651 5,298 4,851
---------- ---------- ----------
Total liabilities 138,385 147,140 156,788
---------- ---------- ----------
Shareholders' equity:
Preferred stock: none issued -- -- --
Common stock:
Class A shares issued:
June 27, 2003, 7,211,649;
September 27, 2002, 7,112,155;
June 28, 2002, 7,101,491 361 355 355
Class B shares issued (convertible into Class A):
June 27, 2003, 1,222,647;
September 27, 2002, 1,222,729;
June 28, 2002, 1,222,729 61 61 61
Capital in excess of par value 48,476 47,583 46,286
Retained earnings 97,165 88,089 67,706
Contingent compensation (32) (22) (37)
Accumulated other comprehensive loss (1,410) (11,921) (13,062)
---------- ---------- ----------
Total shareholders' equity 144,621 124,145 101,309
---------- ---------- ----------
Total liabilities and shareholders' equity $ 283,006 $ 271,285 $ 258,097
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
JOHNSON OUTDOORS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(thousands) Nine Months Ended
- ----------- -----------------
June 27 June 28
2003 2002
---------- ----------
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income (loss) $ 9,077 $ (12,455)
Less gain from discontinued operations -- 495
Less loss from cumulative effect of change in accounting principle -- (22,876)
---------- ----------
Income from continuing operations before cumulative effect of change in accounting
principle 9,077 9,926
Adjustments to reconcile income from continuing operations before cumulative
effect of change in accounting principle to net cash provided by (used for)
operating activities of continuing operations:
Depreciation and amortization 5,844 6,809
Deferred income taxes (24) 240
Change in assets and liabilities, net of effect of businesses acquired or sold:
Accounts receivable (33,419) (27,192)
Inventories (7,010) 3,441
Accounts payable and accrued liabilities (3,067) 13,484
Other, net (6,932) (2,445)
---------- ----------
(35,531) 4,263
---------- ----------
CASH USED FOR INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment -- 4,982
Net additions to property, plant and equipment (5,612) (6,570)
---------- ----------
(5,612) (1,588)
---------- ----------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Issuance of senior notes -- 50,000
Principal payments on senior notes and other long-term debt (8,100) (11,604)
Net change in short-term debt 29 (34,624)
Common stock transactions 806 3,055
---------- ----------
(7,265) 6,827
---------- ----------
Effect of foreign currency fluctuations on cash 10,274 1,726
---------- ----------
Increase (decrease) in cash and temporary cash investments (38,134) 11,228
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 100,830 16,069
---------- ----------
End of period $ 62,696 $ 27,297
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
JOHNSON OUTDOORS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
(unaudited)
1 Basis of Presentation
The consolidated financial statements included herein are unaudited. In the
opinion of management, these statements contain all adjustments (consisting
of only normal recurring items) necessary to present fairly the financial
position of Johnson Outdoors Inc. and subsidiaries (the Company) as of June
27, 2003 and the results of operations and cash flows for the three months
and nine months ended June 27, 2003. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 2002 Annual Report
on Form 10-K.
Because of seasonal and other factors, the results of operations for the
three months and nine months ended June 27, 2003 are not necessarily
indicative of the results to be expected for the full year.
All monetary amounts, other than share and per share amounts, are stated in
thousands.
Certain amounts as previously reported have been reclassified to conform to
the current period presentation.
2 Change in Accounting Principle
Effective September 29, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142. In accordance with the adoption of
this new standard, the Company ceased the amortization of goodwill.
As required under SFAS No. 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 during the quarter ended December 28,
2001 totaling $22,876, net of tax ($2.76 per diluted share) and was
reflected as a change in accounting principle. The write off was 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.
3 Income Taxes
The provision for income taxes includes deferred taxes and is based upon
estimated annual effective tax rates in the tax jurisdictions in which the
Company operates.
4 Inventories
Inventories at the end of the respective periods consist of the following:
June 27 September 27 June 28
2003 2002 2002
--------- --------- ---------
Raw materials $ 20,467 $ 17,709 $ 19,344
Work in process 1,678 1,072 2,572
Finished goods 33,105 25,633 42,202
--------- --------- ---------
55,250 44,414 64,118
Less reserves 3,644 2,183 3,400
--------- --------- ---------
$ 51,606 $ 42,231 $ 60,718
========= ========= =========
-4-
5 Warranties
The Company has recorded product warranty accruals of $2,279 as of June 27,
2003. The Company provides for warranties of certain products as they are
sold in accordance with SFAS No. No. 5, Accounting for Contingencies. The
following table summarizes the warranty activity for the nine months ended
June 27, 2003.
Balance at September 27, 2002 $ 1,571
Expense accruals for warranties issued during the year 1,951
Less current year warranty claims paid 1,253
---------
Balance at June 27, 2003 $ 2,279
=========
6 Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per common share from continuing operations before cumulative
effect of change in accounting principle:
Three Months Ended Nine Months Ended
------------------ -----------------
June 27 June 28 June 27 June 28
2003 2002 2003 2002
--------- --------- --------- ---------
Income from continuing operations before
cumulative effect of change in
accounting principle for basic and
diluted earnings per share $ 5,060 $ 6,433 $ 9,077 $ 9,926
--------- --------- --------- ---------
Weighted average common shares outstanding
8,407,335 8,227,290 8,388,534 8,189,980
Less nonvested restricted stock (4,830) (6,967) (5,560) (7,321)
--------- --------- --------- ---------
Basic average common shares 8,402,505 8,220,323 8,382,974 8,182,659
Dilutive stock options and restricted stock 176,618 340,389 161,757 201,204
--------- --------- --------- ---------
Diluted average common shares 8,579,123 8,560,712 8,544,731 8,383,863
========= ========= ========= =========
Basic earnings per common share from continuing
operations before cumulative effect of
change in accounting principle $ 0.60 $ 0.78 $ 1.08 $ 1.21
Diluted earnings per common share from
continuing operations before cumulative
effect of change in accounting principle $ 0.59 $ 0.75 $ 1.06 $ 1.18
========= ========= ========= =========
7 Stock Ownership Plans/Accounting for Stock-Based Compensation
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. The 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.
The Company adopted a phantom stock plan during fiscal 2003. Under this
plan, certain employees earn cash bonus awards based upon the performance
of the Company's Class A common stock.
-5-
A summary of stock option activity related to the Company's plans is as
follows:
Weighted Average
Shares Exercise Price
--------- --------------
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
Granted 20,750 10.36
Exercised (84,997) 7.33
Cancelled (30,556) 13.93
--------- ---------
Outstanding at June 27, 2003 969,216 $ 9.07
========= =========
Options to purchase 1,081,855 shares of common stock with a weighted
average exercise price of $9.04 per share were outstanding at June 28,
2002.
The Company accounts for its stock-based compensation plans under
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees. The pro forma information below was determined using
the fair value method based on provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, as amended by SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, issued in December
2002.
Three Months Ended Nine Months Ended
------------------ -----------------
June 27 June 28 June 27 June 28
2003 2002 2003 2002
--------- --------- --------- ---------
Income from continuing operations before
cumulative effect of change in accounting
principle $ 5,060 $ 6,433 $ 9,077 $ 9,926
Total stock-based employee compensation expense
determined under fair value method for all
awards, net of tax (67) (109) (211) (367)
--------- --------- --------- ---------
Pro forma income from continuing operations
before cumulative effect of change in
accounting principle $ 4,993 $ 6,324 $ 8,866 $ 9,559
========= ========= ========= =========
Basic earnings per common share from continuing
operations before cumulative effect of
change in accounting principle
As reported $ 0.60 $ 0.78 $ 1.08 $ 1.21
Pro forma $ 0.59 $ 0.77 $ 1.06 $ 1.17
Diluted earnings per common share from continuing
operations before cumulative effect of change
in accounting principle
As reported $ 0.59 $ 0.75 $ 1.06 $ 1.18
Pro forma $ 0.58 $ 0.74 $ 1.04 $ 1.14
========= ========= ========= =========
-6-
8 Comprehensive Income
Comprehensive income includes net income and changes in shareholders'
equity from non-owner sources. For the Company, the elements of
comprehensive income excluded from net income are represented primarily by
the cumulative foreign currency translation adjustment.
Comprehensive income (loss) for the respective periods consists of the
following:
Three Months Ended Nine Months Ended
------------------ -----------------
June 27 June 28 June 27 June 28
2003 2002 2003 2002
--------- --------- --------- ---------
Net income (loss) $ 5,060 $ 6,433 $ 9,077 $ (12,455)
Translation adjustment 3,202 9,780 10,511 6,096
--------- --------- --------- ---------
Comprehensive income (loss) $ 8,262 $ 16,213 $ 19,588 $ (6,359)
========= ========= ========= =========
9 Discontinued Operations
The Company recognized a gain from discontinued operations of $495, net of
tax, during the nine months ended June 28, 2002 related to the final
accounting for the sale of the Fishing business.
10 Segments of Business
The Company conducts its worldwide operations through separate global
business units, each of which represent major product lines. Operations are
conducted in the United States and various foreign countries, primarily in
Europe, Canada and the Pacific Basin. The Company does not believe it has
unusual risk related to concentrations in volume of business with a
particular customer or supplier, or concentrations in revenue from a
particular product.
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 periods presented.
-7-
A summary of the Company's operations by business unit is presented below:
Three Months Ended Nine Months Ended
------------------ -----------------
June 27 June 28 June 27 June 28
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net sales:
Outdoor equipment:
Unaffiliated customers $ 25,123 $ 31,706 $ 55,791 $ 87,236
Interunit transfers 25 46 68 69
Motors:
Unaffiliated customers 29,577 29,552 71,394 67,589
Interunit transfers 244 438 764 704
Watercraft:
Unaffiliated customers 31,253 33,744 62,586 66,392
Interunit transfers 304 105 829 292
Diving:
Unaffiliated customers 22,418 21,595 56,549 52,887
Interunit transfers 7 11 36 11
Other 175 102 386 51
Eliminations (580) (600) (1,697) (1,076)
---------- ---------- ---------- ----------
$ 108,546 $ 116,699 $ 246,706 $ 274,155
========== ========== ========== ==========
Operating profit (loss):
Outdoor equipment $ 4,416 $ 3,449 $ 8,855 $ 10,902
Motors 5,454 4,283 11,327 8,023
Watercraft 1,759 4,530 (1,281) 4,024
Diving 1,123 3,892 6,306 7,884
Other (3,833) (3,180) (9,998) (8,610)
---------- ---------- ---------- ----------
$ 8,919 $ 12,974 $ 15,209 $ 22,223
========== ========== ========== ==========
Identifiable assets (end of period):
Outdoor equipment $ 30,669 $ 57,752
Motors 31,791 28,440
Watercraft 74,242 63,963
Diving 97,548 83,386
Other 48,756 24,556
---------- ----------
$ 283,006 $ 258,097
========== ==========
11 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.
On February 21, 2003, the competition department of the European Commission
initiated formal proceedings in a case concerning certain provisions in the
former distribution arrangements of the Company's European Scubapro/Uwatec
subsidiaries. The Company responded to the Commission's views at a hearing
on July 1, 2003. The Company has been and will aggressively pursue its
position. At this preliminary stage in the procedure, the Commission has
indicated that it is considering imposing an unspecified fine on the
Company and its European Scubapro/Uwatec subsidiaries. The Company cannot
currently predict the outcome of the investigation.
-8-
JOHNSON OUTDOORS INC.
Item 2 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 months and
nine months ended June 27, 2003 and June 28, 2002. This discussion should be
read in conjunction with the consolidated financial statements and related notes
that immediately precede this section, as well as the Company's 2002 Annual
Report on Form 10-K.
Forward Looking Statements
Certain matters discussed in this Form 10-Q 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, unanticipated
outcomes related to outstanding litigation matters and the European Commission
investigation, 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 Form 10-Q and the Company undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
Non-GAAP Financial Measures
Included in this Form 10-Q are certain non-GAAP financial measures related to
the Company's results excluding the Jack Wolfskin business, which was sold in
the fourth quarter of fiscal 2002. The Company believes that the non-GAAP
financial information is useful to the readers of this Form 10-Q because it (a)
provides comparable year over year financial information based on the Company's
continuing businesses and (b) better enables the reader to evaluate the
performance of these businesses. The presentation of the non-GAAP financial
information should not be considered in isolation or in lieu of the results
prepared in accordance with GAAP, but should be considered in conjunction with
these results.
Results of Operations
Net sales for the three months ended June 27, 2003 totaled $108.5 million, a
decrease of 7.0% or $8.2 million, compared to $116.7 million in the three months
ended June 28, 2002. Excluding the results of the Company's Jack Wolfskin
subsidiary, which was sold in the fourth quarter of fiscal 2002, sales of the
Company's continuing businesses increased $4.1 million, or 3.9%, for the quarter
over the prior year. A reconciliation of the Company's sales excluding Jack
Wolfskin to sales as reported in the statement of operations is set forth below.
Foreign currency translations favorably impacted quarterly sales by $2.9 million
in the third quarter of fiscal 2003. Two of the Company's continuing business
units had sales growth over the prior year. The Outdoor Equipment business as a
whole saw sales decline $6.6 million, or 20.8%. This year over year decline for
the quarter is directly attributable to the disposition of the Company's Jack
Wolfskin subsidiary. Sales for the continuing portion of the Company's Outdoor
Equipment business increased $5.6 million, or 28.9%, to $25.1 million. Military
sales in the current fiscal year contributed to these results; however, the
Company does not necessarily expect the same level of growth in this channel in
future years. The Diving business sales increased $0.8 million, or 3.8%, to
$22.4 million helped by the strengthening of the Euro against the U.S. Dollar.
The Motors business sales decreased $0.2 million, or 0.6%, to $29.8 million.
Although sales declined slightly, Motors continues to exhibit strength by growth
in new products as well as continued market share gains. The Watercraft business
sales declined $2.3 million, or 6.8%, to $31.6 million. The Watercraft business
has experienced continued market softness. For the quarter, these soft market
conditions were compounded by an operating issue associated with a system
integration at one of the Watercraft business locations.
-9-
JOHNSON OUTDOORS INC.
Net sales for the nine months ended June 27, 2003 totaled $246.7 million, a
decrease of 10.0%, or $27.4 million, compared to $274.2 million in the nine
months ended June 28, 2002. Excluding the results of the Company's Jack Wolfskin
subsidiary, which was sold in the fourth fiscal quarter of 2002, sales of the
Company's continuing businesses increased $12.7 million, or 5.5%, year-to-date
over the prior year. Foreign currency translations favorably impacted
year-to-date sales by $6.7 million. Three of the Company's continuing business
units had sales growth over the prior year. The Outdoor Equipment business as a
whole saw sales decline $31.4 million, or 36.0%. This decline is directly
attributable to the disposition of the Company's Jack Wolfskin subsidiary. Sales
for the continuing portion of the Company's Outdoor Equipment business increased
$8.7 million, or 18.7%, to $55.5 million mainly as a result of strength in
military sales. The Motors business sales increased $3.9 million, or 5.7%, to
$72.2 million as a result of strength in new products as well as continued
market share gains. The Diving business sales increased $3.7 million, or 7.0%,
to $56.6 million as a result of new product sales as well as currency impacts
helped by the strengthening of the Euro against the U.S. Dollar. The Watercraft
business sales declined $3.3 million, or 4.9%, to $63.4 million, primarily
related to the current quarter shortfall.
The Company's current contract with the United States (U.S.) Armed Forces to
produce Modular General Purpose Tent System (MGPTS) tents has expired. The
Company continues to produce orders made under this contract. This contract
makes up the largest portion of the Company's current military business and is a
significant source of sales for the Outdoor Equipment business. The Company has
submitted its final bid on a replacement contract to produce the MGPTS tents for
the U.S. Armed Forces. Failure to secure a new contract would likely have a
significant negative impact on the sales and operating results of the Outdoor
Equipment business in future periods.
Relative to the U.S. dollar, the average values of most currencies of the
countries in which the Company has operations were higher for the three months
and nine months ended June 27, 2003 as compared to the corresponding period of
the prior year. The Diving business was favorably impacted by foreign currency
movements. Excluding the impact of fluctuations in foreign currencies, net sales
for the Company's continuing businesses increased 0.8% for the three months
ended June 27, 2003 and 2.5% for the nine months ended June 27, 2003.
Gross profit as a percentage of sales was 40.1% for the three months ended June
27, 2003 compared to 42.3% in the corresponding period in the prior year.
Margins in the Outdoor Equipment and Motors businesses were improved over the
prior year, while the Diving and Watercraft businesses saw margins decline. The
Motors business improved margins by 3.7 percentage points over the year ago
quarter primarily as a result of new products and product mix. The Diving
business margins declined by 4.9 percentage points over the year ago quarter,
primarily related to a product recall of an Uwatec dive computer announced on
July 17, 2003. Watercraft margins declined 7.9 percentage points due to
continued market softness.
Gross profit as a percentage of sales was 41.9% for the nine months ended June
27, 2003 compared to 42.1% in the corresponding period in the prior year. Margin
improvements in the Motors and Outdoor Equipment businesses helped to offset
declines in margins in the Diving and Watercraft businesses.
The Company recognized operating profit of $8.9 million for the three months
ended June 27, 2003 compared to an operating profit of $13.0 million for the
corresponding period of the prior year. On a continuing business basis operating
profit declined 25.9% from the corresponding period a year ago. Included in the
results for the three months ended June 27, 2003 were $3.6 million of unusual
charges. These charges resulted from a product recall of an Uwatec dive computer
($2.8 million) announced on July 17, 2003 and costs associated with a
discontinued acquisition ($0.8 million) pursued during this fiscal year.
Operating profit improvement in the Motors business, from improved margins, and
in the Outdoor Equipment business, from the strength of military sales, were
offset by declines in the Diving and Watercraft businesses.
For the nine months ended June 27, 2003 operating profit declined when compared
to the prior year period at $15.2 million versus $22.2 million. On a continuing
business basis operating profit declined 12.0% from the corresponding period a
year ago. Watercraft operating profit was substantially below prior year, due to
soft market conditions and operating issues associated with the implementation
of a new operating system.
Interest expense totaled $1.3 million for the three months ended June 27, 2003
compared to $1.7 million for the corresponding period of the prior year.
Interest expense totaled $4.0 million for the nine months ended June 27, 2003
compared to $5.2 million for the corresponding period of the prior year. In the
current year, the Company benefited from reductions in overall debt and from
declining interest rates on floating rate debt facilities.
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JOHNSON OUTDOORS INC.
The Company's other income of $0.6 million for the three months ended and $3.1
million for the nine months ended June 27, 2003 resulted primarily from currency
gains on the settlement of intercompany loans and an insurance reimbursement
from a casualty loss due to a fire in a previous period.
The Company's effective tax rate for the nine months ended June 27, 2003 was
39.5%, up from 39.2% for the corresponding period of the prior year, primarily
due to the geographic mix of earnings.
The Company recognized income from continuing operations before cumulative
effect of change in accounting principle of $5.1 million in the three months
ended June 27, 2003, compared to income of $6.4 million in the corresponding
period of the prior year. Diluted earnings per common share from continuing
operations before cumulative effect of change in accounting principle totaled
$0.59 for the three months ended June 27, 2003 compared to $0.75 in the prior
year. The Company recognized income from continuing operations before cumulative
effect of change in accounting principle of $9.1 million in the nine months
ended June 27, 2003, compared to income of $9.9 million in the corresponding
period of the prior year. Diluted earnings per common share from continuing
operations before cumulative effect of change in accounting principle totaled
$1.06 for the nine months ended June 27, 2003 compared to $1.18 in the prior
year. The previously mentioned unusual charges negatively impacted earnings by
$2.5 million or $0.29 per diluted share.
Discontinued Operations
The Company recognized a gain from discontinued operations of $0.5 million, net
of tax ($0.06 per diluted share), for the nine months ended June 28, 2002
related to the final accounting for the sale of the Company's Fishing business.
Change in Accounting Principle
Effective September 29, 2001, the Company adopted SFAS No. 142. In accordance
with the adoption of this new standard, the Company ceased the amortization of
goodwill.
As required under SFAS No. 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 during the quarter ended December 28, 2001 totaling $22.9
million, net of tax ($2.73 per diluted share) and was reflected as a change in
accounting principle. The write off was 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.
Net Income (Loss)
Net income for the three months ended June 27, 2003 was $5.1 million, or $0.59
per diluted share, compared to $6.4 million, or $0.75 per diluted share, for the
corresponding period of the prior year.
Net income for the nine months ended June 27, 2003 was $9.1 million, or $1.06
per diluted share, compared to a loss of $12.5 million, or $1.49 per diluted
share, for the corresponding period of the prior year.
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JOHNSON OUTDOORS INC.
Results on a Continuing Business Basis
The following tables show third quarter and year-to-date comparisons of as
reported results and results on a continuing business basis for the Company.
Third Quarter Comparisons - As Reported and on Continuing Business Basis
(Amounts in millions, except per share data)
Three Months Ended June 27, 2003 Three Months Ended June 28, 2002
-------------------------------- --------------------------------
Less Less
As Jack Continuing As Jack Continuing
Reported Wolfskin Business (1) Reported Wolfskin Business (1)
-------- -------- ---------- -------- -------- ----------
Net sales $ 108.5 $ - $ 108.5 $ 116.7 $ 12.2 $ 104.5
Gross profit 43.5 - 43.5 49.4 4.9 44.5
Operating profit 8.9 - 8.9 13.0 1.0 12.0
Net income (loss) 5.1 - 5.1 6.4 (0.1) 6.5
Diluted earnings (loss) per
share $ 0.59 $ - $ 0.59 $ 0.75 $ (0.01) $ 0.76
======== ======== ========== ======== ======== ==========
(1) Continuing business for the third quarter of both years exclude results
from the Jack Wolfskin operation, which was sold in the fourth quarter of
fiscal 2002, but was not treated as a discontinued operation in accordance
with GAAP.
Nine Month Comparisons - As Reported and on Continuing Business Basis (Amounts
in millions, except per share data)
Nine Months Ended June 27, 2003 Nine Months Ended June 28, 2002
------------------------------- -------------------------------
Less Less
As Jack Continuing As Jack Continuing
Reported Wolfskin Business (1) Reported Wolfskin Business (1)
-------- -------- ---------- -------- -------- ----------
Net sales $ 246.7 $ 0.4 $ 246.3 $ 274.2 $ 40.6 $ 233.6
Gross profit 103.4 - 103.4 115.4 16.3 99.1
Operating profit 15.2 (0.1) 15.1 22.2 4.8 17.4
Net Income (loss) (2) 9.1 (0.1) 9.0 9.9 2.3 7.6
Diluted earnings (loss) per
share (2) $ 1.06 $ (0.01) $ 1.07 $ 1.18 $ 0.28 $ 0.90
======== ======== ========== ======== ======== ==========
(1) Continuing business for the nine months of both years exclude results from
the Jack Wolfskin operation, which was sold in the fourth quarter of fiscal
2002, but was not treated as a discontinued operation in accordance with
GAAP.
(2) Income (loss) and diluted earnings (loss) per share are from continuing
operations before cumulative effect of change in accounting principle.
The following tables show third quarter and year to date comparisons of as
reported results and results from a continuing business basis for the Outdoor
Equipment business unit.
Outdoor Equipment Segment
Third Quarter Comparisons - As Reported and on Continuing Business Basis
(Amounts in millions)
Three Months Ended June 27, 2003 Three Months Ended June 28, 2002
-------------------------------- --------------------------------
Less Less
As Jack Continuing As Jack Continuing
Reported Wolfskin Business (1) Reported Wolfskin Business (1)
-------- -------- ---------- -------- -------- ----------
Net sales $ 25.1 $ - $ 25.1 $ 31.8 $ 12.2 $ 19.6
Operating profit 4.4 - 4.4 3.4 1.0 2.4
======== ======== ========== ======== ======== ==========
(1) Continuing Business for the third quarter of both years excludes results
from the Jack Wolfskin operation, which was sold in the fourth quarter of
fiscal 2002, but was not treated as a discontinued operation in accordance
with GAAP.
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JOHNSON OUTDOORS INC.
Outdoor Equipment Segment
Nine Month Comparisons - As Reported and on Continuing Business Basis
(Amounts in millions)
Nine Months Ended June 27, 2003 Nine Months Ended June 28, 2002
------------------------------- -------------------------------
Less Less
As Jack Continuing As Jack Continuing
Reported Wolfskin Business (1) Reported Wolfskin Business (1)
-------- -------- ---------- -------- -------- ----------
Net sales $ 55.9 $ 0.4 $ 55.5 $ 87.3 $ 40.6 $ 46.7
Operating profit 8.9 (0.1) 9.0 10.9 4.8 6.1
======== ======== ========== ======== ======== ==========
(1) Continuing Business for the nine months of both years excludes results from
the Jack Wolfskin operation, which was sold in the fourth quarter of fiscal
2002, but was not treated as a discontinued operation in accordance with
GAAP.
Financial Condition
The following discusses changes in the Company's liquidity and capital resources
related to continuing operations.
Operations
Cash flows used for operations totaled $35.5 million for the nine months ended
June 27, 2003 compared with $3.7 million provided by operations for the
corresponding period of the prior year.
Accounts receivable seasonally increased $33.4 million for the nine months ended
June 27, 2003, compared to an increase of $27.2 million in the year ago period.
Inventories increased by $7.0 million for the nine months ended June 27, 2003
compared to a decrease of $3.4 million in the prior year period. The additional
inventory build in the current year is primarily related to operational issues
in the Watercraft segment and timing of orders in the Outdoor Equipment
business. The Company believes it is producing products at levels adequate to
meet expected consumer demand.
Accounts payable and accrued liabilities decreased $3.1 million for the nine
months ended June 27, 2003 versus an increase of $13.5 million for the
corresponding period of the prior year.
Depreciation and amortization charges were $5.8 million for the nine months
ended June 27, 2003 and $6.8 million for the corresponding period of the prior
year.
Investing Activities
Cash used for investing activities totaled $5.6 million for the nine months
ended June 27, 2003 versus $1.6 million for the corresponding period of the
prior year.
Expenditures for property, plant and equipment were $5.6 million for the nine
months ended June 27, 2003 and $6.6 million for the corresponding period of the
prior year. The Company's recurring investments are made primarily for tooling
for new products and enhancements. In 2003, capitalized expenditures are
anticipated to be below $10.0 million. These expenditures are expected to be
funded by working capital or existing credit facilities. The Company sold its
former headquarters facility to a related party in the first quarter of the
prior year. Proceeds from the sale were $5.0 million.
Financing Activities
Cash flows used for financing activities totaled $7.3 million for the nine
months ended June 27, 2003 versus cash provided by financing activities of $6.8
million for the corresponding period of the prior year. The Company made
principal payments on senior notes of $8.1 million in the current year and $11.6
million in the prior year. The Company consummated a private placement of
long-term debt totaling $50.0 million during the first quarter of the prior
year. Proceeds from the debt were used to reduce outstanding indebtedness under
the Company's primary revolving credit facility.
-13-
JOHNSON OUTDOORS INC.
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.
On February 21, 2003, the competition department of the European Commission
initiated formal proceedings in a case concerning certain provisions in the
former distribution arrangements of the Company's European Scubapro/Uwatec
subsidiaries. The Company responded to the Commission's views at a hearing on
July 1, 2003. The Company has been and will aggressively pursue its position. At
this preliminary stage in the procedure, the Commission has indicated that it is
considering imposing an unspecified fine on the Company and its European
Scubapro/Uwatec subsidiaries. The Company cannot currently predict the outcome
of the investigation.
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 Euros, Swiss francs, Japanese yen and
Canadian dollars. As the values of the currencies of the foreign countries in
which the Company has operations increase or decrease relative to the U.S.
dollar, the sales, expenses, profits, assets and liabilities of the Company's
foreign operations, as reported in the Company's Consolidated Financial
Statements, increase or decrease, accordingly. The Company may mitigate 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.
Interest Rates
The Company's debt structure and interest rate risk are managed through the use
of fixed and floating rate debt. The Company's primary exposure is to United
States interest rates. The Company also periodically enters into interest rate
swaps, caps or collars to hedge its exposure and lower financing costs.
Commodities
Certain components used in the Company's products are exposed to commodity price
changes. The Company manages this risk through instruments such as purchase
orders and non-cancelable supply contracts. Primary commodity price exposures
are metals, plastics and packaging materials.
Sensitivity to Changes in Value
The estimates that follow are intended to measure the maximum potential fair
value or earnings the Company could lose in one year from adverse changes in
market interest rates 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
-14-
JOHNSON OUTDOORS INC.
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 fixed rate debt. The table below presents the
estimated maximum potential one year loss in fair value and earnings before
income taxes from a 100 basis point movement in interest rates on market risk
sensitive instruments outstanding at June 27, 2003:
(millions) Estimated Impact on
- ---------- -------------------
Earnings Before Income
Fair Value Taxes
---------- ----------------------
Interest rate instruments $1.9 $0.8
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.
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
-15-
JOHNSON OUTDOORS INC.
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 29, 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 nine 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 first 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Information with respect to this item is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations under the heading
"Market Risk Management."
-16-
JOHNSON OUTDOORS INC.
Item 4. Controls and Procedures
(a) As of the end of the period covered by this Quarterly Report on Form 10-Q,
the Company's management carried out an evaluation, with the participation
of the Company's principal executive officer and principal financial
officer, of the effectiveness of the Company's disclosure controls and
procedures. Based upon that evaluation, the Company's principal executive
officer and principal financial officer concluded that the Company's
disclosure controls and procedures were effective in alerting them in a
timely manner to material information relating to the Company (including
the Company's consolidated subsidiaries) required to be included in the
Company's periodic filings under the Securities Exchange Act of 1934, as
amended.
(b) There was no change in the Company's internal control over financial
reporting that occurred during the period covered by this Quarterly Report
on Form 10-Q that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On February 21, 2003, the competition department of the European Commission
initiated formal proceedings in a case concerning certain provisions in the
former distribution arrangements of the Company's European Scubapro/Uwatec
subsidiaries. The Company responded to the Commission's views at a hearing on
July 1, 2003. The Company has been and will aggressively pursue its position. At
this preliminary stage in the procedure, the Commission has indicated that it is
considering imposing an unspecified fine on the Company and its European
Scubapro/Uwatec subsidiaries. The Company cannot currently predict the outcome
of the investigation.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this Form 10-Q
31.1 Certification by the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32 Certification of Periodic Financial Report by the Chief Executive
Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
On April 24, 2003, the Company filed a Current Report on Form 8-K dated
April 24, 2003 furnishing under Item 12 the Company's earnings press
release for the reporting period ended March 28, 2003.
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JOHNSON OUTDOORS INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHNSON OUTDOORS INC.
Signatures Dated: August 11, 2003
/s/ Helen P. Johnson-Leipold
---------------------------------------
Helen P. Johnson-Leipold
Chairman and Chief Executive Officer
/s/ Paul A. Lehmann
---------------------------------------
Paul A. Lehmann
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
-18-
Exhibit Index to Quarterly Report on Form 10-Q
Exhibit
Number Description
- ------- -----------
31.1 Certification by the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32 Certification of Periodic Financial Report by the Chief Executive
Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.