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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 January 2, 2004

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

(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 January 31, 2004, 7,446,528 shares of Class A and 1,222,297 shares of Class B common stock of the Registrant were outstanding.

JOHNSON OUTDOORS INC.

PART I  FINANCIAL INFORMATION

Item 1.  Financial Statements

JOHNSON OUTDOORS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

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JOHNSON OUTDOORS INC.

CONSOLIDATED BALANCE SHEETS
(unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

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JOHNSON OUTDOORS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

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JOHNSON OUTDOORS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

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Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion includes comments and analysis relating to the results of operations and financial condition of Johnson Outdoors Inc. and its subsidiaries (the Company) for the three months ended January 2, 2004 and December 27, 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 Annual Report on Form 10-K for the fiscal year ended October 3, 2003.

Forward Looking Statements

Certain matters discussed in this Form 10-Q are “forward-looking statements,” and the Company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of those safe harbor provisions. These forward-looking statements can generally be identified as such because the context of the statement includes phrases such as the Company “expects,” “believes” or other words of similar meaning. Similarly, statements that describe the Company’s future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include changes in consumer spending patterns; the Company’s success in implementing its strategic plan, including its focus on innovation; actions of companies that compete with the Company; the Company’s success in managing inventory; movements in foreign currencies or interest rates; unanticipated issues related to the Company’s military tent business; the success of suppliers and customers; the ability of the Company to deploy its capital successfully; unanticipated outcomes related to outstanding litigation matters; 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.

Overview

The Company is a leading global outdoor recreation company that turns ideas into adventure with innovative, top-quality products. The Company designs, manufactures and markets a portfolio of consumer-preferred brands across four categories: Motors, Outdoor Equipment, Watercraft and Diving. Johnson Outdoors’ familiar brands include, among others: Minn Kota® motors; Eureka!® tents; Old Town® canoes and kayaks; Ocean Kayak™, Necky™ and Dimension® kayaks; and SCUBAPRO®, SnorkelPro and UWATEC® dive equipment. The Company has 24 locations around the world, employs 1,400 people and reported annual sales of $315.9 million in fiscal 2003.

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 is intended to promote entrepreneurialism and leverage best practices and synergies, following the strategic vision set by senior managers and approved by the Company’s Board of Directors.

Due to the seasonality of the Company’s market segments, first quarter results may not be indicative of the Company’s primary selling period, which takes place in its second and third fiscal quarters. The table below sets forth a historical view of the Company’s seasonality.

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JOHNSON OUTDOORS INC.

Results of Operations

The Company’s sales and operating earnings by segment are summarized as follows:

See Note 9 in the notes to the consolidated financial statements for the definition of segment net sales and operating profits.

Net sales on a consolidated basis for the three months ended January 2, 2004 totaled $62.9 million, an increase of 14.7% or $8.0 million, compared to $54.9 million in the three months ended December 27, 2002. Foreign currency translations favorably impacted quarterly sales by $2.6 million in the first quarter of fiscal 2004. All of the Company’s business units had sales growth over the prior year. The Motors business sales increased $3.0 million, or 20.0%, to $18.0 million. Motors continues to exhibit strength from growth in new products and distribution channel expansion. Sales for the Outdoor Equipment business increased $3.9 million, or 32.8%, to $15.8 million. Military sales in the current fiscal year accounted for this growth; however, the Company does not necessarily expect the same level of growth in this channel in future quarters. The Watercraft business sales increased $0.5 million, or 4.5%, to $12.4 million. The Diving business sales increased $0.5 million, or 2.8%, to $16.9 million, including favorable currency translations totaling $2.0 million resulting from the strengthening of the Euro against the U.S. Dollar. This market segment continues to suffer from the decline of travel to major dive destinations.

Gross profit as a percentage of sales was 42.8% for the three months ended January 2, 2004 compared to 43.1% in the corresponding period in the prior year. Improvements in mix and volume in Motors and Diving were more than offset by operating inefficiencies and low volume due to delays in the delivery of new molds to the Watercraft business.

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JOHNSON OUTDOORS INC.

The Company recognized operating profit of $1.3 million for the three months ended January 2, 2004 compared to an operating profit of $0.2 million for the corresponding period of the prior year. Operating profit for the three months ended January 2, 2004 benefited from approximately $0.7 million in adjustments to accruals and reserve balances. Operating profit improvement in the Motors business from sales growth and improved margins and in the Outdoor Equipment business from the strength of military sales, were offset by declines in the Watercraft and Diving businesses.

Interest expense totaled $1.4 million for the three months ended January 2, 2004, which was flat relative to the corresponding period of the prior year. In the current year, although total overall debt declined, increases in the effective interest rates on debt outstanding resulted in comparable levels of interest expense. The increases in effective interest rates resulted from the Company’s termination of two interest rate swap agreements during the quarter. The termination of the swap agreements locked in gains of $0.9 million that will be amortized over the remaining life of the debt agreements. These agreements were terminated to fix interest rates, thereby reducing the risks of possible future interest rate increases. The Company still holds interest rate swap agreements on a portion of its fixed rate debt; these agreements are discussed below in the liquidity section.

Interest income declined to $0.2 million for the three months ended January 2, 2004 from $0.4 million for the three months ended December 27, 2002, as cash balances and market rates on short-term cash investments declined.

Other income declined to $0.1 million for the three months ended January 2, 2004 from $0.4 million for the three months ended December 27, 2002. The change in other income from the prior year is primarily related to currency translation gains resulting from the appreciation of the Euro relative to the U.S. Dollar.

The Company’s effective tax rate for the three months ended January 2, 2004 was 38.9%, down from 43.5% for the corresponding period of the prior year, primarily due to the geographic mix of earnings.

Net Income (Loss)

Net income for the three months ended January 2, 2004 was $0.2 million, or $0.02 per diluted share, compared to a loss of $0.3 million, or $0.03 per diluted share, for the corresponding period of the prior year.

New Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 requires expanded and more prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method on reported results.

The Company has not adopted a method under SFAS No. 148 to expense stock options but rather continues to apply the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for those plans. No stock-based employee compensation expense for options is reflected in net income for the fiscal periods presented as all options granted under those plans had an exercise price equal to or lower than the market price of the underlying common stock at the date of grant. A pro forma effect table is presented in Note 3 to the Company’s consolidated financial statements on net income and earnings per share assuming the fair value recognition provisions of SFAS No. 123 would have been adopted for options granted since fiscal 1995.

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In December 2003, the FASB issued the revised SFAS No. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits (SFAS 132). The revised SFAS 132 retains the disclosures required by the original issuance of SFAS 132 and requires additional annual disclosures describing the types of plan assets, investment strategy, measurement date, plan obligations and cash flows. The Company will include the revised SFAS 132 annual disclosures in its Annual Report on Form 10-K for the fiscal year ending October 1, 2004. The revised SFAS 132 also requires additional interim period disclosures, including the components of net periodic benefit cost and changes in planned contributions. The Company is required to include the interim period disclosures of the revised SFAS 132 beginning in the second quarter of fiscal 2004.

In January 2003, the FASB issued Interpretation 46, Consolidation of Variable Interest Entities (FIN No. 46), which requires the consolidation of variable interest entities (VIEs). VIEs are entities for which control is achieved through means other than voting rights. The consolidation requirements of FIN No. 46 were applicable immediately to all VIEs in which an interest was acquired after January 31, 2003. For VIEs in which an interest was acquired before February 1, 2003, the consolidation requirements of FIN No. 46 are generally effective at the end of the Company’s 2004 fiscal year. FIN No. 46 has not had, and is not expected to have, a significant impact on the Company’s consolidated financial statements.

Financial Condition

The Company’s cash flow from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, is summarized in the following table:

In the first quarter, the Company typically invests in operating assets in anticipation of the Company’s selling season, which is strongest in the second and third quarters of the Company’s fiscal year.

The Company’s debt to equity ratio has declined to 31% as of January 2, 2004 from 38% as of December 27, 2002, further strengthening the Company’s liquidity and strategic flexibility.

Operating Activities

Cash flows used for operations totaled $19.7 million for the three months ended January 2, 2004 compared with $29.9 million used for operations for the corresponding period of the prior year.

Accounts receivable increased $6.6 million for the three months ended January 2, 2004, compared to an increase of $5.5 million in the year ago period. Inventories increased by $9.4 million for the three months ended January 2, 2004 compared to an increase of $6.7 million in the prior year period. The additional inventory build in the current year is primarily related to a build-up of products for the Diving business and timing of military tent orders in the Outdoor Equipment business. The Company believes it is producing products at levels adequate to meet expected customer demand.

Accounts payable and accrued liabilities decreased $2.8 million for the three months ended January 2, 2004 versus a decrease of $17.0 million for the corresponding period of the prior year. The decrease during the quarter ended December 27, 2002 was the result of settlement of various accruals.

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JOHNSON OUTDOORS INC.

Depreciation and amortization charges were $1.8 million for the three months ended January 2, 2004 and $1.9 million for the corresponding period of the prior year.

Investing Activities

Cash used for investing activities, consisting solely of expenditures for property, plant and equipment, totaled $1.4 million for the three months ended January 2, 2004 versus $1.7 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 2004, capitalized expenditures are anticipated to be in line with prior year levels. These expenditures are expected to be funded by working capital or existing credit facilities.

Financing Activities

Cash flows used for financing activities totaled $9.2 million for the three months ended January 2, 2004 and $7.6 million for the corresponding period of the prior year. The Company made principal payments on senior notes and other long-term debt of $9.5 million and $8.0 million in November 2003 and 2002, respectively.

In addition to cash generated by operating activities, the Company has access to existing financing sources, including its $70.0 million unsecured revolving credit facility. This facility expires in August 2004. The Company expects to pursue a renewal of this facility. At January 2, 2004, the Company had no outstanding borrowings on this credit agreement.

Obligations and Off Balance Sheet Arrangements

The Company has obligations and commitments to make future payments under debt and operating leases. The following schedule details these obligations at January 2, 2004.

⁽¹⁾     Excludes fair value adjustment of hedged debt.

The Company also utilizes letters of credit for trade financing purposes. Letters of credit outstanding at January 2, 2004 total $3.0 million.

The Company has no off-balance sheet arrangements.

Recent Developments

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. On January 29, 2004, the Commission notified the Company of its decision to close the file without taking any further action.

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. The Company may reduce exposure to certain of these market risks by entering into hedging transactions authorized under Company policies that place controls on these activities. Hedging transactions involve the use of a variety of derivative financial instruments. Derivatives are used only where there is an underlying exposure, not for trading or speculative purposes.

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JOHNSON OUTDOORS INC.

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 has mitigated a portion of the fluctuations in certain foreign currencies through the purchase of foreign currency swaps, forward contracts and options to hedge known commitments, primarily for purchases of inventory and other assets denominated in foreign currencies; however, no such transactions were entered into during fiscal 2003 or the first quarter of fiscal 2004.

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. 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 the senior notes outstanding at January 2, 2004:

The Company has outstanding $67.0 million in unsecured senior notes as of January 2, 2004. The senior notes have interest rates that range from 6.98% to 7.82% and principal payments through December 2008. The fair market value of the Company’s fixed rate debt was $74.6 million as of January 2, 2004.

The Company has entered into interest rate swap agreements on a portion of its senior notes. As of January 2, 2004, the notional amount of the swaps was $4.2 million. The swap agreements effectively reduced interest rates to a range of 4.55% to 3.90% on the notional amounts. The swap agreements expire in fiscal year 2005. The fair market value of the Company’s swap agreements was less than $0.1 million as of January 2, 2004.

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JOHNSON OUTDOORS INC.

On November 6, 2003, the Company terminated the swap instruments relating to the 1998 and 2001 debt instruments. The Company realized gains on the 1998 and 2001 instruments of $0.2 million and $0.7 million, respectively. The gains will be amortized as a reduction in interest expense over the remaining life of the underlying debt instruments.

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’s critical accounting policies are identified in the Company’s Annual Report on Form 10-K for the fiscal year ending October 3, 2003 in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Critical Accounting Policies and Estimates.” There were no significant changes to the Company’s critical accounting policies during the three months ended January 2, 2004.

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.”

Item 4.  Controls and Procedures

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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. On January 29, 2004, the Commission notified the Company of its decision to close the file without taking any further action.

Item 6.  Exhibits and Reports on Form 8-K

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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.

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Exhibit Index to Quarterly Report on Form 10-Q

Exhibit
Number        Description