Attached files

file filename
EX-3.2 - EX 3.2 TO JOUT 2010 10-K - JOHNSON OUTDOORS INCex32jout201010k.htm
EX-23.2 - EX 23.2 TO JOUT 2010 10-K - JOHNSON OUTDOORS INCex232jout201010k.htm
EX-32.1 - EX32.1 TO JOUT 2010 10-K - JOHNSON OUTDOORS INCex321jout201010k.htm
EX-23.1 - EX 23.1 TO JOUT 2010 10-K - JOHNSON OUTDOORS INCex231jout201010k.htm
EX-31.2 - EX 31.2 TO JOUT 2010 10-K - JOHNSON OUTDOORS INCex312jout201010k.htm
EX-21.1 - EX 21.1 TO JOUT 2010 10-K - JOHNSON OUTDOORS INCex211jout201010k.htm
EX-31.1 - EX31.1 TO JOUT 2010 10-K - JOHNSON OUTDOORS INCex311tojout201010k.htm
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 October 1, 2010
 
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 incorporation or organization)
(I.R.S. Employer Identification No.)
 
555 Main Street, Racine, Wisconsin 53403
(Address of principal executive offices, including zip code)
 
(262) 631-6600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
Name of Exchange on Which Registered
Class A Common Stock, $.05 par value per share
NASDAQ Global MarketSM

Securities registered pursuant to section 12(g) of the Act:  None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.       Yes  [    ] No  [ X ]
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.       Yes  [    ] No  [ X ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  [ X ] No  [     ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  [     ] 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]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of "large accelerated filer,” “accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
 
Large Accelerated Filer           [     ]
Accelerated Filer                      [     ]
Non-Accelerated Filer             [     ]
(do not check if a smaller reporting company)
Smaller Reporting Company   [ X ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  [    ] No  [ X ]
 
As of November 30, 2010, 8,363,485 shares of Class A and 1,216,464 shares of Class B common stock of the registrant were outstanding. The aggregate market value of voting and non-voting Class A common stock of the registrant held by nonaffiliates of the registrant was approximately $51,702,952 on April 1, 2010 (the last business day preceding the registrant’s most recently completed second quarter) based on approximately 4,571,437 shares of Class A common stock held by nonaffiliates. For purposes of this calculation only, shares of all voting stock are deemed to have a market value of $11.31 per share, the closing price of the Class A common stock as reported on the NASDAQ Global MarketSM on April 1, 2010. Shares of common stock held by any executive officer or director of the registrant (including all shares beneficially owned by the Johnson Family) have been excluded from this computation because such persons may be deemed to be affiliates. This determination of affiliate status is not a conclusive determination for other purposes.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Proxy Statement for the 2011 Annual Meeting of the Shareholders of the Registrant are incorporated by reference into Part III of this report.
 
As used in this report, the terms "we," "us," "our," "Johnson Outdoors" and the "Company" mean Johnson Outdoors Inc. and its subsidiaries, unless the context indicates another meaning.
 
 
 
 

 
 

 
 
 
TABLE OF CONTENTS
Page
Business
1
Risk Factors
6
Properties
10
Legal Proceedings
11
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
12
Selected Financial Data
14
Management’s Discussion and Analysis of Financial Condition and Results of Operations
14
Quantitative and Qualitative Disclosures about Market Risk
21
Financial Statements and Supplementary Data
21
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
22
Controls and Procedures
22
Other Information
22
Directors, and Executive Officers and Corporate Governance
23
Executive Compensation
23
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
23
Certain Relationships and Related Transactions, and Director Independence
24
Principal Accountant Fees and Services
24
Exhibits and Financial Statement Schedules
24
Signatures
25
Exhibit Index
27
Consolidated Financial Statements
F-1
 
Forward Looking Statements
 
Certain matters discussed in this Form 10-K are “forward-looking statements,” and the Company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of those safe harbor provisions. These forward-looking statements can generally be identified as such because they include phrases such as the Company “expects,” “believes,” “anticipates” or other words of similar meaning. Similarly, statements that describe the Company’s future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated.

Factors that could affect actual results or outcomes include the matters described under the caption "Risk Factors" in Item 1A of this report and the following:  changes in consumer spending patterns; the Company’s success in implementing its strategic plan, including its focus on innovation and on cost-cutting and revenue enhancement initiatives; actions of and disputes with companies, including companies that compete with the Company; the Company’s success in managing inventory; the risk that the Company’s lenders may be unwilling to provide a waiver or amendment if the Company is in violation of its financial covenants and the cost to the Company of obtaining any waiver or amendment the lenders would be willing to provide; the risk of future writedowns of goodwill or other intangible assets; movements in foreign currencies or interest rates; ability of the Company’s customers to meet payment obligations; fluctuations in the prices of raw materials or the availability of raw materials used by the Company; the Company’s success in restructuring certain of its operations; the success of the Company’s suppliers and customers; the ability of the Company to deploy its capital successfully; unanticipated outcomes related to outsourcing certain manufacturing processes; unanticipated outcomes related to outstanding litigation matters; and adverse weather conditions. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this filing. The Company assumes no obligation, and disclaims any obligation, to update such forward-looking statements to reflect subsequent events or circumstances.

 
 

 


Trademarks
 
We have registered the following trademarks, which are used in this report: Minn Kota®, Cannon®, Humminbird®, Fishin' Buddy®, Silva®, Eureka!®, Tech4O, Geonav®, Old Town®, Ocean Kayak, Necky®, Extrasport®, Carlisle®, Scubapro®, UWATEC® and SUBGEAR®.
 
PART I
 
ITEM 1.     BUSINESS
 
Johnson Outdoors is a leading global manufacturer and marketer of branded seasonal, outdoor recreation products used primarily for fishing, diving, paddling and camping. The Company’s portfolio of well-known consumer brands has attained leading market positions due to continuous innovation, marketing excellence, product performance and quality.  Company values and culture support innovation in all areas, promoting and leveraging best practices and synergies within and across its subsidiaries to advance the Company’s strategic vision set by executive management and approved by the Board of Directors.  The Company is controlled by Helen P. Johnson-Leipold (Chairman and Chief Executive Officer), members of her family and related entities.
 
The Company was incorporated in Wisconsin in 1987 as successor to various businesses.
 
Marine Electronics
 
The Company’s Marine Electronic segment brands are: Minn Kota battery-powered fishing motors for quiet trolling or primary propulsion; Humminbird sonar and GPS equipment for fishfinding and navigation; Cannon downriggers for controlled-depth fishing; and Geonav large, leisure boat navigation technology.
 
Marine Electronics brands and related accessories are sold across the globe, with approximately 75% of sales coming from North America through large outdoor specialty retailers, such as Bass Pro Shops and Cabela’s, large retail store chains, marine products distributors, international distributors and original equipment manufacturers (OEM), such as Ranger Boats and Skeeter Boats.
 
Marine Electronics has achieved market share gains by focusing on product innovation, quality products and effective marketing.  Such consumer marketing and promotion activities include: product placements on fishing-related television shows; print advertising and editorial coverage in outdoor, general interest and sport magazines; professional angler and tournament sponsorships; packaging and point-of-purchase materials and offers to increase consumer appeal and sales; branded websites; social media networks; and online promotions.
 
Outdoor Equipment
 
The Company’s Outdoor Equipment segment brands are:  Eureka! consumer, commercial and military tents and accessories, sleeping bags, camping furniture and other recreational camping products; Silva field compasses and digital instruments; and Tech40 performance measurement instruments.
 
Eureka! consumer tents, sleeping bags, camping furniture and other recreational camping products are mid- to high-price range products sold in the U.S. and Canada through independent sales representatives, primarily to sporting goods stores, catalog and mail order houses, camping and backpacking specialty stores, and through internet retailers. Marketing of the Company’s tents, sleeping bags and other recreational camping products is focused on building the Eureka! brand name and establishing the Company as a leader in tent design and innovation. The Company’s camping tents and sleeping bags are produced by third party manufacturing sources in Asia.  Eureka! camping products are sold under license in Japan, Australia and Europe.
 

 
1

 

 
Eureka! commercial tents include party tents and accessories, sold primarily to general rental stores, and other commercial tents and accessories sold directly to tent erectors. The Company’s tent products range from 10’x10’ canopies to 120’ wide pole tents and other large scale frame structures and are manufactured by the Company at the Company’s Binghamton, New York location.  Commercial tent accessories include lighting systems, interior lining options, and mounting brackets that allow the interior of the tents to be customized to suit the occasion.
 
Eureka! also designs and manufactures large, heavy-duty tents and lightweight backpacking tents for the military at its Binghamton, New York location. Tents produced for military use in the last twelve months include modular general purpose tents, rapid deployment shelters and various lightweight one and two person tents. The Company manufactures military tent accessories like fabric floors and tent liners and is also a subcontract manufacturer for other providers of military tents.
 
Silva field compasses are manufactured by the Company and marketed exclusively in North America where the Company owns Silva trademark rights. Tech40 digital instruments and other branded products are manufactured by third parties and are primarily sold in the North American market.
 
Watercraft
 
The Company’s Watercraft brands are:  Old Town canoes and kayaks; Ocean Kayak; Necky kayaks; Carlisle paddles; and Extrasport personal flotation devices.
 
In its Old Town, Maine facility, the Company produces high quality Old Town kayaks, canoes and accessories for family recreation, touring and tripping. The Company uses a rotational molding process for manufacturing polyethylene kayaks and canoes to compete in the high volume, low and mid price range of the market. These kayaks and canoes feature stiffer and more durable hulls than higher priced boats. The Company uses a thermo-form molding process in the manufacturing of lower priced models.  The Company also markets canoes built from Royalex (ABS) and wood.
 
During 2009, the Company consolidated operations for its U.S. paddle sports brands in Old Town, Maine, and closed its plant in Ferndale, Washington. Sit-on-top Ocean Kayaks and high performance Necky sea touring kayaks, which had formerly been produced in Ferndale, are now manufactured at the Old Town, Maine facility.
 
The Company also manufactures Watercraft products in New Zealand and contracts for manufacturing of Watercraft products with third parties in Michigan, Tunisia and the Czech Republic.
 
Watercraft accessory brands, including Extrasport personal flotation devices and Carlisle branded paddles, are produced primarily by third-party sources.
 
The Company’s kayaks, canoes and accessories are sold primarily through large outdoor specialty retailers, such as Bass Pro Shops and Cabela’s, large retail sporting goods stores and catalog and mail order houses in the U.S., Europe and the Pacific Basin.
 
The Company’s Watercraft business has grown by introducing product innovations, creating quality products and by focusing on the product-specific needs of each marketing channel.  Consumer marketing and promotion activities include: print advertising and editorial coverage in outdoor, general interest and sport magazines; direct marketing; branded websites and social media networks.
 
Diving
 
The Company manufactures and markets underwater diving products for technical and recreational divers, which it sells and distributes under the SCUBAPRO, UWATEC, SUBGEAR and Seemann brand names.
 
The Company markets a complete line of underwater diving and snorkeling equipment, including regulators, buoyancy compensators, dive computers and gauges, wetsuits, masks, fins, snorkels and accessories. SCUBAPRO and UWATEC diving equipment is marketed to the premium segment of the market for both diving enthusiasts and more technical, advanced divers. SUBGEAR and Seemann products are marketed to the recreational diver interested in owning quality equipment at an affordable price. Products are sold via select distribution to independent specialty dive stores worldwide. These specialty dive stores generally provide a wide range of services to divers, including sales, service and repair, diving education and travel.  The Company also sells diving gear to dive training centers and resorts.
 

 
2

 

 
The Company focuses on maintaining SCUBAPRO and UWATEC as the market leaders in innovation. The Company maintains research and development functions in the U.S. and holds a number of patents on proprietary products. The Company’s consumer communication focuses on building the brand and highlighting exclusive product features and consumer benefits of the SCUBAPRO and UWATEC product lines. The Company’s communication and distribution reinforce the SCUBAPRO and UWATEC brands’ position as the industry’s quality and innovation leader. The Company markets its equipment in diving magazines, via websites and through dive specialty stores. SUBGEAR and Seemann’s full line of dive equipment and accessories compete in the mid-market on the basis of quality at an affordable price.
 
The Company manufactures regulators, dive computers, gauges, and instruments at its Italian and Indonesian facilities.  The Company sources buoyancy compensators, neoprene goods, plastic products, proprietary materials, and other components from third parties.
 
Financial Information for Business Segments
 
As noted above, the Company has four reportable business segments. See Note 14 to the consolidated financial statements included elsewhere in this report for financial information concerning each business segment.
 
International Operations
 
See Note 14 to the consolidated financial statements included elsewhere in this report for financial information regarding the Company’s domestic and international operations. See Note 1, subheading “Foreign Operations and Related Derivative Financial Instruments,” to the consolidated financial statements included elsewhere in this report for information regarding risks related to the Company’s foreign operations.
 
Research and Development
 
The Company commits significant resources to new product research and development in each of its business segments.  Marine Electronics conducts all of its product research, design, engineering and software development activities at its locations in Mankato, Minnesota; Alpharetta and Atlanta, Georgia; Eufaula, Alabama; Shanghai, China; and Viareggio, Italy.  Diving maintains research and development facilities in Spreitenbach, Switzerland; and Casarza Ligure, Italy.  Research and development activities for Watercraft are performed in Bellingham, Washington.  Product research, design and innovation for Outdoor Equipment products are conducted at the Company's Binghamton, New York location.
 
The Company expenses research and development costs as incurred, except for software development for new electronics products.  These costs are capitalized once technological feasibility is established and then amortized over the expected life of the software. The amounts expensed by the Company in connection with research and development activities for each of the last two fiscal years are set forth in the Company’s Consolidated Statements of Operations included elsewhere in this report.
 
Industry and Competitive Environment
 
The Company believes its products compete favorably on the basis of product innovation, product performance and marketing support and, to a lesser extent, price.
 
Marine Electronics:  Minn Kota’s main competitors in the electric trolling motors business are Motor Guide, owned by Brunswick Corporation, and private label branded motors sourced primarily from manufacturers in Asia.  Competition in this business is focused on technological innovation, product quality and durability as well as product benefits and features for fishing. Humminbird’s main competitors in the fishfinder market are Lowrance and Garmin.  Competition in this business is primarily focused on the quality of sonar imaging and display as well as the integration of mapping and GPS technology. Cannon’s main competitors in the downrigger market are Big Jon, Walker and Scotty. Competition in this business primarily focuses on ease of operation, speed and durability. Geonav’s main competitors in the marine navigation business are Raymarine, Garmin, Simrad, and Furuno.  Competition in this business is primarily focused on innovative designs, quality, easy to use graphical interfaces, resolution of display imaging, leading edge processing power, sales and service capabilities and ease of product integration with related marine electronics devices.
 

 
3

 

 
Outdoor Equipment:  The Company’s outdoor equipment brands and products compete in the sporting goods and specialty segments of the outdoor equipment market. Competitive brands with a strong position in the sporting goods channel include Coleman and private label brands. The Company also competes with specialty companies such as The North Face, Kelty and Slumberjack on the basis of materials and innovative designs for consumers who want performance products priced at a value.
 
Commercial tent market competitors include Anchor Industries and Aztec for tension and frame tents, along with canopies based on structure and styling.
 
The Company sells military tents to prime vendors and third party distributors who hold supply contracts from the U.S. Government.  Such supply contracts can be for commercial off-the-shelf products in addition to products required to be built to unique specifications.  Competitors in the military tent business include Base-X, DHS Systems, Alaska Structures, Camel, Outdoor Venture, and Diamond Brand.
 
Watercraft:  The Company primarily competes in the kayak and canoe product categories of the paddlesports market. The Company’s main competitors in this market are Confluence Watersports, Pelican, Wenonah Canoe and Legacy Paddlesports, each of which primarily competes on the basis of their design, performance, quality and price.
 
Diving:  The main competitors in Diving include Aqualung/U.S. Divers, Oceanic, Mares, Cressi-sub, and Suunto.  Competitive advantage in the life support product category of this segment, which consists of regulators, dive computers, and buoyancy compensators, is a function of product innovation, performance, quality and safety.  Competition in the general diving product category of fins, masks, snorkels and wetsuits is characterized by low barriers to entry and numerous competitors who compete on the basis of product innovation, performance, quality and price.
 
Employees
 
At October 1, 2010, the Company had approximately 1,255 regular, full-time employees. The Company considers its employee relations to be excellent. Temporary employees are utilized primarily to manage peaks in the seasonal manufacturing of products.
 
Patents, Trademarks and Proprietary Rights
 
The Company owns various patents covering the Humminbird Side Imaging sonar technology used in its fishfinder products.  Side Imaging sonar technology is used across a broad range of the Company’s Humminbird product portfolio and has been a key driver behind the brand’s growth over the past four years.  The Company also holds various patents for diving products and electric motors, amongst other products, and regularly files applications for patents.
 
The Company has numerous trademarks and trade names which it considers important to its business, many of which are noted in this report. Historically, the Company has vigorously defended its intellectual property rights and the Company expects to continue to do so.
 
Supply Chain and Sourcing of Materials
 
The Company manufactures some products that use materials that, due to geographical distance, limited supplier capacity or competing demands for such materials, are only available in a cost effective manner from a single vendor or require the Company to place orders several months in advance of required delivery.  The Company has experienced component shortages in its Marine Electronics and Diving businesses as component suppliers have been slow to increase their productive capacity after reducing it during the recent global recession.
 

 
4

 

 
The Company mitigates such product availability and supply chain risks through purchase of safety stocks, forecast-based supply contracts, and to a lesser extent with just in time inventory deliveries or supplier-owned inventory located close to the Company’s manufacturing locations.  The Company strives to balance the imperative of holding adequate inventory with the cost of holding such inventory by manufacturing to forecast for high volume products, utilizing build-to-order strategies wherever possible, and by having contract manufactured products delivered to customers directly from suppliers.
 
As military contracts require utilization of domestic suppliers, the Company is limited to key vendors for materials used in its military tent business. Interruption or loss in the availability of these materials could have a material adverse impact on the sales and operating results of the Company’s Outdoor Equipment business.
 
Most of the Company’s products are made using materials that are generally in adequate supply and are available from a variety of third party suppliers.
 
Seasonality
 
The Company’s products are outdoor recreation-related, which results in seasonal variations in sales and profitability. This seasonal variability is due to customers’ increasing their inventories in the quarters ending March and June, the primary selling season for the Company’s outdoor recreation products, with lower inventory volumes during the quarters ending September and December. The Company mitigates the seasonality of its businesses somewhat by encouraging customers to purchase and take delivery of products more evenly through the year.  The following table shows, for the past two fiscal years, the total net sales and operating profit or loss of the Company for each quarter, as a percentage of the total year.
 
   
Year Ended
   
      2010     2009    
Quarter Ended
 
Net
Sales
   
Operating
Profit
   
Net
Sales
   
Operating
Profit
   
December
    18 %     -24 %     20 %     -1918 %  
March
    30 %     55 %     30 %     2127 %  
June
    32 %     92 %     32 %     3888 %  
September
    20 %     -23 %     18 %     -3997 %  
      100 %     100 %     100 %     100 %  

Environment and Climate Change
 
The Company is subject to various supra national, federal, state and local environmental laws, ordinances, regulations, and other requirements of governmental authorities.  We believe we comply with such laws and regulations.  Expenditures on environmental compliance have not, and we believe in the future, will not have, a material effect on the Company’s capital expenditures, earnings or competitive position.  We do not believe that any direct or indirect consequences of legislation related to climate change will have a material effect on our operating costs, facilities or products.
 
Available Information
 
The Company maintains a website at www.johnsonoutdoors.com. On its website, the Company makes available, free of charge, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practical after the reports have been electronically filed or furnished to the Securities and Exchange Commission. In addition, the Company makes available on its website, free of charge, its (a) Code of Business Conduct; (b) Code of Ethics for its Chief Executive Officer and Senior Financial and Accounting Officers; and (c) the charters for the following committees of the Board of Directors: Audit; Compensation; Executive; and Nominating and Corporate Governance. The Company is not including the information contained on or available through its website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K. This report includes all material information about the Company that is included on the Company’s website and is otherwise required to be included in this report.  Copies of any materials the Company files with the SEC can also be obtained free of charge through the SEC’s website at www.sec.gov.  The SEC’s Public Reference Room can be contacted at 100 F Street, N.E., Washington, D.C. 20549, or by calling 1 (800) 732-0330.
 

 
5

 

 
ITEM 1A.     RISK FACTORS
 
The risks described below are not the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our future business operations. If any of the events or circumstances described in the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In such cases, the trading price of our common stock could decline.
 
Our net sales and profitability depend on our ability to continue to conceive, design and market products that appeal to our consumers.
 
Our business depends on our ability to continue to conceive, design, manufacture and market new products and upon continued market acceptance of our product offering. Rapidly changing consumer preferences and trends make it difficult to predict how long consumer demand for our existing products will continue or what new products will be successful. A decline in consumer demand for our products, our failure to develop new products on a timely basis in anticipation of changing consumer preferences or the failure of our new products to achieve and sustain consumer acceptance could reduce our net sales and profitability.
 
Competition in our markets could reduce our net sales and profitability.
 
We operate in highly competitive markets. We compete with several large domestic and foreign companies such as Brunswick, Lowrance, Confluence and Aqualung/U.S. Divers, with private label products sold by many of our retail customers and with other producers of outdoor recreation products. Some of our competitors have longer operating histories, stronger brand recognition and greater financial, technical, marketing and other resources than us. In addition, we may face competition from new participants in our markets because the outdoor recreation product industries have limited barriers to entry. We experience price competition for our products, and competition for shelf space at retailers, all of which may increase in the future. If we cannot compete in our product markets successfully in the future, our net sales and profitability will likely decline.
 
General economic conditions affect the Company’s results.

Our revenues are affected by economic conditions and consumer confidence worldwide, but especially in the United States and Europe.  In times of economic uncertainty, consumers tend to defer expenditures for discretionary items, which affects demand for our products.  Moreover, our businesses are cyclical in nature, and their success is impacted by economic conditions, the overall level of consumer confidence in the economy and discretionary income levels.  Any substantial deterioration in general economic conditions that diminish consumer confidence or discretionary income can reduce our sales and adversely affect our financial results.  Moreover, declining economic conditions create the potential for future impairments of goodwill and other intangible assets that may negatively impact our financial condition and results of operations.  The impact of weak consumer credit markets; corporate restructurings; layoffs; declines in the value of investments and residential real estate; higher fuel prices and increases in federal and state taxation all can negatively affect our operating results.

Intellectual property disputes relating to our products could increase our costs.
 
Our industry is susceptible to litigation regarding patent infringement and infringement of other intellectual property rights. We could be either a plaintiff or a defendant in trademark and patent infringement claims and claims of breach of license from time to time. For example, the Company filed a patent infringement lawsuit in January of this year against a competitor for infringement of the Company’s Side Imaging sonar technology patents.  That lawsuit and the prosecution or defense of any intellectual property litigation is both costly and disruptive of the time and resources of our management, even if the claim or defense against us is without merit. We could also be required to pay substantial damages or settlement costs to resolve intellectual property litigation.
 

 
6

 

 
Furthermore, we may rely on trade secret law to protect technologies and proprietary information that we cannot or have chosen not to patent. Trade secrets, however, are difficult to protect. Although we attempt to maintain protection through confidentiality agreements with necessary personnel, contractors and consultants, we cannot guarantee that such contracts will not be breached. Further, confidentiality agreements may conflict with other agreements which personnel, contractors and consultants have signed with prior employers or clients. In the event of a breach of a confidentiality agreement or the divulgence of proprietary information, we may not have adequate legal remedies to maintain our trade secret protection. Litigation to determine the scope of intellectual property rights, even if ultimately successful, could be costly and could divert management’s attention away from the Company’s business.
 
Impairment charges could impact our future financial position and results of operations.
 
We test our goodwill and other intangible assets with indefinite useful lives for impairment on an annual basis during the fourth quarter of our fiscal year or on an interim basis if an event occurs that might reduce the fair value of the reporting unit below its carrying value. Various uncertainties, including significant adverse changes in business climate, adverse actions by regulators, unanticipated competition, loss of key customers or changes in consumer preferences could impact the expected cash flows to be generated by an intangible asset or group of intangible assets, and may result in an impairment of those assets.  Although any such impairment charge would be a non-cash expense, any impairment of our intangible assets could materially increase our expenses and reduce our profitability. 
 
Sales of our products are seasonal, which causes our operating results to vary from quarter to quarter.
 
Sales of our products are seasonal. Historically, our net sales and profitability have peaked in the second and third fiscal quarters due to the buying patterns of our customers for our products. Seasonal variations in operating results may also cause us to increase our debt levels and interest expense primarily in the second and third fiscal quarters.
 
The trading price of shares of our common stock fluctuates and investors in our common stock may experience substantial losses.
 
The trading price of our common stock has been volatile and may continue to be volatile in the future. The trading price of our common stock could decline or fluctuate in response to a variety of factors, including:
 
    the timing of our announcements or those of our competitors concerning significant product developments, acquisitions or financial performance;
    fluctuation in our quarterly operating results;
    substantial sales of our common stock;
    general stock market conditions; or
    other economic or external factors.
 
You may be unable to sell your stock at or above your purchase price.
 
A limited number of our shareholders can exert significant influence over the Company.
 
As of November 30, 2010, Helen P. Johnson-Leipold, members of her family and related entities (hereinafter the Johnson Family), held approximately 78% of the voting power of both classes of our common stock taken as a whole. This voting power would permit these shareholders, if they chose to act together, to exert significant influence over the outcome of shareholder votes, including votes concerning the election of directors, by-law amendments, possible mergers, corporate control contests and other significant corporate transactions.  Moreover, certain members of the Johnson Family have entered into a voting trust agreement covering approximately 96% of our outstanding class B common shares.  This voting trust agreement permits these shareholders, if they continue to choose to act together, to exert significant influence over the outcome of shareholder votes, including votes concerning the election of directors, by-law amendments, possible mergers, corporate control contests and other significant corporate transactions.
 

 
7

 

 
We may experience difficulties in integrating strategic acquisitions.
 
We have, as part of our strategy, historically pursued acquisitions.  The pursuit of future growth through acquisitions, including participation in joint ventures, involves significant risks that could have a material adverse effect on our business.  Risks associated with integrating strategic acquisitions include:
 
    the acquired business may experience losses which could adversely affect our profitability;
    unanticipated costs relating to the integration of acquired businesses may increase our expenses;
    possible failure to obtain any necessary consents to the transfer of licenses or other agreements of the acquired company;
    possible failure to maintain customer, licensor and other relationships after the closing of the transaction of the acquired company;
    difficulties in achieving planned cost savings and synergies may increase our expenses;
    diversion of our management’s attention could impair their ability to effectively manage our other business operations; and
    unanticipated management or operational problems or liabilities may adversely affect our profitability and financial condition.
 
We are dependent upon certain key members of management.

Our success will depend to a significant degree on the abilities and efforts of our senior management. Moreover, our success depends on our ability to attract, retain and motivate qualified management, marketing, technical and sales personnel. These people are in high demand and often have competing employment opportunities. The labor market for skilled employees is highly competitive and we may lose key employees or be forced to increase their compensation to retain these people. Employee turnover could significantly increase our training and other related employee costs. The loss of key personnel, or the failure to attract qualified personnel, could have a material adverse effect on our business, financial condition or results of operations.
 
Sources of and fluctuations in market prices of raw materials can affect our operating results.
 
The primary raw materials we use in manufacturing our products are metals, resins and packaging materials. These materials are generally available from a number of suppliers, but we have chosen to concentrate our sourcing with a limited number of vendors for each commodity or purchased component. We believe our sources of raw materials are reliable and adequate for our needs. However, the development of future sourcing issues related to the availability of these materials as well as significant fluctuations in the market prices of these materials may have an adverse effect on our financial results.
 
Our profitability is also affected by significant fluctuations in the prices of the raw materials we use in our products.  We may not be able to pass along any price increases in our raw materials to our customers.  As a result, an increase in the cost of raw materials, labor or other costs associated with the manufacturing of our products could increase our costs of sales and reduce our gross margins.
 
Currency exchange rate fluctuations could adversely affect the Company’s results.
 
We have 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 we have operations increase or decrease relative to the U.S. dollar, the sales, expenses, profits, losses, assets and liabilities of our foreign operations, as reported in our consolidated financial statements, increase or decrease, accordingly. Approximately 27% of our revenues for the year ended October 1, 2010 were denominated in currencies other than the U.S. dollar. Approximately 15% were denominated in euros, with the remaining 12% denominated in various other foreign currencies.  We 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 or to reduce the risk of changes in foreign currency exchange rates on foreign currency borrowings.
 

 
8

 

Because we rely on foreign suppliers and we sell products in foreign markets, we are susceptible to numerous international business risks that could increase our costs or disrupt the supply of our products.
 
Our international operations subject us to risks, including:
 
    economic and political instability;
    restrictive actions by foreign governments;
    greater difficulty enforcing intellectual property rights and weaker laws protecting intellectual property rights;
    changes in import duties or import or export restrictions;
    timely shipping of product and unloading of product, including the timely rail/truck delivery to our warehouses and/or a customer’s warehouse of our products;
    complications in complying with the laws and policies of the United States affecting the importation of goods, including duties, quotas and taxes; and
    complications in complying with trade and foreign tax laws.
 
Any of these risks, including the cost of compliance with trade and foreign tax laws, could disrupt the supply of our products or increase our expenses.
 
We are subject to environmental and safety regulations.
 
We are subject to supra national, federal, state, local and foreign laws and other legal requirements related to the generation, storage, transport, treatment and disposal of materials as a result of our manufacturing and assembly operations. These laws include the Resource Conservation and Recovery Act (as amended), the Clean Air Act (as amended) and the Comprehensive Environmental Response, Compensation and Liability Act (as amended). We believe that our existing environmental management system is adequate and we have no current plans for substantial capital expenditures in the environmental area. We do not currently anticipate any material adverse impact on our results of operations, financial condition or competitive position as a result of compliance with federal, state, local and foreign environmental laws or other legal requirements. However, risk of environmental liability and changes associated with maintaining compliance with environmental laws is inherent in the nature of our business and there is no assurance that material liabilities or changes would not arise.
 
We rely on our credit facilities to provide us with sufficient working capital to operate our business.
 
Historically, we have relied upon our existing credit facilities to provide us with adequate working capital to operate our business.  The availability of borrowing amounts under our revolving credit facilities is generally dependent upon the amount and quality of the accounts receivable and inventory collateralizing our credit facilities.  As a result, the bankruptcy of a major customer could have a significant negative impact on the availability of borrowing amounts under our revolving credit facilities.  If our lenders reduce or terminate our access to amounts under our credit facilities, we may not have sufficient capital to fund our working capital needs and/or we may need to secure additional capital or financing to fund our working capital requirements or to repay outstanding debt under our credit facilities.  We can make no assurance that we will be successful in ensuring our availability of amounts under our credit facilities or in connection with raising additional capital and that any amount, if raised, will be sufficient to meet our cash requirements.  If we are not able to maintain our borrowing availability under our credit facilities and/or raise additional capital when needed, we may be forced to sharply curtail our efforts to manufacture and promote the sale of our products or to curtail our operations.  Ultimately, we may be forced to cease operations.
 
 
 
9

 
 
Our debt covenants may limit our ability to complete acquisitions, incur debt, make investments, sell assets, merge or complete other significant transactions.
 
Our credit facilities and certain other of our debt instruments include limitations on a number of our activities, including our ability to:
 
    incur additional debt;
    create liens on our assets or make guarantees;
    make certain investments or loans;
    pay dividends; or
    dispose of or sell assets or enter into a merger or similar transaction.
 
Our credit facilities also contain a number of financial covenants.  The restrictive covenants in our credit facilities may limit our ability to engage in acts that may be in our best long term interests.  A breach of any of the restrictive covenants in our credit facilities could result in a default under these facilities.  If a default occurs, the lenders under our credit facilities may elect to declare all outstanding borrowings, together with accrued interest, to be immediately due and payable, to terminate any commitments they have to provide further borrowings and to exercise any other rights they have under the facilities or applicable law.
 
Our shares of common stock are thinly traded and our stock price may be volatile.
 
Because our common stock is thinly traded, its market price may fluctuate significantly more than the stock market in general or the stock prices of similar companies, which are exchanged, listed or quoted on NASDAQ. We believe there are 4,585,841 shares of our Class A common stock held by nonaffiliates as of November 30, 2010. Thus, our common stock will be less liquid than the stock of companies with broader public ownership, and as a result, the trading price for our shares of common stock may be more volatile. Among other things, trading of a relatively small volume of our common stock may have a greater impact on the trading price for our stock than would be the case if our public float were larger.
 
ITEM 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 included elsewhere in this report for a discussion of the Company’s lease obligations.
 
As of October 1, 2010, the Company’s principal manufacturing (identified with an asterisk) and other locations are:
 
Alpharetta, Georgia (Marine Electronics)
Antibes, France (Diving)
Barcelona, Spain (Diving)
Basingstoke, Hampshire, England (Diving)
Batam, Indonesia* (Diving and Outdoor Equipment)
Bellingham, Washington (Watercraft)
Binghamton, New York* (Outdoor Equipment)
Brignais, France (Watercraft)
Brussels, Belgium (Diving)
Burlington, Ontario, Canada (Marine Electronics, Outdoor Equipment, Watercraft)
Chai Wan, Hong Kong (Diving)
Chatswood, Australia (Diving)
El Cajon, California (Diving)
Eufaula, Alabama* (Marine Electronics)
Casarza Ligure, Italy* (Diving)
Great Yarmouth, Norfolk, United Kingdom (Watercraft)
Spreitenbach, Switzerland (Diving)
Mankato, Minnesota* (Marine Electronics)
Napier, New Zealand* (Watercraft)
Old Town, Maine* (Watercraft)
Shanghai, China (Marine Electronics)
Silverdale, New Zealand* (Watercraft)
Viareggio, Italy (Marine Electronics)
Wendelstein, Germany (Diving)
Yokahama, Japan (Diving)
 
 
 
10

 


The Company’s corporate headquarters is located in a leased facility in Racine, Wisconsin.

ITEM 3.     LEGAL PROCEEDINGS
 
See Note 15 to the consolidated financial statements included elsewhere in this report for a discussion of legal proceedings.
 
ITEM 4.     [REMOVED AND RESERVED]
 

 
11

 


 
PART II
 
ITEM 5.     MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
                   EQUITY SECURITIES
 
Certain information with respect to this item is included in Notes 11 and 12 to the Company's consolidated financial statements included elsewhere in this report. The Company’s Class A common stock is traded on the NASDAQ Global MarketSM under the symbol: JOUT. There is no public market for the Company’s Class B common stock. However, the Class B common stock is convertible at all times at the option of the holder into shares of Class A common stock on a share for share basis. As of November 30, 2010, the Company had 723 holders of record of its Class A common stock and 35 holders of record of its Class B common stock. We believe the number of beneficial owners of our Class A common stock on that date was substantially greater.
 
A summary of the high and low closing prices for the Company’s Class A common stock during each quarter of the years ended October 1, 2010 and October 2, 2009 is as follows:
 
   
First Quarter
   
Second Quarter
   
Third Quarter
   
Fourth Quarter
 
   
2010
   
2009
   
2010
   
2009
   
2010
   
2009
   
2010
   
2009
 
Stock prices:
                                               
     High
  $ 10.75     $ 11.93     $ 11.52     $ 7.59     $ 14.67     $ 7.80     $ 13.21     $ 9.89  
     Low
    8.65       5.10       10.25       4.68       11.00       5.00       8.96       5.30  

The Company did not declare any dividends during the fiscal years ended October 1, 2010 or October 2, 2009.  The Company declared a cash dividend on October 1, 2008, with a record date of October 16, 2008, which was paid on October 30, 2008 of $0.055 per share to Class A common shareholders and $0.05 per share to Class B shareholders.  On December 4, 2008, the Company’s Board of Directors voted to suspend quarterly dividends to shareholders.
 
The following limitations apply to the ability of the Company to pay dividends:
 
    Pursuant to the Company’s revolving credit and security agreement, dated September 29, 2009, the Company is limited in the amount of restricted payments (primarily dividends and repurchases of common stock) made during each fiscal year. The Company may declare, and pay, dividends in accordance with historical practices, but in no event may the aggregate amount of all dividends for any fiscal year exceed 25% of the Company’s net income for that fiscal year.
     
    The Company’s Articles of Incorporation provide that no dividend, other than a dividend payable in shares of the Company’s common stock, may be declared or paid upon the Class B common stock unless such dividend is declared or paid upon both classes of common stock. Whenever a dividend (other than a dividend payable in shares of Company common stock) is declared or paid upon any shares of Class B common stock, at the same time there must be declared and paid a dividend on shares of Class A common stock equal in value to 110% of the amount per share of the dividend declared and paid on shares of Class B common stock. Whenever a dividend is payable in shares of Company common stock, such dividend must be declared or paid at the same rate on the Class A common stock and the Class B common stock.
 
 
12

 

Total Shareholder Return
 
The graph below compares on a cumulative basis the yearly percentage change since September 30, 2005 in the total return (assuming reinvestment of dividends) to shareholders on the Class A common stock with (a) the total return (assuming reinvestment of dividends) on The NASDAQ Stock Market-U.S. Index; (b) the total return (assuming reinvestment of dividends) on the Russell 2000 Index; and (c) the total return (assuming reinvestment of dividends) on a self-constructed peer group index. The peer group consists of Arctic Cat Inc., Brunswick Corporation, Callaway Golf Company, Escalade Inc., Marine Products Corporation and Nautilus, Inc. The graph assumes $100 was invested on September 30, 2005 in the Company’s Class A common stock, The NASDAQ Stock Market-U.S. Index, the Russell 2000 Index and the peer group indices.
 
 
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Johnson Outdoors Inc., the NASDAQ Composite Index,
the Russell 2000 Index and a Peer Group
 
* $100 invested on 9/30/05 in stock or index, including reinvestment of dividends.
Indexes calculated on month-end basis.
 
   
9/30/2005
   
9/29/2006
   
9/28/2007
   
10/3/2008
   
10/2/2009
   
10/1/2010
 
Johnson Outdoors Inc.
  $ 100.0     $ 103.8     $ 130.3     $ 75.5     $ 55.7     $ 78.1  
NASDAQ Composite
    100.0       106.2       127.0       96.4       99.8       112.5  
Russell 2000 Index
    100.0       109.9       123.5       105.7       95.5       108.3  
Peer Group
    100.0       82.6       70.8       42.9       32.8       43.3  
 
The information in this section titled “Total Shareholder Return” shall not be deemed to be “soliciting material” or “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C promulgated by the Securities and Exchange Commission or subject to the liabilities of section 18 of the Securities Exchange Act of 1934, as amended, and this information shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
 
 
 
13

 
 
ITEM 6.     SELECTED FINANCIAL DATA
 
Not applicable.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Executive Overview
 
The Company designs, manufactures and markets high quality recreational products for the outdoor enthusiast. Through a combination of innovative products, strong marketing, a talented and passionate workforce and efficient distribution, the Company sets itself apart from the competition. Its subsidiaries operate as a network that promotes innovation and leverages best practices and synergies, following the strategic vision set by executive management and approved by the Company’s Board of Directors.
 
During fiscal 2010, the Company made significant progress towards its three year plan to achieve sustained profitable growth by focusing on cost structure reductions, enhanced product value, targeted revenue gains and strong balance sheet management.  The Company continued its investment in future products, such as Marine Electronics’ Geonav® brand.  Since 2009, the Company has invested approximately $3.3 million in equipment and software development to expand its large leisure boat navigation systems product offerings.
 
As outdoor recreation markets and global economic conditions overall have begun to stabilize from the recent global recession, the Company’s revenues during fiscal 2010 improved by over 7% from the prior year. Moreover, improved fixed cost absorption from increased sales, improved operational efficiency and aggressive working capital management efforts have driven a substantial increase in profits.
 
Results of Operations
 
Summary consolidated financial results from continuing operations for the fiscal years presented were as follows:
 
(millions, except per share data)
 
2010
   
2009
 
Net sales
  $ 382.4     $ 356.5  
Gross profit
    153.5       132.8  
Operating expenses
    138.9       132.5  
Operating profit
    14.6       0.3  
Interest expense
    5.1       9.9  
Net income (loss)
    6.5       (9.7 )


 
14

 

 
The Company’s sales and operating profit (loss) by business segment are summarized as follows:
 
(millions)
 
2010
   
2009
 
Net sales:
           
     Marine Electronics
  $ 185.4     $ 165.3  
     Outdoor Equipment
    48.7       41.4  
     Watercraft
    64.0       69.4  
     Diving
    85.1       80.8  
     Other/corporate/eliminations
    (0.8 )     (0.4 )
    $ 382.4     $ 356.5  
Operating profit (loss):
               
     Marine Electronics
  $ 13.9     $ 9.3  
     Outdoor Equipment
    5.9       3.4  
     Watercraft
    1.8       (6.2 )
     Diving
    3.0       1.6  
     Other/corporate/eliminations
    (10.0 )     (7.8 )
    $ 14.6     $ 0.3  

See Note 14 in the notes to the consolidated financial statements included elsewhere in this report for the definition of segment net sales and operating profit.
 
Fiscal 2010 vs Fiscal 2009
 
Net Sales
 
The initial recovery of outdoor recreational markets from the recent global recession helped drive net sales up to $382.4 million in 2010 compared to $356.5 million in 2009, an increase of 7.3% or $25.9 million.  Sales increased in all of the Company’s business units with the exception of Watercraft.  Foreign currency translations favorably impacted 2010 net sales by $3.1 million in comparison to 2009.

Net sales for the Marine Electronics business increased $20.1 million, or 12.2% during 2010 on double-digit growth in Minn Kota and Humminbird brands in all channels and markets.  The increase was primarily the result of successful new products and improved general economic conditions.
 
Outdoor Equipment net sales increased $7.3 million in 2010, or 17.6%, primarily due to double-digit growth in the Eureka brand across consumer and military markets.
 
Net sales for the Watercraft business decreased $5.4 million, or 7.8%, due to declines in sales in the specialty channel in the U.S. and Europe.
 
The Diving business saw an increase in sales of $4.3 million, or 5.3%, due in large part to the new SUBGEAR brand and increased SCUBAPRO demand.  Currency translation favorably impacted 2010 Diving net sales by $0.8 million, or 1.0%.

Gross Profit
 
Gross profit of $153.5 million was 40.1% of net sales on a consolidated basis for the year ended October 1, 2010 compared to $132.8 million or 37.2% of net sales in the prior year.  The gross profit increase of $20.7 million was primarily attributable to the 7.3% increase in sales volume during 2010 as compared to 2009.  During the prior year, manufacturing plants were operated at reduced capacity at certain points during the year in light of low sales volumes and in order to reduce inventories. This resulted in higher unabsorbed costs in our manufacturing plants which were expensed during the prior year.  Increased volumes in the current year increased efficiency and improved the margins in all business units.
 
 
 
15

 
 
 
Gross profit in the Marine Electronics business increased $11.9 million from the prior year primarily due to an increase in volume and improved as a percent of net sales from 35.5% in 2009 to 38.1% in the current year.
 
Gross profit in the Outdoor Equipment business increased $4.1 million from 2009, and improved as a percent of net sales from 33.6% in the prior year to 37.0% in 2010.
 
Despite a decrease in sales, gross profit in the Watercraft segment was 35.1% of net sales in 2010 and was $1.3 million higher than 2009 levels, which were equal to 30.5% of net sales.  The increase in gross profit was due primarily to savings from restructuring actions taken at the end of the prior year, as well as the non-recurring costs related to those actions and inventory reserves taken at the end of the prior year.
 
Gross profit for the Diving segment increased by $3.4 million from 48.2% of net sales in 2009 to 49.7% of net sales in 2010 primarily as a result of increased volumes.

Operating Expenses
 
Operating expenses increased from the prior year by $6.5 million.  The increase was mainly attributable to higher sales related expenses and bonus and profit sharing accruals taken in the current year.
 
Operating expenses for the Marine Electronics segment increased by $7.3 million from 2009 levels.  This increase was due mainly to the increase in direct expenses as result of higher sales volumes and bonus and profit sharing accruals taken in the current year.
 
Outdoor Equipment operating expenses increased by $1.6 million from 2009 due to primarily to increases in direct expenses as a result of higher sales volumes and bonus and profit sharing accruals in the current year.
 
The Watercraft business saw a decline in operating expenses of $6.6 million from the prior year due primarily to cost savings achieved as a result of the closure of the Ferndale manufacturing location in the prior year.  In addition, prior year expenses included the recognition of $2.6 million of restructuring costs related to this closure and $1.3 million of accelerated depreciation related to consolidating production facilities in Old Town.
 
Operating expenses for the Diving business increased by $2.0 million due primarily to bonus and profit sharing expense recognized in the current year as well as the $0.7 million unfavorable impact of currency translation.

Operating Results
 
The Company recognized an operating profit of $14.6 million in 2010 compared to an operating profit of $0.3 million in fiscal 2009. Primary factors driving the increase in operating profit margins were the higher volumes in the current year offset in part by bonus and profit sharing expenses recognized in the current year.  Marine Electronics operating profit increased by $4.6 million from the prior year. Outdoor Equipment operating profit increased $2.5 million over the prior year.  Watercraft operating profit improved by $8.0 million from the prior year and Diving operating profit increased $1.4 million from the prior year.

Other Income and Expenses
 
Interest income decreased from the prior year by $0.1 million. Interest expense decreased from the prior year by $4.9 million, due largely to lower principal balances, interest rate decreases during 2010 and charges associated with terminating the Company’s former debt agreements incurred during 2009.
 
Other expense reflected currency losses of $1.2 million recognized by the Company in fiscal 2010 compared to $0.8 million in fiscal 2009.  Currency losses were offset in part by market gains on deferred compensation plan assets of $0.7 million in 2010 compared to $0.1 million in the prior year.
 
 
 
16

 
 

Pretax Income (Loss) and Income Taxes
 
The Company recognized pretax income of $9.2 million in fiscal 2010, compared to a pretax loss of $10.1 million in fiscal 2009. The Company recorded income tax expense of $2.7 million in 2010, an effective rate of 28.9%, compared to $0.4 million of income tax benefit in fiscal 2009, an effective rate of 4.0%.

Net Income/Loss
 
The Company recognized net income of $6.5 million in fiscal 2010, or $0.68 per diluted share, compared to a net loss of $9.7 million in fiscal 2009, or $1.06 per diluted share.
 
Financial Condition, Liquidity and Capital Resources
 
The Company’s cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, is summarized in the following table:
 
(millions)
 
2010
   
2009
 
Cash provided by (used for):
           
    Operating activities
  $ 19.8     $ 30.6  
    Investing activities
    (9.3 )     (15.9 )
    Financing activities
    (7.6 )     (32.7 )
    Effect of exchange rate changes on cash and cash equivalents
    2.5       4.1  
Increase (decrease) in cash and cash equivalents
  $ 5.4       (13.9 )

 Operating Activities
 
The following table sets forth the Company’s working capital position at the end of each of the past two years:
 
(millions)
 
2010
   
2009
 
Current assets
  $ 160.1     $ 142.4  
Current liabilities
    67.0       60.8  
Working capital
  $ 93.1     $ 81.6  
Current ratio
 
2.4:1
   
2.3:1
 

Cash flows provided by operations totaled $19.8 million and $30.6 million in fiscal 2010 and 2009, respectively. The most significant driver in the decrease in cash flows from operations year over year was a $23.3 million decrease in inventory levels in the prior year, followed by a $12.6 million increase in inventory levels in 2010.  This change was offset in part by an increase in 2010 net earnings as well as an increase in accounts payable and accrued liabilities of $13.1 million vs. a decrease of $10.4 million in the prior year.
 
Depreciation and amortization charges were $10.0 million in fiscal 2010 and $12.9 million in fiscal 2009, which included the write off of $1.0 million of deferred financing costs related to the Company’s previous debt agreement.
 
Investing Activities
 
Cash flows used for investing activities were $9.3 million and $15.9 million in fiscal 2010 and 2009, respectively. Payments on interest rate swaps used $6.7 million of cash and the purchase of Navicontrol used $1.0 million of cash in fiscal 2009.  Expenditures for property, plant and equipment were $10.0 and $8.3 million in fiscal 2010 and 2009, respectively. In general, the Company’s ongoing capital expenditures are primarily related to tooling for new products and facilities and information systems improvements.
 
 
 
17

 
 
Financing Activities
 
The following table sets forth the Company’s debt and capital structure at the end of the past two fiscal years:

(millions)
 
2010
   
2009
 
Current debt
  $ 8.9     $ 15.5  
Long-term debt
    14.9       16.1  
Total debt
    23.8       31.6  
Shareholders’ equity
    126.4       115.8  
Total capitalization
  $ 150.2     $ 147.4  
Total debt to total capitalization
    15.8 %     21.4 %

Cash flows used for financing activities totaled $7.6 million in fiscal 2010 compared to $32.7 million in 2009.  Payments on long-term debt were $0.6 million and $60.0 million in fiscal 2010 and 2009, respectively.
 
On September 29, 2009, the Company and certain of its subsidiaries entered into new credit facilities which consisted of five separate Term Loan Agreements, each dated as of September 29, 2009 (the "Term Loan Agreements" or "Term Loans"), between the Company or one of its subsidiaries and Ridgestone Bank ("Ridgestone").  The Company also entered into a Revolving Credit and Security Agreement dated as of September 29, 2009 among the Company, certain of the its subsidiaries, PNC Bank, National Association, as lender, as administrative agent and collateral agent, and the other lenders named therein (the "Revolving Credit Agreement" or "Revolver" and collectively, with the Term Loans, the "Debt Agreements").

The Term Loan Agreements provide for aggregate term loan borrowings of $15.9 million with maturity dates ranging from 15 to 25 years from the date of the Term Loan Agreement.  Each Term Loan requires monthly payments of principal and interest.  Interest on $9.0 million of the aggregate outstanding amount of the Term Loans is based on the prime rate plus 2.0%, and the remainder on the prime rate plus 2.75%.  The Term Loans are guaranteed in part under the United States Department of Agriculture Rural Development program and are secured by certain real and tangible properties of the Company’s subsidiaries. 

The Revolving Credit Agreement, maturing in September 2012, provides for funding of up to $69.0 million.
 
On November 5, 2009, the Company closed on its Canadian asset backed credit facility (“Canadian Revolver” and collectively, with the Revolving Credit Agreement, the “Revolvers”), increasing its total seasonal debt availability by $4.0 million for the period July 15th through November 15th, and by $6.0 million for the period November 16th through July 14th.
 
The Revolvers are secured with a first priority lien on working capital assets and certain patents and trademarks of the Company and its subsidiaries and a second lien on land, buildings, machinery and equipment of the Company's domestic subsidiaries.  As cash collections related to secured assets are applied against the balance outstanding under the Revolvers, the liability is classified as current.  The interest rate on the Revolvers is based primarily on LIBOR plus 3.25% with a minimum LIBOR floor of 2.0%.
 
As noted above borrowing availability under the Revolvers is based on certain eligible working capital assets, primarily accounts receivable and inventory of the Company and its subsidiaries. The Revolvers contain a seasonal line reduction that reduces the maximum amount of borrowings to $50.0 million from mid-July to mid-November, consistent with the Company's reduced working capital needs throughout that period, and requires an annual seasonal pay down to $25.0 million for 60 consecutive days during the three month period beginning August 1st.  
 
 
 
18

 
 
At October 1, 2010, the Company had borrowings outstanding under the Revolvers of $7.5 million.  The Company’s remaining borrowing availability under the Revolvers was approximately $18.2 million at October 1, 2010.  
 
The Company incurred $0.2 million of financing fees during the year ended October 1, 2010 in conjunction with the execution of its Canadian Revolver which were capitalized and will be amortized over the life of the related debt.  During the year ended October 2, 2009, the Company incurred and capitalized approximately $1.5 million of financing fees in conjunction with the execution of the Debt Agreements and $1.3 million of financing fees in conjunction with the modification to the Company’s then-existing debt agreements.
 
See Note 16 to the consolidated financial statements found elsewhere in this report regarding certain amendments entered into by the Company and certain of its subsidiaries in connection with the Company’s Revolvers.
 
In response to the increasing volatility of foreign exchange rates, the Company initiated a foreign currency hedging program in the first quarter of fiscal 2011.  The Company’s goal is to reduce the economic effects of fluctuating foreign exchange rates on the cost of U.S. dollar denominated purchases by its foreign subsidiaries.  The program utilizes foreign currency forward contracts to hedge a notional amount of approximately $5.8 million of purchases over a term of less than one year.  The Company may expand or reduce this program based on future economic and business conditions.
 
Off Balance Sheet Arrangements
 
The Company utilizes letters of credit primarily as security for the payment of future claims under its workers compensation insurance. Letters of credit outstanding at October 1, 2010 were $2.6 million compared to less than $0.1 million on October 2, 2009 as the Company had collateralized $2.2 million of its potential future workers compensation claims with cash at the end of fiscal 2009 in order to facilitate the closing of its debt agreements.
 
The Company anticipates making contributions to its defined benefit pension plans of $0.4 million through September 30, 2011.
 
The Company has no other off-balance sheet arrangements.
 
Impact of Inflation
 
Certain components used in the Company’s products are exposed to commodity price changes. The Company manages this risk through instruments such as purchase orders and non-cancelable supply contracts. Primary commodity price exposures include costs associated with metals, resins and packaging materials.
 
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.
 
The Company’s results of operations and financial condition are presented based on historical cost.  The Company does not believe that inflation has significantly affected its results of operations.
 
Critical Accounting Policies and Estimates
 
The Company’s management discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S.  The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of its assets, liabilities, sales and expenses, and related footnote disclosures.  On an on going basis, the Company evaluates its estimates for product returns, bad debts, inventories, long lived assets and goodwill, 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.
 
 
 
19

 
 
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.  Management has discussed these policies with the Audit Committee of the Company’s Board of Directors.
 
Revenue Recognition
 
The Company recognizes revenue when all of the following criteria have been met:
 
    Persuasive evidence of an arrangement exists.  Contracts, internet commerce agreements, and customer purchase orders are generally used to determine the existence of an arrangement.
     
    All substantial risk of ownership transfers to the customer.  Shipping documents and customer acceptance, when applicable, are used to verify delivery.
     
    The fee is fixed or determinable.  This is assessed based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment.
     
    Collectibility is reasonably assured.  We assess collectibility based on the creditworthiness of the customer as determined by credit checks and analysis, as well as by the customer’s payment history.
 
Estimated costs of returns and allowances and discounts are accrued as a reduction to sales when revenue is recognized.
 
Allowance for Doubtful Accounts
 
Allowances for doubtful accounts are estimated by the individual operating companies based on estimates of losses related to customer accounts receivable balances.  Estimates are developed by using standard quantitative measures based on historical losses, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. Though the Company considers these balances adequate and proper, changes in economic conditions in specific markets in which the Company operates and any specific customer collection issues the Company identifies could have a favorable or unfavorable effect on required reserve balances.
 
Inventories
 
The Company values inventory at the lower of cost (determined using the first-in first-out method) or market. Management’s judgment is required to determine the reserve for obsolete or excess inventory. Inventory on hand may exceed future demand either because the product is outdated or because the amount on hand is more than will be used to meet future needs. Inventory reserves are estimated by the individual operating companies using standard quantitative measures based on criteria established by the Company. The Company also considers current forecast plans, as well as market and industry conditions in establishing reserve levels. Though the Company considers these balances to be adequate, changes in economic conditions, customer inventory levels or competitive conditions could have a favorable or unfavorable effect on required reserve balances.
 
 
 
20

 
 
Deferred Taxes
 
The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made.
 
Goodwill and Other Intangible Assets Impairment
 
Goodwill and indefinite-lived intangible assets are tested for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired.  Generally, annual impairment tests are performed by the Company in the fourth quarter of each fiscal year.
 
In assessing the recoverability of the Company's goodwill and other intangible assets, the Company estimates the fair value of the businesses to which the goodwill relates.  Fair value is estimated using a discounted cash flow analysis.  If the fair value of a reporting unit exceeds its net book value, no impairment exists. When fair value is less than the carrying value of the net assets and related goodwill, an impairment test is performed to measure and recognize the amount of the impairment loss, if any.
 
The estimates of fair value for the reporting units are calculated using a discounted cash flow analysis, which requires a number of key estimates and assumptions.  We estimate the future cash flows of the reporting units based on historical and forecasted revenues and operating costs.  We apply a discount rate to the estimated future cash flows for purposes of the valuation.  This discount rate is based on the estimated weighted average cost of capital, which includes certain assumptions such as market capital structure, market betas, risk-fee rate of return and estimated costs of borrowing.  Changes in these key estimates and assumptions, or in other assumptions used in this process, could materially affect our impairment analysis in a given year.
 
A number of factors, many of which the Company has no ability to control, could affect its financial condition, operating results and business prospects and could cause actual results to differ from the estimates and assumptions that the Company uses in its calculation.  These factors include:  prolonged global economic crisis, a significant decrease in demand for the Company’s products, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator and successful efforts by the Company’s competitors to gain market share.
 
Warranties
 
The Company accrues a warranty reserve for estimated costs to provide warranty services. Warranty reserves are estimated by the individual operating companies using standard quantitative measures based on criteria established by the Company. Estimates of costs to service its warranty obligations are based on historical experience, expectation of future conditions and known product issues. To the extent the Company experiences increased warranty claim activity or increased costs associated with servicing those claims, revisions to the estimated warranty reserve would be required. The Company engages in product quality programs and processes, including monitoring and evaluating the quality of its suppliers, to help minimize warranty obligations.
 
ITEM 7A.     QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable.
 
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Information with respect to this item is included in the Company’s consolidated financial statements attached to this report on pages F-1 to F-33.
 
 
 
21

 
 
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
On March 2, 2010, the Company engaged McGladrey & Pullen, LLP to replace Ernst & Young LLP as its independent registered public accounting firm.  Information regarding the change in the independent registered public accounting firm was disclosed in the Company’s Current Report on Form 8-K dated March 2, 2010.  There were no disagreements or reportable events requiring disclosure under Item 304(b) of regulation S-K.
 
ITEM 9A(T).   CONTROLS AND PROCEDURES
 
(a)       Evaluation of Disclosure Controls and Procedures
 
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission’s rules and forms, and that the information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.  The Company carried out an evaluation as of October 1, 2010, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of October 1, 2010 at reaching a level of reasonable assurance.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  The Company has designed its disclosure controls and procedures to reach a level of reasonable assurance of achieving the desired control objectives.
 
The report of management required under this Item 9A(T) is included on page F-1 of the Company’s consolidated financial statements attached to this Report under the heading “Management’s Report on Internal Control over Financial Reporting” and is incorporated herein by reference.
 
(b)       Changes in Internal Control over Financial Reporting.
 
There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
(c)       Attestation Report of Independent Registered Public Accounting Firm
 
This Annual Report on Form 10-K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the Company's registered public accounting firms pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Annual Report on Form 10-K.
 
ITEM 9B.     OTHER INFORMATION
 
Disclosure is included in this Form 10-K with respect to the following item of Form 8-K for an event that occurred on December 6, 2010:
 
Item 5.03.  Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year – On December 6, 2010, the Company's Board of Directors adopted amended and restated Bylaws for the Company.  The amendments to the Bylaws included changes (Section 2.12 of the Bylaws) to the provisions containing the minimum requirements for shareholders to nominate directors and propose business to be conducted at shareholder meetings to comply with recent Securities and Exchange Commission rule changes, to include in Section 3.02(e) a description of the role of the Company's lead outside or independent director and to make certain other non-substantive changes. A copy of the Amended and Restated Bylaws is attached to this report as Exhibit 3.2 and is incorporated herein by reference.
 
 
 
22

 
 
PART III
 
ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Information with respect to this item is incorporated herein by reference to the discussion under the heading “Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance-Director Nominations” and “Audit Committee Matters – Audit Committee Financial Expert” in the Company's Proxy Statement for the 2011 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission on or before January 29, 2011.  Information regarding the Company’s Code of Business Ethics is incorporated herein by reference to the discussion under “Corporate Governance Matters – Employee Code of Conduct and Code of Ethics and Procedures for Reporting of Accounting Concerns” in the Company's Proxy Statement for the 2011 Annual Meeting of Shareholders.
 
The Audit Committee of the Company's Board of Directors is an “audit committee” for purposes of Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee are Terry E. London (Chairman), Thomas F. Pyle, Jr. and Edward F. Lang, III.
 
ITEM 11.     EXECUTIVE COMPENSATION
 
Information with respect to this item is incorporated herein by reference to the discussion under the headings “Compensation of Directors” and “Executive Compensation” in the Company’s Proxy Statement for the 2011 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission on or before January 29, 2011.
 
ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
                      MATTERS
 
Information with respect to this item is incorporated herein by reference to the discussion under the heading “Stock Ownership of Management and Others” in the Company's Proxy Statement for the 2011 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission on or before January 29, 2011.
 
Equity Compensation Plan Information
 
The following table summarizes share information, as of October 1, 2010, for the Company’s equity compensation plans, including the Johnson Outdoors Inc. 2003 Non-Employee Director Stock Ownership Plan and the Johnson Outdoors Inc. 2000 Long-Term Stock Incentive Plan.  All of these plans have been approved by the Company’s shareholders.
 
Plan Category
 
Number of
 Common Shares
to Be Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
   
Weighted-average
Exercise Price of
Outstanding
Options, Warrants
and Rights
   
Number of
Common Shares
Available for Future
Issuance Under
Equity
Compensation
Plans
 
Equity compensation plans approved by shareholders
    113,704       8.57       1,141,438 (1)
                         
(1)
All of the available shares under the 2003 Non-Employee Director Stock Ownership Plan (71,886) and under the 2010 Long-Term Stock Incentive Plan (1,000,000) may be issued upon the exercise of stock options or granted as non-vested stock, and, in the case of the 2010 Long-Term Stock Incentive Plan, as share units.  Includes 69,552 shares available for issuance under the 2009 Employee Stock Purchase Plan.
 

 
23

 

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 
Information with respect to this item is incorporated herein by reference to the discussion under the heading “Certain Relationships and Related Transactions” in the Company's Proxy Statement for the 2011 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission on or before January 29, 2011. Information regarding director independence is incorporated by reference to the discussions under “Corporate Governance Matters-Director Independence” in the Company’s Proxy Statement for the 2011 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission on or before January 29, 2011.
 
ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
Information with respect to this item is incorporated herein by reference to the discussion under the heading “Audit Committee Matters – Fees of Independent Registered Public Accounting Firm” in the Company's Proxy Statement for the 2011 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission on or before January 29, 2011.
 
PART IV
 
ITEM 15.     EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
The following documents are filed as a part of this report:
 
Financial Statements
 
Included in Item 8 of Part II of this report are the following:
 
    Reports of Independent Registered Public Accounting Firms
    Consolidated Balance Sheets – October 1, 2010 and October 2, 2009
    Consolidated Statements of Operations – Years ended October 1, 2010 and October 2, 2009
    Consolidated Statements of Shareholders’ Equity – Years ended October 1, 2010 and October 2, 2009
    Consolidated Statements of Cash Flows – Years ended October 1, 2010 and October 2, 2009
    Notes to Consolidated Financial Statements
Exhibits
 
See Exhibit Index.
 

 
24

 

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 9th day of December 2010.
 
JOHNSON OUTDOORS INC.
(Registrant)
 
By /s/ Helen P. Johnson-Leipold                                                        
      Helen P. Johnson-Leipold
      Chairman and Chief Executive Officer

 
 
 
25

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on the 9th day of December 2010.

 
/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 Lead Outside Director
     
/s/ Terry E. London
 
Director
(Terry E. London)
   
     
/s/ John M. Fahey, Jr.
 
Director
(John M. Fahey, Jr.)
   
     
/s/ W. Lee McCollum
 
Director
(W. Lee McCollum)
   
     
/s/ Edward F. Lang, III
 
Director
(Edward F. Lang, III)
   
     
/s/ David W. Johnson
 
Vice President and Chief Financial Officer
(David W. Johnson)
 
(Principal Financial and Accounting Officer)

 
 
26

 
 
EXHIBIT INDEX
 
Exhibit
Title
2
Agreement and Plan of Merger, dated October 28, 2004, by and between JO Acquisition Corp. and Johnson Outdoors Inc (Filed as Exhibit 2 to the Company’s Form 8-K dated October 28, 2004 and incorporated herein by reference.)
   
3.1
Articles of Incorporation of the Company as amended through February 17, 2000. (Filed as Exhibit 3.1(a) to the Company’s Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference.)
   
3.2
Bylaws of the Company as amended and restated through December 6, 2010.
   
4.1
Note Agreement dated October 1, 1995. (Filed as Exhibit 4.1 to the Company’s Form 10-Q for the quarter ended December 29, 1995 and incorporated herein by reference.)
   
4.2
First Amendment dated October 11, 1996 to Note Agreement dated October 1, 1995. (Filed as Exhibit 4.3 to the Company’s Form 10-Q for the quarter ended December 27, 1996 and incorporated herein by reference.)
   
4.3
Second Amendment dated September 30, 1997 to Note Agreement dated October 1, 1995. (Filed as Exhibit 4.8 to the Company’s Form 10-K for the year ended October 1, 1997 and incorporated herein by reference.)
   
4.4
Third Amendment dated October 1, 1997 to Note Agreement dated October 1, 1995. (Filed as Exhibit 4.9 to the Company’s Form 10-K for the year ended October 1, 1997 and incorporated herein by reference.)
   
4.5
Fourth Amendment dated January 10, 2000 to Note Agreement dated October 1, 1995. (Filed as Exhibit 4.9 to the Company’s Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference.)
   
4.6
Fifth Amendment dated December 13, 2001 to Note Agreement dated October 1, 1995. (Filed as Exhibit 4.6 to the Company’s Form 10-K for the year ended October 3, 2003 and incorporated herein by reference.)
   
4.7
Consent and Amendment dated September 6, 2002 to Note Agreement dated October 1, 1995. (Filed as Exhibit 4.7 to the Company’s Form 10-K for the year ended October 3, 2003 and incorporated herein by reference.)
   
4.8
Note Agreement dated as of September 15, 1997. (Filed as Exhibit 4.15 to the Company’s Form 10-K for the year ended October 1, 1997 and incorporated herein by reference.)
   
4.9
First Amendment dated January 10, 2000 to Note Agreement dated September 15, 1997. (Filed as Exhibit 4.10 to the Company’s Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference.)
   
4.10
Second Amendment dated December 13, 2001 to Note Agreement dated September 15, 1997. (Filed as Exhibit 4.9 to the Company’s Form 10-K for the year ended October 3, 2003 and incorporated herein by reference.)
   
4.11
Consent and Amendment dated as of September 6, 2002 to Note Agreement dated September 15, 1997. (Filed as Exhibit 4.11 to the Company’s Form 10-K for the year ended October 3, 2003 and incorporated herein by reference.)
   
4.12
Note Agreement dated as of December 13, 2001. (Filed as Exhibit 4.12 to the Company’s Form 10-K for the year ended October 3, 2003 and incorporated herein by reference.)
   
4.13
Consent and Amendment dated of September 6, 2002 to Note Agreement dated as of December 13, 2001. (Filed as Exhibit 4.15 to the Company’s Form 10-K for the year ended October 3, 2003 and incorporated herein by reference.)
   
9.1
Johnson Outdoors Inc. Class B common stock Amended and Restated Voting Trust Agreement, dated December 10, 2007 (Filed as Exhibit 99.54 to Amendment No. 11 to the Schedule 13D filed by Helen P. Johnson-Leipold on December 10, 2007 and incorporated herein by reference.)
 
 
 
27

 
 
9.2
Amendment to Johnson Outdoors Inc. Class B common stock Voting Trust Agreement, dated December 30, 1993. (Filed as Exhibit 99.7 to Amendment No. 4 to the Schedule 13D filed jointly by Helen P. Johnson-Leipold, Imogene P. Johnson and the Samuel C. Johnson 1988 Trust Number One u/a September 14, 1988 on June 28, 2004 and incorporated herein by reference.)
   
10.1
Stock Purchase Agreement, dated as of January 12, 2000, by and between Johnson Outdoors Inc. and Berkley Inc. (Filed as Exhibit 2.1 to the Company’s Form 8-K dated March 31, 2000 and incorporated herein by reference.)
   
10.2
Amendment to Stock Purchase Agreement, dated as of February 28, 2000, by and between Johnson Outdoors Inc. and Berkley Inc. (Filed as Exhibit 2.2 to the Company’s Form 8-K dated March 31, 2000 and incorporated herein by reference.)
   
10.3+
Johnson Outdoors Inc. Amended and Restated 1986 Stock Option Plan. (Filed as Exhibit 10 to the Company’s Form 10-Q for the quarter ended July 2, 1993 and incorporated herein by reference.)
   
10.4
Registration Rights Agreement regarding Johnson Outdoors Inc. common stock issued to the Johnson family prior to the acquisition of Johnson Diversified, Inc. (Filed as Exhibit 10.6 to the Company’s Form S-1 Registration Statement No. 33-16998 and incorporated herein by reference.)
   
10.5
Registration Rights Agreement regarding Johnson Outdoors Inc. Class A common stock held by Mr. Samuel C. Johnson. (Filed as Exhibit 28 to the Company’s Form 10-Q for the quarter ended March 29, 1991 and incorporated herein by reference.)
   
10.6+
Form of Restricted Stock Agreement. (Filed as Exhibit 10.8 to the Company’s Form S-1 Registration Statement No. 33-23299 and incorporated herein by reference.)
   
10.7+
Form of Supplemental Retirement Agreement of Johnson Diversified, Inc. (Filed as Exhibit 10.9 to the Company’s Form S-1 Registration Statement No. 33-16998 and incorporated herein by reference.)
   
10.8+
Johnson Outdoors Retirement and Savings Plan. (Filed as Exhibit 10.9 to the Company’s Form 10-K for the year ended September 29, 1989 and incorporated herein by reference.)
   
10.9+
Form of Agreement of Indemnity and Exoneration with Directors and Officers. (Filed as Exhibit 10.11 to the Company’s Form S-1 Registration Statement No. 33-16998 and incorporated herein by reference.)
   
10.10
Consulting and administrative agreements with S. C. Johnson & Son, Inc. (Filed as Exhibit 10.12 to the Company’s Form S-1 Registration Statement No. 33-16998 and incorporated herein by reference.)
   
10.11+
Johnson Outdoors Inc. 1994 Long-Term Stock Incentive Plan. (Filed as Exhibit 4 to the Company’s Form S-8 Registration Statement No. 333-88091 and incorporated herein by reference.)
   
10.12+
Johnson Outdoors Inc. 1994 Non-Employee Director Stock Ownership Plan. (Filed as Exhibit 4 to the Company’s Form S-8 Registration Statement No. 333-88089 and incorporated herein by reference.)
   
10.13+
Johnson Outdoors Economic Value Added Bonus Plan (Filed as Exhibit 10.15 to the Company’s Form 10-K for the year ended October 1, 1997 and incorporated herein by reference.)
   
10.14+
Johnson Outdoors Inc. 2000 Long-Term Stock Incentive Plan. (Filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K dated July 29, 2005 and incorporated herein by reference.)
   
10.15+
Share Purchase and Transfer Agreement, dated as of August 28, 2002, by and between, among others, Johnson Outdoors Inc. and an affiliate of Bain Capital Fund VII-E (UK), Limited Partnership. (Filed as Exhibit 2.1 to the Company’s Form 8-K dated September 9, 2002 and incorporated herein by reference.)
   
10.16+
Johnson Outdoors Inc. Worldwide Key Executive Phantom Share Long-Term Incentive Plan (Filed as Exhibit 10.1 to the Company’s Form 10-Q dated March 28, 2003 and incorporated herein by reference.)
 
 
 
28

 
 
10.17+
Johnson Outdoors Inc. Worldwide Key Executives’ Discretionary Bonus Plan. (Filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K dated July 29, 2005 and incorporated herein by reference.)
   
10.18
Stock Purchase Agreement by and between Johnson Outdoors Inc. and TFX Equities Incorporated. (Filed as Exhibit 2.1 to the Company’s Form 10-Q dated April 2, 2004 and incorporated herein by reference.)
   
10.19
Intellectual Property Purchase Agreement by and among Johnson Outdoors Inc., Technology Holding Company II and Teleflex Incorporated. (Filed as Exhibit 2.2 to the Company’s Form 10-Q dated April 2, 2004 and incorporated herein by reference.)
   
10.20+
Johnson Outdoors Inc. 1987 Employees’ Stock Purchase Plan as amended. (Filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K dated July 29, 2005 and incorporated herein by reference.)
   
10.21+
Johnson Outdoors Inc. 2003 Non-Employee Director Stock Ownership Plan. (Filed as Exhibit 10.2 to the Company’s Form 10-Q dated April 2, 2004 and incorporated herein by reference.)
   
10.22+
Form of Restricted Stock Agreement under Johnson Outdoors Inc. 2003 Non-Employee Director Stock Ownership Plan. (Filed as Exhibit 4.2 to the Company’s Form S-8 Registration Statement No. 333-115298 and incorporated herein by reference.)
   
10.23+
Form of Stock Option Agreement under Johnson Outdoors Inc. 2003 Non-Employee Director Stock Ownership Plan. (Filed as Exhibit 10.2 to the Company’s Form S-8 Registration Statement No. 333-115298 and incorporated herein by reference.)
   
10.24
Revolving Credit and Security Agreement dated as of September 29, 2009 among Johnson Outdoors Inc., certain subsidiaries of Johnson Outdoors Inc., PNC Bank, National Association, as lender, as administrative agent and collateral agent, and the other lenders named therein (filed as Exhibit 99.2 to the current report on Form 8-K dated and filed with the Securities and Exchange Commission on September 30, 2009).
   
10.25
Term Loan Agreement (loan number 15613) dated as of September 29, 2009 among Techsonic Industries Inc., Johnson Outdoors Marine Electronics LLC and Ridgestone Bank (filed as Exhibit 99.3 to the current report on Form 8-K dated and filed with the Securities and Exchange Commission on September 30, 2009).
   
10.26
Term Loan Agreement (loan number 15612) dated as of September 29, 2009 between Johnson Outdoors Gear LLC and Ridgestone Bank (filed as Exhibit 99.4 to the current report on Form 8-K dated and filed with the Securities and Exchange Commission on September 30, 2009).
   
10.27
Term Loan Agreement (loan number 15628) dated as of September 29, 2009 between Johnson Outdoors Watercraft Inc. and Ridgestone Bank (filed as Exhibit 99.5 to the current report on Form 8-K dated and filed with the Securities and Exchange Commission on September 30, 2009).
   
10.28
Term Loan Agreement (loan number 15614) dated as of September 29, 2009 between Johnson Outdoors Watercraft Inc. and Ridgestone Bank (filed as Exhibit 99.6 to the current report on Form 8-K dated and filed with the Securities and Exchange Commission on September 30, 2009).
   
10.29
Term Loan Agreement (loan number 15627) dated as of September 29, 2009 between Johnson Outdoors Watercraft Inc. and Ridgestone Bank (filed as Exhibit 99.7 to the current report on Form 8-K dated and filed with the Securities and Exchange Commission on September 30, 2009).
   
10.30
Revolving Credit and Security Agreement dated as of November 4, 2009 among Johnson Outdoors Canada Inc., National City Bank, Canada branch, as administrative agent and collateral agent and the other lenders named therein (filed as Exhibit 10.30 to the annual report on Form 10-K dated and filed with the Securities and Exchange Commission on December 11, 2010).
   
10.31*
Johnson Outdoors Inc. 2009 Employees’ Stock Purchase Plan (filed as Exhibit 99.2 to the current report on Form 8-K dated and filed with the Securities and Exchange Commission on March 8, 2010).
 
 
 
29

 
 
10.32*
Johnson Outdoors Inc. 2010 Long Term Stock Incentive Plan (filed as Exhibit 99.2 to the current report on Form 8-K dated and filed with the Securities and Exchange Commission on March 8, 2010).
   
16
Letter Regarding Change in Auditors (filed as Exhibit 16.1 to the current report on Form 8-K dated and filed with the Securities and Exchange Commission on March 8, 2010).
   
21
Subsidiaries of the Company as of October 1, 2010.
   
23.1
Consent of Independent Registered Public Accounting Firm (McGladrey & Pullen, LLP).
   
23.2 Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP).
   
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a).
   
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a).
   
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. (1)
   
32.1
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. (1)
 
+    A management contract or compensatory plan or arrangement.
 
(1) 
This certification is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
 

 
30

 
 
 
CONSOLIDATED FINANCIAL STATEMENTS
 
Table of Contents
 
Page
     
Management’s Report on Internal Control over Financial Reporting
 
F-1
     
Reports of Independent Registered Public Accounting Firms
 
F-2
     
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

 
 
 

 

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
The management of Johnson Outdoors Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements. The Company’s internal control over financial reporting includes those policies and procedures that:
 
(a)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
   
(b)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
   
(c)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management assessed the effectiveness of the Company’s internal control over financial reporting as of October 1, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, management believes that, as of October 1, 2010, the Company’s internal control over financial reporting was effective based on those criteria.
 
 
 
/s/ Helen P. Johnson-Leipold
 
 
/s/ David W. Johnson
Helen P. Johnson-Leipold
 
David W. Johnson
Chairman and Chief Executive Officer
 
Vice President and Chief Financial Officer

 

 
F-1

 


Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders
Johnson Outdoors Inc.

We have audited the accompanying consolidated balance sheet of Johnson Outdoors Inc. and subsidiaries as of October 1, 2010, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 October 1, 2010 and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
 
 

/s/ McGladrey & Pullen, LLP
Milwaukee, Wisconsin
December 9, 2010

 

 
F-2

 

Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders
Johnson Outdoors Inc.

We have audited the accompanying consolidated balance sheet of Johnson Outdoors Inc. and subsidiaries as of October 2, 2009, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 October 1, 2010 and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
 
As discussed in Note 1 of the financial statements, in the year ended October 2, 2009, the Company changed the timing of its annual goodwill assessment.


/s/ Ernst & Young LLP
Milwaukee, Wisconsin
December 11, 2009
 
 
 
F-3

 
 

 
CONSOLIDATED BALANCE SHEETS
 
   
October 1
   
October 2
 
(thousands, except share data)
 
2010
   
2009
 
ASSETS
           
Current assets:
           
     Cash and cash equivalents
  $ 33,316     $ 27,895  
     Accounts receivable, less allowance for doubtful accounts of $2,988 and $2,695, respectively
    46,928       43,459  
     Inventories
    72,095       61,085  
     Deferred income taxes
    1,844       2,168  
     Other current assets
    5,945       7,748  
Total current assets
    160,128       142,355  
Property, plant and equipment, net
    33,767       33,490  
Deferred income taxes
    3,320       3,391  
Goodwill
    13,729       14,659  
Other intangible assets, net
    5,720       6,247  
Other assets
    10,092       10,140  
Total assets
  $ 226,756     $ 210,282  
LIABILITIES AND SHAREHOLDERS' EQUITY
               
Current liabilities:
               
     Short-term notes payable
  $ 7,544     $ 14,890  
     Current maturities of long-term debt
    1,327       584  
     Accounts payable
    24,103       18,469  
     Accrued liabilities:
               
          Salaries, wages and benefits
    14,481       7,834  
          Accrued warranty and returns
    5,640       5,253  
          Income taxes payable
    1,062       750  
          Other
    12,858       13,061  
Total current liabilities
    67,015       60,841  
Long-term debt, less current maturities
    14,939       16,089  
Deferred income taxes
    601       593  
Retirement benefits
    8,522       9,188  
Other liabilities
    9,310       7,746  
Total liabilities
    100,387       94,457  
Shareholders' equity:
               
     Preferred stock: none issued
    -       -  
     Common stock:
               
     Class A shares issued and outstanding:
    418       404  
          October 1, 2010: 8,363,313
               
          October 2, 2009: 8,066,965
               
     Class B shares issued and outstanding: 1,216,464
    61       61  
     Capital in excess of par value
    59,779       58,343  
     Retained earnings
    50,039       43,500  
     Accumulated other comprehensive income
    16,073       13,560  
Treasury stock at cost, 172 and 8,071 shares of Class A common stock, respectively
    (1 )     (43 )
Total shareholders' equity
    126,369       115,825  
Total liabilities and shareholders' equity
  $ 226,756     $ 210,282  
 
The accompanying notes are an integral part of the Consolidated Financial Statements.

 
F-4

 

CONSOLIDATED STATEMENTS OF OPERATIONS

   
Year Ended
 
(thousands, except per share data)
 
October 1
2010
   
October 2
2009
 
Net sales
  $ 382,432     $ 356,523  
Cost of sales
    228,909       223,741  
Gross profit
    153,523       132,782  
Operating expenses:
               
     Marketing and selling
    86,677       83,001  
     Administrative management, finance and information systems
    38,842       38,409  
     Research and development
    13,450       11,100  
Total operating expenses
    138,969       132,510  
Operating profit
    14,554       272  
Interest income
    (62 )     (193 )
Interest expense
    5,057       9,949  
Other expense, net
    367       594  
Income (Loss) before income taxes
    9,192       (10,078 )
Income tax expense (benefit)
    2,653       (407 )
Net income (loss)
  $ 6,539     $ (9,671 )
Weighted average common shares – Basic:
               
     Class A
    8,008       7,948  
     Class B
    1,217       1,217  
Dilutive stock options
    42       -  
Weighted average common shares – Dilutive
    9,267       9,165  
Net income (loss) per common share – Basic:
               
     Class A
  $ 0.69     $ (1.06 )
     Class B
  $ 0.63     $ (1.06 )
                 
Net income (loss) per common Class A and B share – Dilutive
  $ 0.68     $ (1.06 )

The accompanying notes are an integral part of the Consolidated Financial Statements.
 
 
 
F-5

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(thousands)
 
Common
Stock
   
Capital in
Excess of 
Par Value
   
Retained
Earnings
   
Treasury
Stock
   
Accumulated
Other Comprehensive Income (Loss)
   
Comprehensive Income (Loss)
 
BALANCE AT OCTOBER 3, 2008
  $ 461     $ 57,873     $ 53,171     $ -     $ 10,779        
Net loss
    -       -       (9,671 )     -       -     $ (9,671 )
Exercise of stock options
    -       43       -       -       -          
Stock-based compensation and award of
     non-vested shares
    4       427       -       -       -          
Translation adjustment
    -       -       -       -       5,960       5,960  
Change in pension plans
    -       -       -       -       (1,976 )     (1,976 )
Purchase of treasury stock at cost
    -       -       -       (43 )     -          
Changes in fair value of cash flow
     hedges
    -       -       -       -       (3,178 )     (3,178 )
Amoritzation of unrealized loss on
     interest rate swaps
    -       -       -       -       1,975       1,975  
Comprehensive loss
    -       -       -       -       -     $ (6,890 )
BALANCE AT OCTOBER 2, 2009
    465       58,343       43,500       (43 )     13,560          
Net income
    -       -       6,539       -       -       6,539  
Exercise of stock options
    2       373       -       -       -          
Issuance of stock under employee stock
     purchase plan
    -       109       -       -       -          
Stock-based compensation and award of
     non-vested shares
    12       944       -       -       -          
Translation adjustment
    -       -       -       -       965       965  
Change in pension plans
    -       -       -       -       (497 )     (497 )
Reissue of treasury stock
    -       10       -       42       -          
Amoritzation of unrealized loss on
     interest rate swaps
    -       -       -       -       2,045       2,045  
Comprehensive income
    -       -       -       -       -     $ 9,052  
BALANCE AT OCTOBER 1, 2010
  $ 479     $ 59,779     $ 50,039     $ (1 )   $ 16,073          

The accompanying notes are an integral part of the Consolidated Financial Statements.
 
 
 
F-6

 

CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Year Ended
 
(thousands)
 
October 1
2010
   
October 2
2009
 
CASH PROVIDED BY OPERATING ACTIVITIES
           
Net income (loss)
  $ 6,539     $ (9,671 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation
    8,875       10,717  
Amortization of intangible assets and deferred financing costs
    1,102       1,168  
Write off of deferred financing fees
    -       1,006  
Impairment losses
    114       697  
Amortization of unrealized loss on interest rate swap
    2,045       1,975  
Loss on sale of property, plant and equipment
    236       337  
Provision for doubtful accounts receivable
    995       1,491  
Provision for inventory reserves
    1,404       3,093  
Stock-based compensation
    956       428  
Deferred income taxes
    415       (2,156 )
Change in operating assets and liabilities, net of effect of businesses acquired or sold:
               
     Accounts receivable
    (4,857 )     8,795  
     Inventories
    (12,563 )     23,312  
     Accounts payable and accrued liabilities
    13,114       (10,446 )
     Other current assets
    1,986       (1,329 )
     Other non-current assets
    (913 )     (415 )
     Other long-term liabilities
    358       907  
     Other, net
    (55 )     706  
      19,751       30,615  
CASH USED FOR INVESTING ACTIVITIES
               
Payments for purchase of business
    -       (1,005 )
Additions to property, plant and equipment
    (9,966 )     (8,321 )
Proceeds from sale of property, plant and equipment
    695       64  
Payments on interest rate swaps
    -       (6,662 )
      (9,271 )     (15,924 )
CASH USED FOR FINANCING ACTIVITIES
               
Net borrowings (repayments) borrowings on short-term debt
    (7,289 )     14,678  
Borrowings on long-term debt
    -       15,892  
Principal payments on senior notes and other long-term debt
    (594 )     (60,022 )
Deferred financing costs paid to lenders
    (173 )     (2,808 )
Dividends paid
    -       (501 )
Common stock transactions
    484       43  
      (7,572 )     (32,718 )
Effect of foreign currency fluctuations on cash
    2,513       4,131  
Increase (Decrease) in cash and cash equivalents
    5,421       (13,896 )
CASH AND CASH EQUIVALENTS
               
Beginning of year
    27,895       41,791  
End of year
  $ 33,316     $ 27,895  

The accompanying notes are an integral part of the Consolidated Financial Statements.

 
 
F-7

 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
OCTOBER 1, 2010
 
(in thousands except share and per share amounts)
 
1     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Business
 
Johnson Outdoors Inc. (“the Company”) is an integrated, global outdoor recreation-products company engaged in the design, manufacture and marketing of brand name outdoor equipment, diving, watercraft and marine electronics products.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of Johnson Outdoors Inc. and all majority owned subsidiaries and are stated in conformity with U.S. generally accepted accounting principles. Intercompany accounts and transactions have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and operating results and the disclosure of commitments and contingent liabilities. Actual results could differ significantly from those estimates.
 
Fiscal Year
 
The Company’s fiscal year ends on the Friday nearest September 30. Both the fiscal year ended October 1, 2010 (hereinafter 2010) and the fiscal year ended October 2, 2009 (hereinafter 2009) comprised 52 weeks.
 
Cash and Cash Equivalents
 
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.  Cash equivalents are stated at cost which approximates market value.
 
The Company maintains cash in bank accounts in excess of insured limits. The Company has not experienced any losses and does not believe that significant credit risk exists as a result of this practice.
 
Accounts Receivable
 
Accounts receivable are recorded at face value less an allowance for doubtful accounts. The allowance for doubtful accounts is based on a combination of factors. In circumstances where specific collection concerns exist, a reserve is established to reduce the amount recorded to an amount the Company believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on historical experience of bad debts as a percent of accounts receivable for each business unit. Uncollectible accounts are written off against the allowance for doubtful accounts after collection efforts have been exhausted. The Company typically does not require collateral on its accounts receivable.
 

 
F-8

 

Inventories
 
Inventories are stated at the lower of cost (determined using the first-in, first-out method) or market.  Market is determined on the basis of estimated realizable values.
 
Inventories at the end of the respective fiscal years consist of the following:
 
   
2010
   
2009
 
Raw materials
  $ 27,777     $ 18,129  
Work in process
    2,341       2,403  
Finished goods
    41,977       40,553  
    $ 72,095     $ 61,085  

Property, Plant and Equipment
 
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation of plant and equipment is determined by straight-line methods over the following estimated useful lives:
 
Property improvements
 5-20 years
Buildings and improvements
20-40 years
Furniture, fixtures and equipment
 3-10 years

Upon retirement or disposition, cost and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.
 
Property, plant and equipment at the end of the respective years consist of the following:
 
   
2010
   
2009
 
Property and improvements
  $ 651     $ 699  
Buildings and improvements
    21,604       21,463  
Furniture, fixtures and equipment
    99,697       93,571  
      121,952       115,733  
Less accumulated depreciation
    88,185       82,243  
    $ 33,767     $ 33,490  

Goodwill
 
The Company applies a fair value-based impairment test to the net book value of goodwill on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis.  The analysis of potential impairment of goodwill requires a two-step process.  The first step is the estimation of fair value of the applicable reporting units.  Estimated fair value is based on management judgments and assumptions and those fair values are compared with the aggregate carrying values of the reporting units.  If the fair value of the reporting unit is greater than its carrying amount, there is no impairment.  If the reporting unit carrying amount is greater than the fair value, then the second step must be completed to measure the amount of impairment, if any.  The second step calculates the implied fair value of the goodwill which is compared to its carrying value.  If the implied fair value is less than the carrying value, an impairment loss is recognized equal to the difference.
 
During fiscal 2009, the Company changed its annual goodwill measurement date from its fiscal year end to the last day of fiscal August.
 
The results of the impairment test performed in 2010 indicated no impairment.  In 2009, the test performed indicated impairment of the remaining goodwill related to a reporting unit of the Watercraft segment.  The Company performed the second step which resulted in the full impairment of the goodwill and a non-cash charge of $312 was recognized in the fourth quarter of fiscal 2009.  Due to the current economic uncertainty and other factors, the Company cannot assure that remaining goodwill will not be further impaired in future periods.
 

 
F-9

 

 
During 2010, the Company identified an error in purchase accounting related to the 2004 Techsonic Industries acquisition after the allocation period had ended.  The Company identified realizable deferred tax assets of $994 that were present at the date of acquisition but were not included in the purchase price accounting.  The Company increased long term deferred tax assets by $994 and reduced goodwill by a like amount during the year.
 
Total gross goodwill was $53,644 and $54,574 as of October 1, 2010 and October 2, 2009, respectively.  Accumulated impairment of such goodwill was $39,915 as of October 1, 2010 and October 2, 2009, respectively, resulting in net goodwill of $13,729 and $14,659 as of October 1, 2010 and October 2, 2009, respectively.  The changes in the carrying amount of segment goodwill for fiscal 2009 and 2010 are as follows.
   
Marine Electronics
     
Outdoor Equipment
   
Watercraft
   
Diving
   
Consolidated
 
Balance at October 3, 2008
  $ 10,013     $ -     $ 338     $ 3,734     $ 14,085  
Currency translations
    85       -       (26 )     220       279  
Acquisitions
    607       -       -       -       607  
Impairment charges
    -       -       (312 )     -       (312 )
Balance at October 2, 2009
    10,705       -       -       3,954       14,659  
Tax adjustments related to purchase price allocation
    (994 )     -       -       -       (994 )
Currency translations
    (37 )     -       -       101       64  
Balance at October 1, 2010
  $ 9,674     $ -     $ -     $ 4,055     $ 13,729  

Other Intangible Assets

Indefinite-lived intangible assets are also tested for impairment annually.  During the fourth quarter of fiscal 2010, the Company completed its annual fair value-based impairment test on indefinite lived intangibles.  There was no impairment of other intangibles recorded for the year ended October 1, 2010 or for the year ended October 2, 2009.
 
Intangible assets with finite lives are stated at cost less accumulated amortization. Amortization is computed using the straight-line method over periods ranging from 3 to 25 years.  During 2009, the final allocation of the purchase price related to the Navicontrol acquisition was completed resulting in definite lived intangible assets of $368.  The weighted average amortization period for these assets was 13 years.
 
Intangible assets at the end of the last two years consist of the following:
 
   
2010
   
2009
 
         
Accumulated
               
Accumulated
       
   
Gross
   
Amortization
   
Net
   
Gross
   
Amortization
   
Net
 
Amortized other intangible assets:                                    
Patents
  $ 3,644     $ (3,328 )   $ 316     $ 3,264     $ (3,223 )   $ 41  
Trademarks
    2,000       (610 )     1,390       1,285       (350 )     935  
Other
    1,228       (464 )     764       1,684       (683 )     1,001  
Non-amortized trademarks:     3,250       -       3,250       4,270       -       4,270  
    $ 10,122     $ (4,402 )   $ 5,720     $ 10,503     $ (4,256 )   $ 6,247  

During 2010, the Company made a decision to begin phasing out the usage of one of its trademarks.  As a result, the trademark, which had been classified as indefinite lived, was reclassified to definite lived intangibles and is being amortized over its estimated remaining economic life.
 
Amortization of patents and other intangible assets with definite lives was $681 and $417 for 2010 and 2009, respectively. Amortization of these definite lived intangible assets is expected to be approximately $681 for each of the next five years.
 
 
 
F-10

 
 
Impairment of Long-Lived Assets
 
The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.  The Company performs undiscounted cash flow analysis to determine if potential impairment exists.  If impairment is determined to exist, any related impairment loss is calculated based on the difference between the fair value and the carrying value.  The Company prepared an undiscounted cash flow analysis for those assets where an indicator of impairment existed.  For fiscal 2009, upon completion of the undiscounted cash flow analysis, there was an indicator of impairment for a warehouse facility in Casarza-Ligure, Italy and the Company recorded $385 as an impairment of its long-lived assets. During 2010, the Company recognized additional impairment on this facility of $114 to write the asset down to its fair value of $656. 
 
Warranties
 
The Company provides for warranties of certain products as they are sold. Warranty reserves are estimated by the individual operating companies using standard quantitative measures based on criteria established by the Company. Estimates of costs to service its warranty obligations are based on historical experience, expectation of future conditions and known product issues.  The following table summarizes the warranty activity for the two years in the period ended October 1, 2010.
 
Balance at October 3, 2008
  $ 4,361  
Expense accruals for warranties issued during the year
    3,264  
Less current year warranty claims paid
    3,429  
Balance at October 2, 2009
    4,196  
Expense accruals for warranties issued during the year
    3,671  
Less current year warranty claims paid
    3,278  
Balance at October 1, 2010
  $ 4,589  

Accumulated Other Comprehensive Income (Loss)
 
The components of “Accumulated other comprehensive income (loss)” on the accompanying balance sheets as of fiscal year end 2010 and 2009, respectively, are as follows:
 
   
2010
   
2009
 
Foreign currency translation adjustment
  $ 23,305     $ 22,340  
Unamortized loss on pension plans, net of tax of $0 and $0, respectively
    (5,315 )     (4,818 )
Unrealized loss on interest rate swaps
    (1,917 )     (3,962 )
Accumulated other comprehensive income
  $ 16,073     $ 13,560  

Earnings per Share
 
Net income or loss per share of Class A common stock and Class B common stock is computed using the two-class method.  Grants of restricted stock which receive non-forfeitable dividends are required to be included as part of the basic weighted average share calculation under the two-class method. The Company previously included such shares only as part of its diluted share calculation under the treasury stock method.  
 
Holders of Class A common stock are entitled to cash dividends equal to 110% of all dividends declared and paid on each share of Class B common stock. The Company grants shares of unvested restricted stock in the form of Class A shares, which carry the same distribution rights as the Class A common stock described above.  As such, the undistributed earnings for each period are allocated to each class of common stock based on the proportionate share of the amount of cash dividends that each such class is entitled to receive.
 
 
 
F-11

 
 
 Basic EPS
 
Basic net income or loss per share is computed by dividing net income or loss allocated to Class A common stock and Class B common stock by the weighted-average number of shares of Class A common stock and Class B common stock outstanding, respectively.  In periods with cumulative year to date net income and undistributed income, the undistributed income for each period is allocated to each class of common stock based on the proportionate share of the amount of cash dividends that each such class is entitled to receive.  In periods where there is a cumulative year to date net loss or no undistributed income because distributions through dividends exceed net income, Class B shares are treated as anti-dilutive and losses are allocated equally on a per share basis among all participating securities.
 
For 2009, basic loss per share for Class A and Class B shares is the same due to the net loss incurred during such periods.  For 2010, basic income per share for Class A and Class B shares has been presented using the two class method as described above.
 
Diluted EPS
 
Diluted net income per share is computed by dividing allocated net income by the weighted-average number of common shares outstanding, adjusted for the effect of dilutive stock options and non-vested restricted stock. The computation of diluted net income per share of Class A common stock assumes that Class B common stock is converted into Class A common stock.  Therefore, diluted net income per share is the same for both Class A and Class B shares.  In periods where the Company reports a net loss, the effect of anti-dilutive stock options and non-vested stock is excluded and diluted loss per share is equal to basic loss per share.
 
For 2009, the effect of stock options and non-vested stock is excluded from the diluted loss per share calculation as they would be anti-dilutive. For 2010, diluted net income per share reflects the effect of dilutive stock options and assumes the conversion of Class B common stock into Class A common stock. The effect of non-vested restricted stock is excluded from the diluted income per share calculation as their inclusion would be anti-dilutive.  Any undistributed earnings are reallocated to the non-vested stock.
 
The following table sets forth a reconciliation of net income to dilutive earnings used in the diluted earnings per share calculations and the computation of basic and diluted earnings per common share:

   
2010
   
2009
 
Net income (loss)
  $ 6,539     $ (9,671 )
Less: Undistributed earnings reallocated to unvested shareholders
    (201 )     -  
Dilutive earnings (loss)
  $ 6,338     $ (9,671 )
Net income (loss) per common share – Basic:
               
     Class A
  $ 0.69     $ (1.06 )
     Class B
  $ 0.63     $ (1.06 )
Net income (loss) per common Class A and B share – Dilutive
  $ 0.68     $ (1.06 )

 
Stock options that could potentially dilute earnings per share in the future which were not included in the fully diluted computation for 2010 and 2009 because they would have been anti-dilutive totaled 16,063 and 180,288, respectively. Non-vested stock that could potentially dilute earnings per share in the future which were not included in the fully diluted computation for 2010 and 2009 because they would have been anti-dilutive totaled 325,172 and 105,827, respectively.
 
 
 
F-12

 
 
Stock-Based Compensation
 
Stock-based compensation cost is recorded for all option grants and awards of non-vested stock based on their grant-date fair value.  Stock-based compensation expense is recognized on a straight-line basis over the vesting period of each award recipient. No stock options were granted in 2010 or 2009.  See Note 12 of the Notes to Consolidated Financial Statements for information regarding the Company’s stock-based incentive plans, including stock options, non-vested stock, and employee stock purchase plans.
 
Cash flows from income tax benefits resulting from tax deductions in excess of the compensation expense recognized for stock-based awards have been classified as financing cash flows.
 
Income Taxes
 
The Company provides for income taxes currently payable and deferred income taxes resulting from temporary differences between financial statement and taxable income.  Deferred income tax assets and liabilities are determined based on the difference between the amounts reported in the financial statements and tax bases of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  A valuation allowance is established if it is more likely than not that some portion or all of a deferred income tax asset will not be realized. See Note 8 of the Notes to Consolidated Financial Statements for further discussion.
 
Employee Benefits
 
The Company and certain of its subsidiaries have various retirement and profit sharing plans. The Company does not have any significant foreign retirement plans. Pension obligations, which are generally based on compensation and years of service, are funded by payments to pension fund trustees. The Company’s policy is to annually fund the minimum amount required under the Employee Retirement Income Security Act of 1974 for plans subject thereto. Other retirement costs are funded at least annually. Effective September 30, 2009, the Company elected to freeze its U.S. defined benefit pension plans. The effect of this action is a cessation of benefit accruals related to service performed after September 30, 2009.  See Note 9 of the Notes to Consolidated Financial Statements for additional discussion.
 
Foreign Operations and Related Derivative Financial Instruments
 
The functional currencies of the Company’s foreign operations are the local currencies. Accordingly, assets and liabilities of foreign operations are translated into U.S. dollars at the rate of exchange existing at the end of the year. Results of operations are translated at monthly average exchange rates. Adjustments resulting from the translation of foreign currency financial statements are classified as accumulated other comprehensive income (loss), a separate component of shareholders’ equity.
 
Currency gains and losses are recognized when assets and liabilities of foreign operations, denominated in other than their local currency, are converted into the local currency of the entity. Additionally, currency gains and losses are recognized through the settlement of transactions denominated in other than the local currency. The Company recognized currency losses from transactions of $1,175 and $796 for 2010 and 2009, respectively, included in the “Other expense, (net)” line of the Company’s Consolidated Statements of Operations.
 
Because the Company operates internationally, it has exposure to market risk from movements in foreign currency exchange rates. Approximately 27% of the Company’s revenues for the year ended October 1, 2010 were denominated in currencies other than the U.S. dollar. Approximately 15% were denominated in euros, with the remaining 12% denominated in various other foreign currencies.  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 or borrowings in foreign currencies.  In 2010 and 2009, the Company used foreign currency forward contracts to reduce the economic risk of changes in foreign currency exchange rates on foreign currency borrowings.  The Company does not enter into foreign exchange contracts for trading or speculative purposes.
 
 
 
F-13

 
 
Revenue Recognition
 
The Company recognizes revenue when all of the following criteria have been met:
 
    Persuasive evidence of an arrangement exists.  Contracts, internet commerce agreements, and customer purchase orders are generally used to determine the existence of an arrangement.
     
    All substantial risk of ownership transfers to the customer.  Shipping documents and customer acceptance, when applicable, are used to verify delivery.
     
    The fee is fixed or determinable.  This is assessed based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment.
     
    Collectibility is reasonably assured.  We assess collectibility based on the creditworthiness of the customer as determined by credit checks and analysis, as well as by the customer’s payment history.
 
Estimated costs of returns and allowances and discounts are accrued as a reduction to sales when revenue is recognized.
 
Advertising
 
The Company expenses substantially all costs related to the production of advertising the first time the advertising takes place. Cooperative promotional arrangements are accrued as related revenue is earned.
 
Advertising expense in 2010 and 2009 totaled $20,107 and $19,481, respectively. These charges are included in marketing and selling expenses.  Capitalized advertising costs, included in other current assets, totaled $979 and $750 at October 1, 2010 and October 2, 2009, respectively, and primarily included catalogs and costs of advertising which have not yet run for the first time.
 
Shipping and Handling Costs
 
Shipping and handling fees billed to customers are included in net sales. Shipping and handling costs are included in marketing and selling expense and totaled $9,697 and $9,727 for 2010 and 2009, respectively.
 
Research and Development
 
The Company expenses research and development costs as incurred except for costs of software development for new electronic products which are capitalized once technological feasibility is established and are included in Furniture, Fixtures and Equipment. The amount capitalized related to software development was $6,123, less accumulated amortization of $3,026, at October 1, 2010 and $4,464, less accumulated amortization of $2,353, at October 2, 2009.  These costs are amortized over the expected life of the software of three years.  Amortization expense related to capitalized software in 2010 and 2009 was $489 and $358, respectively, and is included in Depreciation expense on Plant, Property and Equipment.

Fair Values
 
The carrying amounts of cash, cash equivalents, accounts receivable, and accounts payable approximated fair value at October 1, 2010 and October 2, 2009 due to the short maturities of these instruments. During 2010, the Company held foreign currency forward contracts and investments in equity and debt securities that were carried at fair value.  When indicators of impairment are present, the Company may be required to value certain long-lived assets such as property, plant, and equipment, and other intangibles at fair value.
 
Valuation Techniques
 
Over the Counter Derivative Contracts
 
The value of over the counter derivative contracts, such as interest rate swaps and foreign currency forward contracts, are derived using pricing models, which take into account the contract terms, as well as other inputs, including, where applicable, the notional values of the contracts, payment terms, maturity dates, credit risk, interest rate yield curves, and contractual and market currency exchange rates.  The pricing model used for valuing interest rate swaps does not entail material subjectivity because the methodologies employed do not necessitate significant judgment, and the pricing inputs are observed from actively quoted markets.
 
Rabbi Trust Assets
 
Rabbi trust assets, included in other assets, are classified as trading securities and are comprised of marketable debt and equity securities that are marked to fair value based on unadjusted quoted prices in active markets.
 
 
 
F-14

 
 
Goodwill and Other Intangible Assets
 
In assessing the recoverability of the Company's goodwill and other intangible assets, the Company estimates the future discounted cash flows of the businesses to which the goodwill relates.  When estimated future discounted cash flows are less than the carrying value of the net assets and related goodwill, an impairment test is performed to measure and recognize the amount of the impairment loss, if any.  In determining estimated future cash flows, the Company makes assumptions regarding anticipated financial position, future earnings and other factors to determine the fair value of the respective assets.
 
See Note 4 of the Notes to Consolidated Financial Statements for disclosures regarding the fair value of long-term debt and Note 6 of the Notes to Consolidated Financial Statements for disclosures regarding fair value measurement.
 
Reclassifications
 
Certain prior year amounts have been reclassified to conform to the 2010 presentation. After tax income related to discontinued operations of $41 for 2009 has been reclassified to other expense, net.  These reclassifications have no impact on previously reported net income or earnings per share.
 
2     RESTRUCTURING
 
The following represents restructuring accrual activity across all segments during 2009 and 2010:

   
Employee Termination Costs
   
Contract 
Exit Costs
   
Other Exit
Costs
   
Total
 
Accrued restructuring liabilities as of October 3, 2008
  $ 917     $ -     $ -     $ 917  
Activity during the period ended October 2, 2009:
                               
    Charges to earnings
    1,440       404       1,187       3,031  
    Settlement payments
    (1,598 )     -       (1,054 )     (2,652 )
Accrued restructuring liabilities as of October 2, 2009
    759       404       133       1,296  
Activity during the period ended October 1, 2010:
                               
    Charges to earnings
    (60 )     (12 )     701       629  
    Settlement payments
    (694 )     (392 )     (809 )