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EX-31.1 - EXHIBIT 31.1 - JOHNSON OUTDOORS INCex31_1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 27, 2020

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)

(262) 631-6600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol
Name of each exchange on which registered
Class A Common Stock, $.05 par value per share
JOUT
NASDAQ Global Select Market SM

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 ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒   No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act: Large accelerated filer ☐Accelerated filer ☒Non-accelerated filer ☐Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

As of April 24, 2020, 8,871,007 shares of Class A and 1,211,602 shares of Class B common stock of the Registrant were outstanding.



JOHNSON OUTDOORS INC.

Index
Page No.
   
PART I
FINANCIAL INFORMATION
 
     
 
Item 1.
Financial Statements
 
       
   
1
       
   
2
       
   
3
       
   
4
       
   
5
       
   
6
       
 
Item 2.
20
       
 
Item 3.
27
       
 
Item 4.
28
       
PART II
OTHER INFORMATION
 
     
 
Item 1.
28
       
 
Item 1A.
28
       
 
Item 6.
29
       
   
29
       
   
30


JOHNSON OUTDOORS INC.
 
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

   
Three Months Ended
   
Six Months Ended
 
(thousands, except per share data)
 
March 27,
2020
   
March 29,
2019
   
March 27,
2020
   
March 29,
2019
 
Net sales
 
$
163,084
   
$
177,707
   
$
291,138
   
$
282,147
 
Cost of sales
   
87,952
     
98,578
     
162,394
     
158,699
 
Gross profit
   
75,132
     
79,129
     
128,744
     
123,448
 
Operating expenses:
                               
Marketing and selling
   
33,706
     
33,096
     
63,011
     
57,789
 
Administrative management, finance and information systems
   
4,190
     
12,598
     
16,165
     
20,985
 
Research and development
   
5,442
     
5,591
     
10,973
     
10,852
 
Total operating expenses
   
43,338
     
51,285
     
90,149
     
89,626
 
Operating profit
   
31,794
     
27,844
     
38,595
     
33,822
 
Interest income
   
(484
)
   
(317
)
   
(1,139
)
   
(857
)
Interest expense
   
35
     
36
     
70
     
73
 
Other expense (income), net
   
3,866
     
(1,895
)
   
2,698
     
255
 
Profit before income taxes
   
28,377
     
30,020
     
36,966
     
34,351
 
Income tax expense
   
7,990
     
8,097
     
10,149
     
8,907
 
Net income
 
$
20,387
   
$
21,923
   
$
26,817
   
$
25,444
 
                                 
Weighted average common shares - Basic:
                               
Class A
   
8,823
     
8,790
     
8,812
     
8,771
 
Class B
   
1,212
     
1,212
     
1,212
     
1,212
 
Participating securities
   
25
     
26
     
23
     
32
 
Weighted average common shares - Dilutive
   
10,060
     
10,028
     
10,047
     
10,015
 
Net income per common share - Basic:
                               
Class A
 
$
2.05
   
$
2.21
   
$
2.70
   
$
2.57
 
Class B
 
$
1.86
   
$
2.01
   
$
2.45
   
$
2.33
 
Net income per common share - Diluted:
                               
Class A
 
$
2.02
   
$
2.18
   
$
2.66
   
$
2.53
 
Class B
 
$
2.02
   
$
2.18
   
$
2.66
   
$
2.53
 

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

- 1 -

JOHNSON OUTDOORS INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

   
Three Months Ended
   
Six Months Ended
 
(thousands)
 
March 27,
2020
   
March 29,
2019
   
March 27,
2020
   
March 29,
2019
 
Net income
 
$
20,387
   
$
21,923
   
$
26,817
   
$
25,444
 
Other comprehensive income (loss):
                               
Foreign currency translation:
                               
Foreign currency translation
   
(1,607
)
   
(148
)
   
(907
)
   
(1,848
)
Defined benefit pension plan:
                               
Change in pension plans, net of tax of $20, $33, $41 and $66, respectively
   
62
     
105
     
123
     
210
 
Total other comprehensive loss
   
(1,545
)
   
(43
)
   
(784
)
   
(1,638
)
Total comprehensive income
 
$
18,842
   
$
21,880
   
$
26,033
   
$
23,806
 

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

- 2 -

JOHNSON OUTDOORS INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

(thousands, except share data)
 
March 27,
2020
   
September 27,
2019
   
March 29,
2019
 
ASSETS
                 
Current assets:
                 
Cash and cash equivalents
 
$
131,256
   
$
172,382
   
$
68,205
 
Accounts receivable, net
   
106,629
     
44,508
     
124,750
 
Inventories
   
107,680
     
94,298
     
116,231
 
Other current assets
   
7,777
     
11,340
     
7,087
 
Total current assets
   
353,342
     
322,528
     
316,273
 
Property, plant and equipment, net of accumulated depreciation of $149,083, $143,028 and $136,834, respectively
   
60,866
     
59,499
     
57,503
 
Right of use assets
   
38,735
     
     
 
Deferred income taxes
   
11,513
     
11,449
     
11,509
 
Goodwill
   
11,135
     
11,186
     
11,176
 
Other intangible assets, net
   
10,860
     
11,374
     
11,781
 
Other assets
   
17,853
     
20,408
     
19,751
 
Total assets
 
$
504,304
   
$
436,444
   
$
427,993
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                       
Current liabilities:
                       
Accounts payable
 
$
36,349
   
$
30,392
   
$
42,391
 
Current lease liability
   
5,820
     
     
 
Accrued liabilities:
                       
Salaries, wages and benefits
   
12,223
     
20,554
     
14,589
 
Accrued warranty
   
11,889
     
9,190
     
9,240
 
Income taxes payable
   
13,381
     
7,512
     
13,016
 
Accrued discounts and returns
   
9,271
     
7,503
     
9,432
 
Accrued customer programs
   
5,953
     
4,440
     
5,413
 
Other
   
7,737
     
8,275
     
8,504
 
Total current liabilities
   
102,623
     
87,866
     
102,585
 
Non-current lease liability
   
33,609
     
     
 
Deferred income taxes
   
1,598
     
1,638
     
1,669
 
Retirement benefits
   
1,021
     
942
     
1,947
 
Deferred compensation liability
   
16,550
     
19,092
     
18,224
 
Other liabilities
   
1,801
     
2,372
     
2,867
 
Total liabilities
   
157,202
     
111,910
     
127,292
 
Shareholders’ equity:
                       
Common stock:
                       
Class A shares issued and outstanding: 8,871,007, 8,834,169 and 8,838,459, respectively
   
443
     
443
     
442
 
Class B shares issued and outstanding: 1,211,602, 1,211,602 and 1,211,602, respectively
   
61
     
61
     
61
 
Capital in excess of par value
   
76,237
     
75,856
     
74,619
 
Retained earnings
   
271,808
     
248,377
     
225,491
 
Accumulated other comprehensive income
   
774
     
1,558
     
1,849
 
Treasury stock at cost, shares of Class A common stock: 36,354, 29,225 and 29,225, respectively
   
(2,221
)
   
(1,761
)
   
(1,761
)
Total shareholders’ equity
   
347,102
     
324,534
     
300,701
 
Total liabilities and shareholders’ equity
 
$
504,304
   
$
436,444
   
$
427,993
 

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

- 3 -

JOHNSON OUTDOORS INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)

Six Months Ended March 29, 2019
 
(thousands except for shares)
 
Shares
   
Common Stock
   
Capital in
Excess of Par
Value
   
Retained
Earnings
   
Treasury
Stock
   
Accumulated
Other
Comprehensive
Income (Loss)
 
BALANCE AT SEPTEMBER 28, 2018
   
9,999,046
   
$
503
   
$
75,025
   
$
202,828
   
$
(2,646
)
 
$
3,487
 
Net income
   
     
     
     
3,521
     
     
 
Dividends declared
   
     
     
     
(1,384
)
   
     
 
Award of non-vested shares
   
48,236
     
     
(1,593
)
   
     
1,593
     
 
Stock-based compensation
   
     
     
536
     
     
     
 
Currency translation adjustment
   
     
     
     
     
     
(1,700
)
Change in pension plans, net of tax of $33
   
     
     
     
     
     
105
 
Purchase of treasury stock at cost
   
(9,890
)
   
     
     
     
(708
)
   
 
BALANCE AT DECEMBER 28, 2018
   
10,037,392
     
503
     
73,968
     
204,965
     
(1,761
)
   
1,892
 
Net income
   
     
     
     
21,923
     
     
 
Dividends declared
   
     
     
     
(1,397
)
   
     
 
Issuance of stock under employee stock purchase plan
   
1,594
     
     
79
     
     
     
 
Award of non-vested shares
   
11,075
     
     
     
     
     
 
Stock-based compensation
   
     
     
572
     
     
     
 
Currency translation adjustment
   
     
     
     
     
     
(148
)
Change in pension plans, net of tax of $33
   
     
     
     
     
     
105
 
BALANCE AT MARCH 29, 2019
   
10,050,061
   
$
503
   
$
74,619
   
$
225,491
   
$
(1,761
)
 
$
1,849
 

Six Months Ended March 27, 2020
 
(thousands except for shares)
 
Shares
   
Common Stock
   
Capital in
Excess of Par
Value
   
Retained
Earnings
   
Treasury
Stock
   
Accumulated
Other
Comprehensive
Income (Loss)
 
BALANCE AT SEPTEMBER 27, 2019
   
10,045,771
   
$
504
   
$
75,856
   
$
248,377
   
$
(1,761
)
 
$
1,558
 
Net income
   
     
     
     
6,430
     
     
 
Dividends declared
   
     
     
     
(1,693
)
   
     
 
Award of non-vested shares
   
31,571
     
     
     
     
     
 
Stock-based compensation
   
     
     
667
     
     
     
 
Currency translation adjustment
   
     
     
     
     
     
700
 
Change in pension plans, net of tax of $21
   
     
     
     
     
     
61
 
Purchase of treasury stock at cost
   
(7,129
)
   
     
     
     
(460
)
   
 
BALANCE AT DECEMBER 27, 2019
   
10,070,213
     
504
     
76,523
     
253,114
     
(2,221
)
   
2,319
 
Net income
   
     
     
     
20,387
     
     
 
Dividends declared
   
     
     
     
(1,693
)
   
     
 
Issuance of stock under employee stock purchase plan
   
     
     
     
     
     
 
Award of non-vested shares
   
12,396
     
     
     
     
     
 
Stock-based compensation
   
     
     
(286
)
   
     
     
 
Currency translation adjustment
   
     
     
     
     
     
(1,607
)
Change in pension plans, net of tax of $20
   
     
     
     
     
     
62
 
BALANCE AT MARCH 27, 2020
   
10,082,609
   
$
504
   
$
76,237
   
$
271,808
   
$
(2,221
)
 
$
774
 

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

- 4 -

JOHNSON OUTDOORS INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

   
Six Months Ended
 
(thousands)
 
March 27,
2020
   
March 29,
2019
 
CASH USED FOR OPERATING ACTIVITIES
           
Net income
 
$
26,817
   
$
25,444
 
Adjustments to reconcile net income to net cash used for operating activities:
               
Depreciation
   
6,286
     
6,324
 
Amortization of intangible assets
   
510
     
518
 
Amortization of deferred financing costs
   
13
     
13
 
Stock based compensation
   
381
     
1,108
 
Gain on disposal of productive assets
   
(10
)
   
(22
)
Deferred income taxes
   
(117
)
   
202
 
Change in operating assets and liabilities:
               
Accounts receivable, net
   
(62,681
)
   
(84,294
)
Inventories, net
   
(13,771
)
   
(27,988
)
Accounts payable and accrued liabilities
   
9,700
     
10,238
 
Other current assets
   
3,529
     
(1,724
)
Other long-term liabilities
   
(171
)
   
417
 
Other, net
   
523
     
(117
)
     
(28,991
)
   
(69,881
)
CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES
               
Purchase of short-term investments
   
     
(7,124
)
Proceeds from sale of short-term investments
   
     
35,838
 
Proceeds from sale of productive assets
   
10
     
47
 
Capital expenditures
   
(7,772
)
   
(8,178
)
     
(7,762
)
   
20,583
 
CASH USED FOR FINANCING ACTIVITIES
               
Common stock transactions
   
     
79
 
Dividends paid
   
(3,382
)
   
(2,774
)
Purchases of treasury stock
   
(460
)
   
(708
)
     
(3,842
)
   
(3,403
)
Effect of foreign currency rate changes on cash
   
(531
)
   
(971
)
Decrease in cash and cash equivalents
   
(41,126
)
   
(53,672
)
CASH AND CASH EQUIVALENTS
               
Beginning of period
   
172,382
     
121,877
 
End of period
 
$
131,256
   
$
68,205
 
                 
Supplemental Disclosure:
               
Non-cash treasury stock activity
 
$
   
$
1,593
 
Cash paid for taxes
   
4,371
     
1,915
 
Cash paid for interest
   
58
     
61
 

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

- 5 -

JOHNSON OUTDOORS INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1
BASIS OF PRESENTATION

The condensed consolidated financial statements included herein are unaudited. In the opinion of management, these statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Johnson Outdoors Inc. and subsidiaries (collectively, the “Company”) as of March 27, 2020 and March 29, 2019, and their results of operations for the three and six month periods then ended and cash flows for the six month periods then ended. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 27, 2019 which was filed with the Securities and Exchange Commission on December 6, 2019.

Due to seasonal variations and other factors, some of which are described herein, including related to the coronavirus (COVID-19) outbreak and resulting pandemic, the results of operations for the three and six months ended March 27, 2020 are not necessarily indicative of the results to be expected for the Company’s full 2020 fiscal year.  See “Seasonality” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein for additional information.

The Company considers all short-term investments in interest-bearing accounts and all 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.  Short-term investments consist of certificates of deposit with original maturities greater than three months but less than one year.

All monetary amounts, other than share and per share amounts, are stated in thousands.

2
ACCOUNTS RECEIVABLE

Accounts receivable are stated net of allowances for doubtful accounts of $1,279, $2,550 and $1,266 as of March 27, 2020, September 27, 2019 and March 29, 2019, respectively. The increase in net accounts receivable to $106,629 as of March 27, 2020 from $44,508 as of September 27, 2019 is attributable to the seasonal nature of the Company’s business and the resulting increases in sales volumes between periods. The determination of the allowance for doubtful accounts is based on a combination of factors. In circumstances where specific collection concerns about a receivable exist, a reserve is established to value the affected account receivable at 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 outstanding for each business segment. 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.

3
EARNINGS PER SHARE (“EPS”)

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 classified as participating securities and are required to be included as part of the basic weighted average share calculation under the two-class 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.

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, therefore, net losses are allocated equally on a per share basis among all participating securities.

- 6 -

JOHNSON OUTDOORS INC.
 
For the three and six month periods ended March 27, 2020 and March 29, 2019, basic income per share for the Class A and Class B shares has been presented using the two class method and reflects the allocation of undistributed income 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, restricted stock units (“stock units” or “units”) and non-vested restricted stock.  Anti-dilutive stock options, units and non-vested stock are excluded from the calculation of diluted EPS.  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 common shares.  In periods where the Company reports a net loss, the effect of anti-dilutive stock options and units is excluded and diluted loss per share is equal to basic loss per share for both classes of stock.

For the three and six month periods ended March 27, 2020 and March 29, 2019, diluted net income per share reflects the effect of dilutive stock units and assumes the conversion of Class B common stock into Class A common stock.

Non-vested stock that could potentially dilute earnings per share in the future which were not included in the fully diluted computation because they would have been anti-dilutive totaled 39,078 and 40,900 for the three months ended March 27, 2020 and March 29, 2019, respectively, and 39,695 and 42,710 for the six months ended March 27, 2020 and March 29, 2019, respectively.  Stock units that could potentially dilute earnings per share in the future and which were not included in the fully diluted computation because they would have been anti-dilutive were 43,198 and 34,832 for the three month periods ended March 27, 2020 and March 29, 2019, respectively, and 44,546 and 29,364 for the six months ended March 27, 2020 and March 29, 2019, respectively.

Dividends per share

Dividends per share for the three and six month periods ended March 27, 2020 and March 29, 2019 were as follows:

   
Three Months Ended
   
Six months ended
 
   
March 27, 2020
   
March 29, 2019
   
March 27, 2020
   
March 29, 2019
 
Dividends declared per common share:
                       
Class A
 
$
0.17
   
$
0.14
   
$
0.34
   
$
0.28
 
Class B
 
$
0.16
   
$
0.13
   
$
0.31
   
$
0.25
 

4
STOCK-BASED COMPENSATION AND STOCK OWNERSHIP PLANS

The Company’s current stock ownership plans allow for issuance of stock options to acquire shares of Class A common stock by key executives and non-employee directors. Current plans also allow for issuance of shares of restricted stock, restricted stock units or stock appreciation rights in lieu of stock options.

Under the Company’s 2012 Non-Employee Director Stock Ownership Plan and the 2020 Long-Term Incentive Plan (the only plans where shares currently remain available for future equity incentive awards) there were a total of 536,327 shares of the Company’s Class A common stock available for future grant to non-employee directors and key executives at March 27, 2020.  Share awards previously made under the Company's 2010 Long-Term Stock Incentive Plan, which no longer allows for additional share grants, also remain outstanding.

- 7 -

JOHNSON OUTDOORS INC.
 
Non-vested Stock

All shares of non-vested restricted stock awarded by the Company have been granted in the form of shares of Class A common stock at their fair market value on the date of grant and vest within one year from the date of grant for stock granted to directors and four years from the date of grant for stock granted to officers and employees.  The fair value at date of grant is based on the number of shares granted and the average of the Company’s high and low Class A common stock price on the date of grant or, if the Company’s Class A shares did not trade on the date of grant, the average of the Company’s high and low Class A common stock price on the last preceding date on which the Company’s Class A shares traded.

A summary of non-vested stock activity for the six months ended March 27, 2020 related to the Company’s stock ownership plans is as follows:

   
Shares
   
Weighted Average
Grant Price
 
Non-vested stock at September 27, 2019
   
41,608
   
$
51.78
 
Non-vested stock grants
   
19,105
     
63.33
 
Restricted stock vested
   
(20,221
)
   
41.93
 
Non-vested stock at March 27, 2020
   
40,492
     
62.15
 

Non-vested stock grantees may elect to reimburse the Company for withholding taxes due as a result of the vesting of shares by tendering a portion of the vested shares back to the Company.  Shares tendered back to the Company were 4,054 and 3,381 during the six month periods ended March 27, 2020 and March 29, 2019, respectively.

Stock compensation expense, net of forfeitures, related to non-vested stock was $252 and $160 for the three month periods ended March 27, 2020 and March 29, 2019, respectively, and $492 and $278 for the six month periods ended March 27, 2020 and March 29, 2019, respectively.  Unrecognized compensation cost related to non-vested stock as of March 27, 2020 was $1,716, which amount will be amortized to expense through November 2022 or adjusted for changes in future estimated or actual forfeitures.

The fair value of restricted stock vested during the six month periods ended March 27, 2020 and March 29, 2019 was $1,329 and $1,237, respectively.

Restricted Stock Units

All restricted stock units (RSUs) awarded by the Company have been granted in the form of units payable in shares of Class A common stock upon vesting.  The units are valued at the fair market value of a share of Class A common stock on the date of grant and vest within one year from the date of grant for RSUs granted to directors and three years from the date of grant for RSUs granted to employees.  The fair value at the date of grant is based on the number of units granted and the average of the Company’s high and low Class A common stock trading price on the date of grant or, if the Company’s Class A shares did not trade on the date of grant, the average of the Company’s high and low Class A common stock trading price on the last preceding date on which the Company’s Class A shares traded.

A summary of RSU activity for the six months ended March 27, 2020 follows:

   
Number of RSUs
   
Weighted Average
Grant Price
 
RSUs at September 27, 2019
   
58,708
   
$
62.13
 
RSUs granted
   
27,517
     
64.51
 
RSUs vested
   
(18,094
)
   
43.12
 
RSUs at March 27, 2020
   
68,131
     
68.14
 

For the three and six months ended March 27, 2020, the Company recognized income of $589 and $169, respectively, related to RSUs as a result of reversing compensation expense previously recognized in prior periods during the quarter ended March 27, 2020, due to an expectation that performance conditions won't be met for certain awards as a result of current market conditions.  Stock compensation expense, net of forfeitures, related to RSUs was $414 and $816 for the three  and six months ended March 29, 2019, respectively.  Unrecognized compensation cost related to non-vested RSUs as of March 27, 2020 was $1,949, which amount will be amortized to expense through September 2021 or adjusted for changes in future estimated or actual forfeitures.

- 8 -

JOHNSON OUTDOORS INC.
 
RSU grantees may elect to reimburse the Company for withholding taxes due as a result of the vesting of units and issuance of unrestricted shares of Class A common stock by tendering a portion of such unrestricted shares back to the Company.  Shares tendered back to the Company for this purpose were 3,075 and 6,509 during the six month periods ended March 27, 2020 and March 29, 2019, respectively.

The fair value of restricted stock units recognized as a tax deduction during the six month periods ended March 27, 2020 and March 29, 2019 was $1,426 and $3,333, respectively.

Compensation expense related to units earned by employees (as opposed to grants to outside directors) is based upon the attainment of certain Company financial goals related to cumulative net sales and cumulative operating profit over a three-year performance period.  Awards are only paid if at least 80% of the target levels are met and maximum payouts are made if 120% or more of target levels are achieved.  The payouts for achievement at the threshold levels of performance are equal to 50% of the target award amount.  The payouts for achievement at maximum levels of performance are equal to 150% of the target award amount.  To the extent earned, awards are issued in shares of Company Class A common stock after the end of the three-year performance period.

Employees’ Stock Purchase Plan

The Company’s shareholders have adopted the Johnson Outdoors Inc. 2009 Employees’ Stock Purchase Plan, which was most recently amended on March 2, 2017, and which provides for the issuance of shares of Class A common stock at a purchase price of not less than 85% of the fair market value of such shares on the date of grant or on the date of purchase, whichever is lower.

During the three month period ended March 27, 2020, the Company issued 0 shares of Class A common stock and recognized $51 of expense in connection with the Employees' Stock Purchase Plan.  During the six month period ended March 27, 2020, the Company issued 0 shares of Class A common stock and recognized $58 of expense in connection with the Plan.  During the three month period ended March 29, 2019, the Company issued 1,594 shares of Class A common stock and recognized $2 of income in connection with the Plan.  During the six month period ended March 29, 2019, the Company issued 1,594 shares of Class A common stock and recognized $14 of expense in connection with the Plan.

5
PENSION PLANS

The Company has non-contributory defined benefit pension plans covering certain of its U.S. employees. Retirement benefits are generally provided based on the employees’ years of service and average earnings. Normal retirement age is 65, with provisions for earlier retirement.

The Company made contributions of $44 and $45 to its pension plans for the three months ended March 27, 2020 and March 29, 2019, respectively, and contributions of $88 and $90 for the six months ended March 27, 2020 and March 29, 2019, respectively.

The components of net periodic benefit cost related to Company sponsored defined benefit plans for the three and six month periods ended March 27, 2020 and March 29, 2019 were as follows:

   
Three Months Ended
   
Six Months Ended
 
   
March 27,
2020
   
March 29,
2019
   
March 27,
2020
   
March 29,
2019
 
Components of net periodic benefit cost:
                       
Service cost
 
$
   
$
   
$
   
$
 
Interest on projected benefit obligation
   
276
     
264
     
551
     
529
 
Less estimated return on plan assets
   
214
     
191
     
427
     
382
 
Amortization of unrecognized losses
   
82
     
139
     
164
     
277
 
Net periodic benefit cost
 
$
144
   
$
212
   
$
288
   
$
424
 

- 9 -

JOHNSON OUTDOORS INC.
 
6
INCOME TAXES

For the three and six months ended March 27, 2020 and March 29, 2019, the Company’s earnings before income taxes, income tax expense and effective income tax rate were as follows:

   
Three Months Ended
   
Six Months Ended
 
(thousands, except tax rate data)
 
March 27,
2020
   
March 29,
2019
   
March 27,
2020
   
March 29,
2019
 
Profit before income taxes
 
$
28,377
   
$
30,020
   
$
36,966
   
$
34,351
 
Income tax expense
   
7,990
     
8,097
     
10,149
     
8,907
 
Effective income tax rate
   
28.2
%
   
27.0
%
   
27.5
%
   
25.9
%

The effective tax rate for the three months ended March 27, 2020 and the prior year period were consistent with no primary factors materially impacting the rate.  The key factor impacting the effective tax rate for the six months ended March 27, 2020 was the net excess tax benefits related to share-based compensation, which were lower in the current year to date period compared to the prior year to date period.

The impact of the Company’s operations in jurisdictions where a valuation allowance is assessed is removed from the overall effective tax rate methodology and recorded directly based on year to date results for the year for which no tax expense or benefit can be recognized.  The significant tax jurisdictions that have a valuation allowance for the periods ended March 27, 2020 and March 29, 2019 were:

March 27, 2020
March 29, 2019
France
France
Indonesia
Indonesia
Switzerland
Switzerland

The Company regularly assesses the adequacy of its provisions for income tax contingencies in accordance with the applicable authoritative guidance on accounting for income taxes.  As a result, the Company may adjust the reserves for unrecognized tax benefits due to the impact of changes in its assumptions or as a result of new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities and lapses of statutes of limitation.  The Company’s 2020 fiscal year tax expense is anticipated to be unchanged related to uncertain income tax positions.

In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized benefits as a component of income tax expense.  The Company is projecting accrued interest of $100 related to uncertain income tax positions for the fiscal year ending October 2, 2020.

The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions.   As of the date of this report, the following tax years remain open to examination by the respective significant tax jurisdictions:

Jurisdiction
Fiscal Years
United States
2016-2019
Canada
2016-2019
France
2016-2019
Germany
2017-2019
Italy
2018-2019
Switzerland
2009-2019

- 10 -

JOHNSON OUTDOORS INC.
 
7
INVENTORIES

Inventories at the end of the respective periods consisted of the following:

   
March 27,
2020
   
September 27,
2019
   
March 29,
2019
 
Raw materials
 
$
47,848
   
$
45,168
   
$
52,004
 
Work in process
   
91
     
152
     
249
 
Finished goods
   
59,741
     
48,978
     
63,978
 
   
$
107,680
   
$
94,298
   
$
116,231
 

8
GOODWILL

The changes in goodwill during the six months ended March 27, 2020 and March 29, 2019 were as follows:

   
March 27, 2020
   
March 29, 2019
 
Balance at beginning of period
 
$
11,186
   
$
11,199
 
Amount attributable to movements in foreign currency rates
   
(51
)
   
(23
)
Balance at end of period
 
$
11,135
   
$
11,176
 

The Company evaluates the carrying value of goodwill for a reporting unit on an annual basis or more frequently when events and circumstances warrant such an evaluation.  In conducting this analysis, the Company uses the income approach to compare the reporting unit's carrying value to its indicated fair value.  Fair value is determined primarily by using a discounted cash flow methodology that requires considerable management judgment and long-term assumptions and is considered a Level 3 (unobservable) fair value determination in the fair value hierarchy (see Note 13) below.

9
WARRANTIES

The Company provides warranties on certain of its products as they are sold. The following table summarizes the Company’s warranty activity for the six months ended March 27, 2020 and March 29, 2019.

   
March 27, 2020
   
March 29, 2019
 
Balance at beginning of period
 
$
9,190
   
$
8,499
 
Expense accruals for warranties issued during the period
   
6,702
     
3,977
 
Less current period warranty claims paid
   
4,003
     
3,236
 
Balance at end of period
 
$
11,889
   
$
9,240
 

10
CONTINGENCIES

The Company is subject to various legal actions and proceedings in the normal course of business, including those related to commercial disputes, product liability, intellectual property and regulatory matters. The Company is insured against loss for certain of these matters. Although litigation is subject to many uncertainties and the ultimate exposure with respect to these matters cannot be ascertained, management does not believe the final outcome of any pending litigation will have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company.

11
INDEBTEDNESS

The Company had no debt outstanding at March 27, 2020, September 27, 2019, or March 29, 2019.

Revolvers
The Company and certain of its subsidiaries have entered into an unsecured credit facility with PNC Bank National Association and Associated Bank, N.A. ("the Lending Group").  This credit facility consists of a $75 million Revolving Credit Facility among the Company, certain of the Company’s subsidiaries, PNC Bank National Association, as lender and as administrative agent, and the other lender named therein (the “Credit Agreement” or “Revolver”).  The Revolver has an expiration date of November 15, 2022 and provides for borrowing of up to an aggregate principal amount not to exceed $75,000 with a $50,000 accordion feature that gives the Company the option to increase the maximum financing availability (i.e., an aggregate borrowing amount of $125,000) subject to the conditions of the Credit Agreement and subject to the approval of the lenders.

- 11 -

JOHNSON OUTDOORS INC.
 
The interest rate on the Revolver is based on LIBOR plus an applicable margin, which margin resets each quarter.  The applicable margin ranges from 1.00% to 1.75% and is dependent on the Company’s leverage ratio for the trailing twelve month period.  The interest rates on the Revolver at March 27, 2020 and March 29, 2019 were approximately 1.9% and 3.5%, respectively.

The Credit Agreement restricts the Company's ability to incur additional debt, includes maximum leverage ratio and minimum interest coverage ratio covenants and is unsecured.

Other Borrowings
The Company had no unsecured revolving credit facilities at its foreign subsidiaries as of March 27, 2020 or March 29, 2019.  The Company utilizes letters of credit primarily as security for the payment of future claims under its workers’ compensation insurance, which totaled approximately $181 and $279 as of March 27, 2020 and March 29, 2019, respectively.

12
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The following disclosures describe the Company’s objectives in using derivative instruments, the business purpose or context for using derivative instruments, and how the Company believes the use of derivative instruments helps achieve the stated objectives.  In addition, the following disclosures describe the effects of the Company’s use of derivative instruments and hedging activities on its financial statements.

Foreign Exchange Risk
The Company has significant foreign operations, for which the functional currencies are denominated primarily in euros, Swiss francs, Hong Kong dollars and Canadian dollars. As the values of the currencies of the foreign countries in which the Company has operations increase or decrease relative to the U.S. dollar, the sales, expenses, profits, losses, assets and liabilities of the Company’s foreign operations, as reported in the Company’s consolidated financial statements, increase or decrease, accordingly.  Approximately 11% of the Company’s revenues for the six month period ended March 27, 2020 were denominated in currencies other than the U.S. dollar. Approximately 5% were denominated in euros, approximately 4% were denominated in Canadian dollars and approximately 1% were denominated in Hong Kong dollars, with the remaining revenues denominated in various other foreign currencies. Changes in foreign currency exchange rates can cause the Company to experience unexpected financial losses or cash flow needs.

The Company may mitigate a portion of the fluctuations in certain foreign currencies through the use of foreign currency forward contracts.  Foreign currency forward contracts enable the Company to lock in the foreign currency exchange rate to be paid or received for a fixed amount of currency at a specified date in the future. The Company may use such foreign currency forward contracts to mitigate the risk associated with changes in foreign currency exchange rates on financial instruments and known commitments, including commitments for inventory purchases, denominated in foreign currencies. As of March 27, 2020 and March 29, 2019, the Company held no foreign currency forward contracts.

13
FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy has been established based on three levels of inputs, of which the first two are considered observable and the last unobservable.


Level 1 - Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets or liabilities.

- 12 -

JOHNSON OUTDOORS INC.
 

Level 2 - Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments.


Level 3 - Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

The carrying amounts of cash, cash equivalents, short term investments, accounts receivable, and accounts payable approximated their fair values at March 27, 2020, September 27, 2019 and March 29, 2019 due to the short term maturities of these instruments. 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 their fair value.

Valuation Techniques

Rabbi Trust Assets
Rabbi trust 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.  The rabbi trust assets are used to fund amounts the Company owes to certain officers and other employees under the Company’s non-qualified deferred compensation plan.  These assets are included in "Other assets" in the Company's Condensed Consolidated Balance Sheets, and the mark to market adjustments on the assets are recorded in “Other expense (income), net” in the accompanying Condensed Consolidated Statements of Operations.  The offsetting deferred compensation liability is also reported at fair value as "Deferred compensation liability" in the Company's Condensed Consolidated Balance Sheets. Changes in the liability are recorded in "Administrative management, finance and information systems" expense in the accompanying Condensed Consolidated Statements of Operations.

The following table summarizes the Company’s financial assets measured at fair value as of March 27, 2020:

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Rabbi trust assets
 
$
16,548
   
$
   
$
   
$
16,548
 

The following table summarizes the Company’s financial assets measured at fair value as of September 27, 2019:

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Rabbi trust assets
 
$
19,092
   
$
   
$
   
$
19,092
 

The following table summarizes the Company’s financial assets measured at fair value as of March 29, 2019:

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Rabbi trust assets
 
$
18,222
   
$
   
$
   
$
18,222
 

The effect of changes in the fair value of financial instruments on the accompanying Condensed Consolidated Statements of Operations for the three and six month periods ended March 27, 2020 and March 29, 2019 was:

       
Three Months Ended
   
Six months ended
 

Location of loss (income) recognized in Statement of
Operations
 
March 27,
2020
   
March 29,
2019
   
March 27,
2020
   
March 29,
2019
 
Rabbi trust assets
Other expense (income), net
 
$
3,525
   
$
(1,983
)
 
$
2,334
   
$
294
 

There were no assets or liabilities measured at fair value on a non-recurring basis in periods subsequent to their initial recognition for either of the six month periods ended March 27, 2020 or March 29, 2019.

- 13 -

JOHNSON OUTDOORS INC.
 
14
NEW ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). In July 2018, the FASB also issued ASU 2018-10 Codification Improvements to Topic 842, Leases and ASU 2018-11 Leases (Topic 842) Targeted Improvements.  In February 2019, the FASB also issued ASU 2019-01 Leases (Topic 842): Codification Improvements.  This ASU and the updates to this ASU require organizations to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about leasing arrangements. This guidance was effective for the Company in the first quarter of fiscal year 2020, and may be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with certain practical expedients available.  The Company adopted the provisions of these ASU's using the modified retrospective approach at the beginning of the first quarter of fiscal 2020, coinciding with the standard's effective date. The additional disclosures required by the ASU and its updates are included in Note 18 "Leases" of these Notes to the Condensed Consolidated Financial Statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220), which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. ASU No. 2018-02 was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The ASU allowed for early adoption in any interim period after issuance of the update.  The Company early adopted the ASU in the second quarter of fiscal 2019, and elected not to make this optional reclassification.

Recently issued accounting pronouncements

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326)” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively Topic 326). Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. The amendments in this guidance are effective for fiscal years beginning after December 15, 2019, with early adoption permitted for certain amendments. Topic 326 must be adopted by applying a cumulative effect adjustment to retained earnings. The Company does not expect adoption of the new guidance to have a significant impact on its financial statements.

In August 2018, the FASB issued ASU 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans (Topic 715), which modifies the disclosure requirements for employers that sponsor defined pension or postretirement plans. The amendments in this guidance are effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on its disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. The Company does not expect adoption of the new guidance to have a significant impact on its financial statements.

15
REVENUES

Adoption of Topic 606

In the first quarter of fiscal 2019, the Company adopted ASU 2014-09 and all subsequent ASUs that modified accounting standards Topic 606 using the modified retrospective adoption method.  Upon adoption, the Company recorded a right to returns asset of $763 and a corresponding increase in the accrued return liability, resulting in an accrued returns liability of $2,725.  The adoption of this new revenue standard did not otherwise have an impact on the Company's consolidated financial statements, and the timing and amount of its revenue recognition remained substantially unchanged under this new guidance.

- 14 -

JOHNSON OUTDOORS INC.
 
Revenue recognition

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our goods at a point in time based on shipping terms and transfer of title.  Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods.  The amount of consideration received can vary, primarily because of customer incentive or rebate arrangements.  The Company estimates variable consideration based on the expected value of total consideration to which customers are likely to be entitled based on historical experience and projected market expectations.   Included in the estimate is an assessment as to whether any variable consideration is constrained.  Revenue estimates are adjusted at the earlier of a change in the expected value of consideration or when the consideration becomes fixed.  For all contracts with customers, the Company has not adjusted the promised amount of consideration for the effects of a significant financing component as the period between the transfer of the promised goods and the customer's payment is expected to be one year or less.  Sales are made on normal and customary short-term credit terms, generally ranging from 30 to 90 days, or upon delivery of point of sale transactions.  Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.

The Company enters into contractual arrangements with customers in the form of individual customer orders which specify the goods, quantity, pricing, and associated order terms. The Company does not have contracts which are satisfied over time. Due to the nature of these contracts, no significant judgment exists in relation to the identification of the customer contract, satisfaction of the performance obligation, or transaction price. The Company expenses incremental costs of obtaining a contract due to the short-term nature of the contracts.

Estimated costs of returns, allowances and discounts, based on historic experience, are accrued as a reduction to sales when revenue is recognized.  The Company provides customers the right to return eligible products under certain circumstances.  At March 27, 2020, the right to returns asset was $1,349 and the accrued returns liability was $4,273. At March 29, 2019, the right to returns asset was $1,391 and the accrued returns liability was $4,506.  The Company also offers assurance-type warranties relating to its products sold to end customers that continue to be accounted for under ASC 460 Guarantees.

The Company generally accounts for shipping and handling activities as a fulfillment activity, consistent with the timing of revenue recognition; that is, when a customer takes control of the transferred goods. In the event that a customer were to take control of a product upon or after shipment, the Company has made an accounting policy election to treat such shipping and handling activities as a fulfillment cost.  Shipping and handling fees billed to customers are included in "Net Sales," and shipping and handling costs are recognized within "Marketing and selling expenses" in the same period the related revenue is recognized.

The Company has a wide variety of seasonal, outdoor recreation products used primarily for fishing from a boat, diving, paddling, hiking and camping, that are sold to a variety of customers in multiple end markets. Nonetheless, the revenue recognition policies are similar among all the various products sold by the Company.

See Note 16 for required disclosures of disaggregated revenue.

16
SEGMENTS OF BUSINESS

The Company conducts its worldwide operations through separate business segments, each of which represents major product lines. Operations are conducted in the United States and various foreign countries, primarily in Europe, Canada and the Pacific Basin.  During the three and six month periods ended March 27, 2020, combined net sales to two customers of the Company's Fishing, Camping and Watercraft Recreation segments represented approximately $48,663 and $80,984, respectively, of the Company's consolidated revenues.  During the three and six month periods ended March 29, 2019, combined net sales to one customer of the Company's Fishing, Camping and Watercraft Recreation segments represented approximately $35,507 and $53,750, respectively, of the Company's consolidated revenues.

Net sales and operating profit include both sales to customers, as reported in the Company’s accompanying Condensed Consolidated Statements of Operations, and interunit transfers, which are priced to recover cost plus an appropriate profit margin. Total assets represent assets that are used in the Company’s operations in each business segment at the end of the periods presented.

- 15 -

JOHNSON OUTDOORS INC.
 
A summary of the Company’s operations by business segment is presented below:

   
Three Months Ended
   
Six Months Ended
       
   
March 27,
2020
   
March 29,
2019
   
March 27,
2020
   
March 29,
2019
   
September 27,
2019
 
Net sales:
                         
   
Fishing:
                               
Unaffiliated customers
 
$
133,710
   
$
138,071
   
$
232,903
   
$
216,778
         
Interunit transfers
   
245
     
158
     
330
     
248
         
Camping:
                                       
Unaffiliated customers
   
8,841
     
9,522
     
16,346
     
15,336
         
Interunit transfers
   
8
     
7
     
17
     
13
         
Watercraft Recreation:
                                       
Unaffiliated customers
   
6,063
     
9,834
     
10,866
     
14,153
         
Interunit transfers
   
1
     
17
     
7
     
23
         
Diving
                                       
Unaffiliated customers
   
14,253
     
20,079
     
30,711
     
35,608
         
Interunit transfers
   
8
     
6
     
9
     
15
         
Other / Corporate
   
217
     
202
     
312
     
272
         
Eliminations
   
(262
)
   
(189
)
   
(363
)
   
(299
)
       
Total
 
$
163,084
   
$
177,707
   
$
291,138
   
$
282,147
         
Operating profit (loss):
                                       
Fishing
 
$
32,917
   
$
34,590
   
$
47,935
   
$
46,012
         
Camping
   
709
     
419
     
775
     
(267
)
       
Watercraft Recreation
   
(1,639
)
   
(516
)
   
(3,202
)
   
(2,008
)
       
Diving
   
(812
)
   
1,423
     
(607
)
   
716
         
Other / Corporate
   
619
     
(8,072
)
   
(6,306
)
   
(10,631
)
       
   
$
31,794
   
$
27,844
   
$
38,595
   
$
33,822
         
Total assets (end of period):
                                       
Fishing
                 
$
241,571
   
$
235,446
    $
153,926
 
Camping
                   
31,867
     
30,136
     
31,525
 
Watercraft Recreation
                   
24,561
     
24,657
     
14,436
 
Diving
                   
64,321
     
58,006
     
57,682
 
Other / Corporate
                   
141,984
     
79,748
     
178,875
 
                   
$
504,304
   
$
427,993
   
$
436,444
 
1

- 16 -

JOHNSON OUTDOORS INC.
 
17
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The changes in Accumulated Other Comprehensive Income (“AOCI”) by component, net of tax, for the three months ended March 27, 2020 were as follows:

   
Foreign
Currency
Translation
Adjustment
   
Unamortized
Loss on Defined
Benefit Pension
Plans
   
Accumulated
Other
Comprehensive
Income (Loss)
 
Balance at December 27, 2019
 
$
5,490
   
$
(3,171
)
 
$
2,319
 
Other comprehensive income before reclassifications
   
(1,607
)
   
     
(1,607
)
Amounts reclassified from accumulated other comprehensive income
   
     
82
     
82
 
Tax effects
   
     
(20
)
   
(20
)
Balance at March 27, 2020
 
$
3,883
   
$
(3,109
)
 
$
774
 

The changes in AOCI by component, net of tax, for the three months ended March 29, 2019 were as follows:

   
Foreign
Currency
Translation
Adjustment
   
Unamortized
Loss on Defined
Benefit Pension
Plans
   
Accumulated
Other
Comprehensive
Income (Loss)
 
Balance at December 28, 2018
 
$
6,096
   
$
(4,204
)
 
$
1,892
 
Other comprehensive loss before reclassifications
   
(148
)
   
     
(148
)
Amounts reclassified from accumulated other comprehensive income
   
     
138
     
138
 
Tax effects
   
     
(33
)
   
(33
)
Balance at March 29, 2019
 
$
5,948
   
$
(4,099
)
 
$
1,849
 

The changes in AOCI by component, net of tax, for the six months ended March 27, 2020 were as follows:

   
Foreign
Currency
Translation
Adjustment
   
Unamortized
Loss on Defined
Benefit Pension
Plans
   
Accumulated
Other
Comprehensive
Income (Loss)
 
Balance at September 27, 2019
 
$
4,790
   
$
(3,232
)
 
$
1,558
 
Other comprehensive loss before reclassifications
   
(907
)
   
     
(907
)
Amounts reclassified from accumulated other comprehensive income
   
     
164
     
164
 
Tax effects
   
     
(41
)
   
(41
)
Balance at March 27, 2020
 
$
3,883
   
$
(3,109
)
 
$
774
 

The changes in AOCI by component, net of tax, for the six months ended March 29, 2019 were as follows:

   
Foreign
Currency
Translation
Adjustment
   
Unamortized
Loss on Defined
Benefit Pension
Plans
   
Accumulated
Other
Comprehensive
Income (Loss)
 
Balance at September 28, 2018
 
$
7,796
   
$
(4,309
)
 
$
3,487
 
Other comprehensive loss before reclassifications
   
(1,848
)
   
     
(1,848
)
Amounts reclassified from accumulated other comprehensive income
   
     
276
     
276
 
Tax effects
   
     
(66
)
   
(66
)
Balance at March 29, 2019
 
$
5,948
   
$
(4,099
)
 
$
1,849
 

- 17 -

JOHNSON OUTDOORS INC.
 
The reclassifications out of AOCI for the three months ended March 27, 2020 and March 29, 2019 were as follows:

   
Three Months Ended
   
   
March 27, 2020
   
March 29, 2019
 
Statement of Operations
Presentation
Unamortized loss on defined benefit pension plans:
                 
Amortization of loss
 
$
82
   
$
138
 
Other income and expense
Tax effects
   
(20
)
   
(33
)
Income tax expense
Total reclassifications for the period
 
$
62
   
$
105
   

The reclassifications out of AOCI for the six months ended March 27, 2020 and March 29, 2019 were as follows:

   
Six months ended
   
   
March 27, 2020
   
March 29, 2019
 
Statement of Operations
Presentation
Unamortized loss on defined benefit pension plans:
                 
Amortization of loss
 
$
164
   
$
276
 
Other income and expense
Tax effects
   
(41
)
   
(66
)
Income tax expense
Total reclassifications for the period
 
$
123
   
$
210
   

18
LEASES

Adoption of Topic 842

On September 28, 2019, the Company adopted ASU 2016-02 and all subsequent ASUs that modified accounting standards Topic 842 using a modified retrospective adoption method, in which right-of-use ("ROU") assets and lease liabilities are recognized in the condensed consolidated balance sheets.  Under the effective date transition method, financial results reported in periods prior to fiscal year 2020 are unchanged.  The Company also elected the package of practical expedients permitted under the standard, which does not require reassessment of prior conclusions related to contracts containing a lease, lease classification and initial direct lease costs.  As an ongoing accounting policy election, the Company will exclude short-term leases (terms of 12 months or less) from the balance sheet presentation and will account for non-lease and lease components in a contract as a single lease component for most asset classes.  All leases in which the Company is the lessee are classified as operating leases, and the Company does not have any finance leases or sublease agreements.  Additionally, the Company does not have any leases in which it is the lessor.

The adoption of the new standard had a significant impact on the Company's condensed consolidated balance sheet due to the recognition of approximately $41 million of lease liabilities with corresponding ROU assets for operating leases.  The new standard did not have a significant impact on the condensed consolidated statements of operations or cash flows, and did not impact our debt covenant compliance under our current credit agreements.

The Company determines if an arrangement is a lease at inception.  The Company leases certain facilities and machinery and equipment under long-term, non-cancelable operating leases.   As of March 27, 2020, the Company had approximately 200 leases, with remaining terms ranging from less than one year to 15 years.  Some of the leases contain variable payment terms, such as payments based on fluctuations in the Consumer Price Index (CPI).  Some leases also contain options to extend or terminate the lease.  To the extent the Company is reasonably certain to exercise these options, they have been considered in the calculation of the ROU assets and lease liabilities.  Under current lease agreements, there are no residual value guarantees or restrictive lease covenants.  In calculating the ROU assets and lease liabilities, several assumptions and judgments were made by the Company, including whether a contract is or contains a lease under the new definition, and the determination of the discount rate, which is assumed to be the incremental borrowing rate.  The incremental borrowing rate is derived from information available to the Company at the lease commencement date based on lease length and location.

- 18 -

JOHNSON OUTDOORS INC.
 
As of March 27, 2020, the components of lease expense recognized in the accompanying Condensed Consolidated Statements of Operations were as follows:

   
Three months ended
March 27, 2020
   
Six months ended
March 27, 2020
 
Lease Cost
           
Operating lease costs
 
$
1,787
   
$
3,563
 
Short-term lease costs
   
474
     
957
 
Variable leases costs
   
43
     
86
 
Total lease cost
 
$
2,304
   
$
4,606
 

Included in the amounts in the table above, were rent expense to related parties of $247 and $493 for the three and six months ended March 27, 2020, respectively.

As of March 27, 2020, the Company did not have any finance leases.  There were no significant new leases entered into during the quarter ended March 27, 2020.  Supplemental balance sheet, cash flow, and other information related to operating leases was as follows:

   
Six months ended
March 27, 2020
 
Operating leases:
     
       
Operating lease ROU assets
 
$
38,735
 
         
Current operating leases liabilities
   
5,820
 
Non-current operating lease liabilities
   
33,609
 
Total operating lease liabilities
 
$
39,429
 
         
Weighted average remaining lease term (in years)
   
10.60
 
         
Weighted average discount rate
   
2.85
%
         
Cash paid for amounts included in the measurement of lease liabilities
 
$
3,146
 

Future minimum rental commitments under non-cancelable operating leases with an initial lease term in excess of one year at March 27, 2020 were as follows:

Year
 
Related parties included
in total
   
Total
 
Remainder of 2020
 
$
521
   
$
4,271
 
2021
   
1,067
     
6,187
 
2022
   
179
     
3,758
 
2023
   
     
3,361
 
2024
   
     
3,364
 
Thereafter
   
     
23,304
 
Total undiscounted lease payments
   
1,767
     
44,245
 
Less: Imputed interest
   
(30
)
   
(4,816
)
Total net lease liability
 
$
1,737
   
$
39,429
 

As of March 27, 2020, the Company did not have any additional significant operating leases commitments that have not yet commenced.

- 19 -

JOHNSON OUTDOORS INC.
 
Disclosures related to periods prior to adoption of Topic 842

Rental expense under all leases was $2,404 and $4,678 for the three and six months ended March 29, 2019, respectively.  Rent expense to related parties was $250 and $499 for the three and six months ended March 29, 2019, respectively.

Future minimum rent commitments under non-cancelable operating leases with an initial lease term in excess of one year at March 29, 2019 were as follows:

Year
 
Related parties included
in total
   
Total
 
Remainder of 2019
 
$
503
   
$
3,862
 
2020
   
1,036
     
7,187
 
2021
   
1,067
     
5,835
 
2022
   
179
     
3,719
 
2023
   
     
2,517
 
Thereafter
   
     
24,832
 
Total
 
$
2,785
   
$
47,952
 

19
Coronavirus (COVID-19)

The Company has been actively monitoring the coronavirus (COVID-19) outbreak and resulting pandemic and its impact on both the global economic and operating environment and specifically on its impact to the Company, its employees, its operations and its financial condition.  In March 2020, the World Health Organization recognized the COVID-19 outbreak as a pandemic based on the global spread of the disease, the severity of illnesses it causes and its effects on society. In response to the COVID-19 outbreak, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes. Accordingly, the COVID-19 outbreak has severely restricted the level of economic activity in many countries, and continues to adversely impact global economic activity.  While the financial results for the Company’s first fiscal six months have started to see the initial impact of COVID-19, we are unable to predict the extent of the impact the pandemic will have on our financial position and operating results for the remainder of fiscal 2020 due to numerous uncertainties, including those uncertainties stemming from the risks identified in Part II, Item 1A in this Form 10-Q, but the impact could be material during any future period affected either directly or indirectly by this pandemic.  The Company intends to continue to evaluate the various government sponsored plans and programs put in place in response to the COVID-19 pandemic and further plans to take advantage of any such government benefits reasonably available to it.  Moreover, the Company will continue to monitor developments in that area as new government initiatives are passed.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) includes comments and analysis relating to the results of operations and financial condition of Johnson Outdoors Inc. and its subsidiaries (collectively, the “Company”) as of and for the three and six month periods ended March 27, 2020 and March 29, 2019.  All monetary amounts, other than share and per share amounts, are stated in thousands.

Our MD&A is presented in the following sections:


Forward Looking Statements

Trademarks

Overview

Results of Operations

Liquidity and Financial Condition

Contractual Obligations and Off Balance Sheet Arrangements

Critical Accounting Policies and Estimates

This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related notes that immediately precede this section, as well as the Company’s Annual Report on Form 10-K for the fiscal year ended September 27, 2019 which was filed with the Securities and Exchange Commission on December 6, 2019.

- 20 -

JOHNSON OUTDOORS INC.
 
Forward Looking Statements

Certain matters discussed in this Form 10-Q are “forward-looking statements,” and the Company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of those safe harbor provisions. These forward-looking statements can generally be identified as such because they include phrases such as the Company “expects,” “believes,” “anticipates,” “intends,” use of words such as “confident,” “could,” “may,” “planned,” “potential,” “should,” “will,” “would” or the negative of such words 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 the Company’s Form 10-K which was filed with the Securities and Exchange Commission on December 6, 2019, the update to such "Risk Factors" section in Part II, Item 1A in this Form 10-Q and the following:  changes in economic conditions, consumer confidence levels and discretionary spending patterns in key markets; uncertainties stemming from changes in U.S. trade policies, tariffs, and the reaction of other countries to such changes; the global outbreaks of disease, such as the COVID-19 pandemic beginning in late 2019 and spreading across the globe in early 2020, which may affect market and economic conditions, along with wide-ranging impacts on employees, customers and various aspects of operations; the Company’s success in implementing its strategic plan, including its targeted sales growth platforms, innovation focus and its increasing digital presence; litigation costs related to actions of and disputes with third parties, including competitors; the Company’s continued success in its working capital management and cost-structure reductions; the Company’s success in integrating strategic acquisitions; the risk of future writedowns of goodwill or other long-lived assets; the ability of the Company’s customers to meet payment obligations; the impact of actions of the Company's competitors with respect to product development or enhancement or the introduction of new products into the Company's markets; movements in foreign currencies, interest rates or commodity costs; fluctuations in the prices of raw materials or the availability of raw materials used by the Company; any disruptions in the Company's supply chain as a result of material fluctuations in the Company's order volumes and requirements for raw materials and other components necessary to manufacture and produce the Company's products; the success of the Company’s suppliers and customers and the impact of any consolidation in the industries 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 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, among others, which may be used in this report: Minn Kota®, Cannon®, Humminbird®, Eureka!®, Jetboil®, Old Town®, Ocean Kayak®, Carlisle®, and SCUBAPRO®.

Overview

The Company 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.  The Company’s 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 Company’s Board of Directors.  The Company is controlled by Helen P. Johnson-Leipold, the Company’s Chairman and Chief Executive Officer, members of her family and related entities.

Coronavirus (COVID-19)

The Company has been actively monitoring the coronavirus ("COVID-19") outbreak and its impact globally.  The Company’s primary focus to this point has been to ensure the health and safety of its employees.  To that end, the Company has encouraged working remotely where applicable, adopted social distancing where appropriate, implemented travel restrictions, and has taken actions to ensure that locations and facilities are cleaned and sanitized regularly.  These are novel and challenging times and the magnitude of this crisis is requiring the Company to consider all options to promote the safety of employees, including, where appropriate, or where required to comply with foreign, national, state or local governmental authority recommendations, guidelines, and/or mandates, the temporary suspension of work at certain of the Company’s locations and production facilities to protect employees and curb the spread of the coronavirus.  All of these actions may adversely impact the Company’s operating results.  Due to the timing of the COVID-19 outbreak, the Company's primary selling season has been disrupted, and the fiscal third quarter is expected to be significantly impacted.  The longer-term impacts from the outbreak are highly uncertain and cannot be predicted.

- 21 -

JOHNSON OUTDOORS INC.
 
Nonetheless, the Company currently has no debt, has over $130,000 of cash reserves as of the March 27, 2020 quarter end and has access to $75,000 of revolver debt, through its currently in place credit facilities, if such additional funds are needed to be accessed for operations, all of which factors the Company believes will help it through the COVID-19 pandemic.  Moreover, the Company will continue to manage the impact of the COVID-19 pandemic, including through focused cost cutting efforts and through targeting disciplined investments for future growth.

Highlights

Net sales of $163,084 for the second quarter of fiscal 2020 decreased $14,623, or 8%, from the same period in the prior year, reflecting decreased sales volumes across all businesses, mainly attributable to the COVID-19 pandemic and its disruption to the business environment in Asia-Pacific, Europe, and the United States.  This sales volume decrease was more than offset by decreases in operating expenses between these same periods, discussed further below, which was the primary driver of an increase of $3,950 in operating profit over the prior year quarter.  Some of this expense reduction was offset by an increase in other expenses, also discussed below, resulting in a decrease in net income of $1,536 over the prior year quarter.

Seasonality

The Company’s business is seasonal in nature. The first fiscal quarter falls prior to the Company’s primary selling season for its warm-weather outdoor recreation products.  The table below sets forth a historical view of the Company’s seasonality during the last three fiscal years.

   
Fiscal Year
 
   
2019
   
2018
   
2017
 
Quarter Ended
 
Net
Sales
   
Operating
Profit
   
Net
Sales
   
Operating
Profit
   
Net
Sales
   
Operating
Profit
 
December
   
19
%
   
9
%
   
21
%
   
11
%
   
19
%
   
1
%
March
   
32
%
   
43
%
   
31
%
   
41
%
   
30
%
   
45
%
June
   
31
%
   
43
%
   
31
%
   
51
%
   
32
%
   
54
%
September
   
18
%
   
5
%
   
17
%
   
-3
%