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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-16255
JOHNSON OUTDOORS INC.
(Exact name of Registrant as specified in its charter)
Wisconsin 39-1536083
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
555 Main Street, Racine, Wisconsin 53403
(Address of principal executive offices)
(262) 631-6600
(Registrant's telephone number, including area code)
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 [ ]
As of July 29, 2002, 7,106,822 shares of Class A and 1,222,729 shares of Class B
common stock of the Registrant were outstanding.
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JOHNSON OUTDOORS INC.
Index Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations - Three months
and nine months ended June 28, 2002 and June 29, 2001 1
Consolidated Balance Sheets - June 28, 2002, September
28, 2001 and June 29, 2001 2
Consolidated Statements of Cash Flows - Nine months
ended June 28, 2002 and June 29, 2001 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 13
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
JOHNSON OUTDOORS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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(thousands, except per share data) Three Months Ended Nine Months Ended
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June 28 June 29 June 28 June 29
2002 2001 2002 2001
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Net sales $ 116,699 $ 113,927 $ 274,155 $ 271,397
Cost of sales 67,317 66,863 158,742 160,698
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Gross profit 49,382 47,064 115,413 110,699
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Operating expenses:
Marketing and selling 24,800 23,104 60,798 60,070
Administrative management, finance and
information systems 8,517 7,173 23,450 21,957
Research and development 1,824 1,730 5,082 5,642
Amortization and write-down of intangibles 98 668 274 4,591
Profit sharing 1,103 1,089 2,369 2,113
Strategic charges 66 300 1,217 300
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Total operating expenses 36,408 34,064 93,190 94,673
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Operating profit 12,974 13,000 22,223 16,026
Interest income (88) (116) (464) (403)
Interest expense 1,703 2,336 5,164 7,285
Other expense, net 872 166 1,209 220
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Income from continuing operations before income
taxes and cumulative effect of change in
accounting principle 10,487 10,614 16,314 8,924
Income tax expense 4,054 4,331 6,388 3,667
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Income from continuing operations before cumulative
effect of change in accounting principle
6,433 6,283 9,926 5,257
Gain on disposal of discontinued operations, net of
tax of $255 -- -- 495 --
Cumulative effect of change in accounting principle,
net of tax of $(2,200) and $845 -- -- (22,876) 1,755
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Net income (loss) $ 6,433 $ 6,283 $ (12,455) $ 7,012
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BASIC EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ 0.78 $ 0.77 $ 1.21 $ 0.64
Discontinued operations -- -- 0.06 --
Cumulative effect of change in accounting
principle -- -- (2.79) 0.22
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Net income (loss) $ 0.78 $ 0.77 $ (1.52) $ 0.86
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DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ 0.75 $ 0.77 $ 1.18 $ 0.64
Discontinued operations -- 0.06 --
Cumulative effect of change in accounting
principle -- -- (2.73) 0.22
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Net income (loss) $ 0.75 $ 0.77 $ (1.49) $ 0.86
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
-1-
JOHNSON OUTDOORS INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
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June 28 September 28 June 29
(thousands, except share data) 2002 2001 2001
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ASSETS
Current assets:
Cash and temporary cash investments $ 27,297 $ 16,069 $ 16,927
Accounts receivable, less allowance for doubtful accounts of
$4,279, $3,739 and $3,768, respectively 74,678 45,585 74,178
Inventories 60,718 61,700 67,183
Deferred income taxes 4,972 5,269 3,849
Other current assets 4,588 4,557 4,476
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Total current assets 172,253 133,180 166,613
Property, plant and equipment 29,345 35,879 36,855
Deferred income taxes 21,647 19,577 17,473
Intangible assets 33,698 55,288 52,809
Other assets 1,154 989 1,138
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Total assets $ 258,097 $ 244,913 $ 274,888
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $ 23,233 $ 12,985 $ 94,911
Accounts payable 17,350 12,157 12,989
Accrued liabilities:
Salaries and wages 8,507 5,968 5,803
Income taxes 4,775 1,206 --
Other 19,576 17,237 15,428
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Total current liabilities 73,441 49,553 129,131
Long-term debt, less current maturities 78,496 84,550 39,225
Other liabilities 4,851 5,031 4,754
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Total liabilities 156,788 139,134 173,110
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Shareholders' equity:
Preferred stock: none issued -- -- --
Common stock:
Class A shares issued:
June 28, 2002, 7,101,491;
September 28, 2001, 6,946,012;
June 29, 2001, 6,945,762 360 347 347
Class B shares issued (convertible into Class A): 1,222,729 61 61 61
Capital in excess of par value 46,281 44,411 44,410
Retained earnings 67,706 80,162 81,809
Contingent compensation (37) (44) (70)
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustment (13,062) (19,158) (24,779)
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Total shareholders' equity 101,309 105,779 101,778
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Total liabilities and shareholders' equity $ 258,097 $ 244,913 $ 274,888
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The accompanying notes are an integral part of the consolidated financial
statements.
-2-
JOHNSON OUTDOORS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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(thousands) Nine Months Ended
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June 28 June 29
2002 2001
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CASH PROVIDED BY (USED FOR) OPERATIONS
Net income (loss) $ (12,455) $ 7,012
Less gain from discontinued operations 495 --
Less gain (loss) from cumulative effect of change in accounting principle (22,876) 1,755
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Income from continuing operations before cumulative effect of change in accounting
principle 9,926 5,257
Adjustments to reconcile income from continuing operations to net cash used
for operating activities of continuing operations:
Depreciation and amortization 6,809 9,424
Deferred income taxes 240 634
Impairment of goodwill -- 2,526
Change in assets and liabilities, net of effect of businesses acquired or sold:
Accounts receivable (27,192) (20,783)
Inventories 3,441 (5,753)
Accounts payable and accrued liabilities 12,879 (13,140)
Other, net (2,445) (565)
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3,658 (22,400)
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CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment 4,982 --
Payments for purchase of business, net of cash acquired -- (573)
Net additions to property, plant and equipment (4,793) (7,465)
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189 (8,038)
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CASH PROVIDED BY FINANCING ACTIVITIES
Issuance of senior notes 50,000 --
Principal payments on senior notes and other long-term debt (11,604) (6,000)
Net change in short-term debt (34,624) 36,010
Common stock transactions 1,883 70
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5,655 30,080
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Effect of foreign currency fluctuations on cash 1,726 (78)
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Increase (decrease) in cash and temporary cash investments 11,228 (436)
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 16,069 17,363
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End of period $ 27,297 $ 16,927
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The accompanying notes are an integral part of the consolidated financial
statements.
-3-
JOHNSON OUTDOORS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1 Basis of Presentation
The consolidated financial statements included herein are unaudited. In
the opinion of management, these statements contain all adjustments
(consisting of only normal recurring items) necessary to present fairly
the financial position of Johnson Outdoors Inc. and subsidiaries (the
Company) as of June 28, 2002 and the results of operations and cash flows
for the three months and nine months ended June 28, 2002. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 2001 Annual Report on Form 10-K.
Because of seasonal and other factors, the results of operations for the
three months and nine months ended June 28, 2002 are not necessarily
indicative of the results to be expected for the full year.
All monetary amounts, other than share and per share amounts, are stated
in thousands.
Certain amounts as previously reported have been reclassified to conform
with the current period presentation.
2 Changes in Accounting Principle
Effective September 29, 2001, the Company adopted Financial Accounting
Standards Board No. 142, "Goodwill and Other Intangible Assets" (SFAS
142). In accordance with to the adoption of this new standard, the Company
ceased the amortization of goodwill. As such, net income for fiscal 2002
will be increased by approximately $1,500 when compared to fiscal 2001. As
required under SFAS 142, the Company has performed an assessment of the
carrying value of goodwill using a number of criteria, including the value
of the overall enterprise as of September 29, 2001. This assessment
resulted in a write off of goodwill totaling $22,876, net of tax, and has
been reflected as a change in accounting principle. The write off is
associated with the Watercraft ($12,900) and Diving ($10,000) business
units. Future impairment charges from existing operations or other
acquisitions, if any, will be reflected as an operating expense in the
statement of operations.
Effective September 30, 2000, the Company adopted SFAS 133, which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and
for hedging activities. All derivatives, whether designated in hedging
relationships or not, are required to be recorded on the balance sheet at
fair value. If the derivative is designated as a fair value hedge, the
changes in fair value of the derivative and the hedged item are recognized
in earnings. If the derivative is designated as a cash flow hedge, changes
in the fair value of the derivative are recorded in other comprehensive
income and are recognized in earnings when the hedged item affects
earnings.
The adoption of SFAS 133 resulted in an effect of change in accounting
principle after tax gain of $1,755 in 2001.
3 Income Taxes
The provision for income taxes includes deferred taxes and is based upon
estimated annual effective tax rates in the tax jurisdictions in which the
Company operates.
-4-
JOHNSON OUTDOORS INC.
4 Inventories
Inventories related to continuing operations at the end of the respective
periods consist of the following:
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June 28 September 28 June 29
2002 2001 2001
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Raw materials $ 19,344 $ 19,892 $ 22,365
Work in process 2,572 2,592 2,843
Finished goods 42,202 42,620 45,410
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64,118 65,104 70,618
Less reserves 3,400 3,404 3,435
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$ 60,718 $ 61,700 $ 67,183
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5 Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per common share from continuing operations before cumulative
effect of change in accounting principle:
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Three Months Ended Nine Months Ended
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June 28 June 29 June 28 June 29
2002 2001 2002 2001
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Income from continuing operations before
cumulative effect of change in
accounting principle for basic and
diluted earnings per share $ 6,433 $ 6,283 $ 9,926 $ 5,257
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Weighted average common shares outstanding
8,227,290 8,168,491 8,189,980 8,159,279
Less nonvested restricted stock (6,967) (14,143) (7,321) (15,549)
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Basic average common shares 8,220,323 8,154,348 8,182,659 8,143,730
Dilutive stock options and restricted stock 340,389 30,701 201,204 19,655
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Diluted average common shares 8,560,712 8,185,049 8,383,863 8,163,385
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Basic earnings per common share from continuing
operations before cumulative effect of
change in accounting principle $ 0.78 $ 0.77 $ 1.21 $ 0.64
Diluted earnings per common share from
continuing operations before cumulative
effect of change in accounting principle $ 0.75 $ 0.77 $ 1.18 $ 0.64
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-5-
JOHNSON OUTDOORS INC.
6 Stock Ownership Plans
A summary of stock option activity related to the Company's plans is as
follows:
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Weighted Average
Shares Exercise Price
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Outstanding at September 28, 2001 1,086,795 10.20
Granted 274,755 7.55
Exercised (142,453) 10.27
Cancelled (137,242) 13.94
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Outstanding at June 28, 2002 1,081,855 9.04
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Options to purchase 1,105,796 shares of common stock with a weighted
average exercise price of $10.19 per share were outstanding at June 29,
2001.
7 Comprehensive Income
Comprehensive income includes net income and changes in shareholders'
equity from non-owner sources. For the Company, the elements of
comprehensive income excluded from net income are represented primarily by
the cumulative foreign currency translation adjustment.
Comprehensive income (loss) for the respective periods consists of the
following:
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Three Months Ended Nine Months Ended
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June 28 June 29 June 28 June 29
2002 2001 2002 2001
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Net income (loss) $ 6,433 $ 6,283 $ (12,455) $ 7,012
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Translation adjustment 9,780 (1,235) 6,096 (3,219)
Reclassification adjustment for change in
accounting principle -- -- -- (2,974)
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Comprehensive income (loss) $ 16,213 $ 5,048 $ (6,359) $ 819
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8 Related Party Transactions
On November 30, 2001, the Company entered into a sale/leaseback
transaction for its headquarters facility with a related party. The
Company sold the facility for $4,982 in cash and entered into a
month-to-month lease agreement with the related party, which terminated
May 31, 2002. The Company and the related party engaged an independent
appraiser to determine the sale price of the facility. The deferred gain
is recorded as a contra-asset within the property, plant and equipment
section of the balance sheet. The gain on the sale could not be recognized
in the income statement due to the related party nature of the
transaction.
On June 1, 2002, the Company entered into a three-year lease agreement
with another related party for its new headquarters facility.
9 Discontinued Operations
The Company recognized a gain from discontinued operations of $495, net of
tax, for the nine months ended June 28, 2002 related to the final
accounting for the sale of the Fishing business.
-6-
JOHNSON OUTDOORS INC.
10 Segments of Business
The Company conducts its worldwide operations through separate global
business units, each of which represent major product lines. Operations
are conducted in the United States and various foreign countries,
primarily in Europe, Canada and the Pacific Basin. The Company does not
believe it has unusual risk related to concentrations in volume of
business with a particular customer or supplier, or concentrations in
revenue from a particular product.
Net sales and operating profit include both sales to customers, as
reported in the Company's consolidated statements of operations, and
interunit transfers, which are priced to recover cost plus an appropriate
profit margin. Identifiable assets represent assets that are used in the
Company's operations in each business unit at the end of the periods
presented.
A summary of the Company's operations by business unit is presented below:
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Three Months Ended Nine Months Ended
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June 28 June 29 June 28 June 29
2002 2001 2002 2001
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Net sales:
Outdoor equipment:
Unaffiliated customers $ 31,706 $ 34,486 $ 87,236 $ 88,148
Interunit transfers 46 30 69 76
Motors:
Unaffiliated customers 29,552 21,701 67,589 54,263
Interunit transfers 438 98 704 519
Watercraft:
Unaffiliated customers 33,744 34,667 66,392 69,245
Interunit transfers 105 124 292 309
Diving:
Unaffiliated customers 21,595 23,068 52,887 59,705
Interunit transfers 11 1 11 2
Other 102 5 51 36
Eliminations (600) (253) (1,076) (906)
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$ 116,699 $ 113,927 $ 274,155 $ 271,397
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Operating profit (loss):
Outdoor equipment $ 3,449 $ 4,177 $ 10,902 $ 9,158
Motors 4,283 2,569 8,023 1,568
Watercraft 4,530 4,411 4,024 4,811
Diving 3,892 4,178 7,884 7,663
Other (3,180) (2,335) (8,610) (7,174)
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$ 12,974 $ 13,000 $ 22,223 $ 16,026
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Identifiable assets (end of period):
Outdoor equipment $ 57,752 $ 58,589
Motors 28,440 26,661
Watercraft(1) 63,963 78,286
Diving(1) 83,386 88,346
Other 24,556 23,006
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$ 258,097 $ 274,888
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(1) June 28, 2002 reflects the goodwill write-offs related to the adoption of
SFAS 142.
-7-
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion includes comments and analysis relating to the
Company's results of operations and financial condition for the three months and
nine months ended June 28, 2002 and June 29, 2001. This discussion should be
read in conjunction with the consolidated financial statements and related notes
that immediately precede this section, as well as the Company's 2001 Annual
Report on Form 10-K.
Forward Looking Statements
Certain matters discussed in this Form 10-Q are "forward-looking statements,"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement includes phrases such as the Company "expects," "believes" or other
words of similar meaning. Similarly, statements that describe the Company's
future plans, objectives or goals are also forward-looking statements. Such
forward-looking statements are subject to certain risks and uncertainties which
could cause actual results or outcomes to differ materially from those currently
anticipated. Factors that could affect actual results or outcomes include
changes in consumer spending patterns, actions of companies that compete with
the Company, the Company's success in managing inventory, movements in foreign
currencies or interest rates and adverse weather conditions. Shareholders,
potential investors and other readers are urged to consider these factors in
evaluating the forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements. The forward-looking statements
included herein are only made as of the date of this Form 10-Q and the Company
undertakes no obligations to publicly update such forward-looking statements to
reflect subsequent events or circumstances.
Results of Operations
Net sales for the three months ended June 28, 2002 totaled $116.7 million, an
increase of 2.4% or $2.8 million, compared to $113.9 million in the three months
ended June 29, 2001. The Motors business had a sales increase of $8.2 million
(38.7%) over the same period a year ago driven by strong sales from new products
and gain in market share. The other businesses showed a decline from the prior
quarter sales. The Diving business continues to be adversely impacted by reduced
travel as the market has reacted to recent global events. Diving sales were down
$1.5 million (6.3%) from the year ago quarter. The Outdoor Equipment and
Watercraft businesses continue to suffer as a result of the softening economy.
Outdoor Equipment sales were mixed, with Jack Wolfskin sales up 5.3%, but the
overall business was down $2.8 million (8.0%). Watercraft sales were down $1.0
million (2.7%) from the year ago quarter, as growth from Leisure Life and
Pacific Kayak was more than offset by declines in the other Watercraft
companies.
Net sales for the nine months ended June 28, 2002 totaled $274.2 million,
compared to $271.4 million in the nine months ended June 29, 2001. Only the
Motors business showed growth over the prior year, with a $13.5 million (24.7%)
increase over the first nine months of the prior year due to recovery in the OEM
market as well as new products and a shift in distributor buying patterns.
Relative to the U.S. dollar, the average values of most currencies of the
countries in which the Company has operations were higher for the three months
and nine months ended June 28, 2002 as compared to the corresponding period of
the prior year. The Diving and Outdoor Equipment businesses were favorably
impacted by foreign currency movements. Excluding the impact of fluctuations in
foreign currencies, net sales for the Company increased 1.3% for the three
months and 1.2% for the nine months ended June 28, 2002.
Gross profit as a percentage of sales was 42.3% for the three months ended June
28, 2002 compared to 41.3% in the corresponding period in the prior year.
Margins in the Outdoor Equipment and Motors businesses were improved over the
prior year, while the Diving business was flat and the Watercraft business saw
margins decline by 1.4 percentage points. The Outdoor Equipment business
benefited from improved margins in nearly all companies led by Jack Wolfskin,
which increased margins by 1.8
-8-
percentage points over the prior year quarter. The Motors business improved
margins by 3.8 percentage points over the year ago quarter primarily from new
products and product mix.
Gross profit as a percentage of sales was 42.1% for the nine months ended June
28, 2002 compared to 40.8% in the corresponding period in the prior year. Margin
improvements in the Motors and Outdoor Equipment businesses helped to offset
slight declines in margins in the Diving and Watercraft businesses. The Motors
business was favorably impacted by a recovery in its OEM markets, product mix
and new products.
The Company recognized operating profit of $13.0 million for the three months
ended June 28, 2002, flat with the corresponding period of the prior year. The
current quarter benefited from a $0.6 million reduction in amortization expense
related to the adoption of SFAS No. 142. Operating expenses, excluding strategic
charges, were $36.3 million, 8.0% higher than the prior year's comparable
quarter. The increase is due to base level spending increases as well as the
recording of certain specific reserves.
For the nine months ended June 28, 2002 operating profit increased 38.7% to
$22.2 million versus $16.0 million a year ago. Strong gross profits in the
Motors and Outdoor Equipment businesses drove the increase in operating profits.
Watercraft operating profit was $0.5 million below prior year, on lower sales
volume, excluding the impact of SFAS No. 142 and strategic charges. The Diving
business reduced operating expenses by $3.1 million, excluding the impact of
SFAS No. 142, mitigating a portion of the impact of sales and margin declines on
operating profits.
Interest expense totaled $1.7 million for the three months ended June 28, 2002
compared to $2.3 million for the corresponding period of the prior year. In the
current year, the Company benefited from reductions in overall debt due to
reductions in working capital. In addition, the Company benefited from declining
interest rates on the floating rate facilities. Interest expense totaled $5.2
million for the nine months ended June 28, 2002 compared to $7.3 million for the
corresponding period of the prior year.
The Company's effective tax rate for the nine months ended June 28, 2002 was
39.2%, down from 41.1% for the corresponding period of the prior year, primarily
due to the geographic mix of earnings occurring in lower tax jurisdictions.
The Company recognized income from continuing operations before cumulative
effect of change in accounting principle of $6.4 million in the three months
ended June 28, 2002, compared to income of $6.3 million in the corresponding
period of the prior year. Diluted earnings per common share from continuing
operations before cumulative effect of change in accounting principle totaled
$0.75 for the three months ended June 28, 2002 compared to $0.77 in the prior
year. The Company recognized income from continuing operations before cumulative
effect of change in accounting principle of $9.9 million in the nine months
ended June 28, 2002, compared to $5.3 million in the corresponding period of the
prior year. Diluted earnings per common share from continuing operations before
cumulative effect of change in accounting principle totaled $1.18 for the nine
months ended June 28, 2002 compared to $0.64 in the prior year.
Discontinued Operations
The Company recognized a gain from discontinued operations of $0.5 million, net
of tax ($0.06 per diluted share), for the nine months ended June 28, 2002
related to the final accounting for the sale of the Fishing business.
Changes in Accounting Principle
Effective September 29, 2001, the Company adopted SFAS 142. In accordance with
the adoption of this new standard, the Company ceased the amortization of
goodwill. As such, net income for fiscal 2002 will be increased by approximately
$1.5 million when compared to fiscal 2001. As required under SFAS 142, the
Company has performed an assessment of the carrying value of goodwill using a
number of criteria, including the value of the overall enterprise as of
September 29, 2001. This assessment resulted in a write off of goodwill totaling
$22.9 million, net of tax ($2.73 per diluted share) and has been reflected as a
change in accounting principle. The write off is associated with the Watercraft
($12.9 million) and Diving
-9-
($10.0 million) business units. Future impairment charges from existing
operations or other acquisitions, if any, will be reflected as an operating
expense in the statement of operations.
Effective September 30, 2000, the Company adopted SFAS 133, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
All derivatives, whether designated in hedging relationships or not, are
required to be recorded on the balance sheet at fair value. If the derivative is
designated as a fair value hedge, the changes in fair value of the derivative
and the hedged item are recognized in earnings. If the derivative is designated
as a cash flow hedge, changes in the fair value of the derivative are recorded
in other comprehensive income and are recognized in earnings when the hedged
item affects earnings.
The adoption of SFAS 133 resulted in an effect of change in accounting principle
after tax gain of $1.8 million in 2001.
Net income (loss)
Net income for the three months ended June 28, 2002 was $6.4 million, or $0.75
per diluted share, compared to $6.3 million, or $0.77 per diluted share, for the
corresponding period of the prior year.
Net loss for the nine months ended June 28, 2002 was $12.5 million, or $1.49 per
diluted share, compared to net income of $7.0 million, or $0.86 per diluted
share, for the corresponding period of the prior year.
Financial Condition
The following discusses changes in the Company's liquidity and capital resources
related to continuing operations.
Operations
Cash flows provided by operations totaled $3.7 million for the nine months ended
June 28, 2002 compared to cash flows used for operations of $22.4 million for
the corresponding period of the prior year.
Accounts receivable seasonally increased $27.2 million for the nine months ended
June 28, 2002, compared to an increase of $20.8 million in the year ago period.
However, the end-of-period balance is virtually flat with the corresponding
period of the prior year due to improved management of working capital assets.
Average days of sales outstanding are lower than the prior year by 2 days. The
Company has also worked to reduce inventory levels at all businesses.
Inventories decreased by $3.4 million during the nine months ended June 28, 2002
compared to an increase of $5.8 million in the prior year period. Inventories at
June 28, 2002 were $6.5 million lower than the same period a year ago. The
Company is producing products at levels adequate to meet consumer demands.
Accounts payable and accrued liabilities increased $12.9 million for the nine
months ended June 28, 2002 and decreased $13.1 million for the corresponding
period of the prior year.
Depreciation and amortization charges were $6.8 million for the nine months
ended June 28, 2002 and $9.4 million for the corresponding period of the prior
year. The decline from prior year is primarily related to the adoption of SFAS
No. 142.
Investing Activities
Cash provided by investing activities totaled $0.2 million for the nine months
ended June 28, 2002 versus cash used for investing activities of $8.0 million
for the corresponding period of the prior year.
Expenditures for property, plant and equipment were $4.8 million for the nine
months ended June 28, 2002 and $7.5 million for the corresponding period of the
prior year. The Company's recurring investments are made primarily for tooling
for new products and enhancements. In 2002, capitalized expenditures are
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anticipated to be below the levels of the prior year. These expenditures are
expected to be funded by working capital or existing credit facilities. The
Company sold its headquarters facility to a related party in the first quarter.
Proceeds from the sale were $5.0 million. A gain on the sale was not recognized
in the income statement due to the related party nature of the transaction.
Financing Activities
Cash flows provided from financing activities totaled $5.7 million for the nine
months ended June 28, 2002 and $30.1 million for the corresponding period of the
prior year. The Company made principal payments on senior notes of $11.6 million
in the current year and $6.0 million in the prior year. The Company consummated
a private placement of long-term debt totaling $50.0 million during the first
quarter of fiscal 2002. Proceeds from the debt were used to reduce outstanding
indebtedness under the Company's primary revolving credit facility.
Market Risk Management
The Company is exposed to market risk stemming from changes in foreign exchange
rates, interest rates and, to a lesser extent, commodity prices. Changes in
these factors could cause fluctuations in earnings and cash flows. In the normal
course of business, exposure to certain of these market risks is managed by
entering into hedging transactions authorized under Company policies that place
controls on these activities. Hedging transactions involve the use of a variety
of derivative financial instruments. Derivatives are used only where there is an
underlying exposure, not for trading or speculative purposes.
Foreign Operations
The Company has significant foreign operations, for which the functional
currencies are denominated primarily in Euros, Swiss francs, Japanese yen and
Canadian dollars. As the values of the currencies of the foreign countries in
which the Company has operations increase or decrease relative to the U.S.
dollar, the sales, expenses, profits, assets and liabilities of the Company's
foreign operations, as reported in the Company's Consolidated Financial
Statements, increase or decrease, accordingly. The Company mitigates a portion
of the fluctuations in certain foreign currencies through the purchase of
foreign currency swaps, forward contracts and options to hedge known
commitments, primarily for purchases of inventory and other assets denominated
in foreign currencies.
Interest Rates
The Company's debt structure and interest rate risk are managed through the use
of fixed and floating rate debt. The Company's primary exposure is to United
States interest rates. The Company also periodically enters into interest rate
swaps, caps or collars to hedge its exposure and lower financing costs.
Commodities
Certain components used in the Company's products are exposed to commodity price
changes. The Company manages this risk through instruments such as purchase
orders and non-cancelable supply contracts. Primary commodity price exposures
are metals, plastics and packaging materials.
Sensitivity to Changes in Value
The estimates that follow are intended to measure the maximum potential fair
value or earnings the Company could lose in one year from adverse changes in
foreign exchange rates or market interest rates under normal market conditions.
The calculations are not intended to represent actual losses in fair value or
earnings that the Company expects to incur. The estimates do not consider
favorable changes in
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market rates. Further, since the hedging instrument (the derivative) inversely
correlates with the underlying exposure, any loss or gain in the fair value of
derivatives would be generally offset by an increase or decrease in the fair
value of the underlying exposures. The positions included in the calculations
are foreign exchange forwards, currency swaps and fixed rate debt. The
calculations do not include the underlying foreign exchange positions that are
hedged by these market risk sensitive instruments. The table below presents the
estimated maximum potential one year loss in fair value and earnings before
income taxes from a 10% movement in foreign currencies and a 100 basis point
movement in interest rates on market risk sensitive instruments outstanding at
June 28, 2002:
- --------------------------------------------------------------------------------
(millions) Estimated Impact on
- --------------------------------------------------------------------------------
Earnings Before Income
Fair Value Taxes
- --------------------------------------------------------------------------------
Foreign exchange rate instruments 1.1 1.1
Interest rate instruments 2.1 0.7
- --------------------------------------------------------------------------------
Other Factors
The Company has not been significantly impacted by inflationary pressures over
the last several years. The Company anticipates that changing costs of basic raw
materials may impact future operating costs and, accordingly, the prices of its
products. The Company is involved in continuing programs to mitigate the impact
of cost increases through changes in product design and identification of
sourcing and manufacturing efficiencies. Price increases and, in certain
situations, price decreases are implemented for individual products, when
appropriate.
Pending Accounting Changes
In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets (SFAS 144). SFAS 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and provides
additional implementation guidance for assets to be held and used and assets to
be disposed of other than by sale. There are not expected to be any financial
implications related to the adoption of SFAS 144, and the guidance will be
applied on a prospective basis. The Company is required to adopt SFAS 144 in the
first quarter of fiscal 2003.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB No. 4, 44 and
64, Amendment of FASB No. 13, and Technical Corrections (SFAS 145). SFAS 145
clarifies updates and simplifies existing accounting pronouncements related to
gain and losses on extinguishments of debt and lease modifications, among other
items. There are not expected to be any financial implications related to the
adoption of SFAS 145, and the guidance will be applied on a prospective basis.
The Company is required to adopt SFAS 145 in the first quarter of fiscal 2003.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146). SFAS 146 requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan, which is generally before
an actual liability has been incurred. The Company does not anticipate a
significant impact on its results of operations from adopting this Statement.
The Company is required to adopt SFAS 146 for exit or disposal activities that
are initiated after December 31, 2002.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to this item is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations under the heading
"Market Risk Management."
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this Form 10-Q
99.1 Certification of Chairman and CEO pursuant to 18 U.S.C.ss.1350
99.2 Certification of Vice President and CFO pursuant to 18 U.S.C.
ss.1350
(b) Reports on Form 8-K.
On May 24, 2002, the Company filed a Current Report on Form 8-K
dated May 17, 2002 to reflect (under Item 4 of Form 8-K) the
Company's change in certifying accountants. The Company filed an
amendment to such Current Report on Form 8-K on June 20, 2002.
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JOHNSON OUTDOORS INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHNSON OUTDOORS INC.
Date: August 9, 2002
/s/ Helen P. Johnson-Leipold
-------------------------------------------
Helen P. Johnson-Leipold
Chairman and Chief Executive Officer
/s/ Paul A. Lehmann
-------------------------------------------
Paul A. Lehmann
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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JOHNSON OUTDOORS INC.
Exhibit Index to Quarterly Report on Form 10-Q
Exhibit
Number Description
99.1 Certification of Chairman and CEO pursuant to 18 U.S.C.ss.1350
99.2 Certification of Vice President and CFO pursuant to 18 U.S.C.ss.1350
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