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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 December 27, 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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
As of January 31, 2003, 7,173,068 shares of Class A and 1,222,647 shares of
Class B common stock of the Registrant were outstanding.
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JOHNSON OUTDOORS INC.
Index Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations - Three months
ended December 27, 2002 and December 28, 2001 1
Consolidated Balance Sheets - December 27, 2002,
September 27, 2002 and December 28, 2001 2
Consolidated Statements of Cash Flows - Three months
ended December 27, 2002 and December 28, 2001 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 12
Item 4. Controls and Procedures 12
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Certifications 15
Exhibit Index 17
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
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December 27 December 28
2002 2001
- -----------------------------------------------------------------------------------------------------------------------
Net sales $ 54,895 $ 59,738
Cost of sales 31,212 34,448
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Gross profit 23,683 25,290
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Operating expenses:
Marketing and selling 14,451 15,015
Administrative management, finance and information systems 6,308 6,932
Research and development 1,525 1,615
Amortization of intangibles 78 83
Profit sharing 1,155 193
Strategic charges - 461
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Total operating expenses 23,517 24,299
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Operating profit 166 991
Interest income (353) (146)
Interest expense 1,371 1,552
Other (income) expense, net (356) 245
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Loss before income taxes (496) (660)
Income tax benefit (216) (264)
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Loss before cumulative effect of change in accounting principle (280) (396)
Cumulative effect of change in accounting principle, net of tax of $2,200 - (22,876)
- -----------------------------------------------------------------------------------------------------------------------
Net loss $ (280) $ (23,272)
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BASIC LOSS PER COMMON SHARE:
Loss before cumulative effect of change in accounting principle $ (0.03) $ (0.05)
Cumulative effect of change in accounting principle - (2.80)
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Net loss $ (0.03) $ (2.85)
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DILUTED LOSS PER COMMON SHARE:
Loss before cumulative effect of change in accounting principle $ (0.03) $ (0.05)
Cumulative effect of change in accounting principle - (2.80)
- -----------------------------------------------------------------------------------------------------------------------
Net loss $ (0.03) $ (2.85)
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The accompanying notes are an integral part of the consolidated financial statements.
-1-
JOHNSON OUTDOORS INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
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December 27 September 27 December 28
(thousands, except share data) 2002 2002 2001
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ASSETS
Current assets:
Cash and temporary cash investments $ 66,089 $ 100,830 $ 9,719
Accounts receivable, less allowance for doubtful accounts of
$3,590, $4,028 and $3,586, respectively 46,260 39,972 48,165
Inventories 49,814 42,231 68,327
Deferred income taxes 4,979 5,083 5,262
Other current assets 5,328 4,021 7,779
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Total current assets 172,470 192,137 139,252
Property, plant and equipment 29,837 29,611 29,606
Deferred income taxes 19,533 19,588 21,819
Intangible assets 28,543 27,139 29,660
Other assets 2,751 2,810 910
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Total assets $ 253,134 $ 271,285 $ 221,247
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $ 9,568 $ 8,058 $ 26,535
Accounts payable 13,681 13,589 13,685
Accrued liabilities:
Salaries and wages 6,758 9,428 5,775
Income taxes 2,839 6,567 (665)
Other 16,103 24,005 14,083
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Total current liabilities 48,949 61,647 59,413
Long-term debt, less current maturities 68,680 80,195 78,272
Other liabilities 5,137 5,298 4,442
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Total liabilities 122,766 147,140 142,127
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Shareholders' equity:
Preferred stock: none issued -- -- --
Common stock:
Class A shares issued:
December 27, 2002, 7,166,569;
September 27, 2002, 7,112,155;
December 28, 2001, 6,947,360 358 355 347
Class B shares issued (convertible into Class A):
December 27, 2002, 1,222,647;
September 27, 2002, 1,222,729;
December 28, 2001, 1,222,729 61 61 61
Capital in excess of par value 48,080 47,583 44,411
Retained earnings 87,808 88,089 56,890
Deferred compensation (7) (22) (19)
Accumulated other comprehensive loss: (5,932) (11,921) (22,570)
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Total shareholders' equity 130,368 124,145 79,120
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Total liabilities and shareholders' equity $ 253,134 $ 271,285 $ 221,247
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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) Three Months Ended
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December 27 December 28
2002 2001
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CASH USED FOR OPERATIONS
Net loss $ (280) $ (23,272)
Less cumulative effect of change in accounting principle -- (22,876)
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Loss before cumulative effect of change in accounting principle (280) (396)
Adjustments to reconcile loss before cumulative effect of change in accounting
principle to net cash used for operating activities:
Depreciation and amortization 1,907 2,446
Deferred income taxes 134 7
Change in operating assets and liabilities, net of effect of businesses acquired
or sold:
Accounts receivable (5,527) (3,365)
Inventories (6,702) (7,544)
Accounts payable and accrued liabilities (15,101) (3,721)
Other, net (2,460) (4,434)
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(28,029) (17,007)
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CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment -- 4,982
Net additions to property, plant and equipment (1,670) (1,207)
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(1,670) 3,775
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CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Issuance of senior notes -- 50,000
Principal payments on senior notes and other long-term debt (8,000) (8,000)
Net change in short-term debt (1,868) (34,706)
Common stock transactions 445 --
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(9,423) 7,294
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Effect of foreign currency fluctuations on cash 4,381 (412)
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Decrease in cash and temporary cash investments (34,741) (6,350)
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 100,830 16,069
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End of period $ 66,089 $ 9,719
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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
December 27, 2002 and the results of operations and cash flows for the
three months ended December 27, 2002. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 2002 Annual Report
on Form 10-K.
Because of seasonal and other factors, the results of operations for the
three months ended December 27, 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 Change 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 required under SFAS 142, the Company performed an assessment of the
carrying value of goodwill using a number of criteria, including the value
of the overall enterprise as of September 29, 2001. This assessment
resulted in a write off of goodwill totaling $22,876, net of tax ($2.80 per
diluted share for the quarter) 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.
3 Income Taxes
The provision for income taxes includes deferred taxes and is based upon
estimated annual effective tax rates in the tax jurisdictions in which the
Company operates.
4 Inventories
Inventories at the end of the respective periods consist of the following:
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December 27 September 27 December 28
2002 2002 2001
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Raw materials $ 20,317 $ 17,709 $ 23,259
Work in process 1,116 1,072 2,634
Finished goods 30,751 25,633 45,534
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52,184 44,414 71,427
Less reserves 2,370 2,183 3,100
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$ 49,814 $ 42,231 $ 68,327
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-4-
5 Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per common share before cumulative effect of change in accounting
principle:
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Three Months Ended
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December 27 December 28
2002 2001
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Loss before cumulative effect of change in accounting principle for
basic and diluted earnings per share $ (280) $ (396)
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Weighted average common shares outstanding 8,355,418 8,168,934
Less nonvested restricted stock 6,635 14,193
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Basic and diluted average common shares 8,348,783 8,154,741
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Basic and diluted loss per common share before cumulative effect of
change in accounting principle $ (0.03) $ (0.05)
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Outstanding stock options were not included in the calculation of diluted
average common shares because their inclusion would have had an
anti-dilutive impact on the loss per common share.
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 27, 2002 1,064,019 $ 9.06
Exercised (54,332) 7.25
Cancelled (11,832) 16.95
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Outstanding at December 27, 2002 997,855 $ 9.07
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Options to purchase 1,234,176 shares of common stock with a weighted
average exercise price of $9.14 per share were outstanding at December 28,
2001.
7 Comprehensive Income
Comprehensive income (loss) includes net loss and changes in shareholders'
equity from non-owner sources. For the Company, the elements of
comprehensive income (loss) excluded from net income are represented
primarily by the cumulative foreign currency translation adjustment.
Comprehensive loss for the respective periods consists of the following:
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Three Months Ended
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December 27 December 28
2002 2001
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Net loss $ (280) $ (23,272)
Translation adjustment 5,989 (3,412)
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Comprehensive income (loss) $ 5,709 $ (26,684)
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-5-
JOHNSON OUTDOORS INC.
8 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
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December 27 December 28
2002 2001
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Net sales:
Outdoor equipment:
Unaffiliated customers $ 11,864 $ 22,715
Interunit transfers 33 10
Diving:
Unaffiliated customers 16,458 13,823
Interunit transfers 16 --
Motors:
Unaffiliated customers 14,729 12,492
Interunit transfers 277 61
Watercraft:
Unaffiliated customers 11,734 10,703
Interunit transfers 175 33
Other 110 5
Eliminations (501) (104)
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$ 54,895 $ 59,738
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Operating profit (loss):
Outdoor equipment $ 1,409 $ 2,586
Diving 2,025 1,484
Motors 1,577 550
Watercraft (1,929) (1,348)
Other (2,916) (2,281)
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$ 166 $ 991
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Identifiable assets (end of period):
Outdoor equipment $ 18,766 $ 46,623
Diving 80,983 71,912
Motors 28,749 28,816
Watercraft 60,918 57,762
Other 63,718 16,134
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$ 253,134 $ 221,247
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-6-
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
ended December 27, 2002 and December 28, 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 2002 Annual Report on
Form 10-K.
Forward Looking Statements
Certain matters discussed in this Form 10-Q are "forward-looking statements,"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement includes phrases such as the Company "expects," "believes" or other
words of similar meaning. Similarly, statements that describe the Company's
future plans, objectives or goals are also forward-looking statements. Such
forward-looking statements are subject to certain risks and uncertainties which
could cause actual results or outcomes to differ materially from those currently
anticipated. Factors that could affect actual results or outcomes include
changes in consumer spending patterns, actions of companies that compete with
the Company, the Company's success in managing inventory, movements in foreign
currencies or interest rates, the success of suppliers and customers, the
ability of the Company to deploy its capital successfully 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 December 27, 2002 totaled $54.9 million, a
decrease of 8.1% or $4.8 million, compared to $59.7 million in the three months
ended December 28, 2001. Excluding the results of the Company's Jack Wolfskin
subsidiary, which was sold in the fourth quarter of the prior year, sales of the
Company's continuing businesses increased 15.1% for the quarter over the prior
year. Foreign currency translations favorably impacted first quarter sales by
$2.2 million. All of the Company's continuing business units had double digit
sales growth over the prior year. The Motors business sales increased $2.5
million, or 19.5%, to $15.0 million as a result of strength from new products
and gains in market share. The Outdoor Equipment business sales decreased $10.8
million, or 47.6%, to $11.9 million as a result of the sale of the Jack Wolfskin
subsidiary. However, the Company's continuing business in this segment had an
11% sales increase to $11.6 million from continued strong military orders. The
Diving business sales increased $2.7 million, or 19.2%, to $16.5 million as a
result of market recoveries in Europe and North America. Additionally, the
Diving business benefited from strong sales from a recent industry trade show.
The Watercraft business sales increased $1.2 million, or 10.9%, to $11.9 million
as all operating companies in this segment had sales increases over the prior
year quarter.
Gross profit as a percentage of sales was 43.1% for the three months ended
December 27, 2002 compared to 42.3% in the corresponding period in the prior
year. Margins from continuing businesses (excluding Jack Wolfskin) were nearly
flat with the prior year. Margin improvement in the Motors business was offset
by declines in the other business segments. The Motors business benefited from
new products and mix.
The Company recognized operating profit of $0.2 million for the three months
ended December 27, 2002 compared to operating profit of $1.0 million for the
corresponding period of the prior year. Excluding the results of Jack Wolfskin,
the first quarter of the prior year would have had an operating loss of $0.4
million; therefore, on a continuing business basis, operating profit increased
$0.6 million for the quarter. The year ago quarter also included $0.5 million of
strategic charges related to the consolidation efforts in the Watercraft
business.
-7-
Sales volume and strong gross profits in the Motors business drove the increase
in operating profits from continuing businesses. Watercraft operating profit was
below prior year, due to continued integration cost at Ocean/Necky Kayaks and
investments in improvements at Old Town Canoe. The Diving business showed solid
improvement over a difficult first quarter of the prior year.
Interest expense totaled $1.4 million for the three months ended December 27,
2002 compared to $1.6 million for the corresponding period of the prior year.
The reduction from prior year amounts resulted from lower debt levels and
favorable interest rates. The change in other income in the current year is
primarily related to currency translation gains resulting from appreciation of
Euro dollars relative to U.S. dollars.
The Company's effective tax rate for the three months ended December 27, 2002
was 43.5%, compared to 40.0% for the corresponding period of the prior year.
The Company recognized a loss before cumulative effect of change in accounting
principle of $0.3 million in the three months ended December 27, 2002, compared
to a loss of $0.4 million in the corresponding period of the prior year.
Earnings per common share before cumulative effect of change in accounting
principle totaled $0.03 for the three months ended December 27, 2002 compared to
$0.05 in the prior year.
Change 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 required under SFAS 142, the Company performed an assessment of the carrying
value of goodwill using a number of criteria, including the value of the overall
enterprise as of September 29, 2001. This assessment resulted in a write off of
goodwill totaling $22.9 million, net of tax ($2.80 per share for the quarter)
and has been reflected as a change in accounting principle. The write off is
associated with the Watercraft ($12.9 million) and Diving ($10.0 million)
business units. Future impairment charges from existing operations or other
acquisitions, if any, will be reflected as an operating expense in the statement
of operations.
Net loss
Net loss for the three months ended December 27, 2002 was $0.3 million, or $0.03
per share, compared to a loss of $23.3 million, or $2.85 per share, for the
corresponding period of the prior year.
Results on a Continuing Business Basis
The following table shows a first quarter comparison of as reported results and
results from continuing business basis.
- ------------------------------ ----------------------------------------- ---------------------------------------
(thousands, except per Continuing Business
share data and percentages) As Reported % Basis (1) %
12/27/02 12/28/01 Change 12/27/02 12/28/01 Change
- ------------------------------ ----------------------------------------- ---------------------------------------
Net sales $ 54,895 $ 59,738 (8) $ 54,576 $ 47,419 15
Gross profit $ 23,683 $ 25,290 (6) $ 23,687 $ 20,631 15
Operating profit (loss) $ 166 $ 991 (83) $ 234 $ (354) NM
Loss (2) $ (280) $ (396) NM $ (227) $ (1,143) NM
Loss per share (2) $ (0.03) $ (0.05) NM $ (0.02) $ (0.14) NM
- ------------------------------ ----------------------------------------- ---------------------------------------
(1) Continuing Business Basis from the first quarter of both years excludes results from the Jack Wolfskin operation,
which was sold in the fourth quarter of fiscal 2002.
(2) Loss and loss per share is before cumulative effect of change in accounting principle.
Financial Condition
The following discusses changes in the Company's liquidity and capital
resources.
-8-
Operations
Cash flows used for operations totaled $28.0 million for the three months ended
December 27, 2002 and $17.0 million for the corresponding period of the prior
year.
Accounts receivable seasonally increased $5.5 million for the three months ended
December 27, 2002, compared to an increase of $3.4 million in the year ago
period. Days of sales outstanding are in line with the prior year at 78 days.
The Company has also worked to reduce inventory levels at all businesses.
Inventories increased by $6.7 million for the three months ended December 27,
2002 compared to an increase of $7.5 million in the prior year period.
Inventories at December 27, 2002 were $18.5 million lower than the same period a
year ago. The disposition of the Jack Wolfskin business accounted for $12.5
million of this decrease. The Company is producing products at levels adequate
to meet consumer demand for the upcoming outdoor season.
Accounts payable and accrued liabilities decreased $15.1 million for the three
months ended December 27, 2002 and decreased $3.7 million for the corresponding
period of the prior year. The larger decrease in the current year was primarily
related to higher year-end payroll related accruals and final settlement for the
sale of Jack Wolfskin.
Depreciation and amortization charges were $1.9 million for the three months
ended December 27, 2002 and $2.4 million for the corresponding period of the
prior year.
The Company recorded a non-cash charge related to the adoption of SFAS 142 of
$22.9 million during the three months ended December 28, 2001.
Investing Activities
Expenditures for property, plant and equipment were $1.7 million for the three
months ended December 27, 2002 and $1.2 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 fiscal 2003, capital expenditures
are anticipated to approach $10.0 million. These expenditures are expected to be
funded by working capital or existing credit facilities. In November 2001, the
Company sold its headquarters facility to a related party. Proceeds from the
sale were $5.0 million. The gain on the sale was recorded as an additional
contribution to equity due to the related party nature of the transaction.
Financing Activities
Cash flows used in financing activities totaled $9.4 million for the three
months ended December 27, 2002 compared to cash provided of $7.3 million for the
corresponding period of the prior year. The Company made principal payments on
senior notes of $8.0 million in both the current year and the prior year. The
Company consummated a private placement of long-term debt totaling $50.0 million
during the first quarter of the prior year. Proceeds from the debt were used to
reduce outstanding indebtedness under the Company's primary revolving credit
facility.
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.
-9-
Foreign Operations
The Company has significant foreign operations, for which the functional
currencies are denominated primarily in Euro dollars, 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 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 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 December 27,
2002:
- -------------------------------------------------------------------------------
(millions) Estimated Impact on
- -------------------------------------------------------------------------------
Earnings Before
Fair Value Income Taxes
- -------------------------------------------------------------------------------
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.
-10-
Critical Accounting Policies and Estimates
The Company's management discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
footnote disclosures. On an on-going basis, the Company evaluates its estimates,
including those related to customer programs and incentives, product returns,
bad debts, inventories, intangible assets, income taxes, warranty obligations,
pensions and other post-retirement benefits, and litigation. The Company bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Allowance for Doubtful Accounts
The Company recognizes revenue when title and risk of ownership have passed to
the buyer. Allowances for doubtful accounts are estimated at the individual
operating companies based on estimates of losses related to customer receivable
balances. Estimates are developed by using standard quantitative measures based
on historical losses, adjusting for current economic conditions and, in some
cases, evaluating specific customer accounts for risk of loss. The establishment
of reserves requires the use of judgment and assumptions regarding the potential
for losses on receivable balances. Though the Company considers these balances
adequate and proper, changes in economic conditions in specific markets in which
the Company operates could have a favorable or unfavorable effect on reserve
balances required.
Inventories
The Company values inventory at the lower of cost (determined using the first-in
first-out method) or market. Management judgment is required to determine the
reserve for obsolete or excess inventory. Inventory on hand may exceed future
demand either because the product is outdated or because the amount on hand is
more than can be used to meet future needs. Inventory reserves are estimated at
the individual operating companies using standard quantitative measures based on
criteria established by the Company. The Company also considers current forecast
plans, as well as, market and industry conditions in establishing reserve
levels. Though the Company considers these balances to be adequate, changes in
economic conditions, customer inventory levels or competitive conditions could
have a favorable or unfavorable effect on reserve balances required.
Deferred Taxes
The Company records a valuation allowance to reduce its deferred tax assets to
the amount that is more likely than not to be realized. While the Company has
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event the
Company were to determine that it would not be able to realize all or part of
its net deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period such determination was made.
Likewise, should the Company determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded amount, an
adjustment to the deferred tax asset would increase income in the period such
determination was made.
-11-
Goodwill and Intangible Impairment
In assessing the recoverability of the Company's goodwill and other intangibles
the Company must make assumptions regarding estimated future cash flows and
other factors to determine the fair value of the respective assets. If these
estimates or their related assumptions change in the future, the Company may be
required to record impairment charges for these assets not previously recorded.
On September 29, 2001 the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," and was required to
analyze its goodwill for impairment issues during the first six months of fiscal
2002, and then on a periodic basis thereafter. As a result of this analysis, the
Company recorded a goodwill impairment charge of $22.9 million, net of tax, in
the second quarter of fiscal 2002.
Warranties
The Company accrues a warranty reserve for estimated costs to provide warranty
services. The Company's estimate of costs to service its warranty obligations is
based on historical experience, expectation of future conditions and known
product issues. To the extent the Company experiences increased warranty claim
activity or increased costs associated with servicing those claims, revisions to
the estimated warranty reserve would be required. The Company engages in product
quality programs and processes, including monitoring and evaluating the quality
of its suppliers, to help minimize warranty obligations.
Pending Accounting Change
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 provisions of SFAS 146 are effective
for exit or disposal activities that are initiated after December 31, 2002.
Accordingly, SFAS 146 may affect the timing of recognizing future costs
associated with exit or disposal activities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to this item is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations under the heading
"Market Risk Management."
Item 4. Controls and Procedures
(a) Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our
management, including the Company's principal executive officer and
principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange
Act Rule 13a-15. Based upon that evaluation, the Company's principal
executive officer and principal financial officer concluded that our
disclosure controls and procedures are effective in alerting them in a
timely manner to material information relating to our Company (including
our consolidated subsidiaries) required to be included in our periodic SEC
filings.
(b) There have been no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to
the date we carried out this evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
-12-
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.
No reports on Form 8-K were filed during the three months ended December
27, 2002.
-13-
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: February 10, 2003
/s/ Helen P. Johnson-Leipold
---------------------------------------------
Helen P. Johnson-Leipold
Chairman and Chief Executive Officer
/s/ Paul A. Lehmann
---------------------------------------------
Paul A. Lehmann
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-14-
JOHNSON OUTDOORS INC.
I, Helen P. Johnson-Leipold, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Johnson Outdoors
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
/s/ Helen P. Johnson-Leipold
-----------------------------------------------------
Helen P. Johnson-Leipold
Chairman and Chief Executive Officer
February 10, 2003
-15-
JOHNSON OUTDOORS INC.
I, Paul A. Lehmann, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Johnson Outdoors
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
/s/ Paul A. Lehmann
-----------------------------------------------------
Paul A. Lehmann
Vice President and Chief Financial Officer
February 10, 2003
-16-
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
-17-