jo1209form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[
X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES
EXCHANGE ACT OF 1934
For
the
quarterly period ended January 2, 2009
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
(State
or other jurisdiction of
incorporation
or organization)
|
|
39-1536083
(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)
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 a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer," " accelerated filer” and "smaller
reporting company" in Rule 12b-2 of the Exchange Act (Check one): Large
accelerated filer [ ] Accelerated filer [ X ] Non-accelerated filer
(do not check if a smaller reporting company) [ ] Smaller reporting
company [ ].
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [ X
]
As
of
January 26, 2009, 8,049,907 shares of Class A and 1,216,464 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
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations – Three months ended January 2, 2009
and December 28, 2007
|
|
1
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets - January 2, 2009, October 3, 2008 and
December 28, 2007
|
|
2
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows - Three months ended January
2, 2009
and December 28, 2007
|
|
3
|
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
|
4
|
|
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
18
|
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
28
|
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
|
29
|
|
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
|
|
|
Item
6.
|
Exhibits
|
|
29
|
|
|
|
|
|
|
|
Signatures
|
|
30
|
|
|
|
|
|
|
|
Exhibit
Index
|
|
31
|
PART
I FINANCIAL INFORMATION
Item
1. Financial Statements
JOHNSON
OUTDOORS INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(thousands,
except per share data)
|
|
Three
Months Ended
|
|
|
|
January
2
2009
|
|
|
|
December
28
2007
|
|
Net
sales
|
|
$ |
69,756 |
|
|
$ |
75,967 |
|
Cost
of sales
|
|
|
44,650 |
|
|
|
46,678 |
|
Gross
profit
|
|
|
25,106 |
|
|
|
29,289 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Marketing
and selling
|
|
|
19,185 |
|
|
|
20,167 |
|
Administrative
management, finance and information systems
|
|
|
8,342 |
|
|
|
10,678 |
|
Research
and development
|
|
|
2,802 |
|
|
|
3,025 |
|
Total
operating expenses
|
|
|
30,329 |
|
|
|
33,870 |
|
Operating
loss
|
|
|
(5,223 |
) |
|
|
(4,581 |
) |
Interest
income
|
|
|
(104 |
) |
|
|
(288 |
) |
Interest
expense
|
|
|
1,598 |
|
|
|
1,080 |
|
Other
expense, net
|
|
|
1,120 |
|
|
|
54 |
|
Loss
before income taxes
|
|
|
(7,837 |
) |
|
|
(5,427 |
) |
Income
tax benefit
|
|
|
(896 |
) |
|
|
(1,803 |
) |
Loss
from continuing operations
|
|
|
(6,941 |
) |
|
|
(3,624 |
) |
Income
(loss) from discontinued operations, net of income tax benefit of
$0 and
$626, respectively
|
|
|
41 |
|
|
|
(1,066 |
) |
Net
loss
|
|
$ |
(6,900 |
) |
|
$ |
(4,690 |
) |
Weighted
average common shares – Basic:
|
|
|
|
|
|
|
|
|
|
Class
A
|
|
|
7,907 |
|
|
|
7,854 |
|
Class
B
|
|
|
1,216 |
|
|
|
1,217 |
|
Dilutive
stock options and restricted stock
|
|
|
- |
|
|
|
- |
|
Weighted
average common – Dilutive
|
|
|
9,123 |
|
|
|
9,071 |
|
Loss
from continuing operations per common share – Basic:
|
|
|
|
|
|
|
|
|
|
Class
A and B share
|
|
$ |
(0.76 |
) |
|
$ |
(0.40 |
) |
Loss
from discontinued operations per common share – Basic:
|
|
|
|
|
|
|
|
|
|
Class
A and B share
|
|
$ |
- |
|
|
$ |
(0.12 |
) |
Loss
per common share – Basic:
|
|
|
|
|
|
|
|
|
|
Class
A and B share
|
|
$ |
(0.76 |
) |
|
$ |
(0.52 |
) |
Loss
from continuing operations per common Class A and B share –
Dilutive
|
|
$ |
(0.76 |
) |
|
$ |
(0.40 |
) |
Loss
from discontinued operations per common Class A and B share –
Dilutive
|
|
$ |
- |
|
|
$ |
(0.12 |
) |
Loss
per common Class A and B share – Dilutive
|
|
$ |
(0.76 |
) |
|
$ |
(0.52 |
) |
Dividends
per share:
|
|
|
|
|
|
|
|
|
|
Class
A common stock
|
|
$ |
- |
|
|
$ |
0.055 |
|
Class
B common stock
|
|
$ |
- |
|
|
$ |
0.050 |
|
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
JOHNSON
OUTDOORS INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(thousands,
except share data)
|
|
January
2
2009
(unaudited)
|
|
|
October
3
2008
(audited)
|
|
|
December
28
2007
(unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
32,410 |
|
|
$ |
41,791 |
|
|
$ |
37,181 |
|
Accounts
receivable, less allowance for doubtful accounts of $2,533, $2,577
and
$2,473, respectively
|
|
|
61,613 |
|
|
|
52,710 |
|
|
|
69,127 |
|
Inventories,
net
|
|
|
87,696 |
|
|
|
85,999 |
|
|
|
106,850 |
|
Income
taxes refundable
|
|
|
- |
|
|
|
- |
|
|
|
642 |
|
Deferred
income taxes
|
|
|
2,989 |
|
|
|
2,963 |
|
|
|
11,551 |
|
Other
current assets
|
|
|
7,193 |
|
|
|
6,204 |
|
|
|
9,875 |
|
Assets
held for sale
|
|
|
- |
|
|
|
47 |
|
|
|
359 |
|
Total
current assets
|
|
|
191,901 |
|
|
|
189,714 |
|
|
|
235,585 |
|
Property,
plant and equipment, net
|
|
|
38,634 |
|
|
|
39,077 |
|
|
|
36,740 |
|
Deferred
income taxes
|
|
|
1,305 |
|
|
|
594 |
|
|
|
13,503 |
|
Goodwill
|
|
|
14,861 |
|
|
|
14,085 |
|
|
|
54,714 |
|
Other
intangible assets, net
|
|
|
6,329 |
|
|
|
6,442 |
|
|
|
6,654 |
|
Other
assets
|
|
|
5,452 |
|
|
|
5,157 |
|
|
|
7,155 |
|
Total
assets
|
|
$ |
258,482 |
|
|
$ |
255,069 |
|
|
$ |
354,351 |
|
Liabilities
And Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
notes payable
|
|
$ |
13,500 |
|
|
$ |
- |
|
|
$ |
72,000 |
|
Current
maturities of long-term debt
|
|
|
1 |
|
|
|
3 |
|
|
|
10,002 |
|
Accounts
payable
|
|
|
21,895 |
|
|
|
24,674 |
|
|
|
27,931 |
|
Accrued
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries,
wages and benefits
|
|
|
10,259 |
|
|
|
8,671 |
|
|
|
11,063 |
|
Accrued
discounts and returns
|
|
|
5,704 |
|
|
|
5,776 |
|
|
|
5,740 |
|
Accrued
interest payable
|
|
|
511 |
|
|
|
234 |
|
|
|
249 |
|
Income
taxes payable
|
|
|
926 |
|
|
|
1,318 |
|
|
|
- |
|
Other
|
|
|
12,820 |
|
|
|
14,637 |
|
|
|
15,509 |
|
Liabilities
held for sale
|
|
|
- |
|
|
|
76 |
|
|
|
24 |
|
Total
current liabilities
|
|
|
65,616 |
|
|
|
55,389 |
|
|
|
142,518 |
|
Long-term
debt, less current maturities
|
|
|
60,000 |
|
|
|
60,000 |
|
|
|
3 |
|
Deferred
income taxes
|
|
|
820 |
|
|
|
1,111 |
|
|
|
- |
|
Retirement
benefits
|
|
|
6,832 |
|
|
|
6,774 |
|
|
|
4,285 |
|
Other
liabilities
|
|
|
11,894 |
|
|
|
9,511 |
|
|
|
10,603 |
|
Total
liabilities
|
|
|
145,162 |
|
|
|
132,785 |
|
|
|
157,409 |
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock: none issued
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Common
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A shares issued:
January 2, 2009, 8,049,907;
October 3, 2008, 8,006,569;
December 28, 2007, 7,989,049
|
|
|
403 |
|
|
|
400 |
|
|
|
399 |
|
Class
B shares issued (convertible into Class A):
January
2, 2009, 1,216,464;
October
3, 2008, 1,216,464;
December
28, 2007, 1,217,977
|
|
|
61 |
|
|
|
61 |
|
|
|
61 |
|
Capital
in excess of par value
|
|
|
58,025 |
|
|
|
57,873 |
|
|
|
57,165 |
|
Retained
earnings
|
|
|
46,271 |
|
|
|
53,171 |
|
|
|
121,063 |
|
Accumulated
other comprehensive income
|
|
|
8,603 |
|
|
|
10,779 |
|
|
|
18,254 |
|
Treasury
stock at cost, 8,071 shares of Class A common stock
|
|
|
(43 |
) |
|
|
- |
|
|
|
- |
|
Total
shareholders' equity
|
|
|
113,320 |
|
|
|
122,284 |
|
|
|
196,942 |
|
Total
liabilities and shareholders' equity
|
|
$ |
258,482 |
|
|
$ |
255,069 |
|
|
$ |
354,351 |
|
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
JOHNSON
OUTDOORS INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(thousands)
|
|
Three
Months Ended
|
|
|
|
January
2
2009
|
|
|
December
28
2007
|
|
Cash
Used For Operating Activities
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(6,900 |
) |
|
$ |
(4,690 |
) |
Adjustments
to reconcile net loss to net cash used for operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,315 |
|
|
|
2,382 |
|
Amortization
of intangible assets
|
|
|
98 |
|
|
|
68 |
|
Amortization
of deferred financing costs
|
|
|
60 |
|
|
|
28 |
|
Stock
based compensation
|
|
|
112 |
|
|
|
142 |
|
Deferred
income taxes
|
|
|
(963 |
) |
|
|
(361 |
) |
Change
in operating assets and liabilities, net of effect of businesses
acquired
or sold:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(9,520 |
) |
|
|
(7,736 |
) |
Inventories,
net
|
|
|
(1,789 |
) |
|
|
(13,349 |
) |
Accounts
payable and accrued liabilities
|
|
|
(2,734 |
) |
|
|
(9,679 |
) |
Other
current assets
|
|
|
(948 |
) |
|
|
(888 |
) |
Other
non-current assets
|
|
|
(304 |
) |
|
|
(599 |
) |
Other
long-term liabilities
|
|
|
(970 |
) |
|
|
1,171 |
|
Other,
net
|
|
|
1,201 |
|
|
|
506 |
|
|
|
|
(20,342 |
) |
|
|
(33,005 |
) |
Cash
Used For Investing Activities
|
|
|
|
|
|
|
|
|
Payments
for purchase of business
|
|
|
- |
|
|
|
(5,977 |
) |
Additions
to property, plant and equipment
|
|
|
(1,965 |
) |
|
|
(2,386 |
) |
|
|
|
(1,965 |
) |
|
|
(8,363 |
) |
Cash
Provided By Financing Activities
|
|
|
|
|
|
|
|
|
Net
borrowings from short-term notes payable
|
|
|
13,500 |
|
|
|
50,000 |
|
Principal
payments on senior notes and other long-term debt
|
|
|
(2 |
) |
|
|
(10,800 |
) |
Deferred
financing costs paid to lenders
|
|
|
(1,196 |
) |
|
|
- |
|
Excess
tax benefits from stock based compensation
|
|
|
- |
|
|
|
15 |
|
Dividends
paid
|
|
|
(501 |
) |
|
|
(499 |
) |
Common
stock transactions
|
|
|
43 |
|
|
|
175 |
|
|
|
|
11,844 |
|
|
|
38,891 |
|
Effect
of foreign currency fluctuations on cash
|
|
|
1,082 |
|
|
|
426 |
|
Decrease
in cash and cash equivalents
|
|
|
(9,381 |
) |
|
|
(2,051 |
) |
Cash
And Cash Equivalents
|
|
|
|
|
|
|
|
|
Beginning
of period
|
|
|
41,791 |
|
|
|
39,232 |
|
End
of period
|
|
$ |
32,410 |
|
|
$ |
37,181 |
|
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
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 (the Company) as of January
2, 2009 and December 28, 2007 and the results of operations and cash flows
for
the three months ended January 2, 2009 and December 28, 2007. 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 October 3, 2008 which
was
filed with the Securities and Exchange Commission on January 2,
2009.
Because
of seasonal and other factors, the results of operations for the three months
ended January 2, 2009 are not necessarily indicative of the results to be
expected for the Company's full 2009 fiscal year.
All
monetary amounts, other than share and per share amounts, are stated in
thousands.
2 Discontinued
Operations
On
December 17, 2007, the Company’s management committed to a plan to divest the
Company’s Escape business and began to explore strategic alternatives for its
Escape brand products. In accordance with the provisions of Statement of
Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment
or
Disposal of Long-Lived Assets (“SFAS No. 144”), the results of operations
of the Escape business have been reported as discontinued operations in the
condensed consolidated statements of operations for the three month periods
ended January 2, 2009 and December 28, 2007, and in the condensed consolidated
balance sheets as of January 2, 2009, October 3, 2008, and December 28, 2007.
The Company recorded pre-tax and after-tax income related to the discontinued
Escape business of $41 during the quarter ended January 2, 2009 compared to
an
after tax loss of $1,066 during the quarter ended December 28, 2007. The pre-tax
and after-tax income for the quarter ended January 2, 2009 was the result of
disposing of the remaining Escape business lines. Net sales of the
Escape business were $0 and $77 during the three month periods ended January
2,
2009 and December 28, 2007, respectively. As of January 2, 2009, the
Company had completed the disposal of the Escape business.
3 Accounts
Receivable
Accounts
receivable are stated net of an allowance for doubtful accounts. The increase
in
net accounts receivable to $61,613 as of January 2, 2009 from $52,710 as of October 3, 2008
is
attributable to the seasonal nature of the Company's business. The determination
of the allowance for doubtful accounts is based on a combination of factors.
In
circumstances where specific collection concerns 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 for each business unit. Uncollectible accounts are written
off against the allowance for doubtful accounts after collection efforts have
been exhausted. The Company typically does not require collateral on its
accounts receivable.
4 Earnings
per Share
Net
income or loss per share of Class A common stock and Class B common stock is
computed in accordance with SFAS No. 128, Earnings per Share (“SFAS No.
128”), using the two-class method.
JOHNSON
OUTDOORS INC.
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. As such,
and
in accordance with Emerging Issues Task Force 03-06, Participating Securities
and the
Two-Class Method under FASB Statement No. 128 (“EITF 03-06”), 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
the
holders of each such class are entitled to receive.
Basic
EPS
Under
the
provisions of SFAS No. 128 and EITF 03-06, basic net income or loss per share
is
computed by dividing net income or loss by the weighted-average number of common
shares outstanding less any restricted stock. 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 the holders of each
such class are entitled to receive. In periods where there is a
cumulative year to date net loss or no undistributed income because
distributions through dividends exceeds net income, Class B shares are treated
as anti-dilutive and losses are allocated equally on a per share basis among
the
Class A and Class B shares.
For
the
three month periods ended January 2, 2009 and December 28, 2007, basic loss
per
share for Class A and Class B shares has been presented using the two class
method in accordance with EITF 03-06 and is the same due to the cumulative
net
losses incurred in each period presented.
Diluted
EPS
Diluted
net income per share is computed by dividing net income by the weighted-average
number of common shares outstanding, adjusted for the effect of dilutive stock
options and restricted stock using the treasury method. The computation of
diluted net income per share of common stock assumes that Class B common
stock is converted into Class A common stock. Therefore, diluted net
income per share is the same for both Class A and Class B shares. In
periods where the Company reports a net loss, the effect of anti-dilutive stock
options and restricted stock is excluded and diluted loss per share is equal
to
basic loss per share for both classes.
For
the
three month periods ended January 2, 2009 and December 28, 2007, the effect
of
stock options and restricted stock is excluded from the diluted loss per share
calculation as their inclusion would be anti-dilutive.
5 Stock-Based
Compensation and Stock Ownership Plans
The
Company’s current stock ownership plans provide for issuance of options to
acquire shares of Class A common stock by key executives and non-employee
directors. Current plans also allow for issuance of restricted stock or stock
appreciation rights in lieu of options. Shares available for grant to key
executives and non-employee directors were 449,549 at January 2,
2009.
Stock
Options
All
stock
options have been granted at a price not less than fair market value at the
date
of grant and become exercisable over periods of one to three years from the
date
of grant. Stock options generally have a term of 10 years.
All
of
the Company’s stock options outstanding are fully vested, with no further
compensation expense to be recorded. There were no grants of stock options
during the three months ended January 2, 2009.
JOHNSON
OUTDOORS INC.
A
summary
of stock option activity for the three months ended January 2, 2009 related
to
the Company’s plans is as follows:
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding
and exercisable at October 3, 2008
|
|
|
271,043 |
|
|
$ |
8.36 |
|
|
|
2.1 |
|
|
$ |
1,217 |
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
Exercised
|
|
|
(500 |
) |
|
|
7.42 |
|
|
|
|
|
|
|
1 |
|
Cancelled
|
|
|
(1,001 |
) |
|
|
9.69 |
|
|
|
|
|
|
|
- |
|
Outstanding
and exercisable at January 2, 2009
|
|
|
269,542 |
|
|
$ |
8.36 |
|
|
|
1.8 |
|
|
$ |
2 |
|
Restricted
Stock
All
shares of restricted stock awarded by the Company have been granted at their
fair market value on the date of grant and vest either immediately or in three
to five years after the grant date. The Company granted 50,909 and
29,432 shares of restricted stock with a total value of $325 and $658 during
the
three month periods ended January 2, 2009 and December 28, 2007,
respectively. Amortization expense related to restricted stock was
$112 and $142 during the three months ended January 2, 2009 and December 28,
2007, respectively. Unvested restricted stock issued and outstanding as of
January 2, 2009 totaled 114,649 shares, having a gross unamortized value of
$1,205, which will be amortized to expense through November 2013 or adjusted
for
changes in future estimated or actual forfeitures. Restricted stock
grantees may elect to reimburse the Company for withholding taxes due as a
result of the vesting of restricted shares by tendering a portion of the vested
shares back to the Company. Shares tendered back to the Company
totaled 8,071 for the three month period ended January 2, 2009.
A
summary
of unvested restricted stock activity for the three months ended January 2,
2009
related to the Company’s plans was as follows:
|
|
Shares
|
|
|
Weighted
Average
Grant
Price
|
|
Unvested
restricted stock at October 3, 2008
|
|
|
109,277 |
|
|
$ |
18.72 |
|
Restricted
stock grants
|
|
|
50,909 |
|
|
|
6.38 |
|
Restricted
stock vested
|
|
|
(45,537 |
) |
|
|
16.58 |
|
Unvested
restricted stock at January 2, 2009
|
|
|
114,649 |
|
|
$ |
14.09 |
|
Employees’
Stock
Purchase
Plan
The
Company’s employees’ stock purchase plan 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 at the end of the offering period,
whichever is lower. The grant period for the employee’s stock purchase plan
generally occurs during the Company’s second fiscal
quarter. Accordingly, no compensation expense was recognized during
the three month periods ended January 2, 2009 or December 28, 2007 in connection
with this plan. Shares available for purchase by employees under this
plan were 55,764 at
January 2, 2009.
JOHNSON
OUTDOORS INC.
6 Pension
Plans
The
components of net periodic benefit cost related to Company sponsored benefit
plans for the three months ended January 2, 2009 and December 28, 2007 were
as
follows:
|
|
Three
Months Ended
|
|
|
|
January
2
2009
|
|
|
December
28
2007
|
|
Components
of net periodic benefit cost:
|
|
|
|
|
|
|
Service
cost
|
|
$ |
171 |
|
|
$ |
158 |
|
Interest
on projected benefit obligation
|
|
|
268 |
|
|
|
251 |
|
Less
estimated return on plan assets
|
|
|
244 |
|
|
|
231 |
|
Amortization
of unrecognized:
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
15 |
|
|
|
23 |
|
Prior
service cost
|
|
|
1 |
|
|
|
- |
|
Transition
asset |
|
|
- |
|
|
|
- |
|
Net
amount recognized
|
|
$ |
211 |
|
|
$ |
203 |
|
7 Income
Taxes
The
Company’s provision for income taxes is based upon estimated annual effective
tax rates in the tax jurisdictions in which the Company operates. The Company’s
effective tax rate for the three months ended January 2, 2009 was 11.4%,
compared to 33.2%, in the corresponding period of the prior
year. During the first quarter of fiscal 2009, the Company recorded a
valuation allowance of $1,541 primarily against the net deferred tax assets
in
the jurisdictions of the United States, Japan, Switzerland, and the United
Kingdom. Key changes in the valuation allowance during the first
quarter of fiscal 2009 resulted from the reversal of the valuation allowance
for
the Company’s German operations, which resulted in a benefit of $1,800 and
establishing a valuation allowance for the Company’s Japanese operations which
resulted in $1,200 of additional tax expense. Items contributing to
changes in the effective tax rate versus the prior year quarter include changes
in the valuation allowance and mix of income from generally lower tax
jurisdictions in the prior year to relatively higher tax jurisdictions in the
current year.
Accounting
Principles Board Opinion No. 28, Interim Financial Reporting,
requires the Company to adjust its effective tax rate each quarter to be
consistent with the estimated annual effective tax rate. Under this
effective tax rate methodology, the Company applies an estimated annual income
tax rate to its year-to-date income or loss to derive its income tax provision
or benefit each quarter. The tax impact of certain significant,
unusual or infrequently occurring items must be recorded in the interim period
in which they occur. Circumstances may arise which make it difficult
for the Company to determine a reasonable estimate of its annual effective
tax
rate for the fiscal year. This is particularly true when small
variations in the projected earnings or losses could result in a significant
fluctuation in the estimated annual effective tax rate. In accordance
with FASB Interpretation No. 18, Accounting for Income Taxes
in
Interim Periods, the Company has determined that a reliable estimate of
its annual income tax rate cannot be made due to valuation allowances, and
that
the impact of the Company’s operations in the United States, Japan, New Zealand,
Spain, Switzerland, and the United Kingdom should be removed from the effective
tax rate methodology and recorded discretely based upon year-to-date
results. The effective tax rate methodology continues to be used for
the majority of the Company’s other foreign operations.
There
have been no material changes in unrecognized tax benefits as a result of tax
positions taken by the Company in the three months ended January 2,
2009. The Company estimates that the unrecognized tax benefits will
not change significantly within fiscal 2009. In accordance with its
accounting policy, the Company recognizes accrued interest and penalties related
to unrecognized tax benefits as a component of income tax expense. For the
three
months ended January 2, 2009, $8 of interest was recorded as a component of
income tax expense in the condensed consolidated statement of operations. At
January 2, 2009, $112 of accrued interest and penalties are included in the
condensed consolidated balance sheet.
JOHNSON
OUTDOORS INC.
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty
in Income
Taxes (“FIN 48”) effective in the quarter ending December 28, 2007 with
no impact on its consolidated financial statements.
The
Company is currently under examination by taxing authorities in the U.S. The
Company is not undergoing any tax examinations in any of its major foreign
jurisdictions. The U.S. examination may be resolved within the next
twelve months, but at this time it is not possible to estimate the amount of
impact of any changes to the previously recorded uncertain tax
positions. As of the adoption date of FIN 48, the tax years subject
to review in Switzerland, Italy, Germany, France, Canada, and Japan were the
years after 1998, 2004, 2005, 2006, 2004, and 2007, respectively.
8 Inventories
Inventories
at the end of the respective periods consist of the following:
|
|
January
2
2009
|
|
|
October
3
2008
|
|
|
December
28
2007
|
|
Raw
materials
|
|
$ |
30,185 |
|
|
$ |
30,581 |
|
|
$ |
38,592 |
|
Work
in process
|
|
|
2,171 |
|
|
|
2,834 |
|
|
|
3,964 |
|
Finished
goods
|
|
|
62,445 |
|
|
|
59,897 |
|
|
|
68,543 |
|
|
|
|
94,801 |
|
|
|
93,312 |
|
|
|
111,099 |
|
Less
inventory reserves
|
|
|
7,105 |
|
|
|
7,313 |
|
|
|
4,249 |
|
|
|
$ |
87,696 |
|
|
$ |
85,999 |
|
|
$ |
106,850 |
|
9 New
Accounting Pronouncements
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115 (“SFAS No. 159”). This standard permits an entity to elect to measure
many financial instruments and certain other items at fair value. The fair
value
option permits a company to choose to measure eligible items at fair value
at
specified election dates. Entities electing the fair value option would be
required to report unrealized gains and losses on items for which the fair
value
option has been elected in earnings after adoption. Entities electing the fair
value option would be required to distinguish, on the face of the balance sheet,
the fair value of assets and liabilities for which the fair value option has
been elected and similar assets and liabilities measured using another
measurement attribute. SFAS No. 159 became effective for the Company
on October 4, 2008. The Company elected not to measure any eligible
items using the fair value option in accordance with SFAS No. 159 and therefore,
SFAS No. 159 did not have an impact on the Company’s condensed consolidated
balance sheets, condensed consolidated statements of operations, or condensed
consolidated statements of cash flows.
JOHNSON
OUTDOORS INC.
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (“SFAS
No. 141(R)”). The objective of SFAS No. 141(R) is to improve the
information provided in financial reports about a business combination and
its
effects. SFAS No. 141(R) requires an acquirer to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that
date.
SFAS No. 141(R) also requires the acquirer to recognize and measure the
goodwill acquired in a business combination or a gain from a bargain purchase.
SFAS No. 141(R) will be applied on a prospective basis for business
combinations where the acquisition date is on or after the beginning of the
Company’s 2010 fiscal year.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in
Consolidated Financial Statements-an amendment of ARB No. 51 (“SFAS No.
160”). The objective of
SFAS No. 160 is to improve the financial information provided in
consolidated financial statements. SFAS No. 160 amends ARB No. 51 to
establish accounting and reporting standards for the noncontrolling interest
in
a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 also
changes the way the consolidated income statement is presented, establishes
a
single method of accounting for changes in a parent’s ownership interest in a
subsidiary that do not result in deconsolidation, requires that a parent
recognize a gain or loss in net income when a subsidiary is deconsolidated,
and
expands disclosures in the consolidated financial statements in order to clearly
identify and distinguish between the interests of the parent’s owners and the
interest of the noncontrolling owners of a subsidiary. SFAS No. 160 is
effective for the Company’s 2010 fiscal year. The Company does not anticipate
that SFAS No. 160 will have any material impact on its consolidated financial
statements.
In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133
(“SFAS No. 161”). SFAS No. 161 is intended to improve financial standards
for derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand the effect these
instruments and activities have on an entity’s financial position, financial
performance and cash flows. Entities are required to provide enhanced
disclosures about: how and why an entity uses derivative instruments; how
derivative instruments and related hedged items are accounted for under SFAS
No. 133 and its related interpretations; and how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance and cash flows. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company will adopt SFAS No. 161 beginning in
the second quarter of fiscal 2009. The Company does not believe the adoption
of
SFAS No. 161 will have a material impact on the Company’s consolidated
financial statements.
10 Acquisitions
On
November 16, 2007, the Company acquired 100% of the common stock of Geonav
S.r.l. (Geonav), a marine electronics company for approximately $5,646 (cash
of
$5,242 and transaction costs of $404). The acquisition was funded with existing
cash and borrowings under our credit facilities. Geonav is a major European
brand of chart plotters based in Viareggio, Italy. The Company believes that
the
purchase of Geonav will allow the Company to expand its product line and add
to
its marine electronics distribution channels in Europe. Also sold under the
Geonav brand are marine autopilots, VHF radios and fishfinders. Geonav is
included in the Company’s Marine Electronics segment.
JOHNSON
OUTDOORS INC.
The
following table summarizes the final allocation of the purchase price, fair
values of the assets acquired and liabilities assumed, and the resulting
goodwill acquired at the date of the Geonav acquisition, which resulted in
a
decrease in goodwill of $781.
Accounts
receivable
|
|
$ |
3,991 |
|
Inventories
|
|
|
3,291 |
|
Other
current assets
|
|
|
111 |
|
Property,
plant and equipment
|
|
|
429 |
|
Trademark
|
|
|
855 |
|
Customer
list
|
|
|
978 |
|
Goodwill
|
|
|
1,738 |
|
Total
assets acquired
|
|
|
11,393 |
|
Total
liabilities assumed
|
|
|
5,747 |
|
Net
purchase price
|
|
$ |
5,646 |
|
The
acquisition was accounted for using the purchase method and, accordingly, the
Company's condensed consolidated financial statements include the results of
operations of the Geonav business since the date of acquisition.
11 Goodwill
The
increases in goodwill assets during the three months ended January 2, 2009
and
December 28, 2007, respectively, are as follows:
|
|
January
2
2009
|
|
|
December
28
2007
|
|
Balance
at beginning of period
|
|
$ |
14,085 |
|
|
$ |
51,454 |
|
Amount
attributable to Geonav acquisition
|
|
|
- |
|
|
|
2,519 |
|
Amount
attributable to movements in foreign currencies
|
|
|
776 |
|
|
|
741 |
|
Balance
at end of period
|
|
$ |
14,861 |
|
|
$ |
54,714 |
|
During
the year ended October 3, 2008, the Company recorded an impairment of goodwill
of $39,603.
The
Company provides for warranties of certain products as they are sold. The
following table summarizes the Company's warranty activity for the three months
ended January 2, 2009 and December 28, 2007.
|
|
January
2
2009
|
|
|
December
28
2007
|
|
Balance
at beginning of period
|
|
$ |
4,361 |
|
|
$ |
4,290 |
|
Expense
accruals for warranties issued during the period
|
|
|
1,005 |
|
|
|
837 |
|
Less
current period warranty claims paid
|
|
|
1,130 |
|
|
|
975 |
|
Balance
at end of period
|
|
$ |
4,236 |
|
|
$ |
4,152 |
|
JOHNSON
OUTDOORS INC.
13 Interest
Rate Swap
The
Company uses interest rate swaps in order to maintain a mix of floating rate
and
fixed rate debt such that permanent working capital needs are largely funded
with fixed rate debt and seasonal working capital needs are funded with floating
rate debt. To manage this risk in a cost efficient manner, the Company enters
into interest rate swaps in which the Company agrees to exchange, at specified
intervals, the difference between fixed and variable interest amounts calculated
by reference to an agreed upon notional principal amount. The Company formally
documents all relationships between hedging instruments and hedged items, as
well as its risk-management objectives and strategies for understanding hedge
transactions. Interest rate swaps that meet specific conditions under SFAS
No.
133, Accounting for Derivative
Instruments and Hedging Activities (“SFAS No. 133”), are
accounted for as cash flow hedges. Under such accounting treatment, the
mark-to-market values of both the cash flow hedging instruments and the
underlying debt obligations are recorded as equal and offsetting gains and
losses in the interest expense component of the Company's condensed consolidated
statement of operations.
On
October 29, 2007 the Company entered into a forward starting interest rate
swap
(the “Swap”) with a notional amount of $60,000 receiving a floating three month
LIBOR interest rate while paying at a fixed interest rate of 4.685% over the
period beginning on December 14, 2007 and ending on December 14, 2012. Interest
is payable quarterly, starting on March 14, 2008. The Swap was
designated as a cash flow hedge and as of October 3, 2008, was expected to
be an
effective hedge against the impact on interest payments of changes in the
three-month LIBOR benchmark rate. The intent of the Swap was to lock
the interest rate on $60,000 of three-month floating rate LIBOR debt at 4.685%,
before applying the applicable margin. The market value of the Swap will rise
and fall as market expectations of future floating rate LIBOR interest rates
over the five year life of the Swap change in relation to the fixed rate of
4.685%. The Company values the Swap at period end and records the
effective portion of the Swap in accumulated other comprehensive income
(loss). Any ineffective portion is recorded in earnings.
On
December 29, 2008, the Company and JPMorgan Chase (“the Counterparty”) agreed to
amend the terms of the Swap contract to include an automatic termination clause,
which would cause the Swap to terminate on January 8, 2009. The Company
and the Counterparty negotiated a modification of the terms of the Swap to
accommodate the new debt agreements effective January 8, 2009 thus obviating
the
automatic termination. See Note 19 – Subsequent Events for a
discussion of changes in the Company’s interest rate swap positions since
January 2, 2009.
As
a
result of the amendment of the Company’s debt agreements which became effective
as of January 2, 2009, the Company prepared an analysis of the Swap in
respect of the new terms as of that date and concluded that the Swap was no
longer highly effective as a hedge against the impact on interest payments
of
changes in the three-month LIBOR benchmark rate due to the LIBOR floor provision
in the amended terms of the debt agreement. The effective portion of
the Swap prior to the modification will remain in accumulated other
comprehensive income (loss) and will be amortized as interest expense over
the
period of the originally designated hedged transactions. Future
changes in the fair value of the interest rate swap will be immediately
recognized in the consolidated statement of operations as interest
expense.
The
Swap
has been recorded as a liability at its fair value of $5,937 on January 2,
2009,
and as a component of accumulated other comprehensive income in shareholders
equity, in accordance with SFAS No. 133. The fair value of the Swap
on October 3, 2008 was a liability of $2,759. The loss on the Swap
increased by $3,178 during the three months ended January 2, 2009.
13 Comprehensive
Income (Loss)
Comprehensive
income (loss) includes net income (loss) and changes in shareholders’ equity
from non-owner sources. For the quarters ended January 2, 2009 and December
28,
2007, the difference between net loss and comprehensive income (loss) is due
to
cumulative foreign currency translation adjustments and the effect of recording
the fair value of an interest rate swap designated as a cash flow hedge.
Strengthening of worldwide currencies against the U.S. dollar created the
Company's translation adjustment income for the three months ended January
2,
2009 and December 28, 2007. The impact of the cash flow hedge on comprehensive
income (loss) was the result of changes in LIBOR rate futures over the remaining
four year life of the interest rate swap during the three month period ended
January 2, 2009.
JOHNSON
OUTDOORS INC.
Comprehensive
income (loss) for the respective periods consisted of the
following:
|
|
Three
Months Ended
|
|
|
|
January
2
2009
|
|
|
December
28
2007
|
|
Net
loss
|
|
$ |
(6,900 |
) |
|
$ |
(4,690 |
) |
Currency
translation adjustments
|
|
|
1,002 |
|
|
|
2,446 |
|
Loss
on cash flow hedge, net of tax
|
|
|
(3,178 |
) |
|
|
(811 |
) |
Comprehensive
income (loss)
|
|
$ |
(9,076 |
) |
|
$ |
(3,055 |
) |
15 Restructuring
Diving- Hallwil
In
March
2008, the Company announced plans to consolidate UWATEC dive computer
manufacturing and distribution at its existing facility in Batam, Indonesia
which, for the past nine years, was a sub-assembly site for UWATEC’s main
production in Hallwil, Switzerland. Batam operations were expanded
and upgraded to accommodate needed additional capacity. Consolidation
is focused on improving operating efficiencies and reducing inventory lead
times
and operating costs. The total costs incurred during the three month period
ended January 2, 2009 were $359, consisting of $93 of employee termination
costs, and $266 of other costs. The Company expects to incur an
additional $35 of employee termination costs and expects the total cost of
this
restructuring to be approximately $2,845 consisting of employee termination
costs and related costs of $953 and other costs of $1,892. The other
costs consist principally of project management, legal, moving and contract
termination costs. These charges were included in the “Administrative
management, finance and information systems” line in the Company’s condensed
consolidated statements of operations. This action impacted 35
employees, resulting in the elimination of 33 positions and the reassignment
of
2 employees to other roles in the Company.
The
following represents a reconciliation of the changes in restructuring reserves
related to this project through January 2, 2009.
|
|
Employee
Termination Costs
|
|
|
Other
Exit Costs
|
|
|
Total
|
|
Accrued
liabilities as of October 3, 2008
|
|
$ |
825 |
|
|
$ |
- |
|
|
$ |
825 |
|
Activity
during period ended January 2, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges
to earnings
|
|
|
93 |
|
|
|
266 |
|
|
|
359 |
|
Settlement
payments
|
|
|
(784 |
) |
|
|
(232 |
) |
|
|
(1,016 |
) |
Accrued
liabilities as of January 2, 2009
|
|
$ |
134 |
|
|
$ |
34 |
|
|
$ |
168 |
|
JOHNSON
OUTDOORS INC.
Outdoor
Equipment –
Binghamton
In
June
2008, the Company announced plans to restructure and downsize its Binghamton,
New York operations due to continued significant declines in sales of military
tents. The Company expects the total cost of this restructuring to be
$320, consisting entirely of employee termination costs. Payments of
$69 were made during the three months ended January 2,
2009. Approximately $23 of payments will be made in the second
quarter of fiscal 2009. These charges are included in the
“Administrative management, finance and information systems” line in the
Company’s Condensed Consolidated Statements of Operations. This
action resulted in the elimination of 27 positions.
The
following represents a reconciliation of the changes in restructuring reserves
related to this project through January 2, 2009.
|
|
Employee
Termination Costs
|
|
Accrued
liabilities as of October 3, 2008
|
|
$ |
92 |
|
Activity
during period ended January 2, 2009:
|
|
|
|
|
Charges
to earnings
|
|
|
6 |
|
Settlement
payments
|
|
|
75 |
|
Accrued
liabilities as of January 2, 2009
|
|
$ |
23 |
|
16 Litigation
The
Company is subject to various legal actions and proceedings in the normal course
of business, including those related to product liability and environmental
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.
On
July
10, 2007, after considering the costs, risks and business distractions
associated with continued litigation, the Company reached a settlement agreement
with Confluence Holdings Corp. that ended a long-standing intellectual property
dispute between the two companies. The Company has made a claim with its
insurance carriers to recover the $4,400 settlement payment, plus defense costs
(approximately $900). This matter is presently the subject of litigation in
the
U.S. District Court for the Eastern District of Wisconsin. The Company is unable
to estimate at this time the amount of insurance recovery and, accordingly,
has
not recorded a receivable for this matter.
17 Long
Term Debt Issuance
On
February 12, 2008, the Company entered into a term loan agreement, with JPMorgan
Chase Bank N.A., as lender and agent, for the other lenders named therein (“the
lending group”). This term loan agreement consisted of a $60,000 term loan
maturing on February 12, 2013, bearing interest at a three month LIBOR rate
plus
an applicable margin. The applicable margin was based on the Company’s ratio of
consolidated debt to earnings before interest, taxes, depreciation and
amortization (EBITDA) and varied between 1.25% and 2.00%. On the same date,
the
Company entered into an amended and restated revolving credit agreement with
the
lending group. This amendment updated the Company’s October 7, 2005
revolving credit facility to allow for the term loan and to amend the financial
covenants in the revolving credit facility. At October 3, 2008, the
margin in effect was 2.00% for LIBOR loans. On the same date, the
Company entered into an amended and restated credit agreement, with the lending
group. This amendment updated the Company’s October 7, 2005 revolving
credit facility to allow for the term loan and to amend the financial covenants
in the revolving credit facility.
JOHNSON
OUTDOORS INC.
The
term
loan agreement requires the Company to comply with certain financial
and non-financial covenants. Among other restrictions, the Company is
restricted in its ability to pay dividends, incur additional debt and make
acquisitions above certain amounts. The key financial covenants include minimum
fixed charge coverage and maximum leverage ratios. The most significant changes
to the previous covenants include the minimum fixed charge coverage ratio
increasing from 2.00 to 2.25 and the pledge of 65% of the shares of material
foreign subsidiaries.
As
of
October 3, 2008, the Company was in violation of certain of its covenants and
on
October 13, 2008, the Company entered into an omnibus amendment of its term
loan
agreement and revolving credit facility effective as of October 3, 2008 with
the
lending group. On the same date, the Company also entered into a
security agreement with the lending group which resulted in certain inventories
and receivables being used as collateral. The omnibus amendment
temporarily modified certain provisions of the Company’s term loan
agreement and revolving credit facility.
The
omnibus amendment reset the applicable margin on the LIBOR based debt at
3.25%. Under the terms of the omnibus amendment, certain financial
and non-financial covenants were modified, including restrictions on the
Company’s ability to increase the amount or frequency of dividends, a
restriction in the aggregate amount of acquisitions to no more than $2,000,
adjustments to the maximum leverage ratio which could not exceed 5.0 to 1.0
and
adjustments to the minimum fixed charge coverage ratio which could not be less
than 1.75 to 1.0 for the quarter ended October 3, 2008. In addition,
the definition of consolidated EBITDA was modified to exclude certain non-cash
items. The omnibus amendment did not reset the net worth covenant and the
Company was in violation with this covenant as of October 3,
2008.
On
December 31, 2008, the Company entered into an amended and restated term loan
agreement and an amended and restated revolving credit facility agreement
with the lending group, effective January 2, 2009. Changes to the
term loan include shortening the maturity date to October 7, 2010, adjusting
financial covenants and adjusting interest rates. The revised term
loan bears interest at a LIBOR rate plus 5.00% with a LIBOR floor of
3.50%. The amended and restated revolving credit facility reduced the
Company’s borrowing availability from $75,000 to $35,000, with an additional
reduction of $5,000 required by January 31, 2009. The maturity date
of the revolving credit facility remains unchanged at October 7, 2010 and
outstanding borrowings under this facility bear interest at LIBOR plus
4.50%. The amended and restated debt agreements provide for collateral of
fixed assets and intellectual properties in the United States, in addition
to
certain inventories and accounts receivable already pledged under the omnibus
amendment. The revolving credit facility is limited to a borrowing base
calculated at 70% of accounts receivable and 55% of inventory for the months
of
October through January, and 50% of accounts receivable and 50% of inventory
for
the other months of the year, which are further reduced by other outstanding
borrowings.
The
modification of the term loan agreement on January 2, 2009 did not qualify
as a
significant modification under EITF 96-19. As such, previously
capitalized deferred financing costs remain capitalized and additional costs
paid to the lenders of $1,196 were capitalized. The modification of
the revolving credit facility was accounted for under EITF 98-14 and resulted
in
a lower borrowing capacity. Accordingly, deferred financing costs of
$32 were written off during the three month period ended January 2,
2009.
At
January 2, 2009, the Company had borrowings of $13,500 outstanding under the
revolving credit facility.
JOHNSON
OUTDOORS INC.
18 Fair
Value Measurements
Fair
value is defined under SFAS 157 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 under SFAS 157 must maximize the use of observable inputs
and minimize the use of unobservable inputs. The standard established a fair
value hierarchy 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.
|
|
|
●
|
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
following table summarizes the Company’s financial assets and liabilities
measured at fair value on a recurring basis in accordance with SFAS 157 as
of January 2, 2009:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$ |
- |
|
|
$ |
5,937 |
|
|
$ |
- |
|
|
$ |
5,937 |
|
The
fair
value of the derivatives reported above were measured using the market value
approach.
19 Subsequent
Events
On
January 8, 2009, the Company entered into an agreement to modify the terms
of
its October 29, 2007 $60,000 forward starting interest rate swap (“Swap A”) by
shortening the maturity date from December 14, 2012 to December 14,
2011. The Company paid JPMorgan Chase (“the Counterparty”) $1,239,
which was the agreed upon fair value of the net payments that would no longer
be
required under Swap A as a result of the shortened term.
In
addition, on January 8, 2009, the Company entered into two new interest rate
swaps in order to eliminate the potential for further losses or gains on Swap
A:
●
|
a
receive fixed / pay floating interest rate swap with a term commencing
on
September 14, 2010 and ending on December 14, 2011 (“Swap
B”). Under the terms of Swap B, the Company will receive fixed
rate interest at 2.170% and will pay floating rate interest at three
month
LIBOR. The notional amount of Swap B is
$60,000. Swap B includes an automatic termination feature,
which will cause Swap B to terminate on May 11, 2009 and at the same
time,
will shorten the maturity date of Swap A from December 14, 2011 to
September 14, 2010, unless it is modified prior to
termination. The effect of Swap B is to lock in the net
undiscounted cash flows required to be paid by the Company under
Swap A
for the five quarterly swap periods ending on December 14,
2011. If Swap B were to terminate on May 11, 2009, it would
require an immediate payment of approximately $2,200 including related
fees.
|
JOHNSON
OUTDOORS INC.
●
|
a
receive fixed / pay floating interest rate swap with a term commencing
on
December 15, 2008 and ending on September 14, 2010 (“Swap
C”). Under the terms of Swap C, the Company will receive fixed
rate interest at 1.310% and will pay floating rate interest at three
month
LIBOR. The notional amount of Swap C is
$60,000. Swap C includes an automatic termination feature which
will cause Swap C to terminate on September 14, 2009 and at the same
time,
will shorten the maturity date of Swap A from September 14, 2010
to
September 14, 2009, unless it is modified prior to
termination. The effect of Swap C is to lock in the net
undiscounted cash flows required to be paid by the Company under
Swap A
for the seven quarterly swap periods ending on September 14, 2010
at
approximately $4,000 including related fees. If Swap C were to
terminate on September 14, 2009, it would require an immediate payment
of
approximately $2,400 including related fees.
|
20 Segments
of Business
The
Company conducts its worldwide operations through separate business units,
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. The Company had no single customer that represented more than
10%
of its total net sales during the three month periods ended January 2, 2009
and
December 28, 2007.
Net
sales
and operating profit include both sales to customers, as reported in the
Company's 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.
A
summary
of the Company’s operations by business unit is presented
below:
|
|
Three
Months Ended
|
|
|
|
January
2
2009
|
|
|
December
28
2007
|
|
Net
sales:
|
|
|
|
|
|
|
Marine
electronics:
|
|
|
|
|
|
|
Unaffiliated
customers
|
|
$ |
31,967 |
|
|
$ |
33,255 |
|
Interunit
transfers
|
|
|
11 |
|
|
|
8 |
|
Outdoor
equipment:
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
|
|
11,225 |
|
|
|
7,975 |
|
Interunit
transfers
|
|
|
12 |
|
|
|
10 |
|
Watercraft:
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
|
|
11,040 |
|
|
|
13,439 |
|
Interunit
transfers
|
|
|
7 |
|
|
|
15 |
|
Diving:
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
|
|
15,473 |
|
|
|
21,240 |
|
Interunit
transfers
|
|
|
77 |
|
|
|
290 |
|
Other/Corporate
|
|
|
51 |
|
|
|
58 |
|
Eliminations
|
|
|
(107 |
) |
|
|
(323 |
) |
|
|
$ |
69,756 |
|
|
$ |
75,967 |
|
Operating
profit:
|
|
|
|
|
|
|
|
|
Marine
electronics
|
|
$ |
(969 |
) |
|
$ |
263 |
|
Outdoor
equipment
|
|
|
925 |
|
|
|
(382 |
) |
Watercraft
|
|
|
(1,599 |
) |
|
|
(2,113 |
) |
Diving
|
|
|
(1,197 |
) |
|
|
560 |
|
Other/Corporate
|
|
|
(2,383 |
) |
|
|
(2,909 |
) |
|
|
$ |
(5,223 |
) |
|
$ |
(4,581 |
) |
Total
assets (end of period):
|
|
|
|
|
|
|
|
|
Marine
electronics
|
|
$ |
97,453 |
|
|
$ |
120,885 |
|
Outdoor
equipment
|
|
|
23,228 |
|
|
|
28,247 |
|
Watercraft
|
|
|
48,144 |
|
|
|
63,029 |
|
Diving
|
|
|
76,599 |
|
|
|
120,248 |
|
Other/Corporate
|
|
|
13,058 |
|
|
|
21,583 |
|
Assets
held for sale
|
|
|
- |
|
|
|
359 |
|
|
|
$ |
258,482 |
|
|
$ |
354,351 |
|
JOHNSON
OUTDOORS INC.
Item
2 Management's Discussion and
Analysis of Financial Condition and Results of Operations
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
(the Company) as of and for the three months ended January 2, 2009 and December
28, 2007. All monetary amounts, other than share and per share amounts, are
stated in millions.
Our
MD&A is presented in the following sections:
●
|
Forward
Looking Statements
|
●
|
Trademarks
|
●
|
Overview
|
●
|
Results
of Operations
|
●
|
Financial
Condition
|
●
|
Obligations
and Off Balance Sheet Arrangements
|
●
|
Market
Risk Management
|
●
|
Critical
Accounting Policies and Estimates
|
●
|
New
Accounting Pronouncements
|
Our
MD&A 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 October 3,
2008 which was filed with the Securities and Exchange Commission on January
2,
2009.
Forward
Looking Statements
Certain
matters discussed in this Form 10-Q are “forward-looking statements,” and the
Company intends these forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and is including this statement for
purposes of those safe harbor provisions. These forward-looking statements
can
generally be identified as such because the context of the statement includes
phrases such as the Company “expects,” “believes” or other words of similar
meaning. Similarly, statements that describe the Company’s future plans,
objectives or goals are also forward-looking statements. Such forward-looking
statements are subject to certain risks and uncertainties which could cause
actual results or outcomes to differ materially from those currently
anticipated. Factors that could affect actual results or outcomes include the
matters described under the caption "Risk Factors" in Item 1A of the
Company’s Annual Report on Form 10-K for the fiscal year ended October 3, 2008
which was filed with the Securities and Exchange Commission on January 2, 2009
and the following: changes in consumer spending patterns; the
Company’s success in implementing its strategic plan, including its focus on
innovation; actions of and disputes with companies that compete with the
Company; the Company’s success in managing inventory; the risk that the
Company’s lenders may be unwilling to provide a waiver or amendment if the
Company is in violation of its financial covenants and the cost to the Company
of obtaining any waiver or amendment that the lenders would be willing to
provide; the risk of future writedowns of goodwill or other intangible assets;
movements in foreign currencies or interest rates; the Company’s success in
restructuring its Watercraft operations; the success of suppliers and customers;
the ability of the Company to deploy its capital successfully; adverse weather
conditions; and other risks and uncertainties provided in the Company’s filings
with the Securities and Exchange Commission. 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.
JOHNSON
OUTDOORS INC.
Trademarks
We
have
registered the following trademarks, which may be used in this
report: Minn Kota®, Cannon®, Humminbird®, Bottom Line®, Fishin'
Buddy®, Silva®, Eureka!®, Geonav®, Old Town®, Ocean Kayak™, Necky®, Escape®,
Lendal®, Extrasport®, Carlisle®, Scubapro®, UWATEC® and Seemann™.
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 management
believes its brands enjoy a premium reputation among outdoor recreation
enthusiasts and novices alike. Company values and culture support
entrepreneurism in all areas, promoting and leveraging best practices and
synergies within and across its subsidiaries to advance the Company’s strategic
vision set by executive management and approved by the Board of
Directors. The Company is controlled by Helen P. Johnson-Leipold,
Chairman and Chief Executive Officer, members of her family and related
entities.
Highlights
Quarterly
sales are typically lowest during the first quarter of the fiscal year as the
Company ramps up production in preparation for the primary selling season for
its outdoor recreational products. The 8.2% decrease in net
sales for the quarter ended January 2, 2009 over the same period in the prior
year resulted primarily from weak economic conditions and declines in consumer
spending.
Key
changes in the quarter included:
▪
|
Marine
Electronics sales decreased 3.9% from the prior year quarter largely
due
to a soft domestic boat market, partially offset by incremental sales
from
the Geonav business which was acquired in November,
2007.
|
▪
|
Watercraft
sales were down 17.9% versus the prior year quarter due primarily
to the
effect of economic uncertainty in the retail
marketplace.
|
▪
|
Diving
sales were down 27.8% primarily due to slowing economies in key
international markets.
|
▪
|
Outdoor
Equipment sales were up 40.7% from the prior year quarter as sales
gains
were realized in all categories of the
business.
|
Gross
profit margins were 36.0% for the quarter ended January 2, 2009, compared to
38.6% in the prior year quarter, due primarily to lower production volumes
and
an unfavorable product mix at Watercraft, and currency impacts on purchased
product, lower production volumes, and close out sales in Diving.
Operating
expenses for the quarter ended January 2, 2009 were down $3.5 million from
the
prior year quarter driven primarily by aggressive cost savings initiatives
and
no incentive compensation expenses in the current year quarter versus an expense
of $1.6 million in the prior year quarter, which cost reductions were partially
offset by $0.4 million of costs associated with the relocation of dive computer
manufacturing.
Seasonality
The
Company’s business is seasonal in nature. Quarterly sales are typically lowest
during the first quarter of the fiscal year as the Company ramps up production
in preparation for the primary selling season for its outdoor recreational
products. The table below sets forth a historical view of the Company’s
seasonality during the last three fiscal years.
JOHNSON
OUTDOORS INC.
Year
Ended
|
|
|
|
October
3, 2008
|
|
|
September
28, 2007
|
|
|
September
29, 2006
|
|
Quarter
Ended
|
|
Net
Sales
|
|
|
Operating
Profit
(loss)
|
|
|
Net
Sales
|
|
|
Operating
Profit
(loss)
|
|
|
Net
Sales
|
|
|
Operating
Profit
(loss)
|
|
December
|
|
|
18 |
% |
|
|
(12 |
)% |
|
|
17 |
% |
|
|
(11 |
)% |
|
|
19 |
% |
|
|
(1 |
)% |
March
|
|
|
29 |
|
|
|
10 |
|
|
|
28 |
|
|
|
23 |
|
|
|
27 |
|
|
|
38 |
|
June
|
|
|
34 |
|
|
|
38 |
|
|
|
35 |
|
|
|
74 |
|
|
|
34 |
|
|
|
62 |
|
September
|
|
|
19 |
|
|
|
(136 |
) |
|
|
20 |
|
|
|
14 |
|
|
|
20 |
|
|
|
(1 |
) |
|
|
|
100 |
% |
|
|
(100 |
)% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Results
of Operations
The
Company’s net sales and operating profit (loss) by segment are summarized as
follows:
(millions)
|
|
Three
Months Ended
|
|
|
|
January
2
2009
|
|
|
December
28
2007
|
|
Net
sales:
|
|
|
|
|
|
|
Marine
Electronics
|
|
$ |
32.0 |
|
|
$ |
33.3 |
|
Outdoor
Equipment
|
|
|
11.2 |
|
|
|
8.0 |
|
Watercraft
|
|
|
11.1 |
|
|
|
13.5 |
|
Diving
|
|
|
15.6 |
|
|
|
21.5 |
|
Other/eliminations
|
|
|
(0.1 |
) |
|
|
(0.3 |
) |
Total
|
|
$ |
69.8 |
|
|
$ |
76.0 |
|
Operating
profit (loss):
|
|
|
|
|
|
|
|
|
Marine
Electronics
|
|
$ |
(0.9 |
) |
|
$ |
0.3 |
|
Outdoor
Equipment
|
|
|
0.9 |
|
|
|
(0.4 |
) |
Watercraft
|
|
|
(1.6 |
) |
|
|
(2.1 |
) |
Diving
|
|
|
(1.2 |
) |
|
|
0.6 |
|
Other/eliminations
|
|
|
(2.4 |
) |
|
|
(3.0 |
) |
Total
|
|
$ |
(5.2 |
) |
|
$ |
(4.6 |
) |
See
Note
20 of the notes to the condensed consolidated financial statements for the
definition of segment net sales and operating profits.
JOHNSON
OUTDOORS INC.
Net
Sales
Net
sales on a consolidated basis for
the three months ended
January 2, 2009
were
$69.8
million,
a decrease of $6.2 million
compared to
$76.0 million for the three
months ended December 28,
2007.
Net
sales for the three months
ended January 2,
2009 for the Marine
Electronics business were $32.0 million
down $1.3 million or 3.9% from
$33.3 million in the prior
year quarter. This decrease
was due to general economic conditions and weakness in the domestic boat market,
which reduced demand for trolling motors and downriggers, and unfavorable volume
comparisons due to initial stocking of new products in the prior year. This
weakness was partially offset by incremental
sales from the Geonav business
acquired during the first quarter of fiscal year 2008, and higher sales of
Humminbird fishfinder / GPS combo units.
Net
sales for the Watercraft business
were $11.1
million,
a decrease of $2.4 million
or 17.9%, compared to $13.5
million in the prior year quarter,
which was primarily due to weak economic
conditions
and softening paddlesports
markets.
Net
sales for the Outdoor Equipment
business were $11.2 million
for
the current quarter,
an increase
of $3.2
million
or 40.7%
from
the prior year quarter sales
of $8.0 million.
Military tent sales were up $2.0
million,
commercial tent sales were
up $0.4 million,
consumer tent sales were up $0.6
million and international sales were up $0.2 million.
Net
sales for the Diving business were
$15.6 million this
quarter, versus $21.5 million in
the prior year quarter, a
decrease of
$5.9
million
or 27.8%.
The
decrease
was due largely to slowing
economies
in key international markets and unfavorable currency translation which had
a
negative 5% impact on revenues.
Gross
Profit
Margin
Gross
profit as a percentage of net sales was 36.0% on a consolidated basis for the
quarter ended January 2, 2009 compared to 38.6% in the prior year quarter.
The
decline in gross profit margin was primarily due to lower production volume
and
unfavorable product mix at Watercraft and lower margins in Diving due to
currency impacts on purchased product, lower production volumes, and close
out
sales.
Operating
Expenses
Operating
expenses were $30.3 million for the quarter ended January 2, 2009, a decrease
of
$3.6 million over the prior year quarter amount of $33.9 million. Primary
factors were aggressive cost savings initiatives, no incentive compensation
expenses in the current year quarter versus an expense of $1.6 million in the
prior year quarter, and favorable foreign currency exchange translation of
$0.9
million in the current year quarter. These factors were partially
offset by $0.4 million of costs associated with the relocation of dive computer
manufacturing to Indonesia and incremental operating expenses from the Geonav
business acquired in November 2007.
Operating
Loss
Operating
loss on a consolidated basis for the three months ended January 2, 2009 was
$5.2
million compared to an operating loss of $4.6 million in the prior year
quarter. The increase in the Company’s operating loss in the current
period over the prior year period was primarily due to the factors impacting
gross profit and operating expenses discussed above.
JOHNSON
OUTDOORS INC.
Other
Income and
Expense
Interest
expense totaled $1.6 million for the three months ended January 2, 2009,
compared to $1.1 million in the corresponding period of the prior year, which
was due to increased interest rates on the Company’s outstanding
debt.
Interest
income was $0.1 million for the three months ended January 2, 2009 compared
to
$0.3 million for the three months ended December 28, 2007. Other expense
included a $1.1 million foreign currency exchange loss for the three month
period ended January 2, 2009. Foreign currency exchange losses were
$0.3 million for the three month period ended December 28, 2007.
Income
Tax
Expense
The
Company’s provision for income taxes is based upon estimated annual effective
tax rates in the tax jurisdictions in which the Company operates. The Company’s
effective tax rate for the three months ended January 2, 2009 was 11.4%,
compared to 33.2.%, in the corresponding periods of the prior year. Significant
items contributing to changes in the effective rate versus the prior year
quarter include the release of the valuation allowance in Germany based on
improvement in earnings, offset by the establishment of a valuation allowance
in
Japan and the mix of income from generally lower tax jurisdictions in the prior
year to relatively higher tax jurisdictions in the current year.
Discontinued
Operations
On
December 17, 2007, the Company committed to a plan to divest the Company’s
Escape business. In accordance with the provisions of Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment
or
Disposal of Long-Lived Assets, the operations of the Escape business have
been reported as discontinued operations in the consolidated financial
statements for the fiscal years ended October 3, 2008, September 28, 2007,
and
September 29, 2006. The Company recorded after tax losses related to
the discontinued Escape business of $1.1 million during the three month period
ended December 28, 2007, and a slight gain in the three month period ended
January 2, 2009.
Net
Loss
Net
loss
for the three months ended January 2, 2009 was $6.9 million, or ($0.76) per
diluted common class A and B share, compared to a net loss of $4.7 million,
or
($0.52) per diluted common class A and B share, for the corresponding period
of
the prior year due to the factors discussed above.
Financial
Condition
Accounts
receivable net of allowance for doubtful accounts were $61.6 million as of
January 2, 2009, a decrease of $7.5 million compared to $69.1 million as of
December 28, 2007. The decrease year over year was due to lower sales and the
effect of foreign currency translation of $1.8 million.
Inventories
were $87.7 million as of January 2, 2009, a decrease of $19.2 million compared
to $106.9 million as of December 28, 2007. The decrease year over year was
due
to the effect of foreign currency translation of $1.6 million and a concerted
effort by the Company to reduce working capital levels through strict controls
and improved processes.
Accounts
payable were $21.9 million compared to $27.9 million as of December 28, 2007.
The decrease year over year was due to the effect of comparatively higher
business activity and extended vendor payment cycles in fiscal
2008.
JOHNSON
OUTDOORS INC.
The
Company's debt-to-total capitalization ratio has increased to 39% as of January
2, 2009 from 29% as of December 28, 2007. The Company’s debt balance was $73.5
million as of January 2, 2009 compared to $82.0 million as of December 28,
2007. Shareholders’ equity decreased $83.1 million year over year,
due to the effect of net losses and the change in currency translation
adjustments as the weakening of foreign currencies against the U.S. dollar
increased the net book value of the Company’s foreign currency denominated
subsidiaries.
The
Company’s cash flow from operating, investing and financing activities, as
reflected in the condensed consolidated statements of cash flows, is summarized
in the following table:
(millions)
|
|
Three
Months Ended
|
|
|
|
January
2
2009
|
|
|
December
28
2007
|
|
Cash
provided by (used for):
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
(20.3 |
) |
|
$ |
(33.0 |
) |
Investing
activities
|
|
|
(2.0 |
) |
|
|
(8.4 |
) |
Financing
activities
|
|
|
11.8 |
|
|
|
38.9 |
|
Effect
of exchange rate changes
|
|
|
1.1 |
|
|
|
.4 |
|
Decrease
in cash and cash equivalents
|
|
$ |
(9.4 |
) |
|
$ |
(2.1 |
) |
Operating
Activities
Cash
flows used for operations totaled $20.3 million for the three months ended
January 2, 2009 compared with $33.0 million used for operations during the
corresponding period of the prior fiscal year.
Accounts
receivable increased $9.5 million for the three months ended January 2, 2009,
up
from a $7.7 million increase in the prior fiscal year period. Inventories
decreased by $1.8 million for the three months ended January 2, 2009 compared
to
an increase of $13.3 million in the prior year period. The year to date change
in inventory year over year was due to concerted efforts to enhance controls
and
processes to bring down working capital levels and the effect of reduced
production activity in the current year. Accounts payable and accrued
liabilities decreased $2.7 million for the three months ended January 2, 2009
versus a decrease of $9.7 million for the corresponding period of the prior
year. The year to date change in accounts payable year over year reflects slower
inventory growth in the current fiscal year.
Including
the amortization of deferred finance costs, depreciation and amortization
charges were $2.5 million for the three month periods ended January 2, 2009
and
December 28, 2007.
Investing
Activities
Cash
used
for investing activities totaled $2.0 million for the three months ended January
2, 2009 and $8.4 million for the corresponding period of the prior year. Capital
expenditures totaled $2.0 million for the three months ended January 2, 2009
and
$2.4 million for the corresponding period of the prior year. The Company’s
recurring investments are made primarily for tooling for new products and
enhancements on existing products. In fiscal 2009, the Company's capital
expenditures are anticipated to be lower than prior year levels as the Company
completed leasehold improvements as well as new ERP systems in its Canadian
and
domestic Outdoor Equipment businesses in fiscal 2008. Any
expenditures in fiscal 2009 are expected to be funded by working capital or
existing credit facilities.
On
November 16, 2007, the Company acquired 100% of the outstanding common stock
of
Geonav S.r.l. (Geonav), a marine electronics company located in Viareggio,
Italy, for approximately $5.6 million (cash of $5.2 million and transaction
costs of $0.4 million). The acquisition was funded with existing cash and
borrowings under our credit facilities.
JOHNSON
OUTDOORS INC.
Financing
Activities
Cash
flows provided by financing activities totaled $11.8 million for the three
months ended January 2, 2009 and $38.9 million for the corresponding period
of
the prior year. The Company made principal payments on senior notes and other
long-term debt of $0.2 million and $10.8 million during the three month periods
ended January 2, 2009 and December 28, 2007, respectively.
The
Company had outstanding borrowings on revolving credit facilities of $13.5
million as of January 2, 2009 versus $72.0 million as of December 28,
2007.
On
February 12, 2008, the Company entered into a term loan agreement with JPMorgan
Chase Bank N.A., as lender and agent for the other lenders named therein (the
"lending group"). This term loan agreement consisted of a $60.0 million term
loan maturing on February 12, 2013, bearing interest at a three month LIBOR
rate
plus an applicable margin. The applicable margin was based on the Company’s
ratio of consolidated debt to earnings before interest, taxes, depreciation
and
amortization (EBITDA) and varied between 1.25% and 2.00%. At October 3, 2008,
the margin in effect was 2.00% for LIBOR loans. Also on February 12,
2008, the Company entered into an amended and restated revolving credit
agreement with the lending group. This amendment updated the
Company’s October 7, 2005 revolving credit facility to allow for the term loan
and to amend the financial covenants in the revolving credit
facility.
On
October 13, 2008, the Company entered into an Omnibus Amendment of its term
loan
agreement and revolving credit facility effective as of October 3, 2008 with
the
lending group. On the same date, the Company also entered into a Security
Agreement with the lending group. The Omnibus Amendment temporarily modified
certain provisions of the Company’s term loan agreement and revolving credit
facility. The Security Agreement was granted in favor of the lending group
and
covers certain inventory and accounts receivable.
The
Omnibus Amendment reset the applicable margin on the LIBOR based debt at 3.25%.
Under the terms of the Omnibus Amendment, certain financial and non-financial
covenants were modified, including restrictions on the Company’s ability to
increase the amount or frequency of dividends, a restriction in the aggregate
amount of acquisitions to no more than $2.0 million, adjustments to the maximum
leverage ratio which cannot exceed 5.0 to 1.0 and adjustments to the minimum
fixed charge coverage ratio which cannot be less than 1.75 to 1.0 for the
quarter ended October 3, 2008. In addition, the definition of consolidated
EBITDA was modified to exclude certain non-cash items. The Omnibus
Amendment did not reset the net worth covenant and the Company was in
non-compliance with this covenant as of October 3, 2008.
On
December 31, 2008, the Company entered into an amended and restated term loan
agreement and an amended and restated revolving credit facility agreement
with the lending group, effective January 2, 2009. Changes to the
term loan include shortening the maturity date to October 7, 2010, adjusting
financial covenants and adjusting interest rates. The revised term
loan bears interest at a LIBOR rate plus 5.00% with a LIBOR floor of
3.50%. The amended and restated revolving credit facility reduced the
Company’s borrowing availability from $75.0 million to $35.0 million, with an
additional reduction of $5.0 million required by January 31,
2009. The maturity date of the revolving credit facility remains
unchanged at October 7, 2010 and outstanding borrowings under this facility
bear
interest at LIBOR plus 4.50%. The amended and restated debt agreements
provide for collateral of fixed assets and intellectual properties in the United
States, in addition to certain inventories and accounts receivable already
pledged under the Omnibus Amendment. The revolving credit facility is
limited to a borrowing base calculated at 70% of accounts receivable and 55%
of
inventory for the months of October through January, and 50% of accounts
receivable and 50% of inventory for the other months of the year, which are
further reduced by other outstanding borrowings.
On
October 29, 2007 the Company entered into a forward starting interest rate
swap
(the “Swap”) with a notional amount of $60.0 million receiving a floating three
month LIBOR interest rate while paying at a fixed interest rate of 4.685% over
the period beginning on December 14, 2007 and ending on December 14, 2012.
Interest is payable quarterly, starting on March 14, 2008. The Swap
was designated as a cash flow hedge and as of October 3, 2008, was expected
to
be an effective hedge against the impact on interest payments of changes in
the
three-month LIBOR benchmark rate. The intent of the Swap was to lock
the interest rate on $60.0 million of three-month floating rate LIBOR debt
at
4.685%, before applying the applicable margin. The market value of the Swap
will
rise and fall as market expectations of future floating rate LIBOR interest
rates over the five year life of the Swap change in relation to the fixed rate
of 4.685%.
JOHNSON
OUTDOORS INC.
On
December 29, 2008, the Company and JPMorgan Chase (“the Counterparty”) agreed to
amend the terms of the Swap contract to include an automatic termination clause
which would cause the Swap to terminate on January 8, 2009. The Company
and the Counterparty negotiated a modification of the terms of the Swap to
accommodate the new debt agreements effective January 8, 2009 thus obviating
the
automatic termination. See Note 19 – Subsequent Events for a
discussion of changes in the Company’s interest rate swap positions since
January 2, 2009.
As
a
result of the amendment of the Company’s debt agreements which became effective
as of January 2, 2009, the Company prepared an analysis of the Swap in
respect of the new terms as of that date and concluded that the Swap was no
longer highly effective as a hedge against the impact on interest payments
of
changes in the three-month LIBOR benchmark rate due to the LIBOR floor provision
in the amended terms of the debt agreement. The effective portion of
the Swap prior to the modification will remain in accumulated other
comprehensive income (loss) and will be amortized as interest expense over
the
period of the originally designated hedged transactions. Future
changes in the fair value of the interest rate swap will be immediately
recognized in the income statement as interest expense.
The
Swap
has been recorded as a liability at its fair value of $5.9 million on January
2,
2009, and as a component of accumulated other comprehensive income, in
accordance with SFAS No. 133.
See
Note
19 – Subsequent Events for a discussion of changes in the Company’s interest
rate swap positions since January 2, 2009.
Obligations
and Off Balance Sheet Arrangements
The
Company has obligations and commitments to make future payments under debt
agreements and operating leases. The following schedule details these
obligations at January 2, 2009.
|
|
Payment
Due by Period
|
|
(millions)
|
|
Total
|
|
|
Remainder
2009
|
|
|
|
2010/11 |
|
|
|
2012/13 |
|
|
2014
& After
|
|
Long-term
debt
|
|
$ |
60.0 |
|
|
$ |
- |
|
|
$ |
60.0 |
|
|
$ |
- |
|
|
$ |
- |
|
Short-term
debt
|
|
|
13.5 |
|
|
|
13.5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Operating
lease obligations
|
|
|
25.9 |
|
|
|
4.8 |
|
|
|
8.6 |
|
|
|
5.1 |
|
|
|
7.4 |
|
Open
purchase orders
|
|
|
55.3 |
|
|
|
55.3 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Contractually
obligated interest payments
|
|
|
10.2 |
|
|
|
3.8 |
|
|
|
6.4 |
|
|
|
- |
|
|
|
- |
|
Total
contractual obligations
|
|
$ |
164.9 |
|
|
$ |
77.4 |
|
|
$ |
75.0 |
|
|
$ |
5.1 |
|
|
$ |
7.4 |
|
Interest
obligations on short-term debt are included in the category "contractually
obligated interest payments" noted above only to the extent accrued as of
January 2, 2009. Future interest costs on the revolving credit facility cannot
be estimated due to the variability of the amount of borrowings and the interest
rates on that facility. Estimated future interest payments on the $60.0 million
floating rate LIBOR term debt were calculated under the terms of the amended
and
restated debt agreement. As LIBOR is presently below 3.50%, the
estimated future interest payments were calculated using the 3.50% rate plus
the
applicable margin of 5.00%. Actual LIBOR market rates may differ
significantly from this estimate.
The
Company also utilizes letters of credit for trade financing purposes. Letters
of
credit outstanding at January 2, 2009 totaled $2.4 million.
The
Company has no off-balance sheet arrangements.
JOHNSON
OUTDOORS INC.
Market
Risk Management
The
Company is exposed to market risk stemming from changes in foreign exchange
rates, interest rates and, to a lesser extent, commodity prices. Changes in
these factors could cause fluctuations in earnings and cash flows. The Company
may reduce exposure to certain of these market risks by entering into hedging
transactions authorized under Company policies that place controls on these
activities. Hedging transactions involve the use of a variety of derivative
financial instruments. Derivatives are used only where there is an underlying
exposure, not for trading or speculative purposes.
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, losses, assets and liabilities of the Company’s
foreign operations, as reported in the Company’s consolidated financial
statements, increase or decrease, accordingly. Approximately 25% of the
Company’s revenues for the three months ended January 2, 2009 were denominated
in currencies other than the U.S. dollar. Approximately 13% were denominated
in
euros, with the remaining 12% denominated in various other foreign
currencies.
In
the
past, the Company has mitigated a portion of the fluctuations in certain foreign
currencies through the purchase of foreign currency swaps, forward contracts
and
options to hedge known commitments, primarily for purchases of inventory and
other assets denominated in foreign currencies; however, no such transactions
were entered into during fiscal 2008 or the first three months of fiscal
2009.
Interest
Rates
The
Company uses interest rate swaps, caps or collars in order to maintain a mix
of
floating rate and fixed rate debt such that permanent working capital needs
are
largely funded with fixed rate debt and seasonal working capital needs are
funded with floating rate debt. The Company’s primary exposure is to U.S.
interest rates. On October 29, 2007 the Company entered into a
forward starting interest rate swap (the “Swap”) having a notional amount of
$60.0 million, receiving a floating three month LIBOR interest rate while paying
at a fixed rate of 4.685% over an accruing period beginning December 14, 2007
and ending December 14, 2012 with interest payable quarterly. The Swap was
designated as a cash flow hedge of a forecasted floating rate debt issuance
of
approximately $60.0 million and as of December 28, 2007, was considered an
effective hedge of the impact on interest payments due to changes in the
three-month LIBOR benchmark rate.
As
a
result of the amendment of the Company’s debt agreements which became effective
as of January 2, 2009, the Company prepared an analysis of the Swap in
respect of the new terms as of that date and concluded that the Swap is no
longer highly effective as a hedge against the impact on interest payments
of
changes in the three-month LIBOR benchmark rate due to the LIBOR floor provision
in the amended terms of the debt. As a result, future changes in the
fair value of the interest rate swap will be immediately recognized in the
statement of operations as interest expense.
JOHNSON
OUTDOORS
INC.
On
December 29, 2008, the Company and JPMorgan Chase (“the Counterparty”) agreed to
amend the terms of its $60.0 million LIBOR interest rate swap (“the Swap”)
contract to include an automatic termination clause. The Company and the
Counterparty negotiated a modification of the terms of the Swap to accommodate
the new debt agreements. The modified Swap contract was entered into
on January 8, 2009.
See
Note
19 – Subsequent Events for a discussion of changes in the Company’s interest
rate swap positions since January 2, 2009.
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 resin, metals, and packaging materials.
Sensitivity
to Changes in
Value
The
estimates that follow are intended to measure the maximum potential fair value
and earnings the Company could lose in one year from adverse changes in market
interest rates. The calculations are not intended to represent actual losses
in
fair value or earnings that the Company expects to incur. The estimates do
not
consider favorable changes in market rates. The table below presents the
estimated maximum potential loss in fair value and annual earnings before income
taxes from a 100 basis point movement in interest rates on the term note
outstanding at January 2, 2009:
(millions)
|
|
Estimated
Impact on
|
|
|
|
Fair
Value
|
|
|
Earnings
Before Income Taxes
|
|
Interest
rate instruments
|
|
$ |
- |
|
|
$ |
0.6 |
|
The
Company had $60.0 million outstanding in the amended LIBOR based term loan,
maturing on October 7, 2010, with interest payable quarterly. The amended term
loan bears interest at LIBOR rate plus 5.00% with a LIBOR floor of
3.50%.
Critical
Accounting Policies and Estimates
The
Company’s critical accounting policies are identified in the Company’s Annual
Report on Form 10-K for the fiscal year ending October 3, 2008 in Management’s Discussion and Analysis
of Financial Condition and Results of Operations under the heading
“Critical Accounting Policies and Estimates.” There were no significant changes
to the Company’s critical accounting policies during the three months ended
January 2, 2009.
New
Accounting Pronouncements
Effective
October 4, 2008, the Company adopted Statement of Financial Accounting Standards
No. 157 Fair Value
Measurements (“SFAS No. 157”). In February 2008, the FASB issued FASB
Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157,”
which provides a one year deferral of the effective date of SFAS No. 157 for
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed in the financial statements at fair value at least
annually. Therefore, the Company has adopted the provisions of SFAS No. 157
with
respect to its financial assets and liabilities only. The adoption of this
statement did not have a material impact on the Company’s condensed consolidated
results of operations and financial condition. See Note 18 – Fair Value
Measurements for additional disclosures. The Company does not expect
application of SFAS No. 157 with respect to its non-financial assets and
non-financial liabilities to have a material impact on its consolidated
financial statements.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115 (“SFAS No. 159”). This standard permits an entity to elect to measure many
financial instruments and certain other items at fair value. The fair value
option permits a company to choose to measure eligible items at fair value
at
specified election dates. Entities electing the fair value option would be
required to report unrealized gains and losses on items for which the fair
value
option has been elected in earnings after adoption. Entities electing the fair
value option would be required to distinguish, on the face of the balance sheet,
the fair value of assets and liabilities for which the fair value option has
been elected and similar assets and liabilities measured using another
measurement attribute. SFAS No. 159 became effective for the Company
on October 4, 2008. The Company elected not to measure any eligible
items using the fair value option in accordance with SFAS No. 159 and therefore,
SFAS No. 159 did not have an impact on the Company’s condensed consolidated
balance sheets, condensed consolidated statements of operations, or condensed
consolidated statements of cash flows.
JOHNSON
OUTDOORS INC.
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations
(“SFAS No. 141(R)”). The objective of SFAS No. 141(R) is to improve the
information provided in financial reports about a business combination and
its
effects. SFAS No. 141(R) requires an acquirer to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that
date.
SFAS No. 141(R) also requires the acquirer to recognize and measure the
goodwill acquired in a business combination or a gain from a bargain purchase
and how to evaluate the nature and financial effects of the business
combination. SFAS No. 141(R) will be applied on a prospective basis for
business combinations where the acquisition date is on or after the beginning
of
the Company’s 2010 fiscal year.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in
Consolidated Financial Statements-an amendment of ARB No. 51 (“SFAS No.
160”). The objective of SFAS No. 160 is to improve the financial
information provided in consolidated financial statements. SFAS No. 160 amends
ARB No. 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 also changes the way the consolidated income
statement is presented, establishes a single method of accounting for changes
in
a parent’s ownership interest in a subsidiary that do not result in
deconsolidation, requires that a parent recognize a gain or loss in net income
when a subsidiary is deconsolidated, and expands disclosures in the consolidated
financial statements in order to clearly identify and distinguish between the
interests of the parent’s owners and the interest of the noncontrolling owners
of a subsidiary. SFAS No. 160 is effective for the Company’s 2010 fiscal
year. The Company does not anticipate that SFAS No. 160 will have any impact
on
its consolidated financial statements.
In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133
(“SFAS No. 161”). SFAS No. 161 is intended to improve
financial standards for derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand the
effect these instruments and activities have on an entity’s financial position,
financial performance and cash flows. Entities are required to provide enhanced
disclosures about: how and why an entity uses derivative instruments; how
derivative instruments and related hedged items are accounted for under SFAS
No. 133 and its related interpretations; and how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance and cash flows. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company will adopt SFAS No. 161 beginning in
the second quarter of fiscal 2009. The Company does not believe the adoption
of
SFAS No. 161 will have a material impact on the Company’s consolidated
financial statements.
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.”
JOHNSON
OUTDOORS INC.
Item
4. Controls and Procedures
The
Company maintains disclosure controls and procedures (as defined in Rules
13a-15(3) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) that are designed to ensure that information required to
be disclosed in the Company’s reports filed or submitted under the Exchange
Act, is recorded, processed, summarized and reported within the specified time
periods specified in the Security and Exchange Commission’s rules and forms, and
that the information required to be disclosed by the Company in reports that
it
files or submits under the Exchange Act is accumulated and communicated to
its
management, including its Principal Executive Officer and Principal Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, the Company carried out
an
evaluation, under the supervision and with the participation of the Company’s
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based on this evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that, as of the end of such
period, the Company's disclosure controls and procedures were effective at
reaching a level of reasonable assurance. It should be noted that in designing
and evaluating the disclosure controls and procedures, management recognized
that any controls and procedures, no matter how well designed and operated,
can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating
the
cost benefit relationship of possible controls and procedures. The Company
has
designed its disclosure controls and procedures to reach a level of reasonable
assurance of achieving the desired control objectives.
There
were no changes in the Company’s internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that
occurred during the last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II OTHER INFORMATION
Item
6. Exhibits
See
Exhibit Index to this Form 10-Q report.
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.
Signatures
Dated February 9, 2009
/s/ Helen
P.
Johnson-Leipold
Helen P. Johnson-Leipold
Chairman
and Chief Executive Officer
/s/ David
W.
Johnson
Vice
President and Chief Financial Officer
(Principal
Financial and Accounting Officer)
Exhibit
Index to Quarterly Report on Form 10-Q
Exhibit
Number
|
|
Description
|
10.1 |
|
Amended
and Restated Credit
Agreement (Term), dated as of January 2, 2009, among Johnson
Outdoors, Inc., JPMorgan Chase Bank, N.A., as lender and agent, and
the
other lenders named therein, incorporated
herein by reference
to Exhibit 99.1 to the registrant's Form 8-K current report filed with
the
Securities and Exchange Commission on January 2, 2009. |
10.2 |
|
Amended
and Restated Credit
Agreement (Revolving), dated as of January 2, 2009,
among Johnson Outdoors, Inc., JPMorgan Chase Bank, N.A., as
lender and agent, and the other lenders named therein, incorporated
herein by reference
to Exhibit 99.2 to the registrant's Form 8-K current report filed with
the
Securities and Exchange Commission on January 2, 2009. |
31.1
|
|
Certification
by the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
|
Certification
by the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32
(1)
|
|
Certification
of Periodic Financial Report by the Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of
2002.
|
(1)
This
certification is not “filed” for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Securities Exchange
Act of
1934, as amended.
31