================================================================================ 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 March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission file number 0-16255 JOHNSON OUTDOORS INC. (Exact name of Registrant as specified in its charter) Wisconsin 39-1536083 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1326 Willow Road, Sturtevant, Wisconsin 53177 --------------------------------------------- (Address of principal executive offices) (262) 884-1500 ---------------------------------------------------- (Registrant's telephone number, including area code) Johnson Worldwide Associates, Inc. ------------------------------------------- (Former name, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of April 14, 2000, 6,924,630 shares of Class A and 1,222,729 shares of Class B common stock of the Registrant were outstanding. ================================================================================
JOHNSON OUTDOORS INC. (formerly Johnson Worldwide Associates, Inc.) Page Index No. - ---------------------------------------------------------------------- ----- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Operations - Three months and six months ended March 31, 2000 and April 2, 1999 1 Consolidated Balance Sheets - March 31, 2000, October 1, 1999 and April 2, 1999 2 Consolidated Statements of Cash Flows - Six months ended March 31, 2000 and April 2, 1999 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 15 Signatures
<TABLE> JOHNSON OUTDOORS INC. (formerly Johnson Worldwide Associates, Inc.) CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) <CAPTION> - --------------------------------------------------------------------------------------------------- (thousands, except per share data) Three Months Ended Six Months Ended - --------------------------------------------------------------------------------------------------- March 31 April 2 March 31 April 2 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net sales $96,703 $84,644 $152,903 $132,788 Cost of sales 57,633 50,015 91,921 80,348 - --------------------------------------------------------------------------------------------------- Gross profit 39,070 34,629 60,982 52,440 - --------------------------------------------------------------------------------------------------- Operating expenses: Marketing and selling 18,398 16,419 31,532 28,521 Administrative management, finance and information systems 7,108 5,836 13,172 11,399 Research and development 1,819 1,596 3,470 3,179 Amortization of acquisition costs 740 712 1,501 1,420 Profit sharing 753 645 864 680 Strategic charges 668 1,133 720 2,074 - --------------------------------------------------------------------------------------------------- Total operating expenses 29,486 26,341 51,259 47,273 - --------------------------------------------------------------------------------------------------- Operating profit 9,584 8,288 9,723 5,167 Interest income (144) (56) (249) (149) Interest expense 2,912 2,556 5,185 4,785 Other expense (income), net 86 93 (126) 87 - --------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 6,730 5,695 4,913 444 Income tax expense 2,834 2,475 2,052 262 - --------------------------------------------------------------------------------------------------- Income from continuing operations 3,896 3,220 2,861 182 Income (loss) from discontinued operations, net of income tax expense (benefit) of $842, $(563) and $857, respectively -- 1,157 (941) 1,176 Loss on disposal of discontinued operations, net of income tax expense (benefit) of $961 and $(2,740), respectively (1,309) -- (24,418) -- - --------------------------------------------------------------------------------------------------- Net income (loss) $ 2,587 $ 4,377 $(22,498) $ 1,358 =================================================================================================== BASIC EARNINGS (LOSS) PER COMMON SHARE: Continuing operations $ 0.48 $ 0.40 $ 0.35 $ 0.02 Discontinued operations (0.16) 0.14 (3.12) 0.15 - --------------------------------------------------------------------------------------------------- Net income (loss) $ 0.32 $ 0.54 $ (2.77) $ 0.17 =================================================================================================== DILUTED EARNINGS (LOSS) PER COMMON SHARE: Continuing operations $ 0.48 $ 0.40 $ 0.35 $ 0.02 Discontinued operations (0.16) 0.14 (3.12) 0.15 - --------------------------------------------------------------------------------------------------- Net income (loss) $ 0.32 $ 0.54 $ (2.77) $ 0.17 =================================================================================================== The accompanying notes are an integral part of the consolidated financial statements. </TABLE> -1-
JOHNSON OUTDOORS INC. (formerly Johnson Worldwide Associates, Inc.) CONSOLIDATED BALANCE SHEETS (unaudited) - -------------------------------------------------------------------------------- March 31 October 1 April 2 (thousands, except share data) 2000 1999 1999 - -------------------------------------------------------------------------------- ASSETS Current assets: Cash and temporary cash investments $ 3,189 $ 9,974 $ 3,269 Accounts receivable, less allowance for doubtful accounts of $3,625, $3,236, and $2,629, respectively 78,918 49,302 72,718 Inventories 76,166 59,981 68,201 Deferred income taxes 7,796 4,718 4,925 Other current assets 5,563 5,644 6,944 Net assets of discontinued operations 12,444 56,114 66,650 - ------------------------------------------------------------------------------- Total current assets 184,076 185,733 222,707 Property, plant and equipment 31,170 35,323 31,708 Deferred income taxes 15,479 11,277 11,229 Intangible assets 59,811 65,599 59,845 Other assets 2,214 1,093 1,601 - ------------------------------------------------------------------------------- Total assets $298,750 $299,025 $327,091 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt and current maturities of long-term debt $ 99,009 $ 49,327 $ 90,995 Accounts payable 22,488 16,034 16,354 Accrued liabilities: Salaries and wages 5,172 6,912 4,356 Other 19,744 22,126 16,845 - ------------------------------------------------------------------------------- Total current liabilities 146,413 94,399 128,550 Long-term debt, less current maturities 47,826 72,744 73,503 Other liabilities 4,761 4,704 4,330 - ------------------------------------------------------------------------------- Total liabilities 199,000 171,847 206,383 - ------------------------------------------------------------------------------- Shareholders' equity: Preferred stock: none issued -- -- -- Common stock: Class A shares issued: March 31, 2000, 6,924,630; October 1, 1999, 6,910,577; April 2, 1999, 6,910,577 346 345 345 Class B shares issued (convertible into Class A): March 31, 2000, 1,222,729; October 1, 1999, 1,222,861; April 2, 1999, 1,222,861 61 61 61 Capital in excess of par value 44,291 44,205 44,157 Retained earnings 69,282 91,832 86,305 Contingent compensation (115) (134) (63) Other comprehensive income - cumulative foreign currency translation adjustment (14,115) (9,049) (9,811) Treasury stock: Class A shares, at cost: October 1, 1999, 5,280; April 2, 1999, 18,310 -- (82) (285) - ------------------------------------------------------------------------------- Total shareholders' equity 99,750 127,178 120,709 - ------------------------------------------------------------------------------- Total liabilities and shareholders' equity $298,750 $299,025 $327,091 ================================================================================ The accompanying notes are an integral part of the consolidated financial statements. -2-
JOHNSON OUTDOORS INC. (formerly Johnson Worldwide Associates, Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - ------------------------------------------------------------------------------- (thousands) Six Months Ended - ------------------------------------------------------------------------------- March 31 April 2 2000 1999 - ------------------------------------------------------------------------------- CASH USED FOR OPERATIONS Net income (loss) $(22,498) $ 1,358 Less income (loss) from discontinued operations (25,359) 1,176 - ------------------------------------------------------------------------------- Income from continuing operations 2,861 182 Adjustments to reconcile income from continuing operations to net cash used for operating activities of continuing operations : Depreciation and amortization 6,504 6,220 Deferred income taxes (2,836) 251 Change in assets and liabilities, net of effect of businesses acquired or sold: Accounts receivable (31,625) (26,556) Inventories (19,033) (7,745) Accounts payable and accrued liabilities 3,248 (676) Other, net 2,654 (933) - -------------------------------------------------------------------------------- Net cash used for operating activities of continuing operations (38,227) (29,257) - -------------------------------------------------------------------------------- CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES Proceeds from sale of business, net of cash 33,126 -- Net assets of businesses acquired, net of cash (706) (5,574) Net additions to property, plant and equipment (7,308) (5,094) - -------------------------------------------------------------------------------- Net cash provided by (used for) investing activities of continuing operations 25,112 (10,668) - ------------------------------------------------------------------------------- CASH PROVIDED BY FINANCING ACTIVITIES Principal payments on senior notes and other long-term debt (20,729) -- Net change in short-term debt 46,734 41,517 Common stock transactions 98 94 - ------------------------------------------------------------------------------- Net cash provided by financing activities of continuing operations 26,103 41,611 - ------------------------------------------------------------------------------- Effect of foreign currency fluctuations on cash (774) (373) Net cash used for discontinued operations (18,999) (8,375) - ------------------------------------------------------------------------------- Decrease in cash and temporary cash investments (6,785) (7,062) CASH AND TEMPORARY CASH INVESTMENTS Beginning of period 9,974 10,331 - ------------------------------------------------------------------------------- End of period $ 3,189 $ 3,269 ================================================================================ The accompanying notes are an integral part of the consolidated financial statements. -3-
JOHNSON OUTDOORS INC. (formerly Johnson Worldwide Associates, Inc.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1 Name Change In February 2000, the shareholders approved a change in the name of the Company to Johnson Outdoors Inc. The change is intended to better represent the nature of the Company's business. 2 Basis of Presentation The consolidated financial statements included herein are unaudited. In the opinion of management, these statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Johnson Outdoors Inc. and subsidiaries (the Company) as of March 31, 2000 and the results of operations and cash flows for the three months and six months ended March 31, 2000. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1999 Annual Report. Because of seasonal and other factors, the results of operations for the three months and six months ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. All monetary amounts, other than share and per share amounts, are stated in thousands. Certain amounts as previously reported have been reclassified to conform with the current period presentation. See Note 7. 3 Income Taxes The provision for income taxes includes deferred taxes and is based upon estimated annual effective tax rates in the tax jurisdictions in which the Company operates. 4 Inventories Inventories related to continuing operations at the end of the respective periods consist of the following: --------------------------------------------------------------------- March 31 October 1 April 2 2000 1999 1999 --------------------------------------------------------------------- Raw materials $ 27,716 $ 22,702 $ 23,601 Work in process 2,428 3,176 3,136 Finished goods 50,502 39,014 46,524 --------------------------------------------------------------------- 80,646 64,892 73,261 Less reserves (4,480) (4,911) (5,060) --------------------------------------------------------------------- $ 76,166 $ 59,981 $ 68,201 --------------------------------------------------------------------- -4-
5 Earnings Per Share The following table sets forth the computation of basic and diluted earnings from continuing operations per common share: - -------------------------------------------------------------------------------- Three Months Ended Six Months Ended - -------------------------------------------------------------------------------- March 31 April 2 March 31 April 2 2000 1999 2000 1999 - -------------------------------------------------------------------------------- Income from continuing operations for basic and diluted earnings per share $ 3,896 $ 3,220 $ 2,861 $ 182 ================================================================================ Weighted average common shares outstanding 8,134,478 8,100,600 8,131,318 8,097,253 Less nonvested restricted stock 19,429 3,818 19,965 3,988 - -------------------------------------------------------------------------------- Basic average common shares 8,115,049 8,096,782 8,111,354 8,093,265 Dilutive stock options and restricted stock 7,187 2,207 10,826 1,914 - -------------------------------------------------------------------------------- Diluted average common shares 8,122,236 8,098,989 8,122,180 8,095,179 ================================================================================ Basic earnings per common share $ 0.48 $ 0.40 $ 0.35 $ 0.02 ================================================================================ Diluted earnings per common share $ 0.48 $ 0.40 $ 0.35 $ 0.02 ================================================================================ 6 Stock Ownership Plans A summary of stock option activity related to the Company's plans is as follows: ------------------------------------------------------------------------- Weighted Average Shares Exercise Price ------------------------------------------------------------------------- Outstanding at October 1, 1999 778,837 $14.02 Granted 194,500 7.63 Cancelled (48,942) 16.83 ------------------------------------------------------------------------- Outstanding at March 31, 2000 924,395 $12.53 ------------------------------------------------------------------------- Options to purchase 798,338 shares of common stock with a weighted average exercise price of $14.70 per share were outstanding at April 2, 1999. 7 Sale of Fishing Business In January 2000, the Company entered into an agreement for the sale of its Fishing business. As a result, operations of the Fishing group have been classified as discontinued for all periods presented herein. The sale price totaled $48,400, including $12,700 of accounts receivable retained by the Company and $2,400 of debt assumed by the buyer. The sale price is subject to final closing adjustments. The Company recorded a loss of $24,418 related to the sale of the business, taking into account operating results from the measurement date to the date of disposal. Since the plan to divest the business was approved prior to the formal issuance of the Company's first quarter financial statements, the loss was recognized in first quarter results to the extent determinable. The transaction closed in March 2000. Net sales of the Fishing group totaled $10,994 for the three months ended December 31, 1999, and $19,585 and $31,422 for the three months and six months ended April 2, 1999, respectively. Interest expense of $36, $92 and $146, respectively, that is directly attributable to the Fishing business is allocated to discontinued operations. -5-
8 Strategic Charges In the fiscal second quarter, the Company recorded severance and other exit costs totaling $668, relating primarily to the closure and relocation of a manufacturing facility in the Motors business. The Company expects charges related to this action will total approximately $2,000 in fiscal 2000. Approximately 90 employees are impacted. 9 Comprehensive Income Comprehensive income includes net income and changes in shareholders' equity from non-owner sources. For the Company, the elements of comprehensive income excluded from net income are represented primarily by the cumulative foreign currency translation adjustment. Comprehensive income (loss) for the respective periods consists of the following: -------------------------------------------------------------------------- Three Months Ended Six Months Ended -------------------------------------------------------------------------- March 31 April 2 March 31 April 2 2000 1999 2000 1999 -------------------------------------------------------------------------- Net income (loss) $ 2,587 $ 4,377 $(22,498) $ 1,358 Translation adjustment (1,388) (5,193) (5,066) (5,160) -------------------------------------------------------------------------- Comprehensive income (loss) $ 1,199 $ (816) $(27,564) $(3,802) -------------------------------------------------------------------------- -6-
10 Segments of Business The Company conducts its worldwide operations through separate global business units, each of which represent major product lines. Operations are conducted in the United States and various foreign countries, primarily in Europe, Canada and the Pacific Basin. Net sales and operating profit include both sales to customers, as reported in the Company's consolidated statements of operations, and interunit transfers, which are priced to recover cost plus an appropriate profit margin. Identifiable assets represent assets that are used in the Company's operations in each business unit at the end of the periods presented. A summary of the Company's operations by business unit is presented below: - ----------------------------------------------------------------------------- Three Months Ended Six Months Ended - -------------------------------------------------------------------------- March 31 April 2 March 31 April 2 2000 1999 2000 1999 - ----------------------------------------------------------------------------- Net sales: Outdoor equipment: Unaffiliated customers $29,394 $26,136 $ 47,401 $ 41,136 Interunit transfers 20 19 22 30 Diving: Unaffiliated customers 20,717 19,914 36,751 37,559 Interunit transfers 2 6 2 9 Motors: Unaffiliated customers 24,569 22,402 35,930 31,427 Interunit transfers 813 645 1,183 984 Watercraft: Unaffiliated customers 21,616 15,873 31,692 21,655 Interunit transfers 253 168 269 180 Other 405 319 1,130 1,011 Eliminations (1,086) (838) (1,477) (1,203) - ----------------------------------------------------------------------------- $96,703 $84,644 $152,903 $132,788 ============================================================================= Operating profit (loss): Outdoor equipment $ 2,957 $ 1,781 $ 3,617 $ 835 Diving 1,924 721 3,403 152 Motors 3,036 3,323 2,235 2,380 Watercraft 3,748 3,172 4,022 3,322 Other (2,081) (709) (3,554) (1,522) - ----------------------------------------------------------------------------- $ 9,584 $ 8,288 $ 9,723 $ 5,167 ============================================================================= Identifiable assets (end of period): Outdoor equipment $ 55,711 $ 53,849 Diving 89,702 97,573 Motors 40,524 34,878 Watercraft 76,650 49,886 Discontinued operations, net 12,444 66,650 Other 23,719 24,255 - ----------------------------------------------------------------------------- $298,750 $327,091 ============================================================================= -7-
11 Selected Financial Data <TABLE> A summary of the Company's operating results and key balance sheet data for each of the years in the four-year period ended October 1, 1999 is presented below. All years have been reclassified to reflect the Company's Fishing business as a discontinued operation. <CAPTION> ---------------------------------------------------------------------------------------------------------- Year Ended ---------------------------------------------------------------------------------------------------------- October 1 October 2 October 3 September 27 1999 1998 1997 1996 ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> OPERATING RESULTS (1) Net sales $ 305,094 $ 270,017 $ 239,322 $ 274,637 Gross profit 120,670 106,801 91,118 102,041 Operating expenses (2) 101,157 88,445 77,237 91,138 ---------------------------------------------------------------------------------------------------------- Operating profit 19,513 18,356 13,881 10,903 Interest expense 9,565 9,631 8,413 9,563 Other income, net (71) (539) (624) (498) ---------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 10,019 9,264 6,092 1,838 Income tax expense 4,158 3,885 2,721 2,740 ---------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 5,861 5,379 3,371 (902) Income (loss) from discontinued operations 1,161 (167) (1,315) (10,453) ---------------------------------------------------------------------------------------------------------- Net income (loss) $ 7,022 $ 5,212 $ 2,056 $ (11,355) ---------------------------------------------------------------------------------------------------------- Basic earnings (loss) per common share: Continuing operations $ 0.72 $ 0.66 $ 0.42 $ (0.11) Discontinued operations 0.14 (0.02) (0.17) (1.29) ---------------------------------------------------------------------------------------------------------- Net income (loss) $ 0.87 $ 0.64 $ 0.25 $ (1.40) ---------------------------------------------------------------------------------------------------------- Diluted earnings (loss) per common share: Continuing operations $ 0.72 $ 0.66 $ 0.42 $ (0.11) Discontinued operations 0.14 (0.02) (0.17) (1.29) ---------------------------------------------------------------------------------------------------------- Net income (loss) $ 0.87 $ 0.64 $ 0.25 $ (1.40) ---------------------------------------------------------------------------------------------------------- Average common shares outstanding: Basic 8,096,575 8,094,906 8,102,100 8,101,564 Diluted 8,108,228 8,113,830 8,115,318 8,101,564 ---------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA Current assets (3) $ 185,733 $ 188,224 $ 183,341 $ 221,798 Total assets 299,025 292,380 272,605 272,119 Current liabilities (4) 45,072 39,448 36,772 41,773 Long-term debt, less current maturities 72,744 81,508 87,926 60,194 Total debt 122,071 124,001 113,676 99,485 Shareholders' equity 127,178 124,386 117,731 126,424 ---------------------------------------------------------------------------------------------------------- (1) The year ended October 3, 1997 includes 53 weeks. All other years include 52 weeks. (2) Includes strategic charges of $2,773, $1,388, $335 and $4,487 in 1999, 1998, 1997 and 1996, respectively. (3) Includes net assets of discontinued operations of $56,114, $58,462, $65,285 and $84,851 in 1999, 1998, 1997 and 1996, respectively. (4) Excludes short-term debt and current maturities of long-term debt. </TABLE> -8-
12 Quarterly Financial Summary The following summarizes quarterly operating results for the year ended October 1, 1999. All periods have been reclassified to reflect the Company's Fishing business as a discontinued operation. ------------------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ------------------------------------------------------------------------- Net sales $48,144 $84,644 $101,134 $71,172 Gross profit 17,811 34,629 42,107 26,123 Operating expenses (1) 20,932 26,341 28,418 25,466 Operating profit (loss) (3,121) 8,288 13,690 656 ------------------------------------------------------------------------- Income (loss) from continuing operations (3,038) 3,220 6,359 (680) Income (loss) from discontinued operations 19 1,157 725 (740) ------------------------------------------------------------------------- Net income (loss) $(3,019) $ 4,377 $ 7,084 $(1,420) ========================================================================= Basic earnings (loss) per common share: Continuing operations $ (0.37) $ 0.40 $ 0.79 $ (0.09) Discontinued operations -- 0.14 0.09 (0.09) ------------------------------------------------------------------------- Net income (loss) $ (0.37) $ 0.54 $ 0.88 $ (0.18) ========================================================================= Diluted earnings (loss) per common share: Continuing operations $ (0.37) $ 0.40 $ 0.78 $ (0.09) Discontinued operations -- 0.14 0.09 (0.09) ------------------------------------------------------------------------- Net income (loss) $ (0.37) $ 0.54 $ 0.87 $ (0.18) ========================================================================= (1) Includes strategic charges of $942, $1133, $49 and $649, respectively. -9-
JOHNSON OUTDOORS INC. (formerly Johnson Worldwide Associates, Inc.) Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion includes comments and analysis relating to the Company's results of operations and financial condition for the three months and six months ended March 31, 2000 and April 2, 1999. This discussion should be read in conjunction with the consolidated financial statements and related notes that immediately precede this section, as well as the Company's 1999 Annual Report. Forward Looking Statements Certain matters discussed in this Form 10-Q are "forward-looking statements," intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement includes phrases such as the Company "expects," "believes" or other words of similar meaning. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include changes in consumer spending patterns, actions of companies that compete with the Company, the Company's success in managing inventory, movements in foreign currencies or interest rates, and adverse weather conditions. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this Form 10-Q and the Company undertakes no obligations to publicly update such forward-looking statements to reflect subsequent events or circumstances. Results of Continuing Operations Net sales for the three months ended March 31, 2000 totaled $96.7 million, an increase of 14%, or $12.1 million, compared to $84.6 million in the three months ended April 2, 1999. Net sales for the six months ended March 31, 2000 totaled $152.9 million, an increase of 15%, or $20.1 million, over the six months ended April 2, 1999. Sales of all businesses except Diving exhibited strong growth, led by the Watercraft business. The Company also continues to experience strong sales growth excluding recently acquired businesses, totaling 12% for both the three month and six month periods of the current year. Acquisitions consummated in 1999 accounted for $1.6 million and $4 million of the growth in sales, for the three months and six months ended March 31, 2000, respectively. The Diving business was adversely impacted primarily by weakness in foreign currency movements, resulting in a modest increase in sales for the three months ended March 31, 2000, and a similarly modest decline year to date. Relative to the U.S. dollar, the average values of most currencies of the countries in which the Company has operations were lower for the three months and six months ended March 31, 2000 as compared to the corresponding periods of the prior year. Excluding the impact of foreign currencies, net sales increased 17% and 19% for the three months and six months ended March 31, 2000, respectively. Gross profit as a percentage of sales was 40.4% for the three months ended March 31, 2000 compared to 40.9% in the corresponding period in the prior year. An unfavorable mix in products sold and a planned decrease in Diving factory production contributed to the decline. Gross profit for the six months ended -10-
March 31, 2000 increased to 39.9% from 39.5% in the prior year. Strong sales growth, a better mix of products sold, and improved factory efficiency contributed to the year to date increase. The Company recognized an operating profit of $9.6 million for the three months ended March 31, 2000, compared to an operating profit of $8.3 million for the corresponding period of the prior year. For the six months ended March 31, 2000, operating profit increased to $9.7 million, or 6.4% of sales, a 250 basis point improvement, from $5.2 million in the prior year. Year to date operating expense growth of 12%, excluding strategic charges, was less than the growth rate of sales, which contributed to the improved operating results, as did sales growth. Decreased strategic charges related to closure and relocation of a manufacturing facility in the current year and integration of acquired businesses in the prior year, also contributed to the improvement in profitability for the three month and six month periods. Interest expense totaled $5.2 million for the six months ended March 31, 2000 compared to $4.8 million for the corresponding period of the prior year. Increased debt levels due to acquisitions consummated in 1999, an unfavorable interest rate environment and higher working capital all contributed to the increase. The Company recognized income from continuing operations of $3.9 million in the three months ended March 31, 2000 compared to $3.2 million in the corresponding period of the prior year. Diluted earnings per common share totaled $0.48 for the three months ended March 31, 2000 compared to $0.40 in the prior year. The Company recognized income from continuing operations of $2.9 million in the six months ended March 31, 2000 compared to $0.2 million in the corresponding period of the prior year. Year to date diluted earnings per common share increased to $0.35 from $0.02 in the prior year. Discontinued Operations In January 2000, the Company entered into an agreement for the sale of its Fishing business. As a result, operations of the Fishing group have been classified as discontinued for all periods presented herein. The sale price totaled $48.4 million, including $12.7 million of accounts receivable retained by the Company and $2.4 million of debt assumed by the buyer. The sale price is subject to final closing adjustments. The Company recorded a loss of $24.4 million related to the sale of the business, taking into account operating results from the measurement date to the date of disposal. Since the plan to divest the business was approved prior to the formal issuance of the Company's first quarter financial statements, the loss was recognized in first quarter results to the extent determinable. The transaction closed in March 2000. Net sales of the Fishing group totaled $11 million for the three months ended December 31, 1999, and $19.6 million and $31.4 million for the three months and six months ended April 2, 1999. Interest expense of $36 thousand and $92 thousand and $146 thousand, respectively, that is directly attributable to the Fishing business is allocated to discontinued operations. Financial Condition The following discusses changes in the Company's liquidity and capital resources related to continuing operations. Operations Cash flows used for operations totaled $38.2 million for the six months ended March 31, 2000 and $29.3 million for the corresponding period of the prior year. Accounts receivable seasonally increased $31.6 million for the six months ended March 31, 2000 and $26.6 million for the corresponding period of the prior year due to strong sales growth. Days of sales outstanding are improved over the prior year. Seasonal growth in inventories of $19 million for the six -11-
months ended March 31, 2000 and $7.7 million for the corresponding period of the prior year also accounted for a significant portion of the net usage of funds. Inventory turns increased for the six month period ended March 31, 2000 compared to the corresponding period of the prior year. The Company has increased production of Watercraft and Motors products over the prior year level in order to meet seasonal demand. Depreciation and amortization charges were $6.5 million for the six months ended March 31, 2000 and $6.2 million for the corresponding period of the prior year. The increase was due primarily to increased amortization of intangible assets from businesses acquired in 1999 and 1998. Accounts payable and accrued liabilities increased $3.2 million for the six months ended March 31, 2000, decreasing the net outflow of cash from operations, and decreased $0.7 million for the corresponding period of the prior year. Deferred income taxes increased $2.8 million for the six months ended March 31, 2000 due primarily to losses incurred from the sale of the Fishing business. Investing Activities Expenditures for property, plant and equipment were $7.3 million for the six months ended March 31, 2000 and $5.1 million for the corresponding period of the prior year. The Company's recurring investments are made primarily for tooling for new products and enhancements. The increase in capital expenditures in the current year is due primarily to investments to increase manufacturing capacity in the Company's Watercraft business. In 2000, capitalized expenditures are anticipated to total approximately $13 million. These expenditures are expected to be funded by working capital or existing credit facilities. The Company completed the acquisition of one business in the corresponding period of the prior year, which increased tangible and intangible assets by $5.6 million, net of cash and liabilities assumed. Financing Activities Cash flows from financing activities totaled $26.1 million for the six months ended March 31, 2000 and $41.6 million for the corresponding period of the prior year. The closing of the sale of the Fishing business resulted in a $14 million reduction of short-term debt and a $15.2 million reduction of long-term debt. The buyer assumed an additional $2.4 million of debt. Additional debt reduction will occur upon liquidation of retained accounts receivable, less transaction expenses and retained liabilities. Market Risk Management The Company is exposed to market risk stemming from changes in foreign exchange rates, interest rates and, to a lesser extent, commodity prices. Changes in these factors could cause fluctuations in earnings and cash flows. In the normal course of business, exposure to certain of these market risks is managed by entering into hedging transactions authorized under Company policies that place controls on these activities. Hedging transactions involve the use of a variety of derivative financial instruments. Derivatives are used only where there is an underlying exposure: not for trading or speculative purposes. Foreign Operations The Company has significant foreign operations, for which the functional currencies are denominated primarily in Swiss and French francs, German marks, Italian lire, Japanese yen and Canadian dollars. As the values of the currencies of the foreign countries in which the Company has operations increase or -12-
decrease relative to the U.S. dollar, the sales, expenses, profits, assets and liabilities of the Company's foreign operations, as reported in the Company's Consolidated Financial Statements, increase or decrease, accordingly. The Company mitigates a portion of the fluctuations in certain foreign currencies through the purchase of foreign currency swaps, forward contracts and options to hedge known commitments, primarily for purchases of inventory and other assets denominated in foreign currencies. Interest Rates The Company's debt structure and interest rate risk are managed through the use of fixed and floating rate debt. The Company's primary exposure is to United States interest rates. The Company also periodically enters into interest rate swaps, caps or collars to hedge its exposure and lower financing costs. Commodities Certain components used in the Company's products are exposed to commodity price changes. The Company manages this risk through instruments such as purchase orders and non-cancelable supply contracts. Primary commodity price exposures are metals, resins and packaging materials. Sensitivity to Changes in Value The estimates that follow are intended to measure the maximum potential fair value or earnings the Company could lose in one year from adverse changes in foreign exchange rates or market interest rates under normal market conditions. The calculations are not intended to represent actual losses in fair value or earnings that the Company expects to incur. The estimates do not consider favorable changes in market rates. Further, since the hedging instrument (the derivative) inversely correlates with the underlying exposure, any loss or gain in the fair value of derivatives would be generally offset by an increase or decrease in the fair value of the underlying exposures. The positions included in the calculations are foreign exchange forwards, currency swaps and fixed rate debt. The calculations do not include the underlying foreign exchange positions that are hedged by these market risk sensitive instruments. The table below presents the estimated maximum potential one year loss in fair value and earnings before income taxes from a 10% movement in foreign currencies and a 100 basis point movement in interest rate market risk sensitive instruments outstanding at March 31, 2000: - -------------------------------------------------------------------------------- (millions) Estimated Impact on - -------------------------------------------------------------------------------- Earnings Before Fair Value Income Taxes - -------------------------------------------------------------------------------- Foreign exchange rate instruments $2.0 $0.3 Interest rate instruments 1.7 0.5 - -------------------------------------------------------------------------------- Other Factors The Company has not been significantly impacted by inflationary pressures over the last several years. The Company anticipates that changing costs of basic raw materials may impact future operating costs and, accordingly, the prices and margins of its products. The Company is involved in continuing programs to mitigate the impact of cost increases through changes in product design and identification of sourcing and manufacturing efficiencies. Price increases and, in certain situations, price decreases are implemented for individual products, when appropriate. -13-
Item 3. Quantitative and Qualitative Disclosures About Market Risk Information with respect to this item is included in Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading "Market Risk Management." PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders <TABLE> At the Company's Annual Meeting on February 17, 2000, the shareholders voted to elect the following individuals as Directors for terms that expire at the next annual meeting and on three management proposals <CAPTION> - -------------------------------------------------------------------------------------------------------------------- Votes Votes Cast Votes Broker Cast For Against Withheld Abstentions Non-Votes - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Class A Directors: Glenn N. Rupp 6,092,285 0 150,738 0 0 Terry E. London 6,091,790 0 151,233 0 0 Class B Directors: Samuel C. Johnson 1,217,855 0 0 0 0 Helen P. Johnson-Leipold 1,217,855 0 0 0 0 Thomas F. Pyle, Jr. 1,217,855 0 0 0 0 Gregory E. Lawton 1,217,855 0 0 0 0 Proposal regarding the amendment to the Company's Articles of Incorporation to change the name of the Company from Johnson Worldwide Associates, Inc. to Johnson Outdoors Inc. 18,409,631 10,412 0 1,530 0 Proposal regarding the approval of the Johnson Outdoors Inc. 2000 Long-Term Stock Incentive Plan 17,700,688 48,413 0 4,072 668,400 Proposal regarding the amendment to the 1987 Employees' Stock Purchase Plan to exclude participation by certain highly compensated employees 18,383,629 29,175 0 8,769 0 Votes cast for or against and abstentions with respect to the Proposals reflect that holders of Class B shares are entitled to 10 votes per share for matters other than the election of Directors. </TABLE> -14-
Item 6. Exhibits and Reports on Form 8-K (a) The following documents are filed as part of this Form 10-Q Exhibit 3.1(a) Articles of Incorporation of the Company as amended through February 17, 2000 Exhibit 3.1(b) Amendment to Articles of Incorporation of the Company dated as of February 17, 2000 Exhibit 3.2(a) Bylaws of the Company as amended through March 22, 2000 Exhibit 3.2(b) Amendment to Bylaws of the Company dated as of March 22, 2000 Exhibit 4.8 Amendment No. 2 dated September 30, 1999 to the Amended and Restated Credit Agreement dated as of April 3, 1998 Exhibit 4.9 Fourth Amendment dated January 10, 2000 to Note Agreement dated October 1, 1995 Exhibit 4.10 First Amendment dated January 10, 2000 to Note Agreement dated September 15, 1997 Exhibit 10.16 Johnson Outdoors Inc. 2000 Long-Term Stock Incentive Plan Exhibit 27 Financial Data Schedule for the six months ended March 31, 2000 Exhibit 27.1 Restated Financial Data Schedule for the year ended October 1, 1999 Exhibit 27.2 Restated Financial Data Schedule for the nine months ended July 2, 1999 Exhibit 27.3 Restated Financial Data Schedule for the six months ended April 2, 1999 Exhibit 27.4 Restated Financial Data Schedule for the three months ended January 1, 1999 Exhibit 27.5 Restated Financial Data Schedule for the year ended October 2, 1998 Exhibit 27.6 Restated Financial Data Schedule for the year ended October 3, 1997 (b) There were no reports on Form 8-K filed for the three months ended March 31, 2000. -15-
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JOHNSON OUTDOORS INC. Date: May 15, 2000 /s/ Carl G. Schmidt -------------------------------------------- Carl G. Schmidt Senior Vice President and Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer)
JOHNSON OUTDOORS INC. (formerly Johnson Worldwide Associates, Inc.) EXHIBIT INDEX Page Exhibit Description Number - -------------------------------------------------------------------------------- 3.1(a) Articles of Incorporation of the Company as amended through February 17, 2000 3.1(b) Amendment to Articles of Incorporation of the Company dated as of February 17, 2000 - 3.2(a) Bylaws of the Company as amended through March 22, 2000 - 3.2(b) Amendment to Bylaws of the Company dated as of March 22, 2000 - 4.8 Amendment No. 2 dated September 30, 1999 to the Amended and Restated Credit Agreement dated as of April 3, 1998 - 4.9 Fourth Amendment dated January 10, 2000 to Note Agreement dated October 1, 1995 - 4.10 First Amendment dated January 10, 2000 to Note Agreement dated September 15, 1997 - 10.16 Johnson Outdoors Inc. 2000 Long-Term Stock Incentive Plan - 27 Financial Data Schedule for the six months ended March 31, 2000 - 27.1 Restated Financial Data Schedule for the year ended October 1, 1999 - 27.2 Restated Financial Data Schedule for the nine months ended July 2, 1999 - 27.3 Restated Financial Data Schedule for the six months ended April 2, 1999 - 27.4 Restated Financial Data Schedule for the three months ended January 1, 1999 - 27.5 Restated Financial Data Schedule for the year ended October 2, 1998 - 27.6 Restated Financial Data Schedule for the year ended October 3, 1997 -