================================================================================ 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 April 2, 1999 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 WORLDWIDE ASSOCIATES, 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) (414) 884-1500 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of April 30, 1999, 6,892,267 shares of Class A and 1,222,861 shares of Class B common stock of the Registrant were outstanding. ================================================================================
JOHNSON WORLDWIDE ASSOCIATES, INC. Index Page No. - -------------------------------------------------------------------------------- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Operations - three months and six months ended April 2, 1999 and April 3, 1998 1 Consolidated Balance Sheets - April 2, 1999, October 2, 1998 and April 3, 1998 2 Consolidated Statements of Cash Flows - six months ended April 2, 1999 and April 3, 1998 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 13 Signatures
JOHNSON WORLDWIDE ASSOCIATES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended - ---------------------------------------------------------------------------------------------------------------------------- April 2 April 3 April 2 April 3 (thousands, except per share data) 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net sales $ 104,210 $ 97,938 $ 164,210 $ 149,779 Cost of sales 62,014 58,210 100,280 90,857 - ---------------------------------------------------------------------------------------------------------------------------- Gross profit 42,196 39,728 63,930 58,922 - ---------------------------------------------------------------------------------------------------------------------------- Operating expenses: Marketing and selling 20,397 19,394 35,377 32,887 Finance, information systems and administrative management 6,620 6,587 12,962 12,424 Research and development 1,943 1,806 3,887 3,349 Amortization of acquisition costs 1,025 943 2,050 1,855 Profit sharing 696 339 766 354 Nonrecurring charges 1,133 36 1,549 102 - ---------------------------------------------------------------------------------------------------------------------------- Total operating expenses 31,814 29,105 56,591 50,971 - ---------------------------------------------------------------------------------------------------------------------------- Operating profit 10,382 10,623 7,339 7,951 Interest income (59) (68) (163) (145) Interest expense 2,648 2,539 4,931 4,733 Other expenses, net 99 142 94 72 - ---------------------------------------------------------------------------------------------------------------------------- Income before income taxes 7,694 8,010 2,477 3,292 Income tax expense 3,317 3,271 1,119 1,337 - ---------------------------------------------------------------------------------------------------------------------------- Net income $ 4,377 $ 4,739 $ 1,358 $ 1,955 ============================================================================================================================ Basic earnings per common share $ 0.54 $ 0.59 $ 0.17 $ 0.24 ============================================================================================================================ Diluted earnings per common share $ 0.54 $ 0.58 $ 0.17 $ 0.24 ============================================================================================================================ The accompanying notes are an integral part of the consolidated financial statements. </TABLE> -1-
JOHNSON WORLDWIDE ASSOCIATES, INC. CONSOLIDATED BALANCE SHEETS (unaudited) <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------- April 2 October 2 April 3 (thousands, except share data) 1999 1998 1998 - ------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: <S> <C> <C> <C> Cash and temporary cash investments $ 3,467 $ 11,496 $ 4,724 Accounts receivable, less allowance for doubtful accounts of $3,032, $2,570, and $2,536, respectively 94,768 53,421 85,451 Inventories 81,722 76,603 95,774 Deferred income taxes 5,574 6,067 7,755 Other current assets 7,570 6,933 8,446 - -------------------------------------------------------------------------------------------------------------------------- Total current assets 193,101 154,520 202,150 Property, plant and equipment 35,168 35,469 33,860 Deferred income taxes 15,663 15,435 10,441 Intangible assets 87,653 90,101 86,330 Other assets 1,602 492 533 - -------------------------------------------------------------------------------------------------------------------------- Total assets $ 333,187 $ 296,017 $ 333,314 ========================================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt and current maturities of long-term debt $ 92,892 $ 42,614 $ 80,917 Accounts payable 17,141 11,681 19,267 Accrued liabilities 24,106 30,724 27,022 - ------------------------------------------------------------------------------------------------------------------------- Total current liabilities 134,139 85,019 127,206 Long-term debt, less current maturities 74,010 82,066 87,921 Other liabilities 4,329 4,546 4,058 - ------------------------------------------------------------------------------------------------------------------------- Total liabilities 212,478 171,631 219,185 - ------------------------------------------------------------------------------------------------------------------------- Shareholders' equity: Preferred stock: none issued -- -- -- Common stock: Class A shares issued: April 2, 1999, 6,910,577; October 2, 1998, 6,909,577; April 3, 1998, 6,909,351 345 345 345 Class B shares issued (convertible into Class A): April 2, 1999, 1,222,861; October 2, 1998, 1,223,861; April 3, 1998, 1,224,087 61 61 61 Capital in excess of par value 44,157 44,205 44,193 Retained earnings 86,305 85,068 81,809 Contingent compensation (63) (27) (65) Other comprehensive income - cumulative translation adjustment (9,811) (4,651) (11,599) Treasury stock: Class A shares, at cost: April 2, 1999, 18,310; October 2, 1998, 39,532; April 3, 1998, 39,532 (285) (615) (615) - ------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 120,709 124,386 114,129 - ------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 333,187 $ 296,017 $ 333,314 ========================================================================================================================= The accompanying notes are an integral part of the consolidated financial statements. </TABLE> -2-
JOHNSON WORLDWIDE ASSOCIATES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------- Six Months Ended - -------------------------------------------------------------------------------------------------------------------- April 2 April 3 (thousands) 1999 1998 - -------------------------------------------------------------------------------------------------------------------- CASH USED FOR OPERATIONS <S> <C> <C> Net income $ 1,358 $ 1,954 Noncash items: Depreciation and amortization 7,554 6,882 Deferred income taxes 464 210 Change in assets and liabilities, net of effect of businesses acquired: Accounts receivable, net (41,438) (35,390) Inventories (7,378) (15,863) Accounts payable and accrued liabilities 364 5,115 Other, net (926) (1,472) - -------------------------------------------------------------------------------------------------------------------- (40,002) (38,564) - -------------------------------------------------------------------------------------------------------------------- CASH USED FOR INVESTING ACTIVITIES Net assets of businesses acquired, net of cash (5,574) (12,418) Net additions to property, plant and equipment (5,526) (5,613) - -------------------------------------------------------------------------------------------------------------------- (11,100) (18,031) - -------------------------------------------------------------------------------------------------------------------- CASH PROVIDED BY FINANCING ACTIVITIES Issuance of senior notes -- 25,000 Net change in short-term debt 43,408 29,869 Common stock transactions 94 (333) - -------------------------------------------------------------------------------------------------------------------- 43,502 54,536 Effect of foreign currency fluctuations on cash (429) (347) - -------------------------------------------------------------------------------------------------------------------- Decrease in cash and temporary cash investments (8,029) (2,406) CASH AND TEMPORARY CASH INVESTMENTS Beginning of period 11,496 7,130 - -------------------------------------------------------------------------------------------------------------------- End of period $ 3,467 $ 4,724 ==================================================================================================================== The accompanying notes are an integral part of the consolidated financial statements. </TABLE> -3-
JOHNSON WORLDWIDE ASSOCIATES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1 Basis of Presentation The consolidated financial statements included herein are unaudited. In the opinion of management, these statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Johnson Worldwide Associates, Inc. and subsidiaries (the Company) as of April 2, 1999 and the results of operations and cash flows for the three months and six months ended April 2, 1999. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1998 Annual Report. Because of seasonal and other factors, the results of operations for the three months and six months ended April 2, 1999 are not necessarily indicative of the results to be expected for the full year. All monetary amounts, other than share and per share amounts, are stated in thousands. Certain amounts as previously reported have been reclassified to conform with the current period presentation. 2 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. 3 Inventories Inventories at the end of the respective periods consist of the following: -------------------------------------------------------------------------- April 2 October 2 April 3 1999 1998 1998 -------------------------------------------------------------------------- Raw materials $ 28,407 $ 27,834 $ 34,597 Work in process 3,442 4,753 6,818 Finished goods 55,413 49,875 61,765 -------------------------------------------------------------------------- 87,262 82,462 103,180 Less reserves 5,540 5,859 7,406 -------------------------------------------------------------------------- $ 81,722 $ 76,603 $ 95,774 ========================================================================== -4-
JOHNSON WORLDWIDE ASSOCIATES, INC. 4 Earnings Per Share The following table sets forth the computation of basic and diluted earnings per common share: <TABLE> <CAPTION> -------------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended -------------------------------------------------------------------------------------------------------------- April 2 April 3 April 2 April 3 1999 1998 1999 1998 ============================================================================================================== <S> <C> <C> <C> <C> Net income for basic and diluted earnings per share $ 4,377 $ 4,739 $ 1,358 $ 1,954 -------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 8,100,600 8,130,881 8,097,253 8,106,924 Less nonvested restricted stock 3,818 6,559 3,988 6,854 -------------------------------------------------------------------------------------------------------------- Basic average common shares 8,096,782 8,097,322 8,093,265 8,100,070 Dilutive stock options and restricted stock 2,207 30,199 1,914 31,329 -------------------------------------------------------------------------------------------------------------- Diluted average common shares 8,098,989 8,127,521 8,095,179 8,131,399 ============================================================================================================== Basic earnings per common share $ 0.54 $ 0.59 $ 0.17 $ 0.24 ============================================================================================================== Diluted earnings per common share $ 0.54 $ 0.58 $ 0.17 $ 0.24 ============================================================================================================== </TABLE> 5 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 2, 1998 602,061 $17.43 Granted 281,000 8.96 Cancelled (84,723) 15.10 ------------------------------------------------------------------------ Outstanding at April 2, 1999 798,338 $14.70 ======================================================================== Options to purchase 620,761 shares of common stock with a weighted average exercise price of $17.45 per share were outstanding at April 3, 1998. 6 Acquisitions In April 1999, subsequent to the end of the quarter, the Company completed the acquisition of substantially all of the assets and the assumption of certain liabilities of Escape Sailboat Company LLC, a privately held manufacturer and marketer of recreational sailboats. The initial purchase price, including direct expenses, for the acquisition was approximately $4,800, of which approximately $3,100 was recorded as intangible assets and is being amortized over 25 years. Additional payments in 2000 and 2001 are dependent upon achievement of specified levels of sales of the acquired business. In December 1998, the Company completed the acquisition of substantially all of the assets and the assumption of certain liabilities of True North Paddle & Necky Kayaks Ltd., a privately held manufacturer and marketer of Necky kayaks, and an affiliated entity. The purchase price, including direct expenses, for the acquisition was approximately $5,700, of which approximately $3,100 was recorded as intangible assets and is being amortized over 25 years. Additional payments in the years -5-
JOHNSON WORLDWIDE ASSOCIATES, INC. 1999 through 2003 are dependent upon the achievement of specified levels of sales and profitability of the acquired business. The acquisitions were accounted for using the purchase method and, accordingly, the Consolidated Financial Statements include the results of operations since the respective dates of acquisition. Additional payments, if required, will increase intangible assets in future years. 7 Litigation In 1998, certain businesses acquired by the Company became subject to judgments in civil liability cases. In February 1999, these cases were settled. Payments totaling $1,600 made by the Company as a result of these judgments reduced payments otherwise due to selling shareholders of the businesses acquired. Accordingly, these judgments did not impact the operating results of the Company. 8 Comprehensive Income The Company adopted Financial Accounting Standards Board Statement 130, Reporting Comprehensive Income, in 1999. 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 translation adjustment. Comprehensive income (loss) for the respective periods consists of the following: <TABLE> <CAPTION> ---------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended ---------------------------------------------------------------------------------------------- April 2 April 3 April 2 April 3 1999 1998 1999 1998 ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net income $ 4,377 $ 4,739 $ 1,358 $ 1,954 Translation adjustment (5,193) (2,539) (5,160) (5,243) ---------------------------------------------------------------------------------------------- Comprehensive income (loss) $ (816) $ 2,200 $ (3,802) $ (3,289) ============================================================================================== </TABLE> 9 Segments of Business The Company conducts its worldwide operations through five separate global business units 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. -6-
JOHNSON WORLDWIDE ASSOCIATES, INC. <TABLE> <CAPTION> A summary of the Company's operations by business unit is presented below: -------------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended -------------------------------------------------------------------------------------------------------------- April 2 April 3 April 2 April 3 1999 1998 1999 1998 -------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Net sales: Diving: Unaffiliated customers $ 19,914 $ 21,466 $ 37,559 $ 40,896 Interunit transfers 6 (108) 9 -- Outdoor equipment: Unaffiliated customers 26,136 22,513 41,136 34,905 Interunit transfers 19 -- 30 1 Fishing: Unaffiliated customers 19,566 20,899 31,422 30,168 Interunit transfers 201 218 324 405 Motors: Unaffiliated customers 22,402 20,380 31,427 26,270 Interunit transfers 645 703 984 1,108 Watercraft: Unaffiliated customers 15,873 12,356 21,655 16,583 Interunit transfers 168 120 180 120 Other 319 324 1,011 957 Eliminations (1,039) (933) (1,527) (1,634) -------------------------------------------------------------------------------------------------------------- $ 104,210 $ 97,938 $ 164,210 $ 149,779 ============================================================================================================== Operating profit (loss): Diving $ 765 $ 3,617 $ 196 $ 5,223 Outdoor equipment 1,829 1,783 883 1,096 Fishing 2,093 1,415 2,172 (246) Motors 3,554 2,864 2,612 1,320 Watercraft 3,172 2,539 3,322 2,676 Other (1,031) (1,595) (1,846) (2,118) -------------------------------------------------------------------------------------------------------------- $ 10,382 $ 10,623 $ 7,339 $ 7,951 ============================================================================================================== -------------------------------------------------------------------------------------------------------------- April 2 October 2 April 3 1999 1998 1998 -------------------------------------------------------------------------------------------------------------- Identifiable assets: Diving $ 97,507 $ 104,344 $ 100,926 Outdoor equipment 53,849 49,090 58,884 Fishing 72,746 62,099 78,525 Motors 34,878 22,905 36,317 Watercraft 49,886 29,340 36,667 Other 24,321 28,239 21,995 -------------------------------------------------------------------------------------------------------------- $ 333,187 $ 296,017 $ 333,314 ============================================================================================================== </TABLE> -7-
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 April 2, 1999 and April 3, 1998. 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 1998 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, the success of the Company's EVA(R) program, actions of companies that compete with JWA, the Company's success in managing inventory, movements in foreign currencies or interest rates, the success of suppliers, customers and others regarding compliance with year 2000 issues, and adverse weather conditions. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this Form 10-Q and the Company undertakes no obligations to publicly update such forward-looking statements to reflect subsequent events or circumstances. Results of Operations Net sales for the three months ended April 2, 1999 totaled $104.2 million, compared to $97.9 million in the three months ended April 3, 1998. Net sales for the six months ended April 2, 1999 totaled $164.2 million, an increase of 10%, or $14.4 million, over the six months ended April 3, 1998. Sales of all businesses except Diving and Fishing exhibited strong growth. The Diving business was adversely impacted by the integration of acquired businesses into its operations. The Fishing business had high levels of sales of excess product at nominal margins in the prior year, causing an unfavorable comparison with regard to sales. Relative to the U.S. dollar, the average values of most currencies of the countries in which the Company has operations were higher for the six months ended April 2, 1999 as compared to the corresponding period of the prior year. Excluding the impact of foreign currencies, net sales increased 5% and 8% for the three and six months ended April 2, 1999, respectively. Gross profit as a percentage of sales was 40.5% for the three months ended April 2, 1999 compared to 40.6% in the corresponding period in the prior year. Gross profit for the six months ended April 2, 1999 decreased to 38.9% from 39.3% in the prior year. The decline in higher margin Diving sales relative to total sales contributed to the decrease, more than offsetting strong gains in the Fishing and Motors businesses. The Company recognized an operating profit of $10.4 million for the three months ended April 2, 1999, compared to an operating profit of $10.6 million for the corresponding period of the prior year. For the six months ended April 2, 1999, operating profit decreased to $7.4 million, from $8.0 million in the prior year. -8-
JOHNSON WORLDWIDE ASSOCIATES, INC. Seasonal losses of the Leisure Life watercraft business, which the Company acquired in February 1998 and, accordingly, did not impact prior year results, contributed to the decrease from the prior year. Increased nonrecurring charges from integration of acquired businesses also contributed to the decrease. The combination of these two factors more than offset the positive impact of increased sales on operating margins and the favorable impact of the Necky acquisition. Interest expense totaled $4.9 million for the six months ended April 2, 1999 compared to $4.7 million for the corresponding period of the prior year. Increased debt levels due to acquisitions consummated in 1999 and 1998, more than offset improved management of working capital and a favorable interest rate environment, accounting for the change. The Company's effective tax rate increased due to a change in the amount and mix of profits in foreign jurisdictions. The Company recognized net income of $4.4 million in the three months ended April 2, 1999 compared to net income of $4.7 million in the corresponding period of the prior year. Diluted earnings per common share totaled $0.54 for the three months ended April 2, 1999 compared to $0.58 in the prior year. The Company recognized net income of $1.4 million in the six months ended April 2, 1999 compared to net income of $2.0 million in the corresponding period of the prior year. Year to date diluted earnings per common share decreased to $0.17 from $0.24 in the prior year. Financial Condition The following discusses changes in the Company's liquidity and capital resources. Operations Cash flows used for operations totaled $40.0 million for the six months ended April 2, 1999 and $38.6 million for the corresponding period of the prior year. Accounts receivable seasonally increased $41.4 million for the six months ended April 2, 1999 and $35.4 million for the corresponding period of the prior year. Seasonal growth in inventories of $7.4 million for the six months ended April 2, 1999 and $15.9 million for the corresponding period of the prior year also accounted for a portion of the net usage of funds. Inventory turns increased for the six month period ended April 2, 1999 compared to the corresponding period of the prior year. Accounts payable and accrued liabilities increased $0.4 million for the six months ended April 2, 1999 and $5.1 million for the corresponding period of the prior year, decreasing the net outflow of cash from operations. Depreciation and amortization charges were $7.6 million for the six months ended April 2, 1999 and $6.9 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. Investing Activities Expenditures for property, plant and equipment were $5.5 million for the six months ended April 2, 1999 and $5.6 million for the corresponding period of the prior year. The Company's recurring investments are made primarily for tooling for new products and enhancements. In 1999, capitalized expenditures are anticipated to total approximately $12 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 first six months of the current year and three businesses in the prior year, which increased tangible and intangible assets by $5.6 million and $12.4 million, respectively, net of cash and liabilities assumed. -9-
JOHNSON WORLDWIDE ASSOCIATES, INC. Financing Activities Cash flows from financing activities totaled $43.5 million for the six months ended April 2, 1999 and $54.5 million for the corresponding period of the prior year. In October 1997, the Company consummated a private placement of long-term debt totaling $25 million. Payments on long-term debt required to be made in 1999 total $7.8 million. 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 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 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. Certain instruments are included in both categories of risk exposure calculated below. The calculations do not include the underlying foreign exchange positions that are hedged by these market risk sensitive instruments. The -10-
JOHNSON WORLDWIDE ASSOCIATES, INC. 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 April 2, 1999: - -------------------------------------------------------------------------------- Estimated Impact on - -------------------------------------------------------------------------------- Earnings Before Income (millions) Fair Value Taxes - -------------------------------------------------------------------------------- Foreign exchange rate instruments $2.8 $0.3 Interest rate instruments 3.9 0.8 ================================================================================ Other Factors The Company has not been significantly impacted by inflationary pressures over the last several years. The Company anticipates that changing costs of basic raw materials may impact future operating costs and, accordingly, the prices of its products. The Company is involved in continuing programs to mitigate the impact of cost increases through changes in product design and identification of sourcing and manufacturing efficiencies. Price increases and, in certain situations, price decreases are implemented for individual products, when appropriate. Year 2000 The year 2000 issue is the result of computer programs using two digits (rather than four) to define years. Computers or other equipment with date sensitive software may recognize "00" as the year 1900 rather than 2000. This could result in system failures or miscalculations. If the Company or its significant customers or suppliers fail to correct year 2000 issues, the Company's ability to operate could be materially affected. The Company has assessed the impact of year 2000 issues on the processing of date-related information for all of its information systems infrastructure and non-technical assets, such as production equipment. All systems and non-technical assets are in the process of being inventoried and classified as to their compliance with year 2000 data processing. Any systems found year 2000 deficient will be modified, upgraded or replaced. Project plans anticipate all existing, critical information systems infrastructure and non-technical assets to be year 2000 compliant before failure to comply would significantly disrupt the Company's operations. Contingency plans are being developed to address any failures resulting from relationships with customers, suppliers or other third parties. The Company has made inquiries of its suppliers, customers and other organizations which impact the Company's business, but cannot guarantee that circumstances beyond its control will not have an adverse impact on its operations. Since 1993, the Company has invested more than $10 million in information systems improvements and has been migrating its businesses to systems that are year 2000 compliant. Based on assessments and testing to date, the financial impact of addressing any potential remaining internal system issues should not be material to the Company's financial position, results of operations or cash flows. 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." -11-
PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting on January 26, 1999, the shareholders voted on three management proposals and to elect the following individuals as Directors for terms that expire at the next annual meeting: <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------- Votes Cast For Votes Cast Votes Broker Against Withheld Abstentions Non-Votes - -------------------------------------------------------------------------------------------------------------------- Class A Directors: <S> <C> <C> <C> <C> <C> Thomas F. Pyle, Jr. 5,420,265 0 698,190 0 0 Glenn N. Rupp 5,419,275 0 699,180 0 0 Class B Directors: Samuel C. Johnson 1,218,377 0 0 0 0 Helen P. Johnson-Leipold 1,218,377 0 0 0 0 Gregory E. Lawton 1,218,377 0 0 0 0 Ronald C. Whitaker 1,218,377 0 0 0 0 Proposal 1 regarding the amendment to the 1994 Long-Term Stock Incentive Plan to increase the number of shares authorized for issuance 16,132,501 2,027,828 0 141,896 0 Proposal 2 regarding the amendment to the 1994 Long-Term Stock Incentive Plan to change the individual limit on share awards 16,065,030 1,445,603 0 791,592 0 Proposal 3 regarding the amendment to the 1994 Non-Employee Director Stock Ownership Plan to increase the number of shares authorized for issuance 17,473,218 45,491 0 783,516 0 Votes cast for or against and abstentions with respect to Proposals 1, 2 and 3 reflect that holders of Class B shares are entitled to 10 votes per share for matters other than the election of Directors. </TABLE> -12-
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 Amendments to Bylaws of the Company dated as of March 9, 1999. Exhibit 3.2 Bylaws of the Company as amended through March 9, 1999. Exhibit 10.1 Separation agreement, dated March 9, 1999, between the Company and R. C. Whitaker. Exhibit 27: Financial Data Schedule (b) There were no reports on Form 8-K filed for the three months ended April 2, 1999. -13-
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 WORLDWIDE ASSOCIATES, INC. Date: May 17, 1999 /s/ Carl G. Schmidt -------------------------------------------------- Carl G. Schmidt Senior Vice President and Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) -14-
JOHNSON WORLDWIDE INDEX Page Exhibit Description Number - -------------------------------------------------------------------------------- 3.1 Amendments to Bylaws of the Company dated as of March 9, 1999. - 3.2 Bylaws of the Company as amended through March 9, 1999. - 10.1 Separation agreement, dated March 9, 1999, between the Company and R. C. Whitaker. - 27. Financial Data Schedule -