================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 29, 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) 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 January 31, 2001, 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. Index Page No. - -------------------------------------------------------------------- -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Operations - Three months ended December 29, 2000 and 1 December 31, 1999 Consolidated Balance Sheets - December 29, 2000, September 29, 2000 and December 31, 2 1999 Consolidated Statements of Cash Flows - Three months ended December 29, 2000 and 3 December 31, 1999 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 12 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 Signatures
PART I FINANCIAL INFORMATION Item 1. Financial Statements <TABLE> JOHNSON OUTDOORS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) <CAPTION> - ------------------------------------------------------------------------------------------ (thousands, except per share data) Three Months Ended - ------------------------------------------------------------------------------------------ December 29 December 31 2000 1999 - ------------------------------------------------------------------------------------------ <S> <C> <C> Net sales $ 57,619 $ 56,201 Cost of sales 35,426 34,289 - ------------------------------------------------------------------------------------------ Gross profit 22,193 21,912 - ------------------------------------------------------------------------------------------ Operating expenses: Marketing and selling 13,635 13,134 Administrative management, finance and information systems 6,866 6,065 Research and development 1,823 1,651 Amortization and write-down of intangibles 3,227 761 Profit sharing 211 110 Strategic charges -- 52 - ------------------------------------------------------------------------------------------ Total operating expenses 25,762 21,773 - ------------------------------------------------------------------------------------------ Operating profit (loss) (3,569) 139 Interest income (164) (105) Interest expense 2,082 2,272 Other expense, net (81) (211) - ------------------------------------------------------------------------------------------ Loss from continuing operations before income taxes (5,406) (1,817) Income tax benefit (2,177) (782) - ------------------------------------------------------------------------------------------ Loss from continuing operations before cumulative effect of change in accounting principle (3,229) (1,035) Loss from discontinued operations, net of tax of $563 -- (940) Loss on disposal of discontinued operations, net of tax of $2,801 -- (23,109) Cumulative effect of change in accounting principle, net of tax of $845 1,755 -- - ------------------------------------------------------------------------------------------ Net loss $ (1,474) $(25,084) ========================================================================================== BASIC EARNINGS (LOSS) PER COMMON SHARE: Continuing operations $ (0.40) $ (0.13) Discontinued operations -- (2.96) Cumulative effect of change in accounting principle 0.22 -- - ------------------------------------------------------------------------------------------ Net loss $ (0.18) $ (3.09) ========================================================================================== DILUTED EARNINGS (LOSS) PER COMMON SHARE: Continuing operations $ (0.40) $ (0.13) Discontinued operations -- (2.96) Cumulative effect of change in accounting principle 0.22 -- - ------------------------------------------------------------------------------------------ Net loss $ (0.18) $ (3.09) ========================================================================================== </TABLE> The accompanying notes are an integral part of the consolidated financial statements. -1-
<TABLE> JOHNSON OUTDOORS INC. CONSOLIDATED BALANCE SHEETS (unaudited) <CAPTION> - ------------------------------------------------------------------------------------------------------------- December 29 September 29 December 31 (thousands, except share data) 2000 2000 1999 - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> ASSETS Current assets: Cash and temporary cash investments $ 14,896 $ 17,363 $ 8,936 Accounts receivable, less allowance for doubtful accounts of $4,048, $3,895 and $3,340, respectively 55,829 54,825 48,871 Inventories 80,106 62,708 72,605 Deferred income taxes 3,822 4,613 7,679 Other current assets 5,198 4,685 5,990 Net assets of discontinued operations -- -- 38,356 - ------------------------------------------------------------------------------------------------------------- Total current assets 159,851 144,194 182,437 Property, plant and equipment 37,569 37,369 36,227 Deferred income taxes 17,256 17,311 15,376 Intangible assets 56,895 57,866 61,712 Other assets 1,470 1,231 1,835 - ------------------------------------------------------------------------------------------------------------- Total assets $273,041 $257,971 $297,587 ============================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt and current maturities of long-term debt $ 97,068 $ 59,462 $ 88,210 Accounts payable 13,933 12,928 18,446 Accrued liabilities: Salaries and wages 5,926 7,421 5,016 Income taxes (3,274) 140 (4,003) Other 14,088 26,452 22,115 - ------------------------------------------------------------------------------------------------------------- Total current liabilities 127,741 106,403 129,784 Long-term debt, less current maturities 40,829 45,857 64,573 Other liabilities 5,038 4,879 4,797 - ------------------------------------------------------------------------------------------------------------- Total liabilities 173,608 157,139 199,154 - ------------------------------------------------------------------------------------------------------------- Shareholders' equity: Preferred stock: none issued -- -- -- Common stock: Class A shares issued: December 29, 2000, 6,924,630; September 29, 2000, 6,924,630; December 31, 1999, 6,910,709 346 346 345 Class B shares issued (convertible into Class A): 1,222,729 61 61 61 Capital in excess of par value 44,291 44,291 44,205 Retained earnings 73,323 74,797 66,746 Contingent compensation (69) (77) (115) Accumulated other comprehensive income: Cumulative foreign currency translation adjustment (18,519) (18,586) (12,727) Treasury stock: Class A shares, at cost: December 31, 1999, 5,280 -- -- (82) - ------------------------------------------------------------------------------------------------------------- Total shareholders' equity 99,433 100,832 98,433 - ------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $273,041 $257,971 $297,587 ============================================================================================================= </TABLE> The accompanying notes are an integral part of the consolidated financial statements. -2-
<TABLE> JOHNSON OUTDOORS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) <CAPTION> - ------------------------------------------------------------------------------------------------------ (thousands) Three Months Ended - ------------------------------------------------------------------------------------------------------ December 29 December 31 2000 1999 - ------------------------------------------------------------------------------------------------------ <S> <C> <C> CASH USED FOR OPERATIONS Net loss $ (1,474) $(25,084) Less loss from discontinued operations -- (24,049) Less income from cumulative effect of change in accounting principle 1,755 -- - ------------------------------------------------------------------------------------------------------ Loss from continuing operations before cumulative effect of change in accounting principle (3,229) (1,035) Adjustments to reconcile income from continuing operations to net cash used for operating activities of continuing operations : Depreciation and amortization 3,100 3,073 Deferred income taxes 660 (2,826) Impairment of goodwill 2,526 -- Change in assets and liabilities, net of effect of businesses acquired or sold: Accounts receivable (176) (499) Inventories (15,642) (14,131) Accounts payable and accrued liabilities (17,522) (2,761) Other, net (923) 728 - ------------------------------------------------------------------------------------------------------ (31,206) (17,451) - ------------------------------------------------------------------------------------------------------ CASH USED FOR INVESTING ACTIVITIES Payments for purchase of business, net of cash acquired (339) -- Net additions to property, plant and equipment (2,662) (3,449) - ------------------------------------------------------------------------------------------------------ (3,001) (3,449) - ------------------------------------------------------------------------------------------------------ CASH PROVIDED BY FINANCING ACTIVITIES Principal payments on senior notes and other long-term debt (6,000) (5,500) Net change in short-term debt 36,947 36,823 Common stock transactions -- -- - ------------------------------------------------------------------------------------------------------ 30,947 31,323 - ------------------------------------------------------------------------------------------------------ Effect of foreign currency fluctuations on cash 793 (485) Net cash used for discontinued operations -- (10,976) - ------------------------------------------------------------------------------------------------------ Decrease in cash and temporary cash investments (2,467) (1,038) CASH AND TEMPORARY CASH INVESTMENTS Beginning of period 17,363 9,974 - ------------------------------------------------------------------------------------------------------ End of period $ 14,896 $ 8,936 ====================================================================================================== </TABLE> The accompanying notes are an integral part of the consolidated financial statements. -3-
JOHNSON OUTDOORS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1 Basis of Presentation The consolidated financial statements included herein are unaudited. In the opinion of management, these statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Johnson Outdoors Inc. and subsidiaries (the Company) as of December 29, 2000 and the results of operations and cash flows for the three months ended December 29, 2000. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2000 Annual Report on Form 10-K. Because of seasonal and other factors, the results of operations for the three months ended December 29, 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. 2 Change in Accounting Principle Effective September 30, 2000, the Company adopted SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item are recognized in the earnings. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when the hedged item affects earnings. The adoption of SFAS 133 resulted in a decrease in net loss of $1,755, a decrease in deferred income tax assets of $845, an increase in accrued liabilities of $374 and a reduction in accumulated other comprehensive income of $2,974 for derivative instruments not designated as hedging instruments. Unrealized gains on certain derivative instruments were previously recorded as a component of accumulated other comprehensive income. 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-
4 Inventories Inventories related to continuing operations at the end of the respective periods consist of the following: --------------------------------------------------------------------------- December 29 September 29 December 31 2000 2000 1999 --------------------------------------------------------------------------- Raw materials $28,477 $23,122 $26,542 Work in process 2,947 2,238 3,127 Finished goods 51,584 40,297 47,653 --------------------------------------------------------------------------- 83,008 65,657 77,322 Less reserves 2,902 2,949 4,717 --------------------------------------------------------------------------- $80,106 $62,708 $72,605 =========================================================================== 5 Earnings Per Share The following table sets forth the computation of basic and diluted earnings per common share from continuing operations before cumulative effect of change in accounting principle: <TABLE> <CAPTION> ------------------------------------------------------------------------------------------ Three Months Ended ------------------------------------------------------------------------------------------ December 29 December 31 2000 1999 ------------------------------------------------------------------------------------------ <S> <C> <C> Loss from continuing operations before cumulative effect of change in accounting principle for basic and diluted earnings per share $(3,229) $(1,035) ========================================================================================== Weighted average common shares outstanding 8,147,359 8,128,158 Less nonvested restricted stock 14,500 20,500 ------------------------------------------------------------------------------------------ Basic and diluted average common shares 8,132,859 8,107,658 ========================================================================================== Basic and diluted earnings per common share from continuing operations before cumulative effect of change in accounting principle $(0.40) $(0.13) ========================================================================================== </TABLE> 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 September 29, 2000 952,230 $12.08 Granted 189,000 5.31 Cancelled (9,733) 20.73 -------------------------------------------------------------------------- Outstanding at December 29, 2000 1,131,497 $10.88 ========================================================================== Options to purchase 921,305 shares of common stock with a weighted average exercise price of $12.77 per share were outstanding at December 31, 1999. -5-
7 Sale of Fishing Business In March 2000, the Company sold its Fishing business. As a result, operations and related assets and liabilities of the Fishing group have been classified as discontinued for all periods presented herein. The sale price totaled $47,279, including $14,056 of accounts receivable retained by the Company and $2,367 of debt assumed by the buyer. The Company recorded a loss of $24,418, net of tax ($23,109 of which was recognized in the three month period ended December 31, 1999), related to the sale of the business, taking into account operating results from the measurement date to the date of disposal. In addition, the Company recorded an after tax loss from operations up to the measurement date of $940 in the three months ending December 31, 1999. 8 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 --------------------------------------------------------------------------- December 29 December 31 2000 1999 --------------------------------------------------------------------------- Net income (loss) $(1,474) $(25,084) Translation adjustment 3,041 (3,678) Reclassification adjustment for change in accounting principle (2,974) -- --------------------------------------------------------------------------- Comprehensive income (loss) $(1,407) $(28,762) =========================================================================== -6-
9 Segments of Business The Company conducts its worldwide operations through separate global business units, each of which represent major product lines. Operations are conducted in the United States and various foreign countries, primarily in Europe, Canada and the Pacific Basin. The Company does not believe it has unusual risk related to concentrations in volume of business with a particular customer or supplier, or concentrations in revenue from a particular product. Net sales and operating profit include both sales to customers, as reported in the Company's consolidated statements of operations, and interunit transfers, which are priced to recover cost plus an appropriate profit margin. Identifiable assets represent assets that are used in the Company's operations in each business unit at the end of the periods presented. A summary of the Company's operations by business unit is presented below: --------------------------------------------------------------------------- Three Months Ended --------------------------------------------------------------------------- December 29 December 31 2000 1999 --------------------------------------------------------------------------- Net sales: Outdoor equipment: Unaffiliated customers $ 21,058 $ 18,007 Interunit transfers 14 3 Diving: Unaffiliated customers 16,009 16,033 Interunit transfers 1 -- Watercraft: Unaffiliated customers 10,549 10,076 Interunit transfers 35 16 Motors: Unaffiliated customers 9,975 11,361 Interunit transfers 164 370 Other 28 724 Eliminations (214) (389) --------------------------------------------------------------------------- $ 57,619 $ 56,201 =========================================================================== Operating profit (loss): Outdoor equipment $ 1,298 $ 660 Diving 1,816 1,479 Watercraft (1,114) 273 Motors (3,301) (801) Other (2,268) (1,472) --------------------------------------------------------------------------- $ (3,569) $ 139 =========================================================================== Identifiable assets (end of period): Outdoor equipment $ 47,848 $ 45,944 Diving 95,178 89,053 Watercraft 74,220 63,069 Motors 32,985 32,092 Discontinued operations, net -- 38,356 Other 22,810 29,073 --------------------------------------------------------------------------- $ 273,041 $ 297,587 =========================================================================== -7-
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion includes comments and analysis relating to the Company's results of operations and financial condition for the three months ended December 29, 2000 and December 31, 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 2000 Annual Report on Form 10-K. Forward Looking Statements Certain matters discussed in this Form 10-Q are "forward-looking statements," intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement includes phrases such as the Company "expects," "believes" or other words of similar meaning. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include changes in consumer spending patterns, actions of companies that compete with the Company, the Company's success in managing inventory, movements in foreign currencies or interest rates and adverse weather conditions. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this Form 10-Q and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Results of Continuing Operations Net sales for the three months ended December 29, 2000 totaled $57.6 million, an increase of 2.5% or $1.4 million, compared to $56.2 million in the three months ended December 31, 1999. Three of the four business units showed sales growth over the prior year on a volume basis, lead primarily by the Outdoor Equipment group which had a $2.8 million increase in military tent sales. The Motors business experienced a sales decline of 12.2% versus the year ago period, due primarily to two reasons: first the bankruptcy of OMC and second, last year reflected a build-up in sales as the Company prepared to exit the third-party OEM motor business at its Lake Electric plant. Excluding those two items, sales were flat with the prior year period. The Diving and Outdoor Equipment businesses were adversely impacted by foreign currency movements, resulting in more moderate increases in sales for the three months ended December 29, 2000. 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 ended December 29, 2000 as compared to the corresponding period of the prior year. Excluding the impact of fluctuations in foreign currencies, net sales increased 8.1% for the three months ended December 29, 2000. Gross profit as a percentage of sales was 38.5% for the three months ended December 29, 2000 compared to 39.0% in the corresponding period in the prior year. Margin declines in the Watercraft business and, to a lesser extent, the Outdoor Equipment business, more than offset margin improvement in the Diving and Motors businesses. The Watercraft business continues to experience operational efficiency issues due to rapid growth. Product mix from an emphasis on higher margin regulators, buoyancy compensators and fins contributed to improved margins for the Diving business. The Motors business benefited from the synergies resulting from consolidating the Lake Electric plant into the Mankato plant, which was completed in the prior year. -8-
The Company recognized an operating loss of $3.6 million for the three months ended December 29, 2000 compared to an operating profit of $0.1 million for the corresponding period of the prior year. Included in the operating loss for the three months ended December 29, 2000 is a $2.5 million write-down for impaired goodwill identified while considering the divestiture of a small non-strategic business. Excluding this item, our operating loss was $1.1 million. The decline from the prior year period is related to the Watercraft business, which saw operating profit decline $1.4 million. Additional investments in marketing, distribution and research & development, in the amount of $0.8 million, contributed to this decline. Operating profits for Diving and Outdoor Equipment were strong, increasing $1.0 million over the prior year period. Interest expense totaled $2.1 million for the three months ended December 29, 2000 compared to $2.3 million for the corresponding period of the prior year. In the current period, the Company unwound a foreign currency swap agreement related to their 1998 senior note commitment. The gain realized from this action approximated the gain recorded from the adoption of SFAS 133. The Company's effective tax rate for the three months ended December 29, 2000 was 40.3%, down from the corresponding period of the prior year due to the geographic mix of earnings occurring in lower tax jurisdictions. The Company recognized a loss from continuing operations before cumulative effect of change in accounting principle of $3.2 million in the three months ended December 29, 2000 compared to a loss of $1.0 million in the corresponding period of the prior year. Loss per common share from continuing operations before cumulative effect of change in accounting principle totaled $0.40 for the three months ended December 29, 2000 compared to a loss of $0.13 in the prior year. Discontinued Operations In March 2000, the Company sold its Fishing business. As a result, operations and related assets and liabilities of the Fishing group have been classified as discontinued for all periods presented herein. The sale price totaled $47.3 million, including $14.1 million of accounts receivable retained by the Company and $2.4 million of debt assumed by the buyer. The Company recorded a loss of $24.4 million, net of tax ($23.1 million of which was recognized in the three month period ended December 31, 1999), related to the sale of the business, taking into account operating results from the measurement date to the date of disposal. In addition, the Company recorded an after tax loss from operations up to the measurement date of $0.9 million in the three months ended December 31, 1999. Change in Accounting Principle Effective September 30, 2000, the Company adopted SFAS 133 which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item are recognized in the earnings. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when the hedged item affects earnings. The adoption of SFAS 133 resulted in a decrease in net loss of $1.8 million, a decrease in deferred income tax assets of $0.8 million, an increase in accrued liabilities of $0.4 million and a reduction in accumulated other comprehensive income of $3.0 million for derivative instruments not designated as hedging instruments. Unrealized gains on certain derivative instruments were previously recorded as a component of accumulated other comprehensive income. -9-
Net loss Net loss for the three months ended December 29, 2000 was $1.5 million or $0.18 per diluted share compared to a loss of $25.1 million or $3.09 per diluted share for the corresponding period of the prior year. Financial Condition The following discusses changes in the Company's liquidity and capital resources related to continuing operations. Operations Cash flows used for operations totaled $31.2 million for the three months ended December 29, 2000 and $17.5 million for the corresponding period of the prior year. Accounts receivable seasonally increased $0.2 million for the three months ended December 29, 2000 and $0.5 million for the corresponding period of the prior year due to sales growth. Average days of sales outstanding are slightly higher than the prior year. Seasonal growth in inventories of $15.6 million for the three months ended December 29, 2000 and $14.1 million for the corresponding period of the prior year also accounted for a significant portion of the net usage of funds. Inventory turns, on a twelve month rolling average basis, improved as of December 29, 2000 compared to the corresponding period of the prior year. The Company has increased production of its products in order to meet seasonal demand, primarily in Watercraft and Outdoor Equipment. Accounts payable and accrued liabilities decreased $17.5 million for the three months ended December 29, 2000 and decreased $2.8 million for the corresponding period of the prior year. The Company paid employee benefits, which were higher than prior year levels due to the Company's improved performance, and paid the final settlement amount related to the sale of the Fishing business. Depreciation and amortization charges were $3.1 million for the three months ended December 29, 2000, equal to the amount for the corresponding period of the prior year. Deferred income tax assets decreased $0.7 million for the three months ended December 29, 2000. The Company recorded a write-down of impaired goodwill for $2.5 million related to the potential divestiture of a small, non-strategic business. Investing Activities Expenditures for property, plant and equipment were $2.7 million for the three months ended December 29, 2000 and $3.5 million for the corresponding period of the prior year. The Company's recurring investments are made primarily for tooling for new products and enhancements. The decrease in capital expenditures in the current year is due primarily to investments to increase manufacturing capacity in the Company's Watercraft business included in the prior year. In 2001, capitalized expenditures are anticipated to total approximately $10.5 million. These expenditures are expected to be funded by working capital or existing credit facilities. The Company acquired a small business in the first quarter of the current year, which increased tangible and intangible assets by $0.3 million, net of cash and liabilities assumed. Financing Activities Cash flows from financing activities totaled $30.9 million for the three months ended December 29, 2000 and $31.3 million for the corresponding period of the prior year. The Company made principal payments -10-
on senior notes of $6.0 million in the current year and $5.5 million in the prior year. The increase in short-term debt was used to fund the operating and investing activities. 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. In the current period, the Company unwound a foreign currency swap agreement related to their 1998 senior note commitment. As a result, the fixed effective interest rate to be paid on the note is 7.15%. 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. The calculations do not include the underlying foreign exchange positions that are hedged by these market risk sensitive instruments. The table below presents the estimated maximum potential one year loss in fair value and earnings before income taxes from a 10% movement in foreign currencies and a 100 basis point movement in interest rates on market risk sensitive instruments outstanding at December 29, 2000: -11-
- ------------------------------------------------------------------------------- (millions) Estimated Impact on - ------------------------------------------------------------------------------- Earnings Before Fair Value Income Taxes - ------------------------------------------------------------------------------- Foreign exchange rate instruments $1.0 $1.0 Interest rate instruments 1.2 0.4 =============================================================================== Other Factors The Company has not been significantly impacted by inflationary pressures over the last several years. The Company anticipates that changing costs of basic raw materials may impact future operating costs and, accordingly, the prices of its products. The Company is involved in continuing programs to mitigate the impact of cost increases through changes in product design and identification of sourcing and manufacturing efficiencies. Price increases and, in certain situations, price decreases are implemented for individual products, when appropriate. Pending Accounting Changes In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). An amendment in June 2000 delayed the effective date for the Company until the fourth quarter of 2001, which is when the Company will adopt the bulletin. The impact of adopting SAB 101 is still being evaluated and the Company does not currently believe its adoption will have a material impact on the consolidated financial statements. In May 2000, the Financial Accounting Standards Board's Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-14, Accounting for Certain Sales Incentives. This issue addresses the recognition, measurement, and income statement classification for various types of sales incentives including discounts, coupons, rebates and free products. The Company will adopt this consensus in the fourth quarter of 2001. The impact of this consensus is still being evaluated and the Company does not currently believe its adoption will have a material impact on the 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." PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) None (b) Reports on Form 8-K. No reports on Form 8-K were filed during the three months ended December 29, 2000. -12-
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JOHNSON OUTDOORS INC. Date: February 12, 2001 /s/ Helen P. Johnson-Leipold --------------------------------------- Helen P. Johnson-Leipold Chairman and Chief Executive Officer /s/ Scott M. Vos --------------------------------------- Scott M. Vos Director of Financial Reporting (Principal Accounting Officer)