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 3, 1998 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 incorporation or organization) Identification No.) 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 May 1, 1998, 6,869,819 shares of Class A and 1,224,087 shares of Class B common stock of the Registrant were outstanding.
Index Page No. PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Operations - Three Months and Six Months Ended April 3, 1998 and March 28, 1997 1 Consolidated Balance Sheets - April 3, 1998, October 3, 1997 and March 28, 1997 2 Consolidated Statements of Cash Flows - Six Months Ended April 3, 1998 and March 28, 1997 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 11
<TABLE> JOHNSON WORLDWIDE ASSOCIATES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) <CAPTION> Three Months Ended Six Months Ended April 3 March 28 April 3 March 28 (thousands, except per share data) 1998 1997 1998 1997 <S> <C> <C> <C> <C> Net sales $ 97,938 $ 96,111 $ 149,779 $ 147,928 Cost of sales 58,210 58,978 90,857 92,666 -------- --------- --------- --------- Gross profit 39,728 37,133 58,922 55,262 -------- --------- --------- --------- Operating expenses: Marketing and selling 19,394 19,023 32,887 33,303 Financial and administrative management 6,587 5,891 12,424 11,544 Research and development 1,806 1,224 3,349 2,501 Profit sharing 339 741 354 844 Amortization of acquisition costs 943 563 1,855 1,166 Nonrecurring charges 36 - 102 - -------- --------- --------- --------- Total operating expenses 29,105 27,442 50,971 49,358 -------- --------- --------- --------- Operating profit 10,623 9,691 7,951 5,904 Interest income (68) (98) (145) (219) Interest expense 2,539 2,344 4,733 4,427 Other (income) expenses, net 142 (105) 72 (40) -------- --------- --------- --------- Income before income taxes 8,010 7,550 3,291 1,736 Income tax expense 3,271 3,222 1,337 1,274 -------- --------- --------- --------- Net income $ 4,739 $ 4,328 $ 1,954 $ 462 ======== ========= ========= ========= Basic earnings per common share $ 0.59 $ 0.53 $ 0.24 $ 0.06 ======== ========= ========= ========= Diluted earnings per common share $ 0.58 $ 0.53 $ 0.24 $ 0.06 ======== ========= ========= ========= The accompanying notes are an integral part of the consolidated financial statements. </TABLE>
<TABLE> CONSOLIDATED BALANCE SHEETS (unaudited) <CAPTION> (thousands, except share data) April 3 October 3 March 28 1998 1997 1997 <S> <C> <C> <C> ASSETS Current assets: Cash and temporary cash investments $ 4,724 $ 7,130 $ 5,362 Accounts receivable, less allowance for doubtful accounts of $2,536, $2,693, and $2,003, respectively 85,451 51,168 83,254 Inventories 95,774 78,694 92,606 Deferred income taxes 7,755 7,976 9,596 Other current assets 8,446 7,781 7,570 Total current assets 202,150 152,749 198,388 Property, plant and equipment 33,857 31,360 28,774 Deferred income taxes 11,126 10,221 6,168 Intangible assets 86,330 82,127 48,482 Other assets 533 562 583 ----------- ---------- ---------- Total assets $ 333,996 $ 277,019 $ 282,395 </TABLE> continued
<TABLE> <CAPTION> April 3 October 3 March 28 1998 1997 1997 <S> <C> <C> <C> LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt and current maturities of long-term debt $ 80,917 $ 26,082 $ 58,160 Accounts payable 19,267 10,672 12,987 Accrued liabilities 27,022 29,355 28,652 ---------- -------- --------- Total current liabilities 127,206 66,109 99,799 Long-term debt, less current maturities 87,921 88,753 61,323 Other liabilities 4,740 4,426 3,765 ---------- -------- --------- Total liabilities 219,867 159,288 164,887 ---------- -------- --------- Shareholders' equity: Preferred stock: none issued - - - Common stock: Class A shares issued: April 3, 1998, 6,909,351; October 3, 1997, 6,905,523; March 28, 1997, 6,905,385 345 345 345 Class B shares issued (convertible into Class A): April 3, 1998, , 1,224,087; October 3, 1997, 1,227,915; March 28, 1997, 1,228,053 61 61 61 Capital in excess of par value 44,193 44,186 44,173 Retained earnings 81,809 79,882 78,307 Contingent compensation (65) (85) (131) Cumulative translation adjustment (11,599) (6,356) (4,846) Treasury stock: April 3, 1998, 39,532 Class A shares; (615) (302) (401) October 3, 1997, 23,600 Class A shares; (615) (302) (401) March 28, 1997, 23,400 Class A shares (615) (302) (401) --------- --------- --------- Total shareholders' equity 114,129 117,731 117,508 --------- --------- --------- Total liabilities and shareholders' equity $ 333,996 $ 277,019 $ 282,395 ========= ========= ========= The accompanying notes are an integral part of the consolidated financial statements. </TABLE>
<TABLE> CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) <CAPTION> Six Months Ended April 3 March 28 1998 1997 <S> <C> <C> (thousands) CASH USED FOR OPERATIONS Net income $ 1,954 $ 462 Noncash items: Depreciation and amortization 6,882 5,397 Deferred income taxes 210 (1,145) Change in assets and liabilities, net of effect of businesses acquired or sold: Accounts receivable, net (35,390) (36,963) Inventories (15,863) (4,549) Accounts payable and accrued liabilities 5,115 3,992 Other, net (1,472) (176) ----------- --------- (38,564) (32,982) ----------- --------- CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES Net assets of businesses acquired, net (12,418) - of cash Proceeds from sale of business, net of - 13,937 cash Net additions to property, plant and (5,613) (4,521) equipment ---------- --------- (18,031) 9,416 ----------- --------- CASH PROVIDED BY FINANCING ACTIVITIES Issuance of senior notes 25,000 - Net change in short-term debt 29,869 17,639 Common stock transactions (333) (474) ---------- --------- 54,536 17,165 Effect of foreign currency fluctuations (347) (934) on cash ---------- --------- Decrease in cash and temporary cash (2,406) (7,335) investments CASH AND TEMPORARY CASH INVESTMENTS Beginning of period 7,130 12,697 ---------- --------- End of period $ 4,724 $ 5,362 ========== ========= The accompanying notes are an integral part of the consolidated financial statements. </TABLE>
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 3, 1998 and the results of operations and cash flows for the three months and six months ended April 3, 1998. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1997 Annual Report. Because of seasonal and other factors, the results of operations for the three months and six months ended April 3, 1998 are not necessarily indicative of the results to be expected for the full year. All amounts, other than share and per share amounts, are stated in thousands. 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 3 October 3 March 28 1998 1997 1997 Raw materials $ 34,597 $ 27,032 $ 32,425 Work in process 6,818 5,036 6,177 Finished goods 61,765 56,846 64,176 --------- ---------- ---------- 103,180 88,914 102,778 Less reserves 7,406 10,220 10,172 --------- ---------- ---------- $ 95,774 $ 78,694 $ 92,606 ========= ========== ========== 4 Indebtedness In October 1997, the Company issued unsecured senior notes totaling $25,000 with an interest rate of 7.15%. The funding commitment for the senior notes was received in July 1997. The senior notes have annual principal payments of $2,000 to $7,000 beginning October 2001 with a final payment due October 2007. Simultaneous with the commitment of the senior notes, the Company executed a foreign currency swap, denominating in Swiss francs all principal and interest payments required under the senior notes. The fixed, effective interest rate to be paid on the senior notes as a result of the currency swap is 4.32%. Proceeds from issuance of the senior notes were used to reduce outstanding indebtedness under the Company's primary revolving credit facility. Outstanding short-term debt totaling $25,000 at October 3, 1997 was classified as long-term in anticipation of refinancing with the proceeds of the senior notes. 5 Earnings Per Share In 1998, the Company adopted FASB Statement 128, Earnings Per Share, which replaced the previously reported earnings per share with basic and diluted earnings per share. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is similar to the previously reported fully diluted earnings per share. All per share amounts for all periods have been restated to conform to the requirements of Statement 128. The following table sets forth the computation of basic and diluted earnings per share: <TABLE> <CAPTION> Three Months Ended Six Months Ended April 3 March 28 April 3 March 28 1998 1997 1998 1997 <S> <C> <C> <C> <C> Net income for basic and diluted earnings per share $4,739 $4,328 $1,954 $462 ========= ========= ========= ========= Weighted average shares outstanding 8,103,881 8,112,117 8,106,924 8,116,294 Less nonvested restricted stock (6,559) (11,501) (6,854) (9,917) --------- --------- --------- --------- Basic shares 8,097,322 8,100,616 8,100,070 8,106,377 Dilutive stock options and restricted stock 30,199 14,561 31,329 12,198 --------- --------- --------- --------- Diluted shares 8,127,521 8,115,177 8,131,399 8,118,575 ========= ========= ========= ========= Basic earnings per common share $0.59 $0.53 $0.24 $0.06 ========= ========= ========= ========= Diluted earnings per common share $0.58 $0.53 $0.24 $0.06 ========= ========= ========= ========= 6 Stock Ownership Plans A summary of stock option activity related to the Company's plans is as follows: Weighted Shares Average Exercise Price Outstanding at October 3, 1997 686,521 $18.32 Granted 247,000 17.01 Exercised (10,243) 13.96 Cancelled (302,517) 19.17 ---------- --------- Outstanding at April 3, 1998 620,761 $17.45 ========== ========= 7 Acquisitions In January 1998, the Company completed the acquisition of the common stock of Leisure Life Limited, a privately held manufacturer and marketer of small recreational boats. The purchase price, including direct expenses, for the acquisition was approximately $10,391, of which approximately $7,400 was recorded as intangible assets and is being amortized over 25 years. In October 1997, the Company completed the acquisition of certain assets of Soniform, Inc., a manufacturer of diving buoyancy compensators, and the common stock of Plastiques L.P.A. Limitee, a privately held Canadian manufacturer of kayaks. The purchase prices for the acquisitions totaled approximately $3,256. 8 Reclassification Certain amounts as previously reported have been reclassified to conform with the current period presentation. 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 3, 1998 and March 28, 1997. 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 1997 Annual Report. 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. The appreciation of the U.S. dollar significantly reduced the cumulative translation component of shareholders' equity during the six months ended April 3, 1998 and the corresponding period in the prior year. Results of Operations Net sales for the three months ended April 3, 1998 totaled $97.9 million, compared to $96.1 million in the three months ended March 28, 1997. Net sales for the six months ended April 3, 1998 increased $1.9 million to $149.8 million. Sales of businesses acquired in 1998 and 1997 and strong European outdoor equipment sales offset the absence of the Plastimo business, which was sold in January 1997, and weakness in the fishing business in North America and the diving business in Japan. 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 April 3, 1998 as compared to the corresponding period of the prior year. Excluding the impact of foreign currencies and the Plastimo business, net sales increased 8% and 11%, respectively, for the three months and six months ended April 3, 1998. Gross profit as a percentage of sales increased to 40.6% for the three months ended April 3, 1998 compared to 38.6% in the corresponding period in the prior year. Gross profit for the six months ended April 3, 1998 increased to 39.3% from 37.4% in the prior year. Acquired businesses, which have higher gross profit margins than historical Company levels, and the watercraft and diving businesses contributed to the increase. The Company recognized an operating profit of $10.6 million for the three months ended April 3, 1998, compared to an operating profit of $9.7 million for the corresponding period of the prior year. For the six months ended April 3, 1998, operating profit increased to $8.0 million, from $5.9 million in the prior year. The increases in sales and gross profit led to the increased operating profit, more than offsetting modest increases in operating expenses in the current year. Interest expense totaled $4.7 million for the six months ended April 3, 1998 compared to $4.4 million for the corresponding period of the prior year. Increased debt levels due to acquisitions consummated in 1998 and 1997, offset by improved management of working capital and a favorable interest rate environment, accounted for the change. The Company's effective tax rate improved due to a rate reduction in Italy and an increase in profits in Switzerland, which has lower overall tax rates. The Company recognized net income of $4.7 million in the three months ended April 3, 1998 compared to net income of $4.3 million in the corresponding period of the prior year. Diluted earnings per share totaled $0.58 for the three months ended April 3, 1998 compared to $0.53 in the prior year. Year to date diluted earnings per share increased to $0.24 from $0.06 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 $38.6 million for the six months ended April 3, 1998 and $33.0 million for the corresponding period of the prior year. Accounts receivable seasonally increased $35.4 million for the six months ended April 3, 1998 and $37.0 million for the corresponding period of the prior year. Seasonal growth in inventories of $15.9 million for the six months ended April 3, 1998 and $4.5 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 period ended April 3, 1998 compared to the corresponding period of the prior year. Accounts payable and accrued liabilities increased $5.1 million for the six months ended April 3, 1998 and $4.0 million for the corresponding period of the prior year, decreasing the net outflow of cash from operations. Depreciation and amortization charges were $6.9 million for the six months ended April 3, 1998 and $5.4 million for the corresponding period of the prior year. The increase was due primarily to increased amortization of intangible assets from businesses acquired in 1998 and 1997. Investing Activities Expenditures for property, plant and equipment were $5.6 million for the six months ended April 3, 1998 and $4.5 million for the corresponding period of the prior year. The Company's recurring investments are made primarily for tooling for new products and enhancements. In 1998, capitalized expenditures are anticipated to total approximately $9-10 million. These expenditures are expected to be funded by working capital or existing credit facilities. The Company completed the acquisition of three businesses in the six month period ended April 3, 1998, resulting in a use of cash of $12.4 million. The sale of the Plastimo business generated $13.9 million of cash in the prior year. Financing Activities Cash flows from financing activities totaled $54.5 million for the three months ended April 3, 1998 and $17.2 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 1998 total $8 million. Other Factors The Company has not been significantly impacted by inflationary pressures over the last several years. However, from time to time the Company faces changes in the prices of commodities. Price increases and, in certain situations, price decreases are implemented for individual products, when appropriate. The Company anticipates that changing costs of basic raw materials may impact future operating costs and, accordingly, the prices of its products. Fluctuations in foreign currencies may also impact the cost of the Company's products. The Company is involved in continuing programs to mitigate the impact of cost increases through changes in product design, identification of sourcing and manufacturing efficiencies and foreign currency hedges. 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 import. 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 adverse weather conditions, changes in consumer spending patterns, the success of the Company's EVA and JWAction programs, actions of companies that compete with JWA and the Company's success in managing inventory. 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.
PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting on January 28, 1998, the shareholders voted on two shareholder proposals and to elect the following individuals as Directors for terms that expire at the next annual meeting: </TABLE> <TABLE> <CAPTION> Votes Votes Cast Cast Votes Broker For Against Withheld Abstentions Non-Votes <S> <C> <C> <C> <C> <C> Class A Directors: Gregory E. Lawton 5,684,388 0 548,365 0 0 Glenn N. Rupp 5,684,388 0 548,365 0 0 Class B Directors: Samuel C. Johnson 1,216,299 0 0 0 0 Helen P. Johnson-Leipold 1,216,299 0 0 0 0 Thomas F. Pyle, Jr. 1,216,299 0 0 0 0 Ronald C. Whitaker 1,216,299 0 0 0 0 Proposal 1 regarding sale or merger of Company 1,756,873 16,088,431 0 16,455 533,984 Proposal 2 regarding director compensation 2,328,631 15,512,323 0 20,805 533,984 Votes cast for or against Proposals 1 and 2 reflect that holders of Class B shares are entitled to 10 votes per share for matters other than the election of Directors. </TABLE> Item 6.Exhibits and Reports on Form 8-K (a) The following documents are filed as part of this Form 10-Q Exhibit 4.16: Amended and Restated Credit Agreement dated as of April 3, 1998 Exhibit 27:Financial Data Schedule (b) There were no reports on Form 8-K filed for the three months ended April 3, 1998.
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 16, 1998 /s/ Carl G. Schmidt Carl G. Schmidt Senior Vice President and Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer)
EXHIBIT INDEX Page Exhibit Description Number 4.16 Amended and Restated Credit Agreement - dated as of April 3, 1998 27. Financial Data Schedule -