Johnson Outdoors - 10-Q quarterly report FY

 

 

 

In June 2008, the FASB issued guidance to clarify that instruments granted in share-based payment transactions can be participating securities prior to the requisite service having been rendered. This guidance applies to the calculation of earnings per share (“EPS”) for share-based payment awards with rights to dividends or dividend equivalents. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company adopted this guidance effective October 3, 2009.   All prior-period EPS data presented has been adjusted retrospectively. The impact of the change was to increase prior year quarter to date and year to date basic EPS by $0.01 for both class A and class B shares.  The impact of the change on diluted EPS was an increase of $0.01 for the prior year quarter to date period.  There was no change for the prior year to date period. 

 

 

JOHNSON OUTDOORS INC.

 

 

JOHNSON OUTDOORS INC.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Over the Counter Derivative Contracts

 

 

 

Rabbi Trust Assets

Rabbi trust assets are classified as trading securities and are comprised of marketable debt and equity securities that are marked to fair value based on unadjusted quoted prices in active markets.
 

Goodwill and Other Intangible Assets

JOHNSON OUTDOORS INC.

 

 

 

 

 

JOHNSON OUTDOORS INC.

 

Item 2     Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) includes comments and analysis relating to the results of operations and financial condition of Johnson Outdoors Inc. and its subsidiaries (the Company) as of and for the three and nine month periods ended July 2, 2010 and July 3, 2009. All monetary amounts, other than share and per share amounts, are stated in millions.

 

Our MD&A is presented in the following sections:

 

 

 

Certain matters discussed in this Form 10-Q are “forward-looking statements,” and the Company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of those safe harbor provisions. These forward-looking statements can generally be identified as such because they include phrases such as the Company “expects,” “believes,” “anticipates” 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 diff er materially from those currently anticipated. Factors that could affect actual results or outcomes include the matters described under the caption "Risk Factors" in Item 1A of the Company’s Form 10-K which was filed with the Securities and Exchange Commission on December 11, 2009 and the following:  changes in consumer spending patterns; the Company’s success in implementing its strategic plan, including its focus on innovation and on cost-cutting and revenue enhancement initiatives; actions of and disputes with companies and companies that compete with the Company; the Company’s success in managing inventory; the risk that the Company’s lenders may be unwilling to provide a waiver or amendment if the Company is in violation of its financial covenants and the cost to the Company of obtaining any waiver or amendment the lenders would be willing to provide; the risk of future writedowns of goodwill or other intangible assets; movements in foreign currencies or interest rates; fluctuations in the prices of raw materials or the availability of raw materials used by the Company; the Company’s success in restructuring certain of its operations; the success of the Company’s suppliers and customers; the ability of the Company to deploy its capital successfully; unanticipated outcomes related to outsourcing certain manufacturing processes; unanticipated outcomes related to outstanding litigation matters; 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 filing. The Company assumes no obligation, and disclaims any obligation, to update such forward-looking statements to reflect subsequent events or circumstances.

 

 

 

JOHNSON OUTDOORS INC.

 

We have registered the following trademarks, which may be used in this report: Minn Kota®, Cannon®, Humminbird®, Fishin' Buddy®, Silva®, Eureka!®, Tech4O™, Geonav®, Old Town®, Ocean Kayak™, Necky®,  Extrasport®, Carlisle®, Scubapro®, UWATEC®, SUBGEAR® and SEEMANN™.

 

 

The Company is a leading global manufacturer and marketer of branded seasonal outdoor recreation products used primarily for fishing, diving, paddling and camping.  The Company’s portfolio of well-known consumer brands has attained leading market positions due to continuous innovation, marketing excellence, product performance and quality.  Company values and culture support entrepreneurialism in all areas, promoting and leveraging best practices and synergies within and across its subsidiaries to advance the Company’s strategic vision set by executive management and approved by the Board of Directors.  The Company is controlled by Helen P. Johnson-Leipold, Chairman and Chief Executive Officer, members of her family and related entities.

 

 

The Company experienced a 7.9% increase in net sales for the quarter ended July 2, 2010 over the same period in the prior year and a 26.1% increase in operating profit.

 

Key changes in the quarter included:

Gross profit margins were 41.5% for the quarter ended July 2, 2010, compared to 40.1% in the prior year quarter.  The increase in the gross profit margin was due primarily to improved overhead absorption, cost savings and a more favorable product mix.

 

Operating expenses for the quarter ended July 2, 2010 were up $2.6 million from the prior year quarter.  The current year quarter includes $2.8 million of bonus and profit sharing expense versus no such expense in the prior year quarter.  Increases in variable costs associated with higher sales and increased research and development spending were offset by cost savings. 

 

 

The Company’s business is seasonal in nature. The third quarter falls within the Company’s primary selling season. Third quarter sales are historically the highest of the year, reflecting consumer demand during the primary retail selling period for our outdoor recreational products.  The table below sets forth a historical view of the Company’s seasonality during the last three fiscal years.

 

 

 

Results of Operations

The Company’s net sales and operating profit (loss) by segment for the periods shown below are summarized as follows:

 

 

See “Note 20 – Segments of Business” of the notes to the condensed consolidated financial statements for the definition of segment net sales and operating profit.

 

 

Net sales on a consolidated basis for the three months ended July 2, 2010 were $124.0 million, an increase of $9.1 million compared to $114.9 million for the three months ended July 3, 2009. Currency translation had an unfavorable $0.7 million impact on consolidated net sales during the current quarter.

 

Net sales for the three months ended July 2, 2010 for the Marine Electronics business were $62.0 million, up $9.5 million or 17.9% from $52.5 million in the prior year quarter. Growth was seen in the Humminbird®, Minn Kota® and Cannon® brands in key distribution channels versus the prior year quarter.  Currency translation had a $0.1 million favorable impact in the current quarter.

 

Net sales for the Outdoor Equipment business were $15.6 million for the current quarter, an increase of $2.7 million or 21.3% from the prior year quarter sales of $12.9 million as a result of increases in all business lines.

 

Net sales for the Watercraft business were $24.6 million, a decrease of $0.9 million or 3.5%, compared to $25.5 million in the prior year quarter, driven primary by declines in Europe and the U.S. specialty retail channel.  Currency translation had a $0.1 million unfavorable impact on net sales in the current quarter.

 

Net sales for the Diving business were $22.0 million this quarter versus $24.2 million in the prior year quarter, a decrease of $2.2 million or 9.0%.  The decrease was primarily due to product availability, a slowdown in key international markets, and currency translation which had a $0.8 million unfavorable impact on net sales in the current quarter.

 

Net sales on a consolidated basis for the nine months ended July 2, 2010 were $307.3 million, an increase of $16.1 million, compared to $291.2 million for the nine months ended July 3, 2009. Currency translation had a $3.8 million favorable impact on consolidated net sales during the current period.

 

Net sales for the nine months ended July 2, 2010 for the Marine Electronics business were $157.2 million, up $13.9 million or 9.7% from $143.3 million in the prior year to date period. Growth was seen primarily in distributor channel sales versus the prior year to date period.  Currency translation had a $1.3 million favorable impact on net sales in the current year.

 

Net sales for the Outdoor Equipment business were $38.1 million for the current year to date period, an increase of $5.5 million or 17.0% from the prior year to date period sales of $32.6 million.  The increase was primarily due to an increase in military tent and consumer camping orders.

 

Net sales for the Watercraft business year to date period were $51.0 million, a decrease of $7.1 million or 12.3%, compared to $58.2 million in the prior year to date period, which was primarily due to a decline in U.S. specialty retail channel sales.  Currency translation had a $0.7 million favorable impact on net sales in the current year to date period.

 

Net sales for the Diving business were $61.7 million year to date versus $57.6 million in the prior year to date period, an increase of $4.1 million or 7.2%.  The increase was due to strong sales in all markets and favorable currency translation which had a $1.4 million positive impact on net sales in the current year.

 

 

Gross profit as a percentage of net sales was 41.5% on a consolidated basis for the three month period ended July 2, 2010 compared to 40.1% in the prior year quarter. The increase in gross profit margin was primarily due to improved overhead absorption, favorable product mix and aggressive cost savings efforts undertaken in the current year.

 

Gross profit as a percentage of net sales was 40.1% on a consolidated basis for the nine month period ended July 2, 2010 compared to 38.2% in the prior year to date period. The increase in gross profit margin was primarily due to improved overhead absorption, favorable product mix, and aggressive cost savings efforts.

 

 

 

 

 

Operating expenses were $38.1 million for the quarter ended July 2, 2010, an increase of $2.6 million over the prior year quarter amount of $35.5 million.  Primary factors driving the increase in operating expenses were an additional $1 million of variable costs associated with higher sales, $2.8 million bonus and profit sharing expense incurred in the current year quarter versus no such expense in the same period in the prior year, and a $0.8 million increase in research and development spending, offset by reductions in bad debt expense, restructuring costs and the effects of cost reduction actions taken in the prior year including reduced headcount.

 

Operating expenses were $105.4 million for the nine months ended July 2, 2010, an increase of $5.4 million over the prior year period amount of $100.0 million.  Year to date bonus and profit sharing expenses incurred in the current year were $4.9 million compared with no such expense in the prior year to date period.

 

 

Operating profit on a consolidated basis for the three months ended July 2, 2010 was $13.4 million compared to $10.6 million in the prior year quarter, an improvement of $2.8 million.  The improvement in the Company’s operating profit was due mainly to increased sales and cost reduction efforts as well as the other factors impacting gross profit and operating expenses discussed above.

 

Operating profit on a consolidated basis for the nine months ended July 2, 2010 was $17.9 million compared to an operating profit of $11.2 million in the prior year quarter, an increase of $6.7 million due to the factors impacting gross profit and operating expenses discussed above.

 

 

Interest expense totaled $1.4 million for the three months ended July 2, 2010, of which $0.4 million related to amortization of losses on interest rate swaps, compared to $2.6 million in the corresponding period of the prior year, which included $1.0 million related to amortization of losses on interest rate swaps.

 

For the nine months ended July 2, 2010, interest expense totaled $4.0 million, of which $1.3 million related to amortization of losses on interest rate swaps, compared to $7.4 million in the corresponding period of the prior year, which included $1.5 million related to amortization of losses on interest rate swaps.  The decreases from the prior year periods were due primarily to the reduction in interest rates and overall debt levels in addition to an expense of $0.7 million incurred during prior year to mark the Company’s interest rate swaps to market. See “Note 13 – Derivative Instruments and Hedging Activities” to the Company’s condensed consolidated financial statements for further discussion.

 

Interest income was less than $0.1 million for the three and nine months ended July 2, 2010 as well as the three months ended July 3, 2009.  For the nine months ended July 3, 2009, interest income was $0.2 million.

 

Other income/expense included a $0.5 million market loss on the assets related to the Company’s non-qualified deferred compensation plan for the three month period ended July 2, 2010, and a $0.1 million market gain for the nine month period ended July 2, 2010.  Foreign currency exchange losses included in other income/expense were $0 and $0.3 million for the three and nine month periods ended July 2, 2010, respectively.  Foreign currency exchange gains for the three month period ended July 3, 2009 were $0.3 million.  For the nine month period ended July 3, 2009, foreign currency exchange losses were $0.4 million.  See “Note 13 – Derivative Instruments and Hedging Activities” to the Company’s condensed consolidated financial statements for further discussion.

 

 

The Company’s provision for income taxes is based upon estimated annual effective tax rates in the tax jurisdictions in which the Company operates.  The Company’s effective tax rate for the three and nine month periods ended July 2, 2010 was 8.7% and 10.2%, compared to (7.3%) and (21.7%) in the corresponding periods of the prior year.  Significant items contributing to changes in the effective rate versus the prior year periods primarily relate to a one time state income tax credit benefit in the prior year period, a less favorable geographic mix of profits and losses from a tax perspective and valuation allowance offsetting tax expense/benefit to zero in the U.S. and certain foreign tax jurisdictions.

 

 

 

 

 

 

Net income for the three months ended July 2, 2010 was $10.4 million, or $1.09 per diluted common class A and B share, compared to net income of $9.0 million, or $0.97 per diluted common class A and B share for the corresponding period of the prior year, an increase of $0.11 per diluted common class A and B share due to the factors discussed above.  Prior year earnings per share have been restated to reflect the adoption of new accounting guidance.  See “Note 4 – Earnings Per Share” to the Company’s condensed consolidated financial statements for further discussion.

 

 

 

Debt, net of cash balances, was $6.4 million as of July 2, 2010 compared to $26.9 million as of July 3, 2009.  The Company's debt to total capitalization ratio was 20% as of July 2, 2010 down from 32% as of July 3, 2009. The Company’s debt balance was $31.9 million as of July 2, 2010 compared to $60.8 million as of July 3, 2009.  See “Note 17 – Indebtedness” to the Company’s condensed consolidated financial statements for further discussion.

 

Accounts receivable, net of allowance for doubtful accounts, were $76.3 million as of July 2, 2010, a decrease of $6.2 million compared to $82.5 million as of July 3, 2009. The decrease year over year was primarily due to improved collections in the current year as well as the effect of foreign currency translation of $1.3 million.

 

Inventories, net of inventory reserves, were $62.3 million as of July 2, 2010, an increase of $0.1 million compared to $62.2 million as of July 3, 2009.  Foreign currency translation accounted for a $1.2 million decrease from the prior year.  The remaining increase in inventories, excluding foreign currency translation, resulted from increased volume.

 

Accounts payable were $24.2 million compared to $20.0 million as of July 3, 2009. The increase year over year was largely due to increased volume in the current year partially offset by the effect of foreign currency translation of $0.4 million.

 

 

 

 

The Company’s cash flow from operating, investing and financing activities, as reflected in the condensed consolidated statements of cash flows, is summarized in the following table:

 

Cash flows provided by operations totaled $2.8 million for the nine months ended July 2, 2010 compared with $7.3 million used for operations during the corresponding period of the prior fiscal year.

 

The increase in accounts receivable for the nine months ended July 2, 2010 totaled $35.2 million, compared with $29.3 million in the prior fiscal year period. Cash flows used by inventories totaled $3.7 million for the nine months ended July 2, 2010 compared to reductions in inventory which provided $24.2 million of cash in the prior year period. Cash flows provided by accounts payable and accrued liabilities were $18.3 million for the nine months ended July 2, 2010 versus $2.5 million used in the corresponding period of the prior year.

 

Amortization of deferred financing costs, depreciation and other amortization charges were $7.4 million for the nine month period ended July 2, 2010 compared to $8.0 million for the corresponding period of the prior year.

 

Cash used for investing activities totaled $5.0 million for the nine months ended July 2, 2010 and $12.8 million for the corresponding period of the prior year.  Current year cash usage related entirely to capital expenditures net of proceeds from sales of property, plant and equipment.  Capital expenditures for the nine months ended July 3, 2009 were $5.2 million.  Cash used in the prior year also included payments of $6.7 million under interest rate swap contracts as well as $0.9 million of payments for the purchase of the Navicontrol business. The Company’s recurring investments are made primarily for tooling for new products and enhancements on existing products. Any additional expenditures in fiscal 2010 are expected to be funded by working capital or existing credit facilities.

 

Cash flows provided by financing activities totaled $0.5 million for the nine months ended July 2, 2010. The Company made principal payments on senior notes and other long-term debt of $0.4 million during the nine month period ended July 2, 2010.  Cash used for financing activities totaled $1.8 million for the nine months ended July 3, 2009 and consisted primarily of financing costs paid to lenders under the Company’s former debt agreements.

 

The Company had outstanding borrowings of $15.4 million on revolving credit facilities and current maturities of its long-term debt of $0.6 million as of July 2, 2010.  As of July 3, 2009, the Company had no short-term borrowings outstanding.  The Company had outstanding borrowings on long-term debt (net of current maturities) of $15.7 million and $60.8 million as of July 2, 2010 and July 3, 2009, respectively.

 

New Debt Agreements

 

On September 29, 2009 the Company and certain of its subsidiaries entered into new Term Loan Agreements (the "Term Loan Agreements" or "Term Loans") between the Company or one of its subsidiaries and Ridgestone Bank ("Ridgestone"), replacing the Company’s Amended and Restated Credit Agreement of $60.0 million that was due to mature on October 7, 2010.  The new Term Loan Agreements provide for initial aggregate term loan borrowings of $15.9 million with maturity dates ranging from 15 to 25 years from the date of the applicable Term Loan Agreement.  Each Term Loan requires monthly payments of principal and interest.  Interest on $9.3 million of the initial aggregate outstanding amount of the Term Loans is based on the prime rate plus 2.0%, and the remainder on the prime rate plus 2.75%.  The prime ra te was 3.25% at July 2, 2010. 

 

 

 

 

The Term Loans are guaranteed in part under the United States Department of Agriculture Rural Development program and are secured with a first priority lien on land, buildings, machinery and equipment of the Company's domestic subsidiaries and a second lien on working capital assets and certain patents and trademarks of the Company and its subsidiaries.  Any proceeds from the sale of secured property is first applied against the related Term Loan and then against the Revolver (which is described below).  Certain of the Term Loans covering $9.3 million of the aggregate borrowings are subject to a pre-payment penalty.  In the first year of such Term Loan Agreements, the penalty is 10% of the pre-payment amount, decreasing by 1% annually.

 

At July 2, 2010 the Company had $15.6 million outstanding under the term loans.

 

On September 29, 2009 the Company also entered into a new Revolving Credit and Security Agreement (the "Revolving Credit Agreement" or "Revolver" and collectively, with the Term Loans and the Canadian Revolver described below, the "Debt Agreements") among the Company, certain of the Company's subsidiaries, PNC Bank, National Association, as lender, administrative agent and collateral agent, and the other lenders named therein, replacing the Company’s Amended and Restated Revolving Credit Agreement of $30.0 million (formerly $75.0 million) that was due to mature on October 7, 2010. The new Revolving Credit Agreement, maturing in September 2012, provides for funding of up to $69.0 million.  

 

On November 5, 2009, the Company closed on its Canadian asset backed credit facility (“Canadian Revolver” or collectively, with the Revolving Credit Agreement, “Revolvers”), increasing its total seasonal debt availability by $4.0 million for the period July 15th through November 15th, and by $6.0 million for the period November 16th through July 14th.  

 

The Revolvers are secured with a first priority lien on working capital assets and certain patents and trademarks of the Company and its subsidiaries and a second lien on land, buildings, machinery and equipment of the Company's domestic subsidiaries.  As cash collections related to secured assets are applied against the balance outstanding under the Revolvers, the liability is classified as current.  The interest rate on the Revolvers is based primarily on LIBOR plus 3.25% with a minimum LIBOR floor of 2.0%.

 

Borrowing availability under the Revolvers is based on certain eligible working capital assets, primarily accounts receivable and inventory of the Company and its subsidiaries. The Revolvers contain a seasonal line reduction that reduces the maximum amount of borrowings to $50.0 million from mid-July to mid-November, consistent with the Company's reduced working capital needs throughout that period, and require an annual seasonal pay down to $25.0 million for 60 consecutive days during the three month period beginning August 1st..  

 

At July 2, 2010 the Company had borrowings outstanding under the Revolvers of $15.4 million.  The Company’s remaining borrowing availability under the Revolvers was approximately $30.7 million at July 2, 2010.  

 

Under the terms of the Debt Agreements, the Company is required to comply with certain financial and non-financial covenants.  Among other restrictions, the Company is restricted in its ability to pay dividends, incur additional debt and make acquisitions or divestitures above certain amounts.  The key financial covenants include a minimum fixed charge coverage ratio, limits on minimum net worth and EBITDA, a limit on capital expenditures, and a seasonal pay-down requirement.

 

The Company incurred approximately $0.2 million of financing fees during the nine month period ended July 2, 2010 in conjunction with the execution of its Canadian Revolver which fees were capitalized and will be amortized over the life of the related debt.  The Company incurred and capitalized $0.1 million and $1.4 million of financing fees during the three and nine month periods ended July 3, 2009, respectively, in conjunction with the December 31, 2008 loan modification to the Company’s then-existing debt agreements.

 

 

 

 

Interest Rate Swaps

 

Historically, the Company has used interest rate swaps in order to maintain a mix of floating rate and fixed rate debt such that permanent working capital needs are largely funded with fixed rate debt and seasonal working capital needs are funded with floating rate debt. To manage this risk in a cost efficient manner, the Company may enter into interest rate swaps in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount.

 

On October 29, 2007, the Company entered into a forward starting interest rate swap (the “Swap”) with a notional amount of $60.0 million receiving a floating three month LIBOR interest rate while paying at a fixed rate of 4.685% over a five year period beginning on December 14, 2007. At the time the Swap was entered into, it was effective as a hedge.  As a result of the amendment and restatement of the Company’s then-existing debt agreements on January 2, 2009 and the related imposition of a LIBOR floor in the terms of those restated debt agreements, the Swap was no longer an effective economic hedge against the impact on interest payments of changes in the three-month LIBOR benchmark rate.  Prior to becoming ineffective, the effective portion of the Swap was recorded in accumulated other comprehensiv e income (“AOCI”), a component of shareholders’ equity on the Company’s consolidated balance sheets. As a result of this cash flow hedge becoming ineffective on January 2, 2009, $5.9 million of unrealized loss in AOCI was frozen and all subsequent changes in the fair value of the Swap were recorded directly to interest expense in the statement of operations.  The effective portion frozen in AOCI is amortized over the period of the originally hedged transaction.  The Company expects that approximately $1.3 million of the $2.6 million remaining in AOCI at July 2, 2010 will be amortized into interest expense over the next 12 months.  During the three and nine month periods ended July 2, 2010, $0.4 million and $1.3 million, respectively, was amortized into interest expense.  The remaining amount held in AOCI shall be immediately recognized as interest expense if it ever becomes probable that the Company will not have interest bearing debt through December 14, 2012, the period over which the originally forecasted hedged transactions were expected to occur. 

 

 

The Company has obligations and commitments to make future payments under debt agreements and operating leases. The following schedule details these obligations at July 2, 2010.

 

 

Interest obligations on short-term debt, primarily the Revolvers, are included in the category "contractually obligated interest payments" noted above only to the extent accrued as of July 2, 2010. Future interest costs on the Company’s Revolvers cannot be estimated due to the variability of the amount of borrowings and the interest rates on these facilities. Estimated future interest payments on the $15.6 million floating rate bank term debt and the $15.4 million revolving credit facilities were calculated under the terms of the debt agreements in place at July 2, 2010 using the market rates applicable in the current period and assuming that this rate would not change over the life of the term loan.

 

The Company also utilizes letters of credit primarily as security for the payment of future claims under its workers compensation insurance. Letters of credit outstanding at July 2, 2010 were $2.6 million compared to $2.2 million at July 3, 2009.

 

The Company anticipates making contributions to its defined benefit pension plans of $1.1 million for the fiscal year ending October 1, 2010 of which $0.9 million have been made through July 2, 2010.

 

The Company has no other off-balance sheet arrangements.

 

The Company is exposed to market risk stemming from changes in foreign exchange rates, interest rates and, to a lesser extent, commodity prices. Changes in these factors could cause fluctuations in earnings and cash flows. The Company may reduce exposure to certain of these market risks by entering into hedging transactions authorized under Company policies that place controls on these activities. Hedging transactions involve the use of a variety of derivative financial instruments. Derivatives are used only where there is an underlying exposure, not for trading or speculative purposes.

The Company has significant foreign operations, for which the functional currencies are denominated primarily in euros, Swiss francs, Japanese yen and Canadian dollars. As the values of the currencies of the foreign countries in which the Company has operations increase or decrease relative to the U.S. dollar, the sales, expenses, profits, losses, assets and liabilities of the Company’s foreign operations, as reported in the Company’s consolidated financial statements, increase or decrease, accordingly. Approximately 25% of the Company’s revenues for the nine months ended July 2, 2010 were denominated in currencies other than the U.S. dollar. Approximately 14% were denominated in euros, with the remaining 11% denominated in various other foreign currencies.

 

The Company mitigates, when appropriate, a portion of the fluctuations in certain foreign currencies through the purchase of foreign currency swaps, forward contracts and options.  These can be used to hedge the effect of changes in foreign currency exchange rates on financial instruments and known commitments for purchases of inventory and other assets denominated in foreign currencies.  As of July 2, 2010, the Company held foreign currency forward contracts with notional values of 5.4 million Swiss francs to hedge the effect of changes in foreign currency exchange rates on foreign currency denominated short term notes payable.  As of July 3, 2009, the Company had no foreign currency forward contracts.  See “Note 13 – Derivative Instruments and Hedging Activities” to the Company 8217;s condensed consolidated financial statements for further information.

 

The Company may use interest rate swaps, caps or collars in order to maintain a mix of floating rate and fixed rate debt such that permanent working capital needs are largely funded with fixed rate debt and seasonal working capital needs are funded with floating rate debt. The Company’s primary exposure is to changes in U.S. interest rates.  See “Financing Activities” above and “Note 13 – Derivative Instruments and Hedging Activities” to the Company’s condensed consolidated financial statements for a further discussion of the nature and use of these instruments.

 

 

 

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 include costs associated with metals, resins and packaging materials.

 

The Company had $15.6 million outstanding in term loans, with maturities ranging from 15 to 25 years, with interest and principal payable monthly.  The term loans bear interest at the prime rate plus a margin, which is reset each quarter at the prevailing rate.  The fair market value of these term loans was $15.6 million as of July 2, 2010.

 

 

The Company’s critical accounting policies are identified in the Company’s Annual Report on Form 10-K for the fiscal year ending October 2, 2009 in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Critical Accounting Policies and Estimates.” There were no significant changes to the Company’s critical accounting policies during the three months ended July 2, 2010.

 

 

 

Information with respect to this item is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Market Risk Management.”

 

 

 

JOHNSON OUTDOORS INC.

 

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission’s rules and forms, and that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective at reaching a level of reasonable assurance. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. The Company has designed its disclosure controls and procedures to reac h a level of reasonable assurance of achieving the desired control objectives.

 

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II     OTHER INFORMATION

See Exhibit Index to this Form 10-Q report.

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.

(1) This certification is not "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.