0001042167-13-000112.txt : 20130802 0001042167-13-000112.hdr.sgml : 20130802 20130802124146 ACCESSION NUMBER: 0001042167-13-000112 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20130628 FILED AS OF DATE: 20130802 DATE AS OF CHANGE: 20130802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHNSON OUTDOORS INC CENTRAL INDEX KEY: 0000788329 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 391536083 STATE OF INCORPORATION: WI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16255 FILM NUMBER: 131005614 BUSINESS ADDRESS: STREET 1: 555 MAIN STREET CITY: RACINE STATE: WI ZIP: 53403-1015 BUSINESS PHONE: 2626316600 MAIL ADDRESS: STREET 1: 555 MAIN STREET STREET 2: STE 023 CITY: RACINE STATE: WI ZIP: 53403-1015 FORMER COMPANY: FORMER CONFORMED NAME: JOHNSON WORLDWIDE ASSOCIATES INC DATE OF NAME CHANGE: 19920703 10-Q 1 form10q.htm FORM 10-Q form10q.htm
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 June 28, 2013

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
(State or other jurisdiction of
incorporation or organization)
 
39-1536083
(I.R.S. Employer Identification No.)
     
555 Main Street, Racine, Wisconsin 53403
(Address of principal executive offices)

(262) 631-6600
(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 [  ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [ X ]   No [   ]
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer," "accelerated filer” and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one): Large accelerated filer [  ] Accelerated filer [X] Non-accelerated filer (do not check if a smaller reporting company) [  ] Smaller reporting company [   ].
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ]   No [ X ]
 
As of July 27, 2013, 8,724,070 shares of Class A and 1,213,334 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
   
         
   
Condensed Consolidated Statements of Operations – Three
and nine months ended June 28, 2013 and June 29, 2012
 
 
1
         
   
Condensed Consolidated Statements of Comprehensive
Income – Three and nine months ended June 28, 2013 and
June 29, 2012
 
 
2
         
   
Condensed Consolidated Balance Sheets – June 28, 2013,
September 28, 2012 and June 29, 2012
 
 
3
         
   
Condensed Consolidated Statements of Cash Flows – Nine
months ended June 28, 2013 and June 29, 2012
 
 
4
         
   
Notes to Condensed Consolidated Financial Statements
 
5
         
 
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
 
 
23
         
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
31
         
 
Item 4.
Controls and Procedures
 
32
         
PART II
OTHER INFORMATION
   
       
 
Item 1.
Legal Proceedings
 
33
         
 
Item 1A.
Risk Factors
 
33
         
 
Item 6.
Exhibits
 
33
         
   
Signatures
 
33
         
   
Exhibit Index
 
34


 

 

 
 

 

PART I    FINANCIAL INFORMATION
Item 1.     Financial Statements
JOHNSON OUTDOORS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
             
   
Three Months Ended
   
Nine Months Ended
 
   
June 28
   
June 29
   
June 28
   
June 29
 
(thousands, except per share data)
 
2013
   
2012
   
2013
   
2012
 
Net sales
  $ 129,772     $ 128,595     $ 349,146     $ 337,497  
Cost of sales
    75,435       74,348       206,911       201,622  
Gross profit
    54,337       54,247       142,235       135,875  
Operating expenses:
                               
Marketing and selling
    25,215       25,085       70,309       70,751  
Administrative management, finance and information systems
    8,999       11,370       29,944       33,408  
Litigation settlement recovery
    -       -       -       (3,500 )
Research and development
    3,990       3,570       11,685       10,732  
Total operating expenses
    38,204       40,025       111,938       111,391  
Operating profit
    16,133       14,222       30,297       24,484  
Interest income
    (14 )     (14 )     (67 )     (45 )
Interest expense
    186       595       1,110       2,008  
Other expense (income), net
    451       (403 )     71       (1,699 )
Income before income taxes
    15,510       14,044       29,183       24,220  
Income tax expense
    1,856       5,049       6,345       10,886  
Net income
  $ 13,654     $ 8,995     $ 22,838     $ 13,334  
                                 
Weighted average common shares - Basic:
                               
Class A
    8,331       8,175       8,293       8,149  
Class B
    1,213       1,216       1,213       1,216  
Participating securities
    -       -       -       -  
Dilutive stock options and units
    5       3       5       8  
Weighted average common shares - Dilutive
    9,549       9,394       9,511       9,373  
Net income per common share - Basic:
                               
Class A
  $ 1.39     $ 0.92     $ 2.34     $ 1.37  
Class B
  $ 1.26     $ 0.84     $ 2.11     $ 1.24  
Net income per common share - Diluted:
                               
Class A
  $ 1.37     $ 0.91     $ 2.30     $ 1.35  
Class B
  $ 1.37     $ 0.91     $ 2.30     $ 1.35  

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 
1

 



JOHNSON OUTDOORS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

                         
 
Three Months Ended
 
Nine Months Ended
 
 
June 28
 
June 29
 
June 28
 
June 29
 
(thousands, except per share data)
2013
 
2012
 
2013
 
2012
 
Comprehensive income:
                       
Net income
  $ 13,654     $ 8,995     $ 22,838     $ 13,334  
Other comprehensive income (loss):
                               
Foreign currency translation gain (loss)
    13       (4,485 )     (2,460 )     (5,682 )
Income from cash flow hedge
    -       199       138       683  
Total comprehensive income
  $ 13,667     $ 4,709     $ 20,516     $ 8,335  

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.


 
2

 

JOHNSON OUTDOORS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

                   
   
June 28
   
September 28
   
June 29
 
(thousands, except share data)
 
2013
   
2012
   
2012
 
ASSETS
                 
Current assets:
                 
Cash and cash equivalents
  $ 41,678     $ 58,904     $ 38,745  
Accounts receivable, net
    75,894       40,673       77,012  
Inventories
    75,210       67,058       67,018  
Deferred income taxes
    5,005       8,645       9,526  
Other current assets
    5,732       7,672       4,431  
Total current assets
    203,519       182,952       196,732  
Property, plant and equipment, net of accumulated
                       
depreciation of $103,253, $98,235, and $95,416, respectively
    41,021       36,667       36,049  
Deferred income taxes
    15,586       14,808       14,337  
Goodwill
    20,938       14,466       14,361  
Other intangible assets, net
    14,216       4,309       4,344  
Other assets
    11,409       10,430       9,085  
Total assets
  $ 306,689     $ 263,632     $ 274,908  
LIABILITIES AND SHAREHOLDERS' EQUITY
                       
Current liabilities:
                       
Short-term notes payable and revolving credit lines
  $ 8,998     $ -     $ 3,490  
Current maturities of long-term debt
    549       526       516  
Accounts payable
    28,831       24,559       30,269  
Accrued liabilities:
                       
Salaries, wages and benefits
    13,804       15,365       13,375  
Accrued warranty
    5,167       4,751       5,219  
Income taxes payable
    2,521       582       4,983  
Other
    16,863       13,184       15,443  
Total current liabilities
    76,733       58,967       73,295  
Long-term debt, less current maturities
    7,917       8,334       8,470  
Deferred income taxes
    4,891       694       191  
Retirement benefits
    11,339       11,827       9,269  
Other liabilities
    11,165       10,206       10,014  
Total liabilities
    112,045       90,028       101,239  
Shareholders' equity:
                       
Preferred stock:  none issued
                       
Common stock:
                       
Class A shares issued and outstanding:
    438       434       434  
June 28, 2013:  8,724,070
September 28, 2012:  8,676,703
June 29, 2012:  8,678,369
                       
Class B shares issued and outstanding:
    61       61       61  
June 28, 2013:  1,213,334
September 28, 2012:  1,215,758
June 29, 2012:  1,215,842
                       
Capital in excess of par value
    65,428       64,184       63,333  
Retained earnings
    115,655       92,817       96,017  
Accumulated other comprehensive income
    13,795       16,117       13,833  
Treasury stock at cost, shares of Class A common
                       
stock:  35,680, 516 and 516, respectively
    (733 )     (9 )     (9 )
Total shareholders' equity
    194,644       173,604       173,669  
Total liabilities and shareholders' equity
  $ 306,689     $ 263,632     $ 274,908  

 
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 
3

 

JOHNSON OUTDOORS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

             
   
Nine Months Ended
 
(thousands)
 
June 28
2013
   
June 29
2012
 
             
CASH PROVIDED BY OPERATING ACTIVITIES
 
 
       
Net income
  $ 22,838     $ 13,334  
Adjustments to reconcile net income to net cash provided by
               
operating activities:
               
Depreciation
    6,808       7,900  
Amortization of intangible assets
    496       977  
Amortization of deferred financing costs
    178       293  
Stock based compensation
    1,098       1,292  
Amortization of deferred loss on interest rate swap
    138       683  
Deferred income taxes
    2,435       4,953  
Change in operating assets and liabilities, net of effects of acquired business:
            -  
Accounts receivable, net
    (34,737 )     (31,080 )
Inventories, net
    (6,429 )     42  
Accounts payable and accrued liabilities
    8,056       8,461  
Other current assets
    2,162       565  
Other non-current assets
    (1,205 )     (1,216 )
Other long-term liabilities
    563       469  
Other, net
    57       332  
 
    2,458       7,005  
CASH USED FOR INVESTING ACTIVITIES
               
Payments for purchase of business
    (15,420 )     -  
Additions to property, plant and equipment
    (10,938 )     (8,930 )
Proceeds from sales of property, plant and equipment
    -       1,208  
 
    (26,358 )     (7,722 )
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
               
Net borrowings from short-term notes payable and revolving credit lines
    8,997       3,491  
Principal payments on senior notes and other long-term debt
    (393 )     (5,986 )
Common stock transactions
    130       369  
Purchases of treasury stock
    (886 )     (107 )
      7,848       (2,233 )
Effect of foreign currency rate changes on cash
    (1,174 )     (2,819 )
Decrease in cash and cash equivalents
    (17,226 )     (5,769 )
CASH AND CASH EQUIVALENTS
               
Beginning of period
    58,904       44,514  
End of period
  $ 41,678     $ 38,745  
 
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.


 
4

 


JOHNSON OUTDOORS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
1         BASIS OF PRESENTATION
 
The Condensed 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 (collectively, the “Company”) as of June 28, 2013 and June 29, 2012, and the results of operations for the three and nine month periods then ended and cash flows for the nine month periods then ended. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 2012 which was filed with the Securities and Exchange Commission on December 11, 2012.
 
Due to seasonal variations and other factors, the results of operations for the three and nine months ended June 28, 2013 are not necessarily indicative of the results to be expected for the Company's full 2013 fiscal year.  See “Seasonality” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein for additional information.
 
All monetary amounts, other than share and per share amounts, are stated in thousands. 
 
2         ACCOUNTS RECEIVABLE
 
Accounts receivable are stated net of allowances for doubtful accounts of $3,752, $4,172 and $3,726 as of the periods ended June 28, 2013, September 28, 2012 and June 29, 2012, respectively. The increase in net accounts receivable to $75,894 as of June 28, 2013 from $40,673 as of September 28, 2012 is attributable to the seasonal nature of the Company's business. The determination of the allowance for doubtful accounts is based on a combination of factors. In circumstances where specific collection concerns on a receivable exist, a reserve is established to value the affected account receivable at an amount the Company believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on historical experience of bad debts as a percent of accounts receivable outstanding for each business unit. Uncollectible accounts are written off against the allowance for doubtful accounts after collection efforts have been exhausted. The Company typically does not require collateral on its accounts receivable.
 
3         EARNINGS PER SHARE (“EPS”)
 
Net income or loss per share of Class A common stock and Class B common stock is computed using the two-class method.  Grants of restricted stock which receive non-forfeitable dividends are required to be included as part of the basic weighted average share calculation under the two-class method.
 
Holders of Class A common stock are entitled to cash dividends equal to 110% of all dividends declared and paid on each share of Class B common stock. The Company grants shares of unvested restricted stock in the form of Class A shares, which carry the same distribution rights as the Class A common stock described above.  As such, the undistributed earnings for each period are allocated to each class of common stock based on the proportionate share of the amount of cash dividends that each such class is entitled to receive.
 
 
 
5

 
JOHNSON OUTDOORS INC.
 
Basic EPS
 
Basic net income or loss per share is computed by dividing net income or loss allocated to Class A common stock and Class B common stock by the weighted-average number of shares of Class A common stock and Class B common stock outstanding, respectively.  In periods with cumulative year to date net income and undistributed income, the undistributed income for each period is allocated to each class of common stock based on the proportionate share of the amount of cash dividends that each such class is entitled to receive.  In periods where there is a cumulative year to date net loss or no undistributed income because distributions through dividends exceed net income, Class B shares are treated as anti-dilutive and, therefore, net losses are allocated equally on a per share basis among all participating securities.
 
For the three and nine month periods ended June 28, 2013 and June 29, 2012, basic net income per share for Class A and Class B shares has been presented using the two class method as described above.
 
Diluted EPS
 
Diluted net income per share is computed by dividing allocated net income by the weighted-average number of common shares outstanding, adjusted for the effect of dilutive stock options, restricted stock units (“stock units” or “units”) and non-vested restricted stock.  Anti-dilutive stock options, units and non-vested stock are excluded from the calculation of diluted EPS.  The computation of diluted net income per share of Class A common stock assumes that Class B common stock is converted into Class A common stock.  Therefore, diluted net income per share is the same for both Class A and Class B common shares.  In periods where the Company reports a net loss, the effect of anti-dilutive stock options, units and non-vested stock is excluded and diluted loss per share is equal to basic loss per share.
 
For the three and nine month periods ended June 28, 2013 and June 29, 2012, diluted net income per share reflects the effect of dilutive stock options and units and assumes the conversion of Class B common stock into Class A common stock.
 
Stock options that could potentially dilute earnings per share in the future which were not included in the fully diluted computation because they would have been anti-dilutive totaled 0 and 5,850 for the three months ended June 28, 2013 and June 29, 2012, respectively, and 0 and 5,850 for the nine months ended June 28, 2013 and June 29, 2012, respectively.  Non-vested stock that could potentially dilute earnings per share in the future which were not included in the fully diluted computation because they would have been anti-dilutive totaled  386,409 and 496,185 shares for the three months ended June 28, 2013 and June 29, 2012, respectively, and 413,633 and 491,923 shares for the nine months ended June 28, 2013 and June 29, 2012, respectively.
 
4         STOCK-BASED COMPENSATION AND STOCK OWNERSHIP PLANS
 
The Company’s current stock ownership plans allow for issuance of stock options to acquire shares of Class A common stock by key executives and non-employee directors. Current plans also allow for issuance of shares of restricted stock, units or stock appreciation rights in lieu of stock options.
 
At the February 28, 2013 Annual Shareholder Meeting, the Company’s shareholders approved the 2012 Johnson Outdoors Inc. Non-Employee Director Stock Ownership Plan (the “2012 Plan”) which provides for the issuance of up to 50,000 shares of Class A common stock pursuant to the terms of the 2012 Plan.  The 2012 Plan became effective on December 5, 2012.
 
Under the Company’s 2010 Long-Term Stock Incentive Plan and the 2012 Non-Employee Director Stock Ownership Plan there were 764,058 shares of the Company’s Class A common stock available for grant to key executives and non-employee directors at June 28, 2013.
 

 
6

 
JOHNSON OUTDOORS INC.

 
           Stock Options
 
All stock options have been granted at a price not less than fair market value at the date of grant and all outstanding options are currently exercisable.  Stock options generally have a term of 10 years.
 
All of the Company’s stock options outstanding are fully vested, with no further compensation expense to be recorded. There were no grants of stock options during either of the nine month periods ended June 28, 2013 or June 29, 2012.
                         
   
Shares
 
Weighted
Average
Exercise Price
 
Aggregate Intrinsic 
Value
   
Weighted
Average
Remaining
Contractual
Term (Years)
 
Outstanding and exercisable at September 28, 2012
    23,366     $ 15.39              
Exercised
    (8,300 )     10.35              
Outstanding and exercisable at June 28, 2013
    15,066       18.16     $ 97       1.5  
 
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $24.90 as of June 28, 2013, which would have been received by the option holders had those option holders exercised their stock options as of that date.
 
The Company received cash proceeds from stock option exercises totaling $86 and $338 for the nine month periods ending June 28, 2013 and June 29, 2012, respectively.  The fair value of the stock received upon exercise of such options at their date of exercise during the nine month periods ended June 28, 2013 and June 29, 2012 was $171 and $689, respectively.
 
Non-vested Stock
 
All shares of non-vested stock awarded by the Company have been granted at their fair market value on the date of grant and vest either immediately or within five years after the grant date.  The fair value at date of grant is based on the number of shares granted and the average of the Company’s high and low Class A common stock price on the date of grant or, if the Company’s shares did not trade on the date of grant, the average of the Company’s high and low Class A common stock price on the last preceding date on which the Company’s shares traded.
 
A summary of non-vested stock activity for the nine months ended June 28, 2013 related to the Company’s stock ownership plans is as follows:
             
       
Weighted Average
 
   
Shares
 
Grant Price
 
Non-vested stock at September 28, 2012
    493,548     $ 11.95  
Non-vested stock grants
    70,545       20.66  
Restricted stock vested
    (177,684 )     11.43  
Non-vested stock at June 28, 2013
    386,409       13.78  
 
 
 
7

 
JOHNSON OUTDOORS INC.
 
Non-vested stock grantees may elect to reimburse the Company for withholding taxes due as a result of the vesting of shares by tendering a portion of the vested shares back to the Company. Shares tendered back to the Company were 43,464 and 6,621 during the nine month periods ended June 28, 2013 and June 29, 2012, respectively.
 
Stock compensation expense, net of forfeitures, related to non-vested stock was $347 and $372 for the three month periods ended June 28, 2013 and June 29, 2012, respectively, and $1,048 and $1,292 for the nine month periods ended June 28, 2013 and June 29, 2012, respectively.  Unrecognized compensation cost related to non-vested stock as of June 28, 2013 was $2,655, which amount will be amortized to expense through November 2016 or adjusted for changes in future estimated or actual forfeitures.
 
The fair value of restricted stock vested during the nine month periods ended June 28, 2013 and June 29, 2012 was $3,628 and $511, respectively.
 
Restricted Stock Units
 
All stock units awarded by the Company have been granted at their fair market value on the date of grant and vest within one year after the grant date.  The fair value at date of grant is based on the number of units granted and the average of the Company’s high and low Class A common stock price on the date of grant or, if the Company’s shares did not trade on the date of grant, the average of the Company’s high and low Class A common stock trading price on the last preceding date on which the Company’s shares traded.
 
The Company issued 6,600 stock units at a weighted average grant price of $22.73 for the nine month period ended June 28, 2013.  No restricted stock units were granted for the three month period ended June 28, 2013 or the three and nine month periods ended June 29, 2012.
 
Stock compensation expense, net of forfeitures, related to stock units was $37 and $50 for the three and nine month periods ended June 28, 2013, respectively.  There was no stock compensation expense related to the issuance of stock units during the three or nine month periods ended June 29, 2012.  Unrecognized compensation cost related to non-vested stock units as of June 28, 2013 was $100, which amount will be amortized to expense through February 2014 or adjusted for changes in future estimated or actual forfeitures.
 
The Company recognized an income tax benefit on stock-based compensation expense of $146 and $141 for the three month periods ended June 28, 2013 and June 29, 2012, respectively, and $417 and $491 for the nine month periods ended June 28, 2013 and June 29, 2012, respectively.
 
The Company recognized no income tax benefit (expense) on exercises of stock options and vesting of non-vested stock for either of the three month periods ended June 28, 2013 and June 29, 2012, and $(2) and $117 for the nine month periods ended June 28, 2013 and June 29, 2012, respectively.
 
Employees’ Stock Purchase Plan
 
The Company’s shareholders have adopted the Johnson Outdoors Inc. 2009 Employees’ Stock Purchase Plan which provides for the issuance of shares of Class A common stock at a purchase price of not less than 85% of the fair market value of such shares on the date of grant or at the end of the offering period, whichever is lower.
 
 
 
8

 
JOHNSON OUTDOORS INC.
 
During the three and nine month periods ended June 28, 2013, the Company issued 9,562 shares of Class A common stock and recognized $41 of expense in connection with the Employees’ Stock Purchase Plan and during the three and nine month periods ended June 29, 2012, the Company issued 10,349 shares of Class A common stock and recognized $30 of expense in connection with the Employees' Stock Purchase Plan.
 
5         PENSION PLANS
 
The Company has non-contributory defined benefit pension plans covering certain U.S. employees. Retirement benefits are generally provided based on the employees’ years of service and average earnings. Normal retirement age is 65, with provisions for earlier retirement.   

The components of net periodic benefit cost related to Company sponsored defined benefit plans for the three and nine month periods ended June 28, 2013 and June 29, 2012 were as follows:
                         
 
Three Months Ended
 
Nine Months Ended
 
 
June 28
 
June 29
 
June 28
 
June 29
 
 
2013
 
2012
 
2013
 
2012
 
Components of net periodic benefit cost:
                       
Service cost
  $ -     $ -     $ -     $ -  
Interest on projected benefit obligation
    249       259       748       777  
Less estimated return on plan assets
    244       236       733       707  
Amortization of unrecognized losses
    167       84       500       252  
    $ 172     $ 107     $ 515     $ 322  


6         INCOME TAXES

For the three months ended June 28, 2013 and June 29, 2012, the Company’s effective income tax rate attributable to earnings before income taxes was 12.0% and 36.0%, respectively.  During the third quarter of fiscal year 2013, the Company recognized tax expense of $1,856 on income before income tax of $15,510.  The decrease in the Company’s effective tax rate versus the prior year period was primarily due to the reversal of valuation allowance on foreign tax credits.  Further contributing to the difference in effective tax rates was income in tax jurisdictions with deferred tax valuation allowances in the current period versus losses in the prior year period.
 
For the nine months ended June 28, 2013 and June 29, 2012, the Company’s effective income tax rate attributable to earnings before income taxes was 21.7% and 44.9%, respectively.  The decrease in the Company’s effective tax rate for the nine months ended June 28, 2013 versus the prior year period was primarily due to the reversal of valuation allowance on foreign tax credits.  Further contributing to the difference in effective tax rates was income in tax jurisdictions with deferred tax valuation allowances in the current year period versus losses in the prior year period. The retroactive research and development credit enactment during the nine month period ended June 28, 2013 also contributed to the difference in the effective tax rate.
 
 
 
9

 
JOHNSON OUTDOORS INC.
 
During the nine months ended June 28, 2013, the Company continued to maintain valuation allowances in Japan, Italy, Spain, Indonesia, New Zealand, the United Kingdom, the Netherlands and France.  A valuation allowance remains for various state and federal U.S. deferred tax assets where it is more likely than not that the asset will not be realized due to a lack of apportioned income or limited carryforward periods.  The Company would ordinarily recognize a tax expense or benefit on operating income or loss in these jurisdictions; however, due to the recent cumulative losses for book purposes and the uncertainty of the realization of certain deferred tax assets in these jurisdictions, the Company continues to adjust its valuation allowances resulting in effectively no recorded tax expense or benefit in these jurisdictions.
 
The Company regularly assesses the adequacy of its provisions for income tax contingencies in accordance with the applicable authoritative guidance on accounting for income taxes.  As a result, the Company may adjust the reserves for unrecognized tax benefits for the impact of new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities, and lapses of statutes of limitation.  The Company’s 2013 fiscal year tax expense is anticipated to include approximately $218 related to uncertain income tax positions.
 
In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company is projecting accrued interest, for the Company’s fiscal year ending September 27, 2013 of $125.
 
The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions.   The Company is currently undergoing an income tax examination in Italy for the 2011 tax year.  The following tax years remain subject to examination by the respective tax jurisdictions:
     
Jurisdiction
Fiscal Years
 
United States
2011-2012
 
Canada
2008-2012
 
France
2009-2012
 
Germany
2009-2012
 
Italy
2009-2012
 
Japan
2012
 
Switzerland
2002-2012
 

7         INVENTORIES

Inventories at the end of the respective periods consisted of the following:

             
 
June 28
 
September 28
 
June 29
 
 
2013
 
2012
 
2012
 
Raw materials
  $ 26,230     $ 26,610     $ 21,917  
Work in process
    507       1,324       1,576  
Finished goods
    48,473       39,124       43,525  
    $ 75,210     $ 67,058     $ 67,018  

 
 
10

 
JOHNSON OUTDOORS INC.
 
8         GOODWILL

The changes in goodwill during the nine months ended June 28, 2013 and June 29, 2012 were as follows:
             
   
June 28
2013
   
June 29
2012
 
Balance at beginning of period
  $ 14,466     $ 14,651  
Jetboil® acquisition
    6,475       -  
Amount attributable to movements in foreign currency rates
    (3 )     (290 )
Balance at end of period
  $ 20,938     $ 14,361  

9         WARRANTIES

The Company provides for warranties of certain products as they are sold. The following table summarizes the Company's warranty activity for the nine months ended June 28, 2013 and June 29, 2012.
             
   
June 28
2013
   
June 29
2012
 
Balance at beginning of period
  $ 4,751     $ 5,155  
Expense accruals for warranties issued during the period
    2,903       2,740  
Less current period warranty claims paid
    2,487       2,676  
Balance at end of period
  $ 5,167     $ 5,219  

10      ACQUISITION

On November 14, 2012, the Company acquired all of the outstanding common and preferred stock of Jetboil, Inc. (“Jetboil”) in a purchase transaction with Jetboil’s founders and other shareholders (the “Sellers”).  Jetboil, founded and based in Manchester, New Hampshire, designs and manufactures the world’s top brand of portable outdoor cooking systems.
 
The $15,420 of consideration paid in this acquisition was funded with existing cash and credit facilities. Approximately $3,200 of the purchase price was paid into a segregated escrow account which was set aside to fund potential indemnity claims that may be made by the Company against the Sellers in connection with the inaccuracy of certain representations and warranties made by Sellers or related to the breach or nonperformance of certain other actions or conditions related to the acquisition, for a period of 15 months from the acquisition date.  The Company cannot estimate the probability or likelihood of bringing such indemnity claims against the Sellers or their related costs at this time.  The remaining escrow balance, if any, net of any indemnity claims then pending, will be released to the Sellers once the 15 month period has lapsed.  The Company completed negotiations on an adjustment to the purchase price related to the amount of working capital existing on the Jetboil balance sheet at November 14, 2012.  This adjustment resulted in a slight reduction in the purchase price during the quarter ended March 29, 2013.
 
 
 
11

 
JOHNSON OUTDOORS INC.
 
The Company believes that sales of Jetboil’s innovative cooking products can be expanded through the Company’s U.S. and Canadian marketing and distribution networks and that the Company’s other camping and paddling brands will benefit from Jetboil’s strong presence in the Specialty trade channel and from its international sales network.  The Jetboil acquisition, including acquired goodwill, is included in the Company’s Outdoor Equipment segment.
 
The Company has completed its valuations of the assets acquired and liabilities assumed in the business combination resulting in the following measurement period adjustments to the provisional amounts since the acquisition date.
       
Measurement period adjustments increase (decrease)
 
Financial assets
  $ (33 )
Inventories
    (159 )
Property, plant and equipment
    80  
Identifiable intangible assets and goodwill
    3,865  
Deferred tax liabilities
    4,257  
Financial liabilities
    (390 )
 
The following table summarizes the final fair values of the assets acquired and liabilities assumed, and the resulting goodwill acquired at the date of the Jetboil acquisition.
   
Recognized amounts of identifiable assets acquired and liabilities assumed
 
Accounts receivable
  $ 1,184  
Inventories
    2,232  
Other current assets
    167  
Property, plant and equipment
    314  
Identifiable intangible assets
    10,400  
Less, accounts payable and accruals
    1,111  
Less, deferred tax liabilities
    4,241  
Total identifiable net assets
    8,945  
Goodwill
    6,475  
Net assets acquired
  $ 15,420  
 
The goodwill resulting from this acquisition reflects the strong cash flow expected from the acquisition due primarily to expanded distribution and growth in all Outdoor Equipment brands.  This goodwill is not deductible for tax purposes.  Transaction costs incurred for the acquisition to date were $361, of which $295 was recognized during the nine months ended June 28, 2013, and are included in the “Administrative management, finance and information systems” line in the Company’s accompanying Condensed Consolidated Statements of Operations in the Other/Corporate segment.
 
 
 
12

 
JOHNSON OUTDOORS INC.
 
The fair value assigned to finite lived intangible assets is as follows:
         
       
Useful
Description
 
Amount ($)
 
Life (yrs)
Patents
    240  
7
Noncontractual customer relationships
    3,700  
15
Non-compete agreements
    1,060  
4
 
The weighted average useful life of total amortizable intangible assets acquired is 12.3 years.
 
The acquisition included an indefinite lived tradename valued at $5,400.
 
Due to the difference in fiscal year end periods between the Company and Jetboil and the timing of certain significant year end accounting procedures performed at Jetboil, it is impractical to present pro-forma results of the combined entities.
 
The amounts of net sales and operating profit for Jetboil from the date of acquisition through June 28, 2013 and for the twelve month periods ending December 28, 2012 and December 31, 2011, were as follows:
                   
 
Acquisition Date
through
 
Twelve months ended
 
 
June 28, 2013
(unaudited)
 
December 31, 2012
(unaudited)
 
December 31, 2011
(unaudited)
 
Net sales
  $ 7,732     $ 13,745     $ 10,775  
Operating profit
    394       2,469       1,203  

11      RESTRUCTURING

On July 11, 2012, the Company announced plans to restructure certain operations related to its Watercraft segment.  Specifically, the Company is restructuring product sales and distribution in Europe and consolidating all of its U.S. operations at a single location in Old Town, Maine. The Company believes this plan will enhance the competitiveness and profit potential of its Watercraft business.  This action will result in the closure of two sales offices in Europe, and the closure of a marketing and R&D facility in Bellingham, Washington and the elimination of approximately 24 positions in the U.S. and Europe.  The related charges are included in the “Administrative management, finance and information systems” line in the Company’s accompanying Condensed Consolidated Statements of Operations in the Watercraft segment.  The restructuring accrual is included in the “Other current liabilities” line in the Company’s accompanying Condensed Consolidated Balance Sheets.  The Company expects the total cost of this restructuring to be approximately $2,650 and to be completed over the next three months.

Changes in the accrual related to this restructuring project for the nine month period ended June 28, 2013 were as follows:
                         
   
Employee Termination Costs
   
Contract Exit Costs
   
Other Exit Costs
   
Total
 
Accrued restructuring liabilities as of September 28, 2012
  $ 428     $ -     $ 100     $ 528  
Activity during the period ended June 28, 2013:
                               
Charges to earnings
    641       294       168       1,103  
Settlement payments
    (686 )     (43 )     (255 )     (984 )
Accrued restructuring liabilities as of June 28, 2013
  $ 383     $ 251     $ 13     $ 647  
 
 
 
13

 
JOHNSON OUTDOORS INC.
 
12       LITIGATION

The Company is subject to various legal actions and proceedings in the normal course of business, including those related to commercial disputes, product liability, intellectual property and environmental matters. The Company is insured against loss for certain of these matters. Although litigation is subject to many uncertainties and the ultimate exposure with respect to these matters cannot be ascertained, management does not believe the final outcome of any pending litigation will have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company.

On March 1, 2012, the Company received a $3,500 settlement payment resolving a claim with its insurance carriers.

13      INDEBTEDNESS

Debt was comprised of the following at June 28, 2013, September 28, 2012, and June 29, 2012:
                   
   
June 28
2013
   
September 28
2012
   
June 29
2012
 
Term loans
  $ 8,221     $ 8,456     $ 8,531  
Revolvers
    8,998       -       3,490  
Other
    245       404       455  
Total debt
    17,464       8,860       12,476  
Less current portion of long term debt
    549       526       516  
Less short term notes payable and revolving credit lines
    8,998       -       3,490  
Total long-term debt
  $ 7,917     $ 8,334     $ 8,470  
 
Term Loans
The Company’s term loans have a maturity date of September 29, 2029.  Each term loan requires monthly payments of principal and interest. Interest on the aggregate outstanding amount of the term loans is based on the prime rate plus an applicable margin.  The interest rate in effect on the term loans was 5.25% at June 28, 2013.

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 and certain patents and trademarks of the Company and its subsidiaries.  Any proceeds from the sale of secured property are first applied against the related term loans and then against the Revolvers (as defined below).

 
 
14

 
JOHNSON OUTDOORS INC.
 
The aggregate term loan borrowings are subject to a pre-payment penalty.  The penalty is currently 7% of the pre-payment amount, and the penalty will decrease by 1% annually on the anniversary date of the effective date of the loan agreement.

Revolvers
On November 16, 2010, the Company and certain of its subsidiaries entered into amendments to their Revolving Credit Agreements (or “Revolvers”).  The amended terms of the Revolvers, maturing on November 16, 2014, provide for funding of up to $75,000, with an accordion feature that allows for the option to increase the maximum seasonal financing availability subject to the approval of the lenders. 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 during the period from mid-July to mid-November, consistent with the Company's reduced working capital needs throughout that period, and requires an annual seasonal pay down provision that reduces the borrowing capacity to $30,000 for 60 consecutive days.  The amendments to the Revolvers reset the interest rate calculation each quarter, by instituting an applicable margin based on the Company’s leverage ratio for the trailing twelve month period.

The interest rate on the Revolvers is based on LIBOR or the prime rate, at the Company’s discretion, plus an applicable margin.  The interest rate in effect on the Revolvers at June 28, 2013, based primarily on LIBOR, was approximately 2.50%.

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 Company’s remaining borrowing availability under the Revolvers was approximately $47,600 at June 28, 2013.

Under the terms of the Revolvers, 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, as noted above, a seasonal pay-down requirement.

Other Borrowings
The Company had no unsecured revolving credit facilities at its foreign subsidiaries as of June 28, 2013 or June 29, 2012.  The Company utilizes letters of credit primarily as security for the payment of future claims under its workers’ compensation insurance, which totaled $1,404 and $2,103 at June 28, 2013 and June 29, 2012, respectively.  The Company had no unsecured lines of credit as of June 28, 2013 or June 29, 2012.

Aggregate scheduled maturities of long-term debt as of June 28, 2013, for the remainder of fiscal 2013 and subsequent fiscal years, were as follows:
       
Fiscal Year
     
2013
  $ 132  
2014
    514  
2015
    359  
2016
    367  
2017
    387  
Thereafter
    6,707  
Total
  $ 8,466  


 
15

 
JOHNSON OUTDOORS INC.
 
Interest paid for the three month periods ended June 28, 2013 and June 29, 2012 was $179 and $296, respectively.  Interest paid for the nine month periods ended June 28, 2013 and June 29, 2012 was $799 and $1,062, respectively.

The weighted average borrowing rate for short-term debt was approximately 2.5% and 2.6% for the nine months ended June 28, 2013 and June 29, 2012, respectively.

Based on the borrowing rates currently available to the Company for debt with similar terms and maturities, the fair value of the Company’s long-term debt as of June 28, 2013 and June 29, 2012 was approximately $7,917 and $8,470, respectively.

14       DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The following disclosures describe the Company’s objectives in using derivative instruments, the business purpose or context for using derivative instruments, and how the Company believes the use of derivative instruments helps achieve the stated objectives.  In addition, the following disclosures describe the effects of the Company’s use of derivative instruments and hedging activities on its financial statements.
 
Foreign Exchange Risk
 
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 19% of the Company’s revenues for the nine month period ended June 28, 2013 were denominated in currencies other than the U.S. dollar. Approximately 10% were denominated in euros, with the remaining revenues denominated in various other foreign currencies. Changes in foreign currency exchange rates can cause unexpected financial losses or cash flow needs.
 
The Company mitigates a portion of the fluctuations in certain foreign currencies through the use of foreign currency forward contracts.  Foreign currency forward contracts enable the Company to lock in the foreign currency exchange rate to be paid or received for a fixed amount of currency at a specified date in the future. The Company uses such foreign currency forward contracts to mitigate the risk associated with changes in foreign currency exchange rates on financial instruments and known commitments, including commitments for inventory purchases, denominated in foreign currencies. None of the Company’s derivative financial instruments have been designated as hedging instruments.
 
As of June 28, 2013, the Company held a foreign currency forward contract with a notional value of 4,400 Swiss francs.  See “Note 15 – Fair Value Measurements” for information regarding the fair value and financial statement presentation of these derivatives.
 
Interest Rate Risk
 
The Company operates in a seasonal business and experiences significant fluctuations in operating cash flow as working capital needs increase in advance of the Company’s primary selling and cash generation season, and decline as accounts receivable are collected and cash is accumulated or debt is repaid.  The Company’s goal in managing its interest rate risk is to maintain a mix of floating rate and fixed rate debt such that permanent non-equity capital needs are largely funded with long term fixed rate debt and seasonal working capital needs are funded with short term floating rate debt.
 
 
 
16

 
JOHNSON OUTDOORS INC.
 
When the appropriate mix of fixed rate or floating rate debt cannot be directly obtained in a cost effective manner, the Company may enter into interest rate swap contracts in order to change floating rate interest into fixed rate interest or vice versa for a specific amount of debt in order to achieve the desired proportions of floating rate and fixed rate debt.
 
The Company held no interest rate swap contracts during the three and nine month periods ended June 28, 2013 and June 29, 2012 and as of June 28, 2013, the Company was unhedged with respect to interest rate risk on its floating rate debt.  The Company has fully amortized the unrealized loss related to the formerly effective interest rate swap that had subsequently become ineffective on January 2, 2009.
 
The following table discloses the location of loss reclassified from accumulated other comprehensive income (“AOCI”) into net income related to derivative instruments during the three and nine month periods ended June 28, 2013 and June 29, 2012.
 
         
 
Three Months Ended
 
Nine Months Ended
 
 
June 28
 
June 29
 
June 28
 
June 29
 
Loss reclassified from AOCI into:
2013
 
2012
 
2013
 
2012
 
                         
Interest expense
  $ -     $ 199     $ 138     $ 683  

The effect of derivative instruments on the Condensed Consolidated Statements of Operations for the three months ended June 28, 2013 and June 29, 2012 was:
     
 
Location of  loss (gain)
Three Months Ended
Derivatives not designated as
recognized in statement
June 28
June 29
hedging instruments
of operations
2013
2012
           
Foreign exchange forward contracts
Other expense (income), net
$ (10) $ 304
 
The effect of derivative instruments on the Condensed Consolidated Statements of Operations for the nine months ended June 28, 2013 and June 29, 2012 was:
           
 
Location of  loss (gain)
Nine Months Ended
Derivatives not designated as
recognized in statement
June 28
June 29
hedging instruments
of operations
2013
2012
           
Foreign exchange forward contracts
Other expense (income), net
$ 59 $ 316


 
17

 
JOHNSON OUTDOORS INC.
15       FAIR VALUE MEASUREMENTS
 
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy has been established based on three levels of inputs, of which the first two are considered observable and the last unobservable.
 
 
  Level 1 - Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets or liabilities.
     
    Level 2 - Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments.
     
    Level 3 - Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.
 
The carrying amounts of cash, cash equivalents, accounts receivable, and accounts payable approximated fair value at June 28, 2013, September 28, 2012 and June 29, 2012 due to the short term maturities of these instruments. When indicators of impairment are present, the Company may be required to value certain long-lived assets such as property, plant, and equipment, and other intangibles at fair value.

Valuation Techniques

Over the Counter Derivative Contracts
The value of over the counter derivative contracts, such as interest rate swaps and foreign currency forward contracts, are derived using pricing models, which take into account the contract terms, as well as other inputs, including, where applicable, the notional values of the contracts, payment terms, maturity dates, credit risk, interest rate yield curves, and contractual and market currency exchange rates.  The fair value of the foreign currency forward contracts reported below was measured using the market value approach based on foreign currency exchange rates and the notional amount of the forward contract.  All foreign currency forward contracts held by the Company as of June 28, 2013 mature within twelve months.  The mark-to-market adjustments are recorded in “Other expense (income), net” in the Company’s accompanying Condensed Consolidated Statements of Operations.

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.  The rabbi trust assets are used to fund amounts the Company owes to certain officers and other employees under the Company’s non-qualified deferred compensation plan.  The mark to market adjustments are recorded in “Other expense (income), net” in the accompanying Condensed Consolidated Statements of Operations.

Goodwill and Other Intangible Assets
In assessing the recoverability of the Company’s goodwill and other indefinite lived intangible assets, the Company estimates the future discounted cash flows of the businesses to which such goodwill and intangibles relate.  When estimated future discounted cash flows are less than the carrying value of the net assets and related goodwill, an impairment test is performed to measure and recognize the amount of the impairment loss, if any.  In determining estimated future cash flows, the Company makes assumptions regarding anticipated financial position, future earnings, and other factors to determine the fair value of the respective assets.  This calculation is highly sensitive to changes in key assumptions and could result in a future impairment charge.  The Company will continue to evaluate whether circumstances and events have changed to the extent that they require the Company to conduct an interim test of goodwill.  In particular, if the Company’s business units do not achieve short term revenue and gross margin goals, an interim impairment test may be triggered which could result in a goodwill impairment charge in future periods.
 
 
 
18

 
JOHNSON OUTDOORS INC.
                         
The following table summarizes the Company's financial assets and liabilities measured at fair value as of June 28, 2013:
 
                         
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
     Rabbi trust assets
  $ 8,263     $ -     $ -     $ 8,263  
Liabilities:
                               
     Foreign currency forward contracts
    -       79       -       79  
                                 
                                 
The following table summarizes the Company's financial assets measured at fair value as of September 28, 2012:
 
                                 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                               
     Rabbi trust assets
  $ 7,289     $ -     $ -     $ 7,289  
     Foreign currency forward contracts
    -       173       -       173  
                                 
                                 
The following table summarizes the Company's financial assets and liabilities measured at fair value as of June 29, 2012:
 
                                 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                               
     Rabbi trust assets
  $ 6,796     $ -     $ -     $ 6,796  
Liabilities:
                               
     Foreign currency forward contracts
    -       39       -       39  
 
The effect of changes in the fair value of financial instruments on the Condensed Consolidated Statements of Operations for the three months ended June 28, 2013 and June 29, 2012 was:
 
               
 
Location of (income) loss
Three Months Ended
 
 
recognized in Statement of
June 28
 
June 29
 
 
Operations
2013
 
2012
 
               
Rabbi trust assets
Other expense (income), net
  $ (31 )   $ 286  
Foreign currency forward contracts
Other expense (income), net
    (10 )     304  
 
 
 
19

 
JOHNSON OUTDOORS INC.
 
The effect of changes in the fair value of financial instruments on the Condensed Consolidated Statements of Operations for the nine months ended June 28, 2013 and June 29, 2012 was:
               
 
Location of (income) loss
Nine Months Ended
 
 
recognized in Statement of
June 28
 
June 29
 
 
Operations
2013
 
2012
 
               
Rabbi trust assets
Other expense (income), net
  $ (469 )   $ (796 )
Foreign currency forward contracts
Other expense (income), net
    59       316  
 
The Company recorded impairment on a trademark held by the Marine Electronics business, reducing its fair value to $0.  A $609 pre-tax impairment charge was included in “Administrative management, finance and information systems” expenses in the Marine Electronics segment related to this impairment during the three and nine month periods ended June 29, 2012.  There were no assets and liabilities measured at fair value on a non-recurring basis in periods subsequent to their initial recognition for the three and nine month periods ended June 28, 2013.

16       NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (“FASB”) issued authoritative guidance in February 2013 that amends the presentation of accumulated other comprehensive income and clarifies how to report the effect of significant reclassifications out of accumulated other comprehensive income.  The guidance, which becomes effective for the Company on a prospective basis at the beginning of its 2014 fiscal year, requires footnote disclosures regarding the changes in accumulated other comprehensive income by component and the line items affected in the statements of operations.  The adoption of this updated authoritative guidance is not expected to have a significant impact on the Company’s Condensed Consolidated Financial Statements.

In December 2011, the FASB issued updated authoritative guidance to amend the presentation of comprehensive income in financial statements.  This new guidance allows companies the option to present other comprehensive income in either a single continuous statement or in two separate but consecutive statements.  It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity.  Under both alternatives, companies are required to present each component of net income and comprehensive income. The Company adopted this updated authoritative guidance effective as of September 29, 2012, the beginning of its first quarter of fiscal 2013.  The adoption of this updated authoritative guidance resulted in the addition of separate Condensed Consolidated Statements of Comprehensive Income to the Company’s accompanying financial statements but had no effect on our financial condition, results of operations or cash flow.
 
17      SEGMENTS OF BUSINESS

The Company conducts its worldwide operations through separate business units, each of which represents major product lines. Operations are conducted in the United States and various foreign countries, primarily in Europe, Canada and the Pacific Basin. The Company had no single customer that represented more than 10% of its total net sales during any of the three and nine month periods ended June 28, 2013 and June 29, 2012.

Net sales and operating profit include both sales to customers, as reported in the Company's accompanying Condensed Consolidated Statements of Operations, and interunit transfers, which are priced to recover cost plus an appropriate profit margin. Total assets represent assets that are used in the Company's operations in each business segment at the end of the periods presented.
 
 
 
20

 
JOHNSON OUTDOORS INC.
 
A summary of the Company’s operations by business unit is presented below:
                             
   
Three Months Ended
   
Nine Months Ended
     
   
June 28
   
June 29
   
June 28
   
June 29
  September 28
   
2013
   
2012
   
2013
   
2012
  2012
Net sales:
                           
Marine Electronics:
                           
Unaffiliated customers
  $ 73,445     $ 70,123     $ 214,769     $ 198,057      
Interunit transfers
    127       100       232       193      
Outdoor Equipment:
                                   
Unaffiliated customers
    14,802       12,197       33,312       27,894      
Interunit transfers
    20       25       46       55      
Watercraft:
                                   
Unaffiliated customers
    18,986       22,109       39,535       46,631      
Interunit transfers
    68       56       87       79      
Diving
                                   
Unaffiliated customers
    22,304       23,958       61,124       64,509      
Interunit transfers
    271       93       749       398      
Other / Corporate
    235       208       406       406      
Eliminations
    (486 )     (274 )     (1,114 )     (725 )    
Total
  $ 129,772     $ 128,595     $ 349,146     $ 337,497      
Operating profit (loss):
                                   
Marine Electronics
  $ 13,188     $ 12,165     $ 33,528     $ 26,555      
Outdoor Equipment
    2,061       1,522       2,017       2,101      
Watercraft
    1,314       506       (910 )     1,109      
Diving
    1,901       2,631       3,982       4,239      
Other / Corporate
    (2,331 )     (2,602 )     (8,320 )     (9,520 )    
    $ 16,133     $ 14,222     $ 30,297     $ 24,484      
Total assets (end of period):
                                   
Marine Electronics
                  $ 125,868     $ 108,692   $ 97,261
Outdoor Equipment
                    41,758       22,967    
 26,978 
Watercraft
                    39,770       44,260    
 32,766 
Diving
                    73,483       71,339    
 70,957 
Other / Corporate
                    25,810       27,650    
 35,670 
                    $ 306,689     $ 274,908   $ 263,632


 
21

 
JOHNSON OUTDOORS INC.
 
18       SIGNIFICANT EVENT

On September 12, 2011, the Company announced a temporary closure of its Binghamton, New York manufacturing facility and administrative offices due to flooding from torrential rains.  The Binghamton manufacturing facility houses the Company’s consumer, commercial and military tent businesses.  The Company’s finished goods warehouse located nearby was unaffected by the flooding and the Company was able to resume shipments of products within a few days.  Production resumed on September 28, 2011.

The Company maintains insurance for both property damage and business interruption relating to catastrophic events.  Business interruption coverage covers lost profits and other costs incurred.  Non-refundable insurance recoveries received in excess of the net book value of damaged assets, clean up and post-event costs are recognized as income in the period received.

The Company has incurred approximately $3,527 of cumulative costs related to clean-up and repair of the facility and equipment, losses of inventory and fixed assets, rental of temporary office space for administrative and R&D personnel and payroll expenses for labor idled due to the flood.  The Company has received $4,488 of cumulative insurance reimbursements associated with these costs.  During the nine month periods ended June 28, 2013 and June 29, 2012, the Company has recognized a gain of $771 and an expense of $19, respectively, in the Administrative, management, finance and information systems expense line in the Outdoor Equipment segment of the Company’s accompanying Condensed Consolidated Statements of Operations.

The Company has received all expected insurance recoveries related to this event.
 


 
22

 
 
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 (collectively, the “Company”) as of and for the three and nine month periods ended June 28, 2013 and June 29, 2012. All monetary amounts, other than share and per share amounts, are stated in thousands.
 
Our MD&A is presented in the following sections:
 
    Forward Looking Statements
    Trademarks
  Overview
    Results of Operations
    Liquidity and Financial Condition
    Contractual Obligations and Off Balance Sheet Arrangements
    Critical Accounting Policies and Estimates

This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related notes that immediately precede this section, as well as the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2012 which was filed with the Securities and Exchange Commission on December 11, 2012.
 
Forward Looking Statements
 
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,” “intends” 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 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, 2012 and the following:  changes in economic conditions, consumer confidence levels and discretionary spending patterns in key markets; the Company’s success in implementing its strategic plan, including its targeted sales growth platforms and focus on innovation; litigation costs related to actions of and disputes with third parties, including competitors; the Company’s continued success in its working capital management and cost-structure reductions; the Company’s ongoing success in meeting financial covenants in its credit arrangements with its lenders; the Company’s success in integrating strategic acquisitions; the risk of future writedowns of goodwill or other long-lived assets; the ability of the Company’s customers to meet payment obligations; movements in foreign currencies, interest rates or commodity costs; fluctuations in the prices of raw materials or the availability of raw materials used by the Company; 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 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.
 
 
 
23

 
JOHNSON OUTDOORS INC.
 
Trademarks
 
We have registered the following trademarks, which may be used in this report: Minn Kota®, Cannon®, Humminbird®, LakeMaster®, Geonav®, Silva®, Eureka!®, Tech4Oä, Jetboil®, Old Town®, Ocean Kayakä, Necky®,  Extrasport®, Carlisle®, Scubapro®, UWATEC®, and SUBGEAR®.
 
Overview
 
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.  The Company’s values and culture support innovation 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, the Company’s Chairman and Chief Executive Officer, members of her family and related entities.
 
Highlights
 
During the first quarter of fiscal 2013, the Company acquired Jetboil, Inc. (“Jetboil”), the manufacturer of the world’s top brand of portable outdoor cooking systems for $15,420.  The transaction was completed on November 14, 2012 and its results through June 28, 2013 are included in the Outdoor Equipment segment.  The Company believes the Jetboil acquisition will expand distribution and fuel growth in all of its Outdoor Equipment brands.  See further discussion of the acquisition at “Note 10 – Acquisition” to the Company’s Condensed Consolidated Financial Statements included elsewhere herein.
 
Seasonality
 
The Company’s business is seasonal in nature. The second and third fiscal quarters fall within the Company’s primary selling season for its outdoor recreation products.  The table below sets forth a historical view of the Company’s seasonality during the last two fiscal years.
 

   
Year Ended
 
   
2012
   
2011
 
Quarter Ended
 
Net
Sales
   
Operating
Profit
   
Net
Sales
   
Operating
Profit
 
December
    19 %     -17 %     19 %     -8 %
March
    31 %     65 %     32 %     65 %
June
    31 %     66 %     30 %     67 %
September
    19 %     -14 %     19 %     -24 %
      100 %     100 %     100 %     100 %

 
 
24

 
JOHNSON OUTDOORS INC.
 
Results of Operations
 
The Company’s net sales and operating profit (loss) by segment for the periods shown below were as follows:
 
             
   
Three Months Ended
   
Nine Months Ended
 
   
June 28
   
June 29
   
June 28
   
June 29
 
   
2013
   
2012
   
2013
   
2012
 
Net sales:
                       
Marine Electronics
  $ 73,572     $ 70,223     $ 215,001     $ 198,250  
Outdoor Equipment
    14,822       12,222       33,358       27,949  
Watercraft
    19,054       22,165       39,622       46,710  
Diving
    22,575       24,051       61,873       64,907  
Other / Eliminations
    (251 )     (66 )     (708 )     (319 )
Total
  $ 129,772     $ 128,595     $ 349,146     $ 337,497  
Operating profit (loss):
                               
Marine Electronics
  $ 13,188     $ 12,165     $ 33,528     $ 26,555  
Outdoor Equipment
    2,061       1,522       2,017       2,101  
Watercraft
    1,314       506       (910 )     1,109  
Diving
    1,901       2,631       3,982       4,239  
Other / Eliminations
    (2,331 )     (2,602 )     (8,320 )     (9,520 )
Total
  $ 16,133     $ 14,222     $ 30,297     $ 24,484  

See “Note 17 – Segments of Business” of the notes to the accompanying Condensed Consolidated Financial Statements for the definition of segment net sales and operating profit.
 
Net Sales
 
For the quarter ended June 28, 2013, consolidated net sales totaled $129,772, an increase of $1,177, or 1%, compared to $128,595 in the third quarter of the prior year.  This increase was primarily driven by successful new product sales in the Marine Electronics business and the addition of the Jetboil business which more than offset declines in net sales in the Diving and Watercraft segments as noted below.
 
Marine Electronics net sales improved by $3,349 from $70,223 in the prior year fiscal third quarter to $73,572 for the quarter ended June 28, 2013.  Strong demand for i-Pilot Link, which combines the technology of Minn Kota®, Humminbird® and LakeMaster®, was a key factor in the growth year over year.
 
Net sales for the three months ended June 28, 2013 for the Outdoor Equipment business were $14,822 compared to $12,222 in the prior year quarter.  The 21% increase of $2,600 was due primarily to the acquisition of Jetboil, offset in part by declines in military tent sales.
 
Net sales for the third fiscal quarter for the Watercraft business were $19,054 versus $22,165 in the same period of the prior year.  The 14% decrease was largely the result of declines in sales of low-margin products to larger sporting goods and outdoor retail customers in the US.  Additionally, the closure of the UK distribution location and the transition to a new distributor have stalled sales in that region.
 
Diving net sales for the third quarter of $22,575 decreased $1,476, or 6%, from $24,051 in the same period of the prior year.  The decrease was driven primarily by general lower demand in southern European markets.
 
 
 
25

 
JOHNSON OUTDOORS INC.
 
Consolidated net sales for the nine months ended June 28, 2013 were $349,146, an increase of $11,649, or 4%, compared to $337,497 for the nine months ended June 29, 2012.  Increased sales in the Marine Electronics business and the acquisition of Jetboil were primary drivers of the increase from the prior year.
 
Net sales for the nine months ended June 28, 2013 for the Marine Electronics business were $215,001, up $16,751, or 8%, from $198,250 during the first nine months of the prior year.  Successful new products such as i-Pilot Link, high demand in the distributor sales channel and the timing of pre-season shipments were the primary drivers of the increase.
 
Net sales for the Outdoor Equipment business were $33,358 for the current year to date period, an increase of $5,409, or 19%, from the prior year net sales during the same period of $27,949.  This increase was driven primarily by the acquisition of the Jetboil business in November 2012 offset in part by declines in sales of military and consumer tents.
 
Net sales for the first nine months of fiscal 2013 for the Watercraft business were $39,622, a decrease of $7,088, or 15%, compared to $46,710 in the prior year period.  The decrease was driven primarily by declines in sales of low-margin products to larger sporting goods and outdoor retail customers in the US as well as sales declines in Europe due to the closure of the UK distribution operation.
 
Diving net sales were $61,873 for the nine months ended June 28, 2013 versus $64,907 for the nine months ended June 29, 2012, a decrease of $3,034, or 5%, due in part to the unfavorable effect of currency translation of $885.  Additionally, lower product demand in southern Europe contributed to the year over year decrease.
 
Cost of Sales
 
For the three months ended June 28, 2013, cost of sales was $75,435 versus $74,348 in the same prior year period.  The increase was due primarily to the increase in sales volume year over year.
 
Cost of sales for the nine months ended June 28, 2013 was $206,911, an increase of $5,289 over the same prior year period.  The increase was largely driven by additional sales volume, including sales related to Jetboil, in the current year as well as a reduction in inventory writedowns.  Costs of purchased materials and components remained fairly stable year over year.
 
Gross Profit Margin
 
For the three months ended June 28, 2013, gross profit as a percentage of net sales was 41.9% compared to 42.2% during the quarter ended June 29, 2012. The slight decline in margin was due to the impact of pricing and promotional adjustments to remain competitive in the marketplace.
 
Gross profit as a percentage of net sales rose from 40.3% in the prior year to date period to 40.7% during the nine months ended June 28, 2013.  Efficiencies in Diving, primarily in the first two quarters of the fiscal year, as well as the exit of certain low margin sales channels in Watercraft were the primary drivers of the increase in the margin during the current year to date period.
 
Operating Expenses
 
Operating expenses for the quarter ended June 28, 2013 were $38,204 versus $40,025 in the prior year.  The addition of Jetboil operating expenses were more than offset by lower restructuring expenses in the current period as well as the benefit of a $460 insurance settlement recognized as a reduction in operating expenses during the quarter ended June 28, 2013 related to a flood in 2011 that affected the Company’s Binghamton, New York manufacturing facility.
 
Operating expenses were $111,938 for the nine months ended June 28, 2013 compared to $111,391 in the prior year nine month period.  The $547 increase was driven in large part by a $3,500 favorable settlement with an insurance carrier recognized as a reduction in operating expenses during the prior year period and the addition of Jetboil operating expenses in the current year.  These items were offset in part by favorable flood related insurance settlements received during the current year period and lower restructuring expenses in the current year as well as lower costs resulting from restructuring efforts completed over the past two years.
 
 
 
26

 
JOHNSON OUTDOORS INC.
 
Operating Profit
 
Operating profit for the quarter ended June 28, 2013 was $16,133 and reflected an increase of $1,911 from the prior year period, driven primarily by lower operating expenses in the current year quarter.
 
Operating profit on a consolidated basis for the nine months ended June 28, 2013 was $30,297 compared to $24,484 in the prior year period, an increase of $5,813.  Higher gross profit for the nine months ended June 28, 2013, more than offset increases in operating expenses during the current year.
 
Interest

For the quarter ended June 28, 2013, interest expense was $186 compared to $595 in the same period of the prior year.  The decrease year over year was due primarily to reductions in amortization of deferred financing costs as well as lower interest rate swap amortization expense as a result of the swap becoming fully amortized in the first quarter of the fiscal 2013.
 
For the nine months ended June 28, 2013, interest expense totaled $1,110 compared to $2,008 for the nine months ended June 29, 2012.  This decrease was primarily due to lower interest rate swap amortization expense in the current period due to the swap becoming fully amortized during the first quarter as well as lower deferred financing costs.
 
Interest income for both the nine month periods ended June 28, 2013 and June 29, 2012 was less than $100.
 
Other Expense/Income
 
Other expense for the three months ended June 28, 2013 was $451 versus other income of $403 for the three months ended June 29, 2012.  Foreign currency losses for the quarter ended June 28, 2013 were $426 versus gains in the prior year quarter of $952.  Foreign currency forward contracts resulted in gains of $11 in the current year quarter versus losses of $304 in the prior year quarter.  Net investment losses on the assets related to the Company’s non-qualified deferred compensation plan in the current year quarter were $86 versus  $259 in the prior year quarter.
 
Other expense for the nine months ended June 28, 2013 was $71 compared to other income of $1,699 for the nine months ended June 29, 2012.  For the nine months ended June 28, 2013, foreign currency exchange losses were $536 compared to gains of $843 for the nine months ended June 29, 2012.  The Company’s foreign currency forward contracts resulted in losses of $59 for the nine months ended June 28, 2013 versus $316 for the nine months ended June 29, 2012.  Net investment gains and earnings on the assets related to the Company’s non-qualified deferred compensation plan were $675 in the nine month period ended June 28, 2013 compared to $952 in the nine month period ended June 29, 2012.
 
Income Tax Expense
 
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 months ended June 28, 2013 was 12.0% versus 36.0% in the corresponding period of the prior year.  The effective tax rate for the nine months ended June 28, 2013 was 21.7%, compared to 44.9% in the corresponding period of the prior year.
 
The decrease in the Company’s effective tax rate for the three month period ended June 28, 2013 versus the prior year quarterly period was primarily due to the reversal of valuation allowance on foreign tax credits.  Further contributing to the difference in effective tax rates was income in tax jurisdictions with deferred tax valuation allowances in the current period versus losses in the prior year period.
 
The decrease in the Company’s effective tax rate for the nine months ended June 28, 2013 versus the prior year period was primarily due to the reversal of valuation allowance on foreign tax credits.  Further contributing to the difference in effective tax rates was income in tax jurisdictions with deferred tax valuation allowances in the current period versus losses in the prior year period.  In addition, the Company recognized the retroactive research and development credit enactment during the nine months ended June 28, 2013.
 
 
 
27

 
JOHNSON OUTDOORS INC.
 
Net Income

Net income for the quarter ended June 28, 2013 was $13,654 or $1.37 per diluted common class A and B share, compared to $8,995 or $0.91 per diluted common class A and B share in the quarter ended June 29, 2012.
 
Net income for the nine months ended June 28, 2013 was $22,838 or $2.30 per diluted common class A and B share, compared to net income of $13,334, or $1.35 per diluted common class A and B share, for the corresponding period of the prior year.  As noted above, higher gross profit and lower tax expense had a significant impact on the improvement in net income over the prior year period.
 
Liquidity and Financial Condition
 
Cash, net of debt, was $24,214 as of June 28, 2013 compared to $26,269 as of June 29, 2012.  Net cash decreased from the prior year due in part to the acquisition of Jetboil in November 2012.  The Company's debt to total capitalization ratio was 8% as of June 28, 2013 compared to 7% as of June 29, 2012.  The Company’s total debt balance was $17,464 as of June 28, 2013 compared to $12,476 as of June 29, 2012.  See “Note 13 – Indebtedness” in the notes to the Company’s accompanying Condensed Consolidated Financial Statements for further discussion.
 
Accounts receivable, net of allowance for doubtful accounts, were $75,894 as of June 28, 2013, a decrease of $1,118 compared to $77,012 as of June 29, 2012. The year over year change was primarily related to improved collections of aged receivables.
 
Inventories, net of inventory reserves, were $75,210 as of June 28, 2013, an increase of $8,192 compared to $67,018 as of June 29, 2012.  The increase was driven primarily by additional inventory in Marine Electronics due to higher demand as well as the addition of Jetboil inventory acquired as part of the acquisition.
 
Accounts payable were $28,831 at June 28, 2013, a decrease of $1,438 compared to $30,269 as of June 29, 2012.  The decrease was driven primarily by decreased production volume in the Watercraft business.
 
The Company’s cash flow from operating, investing and financing activities, as reflected in the Company’s accompanying Condensed Consolidated Statements of Cash Flows, is summarized in the following table:
             
   
Nine Months Ended
 
(thousands)
 
June 28
2013
   
June 30
2012
 
             
Cash (used for) provided by:
 
 
       
Operating activities
  $ 2,458     $ 7,005  
Investing activities
    (26,358 )     (7,722 )
Financing activities
    7,848       (2,233 )
Effect of foreign currency rate changes on cash
    (1,174 )     (2,819 )
Decrease in cash and cash equivalents
  $ (17,226 )   $ (5,769 )

 
 
28

 
JOHNSON OUTDOORS INC.
 
Operating Activities

Cash provided by operations totaled $2,458 for the nine months ended June 28, 2013 compared with $7,005 during the corresponding period of the prior fiscal year.  Increased net income in the current period was more than offset by an increase in working capital during the current year to date period.
 
Amortization of deferred financing costs, depreciation and other amortization charges were $7,482 for the nine month period ended June 28, 2013 compared to $9,170 for the corresponding period of the prior year.
 
Investing Activities

Cash used for investing activities totaled $26,358 for the nine months ended June 28, 2013 and $7,722 for the corresponding period of the prior year.  The Company used cash of $15,420 for the purchase of Jetboil during the nine months ended June 28, 2013.  There were no such acquisitions in the prior year period.  Cash usage in the current and prior year nine month periods related to capital expenditures was $10,938 and $8,930, respectively.  The Company’s recurring investments are made primarily for software development and tooling for new products and enhancements on existing products. Any additional expenditures in fiscal 2013 are expected to be funded by working capital or existing credit facilities.  The Company received proceeds of $1,208 during the nine month period ending June 29, 2012 related to the sale of a property in Ferndale, Washington.
 
Financing Activities

Cash flows provided by financing activities totaled $7,848 for the nine months ended June 28, 2013 compared to cash used for financing activities of $2,233 for the nine month period ended June 29, 2012. The Company made principal payments on senior notes and other long-term debt of $393 during the nine month period ended June 28, 2013, which included $157 of payments on capital leases related to office equipment.  For the nine month period ended June 29, 2012, the Company made principal payments on senior notes and other long-term debt of $5,986 which included the repayment of approximately $2,932 of term loans resulting from the sale of a property in Ferndale, Washington, which was pledged as collateral under the related term loan.
 
The Company had outstanding borrowings of $8,998 on revolving credit facilities and current maturities of its long-term debt of $549 as of June 28, 2013.  As of June 29, 2012, the Company had $3,490 outstanding on revolving credit facilities and current maturities of long-term debt of $516.  The Company had outstanding borrowings on long-term debt (net of current maturities) of $7,917 and $8,470 as of June 28, 2013 and June 29, 2012, respectively.
 
The Company’s term loans have a maturity date of September 29, 2029. Each term loan requires monthly payments of principal and interest. Interest on the aggregate outstanding amount of the terms loans is based on the prime rate plus an applicable margin. The interest rate in effect on the term loans was 5.25% at June 28, 2013.
 
The aggregate term loan borrowings are subject to a pre-payment penalty.  The penalty is currently 7% of the pre-payment amount, and the penalty will decrease by 1% annually on the anniversary date of the effective date of the loan agreement.
 
On November 16, 2010, the Company and certain of its subsidiaries entered into amendments to their Revolving Credit Agreements (or “Revolvers”).  The amended terms of the Revolvers, maturing in November 2014, provide for funding of up to $75,000, with the option for an additional $25,000 in maximum seasonal financing availability subject to the approval of the lenders. 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 during the period from mid-July to mid-November, consistent with the Company's reduced working capital needs throughout that period, and requires an annual seasonal pay down to $30,000 for 60 consecutive days.  The amendments to the Revolvers reset the interest rate calculation each quarter, by instituting an applicable margin based on the Company’s leverage ratio for the trailing twelve month period.  The applicable margin ranges from 2.25% to 3.0%.
 
 
 
29

 
JOHNSON OUTDOORS INC.
 
The interest rate on the Revolvers is based on LIBOR or the prime rate, at the Company’s discretion, plus an applicable margin.  The interest rate in effect on the Revolvers at June 28, 2013, based primarily on LIBOR plus 2.25%, was approximately 2.50%.
 
The Company’s remaining borrowing availability under the Revolvers was approximately $47,600 at June 28, 2013.  
 
Under the terms of the Revolvers, 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, as noted above, a seasonal pay-down requirement.
 
As of June 28, 2013 the Company held approximately $36,800 of cash and cash equivalents in bank accounts in foreign taxing jurisdictions.
 
Contractual Obligations and Off Balance Sheet Arrangements

The Company has contractual obligations and commitments to make future payments under its existing credit facilities, including interest, operating leases and open purchase orders.  The following schedule details these significant contractual obligations existing at June 28, 2013.
                               
   
Total
   
Less than 1 year
   
2-3 years
   
4-5 years
   
After 5 years
 
Long-term debt
  $ 8,466     $ 132     $ 872     $ 755     $ 6,707  
Short-term debt
    8,998       8,998       -       -       -  
Operating lease obligations
    16,214       1,532       8,777       4,774       1,131  
Open purchase orders
    57,285       57,285       -       -       -  
Contractually obligated interest payments
    4,152       218       821       747       2,366  
Total contractual obligations
  $ 95,115     $ 68,165     $ 10,470     $ 6,276     $ 10,204  

The Company utilizes letters of credit primarily as security for the payment of future claims under its workers compensation insurance.  Letters of credit outstanding were $1,404 and $2,103 at June 28, 2013 and June 29, 2012, respectively.

The Company anticipates making contributions of $158 to its defined benefit pension plans through September 27, 2013.
 
The Company has no other off-balance sheet arrangements.
 
Critical Accounting Policies and Estimates
 
The Company’s critical accounting policies are identified in the Company’s Annual Report on Form 10-K for the fiscal year ending September 28, 2012 in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Critical Accounting Estimates.” There were no significant changes to the Company’s critical accounting policies during the nine months ended June 28, 2013.
 
 
 
30

 
JOHNSON OUTDOORS INC.
 
Item 3.      Quantitative and Qualitative Disclosures about Market Risk
 
Our exposure to market risk is limited to fluctuations in raw material commodity prices, interest rate fluctuations on borrowings under our secured credit facilities and foreign currency exchange rate risk associated with our foreign operations.  We do not utilize financial instruments for trading purposes.
 
Foreign Exchange Risk
 
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 19% of the Company’s revenues for the nine month period ended June 28, 2013 were denominated in currencies other than the U.S. dollar. Approximately 10% were denominated in euros, with the remaining revenues denominated in various other foreign currencies. Changes in foreign currency exchange rates can cause unexpected financial losses or cash flow needs.  The Company mitigates a portion of the fluctuations in certain foreign currencies through the use of foreign currency forward contracts.  Foreign currency forward contracts enable the Company to lock in the foreign currency exchange rate to be paid or received for a fixed amount of currency at a specified date in the future. The Company uses such foreign currency forward contracts to mitigate the risk associated with changes in foreign currency exchange rates on financial instruments and known commitments, including commitments for inventory purchases, denominated in foreign currencies. None of the Company’s derivative financial instruments have been designated as hedging instruments.
 
Interest Rate Risk
 
The Company operates in a seasonal business and experiences significant fluctuations in operating cash flow as working capital needs increase in advance of the Company’s primary selling and cash generation season, and decline as accounts receivable are collected and cash is accumulated or debt is repaid.  The Company’s goal in managing its interest rate risk is to maintain a mix of floating rate and fixed rate debt such that permanent non-equity capital needs are largely funded with long term fixed rate debt and seasonal working capital needs are funded with short term floating rate debt.  When the appropriate mix of fixed rate or floating rate debt cannot be directly obtained in a cost effective manner, the Company may enter into interest rate swap contracts in order to change floating rate interest into fixed rate interest or vice versa for a specific amount of debt in order to achieve the desired proportions of floating rate and fixed rate debt.   The Company held no interest rate swap contracts during the nine month periods ended June 28, 2013 and June 29, 2012 and as of June 28, 2013, the Company was unhedged with respect to interest rate risk on its floating rate debt.
 
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 include costs associated with metals, resins and packaging materials.
 
Impact of Inflation
 
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.  The Company’s results of operations and financial condition are presented based on historical cost.  The Company does not believe that inflation has significantly affected its results of operations.
 
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 market interest rates.  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.  The table below presents the estimated maximum potential loss in fair value and annual income before income taxes from a 100 basis point movement in interest rates on the Company’s outstanding interest bearing debt at June 28, 2013:
 

 
31

 
 
 
 
 
           
 
Estimated Impact on
 
(thousands)
Fair Value
 
Income Before Income Taxes
 
Interest rate instruments
  $ -     $ 244  

Item 4.  Controls and Procedures

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 Securities 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 reach 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.
 

 
32

 
JOHNSON OUTDOORS INC.
PART II     OTHER INFORMATION

Item 1.  Legal Proceedings

In the normal course of business, we may be involved in various legal proceedings from time to time.  We do not believe we are currently involved in any claim or action the ultimate disposition of which would have a material adverse effect on our financial statements.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in our Form 10-K as filed with the Securities and Exchange Commission on December 11, 2012.

Item 6. Exhibits

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.


   
   
 
JOHNSON OUTDOORS INC.
Signatures Dated: August 2, 2013
 
 
/s/ Helen P. Johnson-Leipold                                                  
 
Helen P. Johnson-Leipold
Chairman and Chief Executive Officer
(Principal Executive Officer)
   
 
/s/ David W. Johnson                                                 
 
David W. Johnson
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)



 
33

 

JOHNSON OUTDOORS INC.

Exhibit Index to Quarterly Report on Form 10-Q
     
Exhibit
Number
 
 
Description
31.1
 
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 (1)
 
101
 
Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The following materials from Johnson Outdoors Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2013 formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Income; (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to Condensed Consolidated Financial Statements*



*Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

(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.
 
34


EX-31.1 2 ex311form10q.htm EXHIBIT 31.1 ex311form10q.htm
Exhibit 31.1
Certification of Chief Executive Officer
 
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of 1934

 
I, Helen P. Johnson-Leipold, certify that:
 
1)   I have reviewed this Quarterly Report on Form 10-Q of Johnson Outdoors Inc.;
     
 2)   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
 3)   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
 4)   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
     
     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
    b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
    c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
    d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     
5)   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
     
    a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
    b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
Date:
August 2, 2013
  /s/ Helen P. Johnson-Leipold                                                       
     
Helen P. Johnson-Leipold
Chairman and Chief Executive Officer
 
 


EX-31.2 3 ex312form10q.htm EXHIBIT 31.2 ex312form10q.htm
Exhibit 31.2
Certification of Chief Financial Officer
 
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of 1934

 
I, David W. Johnson, certify that:
 
 1)   I have reviewed this Quarterly Report on Form 10-Q of Johnson Outdoors Inc.;
     
 2)   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
 3)   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
 4)   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
     
    a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
    b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
    c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
    d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     
 5)   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
     
    a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
    b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date:
August 2, 2013
  /s/ David W. Johnson                                                                
     
David W. Johnson
Vice President and Chief Financial Officer
Treasurer

 


EX-32.1 4 ex321form10q.htm EXHIBIT 31.2 ex321form10q.htm
Exhibit 32.1
Written Statement of the Chairman and Chief Executive Officer
 
Pursuant to 18 U.S.C. Section 1350

Solely