0001042167-15-000124.txt : 20150811 0001042167-15-000124.hdr.sgml : 20150811 20150811153233 ACCESSION NUMBER: 0001042167-15-000124 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20150703 FILED AS OF DATE: 20150811 DATE AS OF CHANGE: 20150811 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: 151043745 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 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 July 3, 2015
 
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 31, 2015, 8,794,600 shares of Class A and 1,212,382 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 July 3, 2015 and June 27, 2014
 
1
 
   
Condensed Consolidated Statements of Comprehensive  Income – Three and nine months ended July 3, 2015 and June 27, 2014
 
 
2
 
   
Condensed Consolidated Balance Sheets – July 3, 2015, October 3, 2014 and June 27, 2014
 
3
 
   
Condensed Consolidated Statements of Cash Flows – Nine months ended July 3, 2015 and June 27, 2014
 
4
 
   
Notes to Condensed Consolidated Financial Statements
 
 
5
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
20
 
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
 
27
 
Item 4.
Controls and Procedures
 
 
28
PART II
OTHER INFORMATION
 
   
 
Item 1.
Legal Proceedings
 
 
29
 
Item 1A.
Risk Factors
 
 
29
 
Item 6.
Exhibits
 
 
29
   
Signatures
 
 
30
   
Exhibit Index
 
31
 
 


 

 

2
 
 

 

PART I    FINANCIAL INFORMATION
Item 1.                Financial Statements
 
JOHNSON OUTDOORS INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)



   
Three Months Ended
   
Nine Months Ended
 
   
July 3
   
June 27
   
July 3
   
June 27
 
(thousands, except per share data)
 
2015
   
2014
   
2015
   
2014
 
                                 
Net sales
  $ 140,883     $ 137,133     $ 344,816     $ 340,506  
Cost of sales
    82,131       81,314       206,794       205,912  
                                 
Gross profit
    58,752       55,819       138,022       134,594  
                                 
Operating expenses:
                               
Marketing and selling
    28,092       25,535       74,236       68,445  
Administrative management, finance and information systems
    10,325       8,217       34,640       27,748  
Goodwill and other intangible assets impairment
    -       8,475       -       8,475  
Research and development
    3,914       4,260       12,433       11,956  
                                 
Total operating expenses
    42,331       46,487       121,309       116,624  
                                 
Operating profit
    16,421       9,332       16,713       17,970  
Interest income
    (8 )     (17 )     (38 )     (53 )
Interest expense
    213       196       716       711  
Other expense (income), net
    115       (952 )     38       (1,087 )
                                 
Profit before income taxes
    16,101       10,105       15,997       18,399  
Income tax expense
    6,104       5,407       6,548       8,490  
                                 
Net income
  $ 9,997     $ 4,698     $ 9,449     $ 9,909  
                                 
                                 
Weighted average common shares - Basic:
                               
Class A
    8,520       8,438       8,500       8,410  
Class B
    1,212       1,212       1,212       1,212  
Participating securities
    -       -       -       -  
Dilutive stock options and restricted stock units
    4       5       3       3  
                                 
Weighted average common shares - Dilutive
    9,736       9,655       9,715       9,625  
                                 
Net income per common share - Basic:
                               
Class A
  $ 1.01     $ 0.48     $ 0.96     $ 1.01  
Class B
  $ 0.92     $ 0.43     $ 0.87     $ 0.91  
Net income per common share - Diluted:
                               
Class A
  $ 1.00     $ 0.47     $ 0.95     $ 0.98  
Class B
  $ 1.00     $ 0.47     $ 0.95     $ 0.98  
                                 
Dividends declared per common share:
                               
Class A
  $ 0.08     $ 0.08     $ 0.23     $ 0.30  
Class B
  $ 0.07     $ 0.07     $ 0.20     $ 0.27  
                                 

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
 
   
July 3
   
June 27
   
July 3
   
June 27
 
(thousands, except per share data)
 
2015
   
2014
   
2015
   
2014
 
                                 
Comprehensive income (loss):
                               
Net income
  $ 9,997     $ 4,698     $ 9,449     $ 9,909  
                                 
Other comprehensive income (loss):
                               
Foreign currency translation gain (loss)
    1,128       1,614       (7,618 )     1,860  
Change in pension plans, net of tax of $32, $63, $130 and $189, respectively
    53       103       125       310  
Total other comprehensive income (loss)
    1,181       1,717       (7,493 )     2,170  
                                 
Total comprehensive income
  $ 11,178     $ 6,415     $ 1,956     $ 12,079  
                                 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.
 
 


 

  -2-
 

 
JOHNSON OUTDOORS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

                   
                   
                         
   
July 3
   
October 3
   
June 27
 
(thousands, except share data)
  2015     2014     2014  
                         
ASSETS
                       
Current assets:
                       
Cash and cash equivalents
  $ 53,916     $ 70,793     $ 52,139  
Accounts receivable, net
    79,663       44,452       80,036  
Inventories
    78,318       66,341       71,496  
Deferred income taxes
    8,443       8,360       7,074  
Other current assets
    3,967       7,604       5,245  
Total current assets
    224,307       197,550       215,990  
Property, plant and equipment, net of accumulated
                       
depreciation of $114,362, $108,668 and $108,075, respectively
    44,430       46,100       45,838  
Deferred income taxes
    9,110       5,353       6,599  
Goodwill
    14,362       14,416       14,697  
Other intangible assets, net
    11,876       12,518       12,579  
Other assets
    13,761       12,689       13,028  
Total assets
  $ 317,846     $ 288,626     $ 308,731  
LIABILITIES AND SHAREHOLDERS' EQUITY
                       
Current liabilities:
                       
Short-term debt
  $ -     $ -     $ -  
Current maturities of long-term debt
    364       360       365  
Accounts payable
    38,844       27,896       34,561  
Accrued liabilities:
                       
Salaries, wages and benefits
    14,700       14,780       11,652  
Accrued warranty
    4,567       4,078       4,491  
Income taxes payable
    7,086       833       4,527  
Other
    19,065       12,285       16,761  
Total current liabilities
    84,626       60,232       72,357  
Long-term debt, less current maturities
    7,156       7,431       7,551  
Deferred income taxes
    5,477       1,133       1,192  
Retirement benefits
    8,252       7,804       5,601  
Other liabilities
    13,612       13,568       14,258  
Total liabilities
    119,123       90,168       100,959  
Shareholders' equity:
                       
Preferred stock: none issued
    -       -       -  
Common stock:
                       
Class A shares issued and outstanding:
    441       439       439  
July 3, 2015: 8,789,269
                       
October 3, 2014: 8,769,426
                       
June 27, 2014: 8,769,426
                       
Class B shares issued and outstanding:
    61       61       61  
July 3, 2015: 1,212,382
                       
October 3, 2014: 1,212,382
                       
June 27, 2014: 1,212,382
                       
Capital in excess of par value
    69,194       67,882       66,945  
Retained earnings
    124,795       117,573       119,099  
Accumulated other comprehensive income
    5,285       12,778       21,536  
Treasury stock at cost, shares of Class A common
                       
stock: 39,948, 11,203 and 11,203, respectively
    (1,053 )     (275 )     (308 )
Total shareholders' equity
    198,723       198,458       207,772  
Total liabilities and shareholders' equity
  $ 317,846     $ 288,626     $ 308,731  
                         

 
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)
 
July 3
 2015
   
June 27
 2014
 
                 
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES
               
Net income
  $ 9,449     $ 9,909  
Adjustments to reconcile net income to net cash (used for) provided by operating activities:
               
Depreciation
    8,026       7,272  
Amortization of intangible assets
    642       525  
Amortization of deferred financing costs
    92       90  
Impairment losses
    -       8,475  
Stock based compensation
    1,170       1,256  
Deferred income taxes
    (64 )     2,348  
Change in operating assets and liabilities:
               
Accounts receivable, net
    (36,730 )     (35,625 )
Inventories, net
    (13,996 )     5,384  
Accounts payable and accrued liabilities
    25,692       8,052  
Other current assets
    3,385       (670 )
Other non-current assets
    (54 )     (2,055 )
Other long-term liabilities
    (143 )     1,880  
Other, net
    482       (28 )
                 
      (2,049 )     6,813  
                 
CASH USED FOR INVESTING ACTIVITIES
               
Capital expenditures
    (6,607 )     (9,826 )
Proceeds from sales of property, plant and equipment
    15       1,376  
                 
      (6,592 )     (8,450 )
                 
CASH USED FOR FINANCING ACTIVITIES
               
Net borrowings from short-term notes payable and revolving credit lines
    -       -  
Principal payments on senior notes and other long-term debt
    (272 )     (416 )
Deferred financing costs paid to lenders
    -       (34 )
Common stock transactions
    27       189  
Dividends paid
    (2,224 )     (2,214 )
Purchases of treasury stock
    (778 )     (638 )
                 
      (3,247 )     (3,113 )
                 
Effect of foreign currency rate changes on cash
    (4,989 )     1,195  
                 
Decrease in cash and cash equivalents
    (16,877 )     (3,555 )
CASH AND CASH EQUIVALENTS
               
Beginning of period
    70,793       55,694  
                 
End of period
  $ 53,916     $ 52,139  
                 



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 July 3, 2015 and June 27, 2014, and their 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 October 3, 2014 which was filed with the Securities and Exchange Commission on December 5, 2014.
 
Due to seasonal variations and other factors, the results of operations for the three and nine months ended July 3, 2015 are not necessarily indicative of the results to be expected for the Company's full 2015 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 $2,216, $2,665 and $3,149 as of the periods ended July 3, 2015, October 3, 2014 and June 27, 2014, respectively. The increase in net accounts receivable to $79,663 as of July 3, 2015 from $44,452 as of October 3, 2014 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 classified as participating securities and 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 July 3, 2015 and June 27, 2014, basic income per share for the Class A and Class B shares has been presented using the two class method described above and reflects the allocation of undistributed income 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 and units is excluded and diluted loss per share is equal to basic loss per share for both classes.
 
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 were 0 for the three and nine month periods ended July 3, 2015 and June 27, 2014.  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 273,912 and 319,632 for the three months ended July 3, 2015 and June 27, 2014, respectively, and 287,241 and 336,519 for the nine months ended July 3, 2015 and June 27, 2014, respectively.  Restricted stock units 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 were 0 for the three and nine month periods ended July 3, 2015 and June 27, 2014.
 
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, restricted stock units or stock appreciation rights in lieu of stock options.
 
Under the Company’s 2010 Long-Term Stock Incentive Plan and the 2012 Non-Employee Director Stock Ownership Plan (the only two plans where shares remain available for equity incentive awards) there were 659,774 shares of the Company’s Class A common stock available for future grant to key executives and non-employee directors at July 3, 2015.
 
Stock Options
 
All Company 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.
 
-6- 

 
JOHNSON OUTDOORS INC.
 
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 July 3, 2015 or June 27, 2014.
 
A summary of stock option activity for the nine months ended July 3, 2015 related to the Company’s stock ownership plans is shown below:
 
                         
                                 
   
Shares
 
Weighted Average Exercise Price
 
Aggregate Intrinsic Value
   
Weighted Average Remaining Contractual Term (Years)
 
                                 
Outstanding and exercisable at October 3, 2014
    9,216     $ 17.07                  
Exercised
    (2,304 )     17.07                  
Outstanding and exercisable at July 3, 2015
    6,912       17.07     $ 44       0.1  
                                 
 
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $23.39 as of July 2, 2015 (the last trading day on or prior to the fiscal quarter end), 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 $39 and $78 for the nine month periods ending July 3, 2015 and June 27, 2014, respectively.  The fair value of the stock received upon exercise of such options at their date of exercise during the nine month periods ended July 3, 2015 and June 27, 2014 was $56 and $96, 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 Class A 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 Class A shares traded.
 
A summary of non-vested stock activity for the nine months ended July 3, 2015 related to the Company’s stock ownership plans is as follows:
 
                 
         
Weighted Average
 
   
Shares
 
Grant Price
 
                 
Non-vested stock at October 3, 2014
    319,632     $ 17.10  
Non-vested stock grants
    38,222       30.05  
Restricted stock vested
    (118,463 )     12.57  
                 
Non-vested stock at July 3, 2015
    239,391       21.42  
                 
 

 
-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 13,438 and 24,719 during the nine month periods ended July 3, 2015 and June 27, 2014, respectively.
 
Stock compensation expense, net of forfeitures, related to non-vested stock was $91 and $387 for the three month periods ended July 3, 2015 and June 27, 2014, respectively, and $930 and $1,135 for the nine month periods ended July 3, 2015 and June 27, 2014, respectively.  Unrecognized compensation cost related to non-vested stock as of July 3, 2015 was $1,788, which amount will be amortized to expense through November 2018 or adjusted for changes in future estimated or actual forfeitures.
 
The fair value of restricted stock vested during the nine month periods ended July 3, 2015 and June 27, 2014 was $3,294 and $2,961, respectively.
 
Restricted Stock Units
 
All restricted 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 trading price on the date of grant or, if the Company’s Class A 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 Class A shares traded.  There were 10,088 restricted stock units unvested and outstanding as of July 3, 2015 with a weighted average grant date fair value of $31.23.  There were 8,040 restricted stock units unvested and outstanding as of June 27, 2014 with a weighted average grant date fair value of $21.77.
 
The Company issued 7,336 restricted stock units at a weighted average grant price of $33.40 for the nine month period ended July 3, 2015 and 8,040 restricted stock units at a weighted average grant price of $21.77 for the nine month period ended June 27, 2014.
 
Stock compensation expense, net of forfeitures, related to restricted stock units was $79 for the three months ended July 3, 2015 and $207 for the nine month period ended July 3, 2015.  Stock compensation expense, net of forfeitures, related to restricted stock units was $44 for the three months ended June 27, 2014 and $121 for the nine month period ended June 27, 2014.  Unrecognized compensation cost related to non-vested restricted stock units as of July 3, 2015 was $181, which amount will be amortized to expense through February 2016 or adjusted for changes in future estimated or actual forfeitures.
 
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.
 
During the three and nine month periods ended July 3, 2015, the Company issued 8,062 shares of Class A common stock and recognized $33 of expense in connection with the Employees’ Stock Purchase Plan.  During the three and nine months ended June 27, 2014, the Company issued 15,969 shares of Class A common stock and recognized $57 of expense in connection with the Employees’ Stock Purchase Plan.
 
-8-

 
JOHNSON OUTDOORS INC.
 
5           PENSION PLANS

The Company has non-contributory defined benefit pension plans covering certain of its 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 July 3, 2015 and June 27, 2014 were as follows:  

    Three Months Ended     Nine Months Ended  
   
July 3
   
June 27
   
July 3
   
June 27
 
   
2015
   
2014
   
2015
   
2014
 
                                 
                                 
Components of net periodic benefit cost:
                               
Service cost
  $ -     $ -     $ -     $ -  
Interest on projected benefit obligation
    269       309       808       808  
Less estimated return on plan assets
    247       335       741       823  
Amortization of unrecognized losses
    85       (77 )     256       256  
                                 
Net periodic benefit cost
  $ 107     $ (103 )   $ 323     $ 241  
                                 

  
6       INCOME TAXES
 
For the three and nine months ended July 3, 2015 and June 27, 2014, the Company’s earnings before income taxes, income tax expense and effective income tax rate were as follows:
 
Three Months Ended
 
Nine Months Ended
 
 
     July 3
June 27
 
July 3
 
June 27
 
(thousands, except tax rate data)
     2015
2014
 
2015
 
2014
 
                         
Profit before income taxes
  $ 16,101   $ 10,105     $ 15,997     $ 18,399  
Income tax expense
    6,104     5,407       6,548       8,490  
Effective income tax rate
    37.9   53.5 %     40.9 %     46.1 %
                                 
                                 
 
The Company’s interim reporting for income taxes is based upon adjusting its effective tax rate each quarter to be consistent with the estimated annual effective tax rates in the tax jurisdictions in which the Company operates.  Using this effective tax rate methodology, the Company applies an estimated annual income tax rate to its year to date ordinary earnings to derive its income tax provision for each quarter.
 
The favorable change in the Company’s effective tax rate for the three and nine months ended July 3, 2015 versus the prior year periods was primarily due to the goodwill impairment with no tax benefit in the prior year period.  Variances in income for entities with a valuation allowance had an unfavorable, but minor impact to the rate.
 
Variances in income or loss for entities that have a valuation allowance, primarily in non-U.S. tax jurisdictions, will drive fluctuations in the effective tax rate.  The impact of the Company’s operations in these foreign locations is removed from the overall effective tax rate methodology used by the Company and recorded directly based on year to date results for the year for which no tax expense or benefit can be recognized.  The tax jurisdictions that have a valuation allowance for the periods ended July 3, 2015 and June 27, 2014 were as follows:
 
-9- 

JOHNSON OUTDOORS INC.
 
 
 
July 3
 2015
 
June 27
2014
                 
    Japan  
Japan
    France  
France
    Indonesia  
Indonesia
    Italy  
Italy
    Netherlands  
Netherlands
    New Zealand  
New Zealand
    Spain  
Spain
               
United Kingdom
 
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 due to the impact of changes in its assumptions or as a result 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 2015 fiscal year tax expense is anticipated to include approximately $500 related to uncertain income tax positions.
 
In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized benefits as a component of income tax expense.  The Company is projecting accrued interest of $150 related to uncertain income tax positions for the fiscal year ending October 2, 2015.
 
The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions.   The Company is currently undergoing income tax examinations in Italy and Germany.  As of the date of this report, the following tax years remain subject to examination by the respective tax jurisdictions:
 

   
Jurisdiction
Fiscal Years
United States
 2012-2014
Canada
 2010-2014
France
 2010-2014
Germany
 2009-2014
Italy
 2009-2014
Japan
 2012-2014
Switzerland
 2004-2014
     
 
 
7       INVENTORIES
 
Inventories at the end of the respective periods consisted of the following:
 
                   
 
July 3
 
October 3
 
June 27
 
 
2015
 
2014
 
2014
 
                   
Raw materials
  $ 30,604     $ 27,295     $ 25,744  
Work in process
    366       72       256  
Finished goods
    47,348       38,974       45,496  
                         
    $ 78,318     $ 66,341     $ 71,496  
                         
 
 
 
-10-
 
JOHNSON OUTDOORS INC.
 
8       GOODWILL

The changes in goodwill during the nine months ended July 3, 2015 and June 27, 2014 were as follows:

             
   
July 3
2015
   
June 27
2014
 
                 
Balance at beginning of period
  $ 14,416     $ 21,053  
Impairment
    -       (6,475 )
Amount attributable to movements in foreign currency rates
    (54 )     119  
                 
Balance at end of period
  $ 14,362     $ 14,697  
                 
  
9       WARRANTIES

The Company provides warranties on certain of its products as they are sold. The following table summarizes the Company's warranty activity for the nine months ended July 3, 2015 and June 27, 2014.
 
             
                 
 
July 3
2015
 
June 27
2014
 
                 
Balance at beginning of period
  $ 4,078     $ 5,214  
Expense accruals for warranties issued during the period
    3,948       2,588  
Less current period warranty claims paid
    3,459       3,311  
                 
Balance at end of period
  $ 4,567     $ 4,491  
                 
 
 
 
10       CONTINGENCIES
 
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 regulatory 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.   See “Part II-Other Information, Item 1-Legal Proceedings” for additional information on certain litigation commenced by the Company against a third party.
 
 
11       INDEBTEDNESS
 
Debt was comprised of the following at July 3, 2015, October 3, 2014, and June 27, 2014:
                   
   
July 3
2015
   
October 3
2014
   
June 27
2014
 
                         
Term loans
  $ 7,520     $ 7,781     $ 7,894  
Revolvers
    -       -       -  
Other
    -       10       22  
                         
Total debt
    7,520       7,791       7,916  
Less current portion of long term debt
    364       360       365  
Less short term debt
    -       -       -  
                         
Total long-term debt
  $ 7,156     $ 7,431     $ 7,551  
                         


 
-11- 

 
 
JOHNSON OUTDOORS INC.
 
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 July 3, 2015 and June 27, 2014.

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). The Company’s term loans include covenants related to its current ratio, debt to net worth ratio, fixed charge ratio, minimum net worth and capital expenditures.

The aggregate term loan borrowings are subject to a pre-payment penalty.  The penalty is currently 5% of the pre-payment amount, and the penalty will decrease by 1% annually on the anniversary date of the effective date of the applicable loan agreement.

Revolvers
On September 16, 2013, the Company and certain of its subsidiaries entered into a credit facility with PNC Bank National Association and certain other lenders.  This credit facility consists of a Revolving Credit Agreement dated September 16, 2013 among the Company, certain of the Company’s subsidiaries, PNC Bank National Association, as lender and as administrative agent, and the other lenders named therein (the “Revolving Credit Agreement” or “Revolver”).  The Revolver has an expiration date of September 16, 2018 and provides for borrowing of up to an aggregate principal amount not to exceed $90,000 with an accordion feature that gives the Company the option to increase the maximum seasonal financing availability subject to the conditions of the Revolving Credit Agreement and subject to the approval of the lenders.  The Revolver imposes a seasonal borrowing limit such that borrowings may not exceed $60,000 from the period June 30th through October 31st of each year under the agreement.

The interest rate on the Revolver resets each quarter and is based on LIBOR plus an applicable margin.  The applicable margin ranges from 1.25 percent to 2.00 percent and is dependent on the Company’s leverage ratio for the trailing twelve month period.  The interest rate on the Revolver at each of July 3, 2015 and June 27, 2014 was approximately 1.4%.

The Revolver is secured with a first priority lien on working capital assets and certain patents and trademarks of the Company and its subsidiaries and a second priority lien on land, buildings, machinery and equipment of the Company’s domestic subsidiaries.  Under the terms of the Revolver, the Company is required to comply with certain financial and non-financial covenants.  The Revolving Credit Agreement limits asset or stock acquisitions to no more than $20,000 in the event that the Company’s consolidated leverage ratio is greater than 2.5 times.  No limits are imposed if the Company’s consolidated leverage ratio is less than 2.5 times and the remaining borrowing availability under the Revolver is greater than $10,000 at the time of the acquisition.  The Revolving Credit Agreement limits the amount of restricted payments (primarily dividends and repurchases of common stock) made during each fiscal year.  The Company may declare, and pay, dividen ds in accordance with historical practices, but in no event may the aggregate amount of all dividends or repurchases of common stock exceed $10,000 in any fiscal year.  The Revolving Credit Agreement restricts the Company's ability to incur additional debt and includes maximum leverage ratio and minimum interest coverage ratio covenants.
 
-12- 

 
JOHNSON OUTDOORS INC.
 
 
 
Other Borrowings
The Company had no unsecured revolving credit facilities at its foreign subsidiaries as of July 3, 2015 or June 27, 2014.  The Company utilizes letters of credit primarily as security for the payment of future claims under its workers’ compensation insurance, which totaled $649 and $810 at July 3, 2015 and June 27, 2014, respectively.  The Company had no unsecured lines of credit as of July 3, 2015 or June 27, 2014.

Aggregate scheduled maturities of long-term debt as of July 3, 2015, for the remainder of fiscal 2015 and subsequent fiscal years, were as follows:

   
Fiscal Year
 
     
 2015 $ 89
 2016   368
 2017   389
 2018   410
 2019   432
Thereafter
  5,832
Total
$ 7,520
       

Balances carried on the Revolver not in excess of the seasonal borrowing limit may be repaid at the Company’s discretion at any time through the maturity date.

Interest paid for the three month periods ended July 3, 2015 and June 27, 2014 was $282 and $187, respectively.  Interest paid for the nine month periods ended July 3, 2015 and June 27, 2014 was $694 and $597, 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 July 3, 2015 and June 27, 2014 approximated its carrying value.
 
 
 
12       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, Hong Kong dollars 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 18% of the Company’s revenues for the nine month period ended July 3, 2015 were denominated in currencies other than the U.S. dollar. Approximately 7% were denominated in euros, 7% were denominated in Canadian dollars and 2% were denominated in Hong Kong dollars, with the remaining revenues denominated in various other foreign currencies. Changes in foreign currency exchange rates can cause the Company to experience unexpected financial losses or cash flow needs.
 
-13- 

 
 
JOHNSON OUTDOORS INC.
 
 
The Company may mitigate 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 may use 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. As of July 3, 2015 and June 27, 2014, the Company held no foreign currency forward contracts.
 
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 held no interest rate swap contracts during the nine month periods ended July 3, 2015 and June 27, 2014 and as of July 3, 2015, the Company was unhedged with respect to interest rate risk on its floating rate debt.
 
 
13       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 their fair values at July 3, 2015, October 3, 2014 and June 27, 2014 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 their fair value.

Valuation Techniques

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.
 
-14- 

 
JOHNSON OUTDOORS INC.
 

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.


                         
The following table summarizes the Company's financial assets measured at fair value as of July 3, 2015:
 
                         
                                 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                                 
Assets:
                               
Rabbi trust assets
  $ 12,060     $ -     $ -     $ 12,060  
                                 
                                 
The following table summarizes the Company's financial assets measured at fair value as of October 3, 2014:
 
                                 
                                 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                                 
Assets:
                               
Rabbi trust assets
  $ 10,933     $ -     $ -     $ 10,933  
                                 
                                 
The following table summarizes the Company's financial assets measured at fair value as of June 27, 2014:
 
                                 
                                 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                                 
Assets:
                               
Rabbi trust assets
  $ 11,026     $ -     $ -     $ 11,026  
                                 

                     
                     
The effect of changes in the fair value of financial instruments on the Condensed Consolidated Statements of Operations for the three months ended July 3, 2015 and June 27, 2014 was:
 
 
       Three Months Ended      
 
Location of loss (income) recognized in Statement of Operations 
 
July 3
2015
 
June 27
2014
 
Rabbi trust assets
Other expense (income), net
          $ 40     $ (490 )
                           
                           
 
The effect of changes in the fair value of financial instruments on the Condensed Consolidated Statements of Operations for the three months ended July 3, 2015 and June 27, 2014 was:
 
 
 
 
            Nine Months Ended
 
 
Location of (income) loss recognized in Statement of Operations
 
July 3
2015
 
June 27 2014
 
Rabbi trust assets
Other expense (income), net
          $ (409)     $ (998 )
                           


-15-
 

 
JOHNSON OUTDOORS INC.
 
There were no assets or liabilities measured at fair value on a non-recurring basis in periods subsequent to their initial recognition for the nine month period ended July 3, 2015.  During the three month period ended June 27, 2014, forecasted cash flows related to Jetboil declined from the assumptions used in the initial valuation.  This change led the Company to perform an interim impairment test on the acquired indefinitive lived intangible assets by comparing their carrying value to their fair value.  As a result of the analysis, the Company recorded impairment on a tradename held by the Outdoor Equipment-Consumer reporting unit, reducing its fair value to $3,400.  The fair value of the tradename was determined using a relief from royalty method under the income approach which uses projected revenue allocable to the tradename and a royalty rate at which it is assumed a market participant would be willing to incur as its cost in order to manufacture a branded product.  During the same quarter, the Company proceeded to Step 2 of the goodwill impairment test to estimate the impairment loss on goodwill held by the Outdoor Equipment-Consumer reporting unit using a discounted cash flow analysis to estimate reporting unit fair value.  As a result, the Company recorded impairment on goodwill of $6,475, reducing its fair value to $0.  As a result of these impairments, a $8,475 pre-tax charge was included in “Goodwill and other intangible assets impairment” in the accompanying Condensed Consolidated Statements of Operations in the Outdoor Equipment segment during the three and nine month periods ended June 27, 2014.

The following table summarizes the Company’s assets measured at fair value on a non-recurring basis as of June 27, 2014 and the losses recognized as a result of this measurement in the three and nine month periods then ended.  The assets and losses were all included in the Outdoor Equipment segment.


   
Level 1
   
Level 2
   
Level 3
   
Losses incurred
                               
                                 
Goodwill
  $ -     $ -     $ -     $ 6,475
Tradename
    -       -       3,400       2,000

 
 
14       NEW ACCOUNTING PRONOUNCEMENTS
 
In May 2014, the FASB issued authoritative guidance under ASU 2014-09, Revenue from Contracts with Customers,  which supersedes existing revenue recognition requirements and provides a new comprehensive revenue recognition model.  The underlying principle of the new standard requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for those goods or services.  This ASU will be adopted by the Company during the first quarter of fiscal 2018.  The Company is currently evaluating the impact that this standard will have on the consolidated financial statements.

In April 2015, the FASB issued Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs, ("ASU 2015-03"). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance also requires retrospective application to all prior periods presented.  ASU 2015-03 is effective for the first interim period for fiscal years beginning after December 15, 2015. Management is currently assessing the impact the adoption of ASU 2015-03 will have, but does not anticipate a significant impact to the Company's financial position as a result of this change.

 
-16- 

 
 
JOHNSON OUTDOORS INC.
 
15       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 either of the nine month periods ended July 3, 2015 or June 27, 2014.
 
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.
 
A summary of the Company’s operations by business unit is presented below:
 

                                         
   
Three Months Ended
   
Nine Months Ended
         
                                         
   
July 3
   
June 27
   
July 3
   
June 27
   
October 3
 
     2015      2014      2015      2014      2014  
                                         
Net sales:
                                       
Marine Electronics:
                                       
Unaffiliated customers
  $ 86,064     $ 79,904     $ 218,819     $ 209,887          
Interunit transfers
    134       105       260       177          
Outdoor Equipment:
                                       
Unaffiliated customers
    15,593       15,729       34,115       35,071          
Interunit transfers
    19       21       36       36          
Watercraft:
                                       
Unaffiliated customers
    19,428       19,658       38,769       38,285          
Interunit transfers
    102       67       122       117          
Diving
                                       
Unaffiliated customers
    19,564       21,599       52,701       56,849          
Interunit transfers
    228       207       518       722          
Other / Corporate
    234       243       412       414          
Eliminations
    (483 )     (400 )     (936 )     (1,052 )        
                                         
Total
  $ 140,883     $ 137,133     $ 344,816     $ 340,506          
                                         
Operating profit (loss):
                                       
Marine Electronics
  $ 14,603     $ 14,196     $ 24,146     $ 30,276          
Outdoor Equipment
    1,811       (4,946 )     2,536       (4,561 )        
Watercraft
    2,334       2,002       1,308       (29 )        
Diving
    947       1,561       242       2,315          
Other / Corporate
    (3,274 )     (3,481 )     (11,519 )     (10,031 )        
                                         
    $ 16,421     $ 9,332     $ 16,713     $ 17,970          
                                         
Total assets (end of period):
                                       
Marine Electronics
                  $ 136,484     $ 129,037     $ 111,411  
Outdoor Equipment
                    37,159       35,650       32,033  
Watercraft
                    29,845       32,981       20,367  
Diving
                    65,416       80,026       64,933  
Other / Corporate
                    48,942       31,037       59,882  
                                         
                    $ 317,846     $ 308,731     $ 288,626  
                                         
 
 
 
-17- 

 
1
JOHNSON OUTDOORS INC.
 
 
16       ACCUMULATED OTHER COMPREHENSIVE INCOME
 
The changes in Accumulated Other Comprehensive Income (AOCI) by component, net of tax, for the three months ended July 3, 2015 were as follows:

                         
 
Foreign
Currency Translation Adjustment
 
Unamortized Loss on Defined Benefit Pension Plans
 
Accumulated
Other Comprehensive Income (Loss)
 
                         
Balance at April 3, 2015
  $ 9,678     $ (5,574 )   $ 4,104  
Other comprehensive income before reclassifications
    1,128       -       1,128  
Amounts reclassified from accumulated other comprehensive income
    -       85       85  
Tax effects
    -       (32 )     (32 )
Balance at July 3, 2015
  $ 10,806     $ (5,521 )   $ 5,285  
                         
                         
 
The changes in AOCI by component, net of tax, for the nine months ended July 3, 2015 were as follows:
 
                         
                         
 
Foreign
Currency Translation Adjustment
 
Unamortized Loss on Defined Benefit Pension Plans
 
Accumulated
Other Comprehensive Income (Loss)
 
                         
Balance at October 3, 2014
  $ 18,424     $ (5,646 )   $ 12,778  
Other comprehensive income before reclassifications
    (7,618 )     -       (7,618 )
Amounts reclassified from accumulated other comprehensive income
    -       255       255  
Tax effects
    -       (130 )     (130 )
Balance at July 3, 2015
  $ 10,806     $ (5,521 )   $ 5,285  
                         
                         
The changes in AOCI by component, net of tax, for the three months ended June 27, 2014 were as follows:
 
                         
                         
 
Foreign
Currency
Translation Adjustment
 
Unamortized Loss on Defined Benefit Pension Plans
 
Accumulated
Other Comprehensive Income (Loss)
 
                         
Balance at March 28, 2014
  $ 24,035     $ (4,216 )   $ 19,819  
Other comprehensive income before reclassifications
    1,614       -       1,614  
Amounts reclassified from accumulated other comprehensive income
    -       166       166  
Tax effects
    -       (63 )     (63 )
Balance at June 27, 2014
  $ 25,649     $ (4,113 )   $ 21,536  
                         
                         
 
 
-18-

 
JOHNSON OUTDOORS INC.
 
 
 
The changes in AOCI by component, net of tax, for the nine months ended June 27, 2014 were as follows:
 
 
 
 
 
 
                         
                         
 
Foreign
Currency Translation Adjustment
 
Unamortized Loss on Defined Benefit Pension Plans
 
Accumulated
Other Comprehensive Income (Loss)
 
Balance at September 27, 2013
  $ 23,789     $ (4,423 )   $ 19,366  
Other comprehensive income before reclassifications
    1,860       -       1,860  
Amounts reclassified from accumulated other comprehensive income
    -       499       499  
Tax effects
    -       (189 )     (189 )
Balance at June 27, 2014
  $ 25,649     $ (4,113 )   $ 21,536  
                         
 
The reclassifications out of AOCI for the three month period ended July 3, 2015 were as follows: 

             
Statement of Operations
             
Presentation
               
Unamortized loss on defined benefit pension plans
 
   
Amortization of loss
 
$
 85 
 
Cost of sales / Operating expense
Tax effects
   
 (32)
 
Income tax expense
               
Total reclassifications for the period
 
$
 53 
   
               
               
               
The reclassifications out of AOCI for the nine months ended July 3, 2015 were as follows:
               
               
             
Statement of Operations
             
Presentation
               
Unamortized loss on defined benefit pension plans:
 
Amortization of loss
 
$
 255 
 
Cost of sales / Operating expense
Tax effects
   
 (130)
 
Income tax expense
Total reclassifications for the period
 
$
 125 
   
               
               
               
The reclassifications out of AOCI for the three months ended June 27, 2014 were as follows:
               
               
             
Statement of Operations
             
Presentation
               
Unamortized loss on defined benefit pension plans:
 
Amortization of loss
 
$
 166 
 
Cost of sales / Operating expense
Tax effects
   
 (63)
 
Income tax expense
Total reclassifications for the period
 
$
 103 
   
               
               
               
The reclassifications out of AOCI for the nine months ended June 27, 2014 were as follows:
               
               
             
Statement of Operations
             
Presentation
               
Unamortized loss on defined benefit pension plans:
 
Amortization of loss
 
$
 499 
 
Cost of sales / Operating expense
Tax effects
   
 (189)
 
Income tax expense
               
Total reclassifications for the period
 
$
 310 
   
               

 
 
-19- 

 
 
JOHNSON OUTDOORS INC.
 
Item 2             Management's Discussion and Analysis of Financial Condition and Results of Operations
 
This 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 nine month periods ended July 3, 2015 and June 27, 2014. 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 Conditions
  • 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 October 3, 2014 which was filed with the Securities and Exchange Commission on December 5, 2014.

 
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 5, 2014 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, and matters related to the Company’s intellectual property rights; 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.
 
 
-20-
 
 
JOHNSON OUTDOORS INC.
 
Trademarks
 
We have registered the following trademarks, which may be used in this report: Minn Kota®, Cannon®, Humminbird®, LakeMaster®, Silva®, Eureka!®, Jetboil®, Old Town®, Ocean Kayakä, Necky®,  Extrasport®, Carlisle®, SCUBAPRO® 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 Company’s 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
 
Net sales of $140,883 for the third quarter of fiscal 2015 increased by 3% from the same period in the prior year, despite a 3% unfavorable impact from foreign currency translation.  Operating income for the quarter also compared favorably to the prior year by $7,089, due primarily to impairment charges of $8,475 on goodwill and other intangible assets offset in part by a $1,600 cash recovery from the Jetboil® indemnity escrow, both of which were recognized in the third quarter of the prior year.
 
Seasonality
 
The Company’s business is seasonal in nature. The third fiscal quarter falls within the Company’s primary selling season for its warm-weather outdoor recreation products.  The table below sets forth a historical view of the Company’s seasonality during the last three fiscal years.
 
Fiscal Year
                           
      2014   2013   2012
                           
Quarter Ended
   
Net
Sales
 
Operating
Profit
 
Net
Sales
 
Operating
Profit
 
Net
Sales
 
Operating
Profit
                                                     
December
      19 %     -17 %     21 %     6 %     19 %     -17 %
March
      29 %     69 %     31 %     49 %     31 %     65 %
June
      32 %     56 %     30 %     63 %     31 %     66 %
September
      20 %     -8 %     18 %     -18 %     19 %     -14 %
                                                     
          100 %     100 %     100 %     100 %     100 %     100 %

Results of Operations
 
The Company’s net sales and operating profit (loss) by segment for the periods shown below were as follows:
 
 
 
 
 
 
-21-

 
 
JOHNSON OUTDOORS INC.
 
                         
                         
   
Three Months Ended
   
Nine Months Ended
 
                             
   
    July 3
   
    June 27
   
   July 3
   
    June 27
 
      2015       2014       2015       2014  
                                 
Net sales:
                               
Marine Electronics
  $ 86,198     $ 80,009     $ 219,079     $ 210,064  
Outdoor Equipment
    15,612       15,750       34,151       35,107  
Watercraft
    19,530       19,725       38,891       38,402  
Diving
    19,792       21,806       53,219       57,571  
Other / Eliminations
    (249 )     (157 )     (524 )     (638 )
                                 
Total
  $ 140,883     $ 137,133     $ 344,816     $ 340,506