|
JOHNSON OUTDOORS INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge) Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") includes comments and analysis relating to the results of
operations and financial condition of Johnson Outdoors Inc. and its subsidiaries
(the Company) as of and for the three and six month periods ended March 30, 2012
and April 1, 2011. 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
? 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 30, 2011 which was filed with the Securities and Exchange Commission
on December 16, 2011.
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" 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 16, 2011
and the following: changes in economic conditions, consumer confidence levels
and discretionary spending patterns; 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 companies,
including companies that compete with the Company; the Company's success in its
working capital management and cost-structure reductions; the Company's success
in meeting financial covenants in its credit arrangements with its lenders; 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 outstanding
litigation matters; and adverse weather conditions. Shareholders, potential
investors and other readers are urged to consider these factors in evaluating
the forward-looking statements and are cautioned not to place undue reliance on
such forward-looking statements. The forward-looking statements included herein
are only made as of the date of this filing. The Company assumes no obligation,
and disclaims any obligation, to update such forward-looking statements to
reflect subsequent events or circumstances.
19
--------------------------------------------------------------------------------
JOHNSON OUTDOORS INC.
Trademarks
We have registered the following trademarks, which may be used in this report:
Minn Kota®, Cannon®, Humminbird®, Fishin' Buddy®, LakeMaster®, Silva®, Eureka!®,
Tech4O™, Geonav®, Old Town®, Ocean Kayak™, 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, Chairman and Chief Executive Officer,
members of her family and related entities.
Seasonality
The Company's business is seasonal in nature. The second quarter falls 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
September 30, 2011 October 1, 2010
Net Operating Net Operating
Quarter Ended Sales Profit Sales Profit
December 19 % -8 % 18 % -24 %
March 32 % 65 % 30 % 55 %
June 30 % 67 % 32 % 92 %
September 19 % -24 % 20 % -23 %
100 % 100 % 100 % 100 %
Results of Operations
The Company's net sales and operating profit (loss) by segment for the periods
shown are as follows:
Three Months Ended Six Months Ended
March 30 April 1 March 30 April 1
2012 2011 2012 2011
Net sales:
Marine Electronics $ 80,256 $ 78,899 $ 128,027 $ 121,844
Outdoor Equipment 9,437 10,281 15,727 20,737
Watercraft 17,060 18,115 24,545 24,250
Diving 22,098 21,759 40,856 41,111
Other / Eliminations (125 ) (190 ) (253 ) (378 )
$ 128,726 $ 128,864 $ 208,902 $ 207,564
Operating profit (loss):
Marine Electronics $ 12,317 $ 12,822 $ 14,390 $ 13,200
Outdoor Equipment 831 652 579 2,153
Watercraft 3,061 669 603 (1,074 )
Diving 1,706 (6 ) 1,608 1,145
Other / Corporate (3,934 ) (2,713 ) (6,918 ) (5,335 )
$ 13,981 $ 11,424 $ 10,262 $ 10,089
20--------------------------------------------------------------------------------
JOHNSON OUTDOORS INC.
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
Net sales on a consolidated basis for the three months ended March 30, 2012 were
$128,726, a decrease of $138, or less than 1%, compared to $128,864 for the
three months ended April 1, 2011. Unfavorable foreign currency translation
accounted for $634 of the decline.
Net sales for the three months ended March 30, 2012 for the Marine Electronics
business were $80,256, up $1,357 or 2% from $78,899 in the prior year quarter,
driven largely by continued strong new product performance by MinnKota® and
Humminbird® products.
Net sales for the Outdoor Equipment business were $9,437 for the current
quarter, a decrease of $844 or 8% from the prior year quarter net sales of
$10,281. The decrease was driven primarily by a 24% decline in military tent
sales related to reduced demand by the military.
Net sales for the Watercraft business were $17,060, a decrease of $1,055, or 6%,
compared to $18,115 in the prior year quarter due to lower volume in all
channels.
Diving net sales were $22,098 this quarter versus $21,759 in the prior year
quarter, an increase of $339 or 2%. Sales declines related to economic
uncertainty in southern Europe and a 2% unfavorable foreign currency translation
effect were more than offset by increased sales in the U.S. and Asian markets.
On a year to date basis, consolidated net sales for the six months ended March
30, 2012 were $208,902, an increase of $1,338, or 1%, compared to $207,564 for
the six months ended April 1, 2011. Foreign currency translation had a $727
unfavorable effect on the year over year comparison.
Net sales for the six months ended March 30, 2012 for the Marine Electronics
business were $128,027, up $6,183 or 5% from $121,844 in the first six months of
the prior year. The Humminbird® brand grew significantly versus the prior year
due primarily to the continued success of its side imaging® and down imagingTM
sonar products.
Net sales for the Outdoor Equipment business were $15,727 for the current year
to date period, a decrease of $5,010 or 24% from the prior year net sales of
$20,737. The decrease was driven primarily by a 50% decline in military tent
sales related to reduced demand by the United States military.
Net sales for the first six months for the Watercraft business were $24,545, an
increase of $295 or 1%, compared to $24,250 in the prior year period.
Diving net sales were $40,856 for the six months ended March 30, 2012 versus
$41,111 for the six months ended April 1, 2011, a decrease of $255 or 1% driven
primarily by the effect of unfavorable currency translation.
Gross Profit Margin
Gross profit as a percentage of net sales was 39.3% on a consolidated basis for
the three month period ended March 30, 2012 compared to 41.1% in the prior year
quarter. Unfavorable product mix and inventory reserves related to
restructuring in southern Europe contributed to the decline in gross margins in
the current year quarter.
21
--------------------------------------------------------------------------------
JOHNSON OUTDOORS INC.
Gross profit as a percentage of net sales was 39.1% on a consolidated basis for
the six month period ended March 30, 2012 compared to 40.3% in the prior year to
date period and was driven by the same factors as noted for the quarter.
Operating Expenses
Operating expenses were $36,546 for the quarter ended March 30, 2012, a decrease
of $4,963 over the prior year quarter amount of $41,509. A $3,500 favorable
settlement with an insurance carrier and lower warranty and legal expenses drove
the reduction in operating expenses during the current year quarter versus the
prior year period.
Operating expenses were $71,366 for the six months ended March 30, 2012 compared
to $73,524 in the prior year six month period. The $3,500 favorable settlement
and lower warranty costs noted above were offset in part by increases during the
current year-to-date period in bad debt expense in southern Europe and increased
health insurance and severance costs.
Operating Profit
Operating profit on a consolidated basis for the three months ended March 30,
2012 was $13,981 compared to $11,424 in the prior year quarter, an increase of
$2,557 driven primarily by the insurance settlement and lower operating expenses
in the current year quarter which more than offset the lower gross profit in the
current year quarter.
Operating profit on a consolidated basis for the six months ended March 30, 2012
was $10,262 compared to an operating profit of $10,089 in the prior year period,
an increase of $173 over the prior year-to-date period.
Interest
Interest expense totaled $817 for the three months ended March 30, 2012,
compared to $1,011 in the corresponding period of the prior year. The decrease
was due primarily to lower debt balances in the most recent quarter.
For the six months ended March 30, 2012, interest expense totaled $1,413
compared to $1,864 for the six months ended April 1, 2011. The decrease was due
primarily to lower debt balances in the most recent year-to-date period.
Interest income for each of the three and six month periods ended March 30, 2012
and April 1, 2011 was less than $100.
Other Expense/Income
Included in other expense/income for the three months ended March 30, 2012 were
foreign currency exchange losses of $805 compared to losses of $431 for the
three months ended April 1, 2011. In addition, the Company's foreign currency
forward contracts resulted in gains of $213 for the quarter ended March 30, 2012
versus losses of $173 for the quarter ended April 1, 2011. Also included in this
line item were market gains and income on the assets related to the Company's
non-qualified deferred compensation plan of $710 in the three month period ended
March 30, 2012 compared to $306 in the three month period ended April 1, 2011.
For the six months ended March 30, 2012, foreign currency exchange losses were
$80 compared to losses of $1,485 for the six months ended April 1, 2011. The
Company's foreign currency forward contracts resulted in losses of $12 for the
six months ended March 30, 2012 versus gains of $332 for the six months ended
April 1, 2011. Market gains and income on the assets related to the Company's
non-qualified deferred compensation plan were $1,199 in the six month period
ended March 30, 2012 compared to $771 in the six month period ended April 1,
2011.
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 and six months ended March 30, 2012
was 45.1% and 57.4%, respectively, compared to 15.9% and 8.6% in the
corresponding periods of the prior year.
22
--------------------------------------------------------------------------------
JOHNSON OUTDOORS INC.
The increase in the Company's effective tax rate for the three months ended
March 30, 2012 versus the prior year period was primarily due to the U.S. no
longer applying a valuation allowance, which resulted in recognition of federal
and state income tax expense for businesses in the U.S. In addition, increased
losses in foreign jurisdictions that carry valuation allowances resulted in no
recognition of a tax benefit related to those losses.
The increase in the Company's effective tax rate for the six months ended March
30, 2012 versus the prior year period was primarily due to the U.S. no longer
applying a valuation allowance, which resulted in recognition of federal and
state income tax expense for businesses in the U.S. for the six month period
ended March 30, 2012. In addition, increased losses in foreign jurisdictions
that carry valuation allowances resulted in no recognition of a tax benefit
related to those losses. Further contributing to the difference in effective tax
rates, the Company had recognized a tax benefit in the six month period ended
April 1, 2011 related to the recovery of alternative minimum taxes paid for
certain prior tax years.
Net Income
Net income for the three months ended March 30, 2012 was $7,283, or $0.74 per
diluted common class A and B share, compared to $8,486, or $0.87 per diluted
common class A and B share, for the corresponding period of the prior year.
Net income for the six months ended March 30, 2012 was $4,339 or $0.44 per
diluted common class A and B share, compared to $7,249, or $0.75 per diluted
common class A and B share, for the corresponding period of the prior year. The
lower net income in the current year three and six month periods was a result of
the factors discussed above.
Liquidity and Financial Condition
Debt, net of cash, was $21,822 as of March 30, 2012 compared to $43,860 as of
April 1, 2011. The decrease was driven in large part by strong operating cash
flow over the preceding twelve months. The Company's debt to total
capitalization ratio was 23% as of March 30, 2012 down from 34% as of April 1,
2011. The Company's total debt balance was $51,471 as of March 30, 2012 compared
to $72,440 as of April 1, 2011. 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 $111,357 as of
March 30, 2012, a decrease of $1,545 compared to $112,902 as of April 1, 2011.
The year over year change was primarily related to the Diving business.
Inventories, net of inventory reserves, were $79,304 as of March 30, 2012, a
decrease of $5,450 compared to $84,754 as of April 1, 2011. The decrease was
primarily driven by reductions in inventory in the Marine Electronics and
Watercraft businesses.
Accounts payable were $39,467 at March 30, 2012, an increase of $6,994 compared
to $32,473 as of April 1, 2011.
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:
Six Months Ended
March 30 April 1
(thousands) 2012 2011
Cash (used for) provided by:
Operating activities $ (46,791 ) $ (51,695 )
Investing activities (3,754 ) (3,752 )
Financing activities 36,726 48,677Effect of foreign currency rate changes on cash (1,046 ) 2,034
Decrease in cash and cash equivalents
$ (14,865 ) $ (4,736 )
23--------------------------------------------------------------------------------
JOHNSON OUTDOORS INC.
Operating Activities
Cash used for operations totaled $46,791 for the six months ended March 30, 2012
compared with cash used for operations of $51,695 during the corresponding
period of the prior fiscal year.
Amortization of deferred financing costs, depreciation and other amortization
charges were $5,733 for the six month period ended March 30, 2012 compared to
$4,916 for the corresponding period of the prior year.
Investing Activities
Cash used for investing activities totaled $3,754 for the six months ended March
30, 2012 and $3,752 for the corresponding period of the prior year. Cash usage
in the current and the prior year periods related to capital expenditures was
$4,962 and $3,752, respectively. The Company's recurring investments are made
primarily for tooling for new products and enhancements on existing products.
Any additional expenditures in fiscal 2012 are expected to be funded by working
capital or existing credit facilities. The Company received proceeds of $1,208
in the six month period ending March 30, 2012 related to the sale of a property
in Ferndale, Washington.
Financing Activities
Cash flows provided by financing activities totaled $36,726 for the six months
ended March 30, 2012 compared to $48,677 of cash provided by financing
activities for the six month period April 1, 2011. The Company made principal
payments on senior notes and other long-term debt of $3,277 during the six month
period ended March 30, 2012 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. For the
six month period ended April 1, 2011, the Company made principal payments on
senior notes and other long-term debt of $323.
The Company had outstanding borrowings of $39,776 on revolving credit facilities
and current maturities of its long-term debt of $3,091 as of March 30, 2012. As
of April 1, 2011, the Company had $56,498 outstanding on revolving credit
facilities and current maturities of long-term debt of $1,333. The Company had
outstanding borrowings on long-term debt (net of current maturities) of $8,604
and $14,609 as of March 30, 2012 and April 1, 2011, respectively.
The Company's term loans have maturity dates ranging from 15 to 25 years from
the September 29, 2009 effective date of the agreements. Each term loan requires
monthly payments of principal and interest. Interest on $8,604 of the aggregate
outstanding amount of the term loans is based on the prime rate plus 2.0%, and
the remainder on the prime rate plus 2.75%. The prime rate was 3.25% at March
30, 2012.
Certain of the term loans covering $8,604 of the aggregate borrowings are
subject to a pre-payment penalty. The penalty is currently 8% 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 to $50,000 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, beginning with
the quarter ended April 1, 2011, 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%.
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 March 30, 2012, based primarily on LIBOR plus 2.25%, was
approximately 2.50%.
24
--------------------------------------------------------------------------------
JOHNSON OUTDOORS INC.
The Company's remaining borrowing availability under the Revolvers was
approximately $31,200 at March 30, 2012.
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 a seasonal pay-down requirement.
As of March 30, 2012 the Company held approximately $26,600 of cash and cash
equivalents in bank accounts in foreign taxing jurisdictions.
Off Balance Sheet Arrangements
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 $2,103 and $2,568 at March 30, 2012 and April 1, 2011,
respectively.
The Company anticipates making contributions of $602 to its defined benefit
pension plans through September 28, 2012.
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 30, 2011 in
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the heading "Critical Accounting Policies and Estimates." There
were no significant changes to the Company's critical accounting policies during
the six months ended March 30, 2012.
[ Back To Mobile Security Homepage's Homepage ]
|
Follow Us