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 three and six month periods
ended March 27, 2020 and March 29, 2019. 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 27, 2019 which was filed with the Securities and Exchange Commission
on December 6, 2019.
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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," use of words such as
"confident," "could," "may," "planned," "potential," "should," "will," "would"
or the negative of such words 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 6, 2019,
the update to such "Risk Factors" section in Part II, Item 1A in this Form 10-Q
and the following: changes in economic conditions, consumer confidence levels
and discretionary spending patterns in key markets; uncertainties stemming from
changes in U.S. trade policies, tariffs, and the reaction of other countries to
such changes; the global outbreaks of disease, such as the COVID-19 pandemic
beginning in late 2019 and spreading across the globe in early 2020, which may
affect market and economic conditions, along with wide-ranging impacts on
employees, customers and various aspects of operations; the Company's success in
implementing its strategic plan, including its targeted sales growth platforms,
innovation focus and its increasing digital presence; 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 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; the impact of actions of
the Company's competitors with respect to product development or enhancement or
the introduction of new products into the Company's markets; 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; any disruptions in the Company's supply chain as a result of material
fluctuations in the Company's order volumes and requirements for raw materials
and other components necessary to manufacture and produce the Company's
products; the success of the Company's suppliers and customers and the impact of
any consolidation in the industries 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.
Trademarks
We have registered the following trademarks, among others, which may be used in
this report: Minn Kota®, Cannon®, Humminbird®, Eureka!®, Jetboil®, Old Town®,
Ocean Kayak®, Carlisle®, and SCUBAPRO®.
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.
Coronavirus (COVID-19)
The Company has been actively monitoring the coronavirus ("COVID-19") outbreak
and its impact globally. The Company's primary focus to this point has been to
ensure the health and safety of its employees. To that end, the Company has
encouraged working remotely where applicable, adopted social distancing where
appropriate, implemented travel restrictions, and has taken actions to ensure
that locations and facilities are cleaned and sanitized regularly. These are
novel and challenging times and the magnitude of this crisis is requiring the
Company to consider all options to promote the safety of employees, including,
where appropriate, or where required to comply with foreign, national, state or
local governmental authority recommendations, guidelines, and/or mandates, the
temporary suspension of work at certain of the Company's locations and
production facilities to protect employees and curb the spread of the
coronavirus. All of these actions may adversely impact the Company's operating
results. Due to the timing of the COVID-19 outbreak, the Company's primary
selling season has been disrupted, and the fiscal third quarter is expected to
be significantly impacted. The longer-term impacts from the outbreak are highly
uncertain and cannot be predicted.
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Nonetheless, the Company currently has no debt, has over $130,000 of cash
reserves as of the March 27, 2020 quarter end and has access to $75,000 of
revolver debt, through its currently in place credit facilities, if such
additional funds are needed to be accessed for operations, all of which factors
the Company believes will help it through the COVID-19 pandemic. Moreover, the
Company will continue to manage the impact of the COVID-19 pandemic, including
through focused cost cutting efforts and through targeting disciplined
investments for future growth.
Highlights
Net sales of $163,084 for the second quarter of fiscal 2020 decreased $14,623,
or 8%, from the same period in the prior year, reflecting decreased sales
volumes across all businesses, mainly attributable to the COVID-19 pandemic and
its disruption to the business environment in Asia-Pacific, Europe, and the
United States. This sales volume decrease was more than offset by decreases in
operating expenses between these same periods, discussed further below, which
was the primary driver of an increase of $3,950 in operating profit over the
prior year quarter. Some of this expense reduction was offset by an increase in
other expenses, also discussed below, resulting in a decrease in net income of
$1,536 over the prior year quarter.
Seasonality
The Company's business is seasonal in nature. The first fiscal quarter falls
prior to 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
2019 2018 2017
Net Operating Net Operating Net Operating
Quarter Ended Sales Profit Sales Profit Sales Profit
December 19 % 9 % 21 % 11 % 19 % 1 %
March 32 % 43 % 31 % 41 % 30 % 45 %
June 31 % 43 % 31 % 51 % 32 % 54 %
September 18 % 5 % 17 % -3 % 19 % - %
100 % 100 % 100 % 100 % 100 % 100 %
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Results of Operations
The Company's net sales and operating profit (loss) by business segment for the
periods shown below were as follows:
Three Months Ended Six Months Ended
March 27, March 29, March 27, March 29,
2020 2019 2020 2019
Net sales:
Fishing $ 133,955 $ 138,229 $ 233,233 $ 217,026
Camping 8,849 9,529 16,363 15,349
Watercraft Recreation 6,064 9,851 10,873 14,176
Diving 14,261 20,085 30,720 35,623
Other / Eliminations (45 ) 13 (51 ) (27 )
Total $ 163,084 $ 177,707 $ 291,138 $ 282,147
Operating profit (loss):
Fishing $ 32,917 $ 34,590 $ 47,935 $ 46,012
Camping 709 419 775 (267 )
Watercraft Recreation (1,639 ) (516 ) (3,202 ) (2,008 )
Diving (812 ) 1,423 (607 ) 716
Other / Eliminations 619 (8,072 ) (6,306 ) (10,631 )
Total $ 31,794 $ 27,844 $ 38,595 $ 33,822
See "Note 16 - 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
Consolidated net sales for the three months ended March 27, 2020 were $163,084,
a decrease of $14,623, or 8%, compared to $177,707 for the three months ended
March 29, 2019. Foreign currency translation had an unfavorable impact of less
than 1% on current year second quarter net sales compared to the prior year's
second quarter net sales.
Net sales for the three months ended March 27, 2020 for the Fishing business
were $133,955, a decrease of $4,274, or 3%, from $138,229 during the second
fiscal quarter of the prior year. Record sales volumes in the prior year
quarter resulted in a decrease over the prior year, despite strong performance
of new products in the current year quarter.
Net sales for the Camping business were $8,849 for the second quarter of the
current fiscal year, a decrease of $680, or 7%, from the prior year net sales
during the same period of $9,529. Increased sales of Jetboil products were not
enough to overcome declines in the other lines of business in this segment for
the quarter.
Net sales for the second quarter of fiscal 2020 for the Watercraft Recreation
business were $6,064, a decrease of $3,787, or 38%, compared to $9,851 in the
prior year same period. The impact of COVID-19 on both production and demand
drove the overall decrease over the prior year quarter.
Diving net sales were $14,261 for the three months ended March 27, 2020 versus
$20,085 for the three months ended March 29, 2019, a decrease of $5,824, or
29%. The decrease is largely due to the effects of COVID-19 globally, and
particularly in the Asia-Pacific and European markets which experienced an
earlier spread of COVID-19 than in the United States. COVID-19 significantly
impacted our Diving segment results during the current year quarter as its
impact was felt in the Asia-Pacific and European markets through the closure of
destination travel and tourism, which ultimately adversely impacted our
financial results. In addition, foreign currency translation unfavorably
impacted sales in this segment by approximately 2% versus the prior year
quarter.
For the six months ended March 27, 2020, consolidated net sales of $291,138
increased $8,991 or 3%, compared to $282,147 for the six months ended March 29,
2019. Foreign currency translation had an unfavorable impact of less than 1% on
net sales of the current year period compared to the prior year period.
Net sales for the six months ended March 27, 2020 for the Fishing business were
$233,233, an increase of $16,207, or 7%, from $217,026 during the same period of
the prior year. Availability of new products during the entire six month period
of the current year drove much of the growth over the prior year.
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Index JOHNSON OUTDOORS INC.
Net sales for the Camping business were $16,363 for the six months ended March
27, 2020, an increase of $1,014, or 7%, from the prior year net sales during the
same period of $15,349. Increased Jetboil sales volume was the primary driver
of growth.
Net sales for the six months ended March 27, 2020 for the Watercraft Recreation
business were $10,873, a decrease of $3,303, or 23%, compared to $14,176 in the
prior year same period. The decrease was mainly driven by the effects of
COVID-19 in the second quarter, which more than offset the first fiscal
quarter's improvement over the prior year.
Diving net sales were $30,720 for the six months ended March 27, 2020 versus
$35,623 for the six months ended March 29, 2019, a decrease of $4,903, or 14%.
As explained earlier, the decrease is largely due to the impact of COVID-19 and
the disruptions it caused on our operations as well as disruptions to global
travel. In addition, foreign currency translation unfavorably impacted sales in
this segment by approximately 2% versus the prior year period.
Cost of Sales
Cost of sales for the three months ended March 27, 2020 was $87,952 compared to
$98,578 for the three months ended March 29, 2019. The decrease year over year
was driven primarily by lower sales volume in the current year quarter over the
prior year quarter.
For the six months ended March 27, 2020, cost of sales was $162,394 compared to
$158,699 in the same period of the prior year. The increase year over year was
primarily due to increased sales volume in the current year versus the prior
year. Additionally, the Company incurred approximately $900 more of section 301
tariffs on the import of certain components and other supplies from China in the
current six month period over the prior year first six months. Given the
various business disruptions caused by the COVID-19 pandemic and the uncertainty
caused by the same, the Company is withdrawing previous estimates that it
provided regarding the full-year impact of the section 301 tariffs on the
Company's operating profits for all of fiscal 2020.
Gross Profit Margin
For the three months ended March 27, 2020, gross profit as a percentage of net
sales was 46.1% compared to 44.5% in the three month period ended March 29,
2019. The improvement year over year was due primarily to pricing increases in
the current year period.
For the six months ended March 27, 2020, gross profit as a percentage of net
sales improved slightly to 44.2% from 43.8% in the prior six month period,
mainly due to pricing increases and increased efficiencies which more than
offset the increased tariffs noted above.
Operating Expenses
Operating expenses were $43,338 for the three months ended March 27, 2020
compared to $51,285 for the three months ended March 29, 2019. The decrease of
$7,947 was primarily due to the impact of unfavorable market conditions on the
Company's deferred compensation plan assets, which resulted in approximately
$5,500 of lower deferred compensation expense in the current year quarter as
compared to the prior year quarter and an offsetting loss in Other Expense
(Income), net related to marking these deferred compensation plan assets to
market. Additionally, approximately $3,400 in lower incentive compensation
expense drove the decline from the prior year quarter.
Operating expenses were $90,149 for the six months ended March 27, 2020 compared
to $89,626 for the six months ended March 29, 2019. The slight increase was
primarily due to increased sales and sales volume related expenses year over
year, partially offset by approximately $2,100 of lower deferred compensation
expense in the six months ended March 27, 2020 compared to the prior year six
month period, with an offsetting loss in Other Expense (Income), net, as well as
approximately $3,200 in lower incentive compensation expense in the current year
six month period as compared to the prior year six month period.
Operating Profit
Operating profit on a consolidated basis for the three month period ended March
27, 2020 was $31,794 compared to an operating profit of $27,844 in the second
quarter of the prior fiscal year. Reduced operating expenses in the current
year quarter more than offset the impact of lower sales volumes due to COVID-19
and the other factors discussed above.
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Operating profit on a consolidated basis for the six months ended March 27, 2020
was $38,595 compared to an operating profit of $33,822 in the prior year to date
period. The improvement year over year was driven primarily by a slight
improvement in gross profit margin combined with lower operating expenses
between periods.
Interest
For the three months ended March 27, 2020, interest expense was $35 compared to
$36 in the three months ended March 29, 2019. Interest expense was $70 for the
six months ended March 27, 2020 compared to $73 for the six months ended March
29, 2019.
Interest income for the three month periods ended March 27, 2020 and March 29,
2019 was $484 and $317, respectively. For the six months ended March 27, 2020,
interest income was $1,139, compared to $857 for the six months ended March 29,
2019. The increase in interest income year over year was mainly driven by the
increase in interest earnings on increased balances of interest bearing cash in
fiscal 2020 versus the corresponding periods of fiscal 2019.
Other (Income) Expense, net
Other expense was $3,866 for the three months ended March 27, 2020 compared to
other income of $1,895 in the prior year period. Investment losses on the
assets related to the Company's non-qualified deferred compensation plan were
$3,468 in the three month period ended March 27, 2020 compared to investment
gains of $2,047 in the three month period ended March 29, 2019. This $5,515
decrease year over year in the investment value of these assets was offset by
the deferred compensation income included in the Company's Operating expenses
during the same periods. For the three months ended March 27, 2020, foreign
currency exchange losses were $265 compared to gains of $12 for the three months
ended March 29, 2019.
For the six months ended March 27, 2020, other expense was $2,698 compared to
$255 in the six months ended March 29, 2019. Net investment losses on the
assets related to the Company's non-qualified deferred compensation plan were
$2,144 in the six month period ended March 27, 2020, compared to $75 in the six
month period ended March 29, 2019. Foreign currency losses were $297 for the
six months ended March 27, 2020, compared to gains of $176 in the six months
ended March 29, 2019.
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
effective tax rate for the three and six month periods ended March 27, 2020 were
28.2% and 27.5%, respectively, compared to 27.0% and 25.9% in the corresponding
periods of the prior year. The key factor impacting the effective tax rate for
the six months ended March 27, 2020 was the net excess tax benefits related to
share-based compensation, which were lower in the current year period compared
to the prior year period.
Net Income
Net income for the three months ended March 27, 2020 was $20,387, or $2.02 per
diluted common class A and B share, compared to net income of $21,923, or $2.18
per diluted common class A and B share, for the second quarter of the prior
fiscal year.
Net income for the six months ended March 27, 2020 was $26,817, or $2.66 per
diluted common class A and B share, compared to net income of $25,444, or $2.53
per diluted common class A and B share, for the six months ended March 29, 2019.
Liquidity and Financial Condition
Cash and cash equivalents totaled $131,256 as of March 27, 2020, compared to
cash and cash equivalents of $68,205 as of March 29, 2019. The 92% increase in
cash was due to operating profits and earlier payment of receivables in the
current year versus the prior year. The Company's debt to total capitalization
ratio was 0% as of March 27, 2020 and March 29, 2019. The Company's total debt
balance was $0 as of each of March 27, 2020 and March 29, 2019. See "Note 11 -
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 $106,629 as of
March 27, 2020, a decrease of $18,121 compared to $124,750 as of March 29,
2019. The decrease year over year was consistent with decreased sales volumes
in the second quarter of fiscal 2020 versus the second quarter of fiscal 2019
and due to the timing of payment of receivables between periods discussed
above. Inventories, net of inventory reserves, were $107,680 as of March 27,
2020, a decrease of $8,551, compared to $116,231 as of March 29, 2019. Accounts
payable were $36,349 at March 27, 2020 compared to $42,391 as of March 29, 2019,
which decrease was consistent with the decrease in inventories.
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The Company's cash flows from operating, investing and financing activities, as
presented in the Company's accompanying Condensed Consolidated Statements of
Cash Flows, are summarized in the following table:
Six months ended
March 27, March 29,
(thousands) 2020 2019
Cash (used for) provided by:
Operating activities $ (28,991 ) $ (69,881 )
Investing activities (7,762 ) 20,583
Financing activities (3,842 ) (3,403 )
Effect of foreign currency rate changes on cash (531 ) (971 )
Decrease in cash and cash equivalents
$ (41,126 ) $ (53,672 )
Operating Activities
Cash used for operations totaled $28,991 for the six months ended March 27, 2020
compared to $69,881 during the corresponding period of the prior fiscal year.
The decrease in cash used for operations over the prior year six month period
was due primarily to the decreases in accounts receivable and inventories
between periods, as discussed above. Depreciation and amortization charges were
$6,796 for the six month period ended March 27, 2020 compared to $6,842 for the
corresponding period of the prior year.
Investing Activities
Cash used for investing activities totaled $7,762 for the six months ended March
27, 2020 compared to cash provided by investing activities of $20,583 for the
corresponding period of the prior fiscal year. Cash provided by investing
activities in the prior year period reflected proceeds from the sale of
short-term investments in that period. Cash usage for capital expenditures
totaled $7,772 for the current year six month period and $8,178 for the prior
year period. Any additional capital expenditures in fiscal 2020 are expected to
be funded by working capital.
Financing Activities
Cash used for financing activities totaled $3,842 for the six months ended March
27, 2020 compared to $3,403 for the six month period ended March 29, 2019 and
represents the payment of dividends and purchase of treasury stock. The Company
had no debt during either quarter ended March 27, 2020 and March 29, 2019. See
Note 11 "Indebtedness" to the accompanying Condensed Consolidated Financial
Statements for additional information on our credit facilities.
As of March 27, 2020 the Company held approximately $34,906 of cash and cash
equivalents in bank accounts in foreign taxing jurisdictions.
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