NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 2017
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Business
Johnson Outdoors Inc. (the “Company”) is an integrated, global outdoor recreation products company engaged in the design, manufacture and marketing of brand name outdoor equipment, diving, watercraft and marine electronics products.
Principles of Consolidation
The consolidated financial statements include the accounts of Johnson Outdoors Inc. and all majority owned subsidiaries and are stated in conformity with U.S. generally accepted accounting principles. Intercompany accounts and transactions have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and operating results and the disclosure of commitments and contingent liabilities. Actual results could differ significantly from those estimates.
Fiscal Year
The Company’s fiscal year ends on the Friday nearest September 30. The fiscal years ended September 29, 2017 (hereinafter 2017), September 30, 2016 (hereinafter 2016) and October 2, 2015 (hereinafter 2015) all comprised 52 weeks.
Cash, Cash Equivalents and Short-term Investments
The Company considers all short-term investments in interest-bearing bank accounts, and all securities and other instruments with an original maturity of three months or less, to be equivalent to cash. Cash equivalents are stated at cost which approximates market value.
The Company maintains cash in bank accounts in excess of insured limits. The Company has not experienced any losses and does not believe that significant credit risk exists as a result of this practice.
Short-term investments consist of certificates of deposit with original maturities greater than three months but less than one year.
Accounts Receivable
Accounts receivable are recorded at face value less an allowance for doubtful accounts. The allowance for doubtful accounts is based on a combination of factors. In circumstances where specific collection concerns exist, a reserve is established to reduce the amount recorded to 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 outstanding accounts receivable 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.
Inventories
The Company values inventory at the lower of cost (determined using the first-in first-out method) or market. Management’s judgment is required to determine the reserve for obsolete or excess inventory. Inventory on hand may exceed future demand either because the product is outdated or because the amount on hand is more than will be used to meet future needs. Inventory reserves are estimated by the individual operating companies using standard quantitative measures based on criteria established by the Company. The Company also considers current forecast plans, as well as market and industry conditions in establishing reserve levels. Though the Company considers these reserve balances to be adequate, changes in economic conditions, customer inventory levels or competitive conditions could have a favorable or unfavorable effect on required reserve balances.
Inventories at the end of the respective fiscal years consisted of the following:
|
|
September 29
2017
|
|
|
September 30
2016
|
|
Raw materials
|
|
$
|
32,826
|
|
|
$
|
26,379
|
|
Work in process
|
|
|
48
|
|
|
|
34
|
|
Finished goods
|
|
|
46,274
|
|
|
|
41,984
|
|
|
|
$
|
79,148
|
|
|
$
|
68,397
|
|
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation of property, plant and equipment is determined by straight-line methods over the following estimated useful lives:
Property improvements
|
5-20 years
|
Buildings and improvements
|
20-40 years
|
Furniture and fixtures, equipment and computer software
|
3-10 years
|
Upon retirement or disposition of any of the foregoing types of assets, cost and the related accumulated depreciation are removed from the applicable account and any resulting gain or loss is recognized in the statements of operations.
Property, plant and equipment at the end of the respective years consisted of the following:
|
|
2017
|
|
|
2016
|
|
Property improvements
|
|
$
|
590
|
|
|
$
|
590
|
|
Buildings and improvements
|
|
|
21,770
|
|
|
|
21,631
|
|
Furniture and fixtures, equipment and computer software
|
|
|
159,145
|
|
|
|
150,698
|
|
|
|
|
181,505
|
|
|
|
172,919
|
|
Less accumulated depreciation
|
|
|
132,567
|
|
|
|
123,921
|
|
|
|
$
|
48,938
|
|
|
$
|
48,998
|
|
Goodwill
The Company applies a fair value-based impairment test to the carrying value of goodwill on an annual basis as of the last day of the eleventh month of the Company’s fiscal year and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The Company implemented Accounting Standards Update ("ASU") No. 2017-04 in 2017 and accordingly, performed its analysis in a single step model. The results of the impairment tests performed in 2017 indicated no impairment to the Company’s goodwill.
During the third quarter of fiscal 2016, the Company recognized an impairment charge of $6,197 in the Diving reporting unit. Revised projections for the unit based on lower than anticipated results due to a sustained decline in sales and unfavorable operating margins were considered an indicator of potential goodwill impairment, and accordingly, the Company performed an impairment analysis on the goodwill of the Diving reporting unit following the previous guidance which required a two step approach.
In conducting its analysis, the Company uses the income approach to compare the reporting unit’s carrying value to its indicated fair value. Fair value is determined primarily by using a discounted cash flow methodology that requires considerable management judgment and long-term assumptions and is considered a Level 3 (unobservable) fair value determination in the fair value hierarchy (see Note 4 below).
The Company’s analysis indicated the carrying value of the Diving reporting unit exceeded its indicated fair value as of the measurement date of June 3, 2016 resulting in performing a step 2 hypothetical business combination analysis, which determined that the carrying amount of goodwill exceeded its implied fair value. As a result, the Company recognized an impairment charge in the third quarter of fiscal 2016 of $6,197 in “Goodwill and other intangible assets impairment” in the accompanying Condensed Consolidated Statements of Operations in the Diving segment, thereby reducing its carrying value to $0.
The Company’s impairment analysis is based on management’s estimates. Due to the uncertainty of future events, the Company cannot assure that growth rates will not be lower than expected, that discount rates will not increase or that projected cash flows of the individual reporting units will not decline, all of which factors could impact the carrying value of any remaining goodwill (or portion thereof) in future periods, and accordingly, whether any impairment losses need to be recorded in future periods.
The changes in the carrying amount and the composition of goodwill for fiscal 2017 and 2016 were as follows:
|
|
Fishing
|
|
|
Camping
|
|
|
Watercraft
|
|
|
Diving
|
|
|
Total
|
|
Balance at October 2, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
16,596
|
|
|
$
|
7,038
|
|
|
$
|
6,242
|
|
|
$
|
30,806
|
|
|
$
|
60,682
|
|
Accumulated impairment losses
|
|
|
(6,229
|
)
|
|
|
(7,038
|
)
|
|
|
(6,242
|
)
|
|
|
(26,881
|
)
|
|
|
(46,390
|
)
|
|
|
|
10,367
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,925
|
|
|
|
14,292
|
|
Currency translation
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
53
|
|
|
|
55
|
|
Acquisitions
|
|
|
827
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,219
|
|
|
|
3,046
|
|
Impairment loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,197
|
)
|
|
|
(6,197
|
)
|
Balance at September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
17,425
|
|
|
|
7,038
|
|
|
|
6,242
|
|
|
|
33,078
|
|
|
|
63,783
|
|
Accumulated impairment losses
|
|
|
(6,229
|
)
|
|
|
(7,038
|
)
|
|
|
(6,242
|
)
|
|
|
(33,078
|
)
|
|
|
(52,587
|
)
|
|
|
|
11,196
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,196
|
|
Currency translation
|
|
|
42
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42
|
|
Balance at September 29, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
17,467
|
|
|
|
7,038
|
|
|
|
6,242
|
|
|
|
33,078
|
|
|
|
63,825
|
|
Accumulated impairment losses
|
|
|
(6,229
|
)
|
|
|
(7,038
|
)
|
|
|
(6,242
|
)
|
|
|
(33,078
|
)
|
|
|
(52,587
|
)
|
|
|
$
|
11,238
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,238
|
|
Other Intangible Assets
Indefinite-lived intangible assets are also tested for impairment annually and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. There were no impairment losses recognized in fiscal 2017 or 2016.
Intangible assets with definite lives are stated at cost less accumulated amortization. Amortization is computed using the straight-line method over periods ranging from 4 to 15 years. Amortization of patents and other intangible assets with definite lives was $1,276, $1,179 and $856 for 2017, 2016 and 2015, respectively. Amortization of these definite-lived intangible assets is expected to be approximately $1,098, $1,080, $1,014, $821 and $689 for fiscal years 2018, 2019, 2020, 2021 and 2022, respectively.
Intangible assets at the end of the last two years consisted of the following:
|
|
2017
|
|
|
2016
|
|
|
|
Gross
Intangible
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
Intangible
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Amortized other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and trademarks
|
|
$
|
4,213
|
|
|
$
|
(4,144
|
)
|
|
$
|
69
|
|
|
$
|
4,155
|
|
|
$
|
(4,026
|
)
|
|
$
|
129
|
|
Other amortizable intangibles
|
|
|
11,131
|
|
|
|
(4,749
|
)
|
|
|
6,382
|
|
|
|
10,804
|
|
|
|
(3,496
|
)
|
|
|
7,308
|
|
Non-amortized trademarks
|
|
|
7,025
|
|
|
|
—
|
|
|
|
7,025
|
|
|
|
7,025
|
|
|
|
—
|
|
|
|
7,025
|
|
|
|
$
|
22,369
|
|
|
$
|
(8,893
|
)
|
|
$
|
13,476
|
|
|
$
|
21,984
|
|
|
$
|
(7,522
|
)
|
|
$
|
14,462
|
|
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in business circumstances such as unplanned negative cash flow indicate that the carrying amount of these assets may not be fully recoverable. In such an event, the carrying amount of the asset group is compared to the future undiscounted cash flows expected to be generated by the asset group to determine if impairment exists on these assets. If impairment is determined to exist, any related impairment loss is calculated based on the difference between the fair value and the carrying value on these assets. The Company performed an impairment analysis on the long-lived assets in its Diving segment during the third quarter of fiscal 2016. No impairment was indicated.
Warranties
The Company provides for warranties of certain products as they are sold. Warranty reserves are estimated using standard quantitative measures based on criteria established by the Company. Estimates of costs to service its warranty obligations are based on historical experience, expectation of future conditions and known product issues. The following table summarizes the warranty activity for the three years in the period ended September 29, 2017.
Balance at October 3, 2014
|
|
$
|
4,078
|
|
Expense accruals for warranties issued during the period
|
|
|
5,631
|
|
Less current period warranty claims paid
|
|
|
5,408
|
|
Balance at October 2, 2015
|
|
$
|
4,301
|
|
Expense accruals for warranties issued during the period
|
|
|
4,699
|
|
Less current period warranty claims paid
|
|
|
4,674
|
|
Balance at September 30, 2016
|
|
$
|
4,326
|
|
Expense accruals for warranties issued during the period
|
|
|
7,452
|
|
Less current period warranty claims paid
|
|
|
5,385
|
|
Balance at September 29, 2017
|
|
$
|
6,393
|
|
Accumulated Other Comprehensive Income
The components of Accumulated other comprehensive income ("AOCI") on the accompanying Consolidated Balance Sheets as of the end of fiscal year 2017, 2016 and 2015 were as follows:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Pre-Tax
Amount
|
|
|
Tax
Effect
|
|
|
Net of Tax
Effect
|
|
|
Pre-Tax
Amount
|
|
|
Tax
Effect
|
|
|
Net of Tax
Effect
|
|
|
Pre-Tax
Amount
|
|
|
Tax
Effect
|
|
|
Net of Tax
Effect
|
|
Foreign currency translation adjustment
|
|
$
|
11,179
|
|
|
$
|
—
|
|
|
$
|
11,179
|
|
|
$
|
10,525
|
|
|
$
|
—
|
|
|
$
|
10,525
|
|
|
$
|
10,253
|
|
|
$
|
—
|
|
|
$
|
10,253
|
|
Unamortized loss on pension plans
|
|
|
(7,799
|
)
|
|
|
1,613
|
|
|
|
(6,186
|
)
|
|
|
(10,999
|
)
|
|
|
2,828
|
|
|
|
(8,171
|
)
|
|
|
(8,492
|
)
|
|
|
1,876
|
|
|
|
(6,616
|
)
|
Accumulated other comprehensive income
|
|
$
|
3,380
|
|
|
$
|
1,613
|
|
|
$
|
4,993
|
|
|
$
|
(474
|
)
|
|
$
|
2,828
|
|
|
$
|
2,354
|
|
|
$
|
1,761
|
|
|
$
|
1,876
|
|
|
$
|
3,637
|
|
The reclassifications out of AOCI for the year ended September 29, 2017 were as follows:
|
|
|
|
|
Statement of Operations
Presentation
|
Unamortized loss on defined benefit pension plans
|
|
|
|
|
|
Amortization of loss
|
|
$
|
731
|
|
|
Cost of sales / Operating expense
|
Tax effects
|
|
|
(278
|
)
|
|
Income tax expense
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
Write off of currency translation amounts
|
|
|
64
|
|
|
Other income and expense
|
Total reclassifications for the period
|
|
$
|
517
|
|
|
|
The reclassifications out of AOCI for the year ended September 30, 2016 were as follows:
|
|
|
|
|
Statement of Operations
Presentation
|
Unamortized loss on defined benefit pension plans:
|
|
|
|
|
|
Amortization of loss
|
|
$
|
566
|
|
|
Cost of sales / Operating expense
|
Tax effects
|
|
|
(215
|
)
|
|
Income tax expense
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
Write off of currency translation amounts
|
|
|
(249
|
)
|
|
Other income and expense
|
Total reclassifications for the period
|
|
$
|
102
|
|
|
|
The reclassifications out of AOCI for the year ended October 2, 2015 were as follows:
|
|
|
|
|
Statement of Operations
Presentation
|
Unamortized loss on defined benefit pension plans:
|
|
|
|
|
|
Amortization of loss
|
|
$
|
622
|
|
|
Cost of sales / Operating expense
|
Tax effects
|
|
|
(237
|
)
|
|
Income tax expense
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
Write off of currency translation amounts
|
|
|
177
|
|
|
Other income and expense
|
Total reclassifications for the period
|
|
$
|
562
|
|
|
|
The changes in AOCI by component, net of tax, for the year ended September 29, 2017 were as follows:
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Unamortized
Loss on
Defined
Benefit Pension
Plans
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance at September 30, 2016
|
|
$
|
10,525
|
|
|
$
|
(8,171
|
)
|
|
$
|
2,354
|
|
Other comprehensive income before reclassifications
|
|
|
590
|
|
|
|
2,470
|
|
|
|
3,060
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
64
|
|
|
|
731
|
|
|
|
795
|
|
Tax effects
|
|
|
—
|
|
|
|
(1,216
|
)
|
|
|
(1,216
|
)
|
Balance at September 29, 2017
|
|
$
|
11,179
|
|
|
$
|
(6,186
|
)
|
|
$
|
4,993
|
|
The changes in AOCI by component, net of tax, for the year ended September 30, 2016 were as follows:
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Unamortized
Loss on
Defined
Benefit Pension
Plans
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance at October 2, 2015
|
|
$
|
10,253
|
|
|
$
|
(6,616
|
)
|
|
$
|
3,637
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
521
|
|
|
|
(3,073
|
)
|
|
|
(2,552
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(249
|
)
|
|
|
566
|
|
|
|
317
|
|
Tax effects
|
|
|
—
|
|
|
|
952
|
|
|
|
952
|
|
Balance at September 30, 2016
|
|
$
|
10,525
|
|
|
$
|
(8,171
|
)
|
|
$
|
2,354
|
|
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 (whether vested or unvested) which receive non-forfeitable dividends are required to be included as part of the basic weighted average share calculation under the two-class method.
Holders of Class A common stock are entitled to cash dividends equal to 110% of all dividends declared and paid on each share of Class B common stock. The Company grants shares of unvested restricted stock in the form of Class A shares, which carry the same distribution rights as the Class A common stock described above. As such, the undistributed earnings for each period are allocated to each class of common stock based on the proportionate share of the amount of cash dividends that each such class is entitled to receive.
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 years ended September 29, 2017, September 30, 2016 and October 2, 2015, basic income per share for Class A and Class B shares has been presented using the two class method as described above.
Diluted EPS
Diluted net income per share is computed by dividing allocated net income by the weighted-average number of common shares outstanding, adjusted for the effect of dilutive stock options, restricted stock units and non-vested restricted stock. Anti-dilutive stock options, restricted stock 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, restricted stock units and non-vested stock is excluded and diluted loss per share is equal to basic loss per share.
For the years ended September 29, 2017, September 30, 2016 and October 2, 2015, diluted net income per share reflects the effect of dilutive stock options and restricted stock units and assumes the conversion of Class B common stock into Class A common stock.
There were no 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 for the years ended September 29, 2017, September 30, 2016 and October 2, 2015. 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 95,068, 162,472 and 214,027 shares for the years ended September 29, 2017, September 30, 2016 and October 2, 2015, respectively.
The following table sets forth a reconciliation of net income to dilutive earnings used in the diluted earnings per common share calculations and the computation of basic and diluted earnings per common share:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net income
|
|
$
|
35,157
|
|
|
$
|
13,501
|
|
|
$
|
10,616
|
|
Less: Undistributed earnings reallocated to non-vested shareholders
|
|
|
(375
|
)
|
|
|
(258
|
)
|
|
|
(191
|
)
|
Dilutive earnings
|
|
$
|
34,782
|
|
|
$
|
13,243
|
|
|
$
|
10,425
|
|
Weighted average common shares – Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
8,675
|
|
|
|
8,627
|
|
|
|
8,515
|
|
Class B
|
|
|
1,212
|
|
|
|
1,212
|
|
|
|
1,212
|
|
Dilutive stock options and restricted stock units
|
|
|
33
|
|
|
|
16
|
|
|
|
—
|
|
Weighted average common shares - Dilutive
|
|
|
9,920
|
|
|
|
9,855
|
|
|
|
9,727
|
|
Net income per common share – Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
3.56
|
|
|
$
|
1.36
|
|
|
$
|
1.08
|
|
Class B
|
|
$
|
3.23
|
|
|
$
|
1.24
|
|
|
$
|
0.98
|
|
Net income per common share – Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
3.51
|
|
|
$
|
1.34
|
|
|
$
|
1.06
|
|
Class B
|
|
$
|
3.51
|
|
|
$
|
1.34
|
|
|
$
|
1.06
|
|
Stock-Based Compensation
Stock-based compensation cost is recorded for all option grants and awards of non-vested stock and restricted stock units based on their grant-date fair value. Stock-based compensation expense is recognized on a straight-line basis over the vesting period of each award. No stock options were granted in 2017, 2016 or 2015. See Note 10 of these Notes to Consolidated Financial Statements for information regarding the Company’s stock-based incentive plans, including stock options, non-vested stock, and employee stock purchase plans.
Income Taxes
The Company provides for income taxes currently payable and deferred income taxes resulting from temporary differences between financial statement income/loss and taxable income/loss. Accrued interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense. Deferred income tax assets and liabilities are determined based on the difference between the amounts reported in the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. A valuation allowance is established if it is more likely than not that some portion or all of a deferred income tax asset will not be realized. See Note 6 of these Notes to Consolidated Financial Statements for further discussion.
Employee Benefits
The Company and certain of its subsidiaries have various retirement and profit sharing plans. The Company does not have any significant foreign retirement plans. Pension obligations, which are generally based on compensation and years of service, are funded by payments to pension fund trustees. The Company’s policy is to annually fund the minimum amount required under the Employee Retirement Income Security Act of 1974 for plans subject thereto although the Company may choose to fund more than the minimum amount at its discretion. Other retirement costs are funded at least annually. See Note 7 of these Notes to Consolidated Financial Statements for additional discussion.
Foreign Operations and Related Derivative Financial Instruments
The functional currencies of the Company’s foreign operations are the local currencies. Accordingly, assets and liabilities of foreign operations are translated into U.S. dollars at the rate of exchange existing at the end of the year. Results of operations are translated at monthly average exchange rates. Adjustments resulting from the translation of foreign currency financial statements are classified as “Accumulated other comprehensive income (loss),” a separate component of Shareholders’ equity.
Currency gains and losses are recognized when assets and liabilities of foreign operations, denominated in other than their local currency, are converted into the local currency of the entity. Additionally, currency gains and losses are recognized through the settlement of transactions denominated in other than the local currency. The Company recognized currency gains from transactions of $903 and $277 in 2017 and 2016, respectively, and currency losses from transactions of $1,196 in 2015, all of which were included in Other (income) expense in the accompanying Consolidated Statements of Operations.
Because the Company operates internationally, it has exposure to market risk from movements in foreign currency exchange rates. Approximately 17% of the Company’s revenues for the year ended September 29, 2017 were denominated in currencies other than the U.S. dollar. Approximately 7% were denominated in euros and approximately 6% were denominated in Canadian dollars, with the remaining 4% denominated in various other foreign currencies. The Company may mitigate the impact on its operating results of a portion of the fluctuations in certain foreign currencies through the purchase of foreign currency swaps, forward contracts and options to hedge known commitments denominated in foreign currencies or borrowings in foreign currencies. The Company did not use foreign currency forward contracts in 2017, 2016 or 2015. The Company does not enter into foreign exchange contracts for trading or speculative purposes.
Revenue Recognition
The Company recognizes revenue when all of the following criteria have been met:
|
•
|
Persuasive evidence of an arrangement exists. Contracts, internet commerce agreements, and customer purchase orders are generally used to determine the existence of an arrangement.
|
|
•
|
All substantial risk of ownership transfers to the customer. Shipping documents and customer acceptance, when applicable, are used to verify delivery.
|
|
•
|
The fee is fixed or determinable. This is assessed based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment.
|
|
•
|
Collectibility is reasonably assured. Collectibility is assessed based on the creditworthiness of the customer as determined by credit checks and analysis, as well as by the customer’s payment history.
|
Estimated costs of returns and allowances and discounts are accrued as a reduction to sales when revenue is recognized.
Advertising & Promotions
The Company expenses substantially all costs related to the production of advertising the first time the advertising takes place. Cooperative promotional arrangements are accrued as related revenue is earned.
Advertising and promotions expense in 2017, 2016 and 2015 totaled $24,349, $23,611 and $24,460, respectively. These charges are included in “Marketing and selling expenses.” Capitalized advertising costs, included in Other current assets, totaled
$621 and $866 at September 29, 2017 and September 30, 2016, respectively, and primarily included catalogs and costs of advertising which have not yet run for the first time.
Shipping and Handling Costs
Shipping and handling fees billed to customers are included in “Net sales.” Shipping and handling costs are included in “Marketing and selling expenses” and totaled $10,844, $10,240 and $10,838 for 2017, 2016 and 2015, respectively.
Research and Development
The Company expenses research and development costs as incurred except for costs of software development for new electronic products which are capitalized once technological feasibility is established and are included in Furniture, Fixtures and Equipment. The gross amount capitalized related to software development was $34,528, less accumulated amortization of $18,040, at September 29, 2017 and $31,572, less accumulated amortization of $14,597, at September 30, 2016. These costs are amortized over the expected life of the software of three to seven years. Amortization expense related to capitalized software in 2017, 2016 and 2015 was $3,444, $2,738 and $2,535, respectively, and is included in depreciation expense on plant, property and equipment.
Fair Values
The carrying amounts of cash, cash equivalents, short-term investments, accounts receivable, and accounts payable approximated fair value at September 29, 2017 and September 30, 2016 due to the short maturities of these instruments. During 2017, 2016 and 2015, the Company held investments in equity and debt securities that were carried at fair value related to its deferred compensation liability which was also carried at the same fair value. When indicators of impairment are present, the Company may be required to value certain long-lived assets such as property, plant, and equipment, and other intangibles at fair value.
Valuation Techniques
Rabbi Trust Assets
Rabbi trust assets, used to fund amounts the Company owes to certain officers and other employees under the Company’s non-qualified deferred compensation plan, are included in “Other assets,” and are classified as trading securities. These assets are comprised of marketable debt and equity securities that are marked to fair value based on unadjusted quoted prices in active markets.
Goodwill and Other Intangible Assets
In assessing the recoverability of the Company’s goodwill and other intangible assets, the Company estimates the future discounted cash flows of the business segments to which the goodwill relates. 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.
See Note 2 of these Notes to Consolidated Financial Statements for disclosures regarding the fair value of long-term debt and Note 4 of these Notes to Consolidated Financial Statements for disclosures regarding fair value measurements.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The Company has developed a project plan for the implementation of the new standard including a review of all revenue streams in each business segment to identify potential differences in the performance obligations, timing, measurement or presentation that would result from applying the new standard from the Company's current accounting policies and practices. The Company is still in the process of determining the impact on the timing of revenue recognition and the allocation of revenue to the Company's goods and services across each of the revenue streams and business segments. The provisions are effective for the Company in the first quarter of fiscal 2019 and permit adoption under either the full retrospective approach (recognizing effects of the amended guidance in each prior reporting period presented) or the modified retrospective approach (recognizing the cumulative effect of adoption as an adjustment to retrained earnings at the date of initial application). The Company is still evaluating its method of adoption and the impact of this standard on its consolidated results of operations and financial position.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. The amendments in this update will increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect of this standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. Excess tax benefits for share-based payments will be recorded as a reduction of income taxes and reflected in operating cash flows upon the adoption of this ASU. Excess tax benefits are recorded in equity and as financing activity under the current rules. The guidance will be effective for annual reporting periods beginning after December 15, 2016 and interim periods within those fiscal years with early adoption permitted. The Company elected to adopt this accounting standard on a prospective basis at the beginning of the first quarter of fiscal 2017. See Note 10 of these Notes to Consolidated Financial Statements for information regarding the effect of this new accounting pronouncement.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory.
The ASU includes provisions intended to simplify the measurement of inventory and to more clearly articulate the requirements for the measurement and disclosure of inventory. Under such provisions, an entity should measure inventory within the scope of this amendment at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The standard will be effective for the first quarter of fiscal 2018. The Company does not anticipate that the adoption of this standard will have a significant impact on its consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. The ASU includes, among other provisions, one that will require presentation of the service cost component of net benefit cost in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside of a subtotal of income from operations. This amendment is effective for annual periods beginning after December 15, 2017 and the interim periods within those annual periods. The Company has elected to adopt this accounting standard at the beginning of the first quarter of fiscal 2018. The adoption of this standard is expected to result in a reduction of an annual operating expense of approximately $500 and an increase in other expense of approximately $500. The Company does not expect the adoption of this standard to have an effect on its consolidated balance sheets or consolidated statements of cash flows.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment
, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The Company elected to adopt this ASU in the fourth quarter of fiscal 2017 in conjunction with its annual impairment test. There was no impact on its consolidated financial statements.
Debt was comprised of the following at September 29, 2017 and September 30, 2016:
|
|
September 29
2017
|
|
|
September 30
2016
|
|
Term loans
|
|
$
|
—
|
|
|
$
|
7,098
|
|
Revolvers
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
291
|
|
Total debt
|
|
|
—
|
|
|
|
7,389
|
|
Less current portion of long term debt
|
|
|
—
|
|
|
|
381
|
|
Less short term debt
|
|
|
—
|
|
|
|
—
|
|
Total long-term debt
|
|
$
|
—
|
|
|
$
|
7,008
|
|
Term Loans
On October 24, 2016 the Company repaid its outstanding term loans with Ridgestone Bank totaling $7,068. The early repayment of these loans resulted in of a 3% pre-payment penalty. The Company’s term loans had a maturity date of September 29, 2029. The interest rate in effect on the term loans was 5.5% at the date of repayment.
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 named therein. 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 under this facility may not exceed $60,000 from the period June 30
th
through October 31
st
of each year under the agreement. The Company had no borrowings against the Revolving Credit Facility as of September 29, 2017 or September 30, 2016.
The interest rate on the Revolver is based on LIBOR plus an applicable margin. The applicable margin resets each quarter and ranges from 1.25% to 2.00% and is dependent on the Company’s leverage ratio for the trailing twelve month period. The interest rate on the Revolver was approximately 2.5% at September 29, 2017 and 1.7% at September 30, 2016.
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 first 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, dividends 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.
Other Borrowings
The Company had no unsecured revolving credit facilities at its foreign subsidiaries as of September 29, 2017. The Company utilizes letters of credit primarily as security for the payment of future claims under its workers’ compensation insurance which totaled $279 and $392 at September 29, 2017 and September 30, 2016, respectively. The Company had no unsecured lines of credit as of September 29, 2017 or September 30, 2016.
The weighted average borrowing rate for short-term debt was approximately 2.5%, 1.7% and 1.4% for 2017, 2016 and 2015, 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 approximated its carrying value as of September 30, 2016. See Note 4 of these Notes to Consolidated Financial Statements for additional disclosures regarding the fair value.
Under the Company’s Revolving Credit Agreement, a change in control of the Company would constitute an event of default. A change in control would be deemed to have occurred if, among other events described in the terms of the Credit Agreement, a person or group other than the Company’s Chief Executive Officer, Helen P. Johnson-Leipold, members of her family and related entities (hereinafter the Johnson Family) became or obtain rights as a beneficial owner (as interpreted under the Securities Exchange Act of 1934) of a certain percentage of the outstanding capital stock of the Company, if the Johnson Family ceases to own (without lien or encumbrance) at least a certain percentage of the shares of capital stock of the Company with voting power or if the members of the Company’s Board of Directors as of the date of the Credit Agreement (together with any new directors elected to the Board who were also approved for appointment by the then serving directors) cease for any reason to constitute a majority of the Company’s Board of Directors. At October 30, 2017, the Johnson Family held 3,832,267 shares or approximately 44% of the Class A common stock, 1,211,196 shares or approximately 99.9% of the Class B common stock and approximately 77% of the voting power of both classes of common stock taken as a whole.
On November 15, 2017, the Company entered into a new unsecured revolving credit facility, which replaced the Revolving Credit Agreement described above. See Note 14 of these Notes to Consolidated Financial Statements for information regarding the new agreement.
3
|
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. See Note 4 of these Notes to Consolidated Financial Statements for disclosures regarding the fair value and effects of changes in the fair value of derivative instruments.
Foreign Exchange Risk
The Company has significant foreign operations, for which the functional currencies are denominated primarily in euros, Swiss francs, 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 17% of the Company’s revenues for the fiscal year ended September 29, 2017 were denominated in currencies other than the U.S. dollar. Approximately 7% were denominated in euros and approximately 6% were denominated in Canadian dollars, with the remaining 4% denominated in various other foreign currencies. Changes in foreign currency exchange rates can cause unexpected financial losses or cash flow needs.
The Company may mitigate the impact on its operating results of 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 for a fixed amount of currency to be paid or received on 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 denominated in foreign currencies. As of September 29, 2017 and September 30, 2016, 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. As of September 29, 2017 and September 30, 2016, the Company held no interest rate swap contracts.
4
|
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.
|
|
•
|
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 following table summarizes the Company’s financial assets measured at fair value as of September 29, 2017:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rabbi trust assets
|
|
$
|
14,932
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,932
|
|
The following table summarizes the Company’s financial assets measured at fair value as of September 30, 2016:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rabbi trust assets
|
|
$
|
12,637
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,637
|
|
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 owed by the Company to certain officers and other employees under the Company’s non-qualified deferred compensation plan. The mark-to-market adjustments on the assets are recorded in “Other (income) expense” in the accompanying Consolidated Statements of Operations. The offsetting deferred compensation liability is also reported at fair value and is included in “Other liabilities” in the Company’s Consolidated Balance Sheets. Changes in the liability are recorded in "Administrative management, finance and information systems" expense in the accompanying Consolidated Statements of Operations.
The effect of changes in the fair value of financial instruments on the Consolidated Statements of Operations for the years ended September 29, 2017, September 30, 2016 and October 2, 2015 was:
|
Location of (income) loss
recognized in Statement of
Operations
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Rabbi trust assets
|
Other (income) expense
|
|
$
|
(1,687
|
)
|
|
$
|
(624
|
)
|
|
$
|
638
|
|
Certain assets and liabilities are measured at fair value on a non-recurring basis in periods subsequent to their initial recognition. During 2016, the Company recorded a $6,197 impairment charge on goodwill held by the Diving business reducing its carrying value to $0, its implied fair value. The charge is reflected in “Goodwill and other intangible assets impairment.” See further discussion of this impairment charge at Note 1 of these Notes to Consolidated Financial Statements.
No assets or liabilities were measured at fair value on a non-recurring basis in 2017. The following table summarizes the Company’s assets measured at fair value on a non-recurring basis as of September 30, 2016 and the losses recognized as a result of this measurement in the year then ended.
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Losses incurred
|
|
Goodwill
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,197
|
|
5
|
LEASES AND OTHER COMMITMENTS
|
The Company leases certain facilities and machinery and equipment under long-term, non-cancelable operating leases. Future minimum rental commitments under non-cancelable operating leases with an initial lease term in excess of one year at September 29, 2017 were as follows:
Year
|
|
Related parties included
in total
|
|
|
Total
|
|
2018
|
|
$
|
1,017
|
|
|
$
|
5,993
|
|
2019
|
|
|
1,009
|
|
|
|
5,216
|
|
2020
|
|
|
1,038
|
|
|
|
4,898
|
|
2021
|
|
|
1,067
|
|
|
|
3,481
|
|
2022
|
|
|
179
|
|
|
|
2,433
|
|
Thereafter
|
|
|
—
|
|
|
|
2,192
|
|
Rental expense under all leases was approximately $7,969, $7,011 and $6,933 for 2017, 2016 and 2015, respectively. Rent expense to related parties was $949, $907 and $873 for 2017, 2016 and 2015, respectively.
The U.S. and foreign income before income taxes for the respective years consisted of the following:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
41,463
|
|
|
$
|
28,881
|
|
|
$
|
11,886
|
|
Foreign
|
|
|
6,747
|
|
|
|
(5,226
|
)
|
|
|
3,867
|
|
|
|
$
|
48,210
|
|
|
$
|
23,655
|
|
|
$
|
15,753
|
|
Income tax expense for the respective years consisted of the following:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
13,154
|
|
|
$
|
9,471
|
|
|
$
|
4,916
|
|
State
|
|
|
2,361
|
|
|
|
1,492
|
|
|
|
882
|
|
Foreign
|
|
|
1,455
|
|
|
|
986
|
|
|
|
1,469
|
|
Deferred
|
|
|
(3,917
|
)
|
|
|
(1,795
|
)
|
|
|
(2,130
|
)
|
|
|
$
|
13,053
|
|
|
$
|
10,154
|
|
|
$
|
5,137
|
|
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at the end of the respective years are presented below:
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Inventories
|
|
$
|
2,263
|
|
|
$
|
2,041
|
|
Compensation
|
|
|
14,260
|
|
|
|
13,956
|
|
Tax credit carryforwards
|
|
|
8,203
|
|
|
|
4,691
|
|
Net operating loss carryforwards
|
|
|
5,844
|
|
|
|
7,628
|
|
Other
|
|
|
8,041
|
|
|
|
7,558
|
|
Total gross deferred tax assets
|
|
|
38,611
|
|
|
|
35,874
|
|
Less valuation allowance
|
|
|
8,613
|
|
|
|
10,215
|
|
Deferred tax assets
|
|
|
29,998
|
|
|
|
25,659
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill and other intangibles
|
|
|
1,805
|
|
|
|
1,571
|
|
Depreciation and amortization
|
|
|
6,802
|
|
|
|
5,744
|
|
Foreign statutory reserves
|
|
|
604
|
|
|
|
497
|
|
Net deferred tax assets
|
|
$
|
20,787
|
|
|
$
|
17,847
|
|
The net deferred tax assets recorded in the accompanying Consolidated Balance Sheet as of the years ended September 29, 2017 and September 30, 2016 were as follows:
|
|
2017
|
|
|
2016
|
|
Non-current assets
|
|
$
|
22,632
|
|
|
$
|
19,063
|
|
Non-current liabilities
|
|
|
1,845
|
|
|
|
1,216
|
|
Net deferred tax assets
|
|
$
|
20,787
|
|
|
$
|
17,847
|
|
The significant differences between the statutory federal tax rate and the effective income tax rates for the Company for the respective years shown below were as follows:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Statutory U.S. federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Foreign rate differential
|
|
|
(1.1
|
)%
|
|
|
0.3
|
%
|
|
|
(1.5
|
)%
|
State income tax, net of federal benefit
|
|
|
4.0
|
%
|
|
|
6.1
|
%
|
|
|
2.4
|
%
|
Tax credit
|
|
|
(0.9
|
)%
|
|
|
(3.2
|
)%
|
|
|
(16.6
|
)%
|
Deferred tax asset valuation allowance
|
|
|
(0.3
|
)%
|
|
|
0.8
|
%
|
|
|
10.0
|
%
|
Uncertain tax positions, net of settlements
|
|
|
0.9
|
%
|
|
|
1.4
|
%
|
|
|
1.7
|
%
|
Goodwill impairment
|
|
|
—
|
%
|
|
|
6.6
|
%
|
|
|
—
|
%
|
Section 199 manufacturer's deduction
|
|
|
(2.8
|
)%
|
|
|
(4.2
|
)%
|
|
|
(3.7
|
)%
|
Taxes related to foreign income, net of credits
|
|
|
(8.7
|
)%*
|
|
|
0.5
|
%
|
|
|
(0.8
|
)%
|
Amended tax returns
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
3.5
|
%
|
Other
|
|
|
1.0
|
%
|
|
|
(0.4
|
)%
|
|
|
2.6
|
%
|
|
|
|
27.1
|
%
|
|
|
42.9
|
%
|
|
|
32.6
|
%
|
* Rate benefit is primarily from excess foreign tax credits generated by a dividend
repatriation
in the first quarter of fiscal 2017.
The Company’s net operating loss carryforwards and their expirations as of September 29, 2017 were as follows:
|
|
|
State
|
|
|
Foreign
|
|
|
Total
|
|
Year of expiration
|
|
|
|
|
|
|
|
|
|
|
2018-2022
|
|
|
$
|
—
|
|
|
$
|
2,336
|
|
|
$
|
2,336
|
|
2023-2027
|
|
|
|
3,071
|
|
|
|
2,605
|
|
|
|
5,676
|
|
2028-2032
|
|
|
|
16,968
|
|
|
|
—
|
|
|
|
16,968
|
|
2033-2037
|
|
|
|
312
|
|
|
|
—
|
|
|
|
312
|
|
Indefinite
|
|
|
|
—
|
|
|
|
9,631
|
|
|
|
9,631
|
|
Total
|
|
|
$
|
20,351
|
|
|
$
|
14,572
|
|
|
$
|
34,923
|
|
The Company has tax credit carryforwards as follows:
|
|
|
State
|
|
|
Federal
|
|
|
Total
|
|
Year of expiration
|
|
|
|
|
|
|
|
|
|
|
2018-2022
|
|
|
$
|
1,895
|
|
|
$
|
—
|
|
|
$
|
1,895
|
|
2023-2027
|
|
|
|
1,536
|
|
|
|
—
|
|
|
|
1,536
|
|
2028-2032
|
|
|
|
751
|
|
|
|
—
|
|
|
|
751
|
|
2033-2037
|
|
|
|
239
|
|
|
|
—
|
|
|
|
239
|
|
Indefinite
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
$
|
4,421
|
|
|
$
|
—
|
|
|
$
|
4,421
|
|
A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:
Balance at October 2, 2015
|
|
$
|
3,881
|
|
Settlement
|
|
|
—
|
|
Lapse of statute of limitations
|
|
|
(391
|
)
|
Gross increases - tax positions in period
|
|
|
1,606
|
|
Balance at September 30, 2016
|
|
$
|
5,096
|
|
Settlement
|
|
|
(81
|
)
|
Lapse of statute of limitations
|
|
|
(380
|
)
|
Gross increases - tax positions in period
|
|
|
854
|
|
Balance at September 29, 2017
|
|
$
|
5,489
|
|
The total accrued interest and penalties with respect to income taxes was approximately $1,325 and $1,079 for the years ended September 29, 2017 and September 30, 2016, respectively. The Company’s liability for unrecognized tax benefits as of September 29, 2017 was $5,489, and if recognized, $5,094 would have an effective tax rate impact.
In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Interest and penalties of $185, $194 and $148 were recorded as a component of income tax expense in the accompanying Consolidated Statements of Operations during fiscal years 2017, 2016 and 2015, respectively.
The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions. At September 29, 2017, the Company was under income tax examination in Italy. The amount of unrecognized tax benefits recognized within the next twelve months may decrease due to expiration of the statute of limitations for certain years in various jurisdictions. However, it is possible that a jurisdiction may open an audit prior to the statute expiring or the aforementioned audit may result in adjustments to the Company’s tax filings. At this time, an estimate of the range of the reasonably possible change cannot be made.
The following tax years remain subject to examination by the Company's respective major tax jurisdictions:
Jurisdiction
|
Fiscal Years
|
United States
|
2014-2017
|
Canada
|
2013-2017
|
France
|
2014-2017
|
Germany
|
2013-2017
|
Italy
|
2012-2017
|
Switzerland
|
2007-2017
|
The Company has not provided additional U.S. income taxes on $112,638 of undistributed earnings of consolidated foreign subsidiaries included in shareholders’ equity attributable to the Company. Such earnings could become taxable upon the sale or liquidation of these foreign subsidiaries or upon dividend repatriation. If at some future date, these earnings cease to be indefinitely reinvested and are repatriated, the Company may be subject to additional U.S. income taxes and foreign withholding and other taxes on such amounts. It is not practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on such earnings.
As of September 29, 2017, the Company held approximately $39,205 of cash and cash equivalents in bank accounts in foreign
jurisdictions.
The Company has non-contributory defined benefit pension plans covering certain U.S. employees. Retirement benefits are generally provided based on the employees’ years of service and average earnings. Normal retirement age is 65, with provisions for earlier retirement. The Company elected to freeze its U.S. defined benefit pension plans as of September 30, 2009 and, as a result, there are no benefit accruals related to service performed after that date.
The financial position of the Company’s non-contributory defined benefit plans as of fiscal year end 2017 and 2016 was as follows:
|
|
2017
|
|
|
2016
|
|
Projected benefit obligation:
|
|
|
|
|
|
|
Projected benefit obligation, beginning of year
|
|
$
|
29,449
|
|
|
$
|
26,212
|
|
Service cost
|
|
|
—
|
|
|
|
—
|
|
Interest cost
|
|
|
1,043
|
|
|
|
1,137
|
|
Actuarial (gain) loss
|
|
|
(1,025
|
)
|
|
|
3,069
|
|
Benefits paid
|
|
|
(995
|
)
|
|
|
(969
|
)
|
Projected benefit obligation, end of year
|
|
|
28,472
|
|
|
|
29,449
|
|
Fair value of plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
|
17,793
|
|
|
|
17,020
|
|
Actual gain on plan assets
|
|
|
2,639
|
|
|
|
1,260
|
|
Company contributions
|
|
|
1,365
|
|
|
|
482
|
|
Benefits paid
|
|
|
(995
|
)
|
|
|
(969
|
)
|
Fair value of plan assets, end of year
|
|
|
20,802
|
|
|
|
17,793
|
|
Funded status of the plans
|
|
|
(7,670
|
)
|
|
|
(11,656
|
)
|
Amounts recognized in the Consolidated Balance Sheets consist of:
|
|
|
|
|
|
|
|
|
Current pension liabilities
|
|
|
186
|
|
|
|
188
|
|
Non-current pension liabilities
|
|
|
7,484
|
|
|
|
11,468
|
|
Accumulated other comprehensive loss
|
|
|
(7,799
|
)
|
|
|
(10,999
|
)
|
Components of accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
(7,799
|
)
|
|
|
(10,999
|
)
|
Accumulated other comprehensive loss
|
|
$
|
(7,799
|
)
|
|
$
|
(10,999
|
)
|
Net periodic benefit cost for the non-contributory defined benefit pension plans for the respective years included the following pre-tax amounts:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Interest cost
|
|
$
|
1,043
|
|
|
$
|
1,137
|
|
|
$
|
1,108
|
|
Expected return on plan assets
|
|
|
(1,193
|
)
|
|
|
(1,265
|
)
|
|
|
(1,197
|
)
|
Amortization of unrecognized net actuarial loss
|
|
|
731
|
|
|
|
566
|
|
|
|
622
|
|
Net periodic pension cost
|
|
|
581
|
|
|
|
438
|
|
|
|
533
|
|
Other changes in benefit obligations recognized in other comprehensive income ("OCI"):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
|
|
(3,201
|
)
|
|
|
2,507
|
|
|
|
1,511
|
|
Total recognized in net periodic pension cost and OCI
|
|
$
|
(2,620
|
)
|
|
$
|
2,945
|
|
|
$
|
2,044
|
|
The Company expects to recognize $538 of unrecognized loss amortization as a component of net periodic benefit cost in 2018. This amount is included in accumulated other comprehensive income as of September 29, 2017.
At September 29, 2017, the aggregate accumulated benefit obligation and aggregate fair value of plan assets for plans with benefit obligations in excess of plan assets was $28,472 and $20,802, respectively, and there were no plans with plan assets in excess of benefit obligations. At September 30, 2016, the aggregate accumulated benefit obligation and aggregate fair value of plan assets for plans with benefit obligations in excess of plan assets was $29,449 and $17,793, respectively, and there were no plans with plan assets in excess of benefit obligations.
The Company anticipates making contributions to the defined benefit pension plans of $1,151 through September 28, 2018.
Estimated benefit payments from the Company’s defined benefit plans to participants for each of the next five years and the five years thereafter are as follows:
2018
|
|
$
|
1,121
|
|
2019
|
|
|
1,152
|
|
2020
|
|
|
1,205
|
|
2021
|
|
|
1,217
|
|
2022
|
|
|
1,233
|
|
Five years thereafter
|
|
|
6,926
|
|
Actuarial assumptions used to determine the projected benefit obligation and net periodic pension cost as of the following fiscal years were as follows:
|
|
Projected Benefit Obligation
|
|
|
Net Periodic Pension Cost
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Discount rate
|
|
|
3.79
|
%
|
|
|
3.60
|
%
|
|
|
4.35
|
%
|
|
|
3.60
|
%
|
|
|
4.35
|
%
|
|
|
4.25
|
%
|
Long-term rate of return
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
6.50
|
%
|
|
|
7.50
|
%
|
|
|
7.50
|
%
|
Average salary increase rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The change in discount rates in 2017 resulted in an actuarial gain during 2017 of approximately $795. The change in discount rates in 2016 resulted in an actuarial loss during 2016 of approximately $3,152. The change in discount rates in 2015 resulted in an actuarial gain during 2015 of approximately $390. The remainder of the actuarial gains or losses for each of the three years was related to adjustments to mortality tables and other modifications to actuarial assumptions.
To determine the discount rate assumption used in the Company’s pension valuation, the Company identified a benefit payout stream based on the demographics of the pension plans and constructed a hypothetical bond portfolio using high-quality corporate bonds with cash flows that matched that benefit payout stream. A yield curve was calculated based on this hypothetical portfolio which was used for the discount rate determination.
The Company determines the long-term rate of return assumption for plan assets by using the historical asset returns for various investment asset classes and adjusting them to reflect future expectations. The expected asset class returns are weighted by the targeted asset allocations, resulting in a weighted average return which is rounded to the nearest quarter percent.
The Company uses measurement dates of October 1 to determine pension expenses for each year and the last day of the fiscal year to determine the fair value of the pension assets.
The Company’s pension plans’ weighted average asset allocations at September 29, 2017 and September 30, 2016, by asset category were as follows:
|
|
2017
|
|
|
2016
|
|
Equity securities
|
|
|
73
|
%
|
|
|
69
|
%
|
Fixed income securities
|
|
|
24
|
%
|
|
|
30
|
%
|
Other securities
|
|
|
3
|
%
|
|
|
1
|
%
|
|
|
|
100
|
%
|
|
|
100
|
%
|
The Company’s primary investment objective for the plans’ assets is to maximize the probability of meeting the plans’ actuarial target rate of return of 6.5%, with a secondary goal of returning 4% above the rate of inflation. These return objectives are targeted while simultaneously striving to minimize risk of loss to the plans’ assets. The investment horizon over which the investment objectives are expected to be met is a full market cycle or five years, whichever is greater.
The Company’s investment strategy for the plans is to invest in a diversified portfolio that will generate average long-term returns commensurate with the aforementioned objectives while minimizing risk.
The following table summarizes the Company’s pension plan assets measured at fair value as of September 29, 2017:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Description:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
20,207
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,207
|
|
Money market funds
|
|
|
515
|
|
|
|
—
|
|
|
|
—
|
|
|
|
515
|
|
Group annuity contract
|
|
|
—
|
|
|
|
—
|
|
|
|
80
|
|
|
|
80
|
|
Total
|
|
$
|
20,722
|
|
|
$
|
—
|
|
|
$
|
80
|
|
|
$
|
20,802
|
|
The following table summarizes the Company’s pension plan assets measured at fair value as of September 30, 2016:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Description:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
17,467
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,467
|
|
Money market funds
|
|
|
213
|
|
|
|
—
|
|
|
|
—
|
|
|
|
213
|
|
Group annuity contract
|
|
|
—
|
|
|
|
—
|
|
|
|
113
|
|
|
|
113
|
|
Total
|
|
$
|
17,680
|
|
|
$
|
—
|
|
|
$
|
113
|
|
|
$
|
17,793
|
|
The tables below set forth a summary of changes in fair value of the Company’s Level 3 pension plan assets for the years ended September 29, 2017 and September 30, 2016:
|
|
2017
|
|
|
2016
|
|
Level 3 assets, beginning of year
|
|
$
|
113
|
|
|
$
|
155
|
|
Purchases
|
|
|
2
|
|
|
|
2
|
|
Unrealized loss
|
|
|
1
|
|
|
|
(2
|
)
|
Sales
|
|
|
(36
|
)
|
|
|
(42
|
)
|
Level 3 assets, end of year
|
|
$
|
80
|
|
|
$
|
113
|
|
The fair values of the money market fund and mutual fund assets were derived from quoted market prices as substantially all of these instruments have active markets. The fair value of the group annuity contract was derived using a discounted cash flow model with inputs based on current yields of similar instruments with comparable durations. The asset allocation of the mutual funds is based on a moderate allocation style, generally investing approximately 70% to 75% in equity index funds and the remainder in fixed income index funds. The annuity contract consists of high quality bonds.
The Company also has a non-qualified deferred compensation plan that provides certain officers and employees the ability to defer a portion of their compensation until a later date. The deferred amounts and earnings thereon are payable to participants, or designated beneficiaries, at specified future dates upon retirement, death or termination of employment from the Company. The deferred compensation liability, which is reported at fair value equal to the related rabbi trust assets, and is classified as “Other liabilities” on our accompanying Consolidated Balance Sheets, was approximately $14,932 and $12,637 as of September 29, 2017 and September 30, 2016, respectively. See “Note 4 Fair Value” for additional information.
A majority of the Company’s full-time employees are covered by defined contribution programs. Expenses attributable to the defined contribution programs were approximately $1,189, $1,126 and $1,093 for 2017, 2016 and 2015, respectively.
The Company is authorized to issue 1,000,000 shares of preferred stock in various classes and series, of which there are none currently issued and none outstanding.
The number of authorized and outstanding shares of each class of the Company’s common stock at the end of the respective years was as follows:
|
|
2017
|
|
|
2016
|
|
Class A, $0.05 par value:
|
|
|
|
|
|
|
Authorized
|
|
|
20,000,000
|
|
|
|
20,000,000
|
|
Outstanding
|
|
|
8,784,513
|
|
|
|
8,778,028
|
|
Class B, $0.05 par value:
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
Outstanding
|
|
|
1,211,686
|
|
|
|
1,212,006
|
|
Holders of Class A common stock are entitled to elect 25%, or the next highest whole number, of the members of the Company’s Board of Directors and holders of Class B common stock are entitled to elect the remaining directors. With respect to matters other than the election of directors or any matters for which class voting is required by law, holders of Class A common stock are entitled to one vote per share while holders of Class B common stock are entitled to ten votes per share. If any dividends (other than dividends paid in shares of the Company’s stock) are paid by the Company on its common stock, a dividend would be paid on each share of Class A common stock equal to 110% of the amount paid on each share of Class B common stock. Each share of Class B common stock is convertible at any time into one share of Class A common stock. During 2017 and 2016 there were 320 and 376 shares of Class B common stock converted into Class A common stock, respectively.
10
|
STOCK-BASED COMPENSATION AND STOCK OWNERSHIP PLANS
|
The Company’s current stock ownership plans provide for issuance of 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 options.
Under the Company’s 2010 Long-Term Stock Incentive Plan and the 2012 Non-Employee Director Stock Ownership Plan there were 612,570 shares of the Company’s Class A common stock available for grant to key executives and non-employee directors at September 29, 2017. Shares issued pursuant to the exercise of stock options or grants of restricted stock are typically issued first out of treasury stock to the extent that treasury shares are available.
The Company recognized tax benefits from the exercise of stock options and the vesting of restricted stock of $404, $112 and $482 for 2017, 2016 and 2015, respectively. In 2017, this amount was recorded as a component of income tax expense. In 2016 and 2015, these amounts were recorded as increases in additional paid-in capital on the consolidated balance sheets and as cash from financing activities on the consolidated statements of cash flows. The Company recognizes
forfeitures
of equity awards as incurred
.
Stock Options
All stock options have been granted at a price not less than fair market value at the date of grant and are currently exercisable. Stock options generally have a term of 10 years.
All of the Company’s stock options outstanding are fully vested, with no further compensation expense to be recorded. There were no grants of stock options in 2017, 2016 or 2015. There were no stock options outstanding during 2017 or 2016.
The intrinsic values of the stock received upon exercise of such options at their date of exercise during 2017, 2016 and 2015 were $0, $0 and $221, respectively.
The Company received cash proceeds from stock option exercises totaling $0, $0 and $118 for the years ending September 29, 2017, September 30, 2016 and October 2, 2015, 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 within five years after the grant date. The fair value at date of grant is based on the number of shares granted and the average of the Company’s high and low Class A common stock price on the date of grant or, if the Company’s shares did not trade on the date of grant, the average of the Company’s high and low Class A common stock price on the last preceding date on which the Company’s shares traded.
A summary of non-vested stock activity for the two year period ended September 29, 2017 related to the Company’s stock ownership plans is as follows:
|
|
Shares
|
|
|
Weighted
Average
Grant Price
|
|
Non-vested stock at October 2, 2015
|
|
|
214,027
|
|
|
$
|
21.43
|
|
Non-vested stock grants
|
|
|
54,850
|
|
|
|
24.16
|
|
Non-vested stock forfeited
|
|
|
(7,885
|
)
|
|
|
18.52
|
|
Restricted stock vested
|
|
|
(98,520
|
)
|
|
|
19.18
|
|
Non-vested stock at September 30, 2016
|
|
|
162,472
|
|
|
|
24.49
|
|
Non-vested stock grants
|
|
|
8,846
|
|
|
|
43.12
|
|
Restricted stock vested
|
|
|
(76,250
|
)
|
|
|
20.54
|
|
Non-vested stock September 29, 2017
|
|
|
95,068
|
|
|
|
27.68
|
|
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 17,832 and 19,973 during 2017 and 2016, respectively. The fair value of restricted stock vested during 2017, 2016 and 2015 was approximately $3,219, $2,348 and $3,294, respectively.
Stock compensation expense, net of forfeitures, related to non-vested stock was $941, $1,252 and $1,287 during 2017, 2016 and 2015, respectively. The tax benefit recognized during 2017, 2016 and 2015 related to stock based compensation was $358, $476 and $598, respectively. Unrecognized compensation cost related to non-vested stock as of September 29, 2017 was $733, which amount will be amortized to expense through November 2021 or adjusted for changes in future estimated or actual forfeitures.
Restricted Stock Units
All restricted stock units awarded by the Company during fiscal 2017 and in prior years have been granted at their fair market value on the date of grant. 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 shares did not trade on the date of grant, the average of the Company’s high and low Class A common stock trading price on the last preceding date on which the Company’s shares traded. The vesting period for RSUs is generally one year from the date of grant for RSUs granted to directors and three years from the date of the grant for RSUs granted to employees.
A summary of RSU activity follows:
|
|
Number of
RSUs
|
|
|
Weighted
Average
Grant Price
|
|
RSUs at October 2, 2015
|
|
|
7,336
|
|
|
$
|
33.40
|
|
RSUs granted
|
|
|
48,456
|
|
|
|
23.64
|
|
RSUs forfeited
|
|
|
(2,045
|
)
|
|
|
24.16
|
|
RSUs vested
|
|
|
(7,336
|
)
|
|
|
33.40
|
|
RSUs at September 30, 2016
|
|
|
46,411
|
|
|
|
23.62
|
|
RSUs granted
|
|
|
28,301
|
|
|
|
40.64
|
|
RSUs vested
|
|
|
(14,070
|
)
|
|
|
22.39
|
|
RSUs at September 29, 2017
|
|
|
60,642
|
|
|
|
31.85
|
|
Stock compensation expense, net of forfeitures, related to restricted stock units was $1,011, $547 and $286 for the years ended September 29, 2017, September 30, 2016 and October 2, 2015, respectively. Unrecognized compensation cost related to non-vested restricted stock units as of September 29, 2017 was $791, which amount will be amortized to expense through September 2019 or adjusted for changes in future estimated or actual forfeitures.
Compensation expense related to units earned by employees is based upon the attainment of certain financial goals related to cumulative net sales and cumulative operating profit over a three-year performance period. Awards are only paid if at least 80% of the target levels are met and maximum payouts are made if 120% of more of target levels are achieved. The payouts for achievement of the threshold levels of performance are equal to 50% of the target award amount. The payouts for achievement of maximum levels of performance are equal to 150% of the target award amount. To the extent earned, awards are issued in shares of Company common stock after the end of the three year performance period.
Employee Stock Purchase Plan
The 2009 Employees’ Stock Purchase Plan (the “Purchase Plan”) 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.
The Company issued 1,414, 7,732 and 8,062 shares of Class A common stock under the Purchase Plan during the years 2017, 2016 and 2015, respectively, and recognized expense of $34, $33 and $33 in 2017, 2016 and 2015, respectively.
11
|
RELATED PARTY TRANSACTIONS
|
The Company conducts transactions with certain related parties including organizations controlled by the Johnson Family and other related parties. These transactions include consulting services, aviation services, office rental, and certain administrative activities. Total costs of these transactions were $1,144, $1,196 and $1,187 for 2017, 2016 and 2015, respectively. Amounts due to/from related parties were immaterial at September 29, 2017 and September 30, 2016.
The Company conducts its worldwide operations through separate business segments, each of which represent major product lines. Operations are conducted in the U.S. and various foreign countries, primarily in Europe, Canada and the Pacific Basin. As of September 25, 2017, two customers of the Company's Fishing, Camping and Watercraft Recreation segments combined into a single entity. The combined net sales to these two customers represented approximately $80,795 of the Company's consolidated revenues during fiscal 2017. The Company had no single customer that accounted for more than 10% of its total net sales in fiscal 2016 or 2015.
Net sales and operating profit include both sales to customers, as reported in the Company’s accompanying Consolidated Statements of Operations, and inter-unit transfers, which are priced to recover costs 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 years presented.
A summary of the Company’s operations by business segment is presented below:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
Fishing:
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
$
|
327,796
|
|
|
$
|
274,539
|
|
|
$
|
262,184
|
|
Interunit transfers
|
|
|
342
|
|
|
|
333
|
|
|
|
334
|
|
Camping:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
|
37,887
|
|
|
|
39,975
|
|
|
|
47,526
|
|
Interunit transfers
|
|
|
33
|
|
|
|
43
|
|
|
|
47
|
|
Watercraft Recreation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
|
48,126
|
|
|
|
50,240
|
|
|
|
48,805
|
|
Interunit transfers
|
|
|
146
|
|
|
|
148
|
|
|
|
156
|
|
Diving
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
|
76,080
|
|
|
|
68,330
|
|
|
|
71,414
|
|
Interunit transfers
|
|
|
652
|
|
|
|
807
|
|
|
|
711
|
|
Other / Corporate
|
|
|
676
|
|
|
|
643
|
|
|
|
560
|
|
Eliminations
|
|
|
(1,173
|
)
|
|
|
(1,331
|
)
|
|
|
(1,248
|
)
|
Total
|
|
$
|
490,565
|
|
|
$
|
433,727
|
|
|
$
|
430,489
|
|
Operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fishing
|
|
$
|
58,697
|
|
|
$
|
43,092
|
|
|
$
|
26,055
|
|
Camping
|
|
|
1,946
|
|
|
|
2,077
|
|
|
|
3,847
|
|
Watercraft Recreation
|
|
|
2,860
|
|
|
|
3,349
|
|
|
|
1,620
|
|
Diving
(1)
|
|
|
1,847
|
|
|
|
(9,384
|
)
|
|
|
934
|
|
Other / Corporate
|
|
|
(19,759
|
)
|
|
|
(16,240
|
)
|
|
|
(14,603
|
)
|
|
|
$
|
45,591
|
|
|
$
|
22,894
|
|
|
$
|
17,853
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fishing
|
|
$
|
8,437
|
|
|
$
|
7,597
|
|
|
$
|
7,749
|
|
Camping
|
|
|
888
|
|
|
|
1,121
|
|
|
|
1,128
|
|
Watercraft Recreation
|
|
|
950
|
|
|
|
819
|
|
|
|
972
|
|
Diving
|
|
|
1,573
|
|
|
|
1,210
|
|
|
|
826
|
|
Other / Corporate
|
|
|
1,232
|
|
|
|
1,086
|
|
|
|
1,027
|
|
|
|
$
|
13,080
|
|
|
$
|
11,833
|
|
|
$
|
11,702
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fishing
|
|
$
|
6,774
|
|
|
$
|
6,970
|
|
|
$
|
6,739
|
|
Camping
|
|
|
372
|
|
|
|
311
|
|
|
|
427
|
|
Watercraft Recreation
|
|
|
988
|
|
|
|
911
|
|
|
|
889
|
|
Diving
|
|
|
695
|
|
|
|
1,464
|
|
|
|
661
|
|
Other / Corporate
|
|
|
2,784
|
|
|
|
2,046
|
|
|
|
1,693
|
|
|
|
$
|
11,613
|
|
|
$
|
11,702
|
|
|
$
|
10,409
|
|
Goodwill, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fishing
|
|
$
|
11,238
|
|
|
$
|
11,196
|
|
|
|
|
|
Camping
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Watercraft Recreation
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Diving
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
$
|
11,238
|
|
|
$
|
11,196
|
|
|
|
|
|
Total assets (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fishing
|
|
$
|
128,706
|
|
|
$
|
118,357
|
|
|
|
|
|
Camping
|
|
|
32,652
|
|
|
|
28,249
|
|
|
|
|
|
Watercraft Recreation
|
|
|
20,222
|
|
|
|
19,693
|
|
|
|
|
|
Diving
|
|
|
58,190
|
|
|
|
77,195
|
|
|
|
|
|
Other / Corporate
|
|
|
113,889
|
|
|
|
66,785
|
|
|
|
|
|
|
|
$
|
353,659
|
|
|
$
|
310,279
|
|
|
|
|
|
(1)
|
Diving 2016 operating profit includes $6,197 of goodwill impairment charges.
|
A summary of the Company’s operations by geographic area is presented below:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
United States:
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
$
|
404,073
|
|
|
$
|
357,592
|
|
|
$
|
350,340
|
|
Interunit transfers
|
|
|
19,725
|
|
|
|
14,672
|
|
|
|
17,872
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
|
34,521
|
|
|
|
32,069
|
|
|
|
35,547
|
|
Interunit transfers
|
|
|
10,983
|
|
|
|
9,824
|
|
|
|
9,371
|
|
Canada:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
|
32,553
|
|
|
|
28,308
|
|
|
|
28,155
|
|
Interunit transfers
|
|
|
2
|
|
|
|
16
|
|
|
|
11
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
|
19,418
|
|
|
|
15,758
|
|
|
|
16,447
|
|
Interunit transfers
|
|
|
22
|
|
|
|
62
|
|
|
|
82
|
|
Eliminations
|
|
|
(30,732
|
)
|
|
|
(24,574
|
)
|
|
|
(27,336
|
)
|
|
|
$
|
490,565
|
|
|
$
|
433,727
|
|
|
$
|
430,489
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
276,916
|
|
|
$
|
219,625
|
|
|
|
|
|
Europe
|
|
|
42,956
|
|
|
|
52,642
|
|
|
|
|
|
Canada and other
|
|
|
33,787
|
|
|
|
38,012
|
|
|
|
|
|
|
|
$
|
353,659
|
|
|
$
|
310,279
|
|
|
|
|
|
Long-term assets
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
83,726
|
|
|
$
|
81,292
|
|
|
|
|
|
Europe
|
|
|
3,396
|
|
|
|
3,713
|
|
|
|
|
|
Canada and other
|
|
|
3,056
|
|
|
|
4,243
|
|
|
|
|
|
|
|
$
|
90,178
|
|
|
$
|
89,248
|
|
|
|
|
|
(1)
|
Long term assets consist of net property, plant and equipment, net intangible assets, goodwill and other assets excluding deferred income taxes.
|
The Company is subject to various legal actions and proceedings in the normal course of business, including those related to commercial disputes, product liability, intellectual property and environmental matters. The Company is insured against loss for certain of these matters. Although litigation is subject to many uncertainties and the ultimate exposure with respect to these matters cannot be ascertained, management does not believe the final outcome of any pending litigation will have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company.
On November 15, 2017, the Company entered into a new unsecured revolving credit facility with PNC Bank, National Association and Associated Bank, N.A. ("the Lending Group"). The new credit facility consists of a Revolving Credit Agreement dated November 15, 2017 among the Company, PNC Bank, National Association, as lender and as administrative agent, and the other lender named therein (the "New Revolving Credit Agreement" or "New Revolver"). The New Revolver has an expiration date of November 15, 2022, and provides for borrowing of up to an aggregate principal amount not to exceed $75,000 with a $50,000 accordion feature that gives the Company the option to increase the maximum financing availability subject to the conditions of the New Revolving Credit Agreement and subject to the approval of the lenders.
The interest rate on the New Revolver resets each quarter and is based on LIBOR plus an applicable margin. The applicable margin ranges from 1.00 percent to 1.75 percent and is dependent on the Company's leverage ratio for the trailing twelve month period.
The New Revolving Credit Agreement restricts the Company's ability to incur additional debt, includes maximum leverage ratio and minimum interest coverage ratio covenants and is unsecured.
15
|
VALUATION AND QUALIFYING ACCOUNTS
|
The following summarizes changes to valuation and qualifying accounts for 2017, 2016 and 2015:
|
|
Balance at
Beginning of Year
|
|
|
Additions
Charged
to Costs and
Expenses
|
|
|
Less Deductions
|
|
|
Balance at End of
Year
|
|
Year Ended September 29, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,182
|
|
|
$
|
876
|
|
|
$
|
827
|
|
|
$
|
2,231
|
|
Reserves for inventory valuation
|
|
|
5,623
|
|
|
|
1,356
|
|
|
|
1,551
|
|
|
|
5,428
|
|
Valuation of deferred tax assets
|
|
|
10,215
|
|
|
|
603
|
|
|
|
2,094
|
|
|
|
8,724
|
|
Reserves for sales returns
|
|
|
2,772
|
|
|
|
2,346
|
|
|
|
3,188
|
|
|
|
1,930
|
|
Year ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,329
|
|
|
$
|
299
|
|
|
$
|
446
|
|
|
$
|
2,182
|
|
Reserves for inventory valuation
|
|
|
4,879
|
|
|
|
3,650
|
|
|
|
2,906
|
|
|
|
5,623
|
|
Valuation of deferred tax assets
|
|
|
9,786
|
|
|
|
1,670
|
|
|
|
1,241
|
|
|
|
10,215
|
|
Reserves for sales returns
|
|
|
1,945
|
|
|
|
4,596
|
|
|
|
3,769
|
|
|
|
2,772
|
|
Year ended October 2, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,665
|
|
|
$
|
292
|
|
|
$
|
628
|
|
|
$
|
2,329
|
|
Reserves for inventory valuation
|
|
|
3,950
|
|
|
|
2,123
|
|
|
|
1,194
|
|
|
|
4,879
|
|
Valuation of deferred tax assets
|
|
|
8,734
|
|
|
|
2,602
|
|
|
|
1,550
|
|
|
|
9,786
|
|
Reserves for sales returns
|
|
|
1,428
|
|
|
|
3,139
|
|
|
|
2,622
|
|
|
|
1,945
|
|
16
|
QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
|
The following summarizes quarterly operating results for the years presented below:
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
(thousands, except per share data)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net sales
|
|
$
|
93,729
|
|
|
$
|
85,298
|
|
|
$
|
149,807
|
|
|
$
|
134,192
|
|
|
$
|
155,274
|
|
|
$
|
139,300
|
|
|
$
|
91,755
|
|
|
$
|
74,937
|
|
Gross profit
|
|
|
36,565
|
|
|
|
33,299
|
|
|
|
64,913
|
|
|
|
54,995
|
|
|
|
70,630
|
|
|
|
59,283
|
|
|
|
38,832
|
|
|
|
28,885
|
|
Operating profit (loss)
|
|
|
472
|
|
|
|
(900
|
)
|
|
|
20,458
|
|
|
|
15,138
|
|
|
|
24,737
|
|
|
|
13,583
|
|
|
|
(76
|
)
|
|
|
(4,927
|
)
|
Income (loss) before income taxes
|
|
|
(45
|
)
|
|
|
(519
|
)
|
|
|
21,837
|
|
|
|
14,669
|
|
|
|
25,560
|
|
|
|
13,865
|
|
|
|
858
|
|
|
|
(4,360
|
)
|
Income tax expense (benefit)
|
|
|
(4,101
|
)
|
|
|
15
|
|
|
|
7,878
|
|
|
|
5,348
|
|
|
|
9,007
|
|
|
|
7,024
|
|
|
|
269
|
|
|
|
(2,233
|
)
|
Net income (loss)
|
|
$
|
4,056
|
|
|
$
|
(534
|
)
|
|
$
|
13,959
|
|
|
$
|
9,321
|
|
|
$
|
16,553
|
|
|
$
|
6,841
|
|
|
$
|
589
|
|
|
$
|
(2,127
|
)
|
Net income (loss) per common share - Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
0.41
|
|
|
$
|
(0.05
|
)
|
|
$
|
1.41
|
|
|
$
|
0.94
|
|
|
$
|
1.68
|
|
|
$
|
0.69
|
|
|
$
|
0.06
|
|
|
$
|
(0.21
|
)
|
Class B
|
|
$
|
0.37
|
|
|
$
|
(0.05
|
)
|
|
$
|
1.28
|
|
|
$
|
0.86
|
|
|
$
|
1.52
|
|
|
$
|
0.63
|
|
|
$
|
0.05
|
|
|
$
|
(0.21
|
)
|
Net income (loss) per common share - Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
0.40
|
|
|
$
|
(0.05
|
)
|
|
$
|
1.39
|
|
|
$
|
0.93
|
|
|
$
|
1.65
|
|
|
$
|
0.68
|
|
|
$
|
0.06
|
|
|
$
|
(0.21
|
)
|
Class B
|
|
$
|
0.40
|
|
|
$
|
(0.05
|
)
|
|
$
|
1.39
|
|
|
$
|
0.93
|
|
|
$
|
1.65
|
|
|
$
|
0.68
|
|
|
$
|
0.06
|
|
|
$
|
(0.21
|
)
|
Due to changes in stock prices during the year and the timing of issuance of shares, the cumulative total of quarterly net income (loss) per share amounts may not equal the net income (loss) per share for the entire year.
During the year ended September 30, 2016, the Company completed two acquisitions for a total of approximately $9,200. No acquisitions were completed during fiscal 2017.
Acquisition of SeaBear
On October 27, 2015, the Company acquired all of the outstanding common stock of SeaBear GmbH (“SeaBear”) and related assets in a purchase transaction with SeaBear’s sole shareholder (the “Seller”). SeaBear, founded and based in Graz, Austria, specializes in the development of underwater instrumentation through unique application of existing, new and emerging technologies.
The Company believed that sales of SeaBear’s innovative diving technology could be expanded through the Company’s global marketing and distribution networks. The SeaBear acquisition is included in the Company’s Diving segment. Goodwill, of $2,219, which represents the excess of the purchase price over the net tangible and intangible assets acquired, is not deductible for tax purposes.
Acquisition of Northport
On April 4, 2016, the Company acquired substantially all of the assets of Northport Systems, Inc. (“Northport”) in a purchase transaction with Northport and its owners (collectively, the “Seller”). Northport, based in Toronto, Canada, specializes in the development and application of unique digital cartography technologies and web, e-commerce and data solutions for fishing and marine markets.
The acquisition cost for the Northport assets was funded with existing cash and credit facilities. Approximately $500 of the purchase price was paid into a segregated escrow account which was set aside to fund potential indemnity claims that may be made by the Company against the Seller in connection with the inaccuracy of certain representations and warranties made by the Seller or related to the breach or nonperformance of certain other actions, agreements or conditions related to the acquisition, for a period of 24 months from the acquisition date. The Company cannot estimate the probability or likelihood of bringing any such indemnity claims against the Seller or any related costs at this time. The remaining escrow balance, if any, net of any indemnity claim then pending, will be released to the Seller once the 24 month period has lapsed. Approximately $250 of the purchase price was paid in the form of contingent consideration which required the Seller to meet certain conditions prior to the release of such funds.
The Company believes that Northport will bring new cartography capabilities, which can broaden the Company’s innovation horizon and accelerate speed-to-market of new products in this segment. The Northport acquisition is included in the Company’s Fishing segment. Goodwill of $827, which represents the excess of the purchase price over the net tangible and intangible assets acquired, is deductible for tax purposes. The goodwill resulting from this acquisition reflects the strong cash flow expected from the acquisition due primarily to expected expanded distribution and growth of Humminbird marine electronics and cartography products.
Purchase Price Allocation
Pro forma results of operations for these acquisitions have not been presented because they are not material to the Company's combined and consolidated results of operations, either individually or in the aggregate. The following table presents the aggregate purchase price allocation for the Company's acquisitions described above:
Recognized amounts of identifiable assets acquired and liabilities assumed
|
|
Accounts receivable
|
|
$
|
66
|
|
Inventories
|
|
|
197
|
|
Other current assets
|
|
|
40
|
|
Property, plant and equipment
|
|
|
27
|
|
Identifiable intangible assets
|
|
|
6,706
|
|
Less, accounts payable and accruals
|
|
|
350
|
|
Less, long term liabilities
|
|
|
580
|
|
Total identifiable net assets
|
|
|
6,106
|
|
Goodwill
|
|
|
3,046
|
|
Net assets acquired
|
|
$
|
9,152
|
|
The values assigned in the acquisitions to finite lived intangible assets were as follows:
Description
|
|
Amount
|
|
Useful
Life (yrs)
|
|
Developed technologies
|
|
$
|
6,131
|
|
7.6 years
|
|
Non-compete agreements
|
|
|
575
|
|
5.0 years
|
|
Developed technologies were valued using the discounted cash flow method. Under this method, the after-tax direct cash flows expected to be generated by the technologies were discounted over their remaining useful lives, net of contributions of other assets to those cash flows. The discount rates used were commensurate with the inherent risks associated with each type of asset and the level and timing of cash flows appropriately reflect market participant assumptions. We valued base product technology that generates cash flows from sales of the existing products using the income approach, specifically the multi-period excess earnings method which calculates the value based on the risk-adjusted present value of the cash flows specific to the products, allowing for a reasonable return.
Non-compete agreements were valued using the comparative income differential method based on the estimated negative impact that could occur in the absence of the restrictions enforced by the agreements.
The weighted average useful life at the dates of acquisition of total amortizable intangible assets acquired was approximately 7.5 years.
Transaction costs incurred for the acquisitions was $753 for the twelve months ended September 30, 2016. Such transaction costs are included in "Administrative management, finance and information system" in the accompanying Consolidated Statement of Operations.
During the quarter ended July 1, 2016, the Company re-evaluated its projections for its Diving reporting unit as a result of deteriorating business conditions. As a result, the Company performed an impairment test on the goodwill of the Diving reporting unit, including the goodwill acquired in the SeaBear acquisition, and determined an impairment charge was required. See “Note 1 – Goodwill” for additional information.