The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The condensed consolidated financial statements included herein are unaudited. In the opinion of management, these statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Johnson Outdoors Inc. and subsidiaries (collectively, the “Company”) as of June 29, 2018 and June 30, 2017, and their results of operations for the three and nine month periods then ended and cash flows for the nine month periods then ended. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2017 which was filed with the Securities and Exchange Commission on December 8, 2017.
Due to seasonal variations and other factors, the results of operations for the three and nine months ended June 29, 2018 are not necessarily indicative of the results to be expected for the Company’s full 2018 fiscal year. See “Seasonality” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein for additional information.
The Company considers all short-term investments in interest-bearing 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. Short-term investments consist of certificates of deposit with original maturities greater than three months but less than one year.
All monetary amounts, other than share and per share amounts, are stated in thousands.
Accounts receivable are stated net of allowances for doubtful accounts of $1,446, $2,231 and $1,931 as of June 29, 2018, September 29, 2017 and June 30, 2017, respectively. The increase in net accounts receivable to $80,877 as of June 29, 2018 from $46,814 as of September 29, 2017 is attributable to the seasonal nature of the Company’s business and the resulting increases in sales volumes between periods. The determination of the allowance for doubtful accounts is based on a combination of factors. In circumstances where specific collection concerns about a receivable exist, a reserve is established to value the affected account receivable at an amount the Company believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on historical experience of bad debts as a percent of accounts receivable outstanding for each business segment. Uncollectible accounts are written off against the allowance for doubtful accounts after collection efforts have been exhausted. The Company typically does not require collateral on its accounts receivable.
3
|
EARNINGS PER SHARE (“EPS”)
|
Net income or loss per share of Class A common stock and Class B common stock is computed using the two-class method. Grants of restricted stock which receive non-forfeitable dividends are classified as participating securities and are required to be included as part of the basic weighted average share calculation under the two-class method.
Holders of Class A common stock are entitled to cash dividends equal to 110% of all dividends declared and paid on each share of Class B common stock. The Company grants shares of unvested restricted stock in the form of Class A shares, which carry the same distribution rights as the Class A common stock described above. As such, the undistributed earnings for each period are allocated to each class of common stock based on the proportionate share of the amount of cash dividends that each such class is entitled to receive.
Basic EPS
Basic net income or loss per share is computed by dividing net income or loss allocated to Class A common stock and Class B common stock by the weighted-average number of shares of Class A common stock and Class B common stock outstanding, respectively. In periods with cumulative year to date net income and undistributed income, the undistributed income for each period is allocated to each class of common stock based on the proportionate share of the amount of cash dividends that each such class is entitled to receive. In periods where there is a cumulative year to date net loss or no undistributed income because distributions through dividends exceed net income, Class B shares are treated as anti-dilutive and, therefore, net losses are allocated equally on a per share basis among all participating securities.
For the three and nine month periods ended June 29, 2018 and June 30, 2017, basic income per share for the Class A and Class B shares has been presented using the two class method and reflects the allocation of undistributed income described above.
Diluted EPS
Diluted net income per share is computed by dividing allocated net income by the weighted-average number of common shares outstanding, adjusted for the effect of dilutive stock options, restricted stock units (“stock units” or “units”) and non-vested restricted stock. Anti-dilutive stock options, units and non-vested stock are excluded from the calculation of diluted EPS. The computation of diluted net income per share of Class A common stock assumes that Class B common stock is converted into Class A common stock. Therefore, diluted net income per share is the same for both Class A and Class B common shares. In periods where the Company reports a net loss, the effect of anti-dilutive stock options and units is excluded and diluted loss per share is equal to basic loss per share for both classes of stock.
For the three and nine month periods ended June 29, 2018 and June 30, 2017, diluted net income per share reflects the effect of dilutive stock units and assumes the conversion of Class B common stock into Class A common stock.
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 46,776 and 95,068 for the three months ended June 29, 2018 and June 30, 2017, respectively, and 57,624 and 111,061 for the nine months ended June 29, 2018 and June 30, 2017, respectively. Stock units that could potentially dilute earnings per share in the future which were not included in the fully diluted computation because they would have been anti-dilutive were 38,392 and 32,357 for the three month periods ended June 29, 2018 and June 30, 2017, respectively, and 39,605 and 34,746 for the nine month periods ended June 29, 2018 and June 30, 2017, respectively.
4
|
STOCK-BASED COMPENSATION AND STOCK OWNERSHIP PLANS
|
The Company’s current stock ownership plans allow for issuance of stock options to acquire shares of Class A common stock by key executives and non-employee directors. Current plans also allow for issuance of shares of restricted stock, restricted stock units or stock appreciation rights in lieu of stock options.
Under the Company’s 2010 Long-Term Stock Incentive Plan and the 2012 Non-Employee Director Stock Ownership Plan (the only two plans where shares remain available for future equity incentive awards) there were a total of 578,880 shares of the Company’s Class A common stock available for future grant to key executives and non-employee directors at June 29, 2018.
Non-vested Stock
All shares of non-vested stock awarded by the Company have been granted in the form of shares of Class A common stock at their fair market value on the date of grant and vest four years after the grant date. The fair value at date of grant is based on the number of shares granted and the average of the Company’s high and low Class A common stock price on the date of grant or, if the Company’s Class A shares did not trade on the date of grant, the average of the Company’s high and low Class A common stock price on the last preceding date on which the Company’s Class A shares traded.
A summary of non-vested stock activity for the nine months ended June 29, 2018 related to the Company’s stock ownership plans is as follows:
|
|
Shares
|
|
|
Weighted Average
Grant Price
|
|
Non-vested stock at September 29, 2017
|
|
|
95,068
|
|
|
$
|
27.68
|
|
Non-vested stock grants
|
|
|
6,532
|
|
|
|
70.39
|
|
Restricted stock vested
|
|
|
(54,824
|
)
|
|
|
25.36
|
|
Non-vested stock at June 29, 2018
|
|
|
46,776
|
|
|
|
36.37
|
|
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 9,377 and 17,832 during the nine month periods ended June 29, 2018 and June 30, 2017, respectively.
Stock compensation expense, net of forfeitures, related to non-vested stock was $106 and $219 for the three month periods ended June 29, 2018 and June 30, 2017, respectively, and $394 and $722 for the nine month periods ended June 29, 2018 and June 30, 2017, respectively. Unrecognized compensation cost related to non-vested stock as of June 29, 2018 was $798, which amount will be amortized to expense through November 2021 or adjusted for changes in future estimated or actual forfeitures.
The fair value of restricted stock vested during the nine month periods ended June 29, 2018 and June 30, 2017 was $3,948 and $3,219, respectively.
Restricted Stock Units
All restricted stock units (RSUs) awarded by the Company have been granted in the form of units payable in shares of Class A common stock upon vesting. The units are valued at the fair market value of a share of Class A common stock on the date of grant and vest within one year from the date of grant for RSUs granted to directors and three years from the date of grant for RSUs granted to employees. The fair value at the date of grant is based on the number of units granted and the average of the Company’s high and low Class A common stock trading price on the date of grant or, if the Company’s Class A shares did not trade on the date of grant, the average of the Company’s high and low Class A common stock trading price on the last preceding date on which the Company’s Class A shares traded.
A summary of RSU activity for the nine months ended June 29, 2018 follows:
|
|
Number of RSUs
|
|
|
Weighted Average
Grant Price
|
|
RSUs at September 29, 2017
|
|
|
60,642
|
|
|
$
|
31.85
|
|
RSUs granted
|
|
|
27,868
|
|
|
|
67.82
|
|
RSUs vested
|
|
|
(8,931
|
)
|
|
|
35.27
|
|
RSUs at June 29, 2018
|
|
|
79,579
|
|
|
|
44.06
|
|
Stock compensation expense, net of forfeitures, related to RSUs was $450 and $213 for the three months ended June 29, 2018 and June 30, 2017, respectively, and $1,149 and $640 for the nine months ended June 29, 2018 and June 30, 2017, respectively. Unrecognized compensation cost related to non-vested RSUs as of June 29, 2018 was $1,532, which amount will be amortized to expense through September 2020 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% or more of target levels are achieved. The payouts for achievement at the threshold levels of performance are equal to 50% of the target award amount. The payouts for achievement at 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.
Employees’ Stock Purchase Plan
The Company’s shareholders have adopted the Johnson Outdoors Inc. 2009 Employees’ Stock Purchase Plan, which was most recently amended on March 2, 2017, and which provides for the issuance of shares of Class A common stock at a purchase price of not less than 85% of the fair market value of such shares on the date of grant or on the date of purchase, whichever is lower.
During the three month period ended June 29, 2018, the Company issued no shares of Class A common stock and recognized $20 of expense in connection with the Employees’ Stock Purchase Plan. During the nine months ended June 29, 2018, the Company issued 1,740 shares of Class A common stock and recognized $41 of expense in connection with the Plan. During the three and nine month periods ended June 30, 2017, the Company issued no shares of Class A common stock and recognized $10 and $15 of expense, respectively, in connection with the Plan.
The Company has non-contributory defined benefit pension plans covering certain of its U.S. employees. Retirement benefits are generally provided based on the employees’ years of service and average earnings. Normal retirement age is 65, with provisions for earlier retirement.
The Company elected to adopt ASU 2017-07 at the beginning of the first quarter of fiscal 2018. The adoption of this standard resulted in a reduction of operating expense of $347 and an increase in other expense of $347 for the three months ended June 29, 2018 and a reduction of operating expense of $637 and an increase in other expense of $637 for the nine months ended June 29, 2018. There was no effect on the Company’s condensed consolidated balance sheet or statement of cash flows as a result of adopting this standard.
The Company made contributions to its pension plans of $47 and $1,043 for the three months ended June 29, 2018 and June 30, 2017, respectively, and contributions of $5,140 and $1,308 for the nine month periods ended June 29, 2018 and June 30, 2017, respectively.
The components of net periodic benefit cost related to Company sponsored defined benefit plans for the three and nine month periods ended June 29, 2018 and June 30, 2017 were as follows:
JOHNSON OUTDOORS INC.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 29, 2018
|
|
|
June 30, 2017
|
|
|
June 29, 2018
|
|
|
June 30, 2017
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest on projected benefit obligation
|
|
|
272
|
|
|
|
215
|
|
|
|
794
|
|
|
|
783
|
|
Less estimated return on plan assets
|
|
|
(25
|
)
|
|
|
347
|
|
|
|
572
|
|
|
|
895
|
|
Amortization of unrecognized losses
|
|
|
50
|
|
|
|
265
|
|
|
|
415
|
|
|
|
548
|
|
Net periodic benefit cost
|
|
$
|
347
|
|
|
$
|
133
|
|
|
$
|
637
|
|
|
$
|
436
|
|
On December 22, 2017, the U.S. enacted comprehensive tax legislation generally referred to as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act included significant changes to existing tax law including a permanent reduction to the U.S. federal corporate income tax rate from 35% to 21%, a one-time repatriation tax on deferred foreign income (“Transition Tax”), deductions, credits and business-related exclusions.
Shortly after the Tax Act was enacted, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which provides a one-year measurement period during which a company may complete its accounting for certain tax effects of the Tax Act impact as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. Future adjustments to the provisional numbers are to be recorded as discrete adjustments to income tax expense in the period in which those adjustments become estimable and/or are finalized.
Accordingly, the additional provisional income tax of $6,763 as of June 29, 2018 reflects (i) the current year impacts of the Tax Act on the Company’s estimated annual effective tax rate and (ii) the following discrete items resulting directly from the enactment of the Tax Act based on the information currently available, prepared, or analyzed (including computations) in reasonable detail.
|
(i)
|
The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%. The impact from the permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% is effective January 1, 2018. When a U.S. federal tax rate change occurs during a fiscal year, taxpayers are required to compute a weighted daily average rate for the fiscal year of enactment and as a result the Company calculated a U.S. federal statutory income tax rate of 24.5% for the current fiscal year end September 28, 2018.
|
|
(ii)
|
The tax expense impact associated with the enactment of the U.S. Tax Act resulted in additional discrete tax expense in the current period as follows:
|
(thousands)
|
|
Nine Months Ended
June 29, 2018
|
|
Transition tax (provisional)
|
|
$
|
3,200
|
|
Net impact on U.S. deferred tax assets and liabilities (provisional)
|
|
|
3,563
|
|
Net impacts of the enactment of the Tax Act
|
|
$
|
6,763
|
|
Within the calculation of the Company’s annual effective tax rate, the Company has used assumptions and estimates that may change as a result of future guidance, interpretation, and rule-making from the Internal Revenue Service, the SEC, and the FASB and/or various other taxing jurisdictions. For example, the Company anticipates that the state jurisdictions will continue to determine and announce their conformity to the Tax Act which could have an impact on the Company’s annual effective tax rate.
JOHNSON OUTDOORS INC.
For the three and nine months ended June 29, 2018 and June 30, 2017, the Company’s earnings before income taxes, income tax expense and effective income tax rate were as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(thousands, except tax rate data)
|
|
June 29, 2018
|
|
|
June 30, 2017
|
|
|
June 29, 2018
|
|
|
June 30, 2017
|
|
Profit (loss) before income taxes
|
|
$
|
31,779
|
|
|
$
|
25,560
|
|
|
$
|
69,548
|
|
|
$
|
47,352
|
|
Income tax expense
|
|
|
8,009
|
|
|
|
9,007
|
|
|
|
23,923
|
|
|
|
12,784
|
|
Effective income tax rate
|
|
|
25.2
|
%
|
|
|
35.2
|
%
|
|
|
34.4
|
%
|
|
|
27.0
|
%
|
The change in the Company’s effective tax rate for the three months ended June 29, 2018 versus the prior year period was primarily due to the impact of the reduced federal statutory income tax rate on current year earnings from the enactment of the Tax Act. During the current year quarter, the Company recorded no change to tax expense related to the estimated provisional amount previously recorded.
The change in the Company’s effective tax rate for the nine months ended June 29, 2018 versus the prior year period was primarily due to the impact of the $6,763 provisional tax expense generated by the enactment of the Tax Act in the current year period compared to a prior year foreign tax credit net tax benefit of approximately $4,200 generated by the repatriation of approximately $22,000 from foreign jurisdictions to the U.S.
Adverse changes in profitability and financial outlook in both the U.S. and/or foreign jurisdictions or changes in the Company’s geographic footprint may require changes in valuation allowances in order to reduce the Company’s deferred tax assets. Such changes may drive fluctuations in the effective tax rate. The impact of the Company’s operations in jurisdictions where a valuation allowance is assessed, primarily in the foreign locations, is removed from the overall effective tax rate methodology and recorded directly based on year to date results for the year for which no tax expense or benefit can be recognized. The tax jurisdictions that have a valuation allowance for the periods ended June 29, 2018 and June 30, 2017 were:
June 29, 2018
|
June 30, 2017
|
Australia
|
Australia
|
Austria
|
Austria
|
France
|
France
|
Indonesia
|
Indonesia
|
|
Italy
|
|
Japan
|
Netherlands
|
Netherlands
|
New Zealand
|
New Zealand
|
Spain
|
Spain
|
|
Switzerland
|
The Company regularly assesses the adequacy of its provisions for income tax contingencies in accordance with the applicable authoritative guidance on accounting for income taxes. As a result, the Company may adjust the reserves for unrecognized tax benefits due to the impact of changes in its assumptions or as a result of new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities and lapses of statutes of limitation. The Company’s 2018 fiscal year tax expense is anticipated to include approximately $500 related to uncertain income tax positions.
In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized benefits as a component of income tax expense. The Company is projecting accrued interest of $300 related to uncertain income tax positions for the fiscal year ending September 28, 2018.
The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions. The Company is currently undergoing income tax examinations in Italy. As of the date of this report, the following tax years remain open to examination by the respective tax jurisdictions:
Jurisdiction
|
Fiscal Years
|
United States
|
2015-2017
|
Canada
|
2013-2017
|
France
|
2014-2017
|
Germany
|
2013-2017
|
Italy
|
2012-2017
|
Switzerland
|
2007-2017
|
Inventories at the end of the respective periods consisted of the following:
|
|
June 29,
2018
|
|
|
September 29,
2017
|
|
|
June 30,
2017
|
|
Raw materials
|
|
$
|
32,141
|
|
|
$
|
32,826
|
|
|
$
|
26,250
|
|
Work in process
|
|
|
77
|
|
|
|
48
|
|
|
|
168
|
|
Finished goods
|
|
|
45,081
|
|
|
|
46,274
|
|
|
|
41,821
|
|
|
|
$
|
77,299
|
|
|
$
|
79,148
|
|
|
$
|
68,239
|
|
The changes in goodwill during the nine months ended June 29, 2018 and June 30, 2017 were as follows:
|
|
June 29, 2018
|
|
|
June 30, 2017
|
|
Balance at beginning of period
|
|
$
|
11,238
|
|
|
$
|
11,196
|
|
Amount attributable to movements in foreign currency rates
|
|
|
(54
|
)
|
|
|
5
|
|
Balance at end of period
|
|
$
|
11,184
|
|
|
$
|
11,201
|
|
The Company evaluates the carrying value of goodwill on an annual basis or more frequently when events and circumstances warrant such an evaluation. In conducting this 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 13) below.
The Company provides warranties on certain of its products as they are sold. The following table summarizes the Company’s warranty activity for the nine months ended June 29, 2018 and June 30, 2017.
JOHNSON OUTDOORS INC.
|
|
June 29, 2018
|
|
|
June 30, 2017
|
|
Balance at beginning of period
|
|
$
|
6,393
|
|
|
$
|
4,326
|
|
Expense accruals for warranties issued during the period
|
|
|
7,485
|
|
|
|
5,386
|
|
Less current period warranty claims paid
|
|
|
4,981
|
|
|
|
3,461
|
|
Balance at end of period
|
|
$
|
8,897
|
|
|
$
|
6,251
|
|
The Company is subject to various legal actions and proceedings in the normal course of business, including those related to commercial disputes, product liability, intellectual property and regulatory matters. The Company is insured against loss for certain of these matters. Although litigation is subject to many uncertainties and the ultimate exposure with respect to these matters cannot be ascertained, management does not believe the final outcome of any pending litigation will have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company.
The Company had no debt at June 29, 2018, September 29, 2017, or June 30, 2017.
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 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 5.50% at the date of repayment.
Revolvers
During the nine months ended June 29, 2018, the Company and certain of its subsidiaries entered into a new unsecured credit facility with PNC Bank National Association and Associated Bank, N.A. (“the Lending Group”). This credit facility replaced the Company’s previous revolving credit agreement dated September 16, 2013 and consists of an Amended and Restated Credit Agreement dated November 15, 2017 among the Company, certain of the Company’s subsidiaries, 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 (i.e., an aggregate borrowing amount of $125,000) 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 is based on LIBOR plus an applicable margin, which margin resets each quarter. The applicable margin ranges from 1.00% to 1.75% and is dependent on the Company’s leverage ratio for the trailing twelve month period. The interest rate in effect on the Company’s revolving credit agreement at June 29, 2018 and June 30, 2017 was approximately 3.1% and 2.5%, respectively.
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.
Other Borrowings
The Company had no unsecured revolving credit facilities at its foreign subsidiaries as of June 29, 2018 or June 30, 2017. The Company utilizes letters of credit primarily as security for the payment of future claims under its workers’ compensation insurance, which totaled approximately $279 and $279 at June 29, 2018 and June 30, 2017, respectively.
JOHNSON OUTDOORS INC.
12
|
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
|
The following disclosures describe the Company’s objectives in using derivative instruments, the business purpose or context for using derivative instruments, and how the Company believes the use of derivative instruments helps achieve the stated objectives. In addition, the following disclosures describe the effects of the Company’s use of derivative instruments and hedging activities on its financial statements.
Foreign Exchange Risk
The Company has significant foreign operations, for which the functional currencies are denominated primarily in euros, Swiss francs, 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 15% of the Company’s revenues for the nine month period ended June 29, 2018 were denominated in currencies other than the U.S. dollar. Approximately 6% were denominated in euros, approximately 6% were denominated in Canadian dollars and approximately 2% were denominated in Hong Kong dollars, with the remaining revenues denominated in various other foreign currencies. Changes in foreign currency exchange rates can cause the Company to experience unexpected financial losses or cash flow needs.
During the nine months ended June 29, 2018, the Company recognized a currency translation gain of $2,290 related to the liquidation of a foreign subsidiary. This gain is reported as a component of “Other (income) expense, net” in the accompanying Condensed Consolidated Statements of Operations.
The Company may mitigate a portion of the fluctuations in certain foreign currencies through the use of foreign currency forward contracts. Foreign currency forward contracts enable the Company to lock in the foreign currency exchange rate to be paid or received for a fixed amount of currency at a specified date in the future. The Company may use such foreign currency forward contracts to mitigate the risk associated with changes in foreign currency exchange rates on financial instruments and known commitments, including commitments for inventory purchases, denominated in foreign currencies. As of June 29, 2018 and June 30, 2017, the Company held no foreign currency forward contracts.
13
|
FAIR VALUE MEASUREMENTS
|
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy has been established based on three levels of inputs, of which the first two are considered observable and the last unobservable.
|
•
|
Level 1 - Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets or liabilities.
|
|
•
|
Level 2 - Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments.
|
|
•
|
Level 3 - Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.
|
The carrying amounts of cash, cash equivalents, short term investments, accounts receivable, and accounts payable approximated their fair values at June 29, 2018, September 29, 2017 and June 30, 2017 due to the short term maturities of these instruments. When indicators of impairment are present, the Company may be required to value certain long-lived assets such as property, plant, and equipment, and other intangibles at their fair value.
Valuation Techniques
Rabbi Trust Assets
Rabbi trust assets are classified as trading securities and are comprised of marketable debt and equity securities that are marked to fair value based on unadjusted quoted prices in active markets. The rabbi trust assets are used to fund amounts the Company owes to certain officers and other employees under the Company’s non-qualified deferred compensation plan. The mark to market adjustments are recorded in “Other (income) expense, net” in the accompanying Condensed 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 Condensed Consolidated Balance Sheets. Changes in the liability are recorded in “Administrative management, finance and information systems” expense in the accompanying Condensed Consolidated Statements of Operations.
Goodwill and Other Intangible Assets
In assessing the recoverability of the Company’s goodwill and other indefinite lived intangible assets, the Company estimates the future discounted cash flows of the businesses to which such goodwill and intangibles relate. When estimated future discounted cash flows are less than the carrying value of the net assets and related goodwill, an impairment test is performed to measure and recognize the amount of the impairment loss, if any. In determining estimated future cash flows, the Company makes assumptions regarding anticipated financial position, future earnings, and other factors to determine the fair value of the respective assets. This calculation is highly sensitive to changes in key assumptions and could result in a future impairment charge. The Company will continue to evaluate whether circumstances and events have changed to the extent that they require the Company to conduct an interim test of goodwill. In particular, if the Company’s business units do not achieve short term revenue and gross margin goals, an interim impairment test may be triggered which could result in a goodwill and indefinite lived intangible asset impairment charge in future periods.
The following table summarizes the Company’s financial assets measured at fair value as of June 29, 2018:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rabbi trust assets
|
|
$
|
16,659
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,659
|
|
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 June 30, 2017:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rabbi trust assets
|
|
$
|
14,071
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,071
|
|
The effect of changes in the fair value of financial instruments on the accompanying Condensed Consolidated Statements of Operations for the three month periods ended June 29, 2018 and June 30, 2017 was:
JOHNSON OUTDOORS INC.
|
|
|
Three Months Ended
|
|
|
Location of (income) loss
recognized in Statement of
Operations
|
|
June 29, 2018
|
|
|
June 30, 2017
|
|
Rabbi trust assets
|
Other (income) expense, net
|
|
$
|
(283
|
)
|
|
$
|
(499
|
)
|
The effect of changes in the fair value of financial instruments on the accompanying Condensed Consolidated Statements of Operations for the nine month periods ended June 29, 2018 and June 30, 2017 was:
|
|
|
Nine Months Ended
|
|
|
Location of (income) loss
recognized in Statement of
Operations
|
|
June 29, 2018
|
|
|
June 30, 2017
|
|
Rabbi trust assets
|
Other (income) expense, net
|
|
$
|
(854
|
)
|
|
$
|
(1,050
|
)
|
There were no assets or liabilities measured at fair value on a non-recurring basis in periods subsequent to their initial recognition for either of the three or nine month periods ended June 29, 2018 or June 30, 2017.
14
|
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 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 retained earnings at the date of initial application).
The Company has developed a project plan including a review of all revenue streams in each business segment. We continue to assess the potential impact of adopting this guidance and are finalizing our implementation plan. We are in process of identifying and designing appropriate changes to our processes, systems and controls to support the recognition and disclosure requirements under the new guidance. Preliminarily, we have not identified any significant impacts to our consolidated financial statements based on our assessment to date. The Company expects to adopt this standard by applying the modified retrospective approach. Our continued evaluation of the expected impact of the new guidance or the issuance of additional interpretations, if any, could result in an impact that is different from our preliminary conclusions.
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 evaluating the effect of this standard on its consolidated financial statements.
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 Company adopted this standard at the beginning of the first quarter of fiscal 2018. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.
JOHNSON OUTDOORS INC.
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 elected to adopt this accounting standard at the beginning of the first quarter of fiscal 2018. See Note 5 “Pension Plans” of these Notes to Condensed Consolidated Financial Statements for information regarding the effect of this new accounting standard.
In February 2018, the FASB issued ASU No. 2018-02,
Income Statement - Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220)
, which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. ASU No. 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The ASU allows for early adoption in any interim period after issuance of the update. The Company is currently assessing the impact this ASU will have on its consolidated financial statements.
The Company conducts its worldwide operations through separate business segments, each of which represents major product lines. Operations are conducted in the United States and various foreign countries, primarily in Europe, Canada and the Pacific Basin. During the three and nine month periods ended June 29, 2018, combined net sales to one customer of the Company’s Fishing, Camping and Watercraft Recreation segments represented approximately $26,755 and $76,035, respectively, of the Company’s consolidated revenues. There was no single customer that represented more than 10% of the Company’s total net sales during either of the three or nine month periods ended June 30, 2017.
Net sales and operating profit include both sales to customers, as reported in the Company’s accompanying Condensed Consolidated Statements of Operations, and interunit transfers, which are priced to recover cost plus an appropriate profit margin. Total assets represent assets that are used in the Company’s operations in each business segment at the end of the periods presented.
JOHNSON OUTDOORS INC.
A summary of the Company’s operations by business segment is presented below:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
June 29,
2018
|
|
|
June 30,
2017
|
|
|
June 29,
2018
|
|
|
June 30,
2017
|
|
|
September 29,
2017
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fishing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
$
|
121,765
|
|
|
$
|
103,808
|
|
|
$
|
335,965
|
|
|
$
|
276,187
|
|
|
|
|
Interunit transfers
|
|
|
155
|
|
|
|
166
|
|
|
|
368
|
|
|
|
282
|
|
|
|
|
Camping:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
|
13,898
|
|
|
|
12,115
|
|
|
|
29,810
|
|
|
|
29,213
|
|
|
|
|
Interunit transfers
|
|
|
17
|
|
|
|
14
|
|
|
|
33
|
|
|
|
26
|
|
|
|
|
Watercraft Recreation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
|
14,000
|
|
|
|
17,199
|
|
|
|
29,138
|
|
|
|
38,477
|
|
|
|
|
Interunit transfers
|
|
|
115
|
|
|
|
91
|
|
|
|
142
|
|
|
|
117
|
|
|
|
|
Diving
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
|
20,766
|
|
|
|
21,814
|
|
|
|
57,565
|
|
|
|
54,411
|
|
|
|
|
Interunit transfers
|
|
|
8
|
|
|
|
170
|
|
|
|
17
|
|
|
|
492
|
|
|
|
|
Other / Corporate
|
|
|
350
|
|
|
|
338
|
|
|
|
658
|
|
|
|
522
|
|
|
|
|
Eliminations
|
|
|
(295
|
)
|
|
|
(441
|
)
|
|
|
(560
|
)
|
|
|
(917
|
)
|
|
|
|
Total
|
|
$
|
170,779
|
|
|
$
|
155,274
|
|
|
$
|
453,136
|
|
|
$
|
398,810
|
|
|
|
|
Operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fishing
|
|
$
|
33,044
|
|
|
$
|
24,293
|
|
|
$
|
77,871
|
|
|
$
|
54,324
|
|
|
|
|
Camping
|
|
|
2,154
|
|
|
|
1,452
|
|
|
|
1,732
|
|
|
|
1,691
|
|
|
|
|
Watercraft Recreation
|
|
|
661
|
|
|
|
2,417
|
|
|
|
(653
|
)
|
|
|
2,466
|
|
|
|
|
Diving
|
|
|
1,503
|
|
|
|
1,218
|
|
|
|
1,132
|
|
|
|
468
|
|
|
|
|
Other / Corporate
|
|
|
(5,407
|
)
|
|
|
(4,643
|
)
|
|
|
(15,088
|
)
|
|
|
(13,282
|
)
|
|
|
|
|
|
$
|
31,955
|
|
|
$
|
24,737
|
|
|
$
|
64,994
|
|
|
$
|
45,667
|
|
|
|
|
Total assets (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fishing
|
|
|
|
|
|
|
|
|
|
$
|
147,479
|
|
|
$
|
137,259
|
|
|
$
|
128,706
|
|
Camping
|
|
|
|
|
|
|
|
|
|
|
34,368
|
|
|
|
29,777
|
|
|
|
32,652
|
|
Watercraft Recreation
|
|
|
|
|
|
|
|
|
|
|
23,259
|
|
|
|
26,551
|
|
|
|
20,222
|
|
Diving
|
|
|
|
|
|
|
|
|
|
|
58,763
|
|
|
|
55,410
|
|
|
|
58,190
|
|
Other / Corporate
|
|
|
|
|
|
|
|
|
|
|
133,682
|
|
|
|
105,960
|
|
|
|
113,889
|
|
|
|
|
|
|
|
|
|
|
|
$
|
397,551
|
|
|
$
|
354,957
|
|
|
$
|
353,659
|
|
1
16
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
The changes in Accumulated Other Comprehensive Income (“AOCI”) by component, net of tax, for the three months ended June 29, 2018 were as follows:
JOHNSON OUTDOORS INC.
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Unamortized
Loss on Defined
Benefit Pension
Plans
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance at March 30, 2018
|
|
$
|
9,057
|
|
|
$
|
(5,909
|
)
|
|
$
|
3,148
|
|
Other comprehensive loss before reclassifications
|
|
|
(2,442
|
)
|
|
|
—
|
|
|
|
(2,442
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
61
|
|
|
|
50
|
|
|
|
111
|
|
Tax effects
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
Balance at June 29, 2018
|
|
$
|
6,676
|
|
|
$
|
(5,871
|
)
|
|
$
|
805
|
|
The changes in AOCI by component, net of tax, for the three months ended June 30, 2017 were as follows:
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Unamortized
Loss on Defined
Benefit Pension
Plans
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance at March 31, 2017
|
|
$
|
7,652
|
|
|
$
|
(7,996
|
)
|
|
$
|
(344
|
)
|
Other comprehensive loss before reclassifications
|
|
|
2,350
|
|
|
|
—
|
|
|
|
2,350
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
—
|
|
|
|
265
|
|
|
|
265
|
|
Tax effects
|
|
|
—
|
|
|
|
(100
|
)
|
|
|
(100
|
)
|
Balance at June 30, 2017
|
|
$
|
10,002
|
|
|
$
|
(7,831
|
)
|
|
$
|
2,171
|
|
The changes in AOCI by component, net of tax, for the nine months ended June 29, 2018 were as follows:
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Unamortized
Loss on Defined
Benefit Pension
Plans
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance at September 29, 2017
|
|
$
|
11,179
|
|
|
$
|
(6,186
|
)
|
|
$
|
4,993
|
|
Other comprehensive loss before reclassifications
|
|
|
(2,213
|
)
|
|
|
—
|
|
|
|
(2,213
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(2,290
|
)
|
|
|
415
|
|
|
|
(1,875
|
)
|
Tax effects
|
|
|
—
|
|
|
|
(100
|
)
|
|
|
(100
|
)
|
Balance at June 29, 2018
|
|
$
|
6,676
|
|
|
$
|
(5,871
|
)
|
|
$
|
805
|
|
The changes in AOCI by component, net of tax, for the nine months ended June 30, 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
|
|
|
(523
|
)
|
|
|
—
|
|
|
|
(523
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
—
|
|
|
|
548
|
|
|
|
548
|
|
Tax effects
|
|
|
—
|
|
|
|
(208
|
)
|
|
|
(208
|
)
|
Balance at June 30, 2017
|
|
$
|
10,002
|
|
|
$
|
(7,831
|
)
|
|
$
|
2,171
|
|
JOHNSON OUTDOORS INC.
The reclassifications out of AOCI for the three months ended June 29, 2018 were as follows:
|
|
|
|
Statement of Operations
Presentation
|
Unamortized loss on defined benefit pension plans:
|
|
|
|
|
Amortization of loss
|
|
$
|
50
|
|
Other income and expense
|
Tax effects
|
|
|
(12
|
)
|
Income tax expense
|
Foreign currency translation adjustments:
|
|
|
|
|
|
Write off of currency translation adjustment gain
|
|
|
61
|
|
Other income and expense
|
Total reclassifications for the period
|
|
$
|
99
|
|
|
The reclassifications out of AOCI for the three months ended June 30, 2017 were as follows:
|
|
|
|
Statement of Operations
Presentation
|
Unamortized loss on defined benefit pension plans:
|
|
|
|
|
Amortization of loss
|
|
$
|
265
|
|
Cost of sales / Operating expense
|
Tax effects
|
|
|
(100
|
)
|
Income tax expense
|
Total reclassifications for the period
|
|
$
|
165
|
|
|
The reclassifications out of AOCI for the nine months ended June 29, 2018 were as follows:
|
|
|
|
Statement of Operations
Presentation
|
Unamortized loss on defined benefit pension plans:
|
|
|
|
|
Amortization of loss
|
|
$
|
415
|
|
Other income and expense
|
Tax effects
|
|
|
(100
|
)
|
Income tax expense
|
Foreign currency translation adjustments:
|
|
|
|
|
|
Write off of currency translation adjustment gain
|
|
|
(2,290
|
)
|
Other income and expense
|
Total reclassifications for the period
|
|
$
|
(1,975
|
)
|
|
The reclassifications out of AOCI for the nine months ended June 30, 2017 were as follows:
|
|
|
|
Statement of Operations
Presentation
|
Unamortized loss on defined benefit pension plans:
|
|
|
|
|
Amortization of loss
|
|
$
|
548
|
|
Cost of sales / Operating expense
|
Tax effects
|
|
|
(208
|
)
|
Income tax expense
|
Total reclassifications for the period
|
|
$
|
340
|
|
|