Johnson Outdoors Inc. — Q1 FY2016 Form 10-Q
Reporting period: Three months ended January 1, 2016; comparative quarter ended January 2, 2015. Amounts below are USD millions, except per-share data. The company notes that its business is seasonal and this quarter is not necessarily indicative of full-year results.
Financial results and liquidity
| Metric | Q1 FY2016 | Q1 FY2015 |
|---|---|---|
| Net sales | $85.298 | $70.822 |
| Gross profit / margin | $33.299 / 39.0% | $27.334 / 38.6% |
| Operating loss | $(0.900) | $(7.331) |
| Net loss | $(0.534) | $(4.194) |
| Diluted loss per share | $(0.05) | $(0.42) |
| Cash used for operating activities | $(33.557) | $(32.150) |
- Sales increased 20% year over year despite a 2% unfavorable currency-translation effect. Gross margin improved 0.4 percentage points.
- Operating expenses were $34.199 million, down $0.466 million. The prior-year quarter included $2.6 million of legal expenses related to the sonar patent dispute; higher current-period sales-related costs partly offset the decrease.
- Cash and cash equivalents were $49.356 million at quarter-end, versus $57.553 million a year earlier and $69.159 million at October 2, 2015. Total debt was $31.596 million; cash net of debt was $17.760 million. Debt was 14% of total capitalization.
- Operating cash outflow reflected working-capital investment, including increases in receivables and inventory. Investing outflow was $7.797 million, including the SeaBear acquisition and $2.547 million of capital expenditures. Financing provided $22.682 million, primarily from net revolving-credit borrowings.
- Current assets were $214.635 million and current liabilities $70.068 million. Revolver borrowings were $23.942 million; the facility permits up to $90 million, subject to terms and seasonal limits.
Segments and material changes
- Marine Electronics: Sales rose 35% to $58.600 million; operating profit was $5.695 million versus a $1.587 million loss. Growth came from Minn Kota and Humminbird.
- Outdoor Equipment: Sales declined 1% to $6.314 million; operating loss narrowed to $0.202 million.
- Watercraft: Sales increased 17% to $6.378 million; operating loss narrowed to $0.535 million.
- Diving: Sales declined 8% to $14.292 million, including an approximately 7% unfavorable currency impact; operating loss widened to $1.874 million. SeaBear results are included in this segment.
- On October 27, 2015, the company acquired Austria-based SeaBear GmbH for approximately $5.250 million. Purchase accounting was provisional, with $5.456 million of goodwill recorded; $0.301 million of acquisition costs were recognized in the quarter.
Outlook, risks and unusual items
- The filing provides no specific revenue, earnings or margin guidance. Management says additional FY2016 capital expenditures are expected to be funded from working capital or existing credit facilities.
- Seasonality is significant: the first fiscal quarter precedes the primary warm-weather selling season. Cash needs rise ahead of the selling season and typically decline as receivables are collected.
- Risks identified include consumer demand and weather, foreign exchange, raw-material costs and availability, customer collections, supplier performance, working-capital management, acquisition integration, debt-covenant compliance, litigation and potential goodwill or long-lived-asset impairment. No foreign-exchange forward contracts were outstanding.
- A single customer accounted for approximately $12 million of consolidated sales, about 14% of quarterly revenue.
- In the Garmin sonar dispute, the ITC affirmed findings that certain products infringed Johnson Outdoors patent claims and issued exclusion and cease-and-desist orders effective January 19, 2016. The company appealed certain ITC findings; related district-court litigation is stayed pending resolution. Management says pending litigation is not expected to materially adversely affect the company, but outcomes remain uncertain.
- The company is undergoing tax examinations in Italy, Germany and Indonesia and disclosed expected FY2016 tax expense of approximately $0.4 million related to uncertain tax positions, plus projected accrued interest of $0.2 million.
Investor verification points
- Whether Marine Electronics’ growth and improved operating performance continue through the main selling season.
- How working-capital requirements affect operating cash flow, cash balances and revolver usage as seasonal orders are fulfilled and receivables collected.
- Final SeaBear purchase-price allocation, integration progress and realization of expected product and distribution benefits.
- Developments in the Garmin appeal and related litigation, and any resulting financial or operating effects.
- Customer concentration, tax examination outcomes, covenant compliance and the company’s ability to meet contractual commitments, including $82.435 million of open purchase orders.