Business context and reporting period
Johnson Outdoors Inc. designs, manufactures and markets outdoor recreation products across Marine Electronics, Outdoor Equipment, Watercraft and Diving. This Form 10-K covers the 52-week fiscal year ended October 2, 2015; fiscal 2014 comprised 53 weeks. The filing is annual, not a standalone fourth-quarter report.
Financial performance
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $430.5 | $425.4 |
| Gross profit / margin | $171.7 / 39.9% | $168.6 / 39.6% |
| Operating profit / margin | $17.9 / 4.1% | $16.7 / 3.9% |
| Net income | $10.6 | $9.1 |
| Diluted EPS | $1.06 | $0.90 |
| Cash from operations | $18.1 | $33.2 |
| Capital expenditures | $10.4 | $13.3 |
| Cash and cash equivalents at year-end | $69.2 | $70.8 |
| Total debt at year-end | $7.4 | $7.8 |
Gross margin improved 0.3 percentage points. Current assets were $209.4 million and current liabilities $69.6 million, yielding working capital of $139.8 million and a 3.0:1 current ratio (versus 3.3:1). No revolving-credit borrowings were outstanding at year-end. The company had a $90 million revolver, subject to covenants and a $60 million seasonal borrowing limit. Approximately $55.5 million of cash was held in foreign jurisdictions.
Fourth-quarter snapshot
In FY2015’s fourth quarter, net sales were $85.7 million, operating profit $1.1 million and net income $1.2 million. In the comparable FY2014 quarter, sales were $84.9 million, operating loss $1.3 million and net loss $0.8 million.
Material changes versus the prior comparable period
- Sales grew 1%, despite a 2.5% unfavorable foreign-exchange impact, with strong new-product demand. Marine Electronics sales rose 5%, led by Minn Kota’s Ulterra trolling motor.
- Outdoor Equipment sales were essentially flat; higher Jetboil sales were largely offset by lower tent sales. Watercraft sales declined 1%, partly reflecting exits from unprofitable international markets. Diving sales fell 9%, largely due to currency effects.
- Operating profit increased 7%, but included approximately $7.3 million of patent-litigation costs. Marine Electronics operating profit fell to $26.1 million from $30.7 million; management stated it would have been $2.7 million higher year over year excluding those costs.
- Outdoor Equipment returned to $3.8 million operating profit from a $3.7 million loss, primarily because FY2014 included $8.5 million of impairment charges, partly offset by a $1.6 million Jetboil escrow recovery.
- Net income improved despite lower pretax income, as the effective tax rate fell to 32.6% from 47.6%. Other expense was $1.3 million versus $1.4 million of other income in FY2014, including transaction currency losses in FY2015.
- Operating cash flow declined to $18.1 million, with inventory growth a major use of cash. Year-end inventory rose to $79.9 million from $66.3 million.
Outlook, risks, contingencies and unusual items
- The filing provides no specific revenue, earnings or cash-flow guidance. Management cites innovation, new-product performance, cost efficiencies and working-capital management as priorities.
- Seasonality is significant: sales and profitability typically peak in the second and third fiscal quarters. Consumer discretionary spending, adverse weather, competition, raw-material availability and costs, foreign exchange, supply-chain concentration, and customer credit are identified risks.
- On November 18, 2015, the ITC affirmed findings that Garmin infringed Johnson Outdoors patent claims relating to sonar imaging and issued limited exclusion and cease-and-desist orders, subject to mandatory U.S. Trade Representative review. The parallel district-court case remained stayed pending the ITC matter. The filing does not quantify any prospective financial benefit.
- Two Diving acquisitions occurred October 27, 2015, after year-end: certain assets for approximately $2 million and a diving-technology venture for approximately $3 million.
- FY2015 comprehensive income was $1.5 million, materially below net income, including an $8.3 million foreign-currency translation loss. The company had no foreign-currency forward contracts at year-end.
- The U.S. defined-benefit pension plan was underfunded by $9.2 million; anticipated contributions through September 30, 2016 were $0.5 million. Management reported no other off-balance-sheet arrangements and did not expect pending litigation to materially adversely affect the company, while noting litigation uncertainty.
- The Johnson Family held approximately 77% of total voting power. The company reported effective disclosure controls and effective internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether ongoing Marine Electronics demand and new-product sales can offset the segment’s litigation expense and competitive pressures.
- Whether inventory growth converts into sales and cash, given the drop in operating cash flow and seasonal working-capital requirements.
- The final status and commercial impact of the ITC orders after U.S. Trade Representative review, and the outcome of the stayed court case.
- The sustainability of Diving performance amid sales declines and foreign-exchange exposure, and the integration and returns of the post-year-end acquisitions.
- The quality and durability of tax benefits, the valuation allowance and tax exposures, including examinations in Italy and Germany and foreign cash-repatriation considerations.
- Compliance with credit-facility covenants, dividend restrictions and seasonal borrowing limits; also assess the implications of concentrated family voting control.