Business context and reporting period
Johnson Outdoors Inc. designs, manufactures and markets outdoor recreation products across Marine Electronics (including Minn Kota and Humminbird), Outdoor Equipment (including Eureka! and Jetboil), Watercraft (including Old Town and Ocean Kayak) and Diving (including SCUBAPRO). This Form 10-K covers the fiscal year ended October 3, 2014. Fiscal 2014 comprised 53 weeks, compared with 52 weeks in fiscal 2013. The filing also reports fourth-quarter results.
Financial performance and position
Unless otherwise noted, amounts below are in millions of U.S. dollars; the filing reports financial statements in thousands.
| Metric | FY2014 | FY2013 |
|---|---|---|
| Net sales | $425.4 | $426.5 |
| Gross profit / margin | $168.6 / 39.6% | $171.0 / 40.1% |
| Operating profit / margin | $16.7 / 3.9% | $25.6 / 6.0% |
| Net income | $9.1 | $19.3 |
| Diluted EPS | $0.90 | $1.95 |
| Operating cash flow | $33.2 | $30.0 |
| Capital expenditures | $13.3 | $16.3 |
| Cash and cash equivalents at year-end | $70.8 | $55.7 |
| Total debt at year-end | $7.8 | $8.3 |
For fiscal Q4 2014, sales were $84.9 million, gross profit $34.0 million, operating loss $1.3 million and net loss $0.8 million. Q4 2013 sales were $77.3 million, gross profit $28.8 million, operating loss $4.7 million and net loss $3.5 million.
At year-end, current assets were $197.6 million and current liabilities $60.2 million, representing working capital of $137.3 million and a 3.3:1 current ratio. The company had no borrowings on its revolving credit facility at either year-end; its $7.8 million of total debt was principally term loans. The $90 million revolving facility is subject to a seasonal borrowing cap of $60 million from June 30 through October 31. Approximately $60.1 million of cash was held in foreign jurisdictions.
Material changes versus the prior comparable period
- Full-year sales were down less than 0.5%. Management attributed a 7% first-half decline mainly to prolonged, severe North American winter weather; second-half sales rose 7%, nearly offsetting the decline.
- Operating profit fell $8.9 million, or about 35%, and net income fell $10.2 million. The results included $8.475 million of non-cash impairment charges related to Jetboil goodwill and its tradename. Excluding the impairment, Outdoor Equipment operating profit would have been $0.969 million higher than in 2013, according to management.
- Gross margin declined 0.5 percentage point, reflecting slightly higher cost of sales as a percentage of sales. Cost pressures included Watercraft resin prices; Marine Electronics also cited pricing strategies intended to support competitiveness.
- The effective tax rate rose to 47.7% in the financial statements from 21.6% in 2013. The filing identifies the non-deductible goodwill impairment and tax items as factors; management’s discussion gives 47.6%, a minor inconsistency in the filing.
- Segment sales: Marine Electronics $249.6 million, up 1%; Outdoor Equipment $47.4 million, up 7%; Watercraft $49.5 million, down 3%; Diving $79.6 million, down 6%. Marine Electronics remained the largest segment; Outdoor Equipment’s operating loss was $3.7 million, while Watercraft returned to a small operating profit.
- Operating cash flow increased to $33.2 million, supported in part by working-capital movements, including a $7.8 million cash benefit from lower inventories. Cash rose by $15.1 million during the year.
Outlook, risks, contingencies and unusual items
The filing provides no quantified fiscal 2015 revenue or earnings guidance. Management cited strong second-half demand for new products and improved weather, but did not give a formal forecast. Backlog was approximately $34 million at October 3, 2014; the company noted that most products are not ordered substantially in advance of shipment.
Key disclosed risks include seasonal demand and working-capital needs; adverse weather; discretionary consumer spending; product innovation and competition; raw-material and supplier availability and costs; foreign-currency movements; international operations; customer credit; potential goodwill or asset impairments; information-technology disruption; tax uncertainties; and compliance with debt covenants. About 21% of fiscal 2014 revenue was denominated in currencies other than the U.S. dollar. The company held no foreign-currency forward contracts at year-end and was unhedged on floating-rate debt.
Other notable items: the Jetboil impairment comprised $6.475 million of goodwill and $2.0 million of tradename impairment; a $1.6 million recovery from the Jetboil indemnity escrow partially offset related operating expenses. Management said the resolved Jetboil indemnity claim had no further pending claims. The company reported ordinary-course litigation and did not expect pending matters to have a material adverse effect. Pension plans were underfunded by $7.75 million; expected contributions through October 2, 2015 were $0.663 million. Contractual obligations totaled $81.5 million, including $22.7 million of operating leases and $47.5 million of open purchase orders.
The company paid $2.955 million of dividends in fiscal 2014 and stated that the board would continue to review dividends quarterly. Annual dividends and share repurchases are subject to a $10 million combined limit under the credit agreement. The Johnson family held approximately 77% of the voting power. Management and the independent auditor reported effective internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Review the assumptions and valuation methods behind the $8.475 million Jetboil impairment, and whether subsequent performance supports remaining goodwill and intangible-asset values.
- Assess segment trends, particularly continued Diving weakness, Outdoor Equipment profitability after the impairment, and the durability of Marine Electronics growth.
- Track tax expense, the valuation allowance, unrecognized tax benefits and the ongoing tax examinations in Italy and Germany; clarify the filing’s 47.6% versus 47.7% effective-tax-rate discrepancy.
- Evaluate seasonal liquidity and covenant headroom, including the location and accessibility of foreign-held cash and the company’s reliance on its revolving facility during peak working-capital periods.
- Monitor inventory, customer demand, supplier concentration, raw-material costs, currency exposure, and pension funding obligations.
- Confirm future dividend decisions and any effect of debt covenants, and consider the Johnson family’s significant voting control.