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 September 27, 2013; fiscal 2013 fourth-quarter figures are compared with the quarter ended September 28, 2012. Unless stated otherwise, financial amounts below are in millions of dollars.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $426.5 | $412.3 |
| Gross profit / margin | $171.0 / 40.1% | $164.3 / 39.9% |
| Operating profit / margin | $25.6 / 6.0% | $21.4 / 5.2% |
| Income before taxes | $24.7 | $19.9 |
| Income tax expense / effective rate | $5.3 / 21.6% | $9.8 / 49.1% |
| Net income | $19.3 | $10.1 |
| Diluted EPS | $1.95 | $1.03 |
| Cash from operations | $30.0 | $31.8 |
| Capital expenditures | $16.3 | $12.0 |
| Cash and cash equivalents at year-end | $55.7 | $58.9 |
| Total debt at year-end | $8.3 | $8.9 |
Fiscal 2013 fourth-quarter sales were $77.3 million versus $74.8 million; gross profit was $28.8 million versus $28.4 million. The company recorded an operating loss of $4.7 million and net loss of $3.5 million, compared with losses of $3.1 million and $3.2 million, respectively, in the prior-year quarter.
Working capital was $125.2 million and the current ratio was 3.0:1 at year-end. Investing activities used $31.8 million, including $15.4 million for Jetboil and $16.3 million of capital spending; cash declined by $3.2 million during the year. No revolving-facility borrowings were outstanding at year-end. Approximately $45.9 million of cash was held in foreign jurisdictions.
Material changes versus the prior comparable period
- Annual sales increased 3.4% and operating profit rose 19.5%. Management attributed growth primarily to Marine Electronics products and the Jetboil acquisition, more than offsetting declines in Watercraft and Diving.
- Marine Electronics sales rose 7.1% to $247.7 million and operating profit increased to $32.2 million from $25.2 million. Outdoor Equipment sales grew 25.2% to $44.2 million, largely reflecting Jetboil, but segment operating profit fell to $2.2 million from $2.8 million.
- Watercraft sales fell 12.6% to $50.9 million and its operating loss widened to $2.1 million from $0.4 million, amid a focus on exiting lower-margin products and international markets. Diving sales declined 3.9% to $84.5 million; operating profit fell to $5.7 million from $6.4 million.
- Gross margin improved 0.2 percentage points. Lower interest expense also supported pretax earnings. Net income growth was amplified by the lower effective tax rate: management said reversal of valuation reserves on foreign tax credits reduced the rate by approximately 12 percentage points.
- Fiscal 2012 included a $3.5 million insurance settlement recovery in operating expenses, which did not recur in 2013.
Outlook, risks and unusual items
The filing gives no specific numerical revenue or earnings guidance. Management describes innovation, targeted growth platforms, cost control and working-capital management as strategic priorities. Results are seasonal: the second and third fiscal quarters are typically the strongest, while the fourth quarter is often loss-making.
In November 2012, the company acquired Jetboil for $15.4 million, funded with existing cash and credit facilities. Jetboil contributed $10.7 million of sales and $0.6 million of operating profit from acquisition through year-end. The purchase included $6.5 million of goodwill and $10.4 million of identifiable intangible assets. Approximately $3.2 million of consideration was placed in escrow for potential indemnity claims; the filing does not estimate the likelihood or cost of such claims.
The company entered a new five-year revolving credit agreement in September 2013, with up to $90 million of borrowing capacity and a seasonal borrowing limit of $60 million from June 30 through October 31. The facility includes financial covenants and restrictions on certain acquisitions, debt and restricted payments; dividends and repurchases are capped at $10 million in aggregate per fiscal year. Term loans carried a 5.25% rate at year-end. The company reported compliance with its facilities, but access to credit and covenant compliance remain important risks.
Other exposures include discretionary consumer demand, competition and product innovation, adverse weather, raw-material costs and supply availability, foreign exchange (21% of fiscal 2013 revenue was denominated in non-U.S. currencies), customer credit, and potential impairment of goodwill or other assets. The company reported no goodwill or indefinite-lived intangible impairment in 2013. It expects $492,000 of pension contributions through October 3, 2014. Routine litigation was not expected by management to have a material adverse effect. Watercraft restructuring actions were completed in 2013; estimated total costs were approximately $2.6 million, with $0.5 million of liabilities remaining at year-end, expected to be settled by the end of 2014. Flood-related insurance recoveries continued in 2013, and the company said all expected recoveries for the 2011 Binghamton flood had been received.
The board declared a $0.075-per-share Class A dividend after year-end, payable November 7, 2013, and stated its intention to continue regular quarterly dividends, subject to business performance, liquidity, capital needs and debt covenants. Management and the auditor reported effective internal controls; the auditor issued unqualified opinions on the financial statements and internal control.
Important facts for investors to verify
- Whether Marine Electronics growth and Jetboil distribution gains can offset continued weakness in Watercraft, Diving and consumer camping demand.
- The sustainability of reported earnings given the significant tax-rate benefit from valuation-allowance changes and the nonrecurring prior-year insurance settlement.
- Cash conversion and investment requirements: operating cash flow was $30.0 million, while capital spending and the acquisition together exceeded that amount.
- Debt-facility covenant headroom, seasonal borrowing availability and restrictions affecting dividends, repurchases or acquisitions.
- Jetboil integration performance, acquisition-related intangible values and any claims against the purchase-price escrow.
- Potential exposure to foreign-exchange movements, pension funding, restructuring settlements and customer or supplier disruptions.