Johnson Outdoors Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended September 30, 2011 (52 weeks), compared with fiscal 2010 ended October 1, 2010. This is an annual filing, not a quarterly report. Johnson Outdoors designs, manufactures and markets outdoor recreation products across Marine Electronics, Outdoor Equipment, Watercraft and Diving.
Financial performance
| Metric | FY2011 | FY2010 |
|---|---|---|
| Net sales | $407.4 million | $382.4 million |
| Gross profit / margin | $163.1 million / 40.0% | $153.5 million / 40.1% |
| Operating profit | $17.7 million | $14.6 million |
| Interest expense | $3.2 million | $5.1 million |
| Income before taxes | $12.3 million | $9.2 million |
| Income tax (benefit) expense | $(20.4) million benefit | $2.7 million expense |
| Net income / diluted EPS | $32.6 million / $3.36 | $6.5 million / $0.68 |
| Cash from operating activities | $31.0 million | $19.8 million |
Revenue rose 6.5% and operating profit increased 21%. Net income growth was primarily driven by the $24.9 million reduction in the deferred-tax-asset valuation allowance, rather than by pretax earnings growth alone. The resulting 2011 tax benefit materially lifted reported earnings.
Gross margin was essentially flat. Operating margin was approximately 4.3%, versus 3.8% in 2010; net margin was approximately 8.0%, versus 1.7%, with the comparison affected by the tax benefit.
Segments and material changes
- Marine Electronics: Sales rose 19.8% to $222.1 million; operating profit increased to $21.1 million from $13.9 million. New products, including Talon shallow-water anchors and Humminbird Down Imaging fishfinders, drove growth. Minn Kota and Humminbird each exceeded $100 million in sales.
- Diving: Sales increased 5.2% to $89.5 million and operating profit rose to $3.6 million. Currency translation contributed substantially to sales growth; the company also cited wider SUBGEAR distribution and increased SCUBAPRO demand.
- Outdoor Equipment: Sales declined 20.1% to $38.9 million and operating profit fell to $3.0 million from $5.9 million, reflecting reduced military spending and the Binghamton flood-related shutdown.
- Watercraft: Sales declined 9.8% to $57.7 million, and the segment moved from $1.8 million operating profit to a $1.3 million operating loss. The company cited weak demand and unfavorable weather at the start of the paddling season.
Cash, liquidity and debt
- Cash and cash equivalents were $44.5 million at year-end, up from $33.3 million. Operating cash flow was $31.0 million; investing and financing activities used $13.3 million and $8.6 million, respectively.
- Working capital was $111.4 million, compared with $93.1 million; the current ratio improved to 2.7 from 2.4.
- Total debt was approximately $15.0 million, down from $23.8 million. There were no revolving-credit borrowings at year-end; remaining revolver availability was approximately $31.4 million. Debt equaled 8.4% of total capitalization, versus 15.8% in 2010.
- The revolving facilities mature in November 2014, are subject to borrowing-base availability and financial and other covenants, and require a seasonal paydown. Term loans are secured and some carry prepayment penalties.
- Capital expenditures were $9.4 million. The LakeMaster/Waypoint acquisition used approximately $4.0 million in cash.
Outlook, risks and unusual items
- The filing provides no specific sales, earnings or margin guidance. Management describes ongoing investment in innovation and new products, including approximately $4.0 million invested in Geonav navigation-system equipment and software development as of year-end.
- Results are seasonal: sales and profitability generally peak in the March and June quarters, while the December and September quarters have historically included operating losses. Seasonal working-capital needs can increase borrowing and interest costs.
- The September 2011 flood temporarily closed the Binghamton facility; production resumed September 28. The company incurred approximately $1.9 million of related costs, received $1.0 million in insurance reimbursements, recorded a $0.6 million insurance receivable and recognized $0.3 million of expense. Additional insurance recoveries were uncertain and not estimable at year-end.
- The company reported a $0.3 million impairment charge on part of its Ferndale, Washington facility. Annual goodwill and indefinite-lived intangible impairment tests found no impairment.
- Risks include discretionary consumer demand, competition and product acceptance, raw-material costs and supply availability, foreign exchange, weather, customer credit and working-capital borrowing availability, and compliance with credit covenants. About 26% of FY2011 revenue was denominated in foreign currencies.
- Ordinary-course litigation was not expected by management to have a material adverse effect. The company has not recorded a receivable for its claim seeking recovery of a prior $4.4 million settlement payment and related litigation costs; the outcome of the insurance dispute is uncertain.
- The Johnson Family held approximately 77% of combined voting power as of November 29, 2011. No dividends were declared in FY2011 or FY2010.
Important facts for investors to verify
- How much of reported earnings and deferred tax assets depends on the valuation-allowance reversal, and whether future taxable income supports their realization.
- The status and amount of any additional flood-related insurance recovery, and the Binghamton facility’s subsequent operating performance.
- Whether Marine Electronics growth can continue and whether Outdoor Equipment and Watercraft can recover from their FY2011 declines.
- Current revolver availability, covenant compliance, seasonal borrowing requirements and scheduled debt repayments.
- Developments in the insurance dispute over the prior settlement, tax examinations and other contingencies.