Johnson Outdoors Inc. — Q1 Fiscal 2015 10-Q
Reporting period: Three months ended January 2, 2015; comparative figures are for the three months ended December 27, 2013. Amounts below are in U.S. dollars. The company makes seasonal outdoor recreation products for fishing, diving, paddling and camping; this quarter precedes its primary selling season, so results are not necessarily indicative of the full fiscal year.
Financial performance
| Metric | Q1 2015 | Prior comparable period |
|---|---|---|
| Net sales | $70.8 million | $79.1 million |
| Gross profit / margin | $27.3 million / 38.6% | $29.9 million / 37.8% |
| Operating expenses | $34.7 million | $32.8 million |
| Operating loss | $7.3 million | $2.9 million |
| Net loss / diluted loss per share | $4.2 million / $0.42 | $2.2 million / $0.22 |
| Cash used for operating activities | $32.2 million | $35.4 million |
| Capital expenditures | $1.8 million | $3.4 million |
Cash and cash equivalents were $57.6 million at quarter-end, versus $70.8 million at October 3, 2014. Total debt was $32.4 million, including $24.7 million outstanding on the revolver; debt was $7.8 million at October 3, 2014 and $38.4 million in the prior-year comparison. Cash net of debt was $25.1 million. Current assets were $216.2 million and current liabilities $61.2 million. The company reported a 15% debt-to-total-capitalization ratio.
Changes and management commentary
- Sales fell 10%; management cited prior-year closeout promotions, order timing and challenging international markets. Currency translation reduced current-quarter sales by 1.6%.
- Marine Electronics sales declined 10% and segment operating results moved from $2.3 million profit to $1.6 million loss. Outdoor Equipment sales fell 24%; Watercraft sales were essentially flat; Diving sales declined 10%.
- Gross margin improved 0.8 percentage points, which management attributed to fewer closeout promotions.
- Operating expenses increased $1.8 million, primarily due to $2.5 million of legal expense in the patent litigation against Garmin. Management expected a similar amount of additional litigation expense in fiscal Q2.
- Operating cash use remained substantial, mainly reflecting seasonal working-capital needs, including increases in receivables and inventory. Financing activities provided $22.8 million, principally from revolver borrowings.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management cautioned that the business is seasonal and first-quarter results may not indicate full-year performance.
- Key cited risks include discretionary consumer spending, execution of growth and innovation plans, working-capital management, compliance with debt covenants, customer collections, foreign exchange, interest rates, commodity costs, supply availability, weather and possible asset impairments.
- The company is pursuing patent claims against Garmin in federal court and before the International Trade Commission; Garmin has asserted patent defenses and an antitrust counterclaim seeking treble damages. The company said it believes the counterclaims are without merit and intends to defend them.
- Approximately $56.8 million of cash was held in bank accounts in foreign taxing jurisdictions. About 20% of quarterly revenue was denominated in foreign currencies; the company held no foreign-exchange forward contracts and was unhedged on floating-rate debt.
- The company anticipated approximately $0.5 million of fiscal 2015 tax expense related to uncertain tax positions and projected $0.15 million of related accrued interest. It was undergoing tax examinations in Italy and Germany.
- Management said pending litigation was not expected to have a material adverse effect on financial condition, results, liquidity or cash flows. The filing reported no material changes to the risk factors in the most recent Form 10-K.
Important facts for investors to verify
- Whether revenue and margins recover during the primary selling season, particularly in Marine Electronics, Outdoor Equipment and Diving.
- The total cost and outcome of the Garmin litigation, including the expected Q2 legal spending and the antitrust counterclaim.
- Seasonal cash use, receivables and inventory trends, and the amount and availability of revolver borrowing under applicable covenants.
- Exposure to foreign exchange, floating interest rates and commodity prices, including the substantial foreign-held cash balance.
- Potential tax examination outcomes and any future goodwill or intangible-asset impairment indicators.