Johnson Outdoors Inc. — FY2012 Form 10-K
Business context and reporting period. Johnson Outdoors designs, manufactures and markets outdoor recreation products through Marine Electronics, Outdoor Equipment, Watercraft and Diving. Fiscal 2012 comprised 52 weeks and ended September 28, 2012. The filing is an annual report; the fourth-quarter figures below are unaudited.
Financial performance and liquidity
Unless stated otherwise, amounts are in millions of dollars. Annual comparisons are FY2012 versus FY2011.
| Metric | FY2012 | FY2011 |
|---|---|---|
| Net sales | $412.3 | $407.4 |
| Gross profit / margin | $164.3 / 39.9% | $163.1 / 40.0% |
| Operating profit / margin | $21.4 / 5.2% | $17.7 / 4.3% |
| Income before taxes | $19.9 | $12.3 |
| Income tax expense (benefit) | $9.8 | $(20.4) |
| Net income | $10.1 | $32.6 |
| Diluted earnings per share | $1.03 | $3.36 |
| Cash from operating activities | $31.8 | $31.0 |
| Capital expenditures | $12.0 | $9.4 |
- FY2012 revenue rose 1.2%; operating profit increased 21.2%. Net income fell substantially because the prior year included a large deferred-tax valuation-allowance benefit; FY2012 tax expense was $9.8 million versus a $20.4 million benefit in FY2011.
- At year-end, cash and cash equivalents were $58.9 million, including approximately $46.4 million held in foreign taxing jurisdictions. Working capital was $124.0 million and the current ratio was 3.1:1.
- Total debt was $8.9 million, down from $15.0 million; there were no revolving-credit borrowings. Remaining revolver availability was approximately $28.1 million. Debt was 4.9% of total capitalization, versus 8.4% a year earlier.
- FY2012 segment sales / operating profit (loss): Marine Electronics $231.2 million / $25.2 million; Outdoor Equipment $35.3 million / $2.8 million; Watercraft $58.2 million / $(0.4) million; Diving $88.0 million / $6.4 million.
- Fourth-quarter FY2012 sales were $74.8 million versus $77.4 million; operating loss was $3.1 million versus $4.2 million. Net loss was $3.2 million versus net income of $17.3 million in Q4 FY2011, when a substantial tax benefit affected results.
Material changes and management commentary
- Marine Electronics sales increased 4.1%, supported by Minn Kota i-Pilot, higher OEM sales and U.S. demand. Segment operating profit increased to $25.2 million.
- Outdoor Equipment sales decreased 9.1%, reflecting a weaker consumer camping market and reduced U.S. military spending. Watercraft sales rose about 1%, but lower-margin product mix and European restructuring contributed to a segment loss. Diving sales declined 1.7%, including a $3.8 million unfavorable currency-translation effect; price increases improved its operating margin.
- Consolidated gross margin was nearly flat. Operating expenses declined by $2.6 million, including a $3.5 million insurance settlement recovery and approximately $2.6 million of lower legal expenses, partly offset by higher bad-debt and compensation costs.
- Management cited innovation, product performance, marketing and cost/process improvements as strategic priorities. Sales and profitability are seasonal, generally strongest in the second and third fiscal quarters.
Outlook, risks and unusual items
- No broad company sales or earnings guidance is provided. After year-end, the Company acquired Jetboil on November 14, 2012 for approximately $16 million, funded with cash and credit facilities. Management expected Jetboil to contribute approximately $10 million of FY2013 sales and $1.5 million of operating profit; Jetboil reported unaudited sales of $11.5 million for the ten months ended October 31, 2012.
- Watercraft restructuring announced in July 2012 includes closing the U.K. sales office and Bellingham, Washington marketing/R&D facility, and eliminating approximately 24 positions. The Company estimated total costs of approximately $2.4 million, with completion expected within 12 months; $1.0 million was charged and $0.5 million paid by fiscal year-end. A $0.45 million increase in doubtful-account allowance was also recorded in connection with the action.
- The Company incurred flood-related costs at its Binghamton facility after the 2011 flooding. It recorded insurance recoveries and had a $0.6 million receivable at year-end; additional recoveries remained under negotiation and could not be estimated.
- FY2012 included a $0.6 million impairment charge for the Geonav trademark, which was discontinued. Goodwill and indefinite-lived intangibles otherwise had no impairment in the annual tests.
- Key risks include discretionary consumer demand and economic conditions, seasonality and weather, competition and product acceptance, foreign exchange (23% of FY2012 revenue was denominated in non-U.S. currencies), raw-material and supplier costs, customer credit, and reliance on asset-based revolving facilities and compliance with financial covenants. The term loans bear a 5.25% rate and include a prepayment penalty.
- The U.S. defined-benefit pension plans were underfunded by $11.8 million at year-end; the Company anticipated $1.1 million of contributions through September 27, 2013. Ongoing tax examinations and approximately $1.9 million of unrecognized tax benefits are also disclosed. Management did not expect pending litigation to have a material adverse effect.
Important facts for investors to verify
- Underlying operating-profit improvement excluding the $3.5 million insurance recovery and other favorable legal-cost changes.
- Cash accessibility and funding needs after the Jetboil acquisition, including actual post-acquisition debt, revolver availability and covenant headroom.
- Whether Jetboil achieves the stated FY2013 sales and operating-profit contribution estimates.
- Progress, total costs and expected savings from the Watercraft restructuring, and any additional flood-insurance recoveries.
- Tax expense and deferred-tax-asset realizability, given the FY2011 valuation-allowance reversal and foreign operating losses.
- Marine Electronics growth sustainability and recovery prospects for Outdoor Equipment and Watercraft amid currency, demand and seasonal risks.