JOHNSON OUTDOORS INC 10-Q

Item 1. Financial Statements CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended (thousands, except per share data) January 1, 2021 December 27, 2019 Net sales $ 165,667 $ 128,054 Cost of sales 90,637 74,442 Gross profit 75,030 53,612 Operating expenses: Marketing and selling 32,533 29,305 Administrative management, finance and information systems 12,891 11,975 Research and development 6,049 5,531 Total operating expenses 51,473 46,811 Operating profit 23,557 6,801 Interest income ( 82 ) ( 655 ) Interest expense 32 35 Other income, net ( 2,404 ) ( 1,168 ) Profit before income taxes 26,011 8,589 Income tax expense 6,164 2,159 Net income $ 19,847 $ 6,430 Weighted average common shares - Basic: Class A 8,840 8,800 Class B 1,212 1,212 Participating securities 39 27 Weighted average common shares - Dilutive 10,091 10,039 Net income per common share - Basic: Class A $ 1.99 $ 0.65 Class B $ 1.81 $ 0.59 Net income per common share - Diluted: Class A $ 1.96 $ 0.64 Class B $ 1.96 $ 0.64 The accompanying notes are an integral part of the condensed consolidated financial statements. - 1 - Index JOHNSON OUTDOORS INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) Three Months Ended (thousands) January 1, 2021 December 27, 2019 Net income $ 19,847 $ 6,430 Other comprehensive income: Foreign currency translation 2,442 700 Defined benefit pension plan: Change in pension plans, net of tax of $ 34 and $ 21 , respectively 101 61 Total other comprehensive income 2,543 761 Total comprehensive income $ 22,390 $ 7,191 The accompanying notes are an integral part of the condensed consolidated financial statements. - 2 - Index JOHNSON OUTDOORS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (thousands, except share data) January 1, 2021 October 2, 2020 December 27, 2019 ASSETS Current assets: Cash and cash equivalents $ 195,923 $ 212,437 $ 138,257 Accounts receivable, net 97,386 67,292 78,249 Inventories 114,849 97,437 103,885 Other current assets 9,098 11,372 9,735 Total current assets 417,256 388,538 330,126 Property, plant and equipment, net of accumulated depreciation of $ 160,822 , $ 156,541 and $ 146,453 , respectively 63,657 63,037 59,629 Right of use assets 38,784 40,666 40,302 Deferred income taxes 10,850 10,679 11,456 Goodwill 11,219 11,184 11,193 Other intangible assets, net 8,911 9,052 11,128 Other assets 26,504 22,870 22,289 Total assets $ 577,181 $ 546,026 $ 486,123 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 44,908 $ 37,327 $ 35,384 Current lease liability 6,411 6,587 5,835 Accrued liabilities: Salaries, wages and benefits 16,080 23,275 13,767 Accrued warranty 11,980 10,849 10,443 Income taxes payable 10,724 6,681 9,598 Accrued discounts and returns 8,648 5,113 8,146 Accrued customer programs 5,508 4,426 3,819 Other 9,029 11,349 8,269 Total current liabilities 113,288 105,607 95,261 Non-current lease liability 33,260 34,931 35,133 Deferred income taxes 1,477 1,418 1,657 Retirement benefits 801 853 1,001 Deferred compensation liability 25,033 21,585 21,009 Other liabilities 4,710 3,532 1,823 Total liabilities 178,569 167,926 155,884 Shareholders’ equity: Common stock: Class A shares issued and outstanding: 8,900,608 , 8,873,235 and 8,858,611 , respectively 443 443 443 Class B shares issued and outstanding: 1,211,564 , 1,211,564 and 1,211,602 , respectively 61 61 61 Capital in excess of par value 79,379 78,668 76,523 Retained earnings 314,184 296,431 253,114 Accumulated other comprehensive income 7,260 4,717 2,319 Treasury stock at cost, shares of Class A common stock: 41,977 , 36,316 and 36,354 , respectively ( 2,715 ) ( 2,220 ) ( 2,221 ) Total shareholders’ equity 398,612 378,100 330,239 Total liabilities and shareholders’ equity $ 577,181 $ 546,026 $ 486,123 The accompanying notes are an integral part of the condensed consolidated financial statements. - 3 - Index JOHNSON OUTDOORS INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited) Three Months Ended January 1, 2021 (thousands except for shares) Shares Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock BALANCE AT OCTOBER 2, 2020 10,084,799 $ 504 $ 78,668 $ 296,431 $ 4,717 $ ( 2,220 ) Net income — — — 19,847 — — Dividends declared — — — ( 2,094 ) — — Award of non-vested shares 33,034 — — — — — Stock-based compensation — — 711 — — — Currency translation adjustment — — — — 2,442 — Change in pension plans, net of tax of $ 34 — — — — 101 — Purchase of treasury stock at cost ( 5,661 ) — — — — ( 495 ) BALANCE AT JANUARY 1, 2021 10,112,172 $ 504 $ 79,379 $ 314,184 $ 7,260 $ ( 2,715 ) Three Months Ended December 27, 2019 (thousands except for shares) Shares Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock BALANCE AT SEPTEMBER 27, 2019 10,045,771 $ 504 $ 75,856 $ 248,377 $ 1,558 $ ( 1,761 ) Net income — — — 6,430 — — Dividends declared — — — ( 1,693 ) — — Award of non-vested shares 31,571 — — — — — Stock-based compensation — — 667 — — — Currency translation adjustment — — — — 700 — Change in pension plans, net of tax of $ 21 — — — — 61 — Purchase of treasury stock at cost ( 7,129 ) — — — — ( 460 ) BALANCE AT DECEMBER 27, 2019 10,070,213 $ 504 $ 76,523 $ 253,114 $ 2,319 $ ( 2,221 ) The accompanying notes are an integral part of the condensed consolidated financial statements. - 4 - Index JOHNSON OUTDOORS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended (thousands) January 1, 2021 December 27, 2019 CASH USED FOR OPERATING ACTIVITIES Net income $ 19,847 $ 6,430 Adjustments to reconcile net income to net cash used for operating activities: Depreciation 3,349 3,176 Amortization of intangible assets 144 256 Amortization of deferred financing costs 7 7 Stock based compensation 711 667 Deferred income taxes ( 146 ) — Change in operating assets and liabilities: Accounts receivable, net ( 29,693 ) ( 33,616 ) Inventories, net ( 16,627 ) ( 9,298 ) Accounts payable and accrued liabilities 7,905 2,090 Other current assets 2,335 1,619 Other non-current assets 4,018 — Other long-term liabilities ( 2,818 ) ( 412 ) Other, net ( 270 ) ( 7 ) ( 11,238 ) ( 29,088 ) CASH USED FOR INVESTING ACTIVITIES Proceeds from sale of productive assets 2 — Capital expenditures ( 4,390 ) ( 3,307 ) ( 4,388 ) ( 3,307 ) CASH USED FOR FINANCING ACTIVITIES Dividends paid ( 2,094 ) ( 1,689 ) Purchases of treasury stock ( 495 ) ( 460 ) ( 2,589 ) ( 2,149 ) Effect of foreign currency rate changes on cash 1,701 419 Decrease in cash and cash equivalents ( 16,514 ) ( 34,125 ) CASH AND CASH EQUIVALENTS Beginning of period 212,437 172,382 End of period $ 195,923 $ 138,257 Supplemental Disclosure: Cash paid for taxes $ 103 $ 123 Cash paid for interest 30 30 The accompanying notes are an integral part of the condensed consolidated financial statements. - 5 - Index JOHNSON OUTDOORS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1 BASIS OF PRESENTATION The condensed consolidated financial statements included herein are unaudited. In the opinion of management, these statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Johnson Outdoors Inc. and subsidiaries (collectively, the “Company”) as of January 1, 2021 and December 27, 2019, and their results of operations for the three month periods then ended and cash flows for the three month periods then ended. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 2, 2020 which was filed with the Securities and Exchange Commission on December 11, 2020. Due to seasonal variations and other factors, some of which are described herein, including related to the coronavirus (COVID-19) outbreak and resulting pandemic, the results of operations for the three months ended January 1, 2021 are not necessarily indicative of the results to be expected for the Company’s full 2021 fiscal year. See "Coronavirus (COVID-19) below and “Seasonality” and "Coronavirus (COVID-19)" in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein for additional information. The Company considers all short-term investments in interest-bearing accounts and all securities and other instruments with an original maturity of three months or less, to be equivalent to cash. Cash equivalents are stated at cost which approximates market value. All monetary amounts, other than share and per share amounts, are stated in thousands. Coronavirus (COVID-19) In March 2020, the World Health Organization recognized the current coronavirus (COVID-19) outbreak as a global pandemic. In response to the COVID-19 outbreak, the governments of many countries, states, cities and other geographic regions imposed varying degrees of restrictions on social and commercial activity, including imposing travel restrictions, issuing quarantine, shelter-in-place and stay at home orders and guidelines and related actions, mandating mask wearing, limiting business capacity and generally restricting freedom of movement, in order to promote social distancing and other similar programs all in an effort to slow the spread of the illness. While some government mandates eased in the latter half of fiscal 2020, these mandates continued to emphasize social distancing measures to the general public. As a result, we saw increased participation in fishing, camping and watercraft recreation and related demand for our products, largely driven by consumer desire to engage in socially distant and safe activities in the great outdoors in the latter part of fiscal 2020, which continued into the first quarter of fiscal 2021. Nonetheless, the full extent to which the COVID-19 pandemic will impact our business, results of operations, and financial condition, including with respect to consumer buying patterns for the rest of our fiscal 2021, will depend on future developments, including any potential worsening or improvement of the pandemic, which are beyond our control and which remain highly uncertain and cannot be predicted. This includes, but is not limited to, the duration, spread, severity and impact of the COVID-19 pandemic, vaccine distribution and effectiveness, or future waves, increasing outbreaks or hot spots of the pandemic in our areas of operations or in key markets, the effects of the pandemic on our customers, consumers, suppliers and vendors and the remedial actions and stimulus measures adopted by federal, state and local governments in reaction to the pandemic. Further, the authorization of vaccines for COVID-19 by governments around the world, including the distribution of same, may further impact commercial activity and customer or consumer buying behavior, and the extent to which these developments will impact demand for, and participation in, outdoor recreation and related products is unknown. As the COVID-19 pandemic continues to impact various key regions of the world, even after it subsides, we may continue to experience adverse impacts to our business, including our supply chain, as a result of any economic recession that has occurred or may occur in the future. As a result, the Company cannot reasonably estimate the full impact of the COVID-19 pandemic on Company operations and profitability at this time as the situation is dynamic and constantly changing. We continue to monitor evolving economic and general business conditions stemming from the COVID-19 pandemic and the actual and potential impacts on our financial position, results of operations and cash flows. 2 ACCOUNTS RECEIVABLE Accounts receivable are stated net of allowances for doubtful accounts of $ 2,823 , $ 2,697 and $ 3,062 as of January 1, 2021, October 2, 2020 and December 27, 2019, respectively. The increase in net accounts receivable to $ 97,386 as of - 6 - Index JOHNSON OUTDOORS INC. January 1, 2021 from $ 67,292 as of October 2, 2020 is largely attributable to the impact of the COVID-19 pandemic on the buying patterns of the Company’s customers, which has shifted the seasonal nature of the Company’s business and has caused increases in sales volumes between periods. The determination of the allowance for doubtful accounts is based on a combination of factors. In circumstances where specific collection concerns about a receivable exist (including as a result of the impact of COVID-19), a reserve is established to value the affected account receivable at an amount the Company believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on historical experience of bad debts as a percent of accounts receivable outstanding for each business segment. Uncollectible accounts are written off against the allowance for doubtful accounts after collection efforts have been exhausted. The Company typically does not require collateral on its accounts receivable. 3 EARNINGS PER SHARE (“EPS”) Net income or loss per share of Class A common stock and Class B common stock is computed using the two-class method. Grants of restricted stock which receive non-forfeitable dividends are classified as participating securities and are required to be included as part of the basic weighted average share calculation under the two-class method. Holders of Class A common stock are entitled to cash dividends equal to 110 % of all dividends declared and paid on each share of Class B common stock. The Company grants shares of unvested restricted stock in the form of Class A shares, which carry the same distribution rights as the Class A common stock described above. As such, the undistributed earnings for each period are allocated to each class of common stock based on the proportionate share of the amount of cash dividends that each such class is entitled to receive. Basic EPS Basic net income or loss per share is computed by dividing net income or loss allocated to Class A common stock and Class B common stock by the weighted-average number of shares of Class A common stock and Class B common stock outstanding, respectively. In periods with cumulative year to date net income and undistributed income, the undistributed income for each period is allocated to each class of common stock based on the proportionate share of the amount of cash dividends that each such class is entitled to receive. In periods where there is a cumulative year to date net loss or no undistributed income because distributions through dividends exceed net income, Class B shares are treated as anti-dilutive and, therefore, net losses are allocated equally on a per share basis among all participating securities. For the three month periods ended January 1, 2021 and December 27, 2019, basic income per share for the Class A and Class B shares has been presented using the two class method and reflects the allocation of undistributed income described above. Diluted EPS Diluted net income per share is computed by dividing allocated net income by the weighted-average number of common shares outstanding, adjusted for the effect of dilutive stock options, restricted stock units (“stock units” or “units”) and non-vested restricted stock. Anti-dilutive stock options, units and non-vested stock are excluded from the calculation of diluted EPS. The computation of diluted net income per share of Class A common stock assumes that Class B common stock is converted into Class A common stock. Therefore, diluted net income per share is the same for both Class A and Class B common shares. In periods where the Company reports a net loss, the effect of anti-dilutive stock options and units is excluded and diluted loss per share is equal to basic loss per share for both classes of stock. For the three month periods ended January 1, 2021 and December 27, 2019, diluted net income per share reflects the effect of dilutive stock units and assumes the conversion of Class B common stock into Class A common stock. Non-vested stock that could potentially dilute earnings per share in the future which were not included in the fully diluted computation because they would have been anti-dilutive totaled 40,647 and 40,312 for the three months ended January 1, 2021 and December 27, 2019, respectively. Stock units that could potentially dilute earnings per share in the future and which were not included in the fully diluted computation because they would have been anti-dilutive were 30,786 and 41,111 for the three month periods ended January 1, 2021 and December 27, 2019, respectively. Dividends per share Dividends per share for the three month periods ended January 1, 2021 and December 27, 2019 were as follows: - 7 - Index JOHNSON OUTDOORS INC. Three Months Ended January 1, 2021 December 27, 2019 Dividends declared per common share: Class A $ 0.21 $ 0.17 Class B $ 0.19 $ 0.15 4 STOCK-BASED COMPENSATION AND STOCK OWNERSHIP PLANS The Company’s current stock ownership plans allow for issuance of stock options to acquire shares of Class A common stock by key executives and non-employee directors. Current plans also allow for issuance of shares of restricted stock, restricted stock units or stock appreciation rights in lieu of stock options. Under the Company’s 2012 Non-Employee Director Stock Ownership Plan and the 2020 Long-Term Incentive Plan (the only plans where shares currently remain available for future equity incentive awards) there were a total of 507,510 shares of the Company’s Class A common stock available for future grant to non-employee directors and key executives at January 1, 2021. Share awards previously made under the Company's 2010 Long-Term Stock Incentive Plan, which no longer allows for additional share grants, also remain outstanding. Non-vested Stock All shares of non-vested restricted stock awarded by the Company have been granted in the form of shares of Class A common stock at their fair market value on the date of grant and vest within one year from the date of grant for stock granted to directors and four years from the date of grant for stock granted to officers and employees. The fair value at date of grant is based on the number of shares granted and the average of the Company’s high and low Class A common stock price on the date of grant or, if the Company’s Class A shares did not trade on the date of grant, the average of the Company’s high and low Class A common stock price on the last preceding date on which the Company’s Class A shares traded. A summary of non-vested stock activity for the three months ended January 1, 2021 related to the Company’s stock ownership plans is as follows: Shares Weighted Average Grant Price Non-vested stock at October 2, 2020 40,492 $ 62.15 Non-vested stock grants 8,758 88.49 Restricted stock vested ( 7,586 ) 43.12 Non-vested stock at January 1, 2021 41,664 71.15 Non-vested stock grantees may elect to reimburse the Company for withholding taxes due as a result of the vesting of shares by tendering a portion of the vested shares back to the Company. Shares tendered back to the Company were 2,341 and 4,054 during the three month periods ended January 1, 2021 and December 27, 2019, respectively. Stock compensation expense, net of forfeitures, related to non-vested stock was $ 279 and $ 240 for the three month periods ended January 1, 2021 and December 27, 2019, respectively. Unrecognized compensation cost related to non-vested stock as of January 1, 2021 was $ 1,672 , which amount will be amortized to expense through November 2024 or adjusted for changes in future estimated or actual forfeitures. The fair value of restricted stock vested during the three month periods ended January 1, 2021 and December 27, 2019 was $ 658 and $ 839 , respectively. Restricted Stock Units - 8 - Index JOHNSON OUTDOORS INC. All restricted stock units (RSUs) awarded by the Company have been granted in the form of units payable in shares of Class A common stock upon vesting. The units are valued at the fair market value of a share of Class A common stock on the date of grant and vest within one year from the date of grant for RSUs granted to directors and three years from the date of grant for RSUs granted to employees. The fair value at the date of grant is based on the number of units granted and the average of the Company’s high and low Class A common stock trading price on the date of grant or, if the Company’s Class A shares did not trade on the date of grant, the average of the Company’s high and low Class A common stock trading price on the last preceding date on which the Company’s Class A shares traded. A summary of RSU activity for the three months ended January 1, 2021 follows: Number of RSUs Weighted Average Grant Price RSUs at October 2, 2020 67,821 $ 68.34 RSUs granted 20,059 88.49 RSUs vested ( 18,112 ) 43.49 RSUs at January 1, 2021 69,768 80.58 Stock compensation expense, net of forfeitures, related to RSUs was $ 432 and $ 420 for the three months ended January 1, 2021 and December 27, 2019, respectively. Unrecognized compensation cost related to non-vested RSUs as of January 1, 2021 was $ 3,050 , which amount will be amortized to expense through September 2023 or adjusted for changes in future estimated or actual forfeitures. RSU grantees may elect to reimburse the Company for withholding taxes due as a result of the vesting of units and issuance of unrestricted shares of Class A common stock by tendering a portion of such unrestricted shares back to the Company. Shares tendered back to the Company for this purpose were 3,320 and 3,075 during the three month periods ended January 1, 2021 and December 27, 2019, respectively. The fair value of restricted stock units recognized as a tax deduction during the three month periods ended January 1, 2021 and December 27, 2019 was $ 2,148 and $ 1,426 , respectively. Compensation expense related to units earned by employees (as opposed to grants to outside directors) is based upon the attainment of certain Company financial goals related to cumulative net sales and cumulative operating profit over a three-year performance period. Awards are only paid if at least 80 % of the target levels are met and maximum payouts are made if 120 % or more of target levels are achieved. The payouts for achievement at the threshold levels of performance are equal to 50 % of the target award amount. The payouts for achievement at maximum levels of performance are equal to 150 % of the target award amount. To the extent earned, awards are issued in shares of Company Class A common stock after the end of the three-year performance period. Employees’ Stock Purchase Plan The Company’s shareholders have adopted the Johnson Outdoors Inc. 2009 Employees’ Stock Purchase Plan, which was most recently amended on March 2, 2017, and which provides for the issuance of shares of Class A common stock at a purchase price of not less than 85 % of the fair market value of such shares on the date of grant or on the date of purchase, whichever is lower. During the three month period ended January 1, 2021, the Company issued 0 shares of Class A common stock and recognized $ 0 of expense in connection with the Employees' Stock Purchase Plan. During the three month period ended December 27, 2019, the Company issued 0 shares of Class A common stock and recognized $ 7 of expense in connection with the Plan. 5 PENSION PLANS The Company has two non-contributory defined benefit pension plans covering certain of its U.S. employees. Retirement benefits are generally provided based on the employees’ years of service and average earnings. Normal retirement age is 65, with provisions for earlier retirement. The Company made contributions of $ 43 and $ 44 to its pension plans for the three months ended January 1, 2021 and December 27, 2019, respectively. - 9 - Index JOHNSON OUTDOORS INC. During the first quarter of fiscal 2021, Company management commenced actions to terminate both of the pension plans. As part of the termination of these plans, all plan participants will have the option of taking a lump sum payment or receiving payout pursuant to an annuity contract. When the termination and related payouts occur, they are estimated to unfavorably impact net income by approximately $ 4 to $ 5 million. The components of net periodic benefit cost related to Company sponsored defined benefit plans for the three month periods ended January 1, 2021 and December 27, 2019 were as follows: Three Months Ended January 1, 2021 December 27, 2019 Components of net periodic benefit cost: Service cost $ — $ — Interest on projected benefit obligation 233 276 Less estimated return on plan assets 160 214 Amortization of unrecognized losses (gains) 134 82 Net periodic benefit cost $ 207 $ 144 6 INCOME TAXES For the three months ended January 1, 2021 and December 27, 2019, the Company’s earnings before income taxes, income tax expense and effective income tax rate were as follows: Three Months Ended (thousands, except tax rate data) January 1, 2021 December 27, 2019 Profit before income taxes $ 26,011 $ 8,589 Income tax expense 6,164 2,159 Effective income tax rate 23.7 % 25.1 % The decrease in the effective tax rate for the three months ended January 1, 2021 compared to the prior year period is primarily due to a current period income tax benefit of an intra-entity transfer of an asset other than inventory. The impact of the Company’s operations in jurisdictions where a valuation allowance is assessed is removed from the overall effective tax rate methodology and recorded directly based on year to date results for the year for which no tax expense or benefit can be recognized. The significant tax jurisdictions that have a valuation allowance for the periods ended January 1, 2021 and December 27, 2019 were: January 1, 2021 December 27, 2019 France France Indonesia Indonesia Switzerland Switzerland The Company regularly assesses the adequacy of its provisions for income tax contingencies in accordance with the applicable authoritative guidance on accounting for income taxes. As a result, the Company may adjust the reserves for unrecognized tax benefits due to the impact of changes in its assumptions or as a result of new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities and lapses of statutes of limitation. The Company’s 2021 fiscal year tax expense is anticipated to be unchanged related to uncertain income tax positions. - 10 - Index JOHNSON OUTDOORS INC. In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized benefits as a component of income tax expense. The Company is projecting accrued interest of $ 300 related to uncertain income tax positions for the fiscal year ending October 1, 2021. The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions. As of the date of this report, the following tax years remain open to examination by the respective significant tax jurisdictions: Jurisdiction Fiscal Years United States 2017-2020 Canada 2016-2020 France 2017-2020 Germany 2017-2020 Italy 2018-2020 Switzerland 2010-2020 7 INVENTORIES The Company values inventory at the lower of cost (determined using the first-in first-out method) or net realizable value. Inventories at the end of the respective periods consisted of the following: January 1, 2021 October 2, 2020 December 27, 2019 Raw materials $ 63,353 $ 48,874 $ 47,208 Work in process 38 39 463 Finished goods 51,458 48,524 56,214 $ 114,849 $ 97,437 $ 103,885 8 GOODWILL The changes in goodwill during the three months ended January 1, 2021 and December 27, 2019 were as follows: January 1, 2021 December 27, 2019 Balance at beginning of period $ 11,184 $ 11,186 Amount attributable to movements in foreign currency rates 35 7 Balance at end of period $ 11,219 $ 11,193 The Company evaluates the carrying value of goodwill for a reporting unit on an annual basis or more frequently when events and circumstances warrant such an evaluation. In conducting this analysis, the Company uses the income approach to compare the reporting unit's carrying value to its indicated fair value. Fair value is determined primarily by using a discounted cash flow methodology that requires considerable management judgment and long-term assumptions and is considered a Level 3 (unobservable) fair value determination in the fair value hierarchy (see Note 13) below. 9 WARRANTIES The Company provides warranties on certain of its products as they are sold. The following table summarizes the Company’s warranty activity for the three months ended January 1, 2021 and December 27, 2019. - 11 - Index JOHNSON OUTDOORS INC. January 1, 2021 December 27, 2019 Balance at beginning of period $ 10,849 $ 9,190 Expense accruals for warranties issued during the period 3,177 3,335 Less current period warranty claims paid 2,046 2,082 Balance at end of period $ 11,980 $ 10,443 10 CONTINGENCIES The Company is subject to various legal actions and proceedings in the normal course of business, including those related to commercial disputes, product liability, intellectual property and regulatory matters. The Company is insured against loss for certain of these matters. Although litigation is subject to many uncertainties and the ultimate exposure with respect to these matters cannot be ascertained, management does not believe the final outcome of any pending litigation will have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company. 11 INDEBTEDNESS The Company had no debt outstanding at January 1, 2021, October 2, 2020, or December 27, 2019. Revolvers The Company and certain of its subsidiaries have entered into an unsecured credit facility with PNC Bank National Association and Associated Bank, N.A. ("the Lending Group"). This credit facility consists of a $ 75 million Revolving Credit Facility among the Company, certain of the Company’s subsidiaries, PNC Bank National Association, as lender and as administrative agent, and the other lender named therein (the “Credit Agreement” or “Revolver”). The Revolver has an expiration date of November 15, 2022 and provides for borrowing of up to an aggregate principal amount not to exceed $ 75,000 with a $ 50,000 accordion feature that gives the Company the option to increase the maximum financing availability (i.e., an aggregate borrowing amount of $ 125,000 ) subject to the conditions of the Credit Agreement and subject to the approval of the lenders. The interest rate on the Revolver is based on LIBOR plus an applicable margin, which margin resets each quarter. The applicable margin ranges from 1.00 % to 1.75 % and is dependent on the Company’s leverage ratio for the trailing twelve month period. The interest rates on the Revolver at January 1, 2021 and December 27, 2019 were approximately 1.1 % and 2.8 %, respectively. The Credit Agreement restricts the Company's ability to incur additional debt, includes maximum leverage ratio and minimum interest coverage ratio covenants and is unsecured. Other Borrowings The Company had no unsecured revolving credit facilities at its foreign subsidiaries as of January 1, 2021 or December 27, 2019. The Company utilizes letters of credit primarily as security for the payment of future claims under its workers’ compensation insurance, which totaled approximately $ 181 and $ 181 as of January 1, 2021 and December 27, 2019, respectively. 12 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The following disclosures describe the Company’s objectives in using derivative instruments, the business purpose or context for using derivative instruments, and how the Company believes the use of derivative instruments helps achieve the stated objectives. In addition, the following disclosures describe the effects of the Company’s use of derivative instruments and hedging activities on its financial statements. Foreign Exchange Risk The Company has significant foreign operations, for which the functional currencies are denominated primarily in euros, Swiss francs, Hong Kong dollars and Canadian dollars. As the values of the currencies of the foreign countries in which the Company has operations increase or decrease relative to the U.S. dollar, the sales, expenses, profits, losses, assets and liabilities of the Company’s foreign operations, as reported in the Company’s consolidated financial statements, increase or decrease, accordingly. Approximately 10 % of the Company’s revenues for the three month - 12 - Index JOHNSON OUTDOORS INC. period ended January 1, 2021 were denominated in currencies other than the U.S. dollar. Approximately 4 % were denominated in euros, approximately 4 % were denominated in Canadian dollars and approximately 1 % were denominated in Hong Kong dollars, with the remaining revenues denominated in various other foreign currencies. Changes in foreign currency exchange rates can cause the Company to experience unexpected financial losses or cash flow needs. The Company may mitigate a portion of the fluctuations in certain foreign currencies through the use of foreign currency forward contracts. Foreign currency forward contracts enable the Company to lock in the foreign currency exchange rate to be paid or received for a fixed amount of currency at a specified date in the future. The Company may use such foreign currency forward contracts to mitigate the risk associated with changes in foreign currency exchange rates on financial instruments and known commitments, including commitments for inventory purchases, denominated in foreign currencies. As of January 1, 2021 and December 27, 2019, the Company held no foreign currency forward contracts. 13 FAIR VALUE MEASUREMENTS Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy has been established based on three levels of inputs, of which the first two are considered observable and the last unobservable. • Level 1 - Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets or liabilities. • Level 2 - Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments. • Level 3 - Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances. The carrying amounts of cash, cash equivalents, short term investments, accounts receivable, and accounts payable approximated their fair values at January 1, 2021, October 2, 2020 and December 27, 2019 due to the short term maturities of these instruments. When indicators of impairment are present, the Company may be required to value certain long-lived assets such as property, plant, and equipment, and other intangibles at their fair value. Valuation Techniques Rabbi Trust Assets Rabbi trust assets are classified as trading securities and are comprised of marketable debt and equity securities that are marked to fair value based on unadjusted quoted prices in active markets. The rabbi trust assets are used to fund amounts the Company owes to certain officers and other employees under the Company’s non-qualified deferred compensation plan. These assets are included in "Other assets" in the Company's Condensed Consolidated Balance Sheets, and the mark to market adjustments on the assets are recorded in “Other income, net” in the accompanying Condensed Consolidated Statements of Operations. The offsetting deferred compensation liability is also reported at fair value as "Deferred compensation liability" in the Company's accompanying Condensed Consolidated Balance Sheets. Changes in the liability are recorded in "Administrative management, finance and information systems" expense in the accompanying Condensed Consolidated Statements of Operations. The following table summarizes the Company’s financial assets measured at fair value as of January 1, 2021: Level 1 Level 2 Level 3 Total Assets: Rabbi trust assets $ 25,032 $ — $ — $ 25,032 The following table summarizes the Company’s financial assets measured at fair value as of October 2, 2020: - 13 - Index JOHNSON OUTDOORS INC. Level 1 Level 2 Level 3 Total Assets: Rabbi trust assets $ 21,550 $ — $ — $ 21,550 The following table summarizes the Company’s financial assets measured at fair value as of December 27, 2019: Level 1 Level 2 Level 3 Total Assets: Rabbi trust assets $ 20,978 $ — $ — $ 20,978 The effect of changes in the fair value of financial instruments on the accompanying Condensed Consolidated Statements of Operations for the three month periods ended January 1, 2021 and December 27, 2019 was: Three Months Ended Location of income loss recognized in Statement of Operations January 1, 2021 December 27, 2019 Rabbi trust assets Other income, net $ 2,596 $ 1,192 There were no assets or liabilities measured at fair value on a non-recurring basis in periods subsequent to their initial recognition for either of the three month periods ended January 1, 2021 or December 27, 2019. 14 NEW ACCOUNTING PRONOUNCEMENTS Recently adopted accounting pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842 ). In July 2018, the FASB also issued ASU 2018-10 Codification Improvements to Topic 842, Leases and ASU 2018-11 Leases (Topic 842) Targeted Improvements. In February 2019, the FASB also issued ASU 2019-01 Leases (Topic 842): Codification Improvements. This ASU and the updates to this ASU require organizations to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about leasing arrangements. This guidance was effective for the Company in the first quarter of fiscal year 2020, and may be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with certain practical expedients available. The Company adopted the provisions of these ASU's using the modified retrospective approach at the beginning of the first quarter of fiscal 2020, coinciding with the standard's effective date. The additional disclosures required by the ASU and its updates are included in Note 18 "Leases" of these Notes to the Condensed Consolidated Financial Statements. In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326)” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively Topic 326). Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. This guidance was effective for the Company in the first quarter of fiscal year 2021, and must be adopted by applying a cumulative effect adjustment to retained earnings. The Company adopted the provisions of this ASU at the beginning of the first quarter of fiscal 2021, however the ASU did not have a significant impact on its financial statements, and therefore no adjustment to retained earnings was necessary. Recently issued accounting pronouncements In August 2018, the FASB issued ASU 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans (Topic 715) , which modifies the disclosure requirements for employers that sponsor defined pension or postretirement plans. The amendments in this guidance are effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on its disclosures. - 14 - Index JOHNSON OUTDOORS INC. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. The Company does not expect adoption of the new guidance to have a significant impact on its financial statements. 15 REVENUES Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our goods at a point in time based on shipping terms and transfer of title. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. The amount of consideration received can vary, primarily because of customer incentive or rebate arrangements. The Company estimates variable consideration based on the expected value of total consideration to which customers are likely to be entitled based on historical experience and projected market expectations. Included in the estimate is an assessment as to whether any variable consideration is constrained. Revenue estimates are adjusted at the earlier of a change in the expected value of consideration or when the consideration becomes fixed. For all contracts with customers, the Company has not adjusted the promised amount of consideration for the effects of a significant financing component as the period between the transfer of the promised goods and the customer's payment is expected to be one year or less . Sales are made on normal and customary short-term credit terms, generally ranging from 30 to 90 days, or upon delivery of point of sale transactions. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. The Company enters into contractual arrangements with customers in the form of individual customer orders which specify the goods, quantity, pricing, and associated order terms. The Company does not have contracts which are satisfied over time. Due to the nature of these contracts, no significant judgment exists in relation to the identification of the customer contract, satisfaction of the performance obligation, or transaction price. The Company expenses incremental costs of obtaining a contract due to the short-term nature of the contracts. Estimated costs of returns, allowances and discounts, based on historic experience, are accrued as a reduction to sales when revenue is recognized. The Company provides customers the right to return eligible products under certain circumstances. At January 1, 2021, the right to returns asset was $ 1,367 and the accrued returns liability was $ 3,621 . At December 27, 2019, the right to returns asset was $ 1,112 and the accrued returns liability was $ 3,394 . The Company also offers assurance-type warranties relating to its products sold to end customers that continue to be accounted for under ASC 460 Guarantees. The Company generally accounts for shipping and handling activities as a fulfillment activity, consistent with the timing of revenue recognition; that is, when a customer takes control of the transferred goods. In the event that a customer were to take control of a product upon or after shipment, the Company has made an accounting policy election to treat such shipping and handling activities as a fulfillment cost. Shipping and handling fees billed to customers are included in "Net Sales," and shipping and handling costs are recognized within "Marketing and selling expenses" in the same period the related revenue is recognized. The Company has a wide variety of seasonal, outdoor recreation products used primarily for fishing from a boat, diving, paddling, hiking and camping, that are sold to a variety of customers in multiple end markets. Nonetheless, the revenue recognition policies are similar among all the various products sold by the Company. See Note 16 for required disclosures of disaggregated revenue. 16 SEGMENTS OF BUSINESS The Company conducts its worldwide operations through separate business segments, each of which represents major product lines. Operations are conducted in the United States and various foreign countries, primarily in Europe, Canada and the Pacific Basin. During the three month periods ended January 1, 2021 and December 27, 2019, combined net sales to two customers of the Company's Fishing, Camping and Watercraft Recreation segments represented approximately $ 53,573 and $ 32,321 , respectively, of the Company's consolidated revenues. - 15 - Index JOHNSON OUTDOORS INC. Net sales and operating profit include both sales to customers, as reported in the Company’s accompanying Condensed Consolidated Statements of Operations, and interunit transfers, which are priced to recover cost plus an appropriate profit margin. Total assets represent assets that are used in the Company’s operations in each business segment at the end of the periods presented. A summary of the Company’s operations by business segment is presented below: Three Months Ended January 1, 2021 December 27, 2019 October 2, 2020 Net sales: Fishing: Unaffiliated customers $ 126,859 $ 99,193 Interunit transfers 140 85 Camping: Unaffiliated customers 12,185 7,505 Interunit transfers 9 9 Watercraft Recreation: Unaffiliated customers 12,397 4,803 Interunit transfers 46 6 Diving Unaffiliated customers 14,090 16,458 Interunit transfers 3 1 Other / Corporate 136 95 Eliminations ( 198 ) ( 101 ) Total $ 165,667 $ 128,054 Operating profit (loss): Fishing $ 27,763 $ 15,018 Camping 2,808 66 Watercraft Recreation 1,069 ( 1,563 ) Diving ( 341 ) 205 Other / Corporate ( 7,742 ) ( 6,925 ) $ 23,557 $ 6,801 Total assets (end of period): Fishing $ 244,217 $ 216,783 $ 206,244 Camping 40,901 32,815 37,514 Watercraft Recreation 24,058 20,611 21,038 Diving 68,818 64,799 67,393 Other / Corporate 199,187 151,115 213,837 $ 577,181 $ 486,123 $ 546,026 1 - 16 - Index JOHNSON OUTDOORS INC. 17 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The changes in Accumulated Other Comprehensive Income (“AOCI”) by component, net of tax, for the three months ended January 1, 2021 were as follows: Foreign Currency Translation Adjustment Unamortized Loss on Defined Benefit Pension Plans Accumulated Other Comprehensive Income (Loss) Balance at October 2, 2020 $ 7,323 $ ( 2,606 ) $ 4,717 Other comprehensive income before reclassifications 2,442 — 2,442 Amounts reclassified from accumulated other comprehensive income — 135 135 Tax effects — ( 34 ) ( 34 ) Balance at January 1, 2021 $ 9,765 $ ( 2,505 ) $ 7,260 The changes in AOCI by component, net of tax, for the three months ended December 27, 2019 were as follows: Foreign Currency Translation Adjustment Unamortized Loss on Defined Benefit Pension Plans Accumulated Other Comprehensive Income (Loss) Balance at September 27, 2019 $ 4,790 $ ( 3,232 ) $ 1,558 Other comprehensive income before reclassifications 700 — 700 Amounts reclassified from accumulated other comprehensive income — 82 82 Tax effects — ( 21 ) ( 21 ) Balance at December 27, 2019 $ 5,490 $ ( 3,171 ) $ 2,319 The reclassifications out of AOCI for the three months ended January 1, 2021 and December 27, 2019 were as follows: Three Months Ended January 1, 2021 December 27, 2019 Statement of Operations Presentation Unamortized loss on defined benefit pension plans: Amortization of loss $ 135 $ 82 Other income and expense Tax effects ( 34 ) ( 21 ) Income tax expense Total reclassifications for the period $ 101 $ 61 - 17 - Index JOHNSON OUTDOORS INC. 18 LEASES Adoption of Topic 842 At the beginning of fiscal year 2020, the Company adopted ASU 2016-02 and all subsequent ASUs that modified accounting standards Topic 842 using a modified retrospective adoption method, in which right-of-use ("ROU") assets and lease liabilities are recognized in the condensed consolidated balance sheets. Under the effective date transition method, financial results reported in periods prior to fiscal year 2020 are unchanged. The Company also elected the package of practical expedients permitted under the standard, which does not require reassessment of prior conclusions related to contracts containing a lease, lease classification and initial direct lease costs. As an ongoing accounting policy election, the Company will exclude short-term leases (terms of 12 months or less) from the balance sheet presentation and will account for non-lease and lease components in a contract as a single lease component for most asset classes. All leases in which the Company is the lessee are classified as operating leases, and the Company does not have any finance leases or sublease agreements. Additionally, the Company does not have any leases in which it is the lessor. The adoption of the new standard had a significant impact on the Company's condensed consolidated balance sheet due to the recognition of approximately $ 41 million of lease liabilities with corresponding ROU assets for operating leases. The new standard did not have a significant impact on the condensed consolidated statements of operations or cash flows, and did not impact our debt covenant compliance under our current credit agreements. The Company determines if an arrangement is a lease at inception. The Company leases certain facilities and machinery and equipment under long-term, non-cancelable operating leases. As of January 1, 2021, the Company had approximately 200 leases, with remaining terms ranging from less than one year to 15 years. Some of the leases contain variable payment terms, such as payments based on fluctuations in the Consumer Price Index (CPI). Some leases also contain options to extend or terminate the lease. To the extent the Company is reasonably certain to exercise these options, they have been considered in the calculation of the ROU assets and lease liabilities. Under current lease agreements, there are no residual value guarantees or restrictive lease covenants. In calculating the ROU assets and lease liabilities, several assumptions and judgments were made by the Company, including whether a contract is or contains a lease under the new definition, and the determination of the discount rate, which is assumed to be the incremental borrowing rate. The incremental borrowing rate is derived from information available to the Company at the lease commencement date based on lease length and location. The components of lease expense recognized in the accompanying Condensed Consolidated Statements of Operations for the three months ended January 1, 2021 and December 27, 2019 were as follows: Three months ended Three months ended January 1, 2021 December 27, 2019 Lease Cost Operating lease costs $ 2,012 $ 1,776 Short-term lease costs 391 483 Variable leases costs 46 43 Total lease cost $ 2,449 $ 2,302 Included in the amounts in the table above, were rent expense to related parties of $ 255 and $ 246 for the three months ended January 1, 2021 and December 27, 2019, respectively. As of January 1, 2021, the Company did not have any finance leases. There were no significant new leases entered into during the quarter ended January 1, 2021. Supplemental balance sheet, cash flow, and other information related to operating leases was as follows: - 18 - Index JOHNSON OUTDOORS INC. Three months ended Three months ended January 1, 2021 December 27, 2019 Operating leases: Operating lease ROU assets $ 38,784 $ 40,302 Current operating leases liabilities 6,411 5,835 Non-current operating lease liabilities 33,260 35,133 Total operating lease liabilities $ 39,671 $ 40,968 Weighted average remaining lease term (in years) 9.88 10.67 Weighted average discount rate 2.84 % 2.83 % Cash paid for amounts included in the measurement of lease liabilities $ 1,857 $ 1,571 Future minimum rental commitments under non-cancelable operating leases with an initial lease term in excess of one year at January 1, 2021 were as follows: Year Related parties included in total Total Remainder of 2021 $ 868 $ 6,508 2022 193 5,316 2023 — 4,619 2024 — 4,617 2025 — 3,676 Thereafter — 21,512 Total undiscounted lease payments 1,061 46,248 Less: Imputed interest ( 9 ) ( 6,577 ) Total net lease liability $ 1,052 $ 39,671 As of January 1, 2021, the Company did not have any additional significant operating leases commitments that have not yet commenced.