JOHNSON OUTDOORS INC 10-K

ITEM 1. BUSINESS Johnson Outdoors is a leading global manufacturer and marketer of branded seasonal, outdoor recreation products used primarily for fishing from a boat, diving, paddling, hiking and camping. The Company’s portfolio of well-known consumer brands has attained leading market positions due to continuous innovation, marketing excellence, product performance and quality. Company values and culture support innovation in all areas, promoting and leveraging best practices and synergies within and across its subsidiaries to advance the Company’s strategic vision set by executive management and approved by the Board of Directors. The Company is controlled by Helen P. Johnson-Leipold (Chairman and Chief Executive Officer), members of her family and related entities. The Company was incorporated in Wisconsin in 1987 as successor to various businesses. Fishing The Company’s Fishing segment key brands are: Minn Kota electric motors for quiet trolling or primary propulsion, marine battery chargers and shallow water anchors; Humminbird sonar and GPS equipment for fishfinding, navigation and marine cartography; and Cannon downriggers for controlled-depth fishing. Minn Kota trolling motors and shallow water anchors and Cannon downriggers are designed and manufactured primarily at the Company's Mankato, Minnesota facility. Humminbird sonar and GPS equipment are designed and manufactured in Eufaula, Alabama and Alpharetta, Georgia. Fishing brands and related accessories are sold across the globe, with the majority of sales coming from North America through large outdoor specialty retailers, such as Bass Pro Shops and Cabela’s; large retail store chains; distributors that service independent marine, sporting goods and internet dealers; and original equipment manufacturers (OEM) of boat brands such as Tracker, Skeeter and Ranger. The Company also sells direct to consumers via its Minn Kota, Humminbird and Cannon websites. Markets outside of North America are accessed through a network of international distributors. Fishing growth has been driven by focusing on innovative technology, quality products and effective marketing. Such consumer marketing and promotion activities include: the Minn Kota, Humminbird and Cannon brand websites; social media networks; product placements on fishing-related television shows; print advertising and editorial coverage in outdoor, general interest and sport magazines; professional angler and tournament sponsorships; and packaging and point-of-purchase materials and offers to increase consumer appeal and sales. Camping The Company’s Camping segment key brands are: Eureka! consumer, commercial and military tents and accessories, camping furniture and stoves and other recreational camping products; and Jetboil portable outdoor cooking systems. Eureka! consumer tents, camping furniture, camping stoves and other recreational camping products are mid- to high-price range products sold in the U.S. and Canada, primarily to camping and backpacking specialty stores, sporting goods stores, internet retailers and direct to consumer via the Eureka! brand website. The Company’s consumer camping products are produced by third party manufacturing sources in Asia. Marketing of brands is focused on building brand awareness and leadership in product features and innovation, primarily through digital marketing and social media. Eureka! commercial tents include party tents and accessories, sold primarily to general rental stores, and other commercial tents and accessories sold directly to tent erectors. The Company’s commercial tent products range from 10’x10’ canopies to 120’ wide pole tents and other large scale frame structures and are primarily manufactured by the Company at the Company’s Binghamton, New York location. 3 Table of Contents Eureka! also designs and manufactures large, heavy-duty tents and lightweight backpacking tents primarily for the U.S. military at its Binghamton, New York location. Tents produced for military use in the last twelve months include modular general purpose tents, rapid deployment shelters and various lightweight one and two person tents. The Company manufactures military tent accessories like fabric floors and insulated thermal liners and is also a subcontract manufacturer for other providers of military tents. Jetboil portable outdoor cooking systems, single burner and two burner stoves, and accessories are sold in the U.S. and Canada through independent sales representatives, primarily to camping and backpacking specialty stores, sporting goods stores, internet retailers, and direct to consumer via the Jetboil brand website. Markets outside of North America are accessed through a network of international distributors. Marketing of Jetboil systems is focused on building brand awareness and leadership in product features and innovation, primarily through digital marketing and social media. Jetboil products are designed at the Company’s operating location in Manchester, New Hampshire and manufactured by third party sources in Asia. Watercraft Recreation The Company’s Watercraft Recreation segment designs and markets canoes and kayaks under the Ocean Kayaks and Old Town brand names for family recreation, touring, angling and tripping. These brands are manufactured at the Company’s facility in Old Town, Maine. The Company uses a rotational molding process for manufacturing mid- to high-end polyethylene kayaks and canoes and uses a thermoform molding process in the manufacturing of lower priced models at its facility in Old Town, Maine. Watercraft Recreation accessory brands, including Carlisle branded paddles, are produced primarily by third party sources located in North America and Asia. The company's personal flotation devices are manufactured by third party sources located in Asia and are sold under the Old Town brand. The Company’s kayaks, canoes and accessories are sold through multiple channels primarily in the U.S. and Canada with an emphasis on independent specialty dealers and outdoor specialty chain retailers. The Company also sells products direct to consumers via the Old Town and Ocean Kayak websites, and through Amazon and other internet retailer sites. The Company has a network of distributors who sell Company products outside of North America. The Company’s Watercraft Recreation business competes in the mid- to high-end of the product category by introducing product innovations, creating quality products and by focusing on the product-specific needs of each marketing channel. Marketing of brands is focused on building brand awareness and leadership in product features and innovation, primarily through digital marketing and social media. Diving The Company manufactures and markets underwater diving products for recreational divers, which it sells and distributes under the SCUBAPRO brand name. The Company markets a complete line of underwater diving and snorkeling equipment, including regulators, buoyancy compensators, dive computers and gauges, wetsuits, masks, fins, snorkels and accessories. SCUBAPRO diving equipment is marketed to the premium recreational segment and high-performance technical diving market. Products are sold via select distribution to independent specialty dive stores worldwide. These specialty dive stores generally provide a wide range of services to divers, including regular maintenance, product repair, diving education and travel programs. The Company also sells diving gear direct to consumers via the SCUBAPRO website and to dive training centers, resorts, public safety units and armed forces around the world. The Company’s consumer communication focuses on building brand awareness and highlighting exclusive product features and consumer benefits of its product lines. The Company’s communication and distribution strategies reinforce the SCUBAPRO brand’s position as the industry’s quality and innovation leader. The Company markets its equipment via websites, through social media, through information and displays in dive specialty stores, and in diving magazines. The Company manufactures regulators, dive computers, gauges, and instruments at its Italian and Indonesian facilities. The Company sources buoyancy compensators, neoprene goods, diving and snorkeling soft goods, proprietary materials, and other components from third party contract manufacturers. Financial Information for Business Segments 4 Table of Contents As noted above, the Company has four reportable business segments. See Note 13 to the consolidated financial statements included elsewhere in this report for financial information concerning each business segment. International Operations See Note 13 to the consolidated financial statements included elsewhere in this report for financial information regarding the Company’s domestic and international operations. See Note 1, subheading “Foreign Operations and Related Derivative Financial Instruments,” to the consolidated financial statements included elsewhere in this report, along with the information under “Risk Factors” below, for information regarding risks related to the Company’s foreign operations. Research and Development The Company commits significant resources to new product research and development in each of its business segments. Fishing conducts its product research, design, engineering and software development activities at its locations in Mankato and Little Falls, Minnesota; Alpharetta, Georgia; Toronto, Canada; and Eufaula, Alabama. Diving maintains research and development facilities in Zurich, Switzerland and Casarza Ligure, Italy. Research and development activities for Watercraft Recreation are performed in Old Town, Maine. Product research, design and innovation for Camping products are conducted at the Company's Binghamton, New York, Racine, Wisconsin and Manchester, New Hampshire locations. The Company expenses research and development costs as incurred, except for software development for new electronics products and bathymetry data collection and processing. These software development and bathymetry data collection and processing costs are capitalized once technological feasibility is established and then amortized over the expected useful life of the software or database. The amounts expensed by the Company in connection with research and development activities for each of the last three fiscal years are set forth in the Company’s Consolidated Statements of Operations included elsewhere in this report. Industry and Competitive Environment The Company believes its products compete favorably on the basis of product innovation, product performance and marketing support and, to a lesser extent, price. Fishing: Minn Kota’s competitors in the electric trolling motors business are Motor Guide® and Lowrance ™ , owned by Brunswick Corporation, and Garmin ™ . Competition in this business is focused on technological innovation, product quality and durability as well as product benefits and features for fishing. Humminbird’s main competitors in the market for on-boat electronics are Garmin ™ , Lowrance ™ , Simrad and Raymarine®. Competition in this business is primarily focused on the quality of sonar imaging and display, easy to use graphical interfaces as well as the integration of mapping and GPS technology. Humminbird products contain marine cartography features. Competitors offering marine cartography products include Navionics®, owned by Garmin, and C-Map®, owned by Brunswick Corporation. Competition in this business focuses primarily on quality of data and quantity of available charts for inland lakes and ocean shoreline. Cannon’s main competitors in the downrigger market are Big Jon Sports®, Walker and Scotty®. Competition in this business primarily focuses on ease of operation, speed and durability. Camping: The Company’s Camping brands and products compete in the sporting goods and specialty segments of the Camping market. Competitive brands with a strong position in the sporting goods channel include Coleman® and private label brands. The Company also competes with specialty companies such as Kelty®, The North Face®, Marmot® and Big Agnes® on the basis of materials and innovative designs for consumers who want performance products priced at a value. The Company’s portable outdoor cooking systems compete in the specialty and higher end performance backpacking and camping markets. The primary competitor in portable outdoor cooking systems is MSR®. Competition in this market is based on product size and weight, ease of use, reliability and performance. The Company’s competitors in the commercial tent market include Anchor Industries® and Aztec Tents for tension, frame and canopy tents. Competition in the commercial tent business is based on price, quality, structure, styling, ease of installation and technical support. The Company sells military tents via third party distributors who hold supply contracts primarily with the U.S. Government, as well as to international governments. Such supply contracts can be for commercial off-the-shelf products in addition to 5 Table of Contents products required to be built to unique specifications. Competitors in the military tent business include HDT®, Alaska Structures®, Camel, Outdoor Venture, and Diamond Brand. Watercraft Recreation: The Company primarily competes in this segment in the kayak and canoe product categories of the paddlesports market. The Company’s main competitors in this market are Confluence Outdoor, Hobie Cat®, Wenonah Canoe, Jackson Kayak and Legacy Paddlesports™, each of which competes on the basis of their product’s design, performance, quality and price. Diving: The main competitors in the Diving segment include Aqua Lung®, Suunto®, Atomic Aquatics, Oceanic, Cressi and Mares®. Competitive advantage in the life support product category of this segment, which consists of regulators, dive computers, and buoyancy compensators, is a function of product innovation, performance, quality and safety. Competition in the general diving product category of fins, masks, snorkels and wetsuits is characterized by low barriers to entry and numerous competitors who compete on the basis of product innovation, performance, quality and price. Backlog Unfilled orders for future delivery of products varies as a result of numerous factors impacting the Company (including those described in the section titled “Risk Factors” below ) and because of the non-binding nature of such orders, the Company does not believe that backlog information is material to the understanding of its business. Employees At October 1, 2021, the Company had approximately 1,400 regular, full-time employees, of which approximately 1,000 were employed in the United States and approximately 400 were employed outside of the United States. Approximately 55 or 4% were represented by a collective bargaining agreement, all of whom are located at our facilities in Batam, Indonesia. In recent years, we have not experienced any significant work slowdowns, stoppages, or other labor disruptions. The Company considers its employee relations to be excellent. Temporary employees are utilized primarily to manage peaks in the seasonal manufacturing of products. The Company remains committed to areas of work place safety, product quality and customer satisfaction. Successful execution of our mission is dependent on attracting, developing and retaining key employees and members of our management team, as well as providing competitive pay and benefits. In response to the COVID-19 pandemic, the Company has generally maintained its headcount as it has accommodated our operations to the virus environment. The Company has taken what it believes to be appropriate measures to ensure the health and safety of its employees and has, in certain cases, permitted remote working. Patents, Trademarks and Proprietary Rights The Company holds patents for various of the products it sells and regularly files applications for patents. The Company has numerous trademarks and trade names which it considers important to its business, many of which are noted in this report. Historically, the Company has vigorously defended its intellectual property rights and expects to continue to do so. Supply Chain and Sourcing of Materials The Company manufactures some products that use parts or materials that, due to geographical distance, limited supplier capacity or availability or competing demands for such parts or materials, are only available in a cost effective manner from a single vendor or require the Company to place orders several months in advance of required delivery. Historically, the Company attempted to mitigate product availability and these supply chain risks when possible through the purchase of safety stock, use of forecast-based supply contracts, and, to a lesser extent, with just in time inventory deliveries or supplier-owned inventory located close to the Company’s manufacturing locations. In doing so, the Company strived to balance the businesses’ need to maintain adequate inventory levels with the cost of holding such inventory by manufacturing to forecast for high volume products, utilizing build-to-order strategies wherever possible, and by having contract-manufactured products delivered to customers directly from the supplier. The Company also seeks to manage its inventory through on-going product design and logistical initiatives with its suppliers to reduce lead times. As most military contracts require utilization of domestic suppliers, the Company is limited to key vendors for materials used in its military tent business. 6 Table of Contents COVID-19 has caused widely-documented supply chain and logistics disruptions across industries, including those in which the Company operates, which have been exacerbated during the latter portion of fiscal 2021 and into fiscal 2022 due to the recent higher demand for the Company’s outdoor recreation products. Because the Company expects that these same supply chain disruptions will continue into fiscal 2022, the Company remains focused on evaluating and pursuing additional options (beyond building inventory) to manage its supply chain to meet the continued strong consumer demand for its products. Nonetheless, these supply chain disruptions remain fluid and may impact the cost of goods sold for future sales of product or the Company’s ability to fill such customer demand for its products, especially given the volatility and changing circumstances brought on by the COVID-19 pandemic. Seasonality The Company’s products in each of its business segments are primarily warm-weather, outdoor recreation-related, which has historically resulted in seasonal variations in sales and profitability for the Company. This seasonal variability traditionally was due to customers’ increasing their inventories in the quarters ending March and June, which is the typical primary selling season for the Company’s outdoor recreation products, with lower inventory volumes during the quarters ending September and December. Due to the timing of the COVID-19 outbreak, the Company’s primary-selling season during fiscal 2020 was interrupted resulting in a significant shift in sales volumes during the 2020 fiscal year toward the latter half of that year versus the normal typical primary selling season as noted above which typically occurs during the second and third fiscal quarters. The Company cannot predict at this time whether it will experience more typical seasonality in demand for its products during fiscal 2022 and beyond or whether the recent changes in the Company’s seasonality will continue into fiscal 2022. Typically and prior to the impact of COVID-19 as noted above, the Company had mitigated the seasonality of its businesses somewhat by encouraging customers to purchase and take delivery of products more evenly through the year. The following table shows, for the past three fiscal years, the total consolidated net sales and operating profit or loss of the Company for each quarter, as a percentage of the total year. See “Coronavirus (COVID-19)” in Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information of the impact of COVID-19 on the Company’s seasonality for fiscal 2020 and 2021. Fiscal Year 2021 2020 2019 Quarter Ended Net Sales Operating Profit Net Sales Operating Profit Net Sales Operating Profit December 22 % 22 % 22 % 10 % 19 % 9 % March 27 % 32 % 27 % 45 % 32 % 43 % June 29 % 34 % 23 % 17 % 31 % 43 % September 22 % 12 % 28 % 28 % 18 % 5 % 100 % 100 % 100 % 100 % 100 % 100 % Environment and Climate Change The Company is subject to various supranational, federal, state and local environmental laws, ordinances, regulations, and other requirements of governmental authorities. We believe we comply with such laws and regulations. Expenditures on environmental compliance have not had, and we believe in the future, are not expected to have, a material adverse effect on the Company’s capital expenditures, earnings or competitive position. We do not believe that any direct or indirect consequences of legislation related to climate change will have a material adverse effect on our operating costs, facilities or products. However, risk of environmental liability and charges associated with maintaining compliance with environmental laws is inherent in the nature of the Company’s business and there is no assurance that material liabilities or charges could not arise. Available Information The Company maintains a website at www.johnsonoutdoors.com. On its website, the Company makes available, free of charge, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practical after the reports have been electronically filed or furnished to the Securities and Exchange Commission. In addition, the Company makes available on its website, free of charge, its (a) proxy statement for its annual meeting of shareholders; (b) Code of Business Conduct; (c) Code of Ethics for its Chief Executive Officer and Senior Financial and Accounting Officers; (d) the charters for the following committees of the Board of Directors: Audit; 7 Table of Contents Compensation; Executive; and Nominating and Corporate Governance; and (e) Corporate Governance Guidelines, Insider Trading Policy and Incentive Compensation Recovery Policy. Except as specifically provided herein, the Company is not including the information contained on or available through its website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K. This report includes all material information about the Company that is included on the Company’s website and is otherwise required to be included in this report. Copies of any materials the Company files with the Securities and Exchange Commission (SEC) can also be obtained free of charge through the SEC’s website at www.sec.gov. The SEC’s Public Reference Room can be contacted at 100 F Street, N.E., Washington, D.C. 20549, or by calling 1 (800) 732-0330.