JOHNSON OUTDOORS INC 10-Q

Item 1. Financial Statements CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended (thousands, except per share data) December 31, 2021 January 1, 2021 Net sales $ 153,524 $ 165,667 Cost of sales 92,893 90,637 Gross profit 60,631 75,030 Operating expenses: Marketing and selling 28,232 32,533 Administrative management, finance and information systems 12,230 12,891 Research and development 6,409 6,049 Total operating expenses 46,871 51,473 Operating profit 13,760 23,557 Interest income ( 93 ) ( 82 ) Interest expense 38 32 Other income, net ( 774 ) ( 2,404 ) Profit before income taxes 14,589 26,011 Income tax expense 3,733 6,164 Net income $ 10,856 $ 19,847 Weighted average common shares - Basic: Class A 8,888 8,840 Class B 1,209 1,212 Participating securities 41 39 Weighted average common shares - Dilutive 10,138 10,091 Net income per common share - Basic: Class A $ 1.08 $ 1.99 Class B $ 0.98 $ 1.81 Net income per common share - Diluted: Class A $ 1.07 $ 1.96 Class B $ 1.07 $ 1.96 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) December 31, 2021 January 1, 2021 Net income $ 10,856 $ 19,847 Other comprehensive income: Foreign currency translation ( 423 ) 2,442 Defined benefit pension plan: Change in pension plans, net of tax of $ 5 and $ 34 , respectively 16 101 Total other comprehensive (loss) income ( 407 ) 2,543 Total comprehensive income $ 10,449 $ 22,390 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) December 31, 2021 October 1, 2021 January 1, 2021 ASSETS Current assets: Cash and cash equivalents $ 167,473 $ 240,448 $ 195,923 Accounts receivable, net 86,689 71,321 97,386 Inventories 217,431 166,615 114,849 Other current assets 14,815 12,880 9,098 Total current assets 486,408 491,264 417,256 Property, plant and equipment, net of accumulated depreciation of $ 167,216 , $ 163,891 and $ 160,822 , respectively 74,064 71,510 63,657 Right of use assets 47,443 49,032 38,784 Deferred income taxes 13,187 13,129 10,850 Goodwill 11,217 11,221 11,219 Other intangible assets, net 8,570 8,633 8,911 Other assets 31,465 29,498 26,504 Total assets $ 672,354 $ 674,287 $ 577,181 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 59,241 $ 56,744 $ 44,908 Current lease liability 5,646 5,938 6,411 Accrued liabilities: Salaries, wages and benefits 19,709 26,820 16,080 Accrued warranty 12,745 14,073 11,980 Income taxes payable 10,366 9,436 10,724 Accrued discounts and returns 6,280 6,633 8,648 Accrued customer programs 5,911 6,874 5,508 Other 8,104 11,052 9,029 Total current liabilities 128,002 137,570 113,288 Non-current lease liability 42,817 44,056 33,260 Deferred income taxes 1,627 1,599 1,477 Retirement benefits 1,511 1,389 801 Deferred compensation liability 29,837 27,885 25,033 Other liabilities 1,947 3,283 4,710 Total liabilities 205,741 215,782 178,569 Shareholders’ equity: Common stock: Class A shares issued and outstanding: 8,949,163 , 8,915,636 and 8,900,608 , respectively 449 448 443 Class B shares issued and outstanding: 1,207,882 , 1,211,564 and 1,211,564 , respectively 61 61 61 Capital in excess of par value 83,869 82,899 79,379 Retained earnings 378,352 370,501 314,184 Accumulated other comprehensive income 6,979 7,386 7,260 Treasury stock at cost, shares of Class A common stock: 43,493 , 42,598 and 41,977 , respectively ( 3,097 ) ( 2,790 ) ( 2,715 ) Total shareholders’ equity 466,613 458,505 398,612 Total liabilities and shareholders’ equity $ 672,354 $ 674,287 $ 577,181 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 December 31, 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 1, 2021 10,127,200 $ 509 $ 82,899 $ 370,501 $ 7,386 $ ( 2,790 ) Net income — — — 10,856 — — Dividends declared — — — ( 3,005 ) — — Award of non-vested shares 34,422 1 ( 156 ) — — 154 Stock-based compensation — — 1,126 — — — Currency translation adjustment — — — — ( 423 ) — Change in pension plans, net of tax of $ 5 — — — — 16 — Purchase of treasury stock at cost ( 4,577 ) — — — — ( 461 ) BALANCE AT DECEMBER 31, 2021 10,157,045 $ 510 $ 83,869 $ 378,352 $ 6,979 $ ( 3,097 ) 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 ) 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) December 31, 2021 January 1, 2021 CASH USED FOR OPERATING ACTIVITIES Net income $ 10,856 $ 19,847 Adjustments to reconcile net income to net cash used for operating activities: Depreciation 3,429 3,349 Amortization of intangible assets 63 144 Amortization of deferred financing costs 9 7 Stock based compensation 1,126 711 Loss on disposal of productive assets 1 — Deferred income taxes ( 73 ) ( 146 ) Change in operating assets and liabilities: Accounts receivable, net ( 15,525 ) ( 29,693 ) Inventories, net ( 50,993 ) ( 16,627 ) Accounts payable and accrued liabilities ( 7,447 ) 7,905 Other current assets ( 1,955 ) 2,335 Other non-current assets — 4,018 Other long-term liabilities ( 2,622 ) ( 2,818 ) Other, net 358 ( 270 ) ( 62,773 ) ( 11,238 ) CASH USED FOR INVESTING ACTIVITIES Proceeds from sale of productive assets — 2 Capital expenditures ( 6,244 ) ( 4,390 ) ( 6,244 ) ( 4,388 ) CASH USED FOR FINANCING ACTIVITIES Dividends paid ( 3,005 ) ( 2,094 ) Purchases of treasury stock ( 461 ) ( 495 ) ( 3,466 ) ( 2,589 ) Effect of foreign currency rate changes on cash ( 492 ) 1,701 Decrease in cash and cash equivalents ( 72,975 ) ( 16,514 ) CASH AND CASH EQUIVALENTS Beginning of period 240,448 212,437 End of period $ 167,473 $ 195,923 Supplemental Disclosure: Cash paid for taxes $ 2,853 $ 103 Cash paid for interest 28 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 December 31, 2021 and January 1, 2021, 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 1, 2021 which was filed with the Securities and Exchange Commission on December 10, 2021. Due to seasonal variations and other factors, some of which are described herein, including related to the ongoing coronavirus (COVID-19) pandemic and subsequent disruption to the Company's global supply chain, the results of operations for the three months ended December 31, 2021 are not necessarily indicative of the results to be expected for the Company’s full 2022 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 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 travel restrictions, quarantine guidelines, and related actions. These actions promoted social distancing, and subsequently resulted in adopting programs and taking actions to encourage and promote vaccination and implementing other similar programs all in an effort to slow the spread of the virus. These measures have had significant adverse impacts upon many sectors of the economy, including manufacturing and retail commerce. While 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, the Company saw increased participation in fishing, camping and watercraft recreation and the related demand for our products in these business segments throughout fiscal 2021, largely driven by consumer desire to engage in socially distant and safe activities in the great outdoors. This trend in increased demand for our outdoor recreation products continued into fiscal 2022 across all segments. Nonetheless, the full extent to which the COVID-19 pandemic will impact our business, results of operations and financial condition during the remainder of fiscal 2022 will depend on future developments, including any potential worsening of the pandemic, and the lingering impact of the pandemic in disrupting the global supply chain (including with respect to impacting the sourcing, timing, availability and cost of raw materials and components that are necessary to manufacturing our products), all of which are beyond our control and which remain highly uncertain and cannot be predicted. 2 ACCOUNTS RECEIVABLE Accounts receivable are stated net of allowances for doubtful accounts of $ 2,662 , $ 2,494 and $ 2,823 as of December 31, 2021, October 1, 2021 and January 1, 2021, respectively. The increase in net accounts receivable to $ 86,689 as of December 31, 2021 from $ 71,321 as of October 1, 2021 is attributable to the seasonal nature of the Company’s business. 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, 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. - 6 - Index JOHNSON OUTDOORS INC. 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 December 31, 2021 and January 1, 2021, 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 December 31, 2021 and January 1, 2021, 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. Shares of 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 37,916 and 40,647 for the three months ended December 31, 2021 and January 1, 2021, 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 26,232 and 30,786 for the three month periods ended December 31, 2021 and January 1, 2021, respectively. Dividends per share Dividends per share for the three month periods ended December 31, 2021 and January 1, 2021 were as follows: - 7 - Index JOHNSON OUTDOORS INC. Three Months Ended December 31, 2021 January 1, 2021 Dividends declared per common share: Class A $ 0.30 $ 0.21 Class B $ 0.27 $ 0.19 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 474,393 shares of the Company’s Class A common stock available for future grant to non-employee directors and key executives at December 31, 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 December 31, 2021 related to the Company’s stock ownership plans is as follows: Shares Weighted Average Grant Price Non-vested stock at October 1, 2021 37,591 $ 80.86 Non-vested stock grants 7,163 101.22 Restricted stock vested ( 5,751 ) 70.39 Non-vested stock at December 31, 2021 39,003 86.13 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 1,778 and 2,341 during the three month periods ended December 31, 2021 and January 1, 2021, respectively. Stock compensation expense, net of forfeitures, related to non-vested stock was $ 295 and $ 279 for the three month periods ended December 31, 2021 and January 1, 2021, respectively. Unrecognized compensation cost related to non-vested stock as of December 31, 2021 was $ 1,858 , which amount will be amortized to expense through November 2025 or adjusted for changes in future estimated or actual forfeitures. The fair value of restricted stock vested during the three month periods ended December 31, 2021 and January 1, 2021 was $ 573 and $ 658 , respectively. Restricted Stock Units 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 - 8 - Index JOHNSON OUTDOORS INC. 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 December 31, 2021 follows: Number of RSUs Weighted Average Grant Price RSUs at October 1, 2021 69,768 $ 73.60 RSUs granted 19,758 101.22 RSUs vested ( 22,192 ) 71.42 RSUs at December 31, 2021 67,334 82.42 Stock compensation expense, net of forfeitures, related to RSUs was $ 727 and $ 432 for the three months ended December 31, 2021 and January 1, 2021, respectively. Unrecognized compensation cost related to non-vested RSUs as of December 31, 2021 was $ 4,322 , which amount will be amortized to expense through September 2024 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 2,799 and 3,320 during the three month periods ended December 31, 2021 and January 1, 2021, respectively. The fair value of restricted stock units recognized as a tax deduction during the three month periods ended December 31, 2021 and January 1, 2021 was $ 2,759 and $ 2,148 , 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 December 31, 2021, the Company issued 0 shares of Class A common stock and recognized $ 104 of expense in connection with the Employees' Stock Purchase Plan. 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 Plan. 5 PENSION PLANS The Company has 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. - 9 - Index JOHNSON OUTDOORS INC. During fiscal 2021, the Company terminated both the Johnson Outdoors Inc. Mankato Operations Pension Plan and the Old Town Canoe Company Pension Plan (collectively, "the Terminated Plans"), both of which were frozen defined benefit pension plans at the time of termination. In connection with the plan terminations, the Company settled all future obligations under the Terminated Plans through a combination of lump-sum payments to eligible participants who elected to receive them, and the transfer of any remaining benefit obligations under the Terminated Plans to a third-party insurance company under a group annuity contract. The Company still maintains the Johnson Outdoors Inc. Supplemental Executive Retirement Plan ("SERP"), and all future benefit payments to participants under this plan are made from the Company's general assets. The Company made contributions of $ 25 and $ 43 to its plans for the three months ended December 31, 2021 and January 1, 2021, respectively. The components of net periodic benefit cost related to Company sponsored defined benefit plans for the three month periods ended December 31, 2021 and January 1, 2021 were as follows: Three Months Ended December 31, 2021 January 1, 2021 Components of net periodic benefit cost: Service cost $ — $ — Interest on projected benefit obligation 7 233 Less estimated return on plan assets — 160 Amortization of unrecognized losses (gains) 21 134 Net periodic benefit cost $ 28 $ 207 6 INCOME TAXES For the three months ended December 31, 2021 and January 1, 2021, 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) December 31, 2021 January 1, 2021 Profit before income taxes $ 14,589 $ 26,011 Income tax expense 3,733 6,164 Effective income tax rate 25.6 % 23.7 % The effective tax rate was higher for the three months ended December 31, 2021 compared to the prior year period mainly due to the favorable impact from an intra-entity transfer of an asset other than inventory recorded in the prior year. 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 December 31, 2021 and January 1, 2021 were: December 31, 2021 January 1, 2021 France France Indonesia Indonesia Switzerland Switzerland - 10 - Index JOHNSON OUTDOORS INC. 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 2022 fiscal year tax expense is not anticipated to be materially impacted related to uncertain income tax positions. 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 $ 100 related to uncertain income tax positions for the fiscal year ending September 30, 2022. 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 2018-2021 Canada 2017-2021 France 2018-2021 Germany 2019-2021 Italy 2019-2021 Switzerland 2011-2021 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: December 31, 2021 October 1, 2021 January 1, 2021 Raw materials $ 150,064 $ 110,974 $ 63,353 Work in process 142 116 38 Finished goods 67,225 55,525 51,458 $ 217,431 $ 166,615 $ 114,849 8 GOODWILL The changes in goodwill during the three months ended December 31, 2021 and January 1, 2021 were as follows: December 31, 2021 January 1, 2021 Balance at beginning of period $ 11,221 $ 11,184 Amount attributable to movements in foreign currency rates ( 4 ) 35 Balance at end of period $ 11,217 $ 11,219 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. - 11 - Index JOHNSON OUTDOORS INC. 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 December 31, 2021 and January 1, 2021. December 31, 2021 January 1, 2021 Balance at beginning of period $ 14,073 $ 10,849 Expense accruals for warranties issued during the period 767 3,177 Less current period warranty claims paid 2,095 2,046 Balance at end of period $ 12,745 $ 11,980 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 December 31, 2021, October 1, 2021, or January 1, 2021. 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 (as amended, the “Credit Agreement” or “Revolver”). The Revolver 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. On July 15, 2021, the Company entered into a First Amendment to this credit facility that extended its expiration date from November 15, 2022, to July 15, 2026. Other key provisions of the credit facility remained as outlined above and the description herein is qualified in its entirety by the terms and conditions of the original Debt Agreement (a copy of which was filed as Exhibit 99.1 to the current report on Form 8-K dated and filed with the Securities and Exchange Commission on November 20, 2017) and the Amendment, (a copy of which was filed as Exhibit 10.1 to the current report on Form 8-K dated and filed with the Securities and Exchange Commission on July 16, 2021). 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 rate on the Revolver at both December 31, 2021 and January 1, 2021 was approximately 1.1 %. 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 December 31, 2021 or January 1, 2021. 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 December 31, 2021 and January 1, 2021, respectively. - 12 - Index JOHNSON OUTDOORS INC. 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 13 % of the Company’s revenues for the three month period ended December 31, 2021 were denominated in currencies other than the U.S. dollar. Approximately 5 % were denominated in euros, approximately 6 % 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 December 31, 2021 and January 1, 2021, 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 December 31, 2021, October 1, 2021 and January 1, 2021 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 accompanying Company's Condensed Consolidated Balance Sheets, and the mark to market adjustments on the assets are recorded in “Other income, net” in - 13 - Index JOHNSON OUTDOORS INC. 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 December 31, 2021: Level 1 Level 2 Level 3 Total Assets: Rabbi trust assets $ 29,835 $ — $ — $ 29,835 The following table summarizes the Company’s financial assets measured at fair value as of October 1, 2021: Level 1 Level 2 Level 3 Total Assets: Rabbi trust assets $ 27,851 $ — $ — $ 27,851 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 effect of changes in the fair value of financial instruments on the accompanying Condensed Consolidated Statements of Operations for the three month periods ended December 31, 2021 and January 1, 2021 was: Three Months Ended Location of income recognized in Statement of Operations December 31, 2021 January 1, 2021 Rabbi trust assets Other income, net $ 1,095 $ 2,596 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 December 31, 2021 or January 1, 2021. 14 NEW ACCOUNTING PRONOUNCEMENTS Recently adopted accounting pronouncements 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. 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 adopted the provisions of this ASU in fiscal 2021, however, the ASU did not have a significant impact on its disclosures. - 14 - Index JOHNSON OUTDOORS INC. In December 2019, the FASB issued ASU 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 adopted the provisions of this ASU in the first quarter of fiscal 2022, however, the ASU did not have a significant impact on its financial statements or disclosures. Recently issued accounting pronouncements In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 is intended to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued. The amendments in this guidance were effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the potential impact of this guidance on its financial statements and disclosures. 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 December 31, 2021, the right to returns asset was $ 780 and the accrued returns liability was $ 2,092 . At January 1, 2021, the right to returns asset was $ 1,367 and the accrued returns liability was $ 3,621 . 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. - 15 - Index JOHNSON OUTDOORS INC. 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 period ended December 31, 2021, combined net sales to one customer of the Company's Fishing, Camping and Watercraft Recreation segments represented approximately $ 27,305 of the Company's consolidated revenues. During the three month period ended January 1, 2021, combined net sales to two customers of the Company's Fishing, Camping and Watercraft Recreation segments represented approximately $ 53,573 of the Company's consolidated revenues. 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 December 31, 2021 January 1, 2021 October 1, 2021 Net sales: Fishing: Unaffiliated customers $ 108,181 $ 126,859 Interunit transfers 175 140 Camping: Unaffiliated customers 14,118 12,185 Interunit transfers 16 9 Watercraft Recreation: Unaffiliated customers 14,598 12,397 Interunit transfers 2 46 Diving Unaffiliated customers 16,490 14,090 Interunit transfers 1 3 Other / Corporate 137 136 Eliminations ( 194 ) ( 198 ) Total $ 153,524 $ 165,667 Operating profit (loss): Fishing $ 16,292 $ 27,763 Camping 2,750 2,808 Watercraft Recreation 1,531 1,069 Diving 453 ( 341 ) Other / Corporate ( 7,266 ) ( 7,742 ) $ 13,760 $ 23,557 Total assets (end of period): Fishing $ 344,104 $ 244,217 $ 285,321 Camping 48,204 40,901 54,276 Watercraft Recreation 35,652 24,058 27,530 Diving 67,549 68,818 67,069 Other / Corporate 176,845 199,187 240,091 $ 672,354 $ 577,181 $ 674,287 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 December 31, 2021 were as follows: Foreign Currency Translation Adjustment Unamortized Loss on Defined Benefit Pension Plans Accumulated Other Comprehensive Income (Loss) Balance at October 1, 2021 $ 7,606 $ ( 220 ) $ 7,386 Other comprehensive loss before reclassifications ( 423 ) — ( 423 ) Amounts reclassified from accumulated other comprehensive income — 21 21 Tax effects — ( 5 ) ( 5 ) Balance at December 31, 2021 $ 7,183 $ ( 204 ) $ 6,979 The changes in 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 reclassifications out of AOCI for the three months ended December 31, 2021 and January 1, 2021 were as follows: Three Months Ended December 31, 2021 January 1, 2021 Statement of Operations Presentation Unamortized loss on defined benefit pension plans: Amortization of loss $ 21 $ 135 Other income and expense Tax effects ( 5 ) ( 34 ) Income tax expense Total reclassifications for the period $ 16 $ 101 18 LEASES 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 December 31, 2021, the Company had approximately 200 leases, with remaining terms ranging from less than one year to 18 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 right-of-use ("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 definition of a lease, and the determination of the discount rate, which is assumed to be the incremental borrowing rate. The incremental borrowing - 17 - Index JOHNSON OUTDOORS INC. 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 December 31, 2021 and January 1, 2021 were as follows: Three months ended December 31, 2021 January 1, 2021 Lease Cost Operating lease costs $ 2,107 $ 2,012 Short-term lease costs 414 391 Variable lease costs 45 46 Total lease cost $ 2,566 $ 2,449 Included in the amounts in the table above were rent expense to related parties of $ 291 and $ 255 for the three months ended December 31, 2021 and January 1, 2021, respectively. As of December 31, 2021, the Company did not have any finance leases or sublease agreements. Additionally, the Company does not have any leases in which it is the lessor. While the Company extended or renewed various existing leases during the quarter, there were no significant new leases entered into during the quarter ended December 31, 2021. Supplemental balance sheet, cash flow, and other information related to operating leases was as follows: Three months ended December 31, 2021 January 1, 2021 Operating leases: Operating lease ROU assets $ 47,443 $ 38,784 Current operating lease liabilities 5,646 6,411 Non-current operating lease liabilities 42,817 33,260 Total operating lease liabilities $ 48,463 $ 39,671 Weighted average remaining lease term (in years) 12.15 9.88 Weighted average discount rate 3.09 % 2.84 % Cash paid for amounts included in the measurement of lease liabilities $ 1,875 $ 1,857 Future minimum rental commitments under non-cancelable operating leases with an initial lease term in excess of one year at December 31, 2021 were as follows: - 18 - Index JOHNSON OUTDOORS INC. Year Related parties included in total Total Remainder of 2022 $ 837 $ 6,099 2023 1,143 7,371 2024 1,178 6,696 2025 1,213 6,138 2026 1,250 4,526 Thereafter 209 29,780 Total undiscounted lease payments 5,830 60,610 Less: Imputed interest ( 222 ) ( 12,147 ) Total net lease liability $ 5,608 $ 48,463 During the second quarter of fiscal 2021, the Company amended its agreement with the landlord on an existing leased facility. Payments under the amended agreement are expected to begin in fiscal year 2022 and go through June 2039, and total estimated rental payments, not included in the amounts above, will be approximately $ 14 million over the course of the lease as amended. As of December 31, 2021, the Company did not have any other additional significant operating lease commitments that have not yet commenced.