JOHNSON OUTDOORS INC 10-Q

Item 1. Financial Statements CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended (thousands, except per share data) December 30, 2022 December 31, 2021 Net sales $ 178,337 $ 153,524 Cost of sales 115,558 92,893 Gross profit 62,779 60,631 Operating expenses: Marketing and selling 33,498 28,232 Administrative management, finance and information systems 16,284 12,230 Research and development 7,525 6,409 Total operating expenses 57,307 46,871 Operating profit 5,472 13,760 Interest income ( 827 ) ( 93 ) Interest expense 37 38 Other income, net ( 1,904 ) ( 774 ) Profit before income taxes 8,166 14,589 Income tax expense 2,287 3,733 Net income $ 5,879 $ 10,856 Weighted average common shares - Basic: Class A 8,939 8,888 Class B 1,208 1,209 Participating securities 21 41 Weighted average common shares - Dilutive 10,168 10,138 Net income per common share - Basic: Class A $ 0.58 $ 1.08 Class B $ 0.53 $ 0.98 Net income per common share - Diluted: Class A $ 0.57 $ 1.07 Class B $ 0.57 $ 1.07 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 30, 2022 December 31, 2021 Net income $ 5,879 $ 10,856 Other comprehensive income (loss): Foreign currency translation 2,937 ( 423 ) Defined benefit pension plan: Change in pension plans, net of tax of $ 3 and $ 5 , respectively 8 16 Total other comprehensive income (loss) 2,945 ( 407 ) Total comprehensive income $ 8,824 $ 10,449 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 30, 2022 September 30, 2022 December 31, 2021 ASSETS Current assets: Cash and cash equivalents $ 103,422 $ 129,803 $ 167,473 Accounts receivable, net 120,553 91,919 86,689 Inventories 251,525 248,649 217,431 Other current assets 11,024 9,945 14,815 Total current assets 486,524 480,316 486,408 Property, plant and equipment, net of accumulated depreciation of $ 176,501 , $ 171,843 and $ 167,216 , respectively 91,803 89,125 74,064 Right of use assets 55,647 56,625 47,443 Deferred income taxes 11,455 11,411 13,187 Goodwill 11,167 11,160 11,217 Other intangible assets, net 8,306 8,372 8,570 Other assets 24,194 22,922 31,465 Total assets $ 689,096 $ 679,931 $ 672,354 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 57,058 $ 53,796 $ 59,241 Current lease liability 7,510 7,223 5,646 Accrued liabilities: Salaries, wages and benefits 18,022 20,806 19,709 Accrued warranty 9,698 9,639 12,745 Income taxes payable 4,825 3,186 10,366 Accrued discounts and returns 6,253 5,214 6,280 Accrued customer programs 3,943 4,726 5,911 Other 10,129 10,123 8,104 Total current liabilities 117,438 114,713 128,002 Non-current lease liability 49,519 50,680 42,817 Deferred income taxes 1,849 1,752 1,627 Retirement benefits 1,610 1,563 1,511 Deferred compensation liability 22,684 21,466 29,837 Other liabilities 1,775 1,743 1,947 Total liabilities 194,875 191,917 205,741 Shareholders’ equity: Common stock: Class A shares issued and outstanding: 9,033,439 , 8,984,253 and 8,949,163 , respectively 453 451 449 Class B shares issued and outstanding: 1,207,798 , 1,207,798 and 1,207,882 , respectively 61 61 61 Capital in excess of par value 86,923 87,351 83,869 Retained earnings 405,574 402,821 378,352 Accumulated other comprehensive income 3,565 620 6,979 Treasury stock at cost, shares of Class A common stock: 31,265 , 45,961 and 43,493 , respectively ( 2,355 ) ( 3,290 ) ( 3,097 ) Total shareholders’ equity 494,221 488,014 466,613 Total liabilities and shareholders’ equity $ 689,096 $ 679,931 $ 672,354 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 30, 2022 (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 30, 2022 10,192,051 $ 512 $ 87,351 $ 402,821 $ 620 $ ( 3,290 ) Net income — — — 5,879 — — Dividends declared — — — ( 3,126 ) — — Award of non-vested shares 56,799 2 ( 1,381 ) — — 1,379 Stock-based compensation — — 953 — — — Currency translation adjustment — — — — 2,937 — Change in pension plans, net of tax of $ 3 — — — — 8 — Purchase of treasury stock at cost ( 7,613 ) — — — — ( 444 ) BALANCE AT DECEMBER 30, 2022 10,241,237 $ 514 $ 86,923 $ 405,574 $ 3,565 $ ( 2,355 ) 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 ( 2 ) — — — B to A conversion — — ( 154 ) — — 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 ) 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 30, 2022 December 31, 2021 CASH USED FOR OPERATING ACTIVITIES Net income $ 5,879 $ 10,856 Adjustments to reconcile net income to net cash used for operating activities: Depreciation 3,697 3,429 Amortization of intangible assets 66 63 Amortization of deferred financing costs 9 9 Stock based compensation 953 1,126 Loss on disposal of productive assets 71 1 Deferred income taxes 9 ( 73 ) Change in operating assets and liabilities: Accounts receivable, net ( 28,166 ) ( 15,525 ) Inventories, net ( 1,214 ) ( 50,993 ) Accounts payable and accrued liabilities 2,308 ( 7,447 ) Other current assets ( 1,055 ) ( 1,955 ) Other long-term liabilities ( 196 ) ( 2,622 ) Other, net 69 358 ( 17,570 ) ( 62,773 ) CASH USED FOR INVESTING ACTIVITIES Capital expenditures ( 6,649 ) ( 6,244 ) ( 6,649 ) ( 6,244 ) CASH USED FOR FINANCING ACTIVITIES Dividends paid ( 3,126 ) ( 3,005 ) Purchases of treasury stock ( 444 ) ( 461 ) ( 3,570 ) ( 3,466 ) Effect of foreign currency rate changes on cash 1,408 ( 492 ) Decrease in cash and cash equivalents ( 26,381 ) ( 72,975 ) CASH AND CASH EQUIVALENTS Beginning of period 129,803 240,448 End of period $ 103,422 $ 167,473 Supplemental Disclosure: Non-cash treasury stock activity $ 1,379 $ — Cash paid for taxes 737 2,853 Cash paid for interest 28 28 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 30, 2022 and December 31, 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 September 30, 2022 which was filed with the Securities and Exchange Commission on December 9, 2022. Due to seasonal variations and other factors, some of which are described herein, including related to the aftereffects of the COVID-19 pandemic and the ensuing related disruptions to the global supply chains and logistics infrastructure, and the current inflationary environment (especially as it relates to the cost of raw materials and purchased components), the results of operations for the three months ended December 30, 2022 are not necessarily indicative of the results to be expected for the Company’s full 2023 fiscal year. The current economic and business environment, including as it relates to inflationary pressures, combined with the continued impact of the pandemic on the global supply chain (specifically with respect to the sourcing, timing, availability and cost of raw materials and components that are necessary to manufacture our products) is beyond our control and remains highly uncertain and cannot be predicted at this time. See “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. 2 ACCOUNTS RECEIVABLE Accounts receivable are stated net of allowances for doubtful accounts of $ 1,151 , $ 1,037 and $ 2,662 as of December 30, 2022, September 30, 2022 and December 31, 2021, respectively. The increase in net accounts receivable to $ 120,553 as of December 30, 2022 from $ 91,919 as of September 30, 2022 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. 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 - 6 - Index JOHNSON OUTDOORS INC. 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 30, 2022 and December 31, 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 30, 2022 and December 31, 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 60,390 and 37,916 for the three months ended December 30, 2022 and December 31, 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 53,699 and 26,232 for the three months ended December 30, 2022 and December 31, 2021, respectively. Dividends per share Dividends per share for the three month periods ended December 30, 2022 and December 31, 2021 were as follows: Three Months Ended December 30, 2022 December 31, 2021 Dividends declared per common share: Class A $ 0.31 $ 0.30 Class B $ 0.28 $ 0.27 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 395,018 shares of the Company’s Class A common stock available for future grant to non-employee directors and key executives at December 30, 2022. 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 - 7 - Index JOHNSON OUTDOORS INC. 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 30, 2022 related to the Company’s stock ownership plans is as follows: Shares Weighted Average Grant Price Non-vested stock at September 30, 2022 58,136 $ 73.37 Non-vested stock grants 16,143 56.55 Restricted stock vested ( 7,350 ) 71.43 Non-vested stock at December 30, 2022 66,929 69.52 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 2,289 and 1,778 during the three month periods ended December 30, 2022 and December 31, 2021, respectively. Stock compensation expense, net of forfeitures, related to non-vested stock was $ 456 and $ 295 for the three month periods ended December 30, 2022 and December 31, 2021, respectively. Unrecognized compensation cost related to non-vested stock as of December 30, 2022 was $ 2,938 , which amount will be amortized to expense through December 2026 or adjusted for changes in future estimated or actual forfeitures. The fair value of restricted stock vested during the three month periods ended December 30, 2022 and December 31, 2021 was $ 429 and $ 573 , 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 stock on the date of grant and vest within one year from the date of grant for RSUs granted to directors, subject to satisfaction of applicable performance criteria, 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 30, 2022 follows: Number of RSUs Weighted Average Grant Price RSUs at September 30, 2022 65,994 $ 82.58 RSUs granted 36,484 56.54 RSUs vested ( 26,742 ) 64.51 RSUs at December 30, 2022 75,736 76.42 Stock compensation expense, net of forfeitures, related to RSUs was $ 476 and $ 727 for the three month periods ended December 30, 2022 and December 31, 2021, respectively. Unrecognized compensation cost related to non-vested RSUs as of December 30, 2022 was $ 3,175 , which amount will be amortized to expense through September 2025 or adjusted for changes in future estimated or actual forfeitures. - 8 - Index JOHNSON OUTDOORS INC. 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 5,055 and 2,799 during the three month periods ended December 30, 2022 and December 31, 2021, respectively. The fair value of restricted stock units recognized as a tax deduction during the three month periods ended December 30, 2022 and December 31, 2021 was $ 2,247 and $ 2,759 , 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 30, 2022, the Company issued 0 shares of Class A common stock and recognized $ 21 of expense in connection with the Employees' Stock Purchase Plan. 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 Plan. 5 LEASES The Company leases certain facilities and machinery and equipment under long-term, non-cancelable operating leases. The Company determines if an arrangement is a lease at inception. As of December 30, 2022, the Company had approximately 200 leases, with remaining terms ranging from less than one year to 16 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 applicable 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 December 30, 2022 and December 31, 2021 were as follows: Three months ended December 30, 2022 December 31, 2021 Lease Cost Operating lease costs $ 2,430 $ 2,107 Short-term lease costs 529 414 Variable lease costs 41 45 Total lease cost $ 3,000 $ 2,566 - 9 - Index JOHNSON OUTDOORS INC. Included in the amounts in the table above were rent expense to related parties of $ 314 and $ 291 for the three months ended December 30, 2022 and December 31, 2021, respectively. As of December 30, 2022, 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 30, 2022. As of December 30, 2022, the Company did not have any significant operating lease commitments that have not yet commenced. Supplemental balance sheet, cash flow, and other information related to operating leases was as follows: Three months ended December 30, 2022 December 31, 2021 Operating leases: Operating lease ROU assets $ 55,647 $ 47,443 Current operating lease liabilities 7,510 5,646 Non-current operating lease liabilities 49,519 42,817 Total operating lease liabilities $ 57,029 $ 48,463 Weighted average remaining lease term (in years) 12.21 12.15 Weighted average discount rate 3.15 % 3.09 % Cash paid for amounts included in the measurement of lease liabilities $ 2,149 $ 1,875 Future minimum rental commitments under non-cancelable operating leases with an initial lease term in excess of one year at December 30, 2022 were as follows: Year Related parties included in total Total Remainder of 2023 $ 929 $ 6,822 2024 1,270 8,166 2025 1,308 7,545 2026 1,348 5,878 2027 226 4,710 Thereafter — 36,096 Total undiscounted lease payments 5,081 69,217 Less: Imputed interest ( 155 ) ( 12,188 ) Total net lease liability $ 4,926 $ 57,029 6 INCOME TAXES For the three months ended December 30, 2022 and December 31, 2021, the Company’s earnings before income taxes, income tax expense and effective income tax rate were as follows: - 10 - Index JOHNSON OUTDOORS INC. Three Months Ended (thousands, except tax rate data) December 30, 2022 December 31, 2021 Profit before income taxes $ 8,166 $ 14,589 Income tax expense 2,287 3,733 Effective income tax rate 28.0 % 25.6 % The increase in the effective tax rate for the three months ended December 30, 2022 compared to the three months ended December 31, 2021 was primarily due to the unfavorable tax expense impact of stock-based compensation awards in the current year period, compared to a tax benefit for similar awards in the prior year period. 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 30, 2022 and December 31, 2021 were: December 30, 2022 December 31, 2021 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 2023 fiscal year tax expense is anticipated to be unchanged 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. 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 30, 2022 September 30, 2022 December 31, 2021 Raw materials $ 149,986 $ 166,443 $ 150,064 Work in process 229 230 142 Finished goods 101,310 81,976 67,225 $ 251,525 $ 248,649 $ 217,431 8 GOODWILL The changes in goodwill during the three months ended December 30, 2022 and December 31, 2021 were as follows: December 30, 2022 December 31, 2021 Balance at beginning of period $ 11,160 $ 11,221 Amount attributable to movements in foreign currency rates 7 ( 4 ) Balance at end of period $ 11,167 $ 11,217 - 11 - Index JOHNSON OUTDOORS INC. 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 December 30, 2022 and December 31, 2021. December 30, 2022 December 31, 2021 Balance at beginning of period $ 9,639 $ 14,073 Expense accruals for warranties issued during the period 1,852 767 Less current period warranty claims paid 1,793 2,095 Balance at end of period $ 9,698 $ 12,745 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 30, 2022, September 30, 2022, or December 31, 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 herein 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 rates on the Revolver at both December 30, 2022 and December 31, 2021 were approximately 5.4 % and 1.1 %, 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 - 12 - Index JOHNSON OUTDOORS INC. The Company had no unsecured revolving credit facilities at its foreign subsidiaries as of December 30, 2022 or December 31, 2021. The Company utilizes letters of credit primarily as security for the payment of future claims under its workers’ compensation insurance, which totaled approximately $ 173 and $ 181 as of December 30, 2022 and December 31, 2021, 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 12 % of the Company’s revenues for the three month period ended December 30, 2022 were denominated in currencies other than the U.S. dollar. Approximately 5 % were denominated in euros, approximately 5 % 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 30, 2022 and December 31, 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 30, 2022, September 30, 2022 and December 31, 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 - 13 - Index JOHNSON OUTDOORS INC. 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 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 30, 2022: Level 1 Level 2 Level 3 Total Assets: Rabbi trust assets $ 22,684 $ — $ — $ 22,684 The following table summarizes the Company’s financial assets measured at fair value as of September 30, 2022: Level 1 Level 2 Level 3 Total Assets: Rabbi trust assets $ 21,436 $ — $ — $ 21,436 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 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 30, 2022 and December 31, 2021 was: Three Months Ended Location of income recognized in Statement of Operations December 30, 2022 December 31, 2021 Rabbi trust assets Other income, net $ 1,383 $ 1,095 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 30, 2022 or December 31, 2021. 14 NEW ACCOUNTING PRONOUNCEMENTS 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. Subsequently in December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848)—Deferral of the Sunset Date of Topic 848, which delayed the effective date to December 31, 2024. The Company does not expect this guidance to have a significant impact on its financial statements and disclosures. - 14 - Index JOHNSON OUTDOORS INC. 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 30, 2022, the right to returns asset was $ 834 and the accrued returns liability was $ 2,317 . At December 31, 2021, the right to returns asset was $ 780 and the accrued returns liability was $ 2,092 . 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 period ended December 30, 2022, combined net sales to two customers of the Company's Fishing, Camping and Watercraft Recreation segments represented approximately $ 50,062 of the Company's consolidated revenues. 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. 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. - 15 - Index JOHNSON OUTDOORS INC. A summary of the Company’s operations by business segment is presented below: Three Months Ended December 30, 2022 December 31, 2021 September 30, 2022 Net sales: Fishing: Unaffiliated customers $ 137,821 $ 108,181 Interunit transfers 220 175 Camping: Unaffiliated customers 11,607 14,118 Interunit transfers 6 16 Watercraft Recreation: Unaffiliated customers 9,633 14,598 Interunit transfers 25 2 Diving Unaffiliated customers 19,042 16,490 Interunit transfers 17 1 Other / Corporate 234 137 Eliminations ( 268 ) ( 194 ) Total $ 178,337 $ 153,524 Operating profit (loss): Fishing $ 15,572 $ 16,292 Camping 753 2,750 Watercraft Recreation ( 415 ) 1,531 Diving 13 453 Other / Corporate ( 10,451 ) ( 7,266 ) $ 5,472 $ 13,760 Total assets (end of period): Fishing $ 404,600 $ 344,104 $ 382,850 Camping 55,977 48,204 59,247 Watercraft Recreation 37,053 35,652 33,496 Diving 81,518 67,549 76,475 Other / Corporate 109,948 176,845 127,863 $ 689,096 $ 672,354 $ 679,931 1 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 30, 2022 were as follows: - 16 - Index JOHNSON OUTDOORS INC. Foreign Currency Translation Adjustment Unamortized Loss on Defined Benefit Pension Plans Accumulated Other Comprehensive Income (Loss) Balance at September 30, 2022 $ 791 $ ( 171 ) $ 620 Other comprehensive loss before reclassifications 2,937 — 2,937 Amounts reclassified from accumulated other comprehensive income — 11 11 Tax effects — ( 3 ) ( 3 ) Balance at December 30, 2022 $ 3,728 $ ( 163 ) $ 3,565 The changes in 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 income 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 reclassifications out of AOCI for the three months ended December 30, 2022 and December 31, 2021 were as follows: Three Months Ended December 30, 2022 December 31, 2021 Statement of Operations Presentation Unamortized loss on defined benefit pension plans: Amortization of loss $ 11 $ 21 Other income and expense Tax effects ( 3 ) ( 5 ) Income tax expense Total reclassifications for the period $ 8 $ 16