What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2023-02-03 · 103 added, 70 removed, 104 unchanged (62% of the section changed)

1 unchanged sentence

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) includes comments and analysis relating to the results of operations and financial condition of Johnson Outdoors Inc.

and its subsidiaries (collectively, the “Company”) as of and for the three month periods ended December 30, 2022 and December 31, 2021.

and its subsidiaries (collectively, the “Company”) as of and for the three and six month periods ended March 31, 2023 and April 1, 2022.

All monetary amounts, other than share and per share amounts, are stated in thousands.

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This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related notes that immediately precede this section, as well as 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.

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Forward Looking Statements

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fluctuations in the prices of raw materials or the availability of raw materials or components used by the Company;

any disruptions in the Company's supply chain as a result of material fluctuations in the Company's order volumes and requirements for raw materials and other components, or the demand for those same raw materials and components by third parties, necessary to manufacture and produce the Company's products including related to shortages in procuring necessary raw materials and components to manufacture and produce such products;

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materials and components by third parties, necessary to manufacture and produce the Company's products including related to shortages in procuring necessary raw materials and components to manufacture and produce such products;

the success of the Company’s suppliers and customers and the impact of any consolidation in the industries of the Company's suppliers and customers;

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As a result, increased participation in outdoor recreation also increased demand for our products across many of our Company segments.

Beginning in fiscal 2023, however, we are beginning to see a reduction in consumer demand across some of our segments.

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COVID-19 and the resulting macroeconomic dynamics have also caused widely-documented supply chain and logistics disruptions across industries, as well as inflationary pressures (especially as it relates to raw material and purchased component prices).

These factors have impacted the timing, sourcing, availability and cost of raw materials and components that are necessary to manufacture our products, all of which adversely impacted our margins and inventory levels during fiscal 2022 and into the first quarter of fiscal 2023.

During the first quarter of fiscal 2023, however, we experienced some improvement in the availability of certain components necessary for manufacturing our products, specifically in the Fishing segment.

Because the Company expects that supply chain and logistics disruptions and inflationary pricing conditions will continue throughout fiscal 2023, the Company remains focused on evaluating and pursuing additional options (beyond building inventory) to meet the demand for its products, including related to evaluating options to improve margins such as implementing customer price increases.

Nonetheless, these factors remain fluid and will likely adversely impact the cost of goods sold for future sales of product.

Net sales of $178,337 for the first quarter of fiscal 2023 increased $24,813, or 16%, from the same period in the prior year.

While sales increased overall, the increased cost of goods sold associated with higher inventory costs resulting from component availability and continued supply chain disruptions, as described above, have resulted in lower gross margins.

Furthermore, higher operating expenses helped drive the $8,288 decrease in operating profit over the prior year quarter.

During the first two quarters of fiscal 2023, however, demand in certain of our segments has substantially declined from the pandemic-driven market levels in prior periods.

Moreover, in addition to impacting demand for Company products, COVID-19 and the resulting macroeconomic dynamics also caused widely-documented supply chain and logistics disruptions across industries, as well as inflationary pressures (especially as it relates to raw material and purchased component prices).

During the first half of fiscal 2023, the Company saw improvement in the availability of certain components necessary to complete finished products and converted a significant portion of its raw material inventory to finished goods available for shipping.

Net sales of $202,115 for the second quarter of fiscal 2023 increased $12,492, or 7%, from the same period in the prior year.

While sales increased overall, higher operating expenses drove a $4,039 decrease in operating profit over the prior year quarter.

During the second fiscal quarter of 2023, the Company sold the Military and Commercial Tents product lines of its Camping business segment to a third party in an asset sale for a purchase price of $14,990,000 which closed on March 17, 2023.

The net book value of the assets and liabilities sold was approximately $8,350,000, resulting in a gain on sale of approximately $6,640,000, which is recorded in Other (income) expense, net in the Company’s accompanying Condensed Consolidated Statements of Operations.

The purchase price and the net proceeds received by the Company related to this sale are subject to customary purchase price adjustment provisions and Company indemnity obligations set forth in the definitive purchase agreement.

The Company’s business is seasonal in nature.

The first fiscal quarter traditionally falls prior to the Company’s primary selling season for its warm-weather outdoor recreation products.

The second fiscal quarter traditionally falls within the Company’s primary selling season for its warm-weather outdoor recreation products.

The table below sets forth a historical view of the Company’s seasonality during the last three fiscal years.

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See “Coronavirus (COVID-19)” above for additional information regarding the impact of COVID-19.

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2022 2021 2020

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The Company’s net sales and operating profit (loss) by business segment for the periods shown below were as follows:

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Three Months Ended

December 30, 2022 December 31, 2021

Three Months Ended Six Months Ended

March 31, 2023 April 1, 2022 March 31, 2023 April 1, 2022

Fishing $ 155,341 $ 129,323 $ 293,382 $ 237,679

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Diving 20,308 18,194 39,367 34,685

Other / Eliminations (34) (57)

Other / Corporate / Eliminations (149) (70) (183) (127)

Total $ 202,115 $ 189,623 $ 380,452 $ 343,147

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Diving 1,444 1,209 1,457 1,662

Other / Eliminations (10,451) (7,266)

Other / Corporate / Eliminations (9,815) (5,384) (20,266) (12,650)

Total $ 11,390 $ 15,429 $ 16,862 $ 29,189

See “Note 16 – Segments of Business” of the notes to the accompanying Condensed Consolidated Financial Statements for the definition of segment net sales and operating profit.

Consolidated net sales for the three months ended December 30, 2022 were $178,337, an increase of $24,813, or 16%, compared to $153,524 for the three months ended December 31, 2021.

Foreign currency translation had an unfavorable impact of approximately 1% on current year first quarter net sales compared to the prior year's first quarter net sales.

Net sales for the three months ended December 30, 2022 for the Fishing business were $138,041, an increase of $29,685, or 27%, from $108,356 during the first fiscal quarter of the prior year.

The increase in sales over the prior year quarter is primarily attributable to increased supply and component availability versus the prior year quarter, resulting in our ability to fill more orders with distributors and retail partners, as well as price increases.

Net sales for the Camping business were $11,613 for the first quarter of the current fiscal year, a decrease of $2,521, or 18%, from the prior year net sales during the same period of $14,134 due to decreased sales of Jetboil and Eureka!

consumer camping products, as consumer demand declined from the increased levels seen during the pandemic.

Net sales for the first quarter of fiscal 2023 for the Watercraft Recreation business were $9,658, a decrease of $4,942, or 34%, compared to $14,600 in the prior year same period.

Reductions in consumer demand from the elevated levels seen during the pandemic drove the decline from the prior year.

Net sales for Diving, our most global business, for the first quarter of fiscal 2023 were $19,059, an increase of $2,568 or 16% versus $16,491 for the three months ended December 31, 2021.

Consolidated net sales for the three months ended March 31, 2023 were $202,115, an increase of $12,492, or 7%, compared to $189,623 for the three months ended April 1, 2022.

Foreign currency translation had an unfavorable impact of less than 1% on current year second quarter net sales compared to the prior year's second quarter net sales.

Net sales for the three months ended March 31, 2023 for the Fishing business were $155,341, an increase of $26,018, or 20%, from $129,323 during the second fiscal quarter of the prior year.

The increase in sales over the prior year quarter is primarily attributable to increased supply and component availability versus the prior year quarter, resulting in the ability to fill more orders with distributors and retail partners, as well as higher sales levels due to product price increases (which represented approximately 30% of the increase in net sales between quarters).

Net sales for the Camping business were $13,725 for the second quarter of the current fiscal year, a decrease of $5,442, or 28%, from the prior year net sales during the same period of $19,167 due to decreased sales of Jetboil and Eureka!

consumer camping products, as demand declined from the increased levels seen during the pandemic.

Due to the timing of the transaction, the sale

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of the Military and Commercial Tents product lines had a negligible effect on the decrease in segment sales quarter over quarter.

Net sales for the second quarter of fiscal 2023 for the Watercraft Recreation business were $12,890, a decrease of $10,119, or 44%, compared to $23,009 in the prior year same period.

Reductions in demand from the elevated levels seen during the pandemic drove the decline from the prior year.

Net sales for Diving, our most global business, for the second quarter of fiscal 2023 were $20,308, an increase of $2,114 or 12% versus $18,194 for the three months ended April 1, 2022.

As destination travel has rebounded, sales volumes have increased along with the increase in tourism, partially offset by an unfavorable foreign currency translation impact on sales in this segment of approximately 2% versus the prior year quarter.

For the six months ended March 31, 2023, consolidated net sales of $380,452 increased $37,305 or 11% compared to $343,147 for the six months ended April 1, 2022.

Foreign currency translation had an unfavorable impact of approximately 1% on net sales of the current year to date period versus the prior year to date period.

Net sales for the six months ended March 31, 2023 for the Fishing business were $293,382, an increase of $55,703, or 23% from $237,679 during the same period of the prior year.

In addition to price increases (which accounted for approximately 30% of the year over year increase in net sales), the increase over the prior year to date period was driven mainly by improved supply and component availability over the prior year to date period, resulting in our ability to satisfy demand for product orders.

Net sales for the Camping business were $25,338 for the six months ended March 31, 2023, a decrease of $7,963, or 24%, from the prior year net sales during the same period of $33,301, due to decreased demand from the increased levels seen during the pandemic.

Due to the timing of the transaction, the sale of the Military and Commercial Tents product lines had a negligible effect on the decrease in segment sales year over year.

Net sales for the six months ended March 31, 2023 for the Watercraft Recreation business were $22,548, a decrease of $15,061, or 40%, compared to $37,609 in the prior year same period.

Reductions in demand from the elevated levels seen during the pandemic drove the decline from the prior year.

Diving net sales were $39,367 for the six months ended March 31, 2023 versus $34,685 for the six months ended April 1, 2022, an increase of $4,682, or 13%.

The sales increase was largely due to increased demand for our products as the global tourism industry has started to recover from the pandemic.

The impact of increased sales volumes was offset in part by the unfavorable effect of foreign currency translation of 4% versus the prior year to date period.

Cost of Sales

Cost of sales for the three months ended December 30, 2022 of $115,558 increased $22,665 compared to $92,893 for the three months ended December 31, 2021.

The increase year over year was driven in part by increased sales volumes.

Additionally, while the Company began to see some relief in freight and material costs during the quarter, the cost of components, parts and other raw materials in inventory, in some cases at significantly higher price points than what was historically paid, also contributed to the increase over the prior year.

Cost of sales for the three months ended March 31, 2023 of $126,780 increased $5,742 compared to $121,038 for the three months ended April 1, 2022.

The increase year over year was driven primarily by increased sales volumes.

For the six months ended March 31, 2023, cost of sales was $242,338 compared to $213,931 in the same period of the prior year.

The increase year over year was primarily driven by increased sales volumes.

Additionally, while the Company began to see some relief in freight and material costs late in the first fiscal quarter of 2023, the cost of components, parts and other raw materials in inventory, in some cases at significantly higher price points than what was historically paid, also contributed to the increase in cost of sales over the prior year to date period.

Gross Profit Margin

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For the three months ended December 30, 2022, gross profit as a percentage of net sales was 35.2% compared to 39.5% in the three month period ended December 31, 2021.

While the Company had increased sales volumes and has implemented price increases across product lines, these actions were not enough to offset the higher costs of inventory between quarters, as discussed above.

For the three months ended March 31, 2023, gross profit as a percentage of net sales was 37.3% compared to 36.2% in the three month period ended April 1, 2022.

Factors impacting the change in gross profit percentage between quarters included increased sales volumes and the implementation of price increases across product lines.

For the six months ended March 31, 2023, gross profit as a percentage of net sales was 36.3% compared to 37.7% in the prior six month period.

Price increases and efficiencies from higher sales volumes were not significant enough to offset the negative gross profit impact of high inventory costs driven by the supply chain and logistics disruptions noted above, particularly in the first fiscal quarter of 2023.

Operating Expenses

Operating expenses were $57,307 for the three months ended December 30, 2022, compared to $46,871 for the three months ended December 31, 2021.

The increase of $10,436 was primarily due to the impact of higher sales volume-driven expenses, as well as higher compensation, health insurance and professional services costs between quarters.

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Operating expenses were $63,945 for the three months ended March 31, 2023, compared to $53,156 for the three months ended April 1, 2022.

The increase of $10,789 was primarily due to the impact of higher sales volume-driven expenses, as well as higher warranty, compensation, professional services and deferred compensation expense between quarters.

More favorable market conditions on the Company's deferred compensation plan assets resulted in approximately $3,300 of higher deferred compensation expense recorded in the Company's Corporate segment in the current year quarter as compared to the prior year quarter.

This increase in expense was entirely offset by a gain in Other (income) expense, net related to marking these deferred compensation plan assets to market.

Operating expenses were $121,252 for the six months ended March 31, 2023, compared to $100,027 for the six months ended April 1, 2022.

The increase of $21,225 was primarily due to the impact of higher sales volume-driven expenses, as well as higher warranty, compensation, professional services and deferred compensation expense, between periods.

For the year to date period, deferred compensation expense recorded in the Corporate segment increased approximately $3,500 as compared to the prior year to date period, which was offset by a gain in Other (income) expense, net.

Operating Profit

Operating profit on a consolidated basis for the three month period ended December 30, 2022 was $5,472, compared to an operating profit of $13,760 in the first quarter of the prior fiscal year.

Higher operating expenses and a drop in gross profit, as discussed above, were the primary drivers of the decrease in operating profit between quarters.

Interest expense was $37 and $38 for the three months ended December 30, 2022 and December 31, 2021, respectively.

Interest income was $827 for the three months ended December 30, 2022 compared to $93 for the three months ended December 31, 2021 due to an increase in interest rates between quarters.

Operating profit on a consolidated basis for the three month period ended March 31, 2023 was $11,390, compared to an operating profit of $15,429 in the second quarter of the prior fiscal year.

Higher operating expenses in the current year quarter, as discussed above, was the primary driver of the decrease in operating profit between quarters.

Operating profit on a consolidated basis for the six months ended March 31, 2023 was $16,862, compared to an operating profit of $29,189 in the prior year to date period.

The decrease year over year was driven primarily by higher material costs as well as the increase in operating expenses discussed above.

Interest expense was $38 and $49 for the three months ended March 31, 2023 and April 1, 2022, respectively.

Interest expense was $75 for the six months ended March 31, 2023 compared to $87 or the six months ended April 1, 2022.

Interest income was $735 and $102 for the three months ended March 31, 2023 and April 1, 2022, respectively.

Interest income was $1,562 for the six months ended March 31, 2023 compared to $195 for the six months ended April 1, 2022.

The increase in interest income over the prior year periods was driven by increased interest rates.

Other Expense (Income), net

Other income was $1,904 for the three months ended December 30, 2022 compared to $774 in the prior year period.

Net investment gains and earnings on the assets related to the Company’s non-qualified deferred compensation plan were $1,535 in the three month period ended December 30, 2022 compared to $1,334 in the three month period ended December 31, 2021.

For the three months ended December 30, 2022, foreign currency exchange gains were $276 compared to losses of $366 for the three months ended December 31, 2021.

Other income was $7,861 for the three months ended March 31, 2023 compared to other expense of $2,272 in the prior year period.

The main driver of the increase over the prior year quarter is the gain on the sale of the Military and Commercial Tents product lines of approximately $6,640 recorded in the current year quarter.

Additionally, net investment gains and earnings on the assets related to the Company’s non-qualified deferred compensation plan were $1,289 in the three month period ended March 31, 2023 compared to losses of $2,046 in the three month period ended April 1, 2022.

For the three months ended March 31, 2023, foreign currency exchange losses were $46 compared to $146 for the three months ended April 1, 2022.

For the six months ended March 31, 2023, other income was $9,765 compared to other expense of $1,498 in the six months ended April 1, 2022.

The main driver of the increase over the prior year period is the gain on the sale of the Military and Commercial Tents product lines of approximately $6,640 recorded in the current year period.

Net investment gains and earnings on the assets related to the Company's non-qualified deferred compensation plan in the six months ended March 31, 2023 were $2,824, compared to losses of $702 in the six months ended April 1, 2022.

Foreign currency exchange gains were $230 for the six months ended March 31, 2023, compared to losses of $513 for the six months ended April 1, 2022.

Income Tax Expense

The Company’s provision for income taxes is based upon estimated annual effective tax rates in the tax jurisdictions in which the Company operates.

The effective tax rate for the three month period ended December 30, 2022 was 28.0%, compared to 25.6% in the corresponding period of the prior year.

Net income for the three months ended December 30, 2022 was $5,879, or $0.57 per diluted common class A and B share, compared to net income of $10,856, or $1.07 per diluted common class A and B share, for the first quarter of the prior fiscal year.

The effective tax rate for the three and six month periods ended March 31, 2023 were 25.5% and 26.2%, respectively, compared to 25.1% and 25.3% in the corresponding periods of the prior year.

Net income for the three months ended March 31, 2023 was $14,861, or $1.45 per diluted common class A and B share, compared to net income of $9,900, or $0.97 per diluted common class A and B share, for the second quarter of the prior fiscal year.

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Net income for the six months ended March 31, 2023 was $20,740, or $2.02 per diluted common class A and B share, compared to net income of $20,756, or $2.04 per diluted common class A and B share, for the six months ended April 1, 2022.

Liquidity and Financial Condition

Cash and cash equivalents totaled $103,422 as of December 30, 2022, compared to cash and cash equivalents of $167,473 as of December 31, 2021.

The decrease in cash year over year was due primarily to the Company's decision to build and procure numerous categories of inventory (in some cases at significantly higher prices than was historically paid) in an attempt to mitigate against potential shortages since the prior year first quarter.

The Company’s debt to total capitalization ratio was 0% as of December 30, 2022 and December 31, 2021.

The Company’s total debt balance was $0 as of each of December 30, 2022 and December 31, 2021.

Cash and cash equivalents totaled $107,648 as of March 31, 2023, compared to cash and cash equivalents of $113,186 as of April 1, 2022.

The Company’s debt to total capitalization ratio was 0% as of March 31, 2023 and April 1, 2022.

The Company’s total debt balance was $0 as of each of March 31, 2023 and April 1, 2022.

See “Note 11 – Indebtedness” in the notes to the Company’s accompanying condensed consolidated financial statements for further discussion.

Accounts receivable, net of allowance for doubtful accounts, were $120,553 as of December 30, 2022, an increase of $33,864 compared to $86,689 as of December 31, 2021.

Accounts receivable, net of allowance for doubtful accounts, were $144,600 as of March 31, 2023, an increase of $25,083 compared to $119,517 as of April 1, 2022.

The increase is consistent with increased sales volumes year over year.

Inventories were $251,525 as of December 30, 2022, an increase of $34,094, compared to $217,431 as of December 31, 2021.

As noted above, the increase in our inventory balances over the prior year period is primarily due to increased purchases since then, in many instances at higher costs, in an attempt to build inventory with the goal of mitigating and/or preparing for a continuing disruption of the supply chain.

Accounts payable were $57,058 at December 30, 2022 compared to $59,241 as of December 31, 2021.

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Inventories were $236,671 as of March 31, 2023, an increase of $1,451, compared to $235,220 as of April 1, 2022.

Accounts payable were $51,855 at March 31, 2023 compared to $56,720 as of April 1, 2022.

The Company’s cash flows from operating, investing and financing activities, as presented in the Company’s accompanying Condensed Consolidated Statements of Cash Flows, are summarized in the following table:

Three months ended

(thousands) December 30,

2022 December 31,

Six months ended

(thousands) March 31,

2023 April 1,

Cash (used for) provided by:

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Operating Activities

Cash used for operations totaled $17,570 for the three months ended December 30, 2022 compared to $62,773 during the corresponding period of the prior fiscal year.

The decrease in cash used for operations over the prior year three month period was due primarily to higher inventory purchases in the prior year period, due to the Company's decision to build and procure certain raw material and component inventory in its attempt to mitigate against shortages in meeting product demand.

Depreciation and amortization charges were $3,763 for the three month period ended December 30, 2022 compared to $3,492 for the corresponding period of the prior year.

Cash used for operations totaled $18,095 for the six months ended March 31, 2023 compared to $104,648 during the corresponding period of the prior fiscal year.

The decrease in cash used for operations over the prior year six month period was due primarily to higher inventory purchases in the prior year period, due to the Company's decision to build and procure certain raw material and component inventory in its attempt to mitigate against potential pandemic-related shortages in meeting product demand.

Depreciation and amortization charges were $7,829 for the six month period ended March 31, 2023 compared to $6,914 for the corresponding period of the prior year.

Investing Activities

Cash used for investing activities totaled $6,649 for the three months ended December 30, 2022 compared to $6,244 for the corresponding period of the prior fiscal year, which was all related to capital expenditures.

Cash provided by investing activities totaled $992 for the six months ended March 31, 2023 compared to cash used by investing activities of $15,722 for the corresponding period of the prior fiscal year.

Capital expenditures were $13,998 in the six months ended March 31, 2023, compared to $15,724 in the prior year to date period.

The current year period includes proceeds of $14,990 related to the Big Tents sale previously discussed.

Any additional capital expenditures in fiscal 2023 are expected to be funded by working capital.

Financing Activities

Cash used for financing activities totaled $3,570 for the three months ended December 30, 2022 compared to $3,466 for the three month period ended December 31, 2021 and represents the payment of dividends and purchase of treasury stock.

The Company had no debt during either quarter ended December 30, 2022 and December 31, 2021.

Cash used for financing activities totaled $6,710 for the six months ended March 31, 2023 compared to $6,528 for the six month period ended April 1, 2022 and represents the payment of dividends and purchase of treasury stock.

The Company had no debt during either quarter ended March 31, 2023 and April 1, 2022.

See Note 11 "Indebtedness" to the accompanying Condensed Consolidated Financial Statements for additional information on our credit facilities.

As of December 30, 2022 the Company held approximately $46,959 of cash and cash equivalents in bank accounts in foreign taxing jurisdictions.

As of March 31, 2023 the Company held approximately $43,971 of cash and cash equivalents in bank accounts in foreign taxing jurisdictions.

Contractual Obligations and Off Balance Sheet Arrangements

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The Company has contractual obligations and commitments to make future payments including under operating leases and open purchase orders.

There have been no changes outside of the ordinary course of business in the specified contractual obligations during the quarter ended December 30, 2022.

There have been no changes outside of the ordinary course of business in the specified contractual obligations during the quarter ended March 31, 2023.

The Company utilizes letters of credit primarily as security for the payment of future claims under its workers compensation insurance.

Letters of credit outstanding were approximately $173 and $181 as of December 30, 2022 and December 31, 2021, respectively.

Letters of credit outstanding were approximately $173 and $181 as of March 31, 2023 and April 1, 2022, respectively.

The Company has no other off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The Company’s critical accounting policies and estimates are identified in the Company’s Annual Report on Form 10-K for the fiscal year ending September 30, 2022 in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Critical Accounting Estimates”, which was filed with the Securities and Exchange Commission

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on December 9, 2022.

There were no significant changes to the Company’s critical accounting policies and estimates during the three months ended December 30, 2022.

There were no significant changes to the Company’s critical accounting policies and estimates during the six months ended March 31, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis