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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-16255
JOHNSON WORLDWIDE ASSOCIATES, INC.
(Exact name of Registrant as specified in its charter)
Wisconsin 39-1536083
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1326 Willow Road, Sturtevant, Wisconsin 53177
(Address of principal executive offices)
(414) 884-1500
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of July 24, 1998, 6,870,045 shares of Class A and 1,223,861 shares of
Class B common stock of the Registrant were outstanding.
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<PAGE>
Index Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -
Three Months and Nine Months Ended
July 3, 1998 and June 27, 1997 1
Consolidated Balance Sheets - July 3, 1998,
October 3, 1997 and June 27, 1997 2
Consolidated Statements of Cash Flows -
Nine Months Ended July 3, 1998 and
June 27, 1997 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
PART II OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
July 3 June 27 July 3 June 27
(thousands, except per share data) 1998 1997 1998 1997
Net sales $106,757 $86,894 $256,536 $234,822
Cost of sales 64,221 54,422 155,078 147,088
-------- ------- -------- --------
Gross profit 42,536 32,472 101,458 87,734
-------- ------- -------- --------
Operating expenses:
Marketing and selling 19,832 17,430 52,719 50,733
Financial and administrative
management 6,613 4,907 19,038 16,451
Research and development 1,745 1,255 5,094 3,756
Profit sharing 1,142 409 1,496 1,253
Amortization of acquisition
costs 963 562 2,818 1,728
Nonrecurring charges 959 - 1,061 -
-------- ------- -------- --------
Total operating expenses 31,254 24,563 82,226 73,921
-------- ------- -------- --------
Operating profit 11,282 7,909 19,232 13,813
Interest income (119) (105) (264) (324)
Interest expense 2,637 2,153 7,370 6,580
Other expenses, net 105 196 176 156
-------- ------- -------- --------
Income before income taxes 8,659 5,665 11,950 7,401
Income tax expense 3,755 2,379 5,091 3,653
-------- ------- -------- --------
Net income $ 4,904 $ 3,286 $ 6,859 $ 3,748
======== ======= ======== ========
Basic earnings per common share $ 0.61 $ 0.41 $ 0.85 $ 0.46
======== ======= ======== ========
Diluted earnings per common share $ 0.61 $ 0.41 $ 0.84 $ 0.46
======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
(unaudited)
July 3 October 3 June 27
(thousands, except share data) 1998 1997 1997
ASSETS
Current assets:
Cash and temporary cash investments $ 8,497 $ 7,130 $ 10,635
Accounts receivable, less allowance
for doubtful accounts of $2,856,
$2,693, and $2,195, respectively 75,033 51,168 71,528
Inventories 85,642 78,694 82,352
Deferred income taxes 7,853 7,976 9,705
Other current assets 7,172 7,781 4,318
-------- -------- --------
Total current assets 184,197 152,749 178,538
Property, plant and equipment 34,541 31,360 28,479
Deferred income taxes 10,428 10,221 6,204
Intangible assets 85,404 82,127 47,477
Other assets 510 562 612
-------- -------- --------
Total assets $315,080 $277,019 $261,310
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current
maturities of long-term debt $ 57,629 $ 26,082 $ 35,376
Accounts payable 15,546 10,672 11,101
Accrued liabilities 31,089 29,355 29,593
-------- -------- --------
Total current liabilities 104,264 66,109 76,070
Long-term debt, less current maturities 88,115 88,753 61,278
Other liabilities 4,058 4,426 3,827
-------- -------- --------
Total liabilities 196,437 159,288 141,175
-------- -------- --------
Shareholders' equity:
Preferred stock: none issued - - -
Common stock:
Class A shares issued:
July 3, 1998, 6,909,577;
October 3, 1997, 6,905,523;
June 27, 1997, 6,905,385 346 345 346
Class B shares issued (convertible
into Class A):
July 3, 1998, , 1,223,861;
October 3, 1997, 1,227,915;
June 27, 1997, 1,228,053 61 61 61
Capital in excess of par value 44,205 44,186 44,172
Retained earnings 86,714 79,882 81,580
Contingent compensation (40) (85) (110)
Cumulative translation adjustment (12,028) (6,356) (5,563)
Treasury stock:
July 3, 1998, 39,532 Class A shares;
October 3, 1997, 23,600 Class A shares;
June 27, 1997, 27,400 Class A shares (615) (302) (351)
-------- -------- --------
Total shareholders' equity 118,643 117,731 120,135
-------- -------- --------
Total liabilities and
shareholders' equity $315,080 $277,019 $261,310
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
July 3 June 27
(thousands) 1998 1997
CASH USED FOR OPERATIONS
Net income $ 6,859 $ 3,748
Noncash items:
Depreciation and amortization 10,344 7,904
Deferred income taxes 104 (1,250)
Change in assets and liabilities, net of
effect of businesses acquired or sold:
Accounts receivable, net (24,832) (25,461)
Inventories (5,637) 5,063
Accounts payable and accrued liabilities 5,477 3,444
Other, net (613) 4,698
------- -------
(8,298) (1,854)
------- -------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Net assets of businesses acquired, net of cash (12,418) -
Proceeds from sale of business, net of cash - 13,937
Net additions to property, plant and equipment (8,811) (7,330)
------- -------
(21,229) 6,607
------- -------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Issuance of senior notes 25,000 -
Net change in short-term debt 6,573 (5,123)
Common stock transactions (320) (462)
------- -------
31,253 (5,585)
Effect of foreign currency fluctuations on cash (359) (1,230)
------- -------
Increase (decrease) in cash and temporary
cash investments 1,367 (2,062)
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 7,130 12,697
------- -------
End of period $ 8,497 $10,635
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1 Basis of Presentation
The 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 Worldwide
Associates, Inc. and subsidiaries (the Company) as of July 3, 1998
and the results of operations and cash flows for the three months and
nine months ended July 3, 1998. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1997
Annual Report.
Because of seasonal and other factors, the results of operations for
the three months and nine months ended July 3, 1998 are not
necessarily indicative of the results to be expected for the full
year.
All amounts, other than share and per share amounts, are stated in
thousands.
2 Income Taxes
The provision for income taxes includes deferred taxes and is based
upon estimated annual effective tax rates in the tax jurisdictions in
which the Company operates.
3 Inventories
Inventories at the end of the respective periods consist of the following:
July 3 October 3 June 27
1998 1997 1997
Raw materials $29,202 $27,032 $31,076
Work in process 7,280 5,036 6,348
Finished goods 56,171 56,846 54,626
------- ------- -------
92,653 88,914 92,050
Less reserves 7,011 10,220 9,698
------- ------- -------
$85,642 $78,694 $82,352
======= ======= =======
4 Indebtedness
In October 1997, the Company issued unsecured senior notes totaling
$25,000 with an interest rate of 7.15%. The funding commitment for
the senior notes was received in July 1997. The senior notes have
annual principal payments of $2,000 to $7,000 beginning October 2001
with a final payment due October 2007. Simultaneous with the
commitment of the senior notes, the Company executed a foreign
currency swap, denominating in Swiss francs all principal and
interest payments required under the senior notes. The fixed,
effective interest rate to be paid on the senior notes as a result of
the currency swap is 4.32%. Proceeds from issuance of the senior
notes were used to reduce outstanding indebtedness under the
Company's primary revolving credit facility. Outstanding short-term
debt totaling $25,000 at October 3, 1997 was classified as long-term
in anticipation of refinancing with the proceeds of the senior notes.
5 Earnings Per Share
In 1998, the Company adopted FASB Statement 128, Earnings Per Share,
which replaced the previously reported earnings per share with basic
and diluted earnings per share. Basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is similar to the previously reported
fully diluted earnings per share. All per share amounts for all
periods have been restated to conform to the requirements of
Statement 128.
The following table sets forth the computation of basic and
diluted earnings per share:
Three Months Ended Nine Months Ended
July 3 June 27 July 3 June 27
1998 1997 1998 1997
Net income for basic and
diluted earnings per share $4,904 $3,286 $6,859 $3,748
========= ========= ========= =========
Weighted average shares
outstanding 8,093,906 8,106,038 8,102,585 8,112,875
Less nonvested restricted
stock (4,958) (9,801) (6,222) (9,879)
--------- --------- --------- ---------
Basic shares 8,088,948 8,096,237 8,096,363 8,102,996
Dilutive stock options and
restricted stock 10,997 6,738 24,551 10,379
--------- --------- --------- ---------
Diluted shares 8,099,945 8,102,975 8,120,914 8,113,375
========= ========= ========= =========
Basic earnings per common share $0.61 $0.41 $0.85 $0.46
===== ===== ===== =====
Diluted earnings per common share $0.61 $0.41 $0.84 $0.46
===== ===== ===== =====
6 Stock Ownership Plans
A summary of stock option activity related to the Company's plans is as
follows:
Weighted Average
Shares Exercise Price
Outstanding at October 3, 1997 686,521 $18.32
Granted 247,000 17.01
Exercised (10,243) 13.96
Cancelled (311,217) 19.19
------- ------
Outstanding at July 3, 1998 612,061 $17.42
======= ======
7 Acquisitions
In February 1998, the Company completed the acquisition of the common
stock of Leisure Life Limited, a privately held manufacturer and
marketer of small recreational boats. The purchase price, including
direct expenses, for the acquisition was approximately $10,391, of
which approximately $7,400 was recorded as intangible assets and is
being amortized over 25 years.
In October 1997, the Company completed the acquisition of certain
assets of Soniform, Inc., a manufacturer of diving buoyancy
compensators, and the common stock of Plastiques L.P.A. Limitee, a
privately held Canadian manufacturer of kayaks. The purchase prices
for the acquisitions totaled approximately $3,256.
8 Litigation
In June 1998, certain businesses acquired by the Company became
subject to judgments in civil liability cases in the amount of
$2,000. The judgments are being appealed. The Company believes that
any payments made as a result of these judgments, including costs and
expenses, will reduce payments otherwise due to selling shareholders
of the businesses acquired.
9 Reclassification
Certain amounts as previously reported have been reclassified to
conform with the current period presentation.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion includes comments and analysis relating to the
Company's results of operations and financial condition for the three
months and nine months ended July 3, 1998 and June 27, 1997. This
discussion should be read in conjunction with the consolidated financial
statements and related notes that immediately precede this section, as
well as the Company's 1997 Annual Report.
Foreign Operations
The Company has significant foreign operations, for which the functional
currencies are denominated primarily in Swiss and French francs, German
marks, Italian lire, Japanese yen 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, assets and liabilities of the Company's foreign
operations, as reported in the Company's consolidated financial
statements, increase or decrease, accordingly. The Company mitigates a
portion of the fluctuations in certain foreign currencies through the
purchase of foreign currency swaps, forward contracts and options to hedge
known commitments, primarily for purchases of inventory and other assets
denominated in foreign currencies. The appreciation of the U.S. dollar
significantly reduced the cumulative translation component of
shareholders' equity during the nine months ended July 3, 1998 and the
corresponding period in the prior year.
Results of Operations
Net sales for the three months ended July 3, 1998 totaled $106.8 million,
compared to $86.9 million in the three months ended June 27, 1997. Net
sales for the nine months ended July 3, 1998 increased $21.7 million to
$256.5 million. Sales of products from businesses acquired in 1998 and
1997 more than offset the absence of the Plastimo business, which was sold
in January 1997.
Relative to the U.S. dollar, the average values of most currencies of the
countries in which the Company has operations were lower for the three
months and nine months ended July 3, 1998 as compared to the corresponding
period of the prior year. Excluding the impact of foreign currencies and
the Plastimo business, net sales increased 25% and 16%, respectively, for
the three months and nine months ended July 3, 1998.
Gross profit as a percentage of sales increased to 39.8% for the three
months ended July 3, 1998 compared to 37.4% in the corresponding period in
the prior year. Gross profit margin for the nine months ended July 3,
1998 increased to 39.5% from 37.4% in the prior year. Acquired
businesses, which have higher gross profit margins than historical Company
levels, and the diving business contributed to the increase.
The Company recognized an operating profit of $11.3 million for the three
months ended July 3, 1998, compared to an operating profit of $7.9 million
for the corresponding period of the prior year. For the nine months ended
July 3, 1998, operating profit increased to $19.2 million, from $13.8
million in the prior year. The increases in sales and gross profit margin
led to the increased operating profit, more than offsetting increases in
operating expenses, which increased at a rate consistent with sales in the
current year.
Interest expense totaled $7.4 million for the nine months ended July 3,
1998 compared to $6.6 million for the corresponding period of the prior
year. Increased debt levels due to acquisitions consummated in 1998 and
1997, offset by improved management of working capital and a favorable
interest rate environment, accounted for the change. The Company
recognized nonrecurring charges totaling $1.0 million and $1.1 million for
the three months and nine months ended July 3, 1998, respectively, due
primarily to severance and other costs related to integration of acquired
businesses. The Company's effective tax rate improved due to a rate
reduction in Italy and an increase in profits in Switzerland, which has
lower overall tax rates.
The Company recognized net income of $4.9 million in the three months
ended July 3, 1998 compared to net income of $3.3 million in the
corresponding period of the prior year. Diluted earnings per share
totaled $0.61 for the three months ended July 3, 1998 compared to $0.41 in
the prior year. Year to date diluted earnings per share increased to
$0.84 from $0.46 in the prior year.
Financial Condition
The following discusses changes in the Company's liquidity and capital
resources.
Operations
Cash flows used for operations totaled $8.3 million for the nine months
ended July 3, 1998 and $1.9 million for the corresponding period of the
prior year.
Accounts receivable seasonally increased $24.8 million for the nine months
ended July 3, 1998 and $25.5 million for the corresponding period of the
prior year. Seasonal growth in inventories of $5.6 million for the nine
months ended July 3, 1998 also accounted for a portion of the net usage of
funds. Liquidation of excess inventories in the prior year more than
offset normal seasonal growth. Inventory turns increased for the period
ended July 3, 1998 compared to the corresponding period of the prior year.
Accounts payable and accrued liabilities increased $5.5 million for the
nine months ended July 3, 1998 and $3.4 million for the corresponding
period of the prior year, decreasing the net outflow of cash from
operations.
Depreciation and amortization charges were $10.3 million for the nine
months ended July 3, 1998 and $7.9 million for the corresponding period of
the prior year. The increase was due primarily to increased amortization
of intangible assets from businesses acquired in 1998 and 1997.
Investing Activities
Expenditures for property, plant and equipment were $8.8 million for the
nine months ended July 3, 1998 and $7.3 million for the corresponding
period of the prior year. The Company's recurring investments are made
primarily for tooling for new products and enhancements. In 1998,
capitalized expenditures are anticipated to total approximately $10
million. These expenditures are expected to be funded by working capital
or existing credit facilities.
The Company completed the acquisitions of three businesses in the nine
month period ended July 3, 1998, resulting in a use of cash of $12.4
million. The sale of the Plastimo business generated $13.9 million of
cash in the prior year.
Financing Activities
Cash flows from financing activities totaled $31.3 million for the nine
months ended July 3, 1998 versus a net cash outflow of $5.6 million for
the corresponding period of the prior year. In October 1997, the Company
consummated a private placement of long-term debt totaling $25 million.
Payments on long-term debt required to be made in 1998 total $8 million.
Other Factors
The Company has not been significantly impacted by inflationary pressures
over the last several years. However, from time to time the Company faces
changes in the prices of commodities. Price increases and, in certain
situations, price decreases are implemented for individual products, when
appropriate. The Company anticipates that changing costs of basic raw
materials may impact future operating costs and, accordingly, the prices
of its products. Fluctuations in foreign currencies may also impact the
cost of the Company's products. The Company is involved in continuing
programs to mitigate the impact of cost increases through changes in
product design, identification of sourcing and manufacturing efficiencies
and foreign currency hedges.
Forward-Looking Statements
Certain matters discussed in this Form 10-Q are "forward-looking
statements," intended to qualify for the safe harbors from liability
established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such
because the context of the statement includes phrases such as the Company
"expects", "believes" or other words of similar import. Similarly,
statements that describe the Company's future plans, objectives or goals
are also forward-looking statements. Such forward-looking statements are
subject to certain risks and uncertainties which could cause actual
results or outcomes to differ materially from those currently anticipated.
Factors that could affect actual results or outcomes include the extent of
the Year 2000 issue, adverse weather conditions, changes in consumer
spending patterns, the success of the Company's EVA/R/ and JWAction
programs, actions of companies that compete with JWA and the Company's
success in managing inventory. Shareholders, potential investors and
other readers are urged to consider these factors in evaluating the
forward-looking statements and are cautioned not to place undue reliance
on such forward-looking statements. The forward-looking statements
included herein are only made as of the date of this Form 10-Q and the
Company undertakes no obligations to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
PART II OTHER INFORMATION
Item 5. Other Information
All shareholder proposals pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended (Rule 14a-8), for presentation at
the 1999 Annual Meeting of Shareholders must be received at the
offices of the Company, 1326 Willow Road, Sturtevant Wisconsin 53177
by August 22, 1998 for inclusion in the Company's proxy statement and
form of proxy relating to that meeting. In addition, a shareholder
who otherwise intends to present business at the 1999 Annual Meeting
of Shareholders must comply with the requirements set forth in the
Company's Bylaws. Among other things, to bring business before an
annual meeting, a shareholder must give written notice thereof,
complying with the Bylaws, to the Secretary of the Company not more
than 90 days prior to the date of such annual meeting and not less
than the close of business on the later of (i) the 60th day prior to
such annual meeting and (ii) the 10th day following the day on which
public announcement of the date of such meeting is first made. Under
the Bylaws, if the Company does not receive notice of a shareholder
proposal submitted otherwise than pursuant to Rule 14a-8 (i.e.,
proposals shareholders intend to present at the 1999 Annual Meeting
of Shareholders but do not intend to have included in the Company's
proxy statement and form of proxy for such meeting) prior to the
close of business on November 27, 1998, then the notice will be
considered untimely and the Company will not be required to present
such proposal at the 1999 Annual Meeting of Shareholders. If the
Board of Directors chooses to present such proposal at the 1999
Annual Meeting of Shareholders, then the persons named in proxies
solicited by the Board of Directors for the 1999 Annual Meeting of
Shareholders may exercise discretionary voting power with respect to
such proposal. The 1999 Annual Meeting of Shareholders is scheduled
to be held on January 26, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-Q
Exhibit 27: Financial Data Schedule (EDGAR version only)
(b) There were no reports on Form 8-K filed for the three months
ended July 3, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHNSON WORLDWIDE ASSOCIATES, INC.
Date: August 14, 1998
/s/ Carl G. Schmidt
Carl G. Schmidt
Senior Vice President and Chief Financial
Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
Number
27. Financial Data Schedule (EDGAR version only) -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF JOHNSON WORLDWIDE ASSOCIATES, INC.
AS OF AND FOR THE PERIOD ENDED JULY 3, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-02-1998
<PERIOD-START> OCT-04-1997
<PERIOD-END> JUL-03-1998
<CASH> 8,497
<SECURITIES> 0
<RECEIVABLES> 77,889
<ALLOWANCES> (2,856)
<INVENTORY> 85,642
<CURRENT-ASSETS> 184,197
<PP&E> 92,342
<DEPRECIATION> (57,801)
<TOTAL-ASSETS> 315,080
<CURRENT-LIABILITIES> 104,264
<BONDS> 88,115
0
0
<COMMON> 407
<OTHER-SE> 118,236
<TOTAL-LIABILITY-AND-EQUITY> 315,080
<SALES> 256,005
<TOTAL-REVENUES> 256,536
<CGS> 155,078
<TOTAL-COSTS> 155,078
<OTHER-EXPENSES> 81,584
<LOSS-PROVISION> 554
<INTEREST-EXPENSE> 7,370
<INCOME-PRETAX> 11,950
<INCOME-TAX> 5,091
<INCOME-CONTINUING> 6,859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,859
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.84
</TABLE>
