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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 2, 1999
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 Identification No.)
incorporation or organization)
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 30, 1999, 6,905,297 shares of Class A and 1,222,861 shares of Class B
common stock of the Registrant were outstanding.
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<PAGE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
Index Page No.
- - ----------------------------------------------------------------- --------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations - three
months and nine months ended July 2, 1999 and
July 3, 1998 1
Consolidated Balance Sheets - July 2, 1999,
October 2, 1998 and July 3, 1998 2
Consolidated Statements of Cash Flows - nine
months ended July 2, 1999 and July 3, 1998 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures
<PAGE>
<TABLE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
- - ----------------------------------------------------------------------------------------------------------------------------
July 2 July 3 July 2 July 3
(thousands, except per share data) 1999 1998 1999 1998
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $119,841 $106,757 $284,051 $256,536
Cost of sales 70,736 64,221 171,016 155,078
- - ----------------------------------------------------------------------------------------------------------------------------
Gross profit 49,105 42,536 113,035 101,458
- - ----------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Marketing and selling 21,410 19,832 56,787 52,719
Finance, information systems and
administrative management 8,233 6,613 21,195 19,038
Research and development 2,065 1,745 5,953 5,094
Amortization of acquisition costs 1,038 963 3,088 2,818
Profit sharing 1,320 1,142 2,086 1,496
Nonrecurring charges 49 959 1,597 1,061
- - ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 34,115 31,254 90,706 82,226
- - ----------------------------------------------------------------------------------------------------------------------------
Operating profit 14,990 11,282 22,329 19,232
Interest income (56) (119) (219) (264)
Interest expense 2,620 2,637 7,551 7,370
Other expenses, net 148 105 243 176
- - ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 12,278 8,659 14,754 11,950
Income tax expense 5,194 3,755 6,313 5,091
- - ----------------------------------------------------------------------------------------------------------------------------
Net income $ 7,084 $ 4,904 $ 8,441 $ 6,859
- - ----------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share $ 0.88 $ 0.61 $ 1.04 $ 0.85
- - ----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share $ 0.87 $ 0.61 $ 1.04 $ 0.84
- - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-1-
<PAGE>
<TABLE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
July 2 October 2 July 3
(thousands, except share data) 1999 1998 1998
- - -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and temporary cash investments $ 9,955 $ 11,496 $ 8,497
Accounts receivable, less allowance for doubtful accounts of
$3,285, $2,570, and $2,856, respectively 84,612 53,421 75,033
Inventories 71,829 76,603 85,642
Deferred income taxes 5,648 6,067 7,853
Other current assets 6,671 6,933 7,172
- - -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 178,715 154,520 184,197
Property, plant and equipment 35,649 35,469 34,541
Deferred income taxes 15,561 15,435 10,428
Intangible assets 87,380 90,101 85,404
Other assets 1,949 492 510
- - -----------------------------------------------------------------------------------------------------------------------------------
Total assets $319,254 $296,017 $315,080
- - -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $ 73,114 $ 42,614 $ 57,629
Accounts payable 15,014 11,681 15,546
Accrued liabilities 30,287 30,724 31,089
- - -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 118,415 85,019 104,264
Long-term debt, less current maturities 72,044 82,066 88,115
Other liabilities 4,655 4,546 4,058
- - -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 195,114 171,631 196,437
- - -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock: none issued -- -- --
Common stock:
Class A shares issued:
July 2, 1999, 6,910,577; October 2, 1998, 6,909,577;
July 3, 1998, 6,909, 577 345 345 346
Class B shares issued (convertible into Class A):
July 2, 1999, 1,222,861; October 2, 1998, 1,223,861;
July 3, 1998, 1,223,861 61 61 61
Capital in excess of par value 44,068 44,205 44,205
Retained earnings 93,388 85,068 86,714
Contingent compensation (153) (27) (40)
Other comprehensive income - cumulative translation adjustment (13,487) (4,651) (12,028)
Treasury stock: Class A shares, at cost:
July 2, 1999, 5,280; October 2, 1998, 39,532;
July 3, 1998, 39,532 (82) (615) (615)
- - -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 124,140 124,386 118,643
- - -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $319,254 $296,017 $315,080
- - -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-2-
<PAGE>
<TABLE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
Nine Months Ended
- - --------------------------------------------------------------------------------------------------------------------
July 2 July 3
(thousands) 1999 1998
- - --------------------------------------------------------------------------------------------------------------------
CASH USED FOR OPERATIONS
<S> <C> <C>
Net income $ 8,441 $ 6,859
Noncash items:
Depreciation and amortization 11,266 10,344
Deferred income taxes 623 104
Change in assets and liabilities, net of effect of businesses
acquired:
Accounts receivable, net (31,620) (24,832)
Inventories 1,643 (5,637)
Accounts payable and accrued liabilities 4,227 5,477
Other, net 974 (613)
- - --------------------------------------------------------------------------------------------------------------------
(4,446) (8,298)
- - --------------------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES
Net assets of businesses acquired, net of cash (10,210) (12,418)
Net additions to property, plant and equipment (8,076) (8,811)
- - --------------------------------------------------------------------------------------------------------------------
(18,286) (21,229)
- - --------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES
Issuance of senior notes -- 25,000
Net change in short-term debt 22,053 6,573
Common stock transactions 91 (320)
- - --------------------------------------------------------------------------------------------------------------------
22,144 31,253
Effect of foreign currency fluctuations on cash (953) (359)
- - --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and temporary cash investments (1,541) 1,367
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 11,496 7,130
- - --------------------------------------------------------------------------------------------------------------------
End of period $ 9,955 $ 8,497
- - --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-3-
<PAGE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
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 2, 1999 and the results of operations and cash flows
for the three months and nine months ended July 2, 1999. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1998
Annual Report.
Because of seasonal and other factors, the results of operations for the
three months and nine months ended July 2, 1999 are not necessarily
indicative of the results to be expected for the full year.
All monetary amounts, other than share and per share amounts, are stated in
thousands.
Certain amounts as previously reported have been reclassified to conform
with the current period presentation.
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 2 October 2 July 3
1999 1998 1998
-----------------------------------------------------------------------
Raw materials $25,201 $27,834 $29,202
Work in process 2,943 4,753 7,280
Finished goods 48,859 49,875 56,171
-----------------------------------------------------------------------
77,003 82,462 92,653
Less reserves 5,174 5,859 7,011
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$71,829 $76,603 $85,642
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-4-
<PAGE>
<TABLE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
4 Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per common share:
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
July 2 July 3 July 2 July 3
1999 1998 1999 1998
---------------------------------------------------------------------------------------------------------------
Net income for basic and diluted earnings
per share $ 7,084 $ 4,904 $ 8,441 $ 6,859
---------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding
8,112,455 8,093,906 8,102,320 8,102,585
Less nonvested restricted stock (20,203) (4,958) (9,366) (6,222)
---------------------------------------------------------------------------------------------------------------
Basic average common shares 8,092,252 8,088,948 8,092,955 8,096,363
Dilutive stock options and restricted stock 17,122 10,997 6,983 24,551
---------------------------------------------------------------------------------------------------------------
Diluted average common shares 8,109,374 8,099,945 8,099,938 8,120,914
---------------------------------------------------------------------------------------------------------------
Basic earnings per common share $ 0.88 $ 0.61 $ 1.04 $ 0.85
---------------------------------------------------------------------------------------------------------------
Diluted earnings per common share $ 0.87 $ 0.61 $ 1.04 $ 0.84
---------------------------------------------------------------------------------------------------------------
</TABLE>
5 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 2, 1998 602,061 $17.43
Granted 343,000 8.52
Cancelled (150,056) 14.92
------------------------------------------------------------------------
Outstanding at July 2, 1999 795,005 $14.06
------------------------------------------------------------------------
Options to purchase 612,061 shares of common stock with a weighted average
exercise price of $17.42 per share were outstanding at July 3, 1998.
6 Acquisitions
In August 1999, the Company completed the acquisition of the common stock
of Extrasport, Inc., a privately held manufacturer and marketer of personal
flotation devices. The initial purchase price, including direct expenses,
for the acquisition was approximately $3,700, of which approximately $2,700
was recorded as intangible assets and is being amortized over 25 years.
Additional payments in 2000 through 2002 are dependent upon achievement of
specified levels of sales of the acquired business.
In April 1999, the Company completed the acquisition of substantially all
of the assets and the assumption of certain liabilities of Escape Sailboat
Company LLC, a privately held manufacturer and marketer of recreational
sailboats. The initial purchase price, including direct expenses, for the
acquisition was approximately $4,800, of which approximately $3,100 was
recorded as intangible assets and is being amortized over 25 years.
Additional payments in 2000 and 2001 are dependent upon achievement of
specified levels of sales of the acquired business.
-5-
<PAGE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
In December 1998, the Company completed the acquisition of substantially
all of the assets and the assumption of certain liabilities of True North
Paddle & Necky Kayaks Ltd., a privately held manufacturer and marketer of
Necky kayaks, and an affiliated entity. The initial purchase price,
including direct expenses, for the acquisition was approximately $5,700, of
which approximately $3,100 was recorded as intangible assets and is being
amortized over 25 years. Additional payments in the years 1999 through 2003
are dependent upon the achievement of specified levels of sales and
profitability of the acquired business.
The acquisitions were accounted for using the purchase method and,
accordingly, the Consolidated Financial Statements include the results of
operations since the respective dates of acquisition. Additional payments,
if required, will increase intangible assets in future years.
7 Litigation
In 1998, certain businesses acquired by the Company became subject to
judgments in civil liability cases. In February 1999, these cases were
settled. Payments totaling $1,600 made by the Company as a result of these
judgments reduced payments otherwise due to selling shareholders of the
businesses acquired. Accordingly, these judgments did not impact the
operating results of the Company.
8 Comprehensive Income
The Company adopted Financial Accounting Standards Board Statement 130,
Reporting Comprehensive Income, in 1999. Comprehensive income includes net
income and changes in shareholders' equity from non-owner sources. For the
Company, the elements of comprehensive income excluded from net income are
represented primarily by the cumulative translation adjustment.
Comprehensive income (loss) for the respective periods consists of the
following:
--------------------------------------------------------------------------
Three Months Ended Nine Months Ended
--------------------------------------------------------------------------
July 2 July 3 July 2 July 3
1999 1998 1999 1998
--------------------------------------------------------------------------
Net income $ 7,084 $ 4,904 $ 8,441 $ 6,859
Translation adjustment (3,676) (429) (8,836) (5,672)
--------------------------------------------------------------------------
Comprehensive income (loss) $ 3,408 $ 4,475 $ (395) $ 1,187
--------------------------------------------------------------------------
9 Segments of Business
The Company conducts its worldwide operations through five separate global
business units which represent major product lines. Operations are
conducted in the United States and various foreign countries, primarily in
Europe, Canada and the Pacific Basin.
Net sales and operating profit include both sales to customers, as reported
in the Company's consolidated statements of operations, and interunit
transfers, which are priced to recover cost plus an appropriate profit
margin. Identifiable assets represent assets that are used in the Company's
operations in each business unit at the end of the periods presented.
-6-
<PAGE>
<TABLE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
A summary of the Company's operations by business unit is presented below:
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
--------------------------------------------------------------------------------------------------------------
July 2 July 3 July 2 July 3
1999 1998 1999 1998
--------------------------------------------------------------------------------------------------------------
Net sales:
Outdoor equipment:
<S> <C> <C> <C> <C>
Unaffiliated customers $ 28,749 $ 23,664 $ 69,885 $ 58,569
Interunit transfers (16) 26 14 27
Diving:
Unaffiliated customers 22,327 24,324 59,886 65,220
Interunit transfers -- 3 9 2
Watercraft:
Unaffiliated customers 28,442 20,608 50,097 37,191
Interunit transfers 56 85 237 206
Motors:
Unaffiliated customers 21,283 18,667 52,710 44,936
Interunit transfers 498 417 1,482 1,525
Fishing:
Unaffiliated customers 18,707 19,251 50,129 49,420
Interunit transfers 76 162 399 567
Other 333 243 1,344 1,200
Eliminations (614) (693) (2,141) (2,327)
--------------------------------------------------------------------------------------------------------------
$119,841 $106,757 $284,051 $256,536
--------------------------------------------------------------------------------------------------------------
Operating profit (loss):
Outdoor equipment $ 2,191 $ 1,555 $ 3,074 $ 2,650
Diving 3,577 3,232 3,773 8,455
Watercraft 7,741 5,240 11,063 7,916
Motors 2,272 1,604 4,884 2,924
Fishing 1,300 1,109 3,472 863
Other (2,091) (1,458) (3,937) (3,576)
--------------------------------------------------------------------------------------------------------------
$ 14,990 $ 11,282 $ 22,329 $ 19,232
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
July 2 October 2 July 3
1999 1998 1998
--------------------------------------------------------------------------------------------------------------
Identifiable assets:
Outdoor equipment $ 52,745 $ 49,090 $ 57,915
Diving 93,539 104,344 103,003
Watercraft 54,306 29,340 33,995
Motors 27,910 22,905 28,957
Fishing 64,275 62,099 68,711
Other 26,479 28,239 22,499
--------------------------------------------------------------------------------------------------------------
$319,254 $296,017 $315,080
--------------------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
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 2, 1999 and July 3, 1998. 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 1998 Annual Report.
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 meaning. 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
changes in consumer spending patterns, the success of the Company's EVA(R)
program, actions of companies that compete with JWA, the Company's success in
managing inventory, movements in foreign currencies or interest rates, the
success of the Company, suppliers, customers and others regarding compliance
with year 2000 issues, and adverse weather conditions. 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.
Results of Operations
Net sales for the three months ended July 2, 1999 totaled $119.8 million, an
increase of 12% from $106.8 million in the three months ended July 3, 1998. Net
sales for the nine months ended July 2, 1999 totaled $284.1 million, an increase
of 11%, or $27.5 million, over the nine months ended July 3, 1998. Sales of the
Watercraft, Outdoor Equipment and Motors businesses exhibited strong growth for
the quarter and year to date. The Diving business was adversely impacted by the
integration of acquired businesses into its operations. The Fishing business had
high levels of sales of excess product at nominal margins in the prior year,
causing an unfavorable comparison with regard to sales. Excluding the impact of
foreign currencies, net sales increased 13% and 10% for the three and nine
months ended July 2, 1999, respectively.
Gross profit as a percentage of sales was 41.0% for the three months ended July
2, 1999 compared to 39.8% in the corresponding period of the prior year. Gross
profit for the nine months ended July 2, 1999 increased to 39.8% from 39.5% in
the prior year. Strong gains in the Fishing, Motors and Watercraft businesses
for the quarter and year to date were partially offset by a decline in higher
margin Diving sales.
The Company recognized an operating profit of $15.0 million for the three months
ended July 2, 1999, compared to an operating profit of $11.3 million for the
corresponding period of the prior year. For the nine months ended July 2, 1999,
operating profit increased to $22.3 million, from $19.2 million in the prior
year. The positive impact of increased sales on operating margins in the Motors
and Watercraft businesses and the favorable impact of the Necky and Escape
acquisitions more than offset the decline in the Diving business in the current
year and nonrecurring charges from integration of acquired businesses in both
years.
-8-
<PAGE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
Interest expense totaled $7.6 million for the nine months ended July 2, 1999
compared to $7.4 million for the corresponding period of the prior year.
Increased debt levels due to acquisitions consummated in 1999 and 1998, more
than offset improved management of working capital, and profit growth,
accounting for the change.
The Company recognized net income of $7.1 million in the three months ended July
2, 1999 compared to net income of $4.9 million in the corresponding period of
the prior year. Diluted earnings per common share totaled $0.87 for the three
months ended July 2, 1999 compared to $0.61 in the prior year. The Company
recognized net income of $8.4 million in the nine months ended July 2, 1999
compared to net income of $6.9 million in the corresponding period of the prior
year. Year to date diluted earnings per common share increased to $1.04 from
$0.84 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 $4.4 million for the nine months ended
July 2, 1999 and $8.3 million for the corresponding period of the prior year.
Accounts receivable seasonally increased $31.6 million for the nine months ended
July 2, 1999 and $24.8 million for the corresponding period of the prior year,
more than accounting for all the net usage of funds. Days of sales outstanding
at July 2, 1999 approximate the prior year levels.
Inventory declined $1.6 million for the nine months ended July 2, 1999 due to
improved inventory management, more than offsetting seasonal growth. Inventory
increased $5.6 million for the corresponding period of the prior year. Inventory
turns have improved approximately 20%, to 2.6 times, in the last twelve months.
Accounts payable and accrued liabilities seasonally increased $4.2 million for
the nine months ended July 2, 1999 and $5.5 million for the corresponding period
of the prior year, decreasing the net outflow of cash from operations.
Depreciation and amortization charges were $11.3 million for the nine months
ended July 2, 1999 and $10.3 million for the corresponding period of the prior
year. The increase was due primarily to increased amortization of intangible
assets from businesses acquired in 1999 and 1998.
Investing Activities
Expenditures for property, plant and equipment totaled $8.1 million for the nine
months ended July 2, 1999 and $8.8 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 1999, capitalized expenditures are
anticipated to total approximately $12 million. These expenditures are expected
to be funded by working capital or existing credit facilities.
The Company completed the acquisitions of two businesses in the first nine
months of the current year and three businesses in the prior year, which
increased tangible and intangible assets by $10.2 million and $12.4 million,
respectively, net of cash and liabilities assumed. An additional acquisition was
consummated in August 1999.
-9-
<PAGE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
Financing Activities
Cash flows from financing activities totaled $22.1 million for the nine months
ended July 2, 1999 and $31.3 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
1999 total $7.8 million.
Market Risk Management
The Company is exposed to market risk stemming from changes in foreign exchange
rates, interest rates and, to a lesser extent, commodity prices. Changes in
these factors could cause fluctuations in earnings and cash flows. In the normal
course of business, exposure to certain of these market risks is managed by
entering into hedging transactions authorized under Company policies that place
controls on these activities. Hedging transactions involve the use of a variety
of derivative financial instruments. Derivatives are used only where there is an
underlying exposure: not for trading or speculative purposes.
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.
Interest Rates
The Company's debt structure and interest rate risk are managed through the use
of fixed and floating rate debt. The Company's primary exposure is to United
States interest rates. The Company also periodically enters into interest rate
swaps, caps or collars to hedge its exposure and lower financing costs.
Commodities
Certain components used in the Company's products are exposed to commodity price
changes. The Company manages this risk through instruments such as purchase
orders and non-cancelable supply contracts. Primary commodity price exposures
are metals and packaging materials.
Sensitivity to Changes in Value
The estimates that follow are intended to measure the maximum potential fair
value or earnings the Company could lose in one year from adverse changes in
foreign exchange rates or market interest rates under normal market conditions.
The calculations are not intended to represent actual losses in fair value or
earnings that the Company expects to incur. The estimates do not consider
favorable changes in market rates. Further, since the hedging instrument (the
derivative) inversely correlates with the underlying exposure, any loss or gain
in the fair value of derivatives would be generally offset by an increase or
decrease in the fair value of the underlying exposures. The positions included
in the calculations are foreign exchange forwards, currency swaps and fixed rate
debt. Certain instruments are included in both categories of risk exposure
calculated below. The calculations do not include the underlying foreign
exchange positions that are hedged by these market risk sensitive instruments.
The table below presents the estimated maximum potential one year loss in fair
value and earnings before
-10-
<PAGE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
income taxes from a 10% movement in foreign currencies and a 100 basis point
movement in interest rate market risk sensitive instruments outstanding at July
2, 1999:
- - --------------------------------------------------------------------------------
Estimated Impact on
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Earnings Before Income
(millions) Fair Value Taxes
- - --------------------------------------------------------------------------------
Foreign exchange rate instruments $ 2.3 $--
Interest rate instruments 3.9 0.8
- - --------------------------------------------------------------------------------
Other Factors
The Company has not been significantly impacted by inflationary pressures over
the last several years. The Company anticipates that changing costs of basic raw
materials may impact future operating costs and, accordingly, the prices of its
products. The Company is involved in continuing programs to mitigate the impact
of cost increases through changes in product design and identification of
sourcing and manufacturing efficiencies. Price increases and, in certain
situations, price decreases are implemented for individual products, when
appropriate.
Year 2000
The year 2000 issue is the result of computer programs using two digits (rather
than four) to define years. Computers or other equipment with date sensitive
software may recognize "00" as the year 1900 rather than 2000. This could result
in system failures or miscalculations. If the Company or its significant
customers or suppliers fail to correct year 2000 issues, the Company's ability
to operate could be materially affected.
The Company has assessed the impact of year 2000 issues on the processing of
date-related information for all of its information systems infrastructure and
non-technical assets, such as production equipment. All systems and
non-technical assets are in the process of being inventoried and classified as
to their compliance with year 2000 data processing. Any systems found year 2000
deficient will be modified, upgraded or replaced. Project plans anticipate all
existing, critical information systems infrastructure and non-technical assets
to be year 2000 compliant before failure to comply would significantly disrupt
the Company's operations. Contingency plans are being developed to address any
failures resulting from relationships with customers, suppliers or other third
parties. The Company has made inquiries of its suppliers, customers and other
organizations which impact the Company's business, but cannot guarantee that
circumstances beyond its control will not have an adverse impact on its
operations.
Since 1993, the Company has invested more than $10 million in information
systems improvements and has been migrating its businesses to systems that are
year 2000 compliant. Based on assessments and testing to date, the financial
impact of addressing any potential remaining internal system issues should not
be material to the Company's financial position, results of operations or cash
flows.
-11-
<PAGE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to this item is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations under the heading
"Market Risk Management."
PART II OTHER INFORMATION
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
(b) There were no reports on Form 8-K filed for the three months
ended July 2, 1999.
-12-
<PAGE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
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 16, 1999
/s/ Carl G. Schmidt
---------------------------------------------
Carl G. Schmidt
Senior Vice President and Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
-13-
<PAGE>
JOHNSON WORLDWIDE ASSOCIATES, INC.
EXHIBIT INDEX
Page
Exhibit Description Number
- - ------------------------------------------------------------------------
27. Financial Data Schedule -
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF JOHNSON WORLDWIDE ASSOCIATES,
INC. AS OF AND FOR THE PERIOD ENDED JULY 2, 1999 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-01-1999
<PERIOD-START> OCT-03-1998
<PERIOD-END> JUL-02-1999
<CASH> 9,955
<SECURITIES> 0
<RECEIVABLES> 87,898
<ALLOWANCES> (3,285)
<INVENTORY> 71,829
<CURRENT-ASSETS> 178,715
<PP&E> 102,041
<DEPRECIATION> (66,392)
<TOTAL-ASSETS> 319,254
<CURRENT-LIABILITIES> 118,415
<BONDS> 72,044
0
0
<COMMON> 407
<OTHER-SE> 123,733
<TOTAL-LIABILITY-AND-EQUITY> 319,254
<SALES> 283,497
<TOTAL-REVENUES> 284,051
<CGS> 171,016
<TOTAL-COSTS> 171,016
<OTHER-EXPENSES> 89,184
<LOSS-PROVISION> 1,646
<INTEREST-EXPENSE> 7,551
<INCOME-PRETAX> 14,754
<INCOME-TAX> 6,313
<INCOME-CONTINUING> 8,441
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,441
<EPS-BASIC> 1.04
<EPS-DILUTED> 1.04
</TABLE>
