10-Q 1 jout-20220401.htm 10-Q jout-20220401
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2022

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 OUTDOORS INC.
(Exact name of Registrant as specified in its charter)
 
Wisconsin 39-1536083
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

555 Main Street, Racine, Wisconsin 53403
(Address of principal executive offices)

(262) 631-6600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A Common Stock, $.05 par value per shareJOUT
NASDAQ Global Select MarketSM

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    No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act: Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No

As of April 29, 2022, 8,960,188 shares of Class A and 1,207,798 shares of Class B common stock of the Registrant were outstanding. 



JOHNSON OUTDOORS INC.


IndexPage No.
  
PART IFINANCIAL INFORMATION 
   
 Item 1.Financial Statements
   
  
- 1
   
  
- 2
   
  
- 3
   
- 4
  
- 5
   
  
- 6
   
 Item 2.
- 20
   
 Item 3.
- 27
   
 Item 4.
- 28
   
PART IIOTHER INFORMATION
  
 Item 1.
- 28
   
 Item 1A.
- 28
   
 Item 6.
- 29
   
  
- 29
   
  
- 30



JOHNSON OUTDOORS INC.
PART I      FINANCIAL INFORMATION
Item 1.     Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 Three Months EndedSix Months Ended
(thousands, except per share data)April 1, 2022April 2, 2021April 1, 2022April 2, 2021
Net sales$189,623 $206,156 $343,147 $371,823 
Cost of sales121,038 112,902 213,931 203,539 
Gross profit68,585 93,254 129,216 168,284 
Operating expenses:    
Marketing and selling35,691 36,068 63,923 68,601 
Administrative management, finance and information systems10,249 14,311 22,479 27,202 
Research and development7,216 6,839 13,625 12,888 
Total operating expenses53,156 57,218 100,027 108,691 
Operating profit15,429 36,036 29,189 59,593 
Interest income(102)(80)(195)(162)
Interest expense49 35 87 67 
Other expense (income), net2,272 (1,229)1,498 (3,633)
Profit before income taxes13,210 37,310 27,799 63,321 
Income tax expense3,310 9,476 7,043 15,640 
Net income$9,900 $27,834 $20,756 $47,681 
Weighted average common shares - Basic:  
Class A8,914 8,863 8,902 8,852 
Class B1,208 1,212 1,208 1,212 
Participating securities28 45 32 37 
Weighted average common shares - Dilutive10,150 10,120 10,142 10,101 
Net income per common share - Basic:  
Class A$0.99 $2.78 $2.07 $4.77 
Class B$0.90 $2.53 $1.88 $4.33 
Net income per common share - Diluted: 
Class A$0.97 $2.74 $2.04 $4.70 
Class B$0.97 $2.74 $2.04 $4.70 

The accompanying notes are an integral part of the condensed consolidated financial statements.

- 1 -


JOHNSON OUTDOORS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
 Three Months EndedSix Months Ended
(thousands)April 1, 2022April 2, 2021April 1, 2022April 2, 2021
Net income$9,900 $27,834 $20,756 $47,681 
Other comprehensive income (loss):  
 Foreign currency translation 168 (1,512)(255)930 
   Defined benefit pension plan:
Change in pension plans, net of tax of $6, $33, $11, and $67 respectively
16 101 32 202 
Total other comprehensive income (loss)184 (1,411)(223)1,132 
Total comprehensive income$10,084 $26,423 $20,533 $48,813 

The accompanying notes are an integral part of the condensed consolidated financial statements.

- 2 -


JOHNSON OUTDOORS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(thousands, except share data)April 1, 2022October 1, 2021April 2, 2021
ASSETS   
Current assets:   
Cash and cash equivalents$113,186 $240,448 $186,921 
Accounts receivable, net119,517 71,321 130,139 
Inventories235,220 166,615 124,538 
Other current assets11,232 12,880 9,171 
Total current assets479,155 491,264 450,769 
Property, plant and equipment, net of accumulated depreciation of $170,277, $163,891 and $162,934, respectively
80,155 71,510 65,749 
Right of use assets47,225 49,032 43,489 
Deferred income taxes13,142 13,129 11,334 
Goodwill11,235 11,221 11,231 
Other intangible assets, net8,504 8,633 8,753 
Other assets29,373 29,498 27,655 
Total assets$668,789 $674,287 $618,980 
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$56,720 $56,744 $50,609 
Current lease liability6,080 5,938 5,715 
Accrued liabilities:   
Salaries, wages and benefits18,712 26,820 18,221 
Accrued warranty12,083 14,073 12,791 
Income taxes payable4,027 9,436 11,277 
Accrued discounts and returns6,768 6,633 9,406 
Accrued customer programs4,871 6,874 5,741 
Other9,848 11,052 9,743 
Total current liabilities119,109 137,570 123,503 
Non-current lease liability42,233 44,056 38,670 
Deferred income taxes1,653 1,599 1,384 
Retirement benefits1,482 1,389 747 
Deferred compensation liability27,790 27,885 26,222 
Other liabilities1,936 3,283 4,718 
Total liabilities194,203 215,782 195,244 
Shareholders’ equity:   
Common stock:   
Class A shares issued and outstanding: 8,960,104, 8,915,636 and 8,906,624, respectively
450 448 447 
Class B shares issued and outstanding: 1,207,882, 1,211,564 and 1,211,564, respectively
61 61 61 
Capital in excess of par value84,978 82,899 80,183 
Retained earnings385,229 370,501 339,911 
Accumulated other comprehensive income7,163 7,386 5,849 
Treasury stock at cost, shares of Class A common stock: 46,045, 42,598 and 41,977, respectively
(3,295)(2,790)(2,715)
Total shareholders’ equity474,586 458,505 423,736 
Total liabilities and shareholders’ equity$668,789 $674,287 $618,980 

The accompanying notes are an integral part of the condensed consolidated financial statements.
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JOHNSON OUTDOORS INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)

Six Months Ended April 1, 2022
(thousands except for shares)SharesCommon StockCapital in
Excess of Par
Value
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
BALANCE AT OCTOBER 1, 202110,127,200 $509 $82,899 $370,501 $7,386 $(2,790)
Net income— — — 10,856 — — 
Dividends declared— — — (3,005)— — 
Award of non-vested shares34,422 1 (2)— — — 
B to A conversion— — (154)— — 154 
Stock-based compensation— — 1,126 — — — 
Currency translation adjustment— — — — (423)— 
Change in pension plans, net of tax of $5
— — — — 16 — 
Purchase of treasury stock at cost(4,577)— — — — (461)
BALANCE AT DECEMBER 31, 202110,157,045 $510 $83,869 $378,352 $6,979 $(3,097)
Net income— — — 9,900 — — 
Dividends declared— — — (3,023)— — 
Award of non-vested shares13,493 1 — — — — 
Stock-based compensation— — 959 — — — 
Tax effects on stock based awards— — — — — — 
Currency translation adjustment— — — — 168 — 
Change in pension plans, net of tax of $6
— — — — 16 — 
Non-vested stock forfeitures(2,040)— 150 — — (150)
Purchase of treasury stock at cost(512)— — — — (48)
BALANCE AT APRIL 1, 202210,167,986 $511 $84,978 $385,229 $7,163 $(3,295)
Six Months Ended April 2, 2021
(thousands except for shares)SharesCommon StockCapital in
Excess of Par
Value
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
BALANCE AT OCTOBER 2, 202010,084,799 $504 $78,668 $296,431 $4,717 $(2,220)
Net income— — — 19,847 — — 
Dividends declared— — — (2,094)— — 
Award of non-vested shares33,034 — — — — — 
Stock-based compensation— — 711 — — — 
Currency translation adjustment— — — — 2,442 — 
Change in pension plans, net of tax of $34
— — — — 101 — 
Purchase of treasury stock at cost(5,661)— — — — (495)
BALANCE AT JANUARY 1, 202110,112,172 $504 $79,379 $314,184 $7,260 $(2,715)
Net income— — — 27,834 — — 
Dividends declared— — — (2,107)— — 
Award of non-vested shares6,016 4 (4)— — — 
Stock-based compensation— — 808 — — — 
Currency translation adjustment— — — — (1,512)— 
Change in pension plans, net of tax of $33
— — — — 101 — 
BALANCE AT APRIL 2, 202110,118,188 $508 $80,183 $339,911 $5,849 $(2,715)
The accompanying notes are an integral part of the condensed consolidated financial statements.
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JOHNSON OUTDOORS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Six Months Ended
(thousands)April 1, 2022April 2, 2021
CASH USED FOR OPERATING ACTIVITIES  
Net income$20,756 $47,681 
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation6,785 6,467 
Amortization of intangible assets129 284 
Amortization of deferred financing costs17 13 
Stock based compensation2,085 1,519 
(Gain) loss on disposal of productive assets(1)99 
Deferred income taxes(4)(663)
Change in operating assets and liabilities:
Accounts receivable, net(48,241)(62,441)
Inventories, net(68,853)(26,918)
Accounts payable and accrued liabilities(16,579)19,366 
Other current assets1,613 2,240 
Other non-current assets (166)
Other long-term liabilities(2,558)1,245 
Other, net203 (681)
 (104,648)(11,955)
CASH USED FOR INVESTING ACTIVITIES  
Proceeds from sale of productive assets2 6 
Capital expenditures(15,724)(9,828)
 (15,722)(9,822)
CASH USED FOR FINANCING ACTIVITIES  
Dividends paid(6,019)(4,195)
Purchases of treasury stock(509)(495)
 (6,528)(4,690)
Effect of foreign currency rate changes on cash(364)951 
Decrease in cash and cash equivalents(127,262)(25,516)
CASH AND CASH EQUIVALENTS
Beginning of period240,448 212,437 
End of period$113,186 $186,921 
Supplemental Disclosure:  
Cash paid for taxes$9,569 $9,669 
Cash paid for interest59 86 

The accompanying notes are an integral part of the condensed consolidated financial statements. 
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JOHNSON OUTDOORS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1    BASIS OF PRESENTATION

The condensed consolidated financial statements included herein are unaudited. In the opinion of management, these statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Johnson Outdoors Inc. and subsidiaries (collectively, the “Company”) as of April 1, 2022 and April 2, 2021, and their results of operations for the three and six month periods then ended and cash flows for the six month periods then ended. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 1, 2021 which was filed with the Securities and Exchange Commission on December 10, 2021.

Due to seasonal variations and other factors, some of which are described herein, including related to the ongoing coronavirus (COVID-19) outbreak and resulting pandemic and the continued disruption to the global supply chain and logistics infrastructure, the results of operations for the three and six months ended April 1, 2022 are not necessarily indicative of the results to be expected for the Company’s full 2022 fiscal year.  See "Coronavirus (COVID-19)" below and “Seasonality” and "Coronavirus (COVID-19)" in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein for additional information.

The Company considers all short-term investments in interest-bearing accounts and all securities and other instruments with an original maturity of three months or less, to be equivalent to cash. Cash equivalents are stated at cost which approximates market value.

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

Coronavirus (COVID-19)
In March 2020, the World Health Organization recognized the coronavirus (COVID-19) outbreak as a global pandemic. In response to the COVID-19 outbreak, the governments of many countries, states, cities and other geographic regions imposed varying degrees of restrictions on social and commercial activity, including travel restrictions, quarantine guidelines, and related actions. These actions promoted social distancing, and subsequently resulted in adopting programs and taking actions to encourage and promote vaccination and implementing other similar programs all in an effort to slow the spread of the virus. These measures have had significant adverse impacts upon many sectors of the economy, including manufacturing and retail commerce.

While government mandates eased in the latter half of fiscal 2020, these mandates continued to emphasize social distancing measures to the general public. As a result, because we sell products that are used in a safe and socially distant manner in the great outdoors, the COVID-19 pandemic has had an overall favorable effect on our sales levels and the demand for our products starting at the end of our fiscal 2020 and continuing into fiscal 2022. Specifically, the Company has seen increased participation in fishing, camping and watercraft recreation and consumer demand for our products in these business segments. Nonetheless, the continued evolution of the pandemic has resulted in disruptions to the global supply chain and the logistics infrastructure (including with respect to the sourcing, timing, availability and cost of raw materials and components that are necessary to manufacture our products). The lingering impact of these disruptions is not fully known as they, along with certain inflationary pressures in the economy, may result in economic slowdowns and ultimately lower demand for discretionary goods like our outdoor recreational products. Furthermore, the continued impact of the pandemic on the global supply chain (including with respect to impacting the sourcing, timing, availability and cost of raw materials and components that are necessary to manufacture our products) is beyond our control and remains highly uncertain and cannot be predicted at his time.

2    ACCOUNTS RECEIVABLE

Accounts receivable are stated net of allowances for doubtful accounts of $1,504, $2,494 and $2,463 as of April 1, 2022, October 1, 2021 and April 2, 2021, respectively. The increase in net accounts receivable to $119,517 as of April 1, 2022 from $71,321 as of October 1, 2021 is attributable to the seasonal nature of the Company’s business and the impact COVID-19 has had on generating heightened interest in outdoor activities which has resulted in increases in sales volumes between periods. The determination of the allowance for doubtful accounts is based on a combination of factors. In circumstances where specific collection concerns about a receivable exist, a reserve is established to value the affected account receivable at an amount the Company believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on historical experience of bad debts as a percent of
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JOHNSON OUTDOORS INC.
accounts receivable outstanding for each business segment. Uncollectible accounts are written off against the allowance for doubtful accounts after collection efforts have been exhausted. The Company typically does not require collateral on its accounts receivable.

3    EARNINGS PER SHARE (“EPS”)

Net income or loss per share of Class A common stock and Class B common stock is computed using the two-class method.  Grants of restricted stock which receive non-forfeitable dividends are classified as participating securities and are required to be included as part of the basic weighted average share calculation under the two-class method.

Holders of Class A common stock are entitled to cash dividends equal to 110% of all dividends declared and paid on each share of Class B common stock. The Company grants shares of unvested restricted stock in the form of Class A shares, which carry the same distribution rights as the Class A common stock described above.  As such, the undistributed earnings for each period are allocated to each class of common stock based on the proportionate share of the amount of cash dividends that each such class is entitled to receive.
 
Basic EPS

Basic net income or loss per share is computed by dividing net income or loss allocated to Class A common stock and Class B common stock by the weighted-average number of shares of Class A common stock and Class B common stock outstanding, respectively.  In periods with cumulative year to date net income and undistributed income, the undistributed income for each period is allocated to each class of common stock based on the proportionate share of the amount of cash dividends that each such class is entitled to receive.  In periods where there is a cumulative year to date net loss or no undistributed income because distributions through dividends exceed net income, Class B shares are treated as anti-dilutive and, therefore, net losses are allocated equally on a per share basis among all participating securities.

For the three and six month periods ended April 1, 2022 and April 2, 2021, basic income per share for the Class A and Class B shares has been presented using the two class method and reflects the allocation of undistributed income described above. 

Diluted EPS

Diluted net income per share is computed by dividing allocated net income by the weighted-average number of common shares outstanding, adjusted for the effect of dilutive stock options, restricted stock units (“stock units” or “units”) and non-vested restricted stock.  Anti-dilutive stock options, units and non-vested stock are excluded from the calculation of diluted EPS.  The computation of diluted net income per share of Class A common stock assumes that Class B common stock is converted into Class A common stock.  Therefore, diluted net income per share is the same for both Class A and Class B common shares.  In periods where the Company reports a net loss, the effect of anti-dilutive stock options and units is excluded and diluted loss per share is equal to basic loss per share for both classes of stock.

For the three and six month periods ended April 1, 2022 and April 2, 2021, diluted net income per share reflects the effect of dilutive stock units and assumes the conversion of Class B common stock into Class A common stock. 

Shares of non-vested stock that could potentially dilute earnings per share in the future which were not included in the fully diluted computation because they would have been anti-dilutive totaled 39,163 and 40,024 for the three months ended April 1, 2022 and April 2, 2021, respectively, and 38,540 and 40,336 for the six months ended April 1, 2022 and April 2, 2021, respectively. Stock units that could potentially dilute earnings per share in the future and which were not included in the fully diluted computation because they would have been anti-dilutive were 37,904 and 24,894 for the three month periods ended April 1, 2022 and April 2, 2021, respectively, and 33,966 and 32,917 for the six month periods ended April 1, 2022 and April 2, 2021, respectively.

Dividends per share

Dividends per share for the three and six month periods ended April 1, 2022 and April 2, 2021 were as follows:

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JOHNSON OUTDOORS INC.
 Three Months EndedSix months ended
April 1, 2022April 2, 2021April 1, 2022April 2, 2021
Dividends declared per common share: 
Class A$0.30 $0.21 $0.60 $0.42 
Class B$0.27 $0.19 $0.55 $0.38 


4    STOCK-BASED COMPENSATION AND STOCK OWNERSHIP PLANS

The Company’s current stock ownership plans allow for issuance of stock options to acquire shares of Class A common stock by key executives and non-employee directors. Current plans also allow for issuance of shares of restricted stock, restricted stock units or stock appreciation rights in lieu of stock options.

Under the Company’s 2012 Non-Employee Director Stock Ownership Plan and the 2020 Long-Term Incentive Plan (the only plans where shares currently remain available for future equity incentive awards) there were a total of 466,598 shares of the Company’s Class A common stock available for future grant to non-employee directors and key executives at April 1, 2022. Share awards previously made under the Company's 2010 Long-Term Stock Incentive Plan, which no longer allows for additional share grants, also remain outstanding.
 
Non-vested Stock

All shares of non-vested restricted stock awarded by the Company have been granted in the form of shares of Class A common stock at their fair market value on the date of grant and vest within one year from the date of grant for stock granted to directors and four years from the date of grant for stock granted to officers and employees.  The fair value at date of grant is based on the number of shares granted and the average of the Company’s high and low Class A common stock price on the date of grant or, if the Company’s Class A shares did not trade on the date of grant, the average of the Company’s high and low Class A common stock price on the last preceding date on which the Company’s Class A shares traded.

A summary of non-vested stock activity for the six months ended April 1, 2022 related to the Company’s stock ownership plans is as follows:
 SharesWeighted Average
Grant Price
Non-vested stock at October 1, 202137,591 $80.86 
Non-vested stock grants14,958 90.58 
Restricted stock vested(10,098)92.08 
Forfeitures(2,040)73.52 
Non-vested stock at April 1, 202240,411 82.02 
 
Non-vested stock grantees may elect to reimburse the Company for withholding taxes due as a result of the vesting of shares by tendering a portion of the vested shares back to the Company.  Shares tendered back to the Company were 1,778 and 2,341 during the six month periods ended April 1, 2022 and April 2, 2021, respectively.

Stock compensation expense, net of forfeitures, related to non-vested stock was $266 and $297 for the three month periods ended April 1, 2022 and April 2, 2021, respectively, and $561 and $576 for the six month periods ended April 1, 2022 and April 2, 2021, respectively. Unrecognized compensation cost related to non-vested stock as of April 1, 2022 was $2,072, which amount will be amortized to expense through November 2025 or adjusted for changes in future estimated or actual forfeitures.

The fair value of restricted stock vested during the six month periods ended April 1, 2022 and April 2, 2021 was $1,053 and $1,258, respectively.

Restricted Stock Units

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JOHNSON OUTDOORS INC.
All restricted stock units (RSUs) awarded by the Company have been granted in the form of units payable in shares of Class A common stock upon vesting. The units are valued at the fair market value of a share of Class A common stock on the date of grant and vest within one year from the date of grant for RSUs granted to directors and three years from the date of grant for RSUs granted to employees.  The fair value at the date of grant is based on the number of units granted and the average of the Company’s high and low Class A common stock trading price on the date of grant or, if the Company’s Class A shares did not trade on the date of grant, the average of the Company’s high and low Class A common stock trading price on the last preceding date on which the Company’s Class A shares traded.

A summary of RSU activity for the six months ended April 1, 2022 follows:
 Number of RSUsWeighted Average
Grant Price
RSUs at October 1, 202169,768 $73.60 
RSUs granted19,758 101.22 
RSUs vested(22,192)71.42 
RSU's forfeited(1,340)74.62 
RSUs at April 1, 202265,994 82.58 
 
Stock compensation expense, net of forfeitures, related to RSUs was $597 and $511 for the three month periods ended April 1, 2022 and April 2, 2021, respectively, and $1,325 and $943 for the six month periods ended April 1, 2022 and April 2, 2021, respectively. Unrecognized compensation cost related to non-vested RSUs as of April 1, 2022 was $3,577, which amount will be amortized to expense through September 2024 or adjusted for changes in future estimated or actual forfeitures.

RSU grantees may elect to reimburse the Company for withholding taxes due as a result of the vesting of units and issuance of unrestricted shares of Class A common stock by tendering a portion of such unrestricted shares back to the Company. Shares tendered back to the Company for this purpose were 2,799 and 3,320 during the six month periods ended April 1, 2022 and April 2, 2021, respectively.

The fair value of restricted stock units recognized as a tax deduction during the six month periods ended April 1, 2022 and April 2, 2021 was $2,849 and $2,148, respectively.

Compensation expense related to units earned by employees (as opposed to grants to outside directors) is based upon the attainment of certain Company financial goals related to cumulative net sales and cumulative operating profit over a three-year performance period. Awards are only paid if at least 80% of the target levels are met and maximum payouts are made if 120% or more of target levels are achieved. The payouts for achievement at the threshold levels of performance are equal to 50% of the target award amount. The payouts for achievement at maximum levels of performance are equal to 150% of the target award amount. To the extent earned, awards are issued in shares of Company Class A common stock after the end of the three-year performance period.

Employees’ Stock Purchase Plan

The Company’s shareholders have adopted the Johnson Outdoors Inc. 2009 Employees’ Stock Purchase Plan, which was most recently amended on March 2, 2017, and which provides for the issuance of shares of Class A common stock at a purchase price of not less than 85% of the fair market value of such shares on the date of grant or on the date of purchase, whichever is lower.

During the three month period ended April 1, 2022, the Company issued 0 shares of Class A common stock and recognized $96 of expense in connection with the Employees' Stock Purchase Plan. During the six month period ended April 1, 2022, the Company issued 0 shares of Class A common stock and recognized $199 of expense in connection with the Employees' Stock Purchase Plan. During the three month period ended April 2, 2021, the Company issued 0 shares of Class A common stock and recognized $0 of expense in connection with the Plan. During the six month period ended April 2, 2021, the Company issued 0 shares of Class A common stock and recognized $0 of expense in connection with the Plan.

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JOHNSON OUTDOORS INC.
5    PENSION PLANS

The Company has non-contributory defined benefit pension plans covering certain of its U.S. employees. Retirement benefits are generally provided based on the employees’ years of service and average earnings. Normal retirement age is 65, with provisions for earlier retirement.

During the fourth quarter of fiscal 2021, the Company terminated its Johnson Outdoors Inc. Mankato Operations Pension Plan and Old Town Canoe Company Pension Plan (collectively, "the Terminated Plans"), both of which were frozen defined benefit pension plans at the time of termination. In connection with the plan terminations, the Company settled all future obligations under the Terminated Plans through a combination of lump-sum payments to eligible participants who elected to receive them, and the transfer of any remaining benefit obligations under the Terminated Plans to a third-party insurance company under a group annuity contract.

The Company still maintains the Johnson Outdoors Inc. Supplemental Executive Retirement Plan ("SERP"), and all future benefit payments to participants under this plan are made from the Company's general assets.

The Company made contributions of $25 and $44 to its pension plans for the three months ended April 1, 2022 and April 2, 2021, respectively, and contributions of $50 and $88 for the six months ended April 1, 2022 and April 2, 2021, respectively.

The components of net periodic benefit cost related to Company sponsored defined benefit plans for the three and six month periods ended April 1, 2022 and April 2, 2021 were as follows:
 Three Months EndedSix Months Ended
 April 1, 2022April 2, 2021April 1, 2022April 2, 2021
Components of net periodic benefit cost:  
Service cost$ $ $ $ 
Interest on projected benefit obligation7 233 14 466 
Less estimated return on plan assets 160  321 
Amortization of unrecognized losses21 134 42 269 
Net periodic benefit cost$28 $207 $56 $414 

6    INCOME TAXES

For the three and six months ended April 1, 2022 and April 2, 2021, the Company’s earnings before income taxes, income tax expense and effective income tax rate were as follows:

 Three Months EndedSix Months Ended
 
(thousands, except tax rate data)
April 1, 2022April 2, 2021April 1, 2022April 2, 2021
Profit before income taxes$13,210 $37,310 $27,799 $63,321 
Income tax expense3,310 9,476 7,043 15,640 
Effective income tax rate25.1 %25.4 %25.3 %24.7 %
 
The effective tax rate for the three months ended April 1, 2022 and the prior year quarter were consistent with no primary factors materially impacting the rate. The effective tax rate was higher for the six months ended April 1, 2022 compared to the prior year period mainly due to the favorable impact from an intra-entity transfer of an asset other than inventory recorded in the prior year.

The impact of the Company’s operations in jurisdictions where a valuation allowance is assessed is removed from the overall effective tax rate methodology and recorded directly based on year to date results for the year for which no tax expense or benefit can be recognized.  The significant tax jurisdictions that have a valuation allowance for the periods ended April 1, 2022 and April 2, 2021 were:
 
- 10 -


JOHNSON OUTDOORS INC.
April 1, 2022April 2, 2021
FranceFrance
IndonesiaIndonesia
SwitzerlandSwitzerland

The Company regularly assesses the adequacy of its provisions for income tax contingencies in accordance with the applicable authoritative guidance on accounting for income taxes.  As a result, the Company may adjust the reserves for unrecognized tax benefits due to the impact of changes in its assumptions or as a result of new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities and lapses of statutes of limitation.  The Company’s 2022 fiscal year tax expense is anticipated to be unchanged related to uncertain income tax positions.

In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized benefits as a component of income tax expense.  The Company is projecting accrued interest of $100 related to uncertain income tax positions for the fiscal year ending September 30, 2022.

The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions.   As of the date of this report, the following tax years remain open to examination by the respective significant tax jurisdictions:
 
JurisdictionFiscal Years
United States2018-2021
Canada2018-2021
France2018-2021
Germany2019-2021
Italy2019-2021
Switzerland2011-2021
 
7    INVENTORIES

The Company values inventory at the lower of cost (determined using the first-in first-out method) or net realizable value. Inventories at the end of the respective periods consisted of the following:

 April 1,
2022
October 1,
2021
April 2,
2021
Raw materials$163,390 $110,974 $74,780 
Work in process214 116 126 
Finished goods71,616 55,525 49,632 
 $235,220 $166,615 $124,538 

8    GOODWILL

The changes in goodwill during the six months ended April 1, 2022 and April 2, 2021 were as follows:

 April 1, 2022April 2, 2021
Balance at beginning of period$11,221 $11,184 
Amount attributable to movements in foreign currency rates14 47 
Balance at end of period$11,235 $11,231 

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JOHNSON OUTDOORS INC.
The Company evaluates the carrying value of goodwill for a reporting unit on an annual basis or more frequently when events and circumstances warrant such an evaluation.  In conducting this analysis, the Company uses the income approach to compare the reporting unit's carrying value to its indicated fair value. Fair value is determined primarily by using a discounted cash flow methodology that requires considerable management judgment and long-term assumptions and is considered a Level 3 (unobservable) fair value determination in the fair value hierarchy (see Note 13) below.

9    WARRANTIES
 
The Company provides warranties on certain of its products as they are sold. The following table summarizes the Company’s warranty activity for the six months ended April 1, 2022 and April 2, 2021.
 April 1, 2022April 2, 2021
Balance at beginning of period$14,073 $10,849 
Expense accruals for warranties issued during the period1,816 6,028 
Less current period warranty claims paid3,806 4,086 
Balance at end of period$12,083 $12,791 

10    CONTINGENCIES

The Company is subject to various legal actions and proceedings in the normal course of business, including those related to commercial disputes, product liability, intellectual property and regulatory matters. The Company is insured against loss for certain of these matters. Although litigation is subject to many uncertainties and the ultimate exposure with respect to these matters cannot be ascertained, management does not believe the final outcome of any pending litigation will have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company.

11    INDEBTEDNESS

The Company had no debt outstanding at April 1, 2022, October 1, 2021, or April 2, 2021.

Revolvers
The Company and certain of its subsidiaries have entered into an unsecured credit facility with PNC Bank National Association and Associated Bank, N.A. ("the Lending Group").  This credit facility consists of a $75 million Revolving Credit Facility among the Company, certain of the Company’s subsidiaries, PNC Bank National Association, as lender and as administrative agent, and the other lender named therein (as amended, the “Credit Agreement” or “Revolver”). The Revolver provides for borrowing of up to an aggregate principal amount not to exceed $75,000 with a $50,000 accordion feature that gives the Company the option to increase the maximum financing availability (i.e., an aggregate borrowing amount of $125,000) subject to the conditions of the Credit Agreement and subject to the approval of the lenders. On July 15, 2021, the Company entered into a First Amendment to this credit facility that extended its expiration date from November 15, 2022, to July 15, 2026. Other key provisions of the credit facility remained as outlined above and the description herein is qualified in its entirety by the terms and conditions of the original Debt Agreement (a copy of which was filed as Exhibit 99.1 to the current report on Form 8-K dated and filed with the Securities and Exchange Commission on November 20, 2017) and the Amendment, (a copy of which was filed as Exhibit 10.1 to the current report on Form 8-K dated and filed with the Securities and Exchange Commission on July 16, 2021).
 
The interest rate on the Revolver is based on LIBOR plus an applicable margin, which margin resets each quarter.  The applicable margin ranges from 1.00% to 1.75% and is dependent on the Company’s leverage ratio for the trailing twelve month period.  The interest rates on the Revolver at both April 1, 2022 and April 2, 2021 were approximately 1.4% and 1.1%, respectively.

The Credit Agreement restricts the Company's ability to incur additional debt, includes maximum leverage ratio and minimum interest coverage ratio covenants and is unsecured.

Other Borrowings
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JOHNSON OUTDOORS INC.
The Company had no unsecured revolving credit facilities at its foreign subsidiaries as of April 1, 2022 or April 2, 2021.  The Company utilizes letters of credit primarily as security for the payment of future claims under its workers’ compensation insurance, which totaled approximately $181 and $181 as of April 1, 2022 and April 2, 2021, respectively.


12    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The following disclosures describe the Company’s objectives in using derivative instruments, the business purpose or context for using derivative instruments, and how the Company believes the use of derivative instruments helps achieve the stated objectives.  In addition, the following disclosures describe the effects of the Company’s use of derivative instruments and hedging activities on its financial statements.
 
Foreign Exchange Risk
The Company has significant foreign operations, for which the functional currencies are denominated primarily in euros, Swiss francs, Hong Kong dollars and Canadian dollars. As the values of the currencies of the foreign countries in which the Company has operations increase or decrease relative to the U.S. dollar, the sales, expenses, profits, losses, assets and liabilities of the Company’s foreign operations, as reported in the Company’s consolidated financial statements, increase or decrease, accordingly.  Approximately 12% of the Company’s revenues for the six month period ended April 1, 2022 were denominated in currencies other than the U.S. dollar. Approximately 4% were denominated in euros, approximately 6% were denominated in Canadian dollars and approximately 1% were denominated in Hong Kong dollars, with the remaining revenues denominated in various other foreign currencies. Changes in foreign currency exchange rates can cause the Company to experience unexpected financial losses or cash flow needs.

The Company may mitigate a portion of the fluctuations in certain foreign currencies through the use of foreign currency forward contracts.  Foreign currency forward contracts enable the Company to lock in the foreign currency exchange rate to be paid or received for a fixed amount of currency at a specified date in the future. The Company may use such foreign currency forward contracts to mitigate the risk associated with changes in foreign currency exchange rates on financial instruments and known commitments, including commitments for inventory purchases, denominated in foreign currencies. As of April 1, 2022 and April 2, 2021, the Company held no foreign currency forward contracts.

13    FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy has been established based on three levels of inputs, of which the first two are considered observable and the last unobservable.

Level 1 - Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets or liabilities.

Level 2 - Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments.

Level 3 - Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

The carrying amounts of cash, cash equivalents, short term investments, accounts receivable, and accounts payable approximated their fair values at April 1, 2022, October 1, 2021 and April 2, 2021 due to the short term maturities of these instruments. When indicators of impairment are present, the Company may be required to value certain long-lived assets such as property, plant, and equipment, and other intangibles at their fair value.

Valuation Techniques

Rabbi Trust Assets
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JOHNSON OUTDOORS INC.
Rabbi trust assets are classified as trading securities and are comprised of marketable debt and equity securities that are marked to fair value based on unadjusted quoted prices in active markets.  The rabbi trust assets are used to fund amounts the Company owes to certain officers and other employees under the Company’s non-qualified deferred compensation plan.  These assets are included in "Other assets" in the accompanying Company's Condensed Consolidated Balance Sheets, and the mark to market adjustments on the assets are recorded in “Other income, net” in the accompanying Condensed Consolidated Statements of Operations. The offsetting deferred compensation liability is also reported at fair value as "Deferred compensation liability" in the Company's accompanying Condensed Consolidated Balance Sheets. Changes in the liability are recorded in "Administrative management, finance and information systems" expense in the accompanying Condensed Consolidated Statements of Operations.
 
The following table summarizes the Company’s financial assets measured at fair value as of April 1, 2022:
 
 Level 1Level 2Level 3Total
Assets:    
Rabbi trust assets$27,758 $ $ $27,758 
 
The following table summarizes the Company’s financial assets measured at fair value as of October 1, 2021:
 
 Level 1Level 2Level 3Total
Assets:    
Rabbi trust assets$27,851 $ $ $27,851 
 
The following table summarizes the Company’s financial assets measured at fair value as of April 2, 2021:
 
 Level 1Level 2Level 3Total
Assets:    
Rabbi trust assets$26,186 $ $ $26,186 

The effect of changes in the fair value of financial instruments on the accompanying Condensed Consolidated Statements of Operations for the three and six month periods ended April 1, 2022 and April 2, 2021 was:

  Three Months EndedSix months ended
Location of (expense) income recognized in Statement of OperationsApril 1, 2022April 2, 2021April 1, 2022April 2, 2021
Rabbi trust assetsOther (expense) income, net$(2,144)$1,204 $(1,049)$3,800 

There were no assets or liabilities measured at fair value on a non-recurring basis in periods subsequent to their initial recognition for either of the six month periods ended April 1, 2022 or April 2, 2021.

14    NEW ACCOUNTING PRONOUNCEMENTS

    Recently adopted accounting pronouncements

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326)” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively Topic 326). Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. This guidance was effective for the Company in the first quarter of fiscal year 2021, and must be adopted by applying a cumulative effect adjustment to retained earnings. The Company adopted the provisions of this ASU at the beginning of the first quarter of fiscal 2021, however the ASU did not have a significant impact on its financial statements, and therefore no adjustment to retained earnings was necessary.
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JOHNSON OUTDOORS INC.

In August 2018, the FASB issued ASU 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans (Topic 715), which modifies the disclosure requirements for employers that sponsor defined pension or postretirement plans. The amendments in this guidance are effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company adopted the provisions of this ASU in fiscal 2021, however, the ASU did not have a significant impact on its disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. The Company adopted the provisions of this ASU in the first quarter of fiscal 2022, however, the ASU did not have a significant impact on its financial statements.

    Recently issued accounting pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 is intended to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued. The amendments in this guidance were effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company does not expect this guidance to have a significant impact on its financial statements and disclosures.

15    REVENUES

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our goods at a point in time based on shipping terms and transfer of title. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. The amount of consideration received can vary, primarily because of customer incentive or rebate arrangements. The Company estimates variable consideration based on the expected value of total consideration to which customers are likely to be entitled based on historical experience and projected market expectations. Included in the estimate is an assessment as to whether any variable consideration is constrained. Revenue estimates are adjusted at the earlier of a change in the expected value of consideration or when the consideration becomes fixed. For all contracts with customers, the Company has not adjusted the promised amount of consideration for the effects of a significant financing component as the period between the transfer of the promised goods and the customer's payment is expected to be one year or less. Sales are made on normal and customary short-term credit terms, generally ranging from 30 to 90 days, or upon delivery of point of sale transactions. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.

The Company enters into contractual arrangements with customers in the form of individual customer orders which specify the goods, quantity, pricing, and associated order terms. The Company does not have contracts which are satisfied over time. Due to the nature of these contracts, no significant judgment exists in relation to the identification of the customer contract, satisfaction of the performance obligation, or transaction price. The Company expenses incremental costs of obtaining a contract due to the short-term nature of the contracts.

Estimated costs of returns, allowances and discounts, based on historic experience, are accrued as a reduction to sales when revenue is recognized. The Company provides customers the right to return eligible products under certain circumstances. At April 1, 2022, the right to returns asset was $827 and the accrued returns liability was $2,283. At April 2, 2021, the right to returns asset was $1,487 and the accrued returns liability was $4,030. The Company also offers assurance-type warranties relating to its products sold to end customers that continue to be accounted for under ASC 460 Guarantees.

The Company generally accounts for shipping and handling activities as a fulfillment activity, consistent with the timing of revenue recognition; that is, when a customer takes control of the transferred goods. In the event that a customer were to take control of a product upon or after shipment, the Company has made an accounting policy election to treat such shipping and handling activities as a fulfillment cost. Shipping and handling fees billed to customers are included in "Net Sales," and shipping and handling costs are recognized within "Marketing and selling expenses" in the same period the related revenue is recognized.

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JOHNSON OUTDOORS INC.
The Company has a wide variety of seasonal, outdoor recreation products used primarily for fishing from a boat, diving, paddling, hiking and camping, that are sold to a variety of customers in multiple end markets. Nonetheless, the revenue recognition policies are similar among all the various products sold by the Company.

See Note 16 for required disclosures of disaggregated revenue.

16    SEGMENTS OF BUSINESS

The Company conducts its worldwide operations through separate business segments, each of which represents major product lines. Operations are conducted in the United States and various foreign countries, primarily in Europe, Canada and the Pacific Basin.  During the three and six month periods ended April 1, 2022, combined net sales to one customer of the Company's Fishing, Camping and Watercraft Recreation segments represented approximately $21,616 and $48,921, respectively, of the Company's consolidated revenues. During the three and six month periods ended April 2, 2021, combined net sales to two customers of the Company's Fishing, Camping and Watercraft Recreation segments represented approximately $45,735 and $99,308, respectively, of the Company's consolidated revenues.

Net sales and operating profit include both sales to customers, as reported in the Company’s accompanying Condensed Consolidated Statements of Operations, and interunit transfers, which are priced to recover cost plus an appropriate profit margin. Total assets represent assets that are used in the Company’s operations in each business segment at the end of the periods presented.