Johnson Outdoors (JOUT) - 2021 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis for the period, highlighting significant growth and a strong financial position Item 1. Financial Statements The company's unaudited condensed consolidated financial statements for the three and nine months ended July 2, 2021, show significant growth in revenue and net income compared to the prior-year period, largely driven by increased consumer demand for outdoor recreation products following the easing of COVID-19 restrictions, with the balance sheet reflecting a strong liquidity position with increased cash and no outstanding debt Condensed Consolidated Statements of Operations This statement details the company's revenue, gross profit, operating profit, and net income for the three and nine months ended July 2, 2021, showing significant year-over-year growth Condensed Consolidated Statements of Operations (in thousands of US dollars) | Metric | Three Months Ended July 2, 2021 | Three Months Ended June 26, 2020 | Nine Months Ended July 2, 2021 | Nine Months Ended June 26, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $213,568 | $138,390 | $585,391 | $429,528 | | Gross Profit | $97,511 | $62,562 | $265,795 | $191,306 | | Operating Profit | $38,099 | $12,929 | $97,692 | $51,524 | | Net Income | $28,774 | $12,869 | $76,455 | $39,686 | | Diluted EPS (Class A) | $2.83 | $1.27 | $7.53 | $3.93 | Condensed Consolidated Balance Sheets This statement presents the company's assets, liabilities, and shareholders' equity as of July 2, 2021, October 2, 2020, and June 26, 2020, highlighting a strong cash position Condensed Consolidated Balance Sheets (in thousands of US dollars) | Asset/Liability | July 2, 2021 | October 2, 2020 | June 26, 2020 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $249,016 | $212,437 | $181,445 | | Accounts receivable, net | $94,750 | $67,292 | $82,577 | | Inventories | $130,742 | $97,437 | $94,218 | | Total current assets | $486,564 | $388,538 | $365,881 | | Total assets | $659,395 | $546,026 | $517,609 | | Total current liabilities | $132,715 | $105,607 | $98,799 | | Total liabilities | $207,071 | $167,926 | $156,075 | | Total shareholders' equity | $452,324 | $378,100 | $361,534 | Condensed Consolidated Statements of Cash Flows This statement outlines the company's cash flows from operating, investing, and financing activities for the nine months ended July 2, 2021, showing a substantial increase in cash Condensed Consolidated Statements of Cash Flows (Nine Months Ended, in thousands of US dollars) | Cash Flow Activity (Nine Months Ended) | July 2, 2021 | June 26, 2020 | | :--- | :--- | :--- | | Net cash from Operating Activities | $57,611 | $25,560 | | Net cash used for Investing Activities | ($15,468) | ($11,340) | | Net cash used for Financing Activities | ($6,792) | ($5,412) | | Increase in cash and cash equivalents | $36,579 | $9,063 | Notes to Condensed Consolidated Financial Statements The notes detail the basis of presentation, the significant impact of the COVID-19 pandemic which increased demand for outdoor products, and key accounting policies, notably that the company had no debt outstanding as of July 2, 2021, with the Fishing segment remaining the largest contributor to revenue and operating profit, and the company also initiated actions to terminate its two defined benefit pension plans - The COVID-19 pandemic led to increased participation in outdoor recreation activities like fishing, camping, and watercraft recreation, driving higher demand for the company's products starting in the latter half of fiscal 2020 and continuing into fiscal 2021[30] - The company had no debt outstanding as of July 2, 2021, October 2, 2020, or June 26, 2020, and maintains a $75 million revolving credit facility, which was extended to July 15, 2026[77][78] - During the first quarter of fiscal 2021, management began the process of terminating its two non-contributory defined benefit pension plans, an action estimated to have an unfavorable impact on net income of approximately $4 to $5 million upon completion[62] Segment Net Sales and Operating Profit (Nine Months Ended July 2, 2021, in thousands of US dollars) | Segment | Net Sales (9 months ended July 2, 2021) | Operating Profit (9 months ended July 2, 2021) | | :--- | :--- | :--- | | Fishing | $441,727 | $107,553 | | Camping | $44,160 | $10,075 | | Watercraft Recreation | $49,948 | $7,329 | | Diving | $48,973 | $384 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the strong financial performance to a significant increase in consumer participation in outdoor activities, driven by the COVID-19 pandemic, with net sales for the third quarter rising 54% year-over-year and all business segments showing strong growth, while gross margins improved due to volume efficiencies, the company faced challenges from supply chain disruptions and increased tariff costs, maintaining a strong, debt-free balance sheet and robust cash position - The company experienced strong orders and consumer demand in the first three quarters of fiscal 2021 due to increased participation in outdoor recreation as consumers sought socially distant activities, though this has been accompanied by supply chain and logistics disruptions[131] Key Financial Metrics (Q3 FY2021 vs. Q3 FY2020, in thousands of US dollars) | Metric | Q3 FY2021 | Q3 FY2020 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $213,568 | $138,390 | +54% | | Operating Profit | $38,099 | $12,929 | +195% | | Net Income | $28,774 | $12,869 | +124% | - The company anticipates a negative impact of approximately $9 million from Section 301 tariffs on China-sourced goods for the full fiscal year 2021, a significant increase from $3.5 million in the previous year[154] - The company's cash and cash equivalents increased to $249.0 million as of July 2, 2021, from $181.4 million a year prior, primarily due to higher operating profits, and the company remained debt-free[168] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company identifies its primary market risks as fluctuations in raw material commodity prices, foreign currency exchange rates, and interest rates, with a significant new risk being the ongoing supply chain disruption caused by the COVID-19 pandemic, which has strained the availability of key components due to higher-than-normal demand, and the company is actively monitoring these risks and seeking alternative supply sources where feasible - The COVID-19 pandemic has disrupted normal selling patterns and placed a strain on the company's supply chain due to higher-than-normal demand, potentially leading to limited availability and higher costs for key raw materials and components[188] - Approximately 12% of the company's revenue for the nine-month period was denominated in foreign currencies, primarily euros, Canadian dollars, and Hong Kong dollars, exposing the company to foreign exchange risk[183] - The company held no foreign currency forward contracts as of July 2, 2021, or June 26, 2020, to mitigate foreign exchange risk[183] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a level of reasonable assurance as of the end of the period covered by the report, with no material changes in the company's internal control over financial reporting during the last fiscal quarter - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[191] - No changes occurred in the company's internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[192] PART II OTHER INFORMATION This section covers legal proceedings, updated risk factors, and a list of exhibits filed with the report Item 1. Legal Proceedings The company reports that it is not currently involved in any legal proceedings that are expected to have a material adverse effect on its financial statements - The company is not currently involved in any claim or action where the ultimate disposition would have a material adverse effect on its financial statements[193] Item 1A. Risk Factors A new risk factor has been added concerning the high volatility of the company's Class A Common Stock price, which can be influenced by various factors, including earnings trends, competitor actions, economic conditions, and broad market fluctuations, potentially beyond the company's control - A new risk factor was added to disclose that the trading price of the company's Class A Common Stock is highly volatile and subject to wide fluctuations, which could prevent shareholders from reselling shares at or above their purchase price[194][195] Item 6. Exhibits This section references the Exhibit Index, which lists all documents filed as part of the Form 10-Q report, with key exhibits including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act and financial data formatted in XBRL - The report includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[203] - An amendment to the company's credit agreement, dated July 15, 2021, was filed as an exhibit[203]