Management's Discussion and Analysis
Results of Operations
The following discussion includes comments and analysis relating to the
Company's results of operations and financial condition for the three
years ended September 30, 1994. This discussion should be read in
conjunction with the consolidated financial statements and related notes
that immediately follow this section. Comparisons reflect results from
continuing operations.
Summary of Consolidated Financial Results
(millions of dollars,
except per share amounts) 1994 1993 1992
Net sales $284.3 $280.3 $275.8
Gross profit 110.8 115.7 112.2
Operating expenses(1) 91.9 104.5 92.6
Operating profit(1) 18.9 11.2 19.6
Interest expense 6.8 8.3 10.2
Income from continuing
operations(1) 8.1 .6 5.4
Per common share 1.01 .08 .67
(1) Includes pre-tax restructuring charges of $13 million and $4.5
million in 1993 and 1992, respectively.
1994 vs 1993
Net Sales
Sales were $284.3 million in 1994 compared to $280.3 million in 1993, an
increase of 1.4%. The sales increase as measured in U.S. dollars was
positively impacted by the effect of stronger foreign currencies relative
to the U.S. dollar in comparison to 1993.
In North America, fishing products led the sales increase, primarily on
the strength of Minn Kota electric trolling motors. The line of motors
introduced in 1993 continues to increase Minn Kota's market share. Sales
of camping products in North America decreased slightly overall as Old
Town Canoe recorded gains while other camping products decreased. Diving
sales increased in the U.S. market while marine product sales decreased,
primarily due to elimination of certain non-strategic products in 1994.
European sales as measured in U.S. dollars increased 5.8% from 1993, but
increased less in local currencies. Fishing and camping products were
contributors, increasing 12%, led by Jack Wolfskin's brand expansion.
Diving products had a slight increase in sales and improved operating
performance. Sales of marine products were flat, affected by the weak
economy in France, which is their primary market, and a reduction in the
number of products offered, but operating results improved.
The Company's Japanese business recorded strong sales growth, reflecting a
strong market for the Company's diving products, increased penetration of
fishing and camping products and benefiting from the strong value of the
yen.
Operating Profit
The Company's operating profit was $18.9 million in 1994 as compared to
$11.2 million in 1993. The 1993 results reflect the establishment of a
$13 million pre-tax restructuring reserve. Results in 1994 were
significantly impacted by European fishing and marine operations where
operating profit more than doubled over the prior year. Margins and
operating profit were reduced in 1994 by fourth quarter inventory
adjustments totaling $5.4 million, primarily in North American operations.
Many of the products involved in the writedown were not part of the
Company's core recreation products business. The inventory adjustments
account, in large measure, for the disproportionate contribution of
earnings from outside North America to total operating results. Gross
profit margins outside North America held steady in 1994 compared to 1993.
Other Income and Expenses
Interest expense decreased in 1994 reflecting lower debt levels beginning
in May 1994 offset by rising interest rates in the U.S. Other expenses,
net of other income, decreased from the prior year, primarily due to
higher interest income from increasing interest rates and higher invested
balances and lower foreign exchange losses.
Income From Continuing Operations
Income from continuing operations of $8.1 million or $1.01 per share in
1994 was $7.5 million or $ .93 per share more than 1993. Restructuring
charges reduced 1993 earnings per share by $1.10. Excluding the
restructuring charge, earnings per share from continuing operations were
$1.18 in 1993. The effective tax rate returned to a more historical level
in 1994 due to increasing levels of pretax income. The 1993 tax rate was
impacted by restructuring charges.
Discontinued Operations
On July 28, 1993, the Company's Board of Directors approved a formal plan
to divest the Company's Marking Systems group. As a result, all
operations of the Marking Systems group were classified as discontinued
operations for all years presented. At that time, the Company recorded a
loss on disposal of discontinued operations of $3.0 million. During 1994,
the Company completed the sales of the businesses comprising the Marking
Systems group and recorded a gain on disposition of approximately $4.1
million as net sales proceeds exceeded expectations.
Restructuring
As a result of the desire of management and the Board of Directors to
strategically reposition the Company as an integrated global recreation
products company, restructuring reserves totaling $13 million and $4.5
million were recorded in 1993 and 1992, respectively. The key components
of these charges were losses on the disposal of non-strategic recreation
product lines totaling $6.4 million, creation of a centralized management
structure totaling $2.3 million, severance costs of $3.6 million and
facilities closing costs of $1.1 million. The majority of the
restructuring charges were for future cash outlays, however, provisions
were included for inventory and equipment writedowns and a $2.1 million
writeoff of goodwill associated with non-strategic recreation product
lines. As of September 30, 1994, approximately $1.1 million of unexpended
reserves remained as a liability of the Company.
In the aggregate, the Company expects its obligations for restructuring to
approximate the amounts accrued in 1993 and 1992. However, certain
estimates of the cost of components of the charges will vary from the
amounts originally determined. In particular, the extent of restructuring
of European operations (and the related cost) will be less than originally
anticipated. This is offset by approximately $5 million of costs from the
disposition of the Elliot commercial life raft operation, which was
consummated in 1994. Restructuring charges total approximately $15
million for North American operations, of which Elliot was a part, with
the remainder attributable primarily to European businesses. The
repositioning strategy of the Company will result in reduced operating
costs over time.
1993 vs 1992
Net Sales
Sales were $280.3 million in 1993 compared to $275.8 million in 1992, an
increase of 2%. The sales increase as measured in U.S. dollars was
reduced by the effect of weaker foreign currencies in comparison to 1992.
Fishing products lead the North American sales increase, primarily on the
strength of Minn Kota electric trolling motors. A new line of motors
introduced in 1993 successfully increased Minn Kota's market share from
the 1992 level, after the Company's share of the electric trolling motor
market declined in 1992. Sales of camping products in North America
increased slightly as Old Town Canoe recorded strong gains of 11% while
other camping products increased slightly. Marine product sales increased
primarily due to new product introductions while diving sales remained
even in the flat U.S. market, but had significantly improved margins and
operating results.
European sales as measured in U.S. dollars declined 4.5% from 1992, but
increased in local currencies. Camping products were a strong
contributor, increasing 15%, led by Jack Wolfskin's brand expansion.
Diving products had another solid year in the face of tough European
economies with a slight increase in sales and improved operating
performance. Sales of fishing and marine products were adversely affected
by the weak economy in France, which is their primary market. Fishing was
also negatively impacted by the bankruptcy of a distributor in Italy,
while the worldwide boating depression continued to affect marine sales.
The Company's Japanese business recorded a strong sales increase
reflecting an improved market for diving products and benefiting from the
strong value of the yen.
Operating Profit
The Company's operating profit of $11.2 million in 1993 was $8.4 million
less than 1992. The decrease was due to the establishment of a $13
million pre-tax restructuring reserve in 1993. A substantial portion of
these restructuring charges were incurred in North America, which
contributes to the disproportionate contribution of earnings from outside
North America to total operating results.
Other Income And Expenses
Interest expense decreased in 1993 reflecting lower interest rates in key
European countries and in the U.S. Other expenses, net of other income,
increased from the prior year, primarily due to foreign exchange losses in
Europe during early 1993 and lower interest income due to lower interest
rates.
Income From Continuing Operations
Income from continuing operations of $640,000 or $ .08 per share in 1993
was $4.7 million, or $ .59 per share less than 1992. The restructuring
charges reduced 1993 and 1992 earnings per share by $1.10 and $ .36,
respectively. Excluding the restructuring charges, earnings per share
from continuing operations were $1.18 and $1.03 in 1993 and 1992,
respectively.
Discontinued Operations
The after-tax income from the Marking Systems group was $1.2 million for
1993 as compared to $2.3 million for 1992. This decrease reflects
$750,000 of costs associated with facility closures, a loss of $830,000
incurred in disposal of one of its product lines, the cost of a litigation
settlement in the amount of $1.5 million and the negative impact of the
Swedish recession.
Financial Condition
In the two years prior to 1992 the Company invested more than $50 million
in acquisitions, primarily by increasing its debt position. These
investments increased the Company's leverage and expanded its total asset
base. The Company significantly reduced its investment in acquisitions in
1992, and no acquisitions were completed in 1993 or 1994 as the Company
focused on repositioning its existing businesses.
Working Capital
The following table sets forth the Company's working capital position at
the end of the past three years:
(millions of dollars) 1994 1993 1992
Current assets $155.4 $182.6 $171.0
Current liabilities 54.0 78.4 67.8
Working capital $101.4 $104.2 $103.2
Current ratio 2.9 to 1 2.3 to 1 2.5 to 1
Current assets included $46.5 million and $41.7 million of Marking Systems
assets, net of liabilities, at October 1, 1993 and October 2, 1992,
respectively. The Company divested these assets in 1994.
Total inventories increased by $3.1 million from 1993, primarily as a
result of growth of North American diving inventories established during
the reorganization of the Company and the changing relationship between
the U.S. dollar and currencies of countries where the Company has
operations, offset by increased reserves in North America.
The increase of $10.1million in accounts receivable was due to the success
of early season selling programs in North America, overall higher fourth
quarter 1994 sales and was magnified by the same foreign currency
movements that affected inventories. Current liabilities decreased by
$24.4 million as certain of the proceeds from the sale of the Marking
Systems group noted above were used to reduce debt.
Capitalization
The following table sets forth the Company's debt and capital structure at
the end of the past three years:
(millions of dollars) 1994 1993 1992
Current debt $16.1 $ 37.1 $32.2
Long-term debt 31.2 44.5 43.3
----- ----- -----
Total debt 47.3 81.6 75.5
Shareholders' equity 128.2 110.8 118.7
----- ----- -----
Total
capitalization $175.5 $192.4 $194.2
===== ===== =====
Debt to total capital 27.0% 42.4% 38.9%
===== ===== =====
The Company's debt ratio has improved and indicates its underlying
financial strength.
Capital Expenditures, Depreciation and Amortization
Expenditures for property, plant and equipment were $14 million in 1994
and $8.4 million in 1993. The Company's investments are made primarily
for tooling for new products and enhancements. In 1994, the Company
constructed and occupied an office and research facility. In 1995,
capital expenditures will total approximately $13 million. These
obligations are expected to be funded by working capital or existing bank
lines of credit of the Company. Depreciation and amortization charges
were $7.0 million in 1994, $7.2 million in 1993 and $6.5 million in 1992.
Other Factors
The Company has not been significantly impacted by inflationary pressures
over the last several years. Price increases, and in certain situations,
price decreases have been implemented for individual products but there
have not been any significant price or cost increases on any of its major
product lines. The Company anticipates that rising costs of basic raw
materials may impact 1995 operating costs. The Company is involved in
several initiatives to reduce the impact of these cost changes on its
operating margins.
Johnson Worldwide Associates, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(thousands of dollars) September 30, October 1,
1994 1993
ASSETS
Current assets:
Cash and temporary cash investments $ 15,588 $ 4,415
Accounts receivable, less allowance for
doubtful accounts of $2,317 and $1,606
in 1994 and 1993, respectively 54,942 44,803
Inventories 70,389 67,323
Deferred income taxes 7,482 7,816
Other current assets 6,967 11,707
Net assets of discontinued operations --- 46,504
------- -------
Total current assets 155,368 182,568
Property, plant and equipment 26,579 19,052
Intangible assets 35,009 34,957
Other assets 2,725 2,544
------- -------
Total assets $219,681 $239,121
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 16,097 $ 37,123
Accounts payable 13,467 11,874
Accrued liabilities:
Salaries and wages 5,207 4,807
Income taxes 5,145 4,214
Restructuring 1,077 8,905
Other 13,041 11,518
------- -------
Total current liabilities 54,034 78,441
Long-term obligations, less current
maturities 31,190 44,543
Other liabilities 6,260 5,319
------- -------
Total liabilities 91,484 128,303
------- -------
Shareholders' equity:
Preferred stock issued: none --- ---
Common stock:
Class A shares issued: September 30,
1994, 6,859,558; October 1, 1993,
6,758,346 343 337
Class B shares issued (convertible
into Class A): September 30, 1994,
1,230,599; October 1, 1993, 1,230,883 62 62
Capital in excess of par value 43,330 41,696
Retained earnings 79,538 67,340
Contingent compensation (242) (350)
Cumulative translation adjustment 5,166 1,733
------- -------
Total shareholders' equity 128,197 110,818
------- -------
Total liabilities and
shareholders' equity $219,681 $239,121
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
Johnson Worldwide Associates, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
(thousands of dollars, except September 30, October 1, October 2,
per share data) 1994 1993 1992
Net sales $284,343 $280,292 $275,845
Cost of sales 173,507 164,573 163,660
------- ------- -------
Gross profit 110,836 115,719 112,185
------- ------- -------
Operating expenses:
Marketing and selling 59,347 56,965 52,866
Financial and
administrative management 24,126 26,085 26,911
Research and development 5,304 5,200 4,869
Profit sharing 1,639 1,695 1,860
Amortization of acquisition
costs 1,482 1,581 1,615
Restructuring charges --- 13,000 4,500
------- ------- -------
Total operating expenses 91,898 104,526 92,621
------- ------- -------
Operating profit 18,938 11,193 19,564
Interest income (531) (459) (689)
Interest expense 6,845 8,309 10,180
Other expenses, net 140 648 198
------- ------- ------
Income from continuing
operations before income
taxes 12,484 2,695 9,875
Income tax expense 4,338 2,055 4,509
Income from continuing
operations 8,146 640 5,366
Discontinued operations:
Income from discontinued
operations, net of income
tax expense of $1,293 and
$1,803 in 1993 and 1992,
respectively --- 1,169 2,304
Gain (loss) on disposal of
discontinued operations,
net of income tax expense
(benefit) of $(2,277) and
$3,000 in 1994 and 1993,
respectively 4,052 (3,000) ---
------- ------ -------
Net income (loss) $ 12,198 $(1,191) $ 7,670
======= ====== =======
EARNINGS (LOSS) PER COMMON
SHARE:
Continuing operations $ 1.01 $ .08 $ .67
Discontinued operations .50 (.23) .29
------ ------ -------
Net income (loss) $ 1.51 $ (.15) $ .96
====== ====== =======
The accompanying notes are an integral part of the consolidated
financial statements.
Johnson Worldwide Associates, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Cumula-
tive
Capital Con- Trans-
in Excess tingent lation
Common of Par Retained Compen- Adjust-
(thousands of dollars) Stock Value Earnings sation ment
BALANCE, SEPTEMBER 27,
1991 $394 $40,529 $60,861 $ (75) $3,593
Net income --- --- 7,670 --- ---
Exercise of stock
options --- 27 --- --- ---
Issuance of
restricted stock 1 186 --- (186) ---
Issuance of stock
under employee stock
purchase plan 1 214 --- --- ---
Amortization of
contingent
compensation --- --- --- 40 ---
Tax benefit of stock
options exercised --- 28 --- --- ---
Translation
adjustment --- --- --- --- 5,386
------ ------ ------ ------ ------
BALANCE, OCTOBER 2,
1992 396 40,984 68,531 (221) 8,979
Net loss --- --- (1,191) --- ---
Exercise of stock
options 2 355 --- --- ---
Issuance of
restricted stock 1 212 --- (212) ---
Amortization of
contingent
compensation --- --- --- 83 ---
Tax benefit of stock
options exercised --- 145 --- --- ---
Translation
adjustment --- --- --- --- (7,246)
------ ------- ------- ------ ------
BALANCE, OCTOBER 1,
1993 399 41,696 67,340 (350) 1,733
Net income --- --- 12,198 --- ---
Exercise of stock
options 5 1,226 --- --- ---
Issuance of
restricted stock --- 70 --- (70) ---
Issuance of stock
under employee stock
purchase plan 1 188 --- --- ---
Amortization of
contingent
compensation --- --- --- 178 ---
Tax benefit of stock
options exercised --- 150 --- --- ---
Translation
adjustment --- --- --- --- 3,433
------- -------- -------- ------ ------
BALANCE, SEPTEMBER 30,
1994 $405 $43,330 $79,538 $(242) $5,166
======= ======== ======== ======= ======
The accompanying notes are an integral part of the consolidated
financial statements.
Johnson Worldwide Associates, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
September 30, October 1, October 2,
(thousands of dollars) 1994 1993 1992
CASH PROVIDED BY (USED FOR)
OPERATIONS:
Net income (loss) $12,198 $(1,191) $7,670
Noncash items:
Depreciation and amortization 6,987 7,167 6,522
Deferred income taxes (694) (2,255) (1,979)
Writedown of intangible assets --- 2,060 ---
Loss (income) from
discontinued operations (4,052) 1,831 (2,304)
Change in:
Accounts receivable, net (8,397) (6,624) (2,469)
Inventories (993) (2,639) (2,002)
Restructuring accrual (7,828) 4,405 4,500
Accounts payable and other
accrued liabilities 3,576 3,604 822
Net assets of discontinued
operations 4,036 (6,611) 342
Other, net 2,705 (3,566) (124)
------- ------- -------
7,538 (3,819) 10,978
------- ------- -------
CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES:
Proceeds from sales of
discontinued operations and
other businesses 48,076 --- ---
Net assets of businesses
acquired --- --- (705)
Net additions to property, plant
and equipment (12,294) (5,334) (6,891)
Other, net 58 (26) (1,914)
------- ------- -------
35,840 (5,360) (9,510)
------- ------- -------
CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Issuance of senior notes --- 15,000 ---
Principal payments on senior
notes and term loan (5,000) (5,000) (5,000)
Net change in notes payable and
other long-term obligations (29,284) 25 (715)
Issuance of common stock 1,570 503 271
-------- ------- -------
(32,714) 10,528 (5,444)
Effect of foreign currency
fluctuations on cash 509 (479) 609
Increase (decrease) in cash and
temporary cash investments 11,173 870 (3,367)
CASH AND TEMPORARY CASH
INVESTMENTS:
Beginning of year 4,415 3,545 6,912
------ ------ ------
End of year $15,588 $ 4,415 $ 3,545
====== ====== ======
The accompanying notes are an integral part of the consolidated
financial statements.
Notes to Consolidated Financial Statements
1. Summary Of Significant Accounting Policies
Principles Of Consolidation
The consolidated financial statements include the accounts of Johnson
Worldwide Associates, Inc. and all majority owned subsidiaries (the
Company). Significant intercompany accounts and transactions have been
eliminated in consolidation.
The Company's fiscal year ends on the Friday nearest September 30. The
fiscal years ended September 30, 1994, October 1, 1993 and October 2, 1992
(hereinafter 1994, 1993 and 1992, respectively) comprise 52, 52 and 53
weeks, respectively.
Cash and Temporary Cash Investments
For purposes of the consolidated statements of cash flows, the Company
considers all short-term investments in interest bearing bank accounts,
securities and other instruments with an original maturity of three months
or less, to be equivalent to cash.
Inventories
Inventories are stated at the lower of cost (determined using the
first-in, first-out method) or market.
Inventories related to continuing operations at the end of the respective
years consist of the following:
(thousands of dollars) 1994 1993
Raw materials $19,058 $16,622
Work in process 4,625 4,834
Finished goods 54,260 47,618
------ ------
77,943 69,074
Less:reserves 7,554 1,751
------ ------
$70,389 $67,323
====== ======
In the fourth quarter of 1994, the Company recorded charges totaling $5.4
million to reduce the carrying value of certain elements of inventory to
their net realizable value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation of plant and equipment is determined by
straight-line and accelerated methods over estimated useful lives.
Upon retirement or disposition, cost and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss
is recognized in operating results.
Property, plant and equipment related to continuing operations at the end
of the respective years consist of the following:
(thousands of dollars) 1994 1993
Property and improvements $ 953 $ 751
Buildings and improvements 15,048 10,385
Furniture, fixtures
and equipment 49,140 41,736
------- -------
65,141 52,872
Less: accumulated
depreciation 38,562 33,820
------- -------
$26,579 $19,052
======= =======
Intangible Assets
Intangible assets are stated at cost less accumulated amortization.
Amortization is computed using the straight-line method over 40 years for
goodwill and periods ranging from 3 to 16 years for patents, trademarks
and other intangibles.
The Company assesses the recoverability of goodwill primarily by
determining whether the amortization of the balance over its remaining
life can be recovered through undiscounted future operating cash flows of
the acquired operation. The amount of goodwill impairment, if any, is
measured primarily based on projected discounted future operating cash
flows using a discount rate reflecting the Company's cost of funds.
Intangible assets related to continuing operations at the end the
respective years consist of the following:
(thousands of dollars) 1994 1993
Goodwill $42,878 $41,179
Patents, trademarks and other
intangibles 4,643 4,686
------- -------
47,521 45,865
Less: accumulated amortization 12,512 10,908
------- -------
$35,009 $34,957
======= =======
Income Taxes
The Company provides for income taxes currently payable and deferred
income taxes resulting from temporary differences between financial
statement and taxable income.
Effective October 3, 1992, the Company adopted Statement 109, Accounting
for Income Taxes, which requires a change from the deferred method of
accounting for income taxes to the asset and liability method. The
cumulative effect of the change in method of accounting for income taxes
was not significant, and accordingly, it has not been separately presented
in the 1993 consolidated statement of operations.
Federal and state income taxes are provided on foreign subsidiary income
distributed to or taxable in the United States during the year. At
September 30, 1994, net undistributed earnings of foreign subsidiaries are
approximately $27,457,000. A substantial portion of these unremitted
earnings have been permanently invested abroad and no provision for
federal or state taxes is made on these amounts. With respect to that
portion which may be returned to the United States, provision is made for
taxes if the amounts are significant.
The Company's United States entities file a consolidated federal income
tax return.
Employee Benefits
The Company and certain of its subsidiaries have various pension and
profit sharing plans. U.S. pension obligations are funded by payments to
pension fund trustees. Other foreign pensions are funded as expenses are
incurred. The Company's policy is generally to fund the minimum amount
required under the Employee Retirement Income Security Act of 1974 for
plans subject thereto. Profit sharing costs are funded at least annually.
Foreign Currency Translation
Assets and liabilities of foreign operations are translated into United
States dollars at the rate of exchange existing at the end of the year.
Results of operations are translated at monthly average exchange rates.
Gains and losses resulting from the translation of foreign currency
financial statements are deferred and classified as a separate component
of shareholders' equity.
Gains or losses on foreign exchange contracts that qualify as hedges are
recognized as an adjustment of the carrying amount of the item hedged. The
Company hedges certain loans denominated in foreign currencies. The
notional value of these contracts at September 30, 1994 is approximately
$13.1 million.
Revenue Recognition
Revenue from sales is recognized on the accrual basis, primarily upon the
shipment of products, net of estimated costs of returns and allowances.
Research and Development
Research and development costs are expensed as incurred.
Reclassification
Certain reclassifications have been made to prior years' amounts to
conform with the current year presentation.
2. Restructuring Charges
In 1993 and 1992, the Company accrued pre-tax restructuring charges of
$13,000,000 and $4,500,000, respectively. These restructuring charges are
presented as a separate component of operating profit and established
reserves for costs to be incurred related to facility closures, employee
severance, litigation contingencies and inventory writedowns.
Additionally, included as part of the 1993 reserve charge are amounts for
recruiting and moving employees and allowances for exit from certain
extraneous recreational product categories.
The net realizable value of assets of recreational product categories held
for sale, consisting primarily of accounts receivable and inventory less
the associated liabilities, has been classified as other current assets at
October 1, 1993. Such assets were disposed of in 1994. Unamortized
goodwill which was associated with certain of these product categories in
the amount of $2,100,000 has been written off against the restructuring
reserve in 1993.
3. Discontinued Operations
In July 1993, the Board of Directors approved a formal plan to divest the
Company's Marking Systems group, which manufactured and marketed hand
stamps, ink rolls, ink cartridges and liquid ink jets. As a result of
the adoption of the plan of divestiture, the Marking Systems operations
have been classified as discontinued for all years presented. The
Company estimated in 1993 that the Marking Systems group would be sold
for its net book value after consideration of earnings to the date of
disposal. Tax expense of $3,000,000 was provided in recognition of
estimated tax liabilities associated with the divestiture. This
provision resulted in recognition of a loss on disposal. The Company
completed the divestiture in two separate transactions in 1994 resulting
in a gain of $4,052,000 as net sales proceeds exceeded expectations. Net
sales of the Marking Systems group to the disposal dates are $36,075,000,
$58,996,000 and $58,128,000 for 1994, 1993 and 1992, respectively.
Interest expense of $41,000, $79,000 and $53,000 that is directly
attributable to the Marking Systems group is allocated to discontinued
operations.
4. Acquisitions
In 1992, the Company acquired a framing system for commercial tents. The
purchase price of the acquisition was $700,000 of which $405,000 was
recognized as goodwill. The acquisition was accounted for using the
purchase method and, accordingly, the consolidated financial statements
include the results of operations since the date of acquisition.
5. Notes Payable and Long-Term Obligations
Short-term obligations at the end of the respective years consist of the
following:
(thousands of dollars) 1994 1993
Bank loans $ 9,264 $13,200
Commercial paper -- 17,975
Current maturities of
long-term obligations 6,833 5,948
------- -------
$16,097 $37,123
======= =======
These arrangements provide for short-term borrowings with interest rates
set periodically by reference to market rates. The Company has lines of
credit, both foreign and domestic, totaling $83,559,000, including
$35,000,000 in support of commercial paper issuance, of which $74,295,000
is available at September 30, 1994. The Company also utilizes letters of
credit for trade financing purposes.
Long-term obligations at the end of the respective years consist of the
following:
(thousands of dollars) 1994 1993
Senior notes $35,000 $40,000
Revolving credit facility -- 7,237
Notes payable, 4.75% to 11%,
maturing through December 2005 3,023 3,254
------ ------
38,023 50,491
Less: current maturities 6,833 5,948
------ ------
$31,190 $44,543
====== ======
In 1993 and 1991, respectively, the Company issued unsecured senior notes
of $15,000,000 with an interest rate of 6.58% and $25,000,000 with an
interest rate of 9.16%. Equal annual principal payments of $7,500,000 for
the 1993 senior notes are due in 1998 and 1999. Remaining annual
principal payments for the 1991 senior notes are $6,000,000 in September
1995 and $7,000,000 in both September 1996 and 1997. Proceeds from
issuance of the senior notes have been used to reduce outstanding
borrowings under the Company's revolving credit facility.
The Company's $25,000,000 revolving credit facility, which allows for
borrowings in certain foreign currencies, expires on September 29, 1995
and is convertible into a term loan, payable in two equal installments on
September 29, 1996 and 1997. Interest on borrowings is set periodically
by reference to market rates such as the London Interbank Offered Rate.
Based on the borrowing rates currently available to the Company for debt
with similar terms and average maturities, the fair value of the Company's
long-term obligations at September 30, 1994 and October 1, 1993 is
$37,165,000 and $53,086,000, respectively. The carrying value of all
other financial instruments approximates the fair value.
It is an event of default under certain of the Company's loan agreements
if Samuel C. Johnson, members of his family and related entities (Johnson
Family) fail to own stock having votes sufficient to elect a 51% majority
of the directors. As of September 30, 1994, the Johnson Family held
approximately 2,130,000 shares or 31% of the Class A common stock,
approximately 1,160,000 shares or 94% of the Class B common stock and
approximately 72% of the voting power of both classes of common stock
taken as a whole. The agreements also contain restrictive covenants
regarding the Company's net worth, indebtedness and distributions.
Principal amounts payable on long-term obligations in each of the five
years ending September 1999 are $6,833,000, $7,361,000, $7,377,000,
$7,847,000 and $7,675,000.
Interest paid was $6,864,000, $8,325,000 and $10,307,000 for 1994, 1993
and 1992, respectively.
6. Lease Commitments
The Company leases certain operating facilities and machinery and
equipment under long-term, noncancelable operating leases. Future minimum
rental commitments under noncancelable operating leases related to
continuing operations having an initial or remaining term in excess of one
year at September 30, 1994 are as follows:
Fiscal Year (thousands of dollars)
1995 $3,689
1996 2,800
1997 2,191
1998 1,159
1999 871
Thereafter 3,884
------
$14,594
======
Rental expense under all leases related to continuing operations is
approximately $5,145,000, $5,432,000 and $5,012,000 for 1994, 1993 and
1992, respectively.
7.Income Taxes
As discussed in Note 1, the Company adopted Statement 109 as of October 3,
1992. The cumulative effect of this change in accounting for income taxes
is $95,000. Prior years' financial statements have not been restated to
apply the provisions of Statement 109.
Income tax expense (benefit) for the respective years attributable to
income from continuing operations consists of the following:
(thousands of dollars) 1994 1993 1992
Current:
Federal $(2,045) $ 582 $1,848
State 439 539 597
Foreign 5,381 3,545 4,405
Deferred 562 (2,611) (2,341)
------ ------ ------
$ 4,338 $2,055 $4,509
====== ====== ======
The significant components of deferred tax expense (benefit) attributable
to income from continuing operations are as follows:
(thousands of dollars) 1994 1993
Deferred tax expense (benefit)
(exclusive of effects of other
components listed below) $ 998 $(3,037)
Adjustments to deferred tax assets
and liabilities for enacted
changes in tax laws and rates (18) 307
Increase (decrease) in beginning
of the year balance of the
valuation allowance for deferred
tax assets (418) 119
----- -------
$562 $(2,611)
===== =======
In assessing the realizability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the years in which those temporary differences become
deductible. The Company considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies
in making this assessment.
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at the end of
the respective years are presented below:
(thousands of dollars) 1994 1993
Deferred tax assets:
Inventories $2,836 $ 862
Compensation 1,816 1,603
Restructuring 377 4,247
Foreign income taxes 1,489 706
Foreign tax credit carryforwards 1,331 1,321
Net operating loss carryforwards 360 788
Other 2,870 2,556
------ ------
Total deferred tax assets 11,079 12,083
Less: valuation allowance 1,591 2,009
------ ------
Net deferred tax assets 9,488 10,074
------ ------
Deferred tax liabilities:
Foreign statutory reserves (891) (879)
Acquisition accounting (561) (597)
------ ------
Total deferred tax liabilities (1,452) (1,476)
------ ------
Net deferred tax asset $8,036 $8,598
====== ======
Following is the income (loss) from continuing operations before income
taxes for domestic and foreign operations:
(thousands of dollars) 1994 1993 1992
United States $ 350 $(10,280) $ 348
Foreign 12,134 12,975 9,527
------- ------- ------
$12,484 $ 2,695 $9,875
======= ======= ======
The significant differences between the statutory federal tax rates and
the effective income tax rates are as follows:
1994 1993 1992
Statutory U.S. federal income
tax rate 34.0% 34.0% 34.0%
State income taxes, net of
federal income tax benefit 1.9 12.7 4.2
Foreign rate differential 5.2 24.3 5.5
Foreign operating losses
(benefit) (2.7) 13.2 4.3
Tax credits (0.7) (5.2) (1.1)
Other (3.0) (2.7) (1.2)
---- ---- ----
34.7% 76.3% 45.7%
==== ==== ====
At September 30, 1994, the Company has $1,331,000 of foreign tax credit
carryforwards related to continuing operations available to be offset
against future U.S. tax liability. The credits begin expiring in 1997 if
not utilized.
During 1994, 1993 and 1992, foreign net operating loss carryforwards
related to continuing operations were utilized, resulting in a reduction
in income tax expense of $428,000, $264,000 and $19,000, respectively. At
September 30, 1994, certain of the Company's foreign subsidiaries have net
operating losses totaling $1,180,000 which are available to offset future
taxable income over the next 6 to 9 years. They are anticipated to be
utilized against profits over the next several years.
Taxes paid related to continuing operations are $5,896,000, $6,069,000
and $6,327,000, for 1994, 1993 and 1992, respectively.
8. Employee Benefits
Net periodic pension cost for noncontributory pension plans related to
continuing operations includes the following components:
(thousands of dollars) 1994 1993 1992
Service cost $265 $218 $225
Interest on projected
benefit obligation 568 515 455
Return on plan assets (411) (240) (342)
Net amortization and deferral 3 (125) (34)
Effect of plan curtailment 177 -- --
---- ---- ----
Net periodic pension cost $602 $368 $304
==== ==== ====
The funded status of the plans related to continuing operations is as
follows at the end of each year:
(thousands of dollars) 1994 1993
Actuarial present value of
benefit obligations:
Vested benefits $ 5,727 $4,915
Non-vested benefits 326 470
----- -----
Accumulated benefit obligation 6,053 5,385
Effect of projected compensation
levels 1,770 1,952
----- -----
Projected benefit obligation 7,823 7,337
Plan assets at fair value 5,601 5,123
------ ------
Projected benefit obligation in
excess of plan assets (2,222) (2,214)
Unrecognized net loss 1,136 1,528
Unrecognized prior service cost 303 328
Unrecognized net asset (737) (618)
------ -----
Pension liability recognized in
the consolidated balance sheets $(1,520) $(976)
====== =====
Actuarial assumptions used to determine the projected benefit obligation
and net periodic pension cost are:
1994 1993 1992
Discount rate 8% 8% 9%
Rate of increase in
compensation levels 5% 5% 5%
Expected long-term rate
of return on plan assets 8% 8% 8%
Plan assets are invested primarily in stock and bond mutual funds and
insurance contracts.
A majority of the Company's full-time employees are covered by profit
sharing programs. Participating entities determine a profit sharing
distribution as a percentage of pre-tax profit adjusted to yield a defined
return on tangible net worth. Individual employees share in the
distribution based on a combination of salary and years of service.
9. Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock in
various classes and series, of which there are none currently issued or
outstanding.
10. Common Stock
Common stock at the end of the respective years consists of the following:
1994 1993
Class A, $.05 par value:
Authorized 20,000,000 20,000,000
Issued and outstanding 6,859,558 6,758,346
Class B, $.05 par value:
Authorized 3,000,000 3,000,000
Issued and outstanding 1,230,599 1,230,883
Holders of Class A common stock are entitled to elect 25% of the members
of the Board of Directors and holders of Class B common stock are entitled
to elect the remaining directors. With respect to matters other than the
election of directors or any matters for which class voting is required by
law, holders of Class A common stock are entitled to one vote per share
while holders of Class B common stock are entitled to ten votes per share.
If any dividends (other than dividends paid in shares of the Company) are
paid by the Company on its common stock, a dividend would be paid on each
share of Class A common stock equal to 110% of the amount paid on each
share of Class B common stock. Each share of Class B common stock is
convertible at any time into one share of Class A common stock. During
1994, 1993 and 1992, respectively, 284, 1,587 and 2,258 shares of Class B
common stock were converted into Class A common stock.
11. Stock Ownership Plans
At September 30, 1994, the Company's stock option plans provide for
options to acquire shares of Class A common stock by key executives and
non-employee directors. All options have been granted at a price not less
than fair market value at the date of grant and become exercisable over
periods of one to four years from the date of grant, unless accelerated.
A summary of stock option activity related to the Company's stock option
plans is as follows:
Option
Number Price
of Shares Per Share
Outstanding at September 27, 1991 362,271 $3.50-$23.25
Granted 120,885 18.63-23.25
Exercised (4,910) 4.44-5.63
Cancelled (1,000) 19.88
------- -----------
Outstanding at October 2, 1992 477,246 3.50-23.25
Granted 193,555 16.38-21.25
Exercised (63,721) 3.50-19.88
Cancelled (12,250) 17.13-23.25
------- -----------
Outstanding at October 1, 1993 594,830 3.50-23.25
Granted 122,000 23.00-24.38
Exercised (88,663) 3.50-23.25
Cancelled (40,558) 17.13-22.00
------- -----------
Outstanding at September 30, 1994 587,609 $3.50-$24.38
======= ============
Exercisable at September 30, 1994 292,435 $3.50-$23.75
======= ============
Available for grant at
September 30, 1994 535,425
=======
A restricted stock plan provides for the issuance of up to 300,000 shares
of Class A common stock to certain key employees. At September 30, 1994,
October 1, 1993 and October 2, 1992, there were 276,333, 273,500 and
263,500, respectively, shares of Class A common stock issued under this
plan. The fair value of the shares awarded in excess of the amount paid
for such shares is recognized as contingent compensation and is being
amortized over three years from the dates of award, unless accelerated,
the period after which all restrictions will have lapsed.
The Company's employee stock purchase plan provides for the issuance of up
to 150,000 shares of Class A common stock at a purchase price of not less
than 85% of the fair market value at the date of grant. During 1994 and
1992, 9,432 and 13,825 shares, respectively, were issued under this plan.
No shares were issued under this plan in 1993.
12. Related Parties
The Company and S.C. Johnson & Son, Inc. are controlled by the Johnson
Family. Various transactions are conducted between the Company and
organizations controlled by the Johnson Family. These include consulting
services, office rental, certain administrative activities, such as
telephone service and in 1994, the purchase of land for the Company's
headquarters facility.
Total costs of these transactions are $1,548,000, $871,000 and $932,000,
for 1994, 1993 and 1992, respectively, of which $210,000 and $16,000 are
outstanding at September 30, 1994 and October 1, 1993, respectively.
13. Geographic Segments of Business
The Company conducts its worldwide operations through separate geographic
area organizations which represent major markets or combinations of
markets. The operations are conducted in the United States and various
foreign countries, primarily in Europe, Canada and the Pacific Basin.
Identifiable assets represent assets that are used in the Company's
operations in each geographic area at year-end.
(thousands of dollars) 1994 1993 1992
Net sales:
United States $157,221 $159,845 $151,147
Europe 100,270 94,777 99,255
Other 26,852 25,670 25,443
------- ------- -------
$284,343 $280,292 $275,845
======= ======= =======
Operating profit:
United States $5,847 $2,109 $8,695
Europe 10,151 6,407 8,534
Other 2,940 2,677 2,335
-------- ------- -------
$18,938 $11,193 $19,564
======== ======= =======
Identifiable assets:
United States $109,306 $97,420 $86,586
Europe 90,852 77,360 89,771
Other 19,523 17,837 18,200
Discontinued
operations, net -- 46,504 41,724
------- ------- -------
$219,681 $239,121 $236,281
======= ======= =======
14. Earnings Per Share
Earnings per share of common stock are computed on the basis of a
weighted average number of common and common equivalent shares
outstanding. Shares shown below are fully diluted. Primary and fully
diluted earnings per share are the same. The per share effect of
discontinued operations is calculated by dividing the applicable income or
loss from discontinued operations by the weighted average common and
common equivalent shares outstanding.
(thousand of dollars,
except per share amounts) 1994 1993 1992
Weighted average common
shares outstanding 8,019,017 7,936,326 7,891,883
Common equivalent shares 48,612 38,092 60,918
--------- --------- ---------
Weighted average common
and common equivalent
shares outstanding 8,067,629 7,974,418 7,952,801
========= ========= =========
Income from continuing
operations $8,146 $ 640 $5,366
===== ====== ======
Earnings per share from
continuing operations $1.01 $ .08 $.67
===== ===== ====
15. Litigation
The Company is subject to various legal actions and proceedings in the
normal course of business, including those related to environmental
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 will have a significant
effect on the consolidated financial statements.
Independent Auditors' Report
Shareholders and Board of Directors Johnson Worldwide Associates, Inc.:
We have audited the consolidated balance sheets of Johnson Worldwide
Associates, Inc. and subsidiaries as of September 30, 1994 and October 1,
1993 and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three year period ended
September 30, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Johnson Worldwide Associates, Inc. and subsidiaries at September 30, 1994
and October 1, 1993, and the results of their operations and their cash
flows for each of the years in the three year period ended September 30,
1994, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Milwaukee, Wisconsin
November 10, 1994
REPORT OF MANAGEMENT
The management of Johnson Worldwide Associates, Inc. is responsible for
the preparation and integrity of all financial statements and other
information contained in this Annual Report. We rely on a system of
internal financial controls to meet the responsibility of providing
accurate financial statements. The system provides reasonable assurances
that assets are safeguarded, that transactions are executed in accordance
with management's authorization and that the financial statements are
prepared on a worldwide basis in accordance with generally accepted
accounting principles.
The financial statements for each of the years covered in this Annual
Report have been audited by independent auditors, who have provided an
independent assessment as to the fairness of the financial statements.
The Audit Committee of the Board of Directors meets with management and
the independent auditors to review the results of their work and to
satisfy itself that their responsibilities are being properly discharged.
The independent auditors have full and free access to the Audit Committee
and have discussions with the Committee regarding appropriate matters,
with and without management present.
John D. Crabb
President and Chief Executive Officer
Carl G. Schmidt
Vice President and Chief Financial Officer
FIVE YEAR FINANCIAL SUMMARY
Year Ended
--------------------------------------------------------------------------
(thousands of dollars, except September 30, October 1, October 2, September 27, September 28,
per share data) 1994 1993 1992 1991 1990
INCOME STATEMENT DATA <F1>
Net sales $284,343 $280,292 $275,845 $258,154 $217,285
Gross profit 110,836 115,719 112,185 105,317 92,088
Selling, general, and administrative
expenses 91,898 91,526 88,121 81,656 66,235
Restructuring -- 13,000 4,500 -- --
Operating profit 18,938 11,193 19,564 23,661 25,853
Interest expense 6,845 8,309 10,180 9,343 6,604
Other (income) expense, net (391) 189 (491) 1,295 (128)
----- ------ ------ ------- ------
Income from continuing operations
before income taxes 12,484 2,695 9,875 13,023 19,377
Income tax expense 4,338 2,055 4,509 5,581 7,165
------- ------ ------ ------ -------
Income from continuing operations 8,146 640 5,366 7,442 12,212
Income from discontinued operations -- 1,169 2,304 3,703 3,337
Gain (loss) on disposal of
discontinued operations 4,052 (3,000) -- -- --
------- ------- ------- ------- -------
Net income (loss) $ 12,198 $ (1,191) $ 7,670 $ 11,145 $ 15,549
======= ======= ======= ======= =======
Earnings (loss) per common share
Continuing operations $ 1.01 $ .08 $ .67 $ .94 $ 1.53
Discontinued operations $ .50 $ (.23) $ .29 $ .46 $ .42
------- ------- ------ ------- -------
Net income (loss) $ 1.51 $ (.15) $ .96 $ 1.40 $ 1.95
======= ======= ======= ======= =======
Weighted average common and
common equivalent shares
outstanding 8,068 7,974 7,953 7,939 7,975
BALANCE SHEET DATA<F1>
Total assets $219,681 $239,121 $236,281 $217,641 $181,367
Long-term obligations, less current
maturities 31,190 44,543 43,327 41,170 37,513
Shareholders' equity 128,197 110,818 118,669 105,302 96,783
<FN>
<F1> All periods have been reclassified to reflect the discontinuation of the Company's marking systems segment.
JOHNSON WORLDWIDE ASSOCIATES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL SUMMARY
(thousands of dollars,
except per share data) First Second Third Fourth
------------------ ----------------- ----------------- ------------------
1994 1993 1994 1993 1994 1993 1994 1993
Net sales $44,009 $46,929 $84,305 $85,259 $95,083 $93,297 60,946 54,807
Gross profit 17,951 19,027 35,983 36,532 40,221 38,982 16,681 21,178
Income (loss)
Continuing operations (2,024) (2,160) 6,129 5,409 7,939 6,182 (3,898) (8,791)
Discontinued operations -- 1,178 -- 1,550 4,052 836 -- (5,395)
Net income (loss) (2,024) (982) 6,129 6,959 11,991 7,018 (3,898) (14,186)
Earnings (loss) per common
share:
Continuing operations (.25) (.27) .76 .68 .98 .77 (.48) (1.10)
Discontinued operations -- .15 -- .19 .50 .11 -- (.68)
Net income (loss) (.25) (.12) .76 .87 1.48 .88 (.48) (1.78)
Stock prices
High 27.00 19.75 26.50 20.75 25.25 20.88 26.50 22.50
Low 21.00 14.75 23.25 16.25 21.00 17.00 23.25 19.75
Corporate Headquarters
Johnson Worldwide Associates, Inc.
1326 Willow Road
Sturtevant, Wisconsin 53177 USA
(414) 884-1500
Transfer Agent and Registrar
Firstar Trust Company
Corporate Trust Department
P.O. Box 2077
Milwaukee, WI 53201
(414) 765-6700
Common Stock
NASDAQ Symbol: JWAIA
Johnson Worldwide Associates, Inc.
Class A Common Stock is traded on the NASDAQ Over the Counter National
Market System.
Annual Meeting
The Annual Meeting of Shareholders will convene at 9:45 a.m. (CST) on
January 25, 1995, in the Grand Ballroom, Salon A & B, Racine Marriott,
7111 Washington Avenue, Racine, Wisconsin.
Form 10-K
You may receive a copy of the Johnson Worldwide Associates, Inc. Form 10-K
filed with the Securities and Exchange Commission by writing to the
Secretary at Corporate Headquarters.
Shareholder Inquiries
Communication concerning the transfer of shares, lost certificates or
changes of address should be directed to the Transfer Agent.