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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________ to__________
Commission file number 0-16255
JOHNSON WORLDWIDE ASSOCIATES, INC.
(Exact name of Registrant as specified in its charter)
Wisconsin 39-1536083
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1326 Willow Road, Sturtevant, Wisconsin 53177
(Address of principal executive offices)
(414) 884-1500
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
As of April 30, 1999, 6,892,267 shares of Class A and 1,222,861 shares of Class
B common stock of the Registrant were outstanding.
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JOHNSON WORLDWIDE ASSOCIATES, INC.
Index Page No.
- --------------------------------------------------------------------------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations - three
months and six months ended April 2, 1999 and
April 3, 1998 1
Consolidated Balance Sheets - April 2, 1999,
October 2, 1998 and April 3, 1998 2
Consolidated Statements of Cash Flows - six months
ended April 2, 1999 and April 3, 1998 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 11
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures
JOHNSON WORLDWIDE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
- ----------------------------------------------------------------------------------------------------------------------------
April 2 April 3 April 2 April 3
(thousands, except per share data) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Net sales $ 104,210 $ 97,938 $ 164,210 $ 149,779
Cost of sales 62,014 58,210 100,280 90,857
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 42,196 39,728 63,930 58,922
- ----------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Marketing and selling 20,397 19,394 35,377 32,887
Finance, information systems and administrative
management 6,620 6,587 12,962 12,424
Research and development 1,943 1,806 3,887 3,349
Amortization of acquisition costs 1,025 943 2,050 1,855
Profit sharing 696 339 766 354
Nonrecurring charges 1,133 36 1,549 102
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 31,814 29,105 56,591 50,971
- ----------------------------------------------------------------------------------------------------------------------------
Operating profit 10,382 10,623 7,339 7,951
Interest income (59) (68) (163) (145)
Interest expense 2,648 2,539 4,931 4,733
Other expenses, net 99 142 94 72
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,694 8,010 2,477 3,292
Income tax expense 3,317 3,271 1,119 1,337
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 4,377 $ 4,739 $ 1,358 $ 1,955
============================================================================================================================
Basic earnings per common share $ 0.54 $ 0.59 $ 0.17 $ 0.24
============================================================================================================================
Diluted earnings per common share $ 0.54 $ 0.58 $ 0.17 $ 0.24
============================================================================================================================
The accompanying notes are an integral part of the
consolidated financial statements.
-1-
JOHNSON WORLDWIDE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
- -------------------------------------------------------------------------------------------------------------------------
April 2 October 2 April 3
(thousands, except share data) 1999 1998 1998
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and temporary cash investments $ 3,467 $ 11,496 $ 4,724
Accounts receivable, less allowance for doubtful accounts of
$3,032, $2,570, and $2,536, respectively 94,768 53,421 85,451
Inventories 81,722 76,603 95,774
Deferred income taxes 5,574 6,067 7,755
Other current assets 7,570 6,933 8,446
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 193,101 154,520 202,150
Property, plant and equipment 35,168 35,469 33,860
Deferred income taxes 15,663 15,435 10,441
Intangible assets 87,653 90,101 86,330
Other assets 1,602 492 533
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 333,187 $ 296,017 $ 333,314
=========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $ 92,892 $ 42,614 $ 80,917
Accounts payable 17,141 11,681 19,267
Accrued liabilities 24,106 30,724 27,022
- -------------------------------------------------------------------------------------------------------------------------
Total current liabilities 134,139 85,019 127,206
Long-term debt, less current maturities 74,010 82,066 87,921
Other liabilities 4,329 4,546 4,058
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 212,478 171,631 219,185
- -------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock: none issued -- -- --
Common stock:
Class A shares issued:
April 2, 1999, 6,910,577; October 2, 1998, 6,909,577;
April 3, 1998, 6,909,351 345 345 345
Class B shares issued (convertible into Class A):
April 2, 1999, 1,222,861; October 2, 1998, 1,223,861;
April 3, 1998, 1,224,087 61 61 61
Capital in excess of par value 44,157 44,205 44,193
Retained earnings 86,305 85,068 81,809
Contingent compensation (63) (27) (65)
Other comprehensive income - cumulative translation adjustment (9,811) (4,651) (11,599)
Treasury stock: Class A shares, at cost:
April 2, 1999, 18,310; October 2, 1998, 39,532;
April 3, 1998, 39,532 (285) (615) (615)
- -------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 120,709 124,386 114,129
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 333,187 $ 296,017 $ 333,314
=========================================================================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
-2-
JOHNSON WORLDWIDE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
- --------------------------------------------------------------------------------------------------------------------
Six Months Ended
- --------------------------------------------------------------------------------------------------------------------
April 2 April 3
(thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
CASH USED FOR OPERATIONS
Net income $ 1,358 $ 1,954
Noncash items:
Depreciation and amortization 7,554 6,882
Deferred income taxes 464 210
Change in assets and liabilities, net of effect of businesses acquired:
Accounts receivable, net (41,438) (35,390)
Inventories (7,378) (15,863)
Accounts payable and accrued liabilities 364 5,115
Other, net (926) (1,472)
- --------------------------------------------------------------------------------------------------------------------
(40,002) (38,564)
- --------------------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES
Net assets of businesses acquired, net of cash (5,574) (12,418)
Net additions to property, plant and equipment (5,526) (5,613)
- --------------------------------------------------------------------------------------------------------------------
(11,100) (18,031)
- --------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES
Issuance of senior notes -- 25,000
Net change in short-term debt 43,408 29,869
Common stock transactions 94 (333)
- --------------------------------------------------------------------------------------------------------------------
43,502 54,536
Effect of foreign currency fluctuations on cash (429) (347)
- --------------------------------------------------------------------------------------------------------------------
Decrease in cash and temporary cash investments (8,029) (2,406)
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 11,496 7,130
- --------------------------------------------------------------------------------------------------------------------
End of period $ 3,467 $ 4,724
====================================================================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
-3-
JOHNSON WORLDWIDE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1 Basis of Presentation
The consolidated financial statements included herein are unaudited. In
the opinion of management, these statements contain all adjustments
(consisting of only normal recurring items) necessary to present fairly
the financial position of Johnson Worldwide Associates, Inc. and
subsidiaries (the Company) as of April 2, 1999 and the results of
operations and cash flows for the three months and six months ended April
2, 1999. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1998 Annual Report.
Because of seasonal and other factors, the results of operations for the
three months and six months ended April 2, 1999 are not necessarily
indicative of the results to be expected for the full year.
All monetary amounts, other than share and per share amounts, are stated
in thousands.
Certain amounts as previously reported have been reclassified to conform
with the current period presentation.
2 Income Taxes
The provision for income taxes includes deferred taxes and is based upon
estimated annual effective tax rates in the tax jurisdictions in which
the Company operates.
3 Inventories
Inventories at the end of the respective periods consist of the
following:
--------------------------------------------------------------------------
April 2 October 2 April 3
1999 1998 1998
--------------------------------------------------------------------------
Raw materials $ 28,407 $ 27,834 $ 34,597
Work in process 3,442 4,753 6,818
Finished goods 55,413 49,875 61,765
--------------------------------------------------------------------------
87,262 82,462 103,180
Less reserves 5,540 5,859 7,406
--------------------------------------------------------------------------
$ 81,722 $ 76,603 $ 95,774
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-4-
JOHNSON WORLDWIDE ASSOCIATES, INC.
4 Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per common share:
--------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
--------------------------------------------------------------------------------------------------------------
April 2 April 3 April 2 April 3
1999 1998 1999 1998
==============================================================================================================
Net income for basic and diluted earnings per
share $ 4,377 $ 4,739 $ 1,358 $ 1,954
--------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding
8,100,600 8,130,881 8,097,253 8,106,924
Less nonvested restricted stock 3,818 6,559 3,988 6,854
--------------------------------------------------------------------------------------------------------------
Basic average common shares 8,096,782 8,097,322 8,093,265 8,100,070
Dilutive stock options and restricted stock 2,207 30,199 1,914 31,329
--------------------------------------------------------------------------------------------------------------
Diluted average common shares 8,098,989 8,127,521 8,095,179 8,131,399
==============================================================================================================
Basic earnings per common share $ 0.54 $ 0.59 $ 0.17 $ 0.24
==============================================================================================================
Diluted earnings per common share $ 0.54 $ 0.58 $ 0.17 $ 0.24
==============================================================================================================
5 Stock Ownership Plans
A summary of stock option activity related to the Company's plans is as
follows:
------------------------------------------------------------------------
Weighted Average
Shares Exercise Price
------------------------------------------------------------------------
Outstanding at October 2, 1998 602,061 $17.43
Granted 281,000 8.96
Cancelled (84,723) 15.10
------------------------------------------------------------------------
Outstanding at April 2, 1999 798,338 $14.70
========================================================================
Options to purchase 620,761 shares of common stock with a weighted average
exercise price of $17.45 per share were outstanding at April 3, 1998.
6 Acquisitions
In April 1999, subsequent to the end of the quarter, the Company
completed the acquisition of substantially all of the assets and the
assumption of certain liabilities of Escape Sailboat Company LLC, a
privately held manufacturer and marketer of recreational sailboats. The
initial purchase price, including direct expenses, for the acquisition
was approximately $4,800, of which approximately $3,100 was recorded as
intangible assets and is being amortized over 25 years. Additional
payments in 2000 and 2001 are dependent upon achievement of specified
levels of sales of the acquired business.
In December 1998, the Company completed the acquisition of substantially
all of the assets and the assumption of certain liabilities of True North
Paddle & Necky Kayaks Ltd., a privately held manufacturer and marketer of
Necky kayaks, and an affiliated entity. The purchase price, including
direct expenses, for the acquisition was approximately $5,700, of which
approximately $3,100 was recorded as intangible assets and is being
amortized over 25 years. Additional payments in the years
-5-
JOHNSON WORLDWIDE ASSOCIATES, INC.
1999 through 2003 are dependent upon the achievement of specified levels
of sales and profitability of the acquired business.
The acquisitions were accounted for using the purchase method and,
accordingly, the Consolidated Financial Statements include the results of
operations since the respective dates of acquisition. Additional
payments, if required, will increase intangible assets in future years.
7 Litigation
In 1998, certain businesses acquired by the Company became subject to
judgments in civil liability cases. In February 1999, these cases were
settled. Payments totaling $1,600 made by the Company as a result of
these judgments reduced payments otherwise due to selling shareholders of
the businesses acquired. Accordingly, these judgments did not impact the
operating results of the Company.
8 Comprehensive Income
The Company adopted Financial Accounting Standards Board Statement 130,
Reporting Comprehensive Income, in 1999. Comprehensive income includes
net income and changes in shareholders' equity from non-owner sources.
For the Company, the elements of comprehensive income excluded from net
income are represented primarily by the cumulative translation
adjustment.
Comprehensive income (loss) for the respective periods consists of the
following:
----------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
----------------------------------------------------------------------------------------------
April 2 April 3 April 2 April 3
1999 1998 1999 1998
----------------------------------------------------------------------------------------------
Net income $ 4,377 $ 4,739 $ 1,358 $ 1,954
Translation adjustment (5,193) (2,539) (5,160) (5,243)
----------------------------------------------------------------------------------------------
Comprehensive income (loss) $ (816) $ 2,200 $ (3,802) $ (3,289)
==============================================================================================
9 Segments of Business
The Company conducts its worldwide operations through five separate
global business units which represent major product lines. Operations are
conducted in the United States and various foreign countries, primarily
in Europe, Canada and the Pacific Basin.
Net sales and operating profit include both sales to customers, as
reported in the Company's consolidated statements of operations, and
interunit transfers, which are priced to recover cost plus an appropriate
profit margin. Identifiable assets represent assets that are used in the
Company's operations in each business unit at the end of the periods
presented.
-6-
JOHNSON WORLDWIDE ASSOCIATES, INC.
A summary of the Company's operations by business unit is presented below:
--------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
--------------------------------------------------------------------------------------------------------------
April 2 April 3 April 2 April 3
1999 1998 1999 1998
--------------------------------------------------------------------------------------------------------------
Net sales:
Diving:
Unaffiliated customers $ 19,914 $ 21,466 $ 37,559 $ 40,896
Interunit transfers 6 (108) 9 --
Outdoor equipment:
Unaffiliated customers 26,136 22,513 41,136 34,905
Interunit transfers 19 -- 30 1
Fishing:
Unaffiliated customers 19,566 20,899 31,422 30,168
Interunit transfers 201 218 324 405
Motors:
Unaffiliated customers 22,402 20,380 31,427 26,270
Interunit transfers 645 703 984 1,108
Watercraft:
Unaffiliated customers 15,873 12,356 21,655 16,583
Interunit transfers 168 120 180 120
Other 319 324 1,011 957
Eliminations (1,039) (933) (1,527) (1,634)
--------------------------------------------------------------------------------------------------------------
$ 104,210 $ 97,938 $ 164,210 $ 149,779
==============================================================================================================
Operating profit (loss):
Diving $ 765 $ 3,617 $ 196 $ 5,223
Outdoor equipment 1,829 1,783 883 1,096
Fishing 2,093 1,415 2,172 (246)
Motors 3,554 2,864 2,612 1,320
Watercraft 3,172 2,539 3,322 2,676
Other (1,031) (1,595) (1,846) (2,118)
--------------------------------------------------------------------------------------------------------------
$ 10,382 $ 10,623 $ 7,339 $ 7,951
==============================================================================================================
--------------------------------------------------------------------------------------------------------------
April 2 October 2 April 3
1999 1998 1998
--------------------------------------------------------------------------------------------------------------
Identifiable assets:
Diving $ 97,507 $ 104,344 $ 100,926
Outdoor equipment 53,849 49,090 58,884
Fishing 72,746 62,099 78,525
Motors 34,878 22,905 36,317
Watercraft 49,886 29,340 36,667
Other 24,321 28,239 21,995
--------------------------------------------------------------------------------------------------------------
$ 333,187 $ 296,017 $ 333,314
==============================================================================================================
-7-
JOHNSON WORLDWIDE ASSOCIATES, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion includes comments and analysis relating to the
Company's results of operations and financial condition for the three months and
six months ended April 2, 1999 and April 3, 1998. This discussion should be read
in conjunction with the consolidated financial statements and related notes that
immediately precede this section, as well as the Company's 1998 Annual Report.
Forward Looking Statements
Certain matters discussed in this Form 10-Q are "forward-looking statements,"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement includes phrases such as the Company "expects," "believes" or other
words of similar meaning. Similarly, statements that describe the Company's
future plans, objectives or goals are also forward-looking statements. Such
forward-looking statements are subject to certain risks and uncertainties which
could cause actual results or outcomes to differ materially from those currently
anticipated. Factors that could affect actual results or outcomes include
changes in consumer spending patterns, the success of the Company's EVA(R)
program, actions of companies that compete with JWA, the Company's success in
managing inventory, movements in foreign currencies or interest rates, the
success of suppliers, customers and others regarding compliance with year 2000
issues, and adverse weather conditions. Shareholders, potential investors and
other readers are urged to consider these factors in evaluating the
forward-looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements included herein are
only made as of the date of this Form 10-Q and the Company undertakes no
obligations to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
Results of Operations
Net sales for the three months ended April 2, 1999 totaled $104.2 million,
compared to $97.9 million in the three months ended April 3, 1998. Net sales for
the six months ended April 2, 1999 totaled $164.2 million, an increase of 10%,
or $14.4 million, over the six months ended April 3, 1998. Sales of all
businesses except Diving and Fishing exhibited strong growth. The Diving
business was adversely impacted by the integration of acquired businesses into
its operations. The Fishing business had high levels of sales of excess product
at nominal margins in the prior year, causing an unfavorable comparison with
regard to sales.
Relative to the U.S. dollar, the average values of most currencies of the
countries in which the Company has operations were higher for the six months
ended April 2, 1999 as compared to the corresponding period of the prior year.
Excluding the impact of foreign currencies, net sales increased 5% and 8% for
the three and six months ended April 2, 1999, respectively.
Gross profit as a percentage of sales was 40.5% for the three months ended April
2, 1999 compared to 40.6% in the corresponding period in the prior year. Gross
profit for the six months ended April 2, 1999 decreased to 38.9% from 39.3% in
the prior year. The decline in higher margin Diving sales relative to total
sales contributed to the decrease, more than offsetting strong gains in the
Fishing and Motors businesses.
The Company recognized an operating profit of $10.4 million for the three months
ended April 2, 1999, compared to an operating profit of $10.6 million for the
corresponding period of the prior year. For the six months ended April 2, 1999,
operating profit decreased to $7.4 million, from $8.0 million in the prior year.
-8-
JOHNSON WORLDWIDE ASSOCIATES, INC.
Seasonal losses of the Leisure Life watercraft business, which the Company
acquired in February 1998 and, accordingly, did not impact prior year results,
contributed to the decrease from the prior year. Increased nonrecurring charges
from integration of acquired businesses also contributed to the decrease. The
combination of these two factors more than offset the positive impact of
increased sales on operating margins and the favorable impact of the Necky
acquisition.
Interest expense totaled $4.9 million for the six months ended April 2, 1999
compared to $4.7 million for the corresponding period of the prior year.
Increased debt levels due to acquisitions consummated in 1999 and 1998, more
than offset improved management of working capital and a favorable interest rate
environment, accounting for the change. The Company's effective tax rate
increased due to a change in the amount and mix of profits in foreign
jurisdictions.
The Company recognized net income of $4.4 million in the three months ended
April 2, 1999 compared to net income of $4.7 million in the corresponding period
of the prior year. Diluted earnings per common share totaled $0.54 for the three
months ended April 2, 1999 compared to $0.58 in the prior year. The Company
recognized net income of $1.4 million in the six months ended April 2, 1999
compared to net income of $2.0 million in the corresponding period of the prior
year. Year to date diluted earnings per common share decreased to $0.17 from
$0.24 in the prior year.
Financial Condition
The following discusses changes in the Company's liquidity and capital
resources.
Operations
Cash flows used for operations totaled $40.0 million for the six months ended
April 2, 1999 and $38.6 million for the corresponding period of the prior year.
Accounts receivable seasonally increased $41.4 million for the six months ended
April 2, 1999 and $35.4 million for the corresponding period of the prior year.
Seasonal growth in inventories of $7.4 million for the six months ended April 2,
1999 and $15.9 million for the corresponding period of the prior year also
accounted for a portion of the net usage of funds. Inventory turns increased for
the six month period ended April 2, 1999 compared to the corresponding period of
the prior year.
Accounts payable and accrued liabilities increased $0.4 million for the six
months ended April 2, 1999 and $5.1 million for the corresponding period of the
prior year, decreasing the net outflow of cash from operations.
Depreciation and amortization charges were $7.6 million for the six months ended
April 2, 1999 and $6.9 million for the corresponding period of the prior year.
The increase was due primarily to increased amortization of intangible assets
from businesses acquired in 1999 and 1998.
Investing Activities
Expenditures for property, plant and equipment were $5.5 million for the six
months ended April 2, 1999 and $5.6 million for the corresponding period of the
prior year. The Company's recurring investments are made primarily for tooling
for new products and enhancements. In 1999, capitalized expenditures are
anticipated to total approximately $12 million. These expenditures are expected
to be funded by working capital or existing credit facilities.
The Company completed the acquisition of one business in the first six months of
the current year and three businesses in the prior year, which increased
tangible and intangible assets by $5.6 million and $12.4 million, respectively,
net of cash and liabilities assumed.
-9-
JOHNSON WORLDWIDE ASSOCIATES, INC.
Financing Activities
Cash flows from financing activities totaled $43.5 million for the six months
ended April 2, 1999 and $54.5 million for the corresponding period of the prior
year. In October 1997, the Company consummated a private placement of long-term
debt totaling $25 million. Payments on long-term debt required to be made in
1999 total $7.8 million.
Market Risk Management
The Company is exposed to market risk stemming from changes in foreign exchange
rates, interest rates and, to a lesser extent, commodity prices. Changes in
these factors could cause fluctuations in earnings and cash flows. In the normal
course of business, exposure to certain of these market risks is managed by
entering into hedging transactions authorized under Company policies that place
controls on these activities. Hedging transactions involve the use of a variety
of derivative financial instruments. Derivatives are used only where there is an
underlying exposure: not for trading or speculative purposes.
Foreign Operations
The Company has significant foreign operations, for which the functional
currencies are denominated primarily in Swiss and French francs, German marks,
Italian lire, Japanese yen and Canadian dollars. As the values of the currencies
of the foreign countries in which the Company has operations increase or
decrease relative to the U.S. dollar, the sales, expenses, profits, assets and
liabilities of the Company's foreign operations, as reported in the Company's
Consolidated Financial Statements, increase or decrease, accordingly. The
Company mitigates a portion of the fluctuations in certain foreign currencies
through the purchase of foreign currency swaps, forward contracts and options to
hedge known commitments, primarily for purchases of inventory and other assets
denominated in foreign currencies.
Interest Rates
The Company's debt structure and interest rate risk are managed through the use
of fixed and floating rate debt. The Company's primary exposure is to United
States interest rates. The Company also periodically enters into interest rate
swaps, caps or collars to hedge its exposure and lower financing costs.
Commodities
Certain components used in the Company's products are exposed to commodity price
changes. The Company manages this risk through instruments such as purchase
orders and non-cancelable supply contracts. Primary commodity price exposures
are metals and packaging materials.
Sensitivity to Changes in Value
The estimates that follow are intended to measure the maximum potential fair
value or earnings the Company could lose in one year from adverse changes in
foreign exchange rates or market interest rates under normal market conditions.
The calculations are not intended to represent actual losses in fair value or
earnings that the Company expects to incur. The estimates do not consider
favorable changes in market rates. Further, since the hedging instrument (the
derivative) inversely correlates with the underlying exposure, any loss or gain
in the fair value of derivatives would be generally offset by an increase or
decrease in the fair value of the underlying exposures. The positions included
in the calculations are foreign exchange forwards, currency swaps and fixed rate
debt. Certain instruments are included in both categories of risk exposure
calculated below. The calculations do not include the underlying foreign
exchange positions that are hedged by these market risk sensitive instruments.
The
-10-
JOHNSON WORLDWIDE ASSOCIATES, INC.
table below presents the estimated maximum potential one year loss in fair value
and earnings before income taxes from a 10% movement in foreign currencies and a
100 basis point movement in interest rate market risk sensitive instruments
outstanding at April 2, 1999:
- --------------------------------------------------------------------------------
Estimated Impact on
- --------------------------------------------------------------------------------
Earnings Before Income
(millions) Fair Value Taxes
- --------------------------------------------------------------------------------
Foreign exchange rate instruments $2.8 $0.3
Interest rate instruments 3.9 0.8
================================================================================
Other Factors
The Company has not been significantly impacted by inflationary pressures over
the last several years. The Company anticipates that changing costs of basic raw
materials may impact future operating costs and, accordingly, the prices of its
products. The Company is involved in continuing programs to mitigate the impact
of cost increases through changes in product design and identification of
sourcing and manufacturing efficiencies. Price increases and, in certain
situations, price decreases are implemented for individual products, when
appropriate.
Year 2000
The year 2000 issue is the result of computer programs using two digits (rather
than four) to define years. Computers or other equipment with date sensitive
software may recognize "00" as the year 1900 rather than 2000. This could result
in system failures or miscalculations. If the Company or its significant
customers or suppliers fail to correct year 2000 issues, the Company's ability
to operate could be materially affected.
The Company has assessed the impact of year 2000 issues on the processing of
date-related information for all of its information systems infrastructure and
non-technical assets, such as production equipment. All systems and
non-technical assets are in the process of being inventoried and classified as
to their compliance with year 2000 data processing. Any systems found year 2000
deficient will be modified, upgraded or replaced. Project plans anticipate all
existing, critical information systems infrastructure and non-technical assets
to be year 2000 compliant before failure to comply would significantly disrupt
the Company's operations. Contingency plans are being developed to address any
failures resulting from relationships with customers, suppliers or other third
parties. The Company has made inquiries of its suppliers, customers and other
organizations which impact the Company's business, but cannot guarantee that
circumstances beyond its control will not have an adverse impact on its
operations.
Since 1993, the Company has invested more than $10 million in information
systems improvements and has been migrating its businesses to systems that are
year 2000 compliant. Based on assessments and testing to date, the financial
impact of addressing any potential remaining internal system issues should not
be material to the Company's financial position, results of operations or cash
flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to this item is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations under the heading
"Market Risk Management."
-11-
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting on January 26, 1999, the shareholders voted on
three management proposals and to elect the following individuals as Directors
for terms that expire at the next annual meeting:
- --------------------------------------------------------------------------------------------------------------------
Votes Cast For Votes Cast Votes Broker
Against Withheld Abstentions Non-Votes
- --------------------------------------------------------------------------------------------------------------------
Class A Directors:
Thomas F. Pyle, Jr. 5,420,265 0 698,190 0 0
Glenn N. Rupp 5,419,275 0 699,180 0 0
Class B Directors:
Samuel C. Johnson 1,218,377 0 0 0 0
Helen P. Johnson-Leipold 1,218,377 0 0 0 0
Gregory E. Lawton 1,218,377 0 0 0 0
Ronald C. Whitaker 1,218,377 0 0 0 0
Proposal 1 regarding the amendment
to the 1994 Long-Term Stock
Incentive Plan to increase the
number of shares authorized for
issuance 16,132,501 2,027,828 0 141,896 0
Proposal 2 regarding the amendment
to the 1994 Long-Term Stock
Incentive Plan to change the
individual limit on share awards 16,065,030 1,445,603 0 791,592 0
Proposal 3 regarding the amendment
to the 1994 Non-Employee Director
Stock Ownership Plan to increase
the number of shares authorized for
issuance 17,473,218 45,491 0 783,516 0
Votes cast for or against and abstentions with respect to Proposals 1, 2 and 3
reflect that holders of Class B shares are entitled to 10 votes per share for
matters other than the election of Directors.
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Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-Q
Exhibit 3.1 Amendments to Bylaws of the Company dated as of
March 9, 1999.
Exhibit 3.2 Bylaws of the Company as amended through March 9,
1999.
Exhibit 10.1 Separation agreement, dated March 9, 1999, between
the Company and R. C. Whitaker.
Exhibit 27: Financial Data Schedule
(b) There were no reports on Form 8-K filed for the three months ended
April 2, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHNSON WORLDWIDE ASSOCIATES, INC.
Date: May 17, 1999
/s/ Carl G. Schmidt
--------------------------------------------------
Carl G. Schmidt
Senior Vice President and Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
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JOHNSON WORLDWIDE INDEX
Page
Exhibit Description Number
- --------------------------------------------------------------------------------
3.1 Amendments to Bylaws of the Company dated as of
March 9, 1999. -
3.2 Bylaws of the Company as amended through March 9,
1999. -
10.1 Separation agreement, dated March 9, 1999, between the
Company and R. C. Whitaker. -
27. Financial Data Schedule -