JOHNSON OUTDOORS : Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of Operations (type 10-Q)

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This Management’s Discussion and Analysis of Financial Condition and Results of
Operations (“MD&A”) includes comments and analysis relating to the results of
operations and financial condition of Johnson Outdoors Inc. and its subsidiaries
(collectively, the “Company”) as of and for the three and six month periods
ended April 2, 2021 and March 27, 2020. All monetary amounts, other than share
and per share amounts, are stated in thousands.

Our MD&A is presented in the following sections:

•Forward Looking Statements
•Trademarks
•Overview
•Results of Operations
•Liquidity and Financial Condition
•Contractual Obligations and Off Balance Sheet Arrangements
•Critical Accounting Policies and Estimates

This discussion should be read in conjunction with the Condensed Consolidated
Financial Statements and related notes that immediately precede this section, as
well as the Company’s Annual Report on Form 10-K for the fiscal year ended
October 2, 2020 which was filed with the Securities and Exchange Commission on
December 11, 2020.

Forward Looking Statements

Certain matters discussed in this Form 10-Q are “forward-looking statements,”
and the Company intends these forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and is including this statement for
purposes of those safe harbor provisions. These forward-looking statements can
generally be identified as such because they include phrases such as the Company
“expects,” “believes,” “anticipates,” “intends,” use of words such as
“confident,” “could,” “may,” “planned,” “potential,” “should,” “will,” “would”
or the negative of such words 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 the matters
described under the caption “Risk Factors” in Item 1A of the Company’s Form 10-K
which was filed with the Securities and Exchange Commission on December 11,
2020, the update to such “Risk Factors” section in Part II, Item 1A in this Form
10-Q and the following: changes in economic conditions, consumer confidence
levels and discretionary spending patterns in key markets; uncertainties
stemming from changes in U.S. trade policies, tariffs, and the reaction of other
countries to such changes; the global outbreaks of disease, such as the COVID-19
pandemic which has affected, and may continue to affect, market and economic
conditions, and the timing, pricing and continued availability of raw materials
and components from our supply chain, along with wide-ranging impacts on
employees, customers and various aspects of our operations; the Company’s
success in implementing its strategic plan, including its targeted sales growth
platforms, innovation focus and its increasing digital presence; litigation
costs related to actions of and disputes with third parties, including
competitors; the Company’s continued success in its working capital management
and cost-structure reductions; the Company’s success in integrating strategic
acquisitions; the risk of future writedowns of goodwill or other long-lived
assets; the ability of the Company’s customers to meet payment obligations; the
impact of actions of the Company’s competitors with respect to product
development or enhancement or the introduction of new products into the
Company’s markets; movements in foreign currencies, interest rates or commodity
costs; fluctuations in the prices of raw materials or the availability of raw
materials used by the Company; any disruptions in the Company’s supply chain as
a result of material fluctuations in the Company’s order volumes and
requirements for (as well as limitations on the availability of) raw materials
and other components necessary to manufacture and produce the Company’s
products; the success of the Company’s suppliers and customers and the impact of
any consolidation in the industries of the Company’s suppliers and customers;
the ability of the Company to deploy its capital successfully; unanticipated
outcomes related to outsourcing certain manufacturing processes; unanticipated
outcomes related to litigation matters; 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 filing. The
Company assumes no obligation, and disclaims any obligation, to update such
forward-looking statements to reflect subsequent events or circumstances.

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Trademarks

We have registered the following trademarks, among others, which may be used in
this report: Minn Kota®, Cannon®, Humminbird®, Eureka!®, Jetboil®, Old Town®,
Ocean Kayak®, Carlisle®, and SCUBAPRO®.

Overview

The Company is a leading global manufacturer and marketer of branded seasonal
outdoor recreation products used primarily for fishing, diving, paddling and
camping. The Company’s portfolio of well-known consumer brands has attained
leading market positions due to continuous innovation, marketing excellence,
product performance and quality. The Company’s values and culture support
innovation in all areas, promoting and leveraging best practices and synergies
within and across its subsidiaries to advance the Company’s strategic vision set
by executive management and approved by the Company’s Board of Directors. The
Company is controlled by Helen P. Johnson-Leipold, the Company’s Chairman and
Chief Executive Officer, members of her family and related entities.

Coronavirus (COVID-19)

In March 2020, the World Health Organization announced the COVID-19 outbreak had
become a world-wide pandemic. Various government mandates resulted in travel
limitations and business and government shutdowns which had significant negative
economic impacts around the world. The Company temporarily halted certain
production operations at the end of the second fiscal quarter and beginning of
the third fiscal quarter of 2020, and saw a significant decline in demand and
sales volumes during that time.

Although later during our 2020 third fiscal quarter, stay-at-home orders were
lifted, government prescriptions for the general public to maintain social
distancing and avoid activities involving large crowds or being in confined
spaces with others to mitigate the spread of the virus continued and, as a
result, the outdoor recreation industry has benefited from increased
participation. As consumers took advantage of being outdoors, the Company saw an
increase in demand for many of its warm weather outdoor recreational products
and each of our Fishing, Camping and Watercraft Recreation segments experienced
increased sales volumes during most of the second half of fiscal 2020. As a
result, our customers’ inventory levels were drawn down, and accordingly, we
continued to experience strong orders from our customers during the first half
of fiscal 2021 to fill their pipelines in anticipation of the warm-weather
recreational season and to continue to satisfy strong customer demand for our
products. As the Company looks forward to the second half of the year, managing
supply chains, and ensuring the availability of certain finished goods,
components, parts and other raw materials across our segments will be essential
to continue to meet this expected continued strong demand for our products.

Highlights

Net sales of $206,156 for the second quarter of fiscal 2021 increased $43,072,
or 26%, from the same period in the prior year, reflecting increased sales
volumes across all businesses, except Diving, mainly attributable to increased
participation in outdoor recreation activities as a result of social distancing
and other indoor activity restrictions related to the COVID-19 pandemic.
Additionally, we have seen our customers replenish their inventory levels of our
products to meet expected demand for the fiscal 2021 warm-weather outdoor
recreational season. This sales volume increase was the primary driver of the
increase of $4,242 in operating profit over the prior year quarter.

Seasonality

The Company’s business is seasonal in nature. The second fiscal quarter
traditionally falls within the Company’s primary selling season for its
warm-weather outdoor recreation products. The table below sets forth a
historical view of the Company’s seasonality during the last three fiscal years.
See “Coronavirus (COVID-19)” above for additional information of the impact of
COVID-19 on changes to the Company’s seasonality for fiscal 2020 which changes
have continued into fiscal 2021 and which changes are expected to continue to
evolve over the remainder of fiscal 2021.

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Fiscal Year
2020 2019 2018
Net Operating Net Operating Net Operating
Quarter Ended Sales Profit Sales Profit Sales Profit
December 22 % 10 % 19 % 9 % 21 % 11 %
March 27 % 45 % 32 % 43 % 31 % 41 %
June 23 % 17 % 31 % 43 % 31 % 51 %
September 28 % 28 % 18 % 5 % 17 % -3 %
100 % 100 % 100 % 100 % 100 % 100 %

Results of Operations

The Company’s net sales and operating profit (loss) by business segment for the
periods shown below were as follows:

Three Months Ended Six Months Ended
April 2, 2021 March 27, 2020 April 2, 2021 March 27, 2020
Net sales:
Fishing $ 160,016 $ 133,955 $ 287,015 $ 233,233
Camping 14,244 8,849 26,438 16,363
Watercraft Recreation 17,778 6,064 30,221 10,873
Diving 14,208 14,261 28,301 30,720
Other / Eliminations (90) (45) (152) (51)
Total $ 206,156 $ 163,084 $ 371,823 $ 291,138
Operating profit (loss):
Fishing $ 40,400 $ 32,917 $ 68,163 $ 47,935
Camping 2,962 709 5,770 775
Watercraft Recreation 2,814 (1,639) 3,883 (3,202)
Diving (1,253) (812) (1,594) (607)
Other / Eliminations (8,887) 619 (16,629) (6,306)
Total $ 36,036 $ 31,794 $ 59,593 $ 38,595

See “Note 16 – Segments of Business” of the notes to the accompanying Condensed
Consolidated Financial Statements for the definition of segment net sales and
operating profit.

Net Sales

Consolidated net sales for the three months ended April 2, 2021 were $206,156,
an increase of $43,072, or 26%, compared to $163,084 for the three months ended
March 27, 2020. Foreign currency translation had a favorable impact of less than
1% on current year second quarter net sales compared to the prior year’s second
quarter net sales.

Net sales for the three months ended April 2, 2021 for the Fishing business were
$160,016, an increase of $26,061, or 19%, from $133,955 during the second fiscal
quarter of the prior year. The increase over the prior year quarter was driven
by increased participation in outdoor recreation, principally as a result of the
effect of COVID-19 on consumer recreation and leisure choices which resulted in
a significant increase in demand for our fishing products. The higher consumer
demand resulted in our customers’ desire to fill their pipeline and stock
inventory of our products in anticipation of the 2021 warm-weather recreational
season.

Net sales for the Camping business were $14,244 for the second quarter of the
current fiscal year, an increase of $5,395, or 61%, from the prior year net
sales during the same period of $8,849. Increased sales of Jetboil and Eureka!
consumer camping products as a result of increased participation in outdoor
recreation activities described above were the primary drivers of the increase.

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Net sales for the second quarter of fiscal 2021 for the Watercraft Recreation
business were $17,778, an increase of $11,714, or 193%, compared to $6,064 in
the prior year same period. COVID-19 related shutdowns unfavorably impacted both
production and demand in the prior year period for this segment. During the
current fiscal year second quarter, increased participation in outdoor
recreation activities and successful offerings of products further drove the
significant increase over the prior year quarter.

Net sales for Diving, our most global business, were relatively flat quarter
over quarter at $14,208 for the three months ended April 2, 2021 versus $14,261
for the three months ended March 27, 2020. A decrease in demand due to the
effects of COVID-19 as a result of the continued closure of destination travel
locations and lower tourism activities, was offset by a favorable foreign
currency translation impact on sales in this segment of approximately 5% versus
the prior year quarter.

For the six months ended April 2, 2021, consolidated net sales of $371,823
increased $80,685 or 28% compared to $291,138 for the six months ended March 27,
2020. Foreign currency translation had a favorable impact of less than 1% on net
sales of the current year to date period versus the prior year to date period.

Net sales for the six months ended April 2, 2021 for the Fishing business were
$287,015, an increase of $53,782, or 23% from $233,233 during the same period of
the prior year. The increase over the prior year to date period was driven by
increased participation in outdoor recreation, principally as a result of the
effect of COVID-19 on consumer recreation and leisure choices, resulting in
higher demand across all product lines and increased customer orders to fill
their pipelines in anticipation of the warm-weather recreational season in the
current fiscal year to date period.

Net sales for the Camping business were $26,438 for the six months ended
April 2, 2021, an increase of $10,075, or 62%, from the prior year net sales
during the same period of $16,363. Increased sales of Jetboil and Eureka!
consumer camping products as a result of increased participation in outdoor
recreation activities were the primary driver of the increase.

Net sales for the six months ended April 2, 2021 for the Watercraft Recreation
business were $30,221, an increase of $19,348, or 178%, compared to $10,873 in
the prior year same period. Increased demand as a result of increased
participation in watercraft recreation during the COVID-19 pandemic drove the
overall increase over the prior year to date period.

Diving net sales were $28,301 for the six months ended April 2, 2021 versus
$30,720 for the six months ended March 27, 2020, a decrease of $2,419, or 8%.
The sales decrease is largely due to the impact of COVID-19 and the resulting
disruptions to the global tourism industry. The decrease in demand was offset in
part by the favorable effect of foreign currency translation of 5% versus the
prior year to date period.

Cost of Sales

Cost of sales for the three months ended April 2, 2021 was $112,902 compared to
$87,952 for the three months ended March 27, 2020. The increase year over year
was driven primarily by increases in variable costs due to the higher sales
volume in the current year quarter over the prior year quarter. Furthermore, the
Company incurred $1,400 of additional tariff costs versus the prior year quarter
and experienced increased air freight costs as the Company continues to manage
its supply chain to ensure the availability of necessary components, parts and
other raw materials across our segments.

For the six months ended April 2, 2021, cost of sales was $203,539 compared to
$162,394 in the same period of the prior year. The increase year over year was
primarily driven by increased sales volumes in the current year versus the prior
year as described above.

Gross Profit Margin

For the three months ended April 2, 2021, gross profit as a percentage of net
sales was 45.2% compared to 46.1% in the three month period ended March 27,
2020. The gross profit impact of cost increases noted above was nearly offset by
increased sales volume related efficiencies and favorable product mix.

For the six months ended April 2, 2021, gross profit as a percentage of net
sales was 45.3% compared to 44.2% in the prior six month period, mainly due to
pricing increases and increased sales volume efficiencies, which more than
offset a $2,000 increase in tariffs over the prior year to date period.

At current expected rates, the Company anticipates an aggregate negative impact
of Section 301 tariffs on China sourced goods, net of mitigation actions, on the
Company’s full fiscal 2021 gross profit of approximately $9 million, compared to
approximately $3.5 million during the full previous fiscal year. The expiration
of tariff exclusions that the Company secured in prior periods, combined with
the application of tariffs on a broader assortment of goods, as well as
additional purchase volume are driving the expected year over year increase in
tariff costs.
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Operating Expenses

Operating expenses were $57,218 for the three months ended April 2, 2021,
compared to $43,338 for the three months ended March 27, 2020. The increase of
$13,880 was primarily due to the impact of higher sales volume-driven expenses,
as well as higher variable and deferred compensation expense between quarters.
Favorable market conditions on the Company’s deferred compensation plan assets
resulted in approximately $4,700 of higher deferred compensation expense in the
current year quarter as compared to the prior year quarter, which was entirely
offset by a gain in Other (Income) Expense, net related to marking these
deferred compensation plan assets to market.

Operating expenses were $108,691 for the six months ended April 2, 2021,
compared to $90,149 for the six months ended March 27, 2020. The increase of
$18,542 was primarily due to the impact of higher sales volume-driven expenses,
as well as higher variable and deferred compensation expense between periods.
Favorable market conditions on the Company’s deferred compensation plan assets
resulted in approximately $6,100 of higher deferred compensation expense in the
current year to date period as compared to the prior year to date period, which
was entirely offset by a gain in Other (Income) Expense, net related to marking
these deferred compensation plan assets to market.

Operating Profit

Operating profit on a consolidated basis for the three month period ended
April 2, 2021 was $36,036, compared to an operating profit of $31,794 in the
second quarter of the prior fiscal year. Higher sales volumes and the other
factors discussed above were the primary drivers of the increase in operating
profit between quarters.

Operating profit on a consolidated basis for the six months ended April 2, 2021
was $59,593, compared to an operating profit of $38,595 in the prior year to
date period. The improvement year over year was driven primarily by increased
sales volumes as well as the other factors discussed above.

Interest

Interest expense remained flat at $35 for each of the three months ended
April 2, 2021 and March 27, 2020. Interest expense was $67 for the six months
ended April 2, 2021 compared to $70 for the six months ended March 27, 2020.

Interest income for the three month periods ended April 2, 2021 and March 27,
2020 was $80 and $484, respectively. For the six months ended April 2, 2021,
interest income was $162, compared to $1,139 for the six months ended March 27,
2020. The decrease in interest income year over year was mainly driven by the
decrease in interest rates in fiscal 2021 versus the corresponding period of
fiscal 2020.

Other Income, net

Other income was $1,229 for the three months ended April 2, 2021 compared to
expense of $3,866 in the prior year period. Investment gains and earnings on
the assets related to the Company’s non-qualified deferred compensation plan
were $1,257 in the three month period ended April 2, 2021 compared to net
investment losses of $3,468 in the three month period ended March 27, 2020. The
increase year over year in the investment value of these assets was offset by
the deferred compensation expense included in the Company’s Operating expenses
during the same periods. For the three months ended April 2, 2021, foreign
currency exchange gains were $217 compared to losses of $265 for the three
months ended March 27, 2020.

For the six months ended April 2, 2021, other income was $3,633 compared to
expense of $2,698 in the six months ended March 27, 2020. Net investment gains
and earnings on the assets related to the Company’s non-qualified deferred
compensation plan in the six months ended April 2, 2021 were $3,994, compared to
net investment losses of $2,144 in the six months ended March 27, 2020. Foreign
currency exchange gains were $121 for the six months ended April 2, 2021,
compared to losses of $297 for the six months ended March 27, 2020.

Income Tax Expense

The Company’s provision for income taxes is based upon estimated annual
effective tax rates in the tax jurisdictions in which the Company operates.

The

effective tax rate for the three and six month periods ended April 2, 2021 were
25.4% and 24.7%, respectively, compared to 28.2% and 27.5% in the corresponding
periods of the prior year. The key factors impacting the effective tax rate for
the six months ended April 2, 2021 were the net excess tax benefits related to
share-based compensation and a current period income tax benefit of an
intra-entity transfer of an asset other than inventory.

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Net Income

Net income for the three months ended April 2, 2021 was $27,834, or $2.74 per
diluted common class A and B share, compared to net income of $20,387, or $2.02
per diluted common class A and B share, for the second quarter of the prior
fiscal year.

Net income for the six months ended April 2, 2021 was $47,681, or $4.70 per
diluted common class A and B share, compared to net income of $26,817, or $2.66
per diluted common class A and B share, for the six months ended March 27, 2020.

Liquidity and Financial Condition

Cash and cash equivalents totaled $186,921 as of April 2, 2021, compared to cash
and cash equivalents of $131,256 as of March 27, 2020. The increase in cash
year over year was due primarily to increased operating profits earned over the
prior year period. The Company’s debt to total capitalization ratio was 0% as of
April 2, 2021 and March 27, 2020. The Company’s total debt balance was $0 as of
each of April 2, 2021 and March 27, 2020. See “Note 11 – Indebtedness” in the
notes to the Company’s accompanying condensed consolidated financial statements
for further discussion.

Accounts receivable, net of allowance for doubtful accounts, were $130,139 as of
April 2, 2021, an increase of $23,510 compared to $106,629 as of March 27,
2020. The increase is consistent with increased sales volumes year over year.
Inventories were $124,538 as of April 2, 2021, an increase of $16,858, compared
to $107,680 as of March 27, 2020. The increase in inventory balance over the
prior year period is due to increased raw material and other component purchases
in an effort to meet increased demand for products in the current year period.
Accounts payable were $50,609 at April 2, 2021 compared to $36,349 as of
March 27, 2020, which increase corresponded with the increase in inventory
balances between periods.

The Company’s cash flows from operating, investing and financing activities, as
presented in the Company’s accompanying Condensed Consolidated Statements of
Cash Flows, are summarized in the following table:

Six months ended
April 2, March 27,
(thousands) 2021 2020
Cash (used for) provided by:
Operating activities $ (11,955) $ (28,991)
Investing activities (9,822) (7,762)
Financing activities (4,690) (3,842)

Effect of foreign currency rate changes on cash 951 (531)
Decrease in cash and cash equivalents

$ (25,516) $ (41,126)

Operating Activities

Cash used for operations totaled $11,955 for the six months ended April 2, 2021
compared to $28,991 during the corresponding period of the prior fiscal
year. The decrease in cash used for operations over the prior year six month
period was due primarily to increased net income between periods, as well as
changes in working capital balances between periods. Depreciation and
amortization charges were $6,751 for the six month period ended April 2, 2021
compared to $6,796 for the corresponding period of the prior year.

Investing Activities

Cash used for investing activities totaled $9,822 for the six months ended
April 2, 2021 compared to cash used for investing activities of $7,762 for the
corresponding period of the prior fiscal year. Cash usage for capital
expenditures totaled $9,828 for the current year six month period and $7,772 for
the prior year period. Any additional capital expenditures in fiscal 2021 are
expected to be funded by working capital.

Financing Activities

Cash used for financing activities totaled $4,690 for the six months ended
April 2, 2021 compared to $3,842 for the six month period ended March 27, 2020
and represents the payment of dividends and purchase of treasury stock. The
Company had no

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debt during either quarter ended April 2, 2021 and March 27, 2020. See Note 11
“Indebtedness” to the accompanying Condensed Consolidated Financial Statements
for additional information on our credit facilities.

As of April 2, 2021 the Company held approximately $44,944 of cash and cash
equivalents in bank accounts in foreign taxing jurisdictions.

Contractual Obligations and Off Balance Sheet Arrangements

The Company has contractual obligations and commitments to make future payments
including under operating leases and open purchase orders. There have been no
changes outside of the ordinary course of business in the specified contractual
obligations during the quarter ended April 2, 2021.

The Company utilizes letters of credit primarily as security for the payment of
future claims under its workers compensation insurance. Letters of credit
outstanding were approximately $181 and $181 as of April 2, 2021 and March 27,
2020, respectively.

The Company anticipates making contributions of $83 to its defined benefit
pension plans during the remainder of fiscal 2021.

The Company has no other off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The Company’s critical accounting policies and estimates are identified in the
Company’s Annual Report on Form 10-K for the fiscal year ending October 2, 2020
in Management’s Discussion and Analysis of Financial Condition and Results of
Operations under the heading “Critical Accounting Estimates”, which was filed
with the Securities and Exchange Commission on December 11, 2020. There were no
significant changes to the Company’s critical accounting policies and estimates
during the six months ended April 2, 2021.

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