-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HgQzaW2VdeH68KOWuOeKOvGyJb66jJ7HGSzNVdTKoidtVAlolPf3jDupMnNGO8+j KFpDfVwG/5YxX2tFKgJlqA== 0000897069-97-000003.txt : 19970106 0000897069-97-000003.hdr.sgml : 19970106 ACCESSION NUMBER: 0000897069-97-000003 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960927 FILED AS OF DATE: 19970103 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHNSON WORLDWIDE ASSOCIATES INC CENTRAL INDEX KEY: 0000788329 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 391536083 STATE OF INCORPORATION: WI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-16255 FILM NUMBER: 97500631 BUSINESS ADDRESS: STREET 1: 1326 WILLOW RD CITY: STURTEVANT STATE: WI ZIP: 53177 BUSINESS PHONE: 4148841500 MAIL ADDRESS: STREET 1: 1326 WILLOW RD STREET 2: STE400 CITY: STURTEVANT STATE: WI ZIP: 53177 10-K/A 1 JOHNSON WORLDWIDE FORM 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-K/A Amendment No. 1 to [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 27, 1996 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 incorporation or organization) Identification No.) 1326 Willow Road, Sturtevant, Wisconsin 53177 (Address of principal executive offices) (414) 884-1500 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $.05 par value 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. [ ] As of November 15, 1996, 6,901,885 shares of Class A and 1,228,053 shares of Class B common stock of the Registrant were outstanding. The aggregate market value of voting stock of the Registrant held by non-affiliates of the Registrant was approximately $50,902,000 on November 15, 1996. DOCUMENTS INCORPORATED BY REFERENCE Part and Item Number of Form 10-K Document into which Incorporated 1. Johnson Worldwide Associates, Part I, Items 1 and 2, and Part Inc. 1996 Annual Report II, Items 5, 6, 7 and 8 2. Johnson Worldwide Associates, Inc. Part III, Items 10, 11, 12 and 13 Notice of Annual Meeting of Shareholders and Proxy Statement for the Annual Meeting of Shareholders on January 22, 1997 The undersigned Registrant hereby amends Exhibit 13 to its Annual Report on Form 10-K for the fiscal year ended September 27, 1996 to provide in its entirety as filed herewith. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Mount Pleasant and State of Wisconsin, on the 2nd day of January, 1997. JOHNSON WORLDWIDE ASSOCIATES, INC. (Registrant) /s/ Carl G. Schmidt (Carl G. Schmidt) Senior Vice President and Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) JOHNSON WORLDWIDE ASSOCIATES, INC. EXHIBIT INDEX Exhibits Title Page No. 3.1 Articles of Incorporation of the Company. (Filed as Exhibit 3.1 to the Company's Form S-1 Registration Statement No. 33-16998, and incorporated herein by reference.) * 3.2 Amendments to Bylaws of the Company, dated June 24, 1996. # 3.3 Bylaws of the Company as amended through June 24, 1996. # 4.1 Note Agreement dated May 1, 1991. (Filed as Exhibit 4 to the Company's Form 10-Q for the quarter ended June 28, 1991 and incorporated herein by reference). * 4.2 Letter Amendment No. 1 dated September 30, 1993 to Note Agreement dated May 1, 1991. (Filed as Exhibit 4.5 to the Company's Form 10-K for the year ended October 1, 1993 and incorporated herein by reference). * 4.3 Note Agreement dated May 1, 1993. (Filed as Exhibit 4 to the Company's Form 10-Q for the quarter ended July 2, 1993 and incorporated herein by reference.) * 4.4 Letter Amendment dated September 30, 1993 to Note Agreement dated May 1, 1993. (Filed as Exhibit 4.8 to the Company's Form 10-K for the year ended October 1, 1993 and incorporated herein by reference). * 4.5 Note Agreement dated October 1, 1995. (Filed as Exhibit 4.1 to the Company's Form 10-Q for the quarter ended December 29, 1995 and incorporated herein by reference.) * 4.6 Credit Agreement dated November 29, 1995. (Filed as Exhibit 4.2 to the Company's Form 10-Q for the quarter ended December 29, 1995 and incorporated herein by reference.) * 4.7 Amendment No. 1 dated July 1, 1996 to Credit Agreement dated November 29, 1995. # 9. Johnson Worldwide Associates, Inc. Class B Common Stock Voting Trust Agreement, dated December 30, 1993 (Filed as Exhibit 9 to the Company's Form 10-Q for the quarter ended December 31, 1993 and incorporated herein by reference.) * 10.1 Asset Purchase Agreement between Johnson Worldwide Associates, Inc. and Safari Land Ltd., Inc. dated as of March 31, 1995 (Filed as Exhibit 2 to the Company's Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference.) * 10.2+ Discretionary Bonus Option Plan. (Filed as Exhibit 10-2 to the Company's Form S-1 Registration Statement No. 33-16998, and incorporated herein by reference.) * 10.3+ Johnson Worldwide Associates, Inc. Amended and Restated 1986 Stock Option Plan. (Filed as Exhibit 10 to the Company's Form 10-Q for the quarter ended July 2, 1993 and incorporated herein by reference.) * 10.4 Registration Rights Agreement regarding Johnson Worldwide Associates, Inc. Common Stock issued to the Johnson family prior to the acquisition of Johnson Diversified, Inc. (Filed as Exhibit 10.6 to the Company's Form S-1 Registration Statement No. 33-16998, and incorporated herein by reference.) * 10.5 Registration Rights Agreement regarding Johnson Worldwide Associate, Inc. Class A Common Stock held by Mr. Samuel C. Johnson. (Filed as Exhibit 28 to the Company's Form 10-Q for the quarter ended March 29, 1991 and incorporated herein by reference.) * 10.6+ Form of Restricted Stock Agreement. (Filed as Exhibit 10.8 to the Company's Form S-1 Registration Statement No. 33-23299, and incorporated herein by reference.) * 10.7+ Form of Supplemental Retirement Agreement of Johnson Diversified, Inc. (Filed as Exhibit 10.9 to the Company's Form S-1 Registration Statement No. 33-16998, and incorporated herein by reference.) * 10.8+ Johnson Worldwide Associates Retirement and Savings Plan. (Filed as Exhibit 10.9 to the Company's Form 10-K for the year ended September 29, 1989 and incorporated herein by reference.) * 10.9+ Form of Agreement of Indemnity and Exoneration with Directors and Officers. (Filed as Exhibit 10.11 to the Company's Form S-1 Registration Statement No. 33-16998, and incorporated herein by reference.) * 10.10 Consulting and administrative agreements with S. C. Johnson & Son, Inc. (Filed as Exhibit 10.12 to the Company's Form S-1 Registration Statement No. 33-16998, and incorporated herein by reference.) * 10.11+ Johnson Worldwide Associates, Inc. Stock Option Plan for Non-Employee Directors. (Filed as Exhibit 4.2 to the Company's Form S-8 Registration Statement No. 33-19805 and incorporated herein by reference.) * 10.12+ Johnson Worldwide Associates, Inc. 1994 Long-Term Stock Incentive Plan (Filed as Exhibit 4 to the Company's S-8 Registration Statement No. 33-52073 and incorporated herein by reference.) * 10.13+ Separation agreement, dated July 18, 1996, between the Company and John D. Crabb. # 11. Statement regarding computation of per share earnings. (Incorporated by reference to Note 14 to the Consolidated Financial Statements on page 30 of the Company's 1996 Annual Report.) * 13. Portions of the Johnson Worldwide Associates, Inc. 1996 Annual Report that are incorporated herein by reference. -- 21. Subsidiaries of the Company as of September 27, 1996. # 23. Consent of KPMG Peat Marwick LLP. # 27. Financial Data Schedule # 99. Definitive Proxy Statement for the 1996 Annual Meeting of Shareholders (Previously filed via the EDGAR system and incorporated herein by reference). Except to the extent incorporated herein by reference, the Proxy Statement for the 1996 Annual Meeting of Shareholders shall not be deemed to be filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K. * ___________ * Incorporated herein by reference. + A management contract or compensatory plan or arrangement. # Previously filed with this Annual Report on Form 10-K. EX-13 2 PORTIONS OF ANNUAL REPORT [Page 17] Management's Discussion and Analysis JOHNSON WORLDWIDE ASSOCIATES, INC. and Subsidiaries The following discussion includes comments and analysis relating to the Company's results of operations and financial condition for the three years ended September 27, 1996. 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. Foreign Operations The Company has significant foreign operations, for which the functional currencies are denominated primarily in 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 forward contracts and options to hedge known commitments, primarily for purchases of inventory and loans denominated in foreign currencies. Results of Operations Summary consolidated financial results are as follows: [millions, except per share data] 1996 1995 1994 Net sales $344.4 $347.2 $284.3 Gross profit 119.7 138.2 110.5 Operating expenses(1) 121.2 114.4 91.5 Operating profit (loss) (1.5) 23.7 18.9 Interest expense 10.2 7.6 6.8 Income (loss) from continuing operations (11.4) 10.1 8.1 Per common share (1.40) 1.25 1.01 (1) Includes nonrecurring charges of $6.8 million in 1996. 1996 vs 1995 Net Sales Net sales were $344.4 million in 1996 compared to $347.2 million in 1995, a decrease of 1%. The sales decrease as measured in U.S. dollars was negatively impacted by the effect of weaker foreign currencies relative to the U.S. dollar in comparison to 1995. Excluding the effects of foreign currency movements, worldwide sales increased nominally over 1995. Poor spring weather in North America contributed to a decline in sales of 4% in that region in 1996. Both the fishing and camping businesses were impacted. The delay, until February 1996, in the introduction of a new fishing line product due to production problems encountered by the supplier, also negatively impacted revenue in 1996. European sales as measured in U. S. dollars increased 6% in 1996, led by strong growth in the camping and diving businesses. Excluding currency effects, European sales increased 7% in 1996. The Company's Asian business, which is concentrated in Japan and Australia, recognized a decline in sales of 11% in 1996 due to the significant decline in the Japanese yen relative to the U.S. dollar. Excluding the impact of foreign currencies, sales in Asia increased 2% as the Australian business generated significant sales growth. Operating Profit The Company recognized an operating loss of $1.5 million in 1996 compared to operating profit of $23.7 million in 1995. Several factors accounted for the operating loss. Gross profit margins declined from 39.8% in 1995 to 34.8% in 1996. Unusual charges related to reduction of inventories to their net realizable value reduced the gross profit by $11 million, or 3.2%. Most significantly impacted was the North American fishing business, which had the most significant buildup of inventory and recognized the bulk of the losses. Changes in management and the end of the peak selling season contributed to the timing of the loss, which was recognized in the fourth quarter. The Company also continues to experience margin pressure in all of its businesses due to increasing competition from other businesses. Operating expenses, excluding nonrecurring charges, totaled $114.4 million, or 33% of sales in both 1996 and 1995. While overall operating expenses remained level, financial and administrative management expenses increased $0.8 million. Amortization expense increased $0.5 million in 1996 due to a full year of amortization of intangible assets related to acquisitions completed in 1995. The Company recognized nonrecurring charges totaling $6.8 million in 1996. These charges resulted from writedowns totaling $2.9 million of long-lived assets related to adoption of FASB Statement 121, which the Company adopted in 1996, and closure of a subsidiary, the expected loss of $2 million on the sale of one of the Company's businesses, and charges totaling $1.9 million related to the relocation of one of its manufacturing locations and the outsourcing of the distribution function of another business. Other Income and Expenses Interest expense increased $2.6 million in 1996, reflecting higher debt levels resulting from the full year impact of acquisitions consummated in 1995 and due to higher levels of working capital, primarily inventory. The issuance of long-term senior notes in October 1995 increased the average interest rate of the Company's indebtedness, as this debt was used to repay short-term debt which generally carried lower interest rates. [Page 18] Income From Continuing Operations The Company recognized a loss from continuing operations of $11.4 million in 1996, or $1.40 per share, compared to earnings of $10.1 million, or $1.25 per share in 1995. The Company recognized income tax expense of $0.2 million in 1996, despite a pretax loss, due to earnings in foreign jurisdictions that are taxed at higher rates than in the U.S. The tax benefit of operating losses generated in the U.S. did not fully offset the taxes in these foreign jurisdictions. In addition, the Company recognized income tax expense totaling $0.5 million on the expected disposition of a business, despite a pretax loss of $2 million, due to differences between the tax basis and financial statement carrying values of the related assets. The disproportionate contribution of earnings from foreign businesses is attributable to the inventory writedowns and nonrecurring charges noted above, which are largely being recognized in the United States. 1995 vs 1994 Net Sales Net sales were $347.2 million in 1995 compared to $284.3 million in 1994, an increase of 22%. 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 1994. Strong new product programs contributed to the increase in sales in all businesses, as did sales from acquired product lines in the fishing business. Excluding the effects of foreign currency movements, worldwide sales increased 17% over 1994. In North America, an overall increase in sales of 22% was led by fishing products, primarily on the strength of increased sales of Mitchell and Johnson rod and reel products and sales of SpiderWire, a product line acquired in April 1995. While sales of Minn Kota electric motors were improved over 1994, sales growth was inhibited by an extended work stoppage at a key component supplier, which limited product availability. Sales of camping products in North America increased moderately overall, led by Old Town watercraft products, as did sales of diving and marine products. European sales as measured in U.S. dollars increased 26% from 1994, but increased less in local currencies. Measured in U.S. dollars, all product categories recorded gains in sales of at least 20%. The Company's Asian business recorded modest sales growth, reflecting problems in the Japanese economy and the effects of the Kobe earthquake. Operating Profit The Company's operating profit of $23.7 million in 1995 was $4.8 million, or 25% more than 1994. Gross profit margins increased from 38.9% to 39.8% of sales, reflecting declines in margins in the North American and European fishing businesses which were offset by increases in gross profit margins in the camping, diving and marine businesses in all major geographic areas. Margins in the fishing business were negatively impacted by changes in product mix, the work stoppage noted above, increased incoming freight costs and early season selling programs. Gross margins in 1994 were negatively impacted by inventory adjustments totaling $5.4 million. Operating expenses totaled $114.4 million or 33% of sales in 1995 compared to $91.5 million or 32% of sales in 1994. The increase in expenses was concentrated primarily in marketing and selling expenses and, to a lesser extent, research and development. Financial and administrative management expenses, which had been stable for several years, increased in 1995 due to increased information technology expenditures. Amortization of intangible assets increased from $1.5 million to $2 million due to acquisitions consummated in 1995. The increase in operating expenses was also magnified by foreign currency movements relative to the U.S. dollar. Other Income and Expenses Interest expense increased in 1995 reflecting higher debt levels resulting from the April 1995 acquisition of the SpiderWire product line and the July 1995 acquisition of the Neptune Technologies product line, as well as increased working capital needs from internal growth. Other income, net of other expenses, increased from the prior year, primarily due to higher interest income and lower foreign exchange losses. Income From Continuing Operations Income from continuing operations of $10.1 million or $1.25 per share in 1995 was $2 million or 24% more than the $1.01 per share earned in 1994. The Company's effective tax rate of 40.6% in 1995, compared to 34.7% in 1994, reflected the disproportionate contribution to earnings in 1995 from European and Asian operations, which generally have higher marginal tax rates than the U.S. Discontinued Operations In 1993, the Company's Board of Directors approved a formal plan to divest the Company's Marking Systems businesses. During 1994, the Company completed the divestiture and recorded a gain on disposition of approximately $4.1 million as net sales proceeds exceeded expectations. [Page 19] Financial Condition The following discusses changes in the Company's liquidity and capital resources. Operations The following table sets forth the Company's working capital position at the end of each of the past three years: [millions] 1996 1995 1994 Current assets $194.3 $185.4 $155.4 Current liabilities 88.4 63.9 54.0 Working capital $105.9 $121.5 $101.4 Current ratio 2.2 to 1 2.9 to 1 2.9 to 1 Cash flows used for operations totaled $6.5 million in 1996 and $6.3 million in 1995. Growth in inventories of $17.6 million in 1996 and $23.4 million in 1995 accounted for a significant amount of the net usage of funds. Sales below expectations contributed to the growth in inventory in 1996. Accelerated delivery schedules for certain new products, inventories of acquired product lines, and level loading of production at certain of the Company's manufacturing operations contributed to the increase in 1995. Foreign currency fluctuations also contributed to the increase in 1995. Inventory turns decreased in 1996 and increased in 1995. Accounts receivable decreased $2.4 million in 1996, providing a source of funds, while increasing $6.6 million in 1995. Significant growth in third and fourth quarter sales accounted for the increase in accounts receivable in 1995. Accounts payable and accrued liabilities decreased $1.1 million in 1996 and increased $7.3 million in 1995, impacting the net outflow of cash from operations. Usage of liabilities established for restructuring in 1993 offset the increase in 1995. Depreciation and amortization charges were $10.6 million in 1996, $8.3 million in 1995 and $7 million in 1994, mitigating the net outflow of operating funds. The increase over 1994 reflects additional amortization of intangible assets arising from the Company's 1995 acquisitions and increased depreciation from capital spending in 1996, 1995 and 1994. Investing Activities Expenditures for property, plant and equipment were $10.7 million in 1996, $15.5 million in 1995 and $14 million in 1994. The Company's recurring investments are made primarily for tooling for new products and enhancements. In 1996, 1995 and 1994, capital spending was increased due to investments in data processing improvements. In 1994, the Company also constructed and occupied an office and research facility to replace rented space. In 1997, capitalized expenditures are anticipated to total approximately $10 million. These expenditures are expected to be funded by working capital or existing bank lines of credit. The Company completed the acquisitions of two product lines in 1995, which increased tangible and intangible assets and long-term debt by $28 million. No acquisitions were completed in 1996 or 1994. Financing Activities The following table sets forth the Company's debt and capital structure at the end of the past three years: [millions] 1996 1995 1994 Current debt $43.1 $18.6 $16.1 Long-term debt 61.5 68.9 31.2 Total debt 104.6 87.5 47.3 Shareholders' equity 126.4 141.3 128.2 Total capitalization $231.0 $228.8 $175.5 Total debt to total capital ratio 45.3% 38.2% 27.0% Cash flows from financing activities totaled $17.6 million in 1996 and $39.5 million in 1995. In October 1995, the Company consummated private placements of long-term debt totaling $45 million. In anticipation of this financing, short-term debt to be repaid totaling $32 million at September 29, 1995 was classified as long-term. Payments on long-term debt required to be made in 1997 total $7.5 million. Net proceeds totaling approximately $17 million from the sale of one of the Company's businesses are expected to be used to reduce indebtedness in 1997. At September 27, 1996, the Company had available, unused credit facilities in excess of $112 million. Other Factors The Company has not been significantly impacted by inflationary pressures over the last several years. However, from time to time the Company faces changes in the prices of commodities. Price increases and, in certain situations, price decreases are implemented for individual products, when appropriate. The Company anticipates that rising costs of basic raw materials may impact 1997 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. [Page 20] Consolidated Balance Sheets JOHNSON WORLDWIDE ASSOCIATES, INC. and Subsidiaries September 27 September 29 [thousands, except share data] 1996 1995 Assets Current assets: Cash and temporary cash investments $12,697 $8,944 Accounts receivable, less allowance for doubtful accounts of $2,235 and $2,610, respectively 55,847 61,456 Inventories 101,903 98,238 Deferred income taxes 13,561 7,423 Other current assets 10,336 9,319 ------- ------- Total current assets 194,344 185,380 Property, plant and equipment 30,154 33,028 Intangible assets 54,422 58,691 Other assets 1,848 1,254 ------- ------- Total assets $280,768 $278,353 ======= ======= Liabilities and Shareholders' Equity Current liabilities: Short-term debt and current maturities of long-term debt $43,118 $18,563 Accounts payable 11,086 14,623 Accrued liabilities: Salaries and wages 6,260 5,792 Income taxes 4,283 4,011 Other 23,659 20,866 ------- ------- Total current liabilities 88,406 63,855 Long-term debt, less current maturities 61,501 68,948 Other liabilities 4,437 4,288 ------- ------- Total liabilities 154,344 137,091 ------- ------- Shareholders' equity: Preferred stock: none issued - - Common stock: Class A shares issued: September 27, 1996, 6,901,801; September 29, 1995, 6,896,883 345 345 Class B shares issued (convertible into Class A): September 27, 1996, 1,228,137; September 29, 1995, 1,228,613 61 61 Capital in excess of par value 44,084 43,968 Retained earnings 77,940 89,525 Contingent compensation (121) (264) Cumulative translation adjustment 4,115 7,869 Treasury stock, at cost: September 29, 1995, 10,000 Class A shares - (242) ------- ------- Total shareholders' equity 126,424 141,262 ------- ------- Total liabilities and shareholders' equity $280,768 $278,353 ======= ======= The accompanying notes are an integral part of the consolidated financial statements. [Page 21] Consolidated Statements of Operations JOHNSON WORLDWIDE ASSOCIATES, INC. and Subsidiaries
Year Ended September 27 September 29 September 30 [thousands, except per share data] 1996 1995 1994 Net sales $ 344,373 $ 347,190 $ 284,343 Cost of sales 224,649 209,035 173,869 Gross profit 119,724 138,155 110,474 Operating expenses: Marketing and selling 78,348 78,743 59,629 Financial and administrative management 26,139 25,304 23,482 Research and development 6,537 6,531 5,304 Amortization of acquisition costs 2,500 2,003 1,482 Nonrecurring charges 6,768 - - Profit sharing 908 1,830 1,639 ------- ------- ------- Total operating expenses 121,200 114,411 91,536 ------- ------- ------- Operating profit (loss) (1,476) 23,744 18,938 Interest income (612) (774) (531) Interest expense 10,181 7,613 6,845 Other (income) expenses, net 116 (87) 140 ------- ------- ------- Income (loss) from continuing operations before income taxes (11,161) 16,992 12,484 Income tax expense 194 6,903 4,338 ------- ------- ------- Income (loss) from continuing operations (11,355) 10,089 8,146 Gain on disposal of discontinued operations, including income tax benefit of $2,277 - - 4,052 ------- ------- ------ Net income (loss) $ (11,355) $ 10,089 $ 12,198 ------- ------- ------ Earnings (loss) Per Common Share Continuing operations $ (1.40) $ 1.25 $ 1.01 Discontinued operations - - .50 ------- ------- ------- Net income (loss) $ (1.40) $ 1.25 $ 1.51 ------- ------- -------
The accompanying notes are an integral part of the consolidated financial statements. [Page 22] Consolidated Statements of Shareholders' Equity JOHNSON WORLDWIDE ASSOCIATES, INC. and subsidiaries
Capital in Cumulative Common Excess of Retained Contingent Translation Treasury [thousands] Stock Par Value Earnings Compensation Adjustment Stock BALANCE AT OCTOBER 1, 1993 $399 $41,696 $67,340 $(350) $1,733 $ - Net income - - 12,198 - - - Exercise of stock options 5 1,226 - - - - Tax benefit of stock options exercised - 150 - - - - Issuance of restricted stock - 70 - (70) - - Issuance of stock under employee stock purchase plan 1 188 - - - - Amortization of contingent compensation - - - 178 - - Translation adjustment - - - - 3,433 - ---- ------ ------ ---- ------ ----- Balance at September 30, 1994 405 43,330 79,538 (242) 5,166 - Net income - - 10,089 - - - Exercise of stock options 1 384 (95) - - 910 Tax benefit of stock options exercised - 118 - - - - Issuance of restricted stock - - (7) (222) - 229 Issuance of stock under employee stock purchase plan - 136 - - - - Amortization of contingent compensation - - - 200 - - Other treasury stock transactions - - - - - (1,381) Translation adjustment - - - - 2,703 - ---- ------ ------ ---- ------ ------ Balance at September 29, 1995 406 43,968 89,525 (264) 7,869 (242) Net loss - - (11,355) - - - Exercise of stock options - - (98) - - 295 Tax benefit of stock options exercised - 61 - - - - Issuance of restricted stock - - - (67) - 67 Issuance of stock under employee stock purchase plan - 55 (132) - - 291 Amortization of contingent compensation - - - 210 - - Other treasury stock transactions - - - - - (411) Translation adjustment - - - - (3,754) - ---- ------ ------ ---- ----- ----- Balance at September 27, 1996 $406 $44,084 $77,940 $(121) $4,115 $ - ==== ====== ====== ==== ===== =====
The accompanying notes are an integral part of the consolidated financial statements. [Page 23] Consolidated Statements of Cash Flows JOHNSON WORLDWIDE ASSOCIATES, INC. and Subsidiaries
Year Ended September 27 September 29 September 30 [thousands] 1996 1995 1994 Cash Provided By (Used For) Operations Net income (loss) $ (11,355) $ 10,089 $ 12,198 Noncash items: Depreciation and amortization 10,561 8,314 6,987 Provision for doubtful accounts receivable 1,662 1,567 1,421 Provision for inventory reserves 12,202 1,561 6,318 Deferred income taxes (6,842) 179 (694) Writedown of property, plant and equipment 1,846 - - Writedown of intangible assets 1,070 - - Loss on sale of business 2,000 - - Gain on disposal of discontinued operations - - (4,052) Change in: Accounts receivable 2,412 (6,637) (9,818) Inventories (17,571) (23,386) (7,311) Accounts payable and other accrued liabilities (1,128) 7,256 3,576 Restructuring accrual - (1,077) (7,828) Net assets of discontinued operations - - 4,036 Other, net (1,332) (4,147) 2,763 ------- ------- ------- (6,475) (6,281) 7,596 ------- ------- ------- Cash Provided By (Used For) Investing Activities Net assets of businesses acquired - (28,070) - Proceeds from sale of discontinued operations and other businesses - - 48,076 Additions to property, plant and equipment (10,685) (15,501) (13,970) Sales and retirements of property, plant and equipment 3,583 3,403 1,676 ------- ------- ------- (7,102) (40,168) 35,782 ------- ------- ------- Cash Provided By (Used For) Financing Activities Issuance of senior notes 45,000 - - Principal payments on senior notes and notes payable (7,341) (6,662) (5,231) Proceeds from revolving credit facilities - 13,172 - Repayment of revolving credit facilities (13,412) - (7,237) Net change in short-term debt (6,717) 32,928 (21,816) Common stock transactions 61 73 1,570 ------- ------- ------- 17,591 39,511 (32,714) Effect of foreign currency fluctuations on cash (261) 294 509 ------- ------- ------- Increase (decrease) in cash and temporary cash investments 3,753 (6,644) 11,173 Cash and Temporary Cash Investments Beginning of year 8,944 15,588 4,415 ------- ------- ------- End of year $ 12,697 $ 8,944 $ 15,588 ------- ------- -------
The accompanying notes are an integral part of the consolidated financial statements. [Page 24] Notes to Consolidated Financial Statements JOHNSON WORLDWIDE ASSOCIATES, INC. and Subsidiaries Johnson Worldwide Associates, Inc. is an integrated, global outdoor recreation products company engaged in the design, manufacture and marketing of brand name fishing and marine, camping and diving products. 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 preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and operating results and the disclosure of commitments and contingent liabilities. Actual results could differ significantly from those estimates. For the Company, significant estimates include the allowance for doubtful accounts receivable and reserves for inventory valuation. The Company's fiscal year ends on the Friday nearest September 30. The fiscal years ended September 27, 1996, September 29, 1995 and September 30, 1994 (hereinafter 1996, 1995 and 1994, respectively) each comprise 52 weeks. 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 at the end of the respective years consist of the following: [thousands] 1996 1995 Raw materials $ 30,102 $ 28,726 Work in process 6,167 5,888 Finished goods 79,299 68,742 --------- --------- 115,568 103,356 Less reserves 13,665 5,118 --------- --------- $ 101,903 $ 98,238 ========= ========= In 1996, the Company recorded charges totaling $11,000,000 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, which range from 3 to 30 years. 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 at the end of the respective years consist of the following: [thousands] 1996 1995 Property and improvements $ 987 $ 969 Buildings and improvements 15,685 15,642 Furniture, fixtures and equipment 61,009 59,275 --------- --------- 77,681 75,886 Less accumulated depreciation 47,527 42,858 --------- --------- $ 30,154 $ 33,028 ========= ========= Intangible Assets Intangible assets are stated at cost less accumulated amortization. Amortization is computed using the straight-line method with periods ranging from 15 to 40 years for goodwill and 3 to 16 years for patents, trademarks and other intangible assets. The Company annually assesses the recoverability of intangible assets, 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 impairment, if any, is measured primarily based on the deficiency of projected discounted future operating cash flows relative to the value of the asset, using a discount rate reflecting the Company's cost of capital, which is currently 12%. Intangible assets at the end of the respective years consist of the following: [thousands] 1996 1995 Goodwill $ 66,260 $ 68,784 Patents, trademarks and other 4,357 4,604 -------- -------- 70,617 73,388 Less accumulated amortization 16,195 14,697 -------- -------- $ 54,422 $ 58,691 ======== ======== [Page 25] Income Taxes The Company provides for income taxes currently payable, and deferred income taxes resulting from temporary differences between financial statement and taxable income, using the asset and liability method. Federal and state income taxes are provided on foreign subsidiary income distributed to or taxable in the United States during the year. At September 27, 1996, net undistributed earnings of foreign subsidiaries total approximately $39,973,000. 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 of foreign earnings 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 retirement and profit sharing plans. U.S. pension obligations, which are generally based on compensation and years of service, 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 Operations The Company operates internationally, which gives rise to exposure to market risk from movements in foreign exchange rates. The Company uses foreign currency forward contracts and foreign currency options in its selective hedging of foreign exchange exposure. Gains and losses on contracts that qualify as hedges are recognized as an adjustment of the carrying amount of the item hedged. The Company primarily hedges inventory purchases and loans denominated in foreign currencies. The Company does not enter into foreign exchange contracts for trading purposes. At September 27, 1996, foreign currency forward contracts and options with a notional value of approximately $4,716,000 are in place, hedging existing and anticipated transactions. All of these contracts mature in 1997. Failure of the counterparties to perform their obligations under these contracts would expose the Company to the risk of foreign currency rate movements for those contracts. The Company does not believe the risk is significant. 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 classified as a separate component of shareholders' equity. 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. Advertising The Company expenses substantially all costs of production of advertising the first time the advertising takes place. Cooperative promotional arrangements are accrued in relation to sales. Advertising expense in 1996, 1995 and 1994 totals $26,657,000, $26,151,000 and $19,901,000, respectively. Capitalized costs at September 27, 1996 and September 29, 1995 total $2,036,000 and $2,605,000, respectively, and primarily include catalogs and costs of advertising which has not yet run for the first time. 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. Pending Accounting Changes In 1996, the FASB issued Statement 123, Accounting for Stock-Based Compensation, which requires accounting for employee stock compensation plans using either the fair value method or the intrinsic value based method. The Company will adopt Statement 123 in 1997 and, based on current circumstances, anticipates retaining the intrinsic value based method of accounting for stock options, which is currently in use. 2 Nonrecurring Charges In 1995, the FASB issued Statement 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. In addition, Statement 121 requires that long-lived assets to be disposed of be reported at the lower of the carrying amount or fair value (less estimated selling expenses). The Company adopted Statement 121 in 1996 and determined that certain of its products would be discontinued. As a result, assets totaling $1,846,000, consisting primarily of tooling, were written off. The Company also determined that the carrying value of goodwill of one of its subsidiaries, which the Company subsequently closed, could not be recovered through undiscounted future cash flows. Accordingly, the related intangible assets, totaling $1,070,000, were written off. [Page 26] In 1996, the Company recorded involuntary severance and other exit costs totaling $1,852,000 related to the relocation of one of its manufacturing locations and the outsourcing of the distribution function of another business. Substantially all of the $1,389,000 remaining accrued liability at September 27, 1996 is to be disbursed by December 1996. Approximately 80 employees are impacted by these actions. In 1996, the Board of Directors approved a plan to divest one of the Company's businesses. The Company estimates the sale of this business will result in a loss of approximately $2,000,000. Accordingly, this loss is recognized in 1996 operating results. The Company expects the sale of this business will be consummated in 1997. Net sales and operating profit of this business were $36,391,000 and $3,043,000, respectively, in 1996. Net assets of this business totaled $16,885,000 at September 27, 1996. 3 Discontinued Operations In 1993, the Board of Directors approved a formal plan to divest the Company's Marking Systems businesses, 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 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 businesses to the disposal dates were $36,075,000 for 1994. Interest expense of $41,000 for 1994 that was directly attributable to the Marking Systems businesses was allocated to discontinued operations. 4 Acquisitions In April 1995, the Company acquired substantially all the assets of a line of fishing tackle products. The initial purchase price, including direct expenses, of the acquisition was $25,470,000, of which $22,042,000 was recorded as intangible assets and will be amortized over 25 years. Additional payments in the years 1997 through 2001 are dependent upon the achievement of specified levels of sales and profitability of certain of the acquired products. No additional payments were required in 1996. In connection with the acquisition, the Company entered into an exclusive supply agreement for certain of the products with the third-party manufacturer of such products. In June 1995, the Company acquired substantially all the assets of a line of electric motors and marine accessories. The purchase price of the acquisition was $2,600,000, of which $2,231,000 was recorded as intangible assets and will be amortized over 15 years. Additional payments in the years 1997 through 2000 are dependent upon achievement of specified levels of sales of the acquired product line. No additional payments were required in 1996. 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. 5 Indebtedness Short-term debt at the end of the respective years consists of the following: [thousands] 1996 1995 Commercial paper and bank loans $ 35,599 $ 42,978 Current maturities of long-term debt 7,519 7,413 -------- -------- 43,118 50,391 Less short-term debt to be refinanced - 31,828 -------- -------- $ 43,118 $ 18,563 ======== ======== Short-term arrangements provide for borrowings with interest rates set periodically by reference to market rates. The weighted average interest rate on short-term indebtedness was 5.8% and 7.0% at September 27, 1996 and September 29, 1995, respectively. The Company's primary facility is a $100,000,000 revolving credit agreement expiring in 2001, which includes $70,000,000 in support of commercial paper issuance. The Company has lines of credit, both foreign and domestic, totaling $150,764,000, of which $112,713,000 is available at September 27, 1996. The Company also has available letters of credit for trade financing purposes. Long-term debt at the end of the respective years consists of the following: [thousands] 1996 1995 Senior notes $ 67,000 $ 29,000 Short-term debt to be refinanced - 31,828 Revolving credit facility - 13,172 Notes payable 4.8% to 10.9% maturing through December 2005 2,020 2,361 -------- -------- 69,020 76,361 Less current maturities 7,519 7,413 -------- -------- $ 61,501 $ 68,948 ======== ======== In 1996, the Company issued unsecured senior notes of $30,000,000 with an interest rate of 7.77% and $15,000,000 with an interest rate of 6.98%. Total annual principal payments ranging from $5,500,000 to $7,500,000 are due beginning in 2000 through 2006. Proceeds from issuance of the senior notes were used to retire an interim revolving credit facility established in 1995 to fund acquisitions and to reduce outstanding borrowings under the Company's primary revolving credit facility. Outstanding [Page 27] short-term debt totaling $31,828,000 at September 29, 1995 was classified as long-term in anticipation of refinancing with the proceeds of the senior notes. 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. The remaining annual principal payment for the 1991 senior notes is $7,000,000 in 1997. Principal amounts payable on long-term debt in each of the five years ending September 2001 are as follows: Year [thousands] 1997 $ 7,519 1998 7,868 1999 7,679 2000 5,880 2001 6,161 Interest paid was $8,853,211, $6,775,000 and $6,864,000 for 1996, 1995 and 1994, respectively. 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 debt as of September 27, 1996 and September 29, 1995 is $69,151,000 and $76,804,000, respectively. The carrying value of all other financial instruments approximates the fair value. Certain of the Company's loan agreements require that Samuel C. Johnson, members of his family and related entities (Johnson Family) continue to own stock having votes sufficient to elect a 51% majority of the directors. At September 27, 1996, the Johnson Family held approximately 2,169,000 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 tangible net worth, indebtedness, fixed charge coverage and distribution of earnings. The Company is in compliance with the restrictive covenants of such agreements, as amended. 6 Leases and Other 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 having an initial or remaining term in excess of one year at September 27, 1996 are as follows: Year [thousands] 1997 $ 4,098 1998 2,354 1999 1,628 2000 1,167 2001 862 Thereafter 2,093 Rental expense under all leases was approximately $5,309,000, $5,141,000 and $5,145,000 for 1996, 1995 and 1994, respectively. The Company makes commitments in a broad variety of areas, including capital expenditures, contracts for services, sponsorship of broadcast media and supply of finished products and components, all of which are in the ordinary course of business. 7 Income Taxes Income tax expense (benefit) for the respective years attributable to income (loss) from continuing operations consists of the following: [thousands] 1996 1995 1994 Current: Federal $ 518 $ 309 $ (2,045) State 346 (100) 439 Foreign 6,239 6,489 5,382 Deferred (6,909) 205 562 ------ ------- ------- $ 194 $ 6,903 $ 4,338 ====== ======= ======= The significant components of deferred tax expense (benefit) attributable to income (loss) from continuing operations are as follows: [thousands] 1996 1995 1994 Deferred tax expense (benefit) (exclusive of effects of other components listed below) $(7,304) $ 325 $ 998 Adjustments to deferred tax assets and liabilities for enacted changes in tax laws or rates - 10 (18) Increase (decrease) in beginning of the year balance of the valuation allowance for deferred tax assets 395 (130) (418) ------ ------- ------- $(6,909) $ 205 $ 562 ------ ------- ------- [Page 28] 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] 1996 1995 1994 Deferred tax assets: Inventories $ 6,126 $ 1,867 $ 2,836 Compensation 2,240 1,782 1,816 Restructuring - - 377 Foreign income taxes 595 988 1,489 Foreign tax credit carryforwards 2,681 1,129 1,331 Net operating loss carryforwards 2,996 407 360 Other 5,250 4,607 2,870 Total gross deferred tax assets 19,888 10,780 11,079 Less valuation allowance 2,941 1,107 1,591 ------- ------- ------- 16,947 9,673 9,488 ------- ------- ------- Deferred tax liabilities: Foreign statutory reserves 1,371 1,204 891 Acquisition accounting 836 638 561 ------- ------- ------- Total deferred tax liabilities 2,207 1,842 1,452 ------- ------- ------- Net deferred tax asset $14,740 $ 7,831 $ 8,036 ======= ======= ======= Following is the income (loss) from continuing operations before income taxes for domestic and foreign operations: [thousands] 1996 1995 1994 United States $ (25,276) $ 1,164 $ 350 Foreign 14,115 15,828 12,134 -------- ------- ------- $ (11,161) $ 16,992 $ 12,484 ======== ======= ======= The significant differences between the statutory federal tax rates and the effective income tax rates are as follows: 1996 1995 1994 Statutory U.S. federal income tax rate (34.0)% 34.0% 34.0% State income taxes, net of federal income tax benefit (3.4) (0.9) 1.9 Foreign rate differential 22.8 7.9 5.2 Basis difference on divestiture of business 7.5 - - Change in beginning of year valuation allowance for foreign tax credits 3.9 - - Foreign operating losses (benefit) 1.2 0.9 (2.7) Tax credits - (1.6) (0.7) Other 3.7 0.3 (3.0) ---- ---- ---- 1.7% 40.6% 34.7% ---- ---- ---- At September 27, 1996, the Company has $2,681,000 of foreign tax credit carryforwards related to continuing operations available to be offset against future U.S. tax liability. The credits begin expiring in 1999, if not utilized. During 1996, 1995 and 1994, foreign net operating loss carryforwards related to continuing operations were utilized, resulting in a reduction in income tax expense of $34,000, $130,000 and $428,000, respectively. At September 27, 1996, the Company has a U.S. federal operating loss carryforward of $6,925,000. In addition, certain of the Company's foreign subsidiaries have net operating loss carryforwards totaling $790,000. These amounts are available to offset future taxable income over the next 8 to 15 years and are anticipated to be utilized during this period. Taxes paid related to continuing operations were $6,816,000, $7,318,000 and $5,896,000 for 1996, 1995 and 1994, respectively. 8 Employee Benefits Net periodic pension cost for noncontributory pension plans related to continuing operations includes the following components: [thousands] 1996 1995 1994 Service cost $ 282 $ 254 $ 265 Interest on projected benefit obligation 599 582 568 Return on plan assets (436) (457) (411) Net amortization and deferral (72) (19) 3 Effect of plan curtailment - - 177 ------- ------- ------ $ 373 $ 360 $ 602 [Page 29] The funded status of the plans related to continuing operations is as follows at the end of the respective years: [thousands] 1996 1995 Actuarial present value of benefit obligations: Vested benefits $ 7,031 $ 6,030 Non-vested benefits 187 174 Accumulated benefit obligation 7,218 6,204 Effect of projected compensation levels 1,779 1,681 Projected benefit obligation 8,997 7,885 Plan assets at fair value 6,235 5,697 Projected benefit obligation In excess of plan assets (2,762) (2,188) Unrecognized net loss 1,756 1,209 Unrecognized prior service cost 252 278 Unrecognized net asset (584) (661) Pension liability recognized in the consolidated balance sheets $(1,338) $ (1,362) Plan assets are invested primarily in stock and bond mutual funds and insurance contracts. Actuarial assumptions used to determine the projected benefit obligation and the expected net periodic pension cost are as follows: 1996 1995 1994 Discount rate 8% 8% 8% Rate of increase in compensation levels 5% 5% 5% Expected long-term rate of return on plan assets 8% 8% 8% A majority of the Company's full-time employees are covered by profit sharing programs. Participating entities determine a profit sharing distribution under various performance and service based formulas. 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: 1996 1995 Class A, $.05 par value: Authorized 20,000,000 20,000,000 Outstanding 6,901,801 6,886,883 Class B, $.05 par value: Authorized 3,000,000 3,000,000 Outstanding 1,228,137 1,228,613 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 1996, 1995 and 1994, respectively, 476, 1,986 and 284 shares of Class B common stock were converted into Class A common stock. 11 Stock Ownership Plans The Company's current stock ownership plans provide for issuance of options to acquire shares of Class A common stock by key executives and non-employee directors. Current plans also allow for issuance of restricted stock or stock appreciation rights in lieu of options. 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. Stock options generally have a term of 10 years. A summary of stock option activity related to the Company's plans is as follows: Shares Exercise Price 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 Granted 119,000 18.63 - 21.75 Exercised (70,138) 3.50 - 23.75 Cancelled (37,525) 17.13 - 23.75 Outstanding at September 29, 1995 598,946 4.44 - 24.38 Granted 162,000 22.06 - 25.31 Exercised (12,567) 20.25 - 23.50 Cancelled (182,158) 17.13 - 23.25 Outstanding at September 27, 1996 566,221 $ 4.44 - 25.31 Exercisable at September 27, 1996 356,756 $ 4.44 - 24.38 [Page 30] In October 1996, options to acquire 75,000 shares of Class A common stock at an exercise price of $13.125 per share were granted. At September 27, 1996, September 29, 1995 and September 30, 1994, 289,833, 286,833, and 276,333 shares, respectively, of restricted Class A common stock were issued under the Company's stock ownership plans. 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. At September 27, 1996, 457,500 shares are available for future issuance under all Company stock ownership plans. 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 1996, 1995 and 1994, 17,375, 6,701 and 9,432 shares, respectively, were issued under this plan. 12 Related Party Transactions 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 and, in 1994, the purchase of land for the Company's headquarters facility. Total costs of these transactions are $440,000, $523,000 and $1,548,000 for 1996, 1995 and 1994, respectively, of which $106,000 and $125,000 are outstanding at September 27, 1996 and September 29, 1995, 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. Net sales and operating profit by geographic area include both sales to customers, as reported in the Company's consolidated statements of operations, and inter-area 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 geographic area at the end of the years presented. A summary of the Company's operations by geographic area is presented below: [thousands] 1996 1995 1994 Net sales: United States: Unaffiliated customers $ 184,372 $ 192,426 $ 157,191 Inter-area transfers 6,718 5,749 4,966 Europe: Unaffiliated customers 134,048 126,103 100,297 Inter-area transfers 3,107 3,365 3,622 Other 25,976 28,674 26,926 Eliminations (9,848) (9,127) (8,659) ------- ------- ------- $ 344,373 $ 347,190 $ 284,343 ------- ------- ------- Operating profit (loss): United States $ (17,347) $ 6,004 $ 3,807 Europe 13,013 14,409 11,643 Other 2,858 3,331 3,488 ------- ------- ------- $ (1,476) $ 23,744 $ 18,938 ------- ------- ------- Identifiable assets: United States $ 150,959 $ 150,691 Europe 109,026 106,426 Other 20,783 21,236 ------- ------- $ 280,768 $ 278,353 ======= ======= Export sales in each geographic area total less than 10% of sales to unaffiliated customers. Sales to a single customer and its affiliated entities totaled $34,902,000 in 1995. No customer accounted for 10% or more of sales in 1996 or 1994. 14 Earnings Per Share Earnings (loss) per share of common stock are computed on the basis of a weighted average number of common and common equivalent shares outstanding. 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. The weighted average common and common equivalent shares used in the computation of earnings per common share are 8,113,776, 8,080,684 and 8,067,629 in 1996, 1995 and 1994, respectively. Common stock equivalents are not significant in any year presented. 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. [Page 31] Auditors' and Management's Reports JOHNSON WORLDWIDE ASSOCIATES, INC. and Subsidiaries 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 27, 1996 and September 29, 1995 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended September 27, 1996. 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 as of September 27, 1996 and September 29, 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended September 27, 1996, in conformity with generally accepted accounting principles. As discussed in note 2 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of during the year ended September 27, 1996. KPMG Peat Marwick LLP Milwaukee, Wisconsin November 8, 1996 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, after obtaining an understanding of the Company's systems and procedures and performing such other tests as deemed necessary. The Audit Committee of the Board of Directors, which is composed solely of directors who are not officers of the Company, meets with management and the independent auditors to review the results of their work and to satisfy itself that their respective responsibilities are being properly discharged. The independent auditors have full and free access to the Audit Committee and have regular discussions with the Committee regarding appropriate auditing and financial reporting matters. Ronald C. Whitaker President and Chief Executive Officer Carl G. Schmidt Senior Vice President and Chief Financial Officer [Page 32] Five Year Financial Summary JOHNSON WORLDWIDE ASSOCIATES, INC. and Subsidiaries
Year Ended September 27 September 29 September 30 October 1 October 2 [thousands, except per share data] 1996 1995 1994 1993 1992 Income Statement Data(1) Net sales $344,373 $347,190 $284,343 $280,292 $275,845 Gross profit 119,724 138,155 110,474 114,780 112,185 Operating expenses(2) 121,200 114,411 91,536 103,587 92,621 Operating profit (loss) (1,476) 23,744 18,938 11,193 19,564 Interest expense 10,181 7,613 6,845 8,309 10,180 Other (income) expense, net (496) (861) (391) 189 (491) Income (loss) from continuing operations before income taxes (11,161) 16,992 12,484 2,695 9,875 Income tax expense 194 6,903 4,338 2,055 4,509 Income (loss) from continuing operations (11,355) 10,089 8,146 640 5,366 Income from discontinued operations - - - 1,169 2,304 Gain (loss) on disposal of discontinued operations - - 4,052 (3,000) - Net income (loss) $(11,355) $10,089 $12,198 $(1,191) $7,670 Earnings (loss) per common share: Continuing operations $(1.40) $1.25 $1.01 $.08 $.67 Discontinued operations - - .50 (.23) .29 Net income (loss) $(1.40) $1.25 $1.51 $(.15) $.96 Weighted average common and common equivalent shares outstanding 8,114 8,081 8,068 7,974 7,953 Balance Sheet Data(1) Total assets $280,768 $278,353 $219,681 $239,121 $236,281 Long-term debt, less current maturities 61,501 68,948 31,190 44,543 43,327 Shareholders' equity 126,424 141,262 128,197 110,818 118,669 (1) All periods have been reclassified to reflect the discontinuation of the Company's Marking Systems businesses. (2) Includes nonrecurring charges of $6,768,000, $13,000,000 and $4,500,000 in 1996, 1993 and 1992, respectively.
Quarterly Financial Summary JOHNSON WORLDWIDE ASSOCIATES, INC. and Subsidiaries
First Second Third Fourth [thousands, except per share data] 1996 1995 1996 1995 1996 1995 1996 1995 Net sales $56,405 $53,462 $111,229 $105,797 $110,705 $117,844 $66,034 $70,087 Gross profit 21,321 20,184 44,332 42,480 42,423 48,745 11,648 26,746 Net income (loss) (2,793) (1,941) 4,090 6,453 4,202 8,239 (16,854) (2,662) Earnings (loss) per common share $ (.34) $ (.24) $ .50 $ .80 $ .52 $ 1.02 $ (2.08) $ (.33) Stock prices: High $ 24.25 $ 25.75 $ 23.00 $ 23.75 $ 19.50 $ 23.75 $ 15.25 $ 24.75 Low 21.75 18.25 17.50 19.00 13.50 20.50 13.75 22.50
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