Johnson Outdoors Slashes Loss, Sales Decline 20%

Johnson Outdoors Inc. cut its loss from continuing operations to $14.2 million, or $1.55 a share, from a loss from continuing operations of $73.5 million, or $8.07, a year ago. While restructuring costs accounted for more than half of the reported operating loss in the fourth quarter, cost-savings helped offset the impact of declining sales on profitability during the period. Revenues dropped 20.2.% to $65.3 million from $81.8 million.

Unusually favorable comparisons to the prior year for the company's current quarter and full year operating profit and income are due largely to non-cash goodwill and asset impairment charges recorded in the prior year fourth quarter.

On Dec. 4, 2008, the company announced comprehensive cost-reduction plans which included an aggressive $20 million cost savings target, a 26% decrease in capital spending and a 12% reduction in peak working capital.

At the end of the fiscal 2009 fourth quarter:

• Cost savings efforts for 2009 exceeded the $20 million target and included a 15% reduction in operating expense year-over-year excluding the impact of goodwill impairment in fiscal 2008.  The company anticipates approximately $12 million of 2009 cost-savings to be sustainable in future periods.
  
• Working capital was $86.1 million at quarter-end, reflecting a 25% decline compared to the prior year quarter, as net inventory levels dropped 29% from the previous year quarter.
  
• Capital spending was down 33% year-over-year.
  
  

FOURTH QUARTER RESULTS

Due to the seasonality of the warm-weather outdoor recreational products industry, the company's fourth quarter results historically reflect a loss due to the industry-wide slowing of sales and production. Total company net sales declined 20.2% compared to the prior year quarter as retailers focused on maintaining minimum inventory levels. Key factors behind the results were:

• Marine Electronics revenues were 25.2% below last year due to continued weakness in boat markets and a change in the shipping dates of pre-season orders.
  
• Watercraft sales were 31.1% below the prior year due to lower end-of-season demand and scaled-back distribution in non-core channels.
  
• Diving revenues were down 10.4% due to the weak economies in key markets and unfavorable currency translation of 1.3%.
  
• Outdoor Equipment sales were 11.5% below last year with growth in Consumer camping unable to offset continued declines in Military and Commercial segments.
  
  

Total company operating loss of $10.9 million for the fourth fiscal quarter compared favorably to operating loss of $51.7 million in the prior year quarter. Key factors contributing to the comparison were:

• Non-cash goodwill and asset impairment charges recorded in the prior year quarter totaling $44.5 million.
  
• Lower sales in the current quarter in all businesses, partially offset by benefits realized from cost savings efforts.
  
• Charges of $5.7 million in the current year quarter associated with restructuring and consolidation in Watercraft and Diving operations.
  
  

The company reported a loss from continuing operations of $14.2 million, or $1.55 per diluted share, during the fourth fiscal quarter, compared to a loss from continuing operations of $73.5 million, or $8.07 per diluted share, in the same quarter last year. Interest expense for the fourth quarter increased $1.1 million over the prior year quarter due to charges incurred as the company exited a prior debt agreement. In the previous year's quarter, the company recorded a non-cash deferred tax valuation allowance of $29.5 million.

YEAR-TO-DATE RESULTS

Total net sales for fiscal 2009 were $356.5 million versus $420.8 million in fiscal 2008, a decrease of 15.3%. Key drivers were:

• Lower sales in all key markets due to weak economic conditions.
  
• Unfavorable currency translation of 3.0%.

Total company operating profit was $0.3 million for fiscal 2009 compared to operating loss of $38.1 million during the prior year. Nonrecurring items, including restructuring costs, had a negative $8.5 million impact on operating profit for fiscal 2009. Primary drivers behind the year-over-year comparison were:

• Non-cash goodwill and asset impairment charges of $44.5 million recorded in the prior year.
  
• Lower sales in all businesses.
  
• Charges of $7.5 million in the current year associated with restructuring and consolidation in Watercraft and Diving operations.
  
• Improved operating efficiency and aggressive cost savings efforts.
  

Loss from continuing operations for the year was $9.7 million, or $1.06 per diluted share, versus a loss of $68.5 million, or $7.53 per diluted share, in the prior year. Primary drivers were:

• Increased interest expense of $4.3 million pre-tax due to interest rate increases and charges associated with the company's prior debt agreement.
  
• Non-cash goodwill and asset impairment charges recorded in the prior fiscal year totaling $44.5 million.
  
• Favorable impact from state tax credits in the current year and unfavorable impact of a deferred tax valuation allowance of $29.5 million in the prior fiscal year.
  
  

Further commenting, Johnson-Leipold said, “Our brands have sustained market leadership positions this year while we have worked diligently to establish a fundamentally stronger profitability profile on which to build for the future. Outdoor recreation participation levels remain robust and, at this time, we expect outdoor recreational markets to begin a slow recovery in 2010. Our new strategic plan targets a 5% cumulative average growth rate in sales and six% operating profit margin at the end of three years which is contingent upon current expectations of a slow recovery in the outdoor recreational industry.”

RESULTS PERSPECTIVE

In 2008, the company recorded non-cash goodwill and other intangible asset impairment charges of $41.0 million and a non-cash deferred tax asset valuation allowance of $29.5 million during the fourth quarter ended October 3, 2008.

OTHER FINANCIAL INFORMATION

The company's debt to total capitalization stood at 21.4% at the end of the year versus 32.9% at October 3, 2008. Debt, net of cash, was $3.7 million at year-end versus $18.2 million at October 3, 2008. Depreciation and amortization was $12.9 million year-to-date compared with $10.1 million in the prior year. Capital spending totaled $8.3 million in 2009 compared with last year's $12.4 million.

“Disciplined working capital management and balance sheet focus enabled us to generate approximately $31 million in operating cash flow this year and successfully complete a new financing structure more reflective of our performance and better suited to our business model,” said David W. Johnson, vice-president and chief financial officer.