Johnson Outdoors
Annual Report 2001

Plain-text annual report

t h e s p i r i t o f a d v e n t u r e 2001 annual report Johnson Outdoors Inc. designs, manufactures and markets outdoor recreation products in four businesses: Watercraft, Motors, Diving, and Outdoor Equipment. More than 1,400 employees work in thirty locations worldwide. Watercraft Old Town Canoes and kayaks Necky Kayaks Leisure Life Canoes, pedal boats, kayaks, deck boats and tenders Ocean Kayak Sit-on-top kayaks Escape Sailboats Carlisle Paddles and oars Motors Minn Kota Electric boat motors, power equipment and accessories Airguide Speedometers, marine and automotive compasses and weather instruments N e t S a l e s 19% Extrasport and Swiftwater Personal floatation devices N e t S a l e s 25% Dimension Kayaks Pacific Kayak Kayaks B U S I N E S S P R O F I L E Outdoor Equipment Diving Scubapro Regulators, buoyancy compensators, masks, fins, wet and dry suits, gloves, dive lights and other accessories Aladin Premium dive computers Uwatec Dive computers and other electronic instruments SnorkelPro Masks, fins and snorkels N e t S a l e s 23% Eureka! Camping tents, accessories and military and commercial tents N e t S a l e s 33% Camp Trails Backpacks and accessories Silva Field compasses Jack Wolfskin Outdoor clothing, travel gear, footwear, accessories, camping tents, backpacks and sleeping bags J o h n s o n O u t d o o r s I n c . 2 0 0 1 A n n u a l R e p o r t Summary Financial Information1 Johnson Outdoors Inc. (thousands, except per share data) 1999 2000 2001 % change Operating Results Net sales Gross profit Operating profit Diluted earnings per common share Diluted average common $310,198 $354,889 $345,637 125,774 19,513 142,813 136,703 24,719 15,718 (36)% (3)% (4)% $0.72 $1.03 $0.44 (57)% shares outstanding 8,108 8,130 8,170 Capitalization Total debt $122,071 $105,319 $97,535 Shareholders’ equity 127,178 100,832 105,779 Total debt to total capital 49.0% 51.1% 48.0% 1 Table of Contents 1 Summary Financial Information 2 Letter to Shareholders 4 Our Management Team 6 Watercraft 8 Motors 10 Diving 12 Outdoor Equipment 14 Outdoor Equipment – Europe 16 Product Gallery • Form 10-K Inside Back Cover Directors and Officers Shareholders’ Information L E T T E R T O S H A R E H O L D E R S Our research shows Johnson Outdoors outperformed the competition in 2001. And throughout the year we took decisive action to continue building a foundation for long-term growth. Helen P. Johnson-Leipold Chairman and Chief Executive Officer Diving, Outdoor Equipment Group and Jack Wolfskin produced steady profits, while Watercraft and Motors faced the challenge of market contractions. Economic conditions, combined with the impact of September 11, affected all our North American businesses except for military tents, which saw both strong sales and profits. Considering the market con- tractions, Johnson Outdoors fared better than the competi- tion. All our key brands out- performed their categories and gained share from competitors, thanks to strong new products introduced throughout the year. And we’re also excited about new products as we look forward to our 2002 season. All of our brands earned rave reviews on their new products during the August 2001 Outdoor Retailer show. These positives, plus our core strengths, make us confident Johnson Outdoors can weather the current economic cycle. 2001 Results This year’s slowing economy and cold spring and summer, combined with operational challenges in Watercraft, affected both our top-line and bottom-line performance. As we managed the external challenges, we also acceler- ated the pace of change in Watercraft and are already seeing positive results. The Outdoor Equipment Group’s military tent and Jack Wolfskin sales nearly offset Watercraft’s and Motors’ lower-than-expected sales. Fiscal 2001 sales and gross profit margin stayed essentially level, at $345.6 million and 40%, respectively. Operating profit declined $9 million, or 36%, primarily due to Watercraft’s margin shortfalls. Earnings per diluted share from continuing operations decreased 57%, to $0.44. Diving continued its exciting turnaround, gaining U.S. market share despite poor industry conditions. Sales dropped 3%, to $80.5 mil- lion, but expense cuts such as closing the Uwaplast injection molding operation increased operating profit 7%, to $11.6 million. Strong new products for 2002 include the first wire- less dive computer. Watercraft’s operating profit decreased 87%. Poor weather flattened industry sales. We had already begun increasing plant efficiency and improv- ing distribution. This year we stepped up the pace, consolidating facilities to 2 empowered companies guided and served by central vision, strategies and resources. further strengthening our innovation capabilities. improve return on assets— folding Necky manufacturing into Ocean Kayak; moving Escape operations into Old Town; and consolidating ten warehouses into one. This process will continue in 2002. We bolstered our innovation capabilities and our international presence by acquiring Fibrekraft Manufacturers Ltd., a New Zealand manufacturer of high-quality paddles, hel- mets and other accessories. Watercraft continues to offer great growth potential with a strong market presence and terrific brands. Outdoor Equipment Group increased sales 10%, to $114.9 million. Operating profit rose 47%, driven by strong military tent sales and solid progress at Jack Wolfskin, where sales rose 10% as we opened eleven more stores in Europe. OEG’s image-building prod- ucts for 2002 include a con- sumer version of the Eureka! Fifth Season EXO tent, cho- sen by an elite team climbing Mount Everest. Motors gained market share but saw sales drop 16%, to $64 million, due to weak industry conditions and the bankruptcy of a major cus- tomer. Operating profit declined 30%, excluding $2.5 million in goodwill impairment related to dis- continuing a small brand within the Motors business. Our new Riptide saltwater motors, with the category’s first-ever three-year warranty, offer a major growth oppor- tunity for 2002. Long-term business model The business success model we introduced in 1999 continues to guide us in creating long-term growth. Its components are: Effective portfolio management Continually assess current businesses and potential acquisitions against our stra- tegic criteria: being #1 or #2 in the market, in a category that rewards innovation, with strong growth potential. Network operation model Build a strong “network” of Expanding markets Be a catalyst for growth—for us, for our customers, and for the category itself—through product innovation, leading- edge marketing, and under- standing consumers and markets better than our competitors. Innovation leadership Continue to build our posi- tion as the market innovation leader with breakthrough new products that address consumer needs, differentiate us from competitors and advance our strong brands. Strategies for 2002 1. Address first things first. In 2002 we’ll focus on targeted growth and strengthening internal operations. That includes analyzing asset use, as part of portfolio manage- ment; standardizing business controls and processes, as we refine our network model; focusing on healthy growth rather than quick hits to expand our markets; and J o h n s o n O u t d o o r s I n c . 2 0 0 1 A n n u a l R e p o r t sales in Europe and Asia Pacific, leveraging current capabilities to minimize incre- mental expense. Jack Wolfskin will continue expanding in Northern Europe. - Category extensions, using our capabilities to enter new segments. - Better tactical execution, drawing on the skills of our new management team mem- bers to increase marketing and sales sophistication. Johnson Outdoors offers many strengths: leading market posi- tions, powerful brand names, superior innovation, outstand- ing employees—and now, a well-rounded management team, introduced on the fol- lowing pages. I thank you for your support over the past year and invite you to continue with us in the spirit of adven- ture that is Johnson Outdoors. 2. Simplify, but don’t sacrifice. We’re streamlining our organization, our facilities, our SKUs—all to become leaner, faster and better able to handle growth. But we will not jeopardize our long- term growth initiatives. Our focus is on conservative budgeting and smart choices that will enhance flexibility in an uncertain market. 3. Keep an eye on opportunity. While we’re building the infrastructure to take Johnson Outdoors to the next level, we can’t ignore growth oppor- tunities. Acquisitions remain possible, but we’re emphasiz- ing organic growth through: - New product development in current segments, using direct consumer input and trend information to develop products with a meaningful point of difference. - Geographic expansion, par- ticularly in Europe. This year we plan to increase Watercraft Helen P. Johnson-Leipold Chairman and Chief Executive Officer 3 M E E T O U R M A N A G E M E N T T E A M “ This year we added significant depth to our management team. These senior managers offer the expertise to take our financial controls, planning, marketing and operations to the next level of sophistication.” Helen Johnson-Leipold 4 Helen P. Johnson-Leipold Chairman and Chief Executive Officer Helen joined Johnson Outdoors in 1999 from S.C. Johnson, where she held a number of management positions over a 14-year span, most recently serving as vice president for Personal & Home Care Products. Prior to S.C. Johnson, Helen was with Foote, Cone and Belding Advertising for eight years. Patrick O’Brien President and Chief Operating Officer Patrick came to us in 1999 from SC Johnson, where he had served as vice president and general manager for the Home Storage division; vice president of strategic business; and vice president of North American Sales. Paul Lehmann Vice President and Chief Financial Officer Paul joined our team in May 2001. He arrived from Steelcase Inc., where his last position was vice president of finance and strategic planning for North America. His prior experience includes several executive-level positions in finance, operations and marketing with Steelcase, Alloyd Company, Newell (Rubbermaid) and Mark Controls Corporation. Kevin Mooney Vice President, Human Resources Kevin came to us in 2000 from SC Johnson, where he was director of human resources for NACP Manufacturing and, before that, director of compensation for North America of SCJ. Alisa Swire Vice President, Business Development Alisa joined us in February 2001. She served two years as director of mergers and acquisitions at Wal-Mart International, and before that was director of corporate development at Case Corporation. Susan Love Vice President and Chief Information Officer Susan joined us in January 2001 after 14 years with the Kellogg Company, most recently as senior director, North America IT Customer Account Service. She was also director of worldwide technology archi- tecture and of business information development for Kellogg. Every facet of our business strategy points toward one ultimate goal: positioning Johnson Outdoors for sustainable growth that outpaces the industry. Here’s what our senior management team has to say about the steps we’re taking in 2002 to achieve that goal. J o h n s o n O u t d o o r s I n c . 2 0 0 1 A n n u a l R e p o r t Patrick O’Brien Paul Lehmann Kevin Mooney Alisa Swire Susan Love We’re streamlining and Implementing the Network We’ve made great strides this We’re working hard to This year, “Project Network” creating efficiencies across operating model has already past year in building depth balance internal growth will look at implementing the board. In anticipation produced positive results. of talent. Many employees with growth through acqui- compatible systems to share of an uncertain market, We will accelerate our took on new and challeng- sition. Strong base business data and sharpen our com- we’ve pushed cost disci- efforts in 2002 to leverage ing assignments, greatly growth will help us leverage petitive edge. It’s the logical pline, already identifying the collective strength of the enhancing their skill sets. our core capabilities and next step as we standardize millions of dollars in Johnson Outdoors brands We also brought many new brand equities. As for business processes. We’re savings—but we’re also even further. Continued employees into the organiza- acquisitions, we’re always continuing to roll out keeping the pressure on focus on inter-company tion. I’m excited about the evaluating opportunities JDE, an enterprise-wide new product development. coordination and coopera- fact that we’re building a against our strategic criteria. information system that will We’re developing a procure- tion will help us spread best very talented workforce. We want to be in the #1 make it easier to analyze “ ment team to realize the practices, improve financial potential of our buying and operating discipline, power. And we’re creating and drive great efficiencies synergy with our new in our relationships with National Accounts Team, major suppliers and cus- offering national, growing tomers. The benefits of such customers our full range sharing to our policies, of products from a single reporting and supply chain point of sale. As Helen processes will translate into pointed out, innovative products give us a leg up reduced operating complex- ity and improved bottom on the competition, and line performance. leading-edge marketing will help us make the most of that advantage. or #2 position in each information and manage category where we compete. customer relationships We’ve generally achieved across all our businesses. that with our current brands and require the same potential for any acquisition we consider. ” 5 W A T E R C R A F T We accelerated the pace of improvement in Watercraft, but we couldn’t overcome 2001’s industry-wide sales drop. In 2002, we’ll heighten our focus on inventory management and continue to improve return on assets. Exciting entries like the Venus, a lightweight women’s kayak, and a line of resort products will tap the category’s huge potential. And expansion into Europe and Asia Pacific will strengthen our position as a market leader. 6 J o h n s o n O u t d o o r s I n c . 2 0 0 1 A n n u a l R e p o r t B R A N D S O L D T O W N H E R I TA G E C A N O E C L A S S I C I N N O V AT I O N Our Watercraft heritage starts with quality, as in the handcrafted Old Town Canoe model A, whose design dates to the early 1900s. We add innovation, as in the Extrasport RetroGlide Butterfly lifejackets, whose size adjustment is on the back to eliminate uncomfortable hardware. And our kayaks feature both classic design and innovation—offering entry-level handling with the aesthetics of fiberglass in the Nantucket Elite, and sit-inside stability plus high-end sea kayak features in the Pro SI 149. EXTRASPORT RETROGLIDE BUTTERFLY OLD TOWN NANTUCKET ELITE OCEAN KAYAK PRO SI 149 M O T O R S As fishing enthusiasts know, persistence pays off. Our continued emphasis on marketing, innovation and quality has kept Motors at the top of the market. This year we have continued to increase market share despite weak sales. We’re looking to grow with our OEM partners and introduce promising products like the Universal Sonar and Riptide saltwater motors—the first in the industry to offer a three-year warranty. 8 J o h n s o n O u t d o o r s I n c . 2 0 0 1 A n n u a l R e p o r t B R A N D S U N I V E R S A L S O N A R M O T O R S is expanding markets with innovative products like the Universal Sonar, the first trolling motor to feature a fully integrated transducer that is compatible with most fishfinders on the market. We’re exceeding consumers’ demands for quality and performance with corrosion-resistant features on our new Riptide saltwater motors, which come with an exclusive three-year warranty. And with the MK 106, our first entry-level onboard battery charger, we’re increasing our presence in a growing category. MINN KOTA RIPTIDE MOTOR MINN KOTA ALL-TERRAIN MOTOR MK 106 ONBOARD BATTERY CHARGER 9 D I V I N G TWIN SPEED FIN The excitement continues for Diving with worldwide market share gains. New innovative products for the 2002 season include a new lineup of Smart computers offering the first wireless infrared connection for easy downloading of diving profile. We’re also working with certification agencies in order to reach out to new divers. 10 J o h n s o n O u t d o o r s I n c . 2 0 0 1 A n n u a l R e p o r t B R A N D S SCUBAPRO MK25T/S600T REGULATOR SCUBAPRO LADYHAWK BC U W AT E C S M A R T C O M T E C H N I C A L T R I U M P H S New research led to our Smart COM dive computer’s advanced micro- bubble suppression technology, promoting safer diving. Our Twin Jet is the first full-foot fin endorsed by professionals for both diving and snorkeling, while the lightweight MK25T/S600T titanium regulator registered the industry’s top breathing machine scores. And the Ladyhawk buoyancy compensator, developed with the Women’s Scuba Diving Association, offers female divers new comfort with a backpack-style harness system. 11 O U T D O O R E Q U I P M E N T SILVA ERGO-GRIP EXPLORER This year, the Outdoor Equipment Group stood on familiar terrain: increasing sales, especially in military tents, and improving operating profit, driven by Silva field compasses. Eureka! is the only company supplying both large, heavy-duty tents and lightweight backpacking tents to the military. The Eureka! 5th Season EXO tent was also chosen for a well-publicized expedition to Mount Everest— a great lead-in for our consumer version this year. 12 J o h n s o n O u t d o o r s I n c . 2 0 0 1 A n n u a l R e p o r t B R A N D S EUREKA! VISTA CAMP TRAILS SEQUOIA BACKPACK E U R E K A ! 5 T H S E A S O N E X O D E S I G N W I T H A P P E A L World-famous climbers helped us design the Eureka! 5th Season EXO tent for their most recent Mount Everest expedition, paving the way for this year’s consumer version. Our new Silva Ergo-Grip™ Explorer, a bright-colored, soft-touch sleeve, protects the compass and makes it easy to spot if dropped. The Eureka! Vista is an affordable peak-top tent that simplifies setup with a patent- pending swivel bracket. And the Sequoia backpack’s friendly design reaches out to the growing number of weekend hikers. 13 O U T D O O R E Q U I P M E N T E U R O P E JACK WOLFSKIN MOVE PANT MEN Jack Wolfskin is continuing positive momentum from its base in Germany and rolling out to Northern Europe. This year, we opened eleven more stores, including one in Denmark and two in Switzerland. The resulting rise in non- German sales fueled profitability improvements. Wolfskin uses unique materials and technical expertise to create exciting products like the Mountain Adventure footwear line—making our gear among the most popular in Europe. Photo: HEF003178 Frank Heuer 14 J o h n s o n O u t d o o r s I n c . 2 0 0 1 A n n u a l R e p o r t B R A N D S JACK WOLFSKIN MOUNTAIN REBEL SHOE JACK WOLFSKIN ARCHES III REAL TUNNEL® TENT S TA I N L E S S R O C K J A C K E T M AT E R I A L A D V A N C E S Only the lightest, most technically advanced, toughest GORE-TEX® fabrics go into our streamlined STAINLESS ROCK touring and trekking jacket. Like the MOVE PANT MEN, it’s specially tailored for ease of motion and freedom of movement. The MOUNTAIN REBEL all-around hiking boot delivers excellent traction on demanding trails and uses toughskin reinforcements in the high-abrasion zones for added durability. And our REAL TUNNEL system’s aerody- namic design, based on Porsche wind tunnel tests, works with a specialized tent pole system to provide incredible stability in sidewinds, as well as comfort. 15 t f a r c r e t a W s r o t o M g n i v i D t n e m p i u q E r o o d t u O n i k s f l o W k c a J Necky Elaho Kayak Leisure Life Waterquest Camo Carlisle Magic Red Long Ocean Kayak Agean Mist Kayak Old Town Sebago Kayak Old Town Wood Classic Canoe Minn Kota Genesis Trolling Motor Minn Kota Weedless Wedge Minn Kota Vantage Trolling Motor Minn Kota Maxxum Trolling Motor MK220 Onboard Charger Minn Kota AutoPilot Trolling Motor Uwatec Smart COM Dive Computer Scubapro Titanium Regulator Scubapro Twin Jet Fin Scubapro Glide BC Scubapro Clear VU2 Scubapro Shorty Eureka! 5th Season EXO Tent Eureka! Military Tent Eureka! Mountain Pass EXO Tent Eureka! Vista Tent Eureka! Zeus EXO Tent Eureka! Twin Tube Tent SQUAW VALLEY JACKET MOUNTAIN REBEL SHOE WOLFPACK FLEECE JACKET ARCHES III REAL TUNNEL TENT TRAILHEAD BACKPACK MR. BIKE PACK UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 10 - K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 28, 2001 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 OUTDOORS INC. (Exact name of Registrant as specified in its charter) Wisconsin (State or other jurisdiction of incorporation or organization) 39-1536083 (I.R.S. Employer Identification No.) 1326 Willow Road, Sturtevant, Wisconsin 53177 (Address of principal executive offices) (262) 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 1, 2001, 6,946,012 shares of Class A and 1,222,729 shares of Class B common stock of the Registrant were outstanding. The aggregate market value of voting stock of the Registrant held by nonaffiliates of the Registrant was approximately $25,182,136 on November 1, 2001. D O C U M E N T S I N C O R P O R AT E D B Y R E F E R E N C E TA B L E O F C O N T E N T S Page Part and Item Number of Form 10-K into which Incorporated Part III, Items 10, 11, 12 and 13 Document Johnson Outdoors Inc. Notice of Annual Meeting of Shareholders and Proxy Statement for the Annual Meeting of Shareholders to be held February 19, 2002. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . .5 Market for Registrant’s Common Equity and Related Stockholder Matters . . . . .5 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . .7 Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . .11 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . .11 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . .12 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . .12 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . .12 Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . .12 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1 FORWARD LOOKING STATEMENTS Certain matters discussed in this 2001 Form 10-K and in the accompanying 2001 Annual Report are “forward-looking statements,” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement includes phrases such as the Company “expects,” “believes” or other words of similar meaning. Similarly, statements that describe the Company’s future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include changes in consumer spending patterns, actions of companies that compete with the Company, the Company’s success in managing inventory, movements in foreign currencies or interest rates 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 2001 Form 10-K and in the accompanying 2001 Annual Report and the Company undertakes no obligations to publicly update such forward-looking state- ments to reflect subsequent events or circumstances.PA R T I PA R T I ITEM 1. BUSINESS Johnson Outdoors Inc. and its subsidiaries (the “Company”) design, manufacture and market outdoor recreation products in four businesses: Diving, Watercraft, Outdoor Equipment and Motors. The Company’s primary focus is innovation— meeting consumer needs with breakthrough products that stand apart from the com- petition and advance the Company’s strong brand names. Its subsidiaries are organized in a network that promotes entrepreneurialism and leverages best practices and synergies, following the strategic vision set by headquarters. The Company is controlled by Samuel C. Johnson, members of his family and related entities. The Company was incorporated in Wisconsin in 1987 as successor to various businesses. Diving The Company is one of the world’s largest manufacturers and distributors of tech- nical underwater diving products, which it sells under the Scubapro and SnorkelPro names. The Company markets a full line of underwater diving and snorkeling equip- ment, including regulators, stabilizing jackets, tanks, depth gauges, masks, fins, snorkels, diving electronics and other accessories. The Company is also a leading manufacturer of dive computers and other electronics sold under the Aladin and Uwatec brands. Scubapro, Aladin and Uwatec products are marketed to the high quality, premium priced segment of the market via limited distribution to inde- pendent specialty diving shops worldwide. These diving shops generally provide a wide range of services to divers, including instruction and repair service. The Company focuses on maintaining Scubapro, Aladin and Uwatec as the market leaders in innovation and new products. The Company maintains research and development functions both in the United States and Europe and holds several patents on products and features. Consumer advertising focuses on building the brand names and the Company’s position as the industry’s high quality and innova- tion leader. The Company advertises its equipment in diving magazines and through in-store displays. The Company also manufactures and markets diving buoyancy compensators pri- marily for the original equipment market, under the Soniform name. The Company maintains manufacturing and assembly facilities in Switzerland, Mexico, Italy and Indonesia and procures a majority of its rubber and plastic prod- ucts and components from third-party manufacturers. 1 Watercraft The Company manufactures and markets canoes, kayaks, paddles, oars, recreational sailboats, personal flotation devices and small thermoformed recreational boats under the brand names Old Town, Carlisle Paddles, Ocean Kayak, Pacific Kayak, Canoe Sports, Necky, Escape, Extrasport, Swiftwater, Leisure Life and Dimension. Outdoor Equipment The Company’s Outdoor Equipment products include Jack Wolfskin high quality technical outdoor clothing, innovative footwear, camping tents, backpacks, travel gear and accessories; Eureka! military, commercial and consumer tents; Camp Trails backpacks; and Silva field compasses. The Company’s Old Town Canoe subsidiary produces high quality canoes, kayaks and accessories for family recreation, touring and tripping. The Company uses a patented rotational-molding process for manufacturing polyethylene kayaks and canoes to compete in the high volume, low and mid-priced range of the market. These kayaks and canoes feature stiffer and more durable hulls than higher priced boats. The Company also manufactures canoes from fiberglass, Royalex (ABS) and wood. Carlisle Paddles, a manufacturer of canoe and kayak paddles and rafting oars, supplies paddles and oars to the Company’s other watercraft businesses and also dis- tributes directly through the accessories channels mentioned below under the Carlisle brand. The Company is a leading manufacturer of sit-on-top kayaks under the Ocean Kayak and Pacific Kayak brands. In addition, the Company manufactures and mar- kets high quality Necky sea touring and whitewater kayaks; Escape recreational sail- boats; Extrasport and Swiftwater personal flotation devices; small thermoformed recreational boats, including canoes, pedal boats, deck boats and tenders, under the Leisure Life brand; and the Dimension brand of kayaks. In April 2001, the Company completed the acquisition of Fibrekraft Manufacturers Ltd., a manufacturer of paddles and watercraft accessories based in Napier, New Zealand. The Company’s kayaks, canoes and accessories are sold primarily to specialty stores and marine dealers, sporting goods stores and catalog and mail order houses such as L. L. Bean®, in the United States and Europe. Leisure Life products are sold through marine dealers and large retail chains under several brand identities. The Company manufactures its Watercraft products in six locations in the United States, two locations in Canada and in New Zealand. Ocean Kayak products are also manufactured and sold under license in Europe. The North American market for kayaks is exhibiting strong growth, while the canoe market is growing modestly. The Company believes, based on industry and other data, that it is a leading manufacturer of canoes and kayaks in the United States in both unit and dollar sales. 2 Jack Wolfskin, based in Germany, distributes its products primarily through special- ized outdoor stores, selected sporting goods dealers and a number of franchised Jack Wolfskin stores. Jack Wolfskin has a strong position in Germany with additional dis- tribution in the key European markets of Great Britain, Benelux, Switzerland and Austria. The product is also sold in Canada and the United States and, under license, in Japan. Jack Wolfskin utilizes the latest in fabric technology to produce products that are both comfortable and protective for outdoor related activities. The products compete in the premium segments. Eureka! consumer tents and Camp Trails backpacks compete primarily in the mid- to high-price range and are sold in the United States and Canada through inde- pendent sales representatives, primarily to sporting goods stores, catalog and mail order houses and camping and backpacking specialty stores. Marketing of the Company’s tents and backpacks is focused on building the Eureka! and Camp Trails brand names and establishing the Company as a leader in tent design and innova- tion. The Company’s camping tents and backpacks are produced primarily by third- party manufacturing sources. Eureka! camping tents have outside self-supporting aluminum frames, allowing quicker and easier set-up, a design approach the Company originated. Most Eureka! tents are made from breathable nylon. Eureka! camping products are sold under license in Japan and Korea. Eureka! commercial tents include party tents, sold pri- marily to general rental stores, and other commercial tents sold directly to tent erec- tors. Commercial tents are manufactured by the Company in the United States. Eureka! designs and manufactures large, heavy-duty tents and lightweight back- packing tents for the military. The Company has three contracts for production of both camping and commercial tents with the U.S. Armed Forces. In 1997, the Company was awarded contracts to produce a lightweight, two-man combat tent for the Marine Corps and a modular, general purpose tent for the Army. The Marine Corps contract was for 60 months and expires in August 2002. The Company has shipped more than 80% of the contract’s maximum order quantities. The Army con- tract was for five years (base year and an option for four additional ordering periods). The first two optional ordering periods were exercised and the Army is currently in optional ordering period three, which expires in December 2001. The Company believes the final ordering period will be exercised and would expire in December 2002. All material terms and obligations of these contracts have been and continue to be satisfied. In September 2001, the Company was awarded a five-year contract (base year and four optional years) to produce a four-person, extreme cold weather tent for the Marine Corps. The Company has submitted bids on additional contracts and expects decisions on contract awards to be made in 2002. Camp Trails backpacks consist primarily of internal and external frame backpacks for hiking and mountaineering, but also include soft back bags, day packs and travel packs. Silva field compasses, which are manufactured by third parties, are marketed exclu- sively in North America, the area for which the Company owns Silva trademark rights. Motors The Company manufactures, under its Minn Kota name, battery powered motors used on fishing boats and other boats for quiet trolling power or primary propulsion. The Company’s Minn Kota motors and related accessories are sold in the United States, Canada, Europe and the Pacific Basin through large retail store chains such as Wal Mart and K-Mart, catalogs such as Bass Pro Shops and Cabelas, sporting goods specialty stores, marine dealers, and original equipment manufacturers (OEM) including Ranger® Boats, Lowe, Stratos/Javilin, Four Winns, Triton Boats, Lund Boats, Smoker Craft, Alumacraft, Skeeter, Express Boats and Tracker. Consumer advertising and promotion include advertising on regional television and in outdoor, general interest and sports magazines. Packaging and point-of-purchase materials are used to increase consumer appeal and sales. The Company has the leading market share of the U.S. electric fishing motor mar- ket. While the overall motors market has been stagnant in recent years, the Company has been able to gain share by emphasizing marketing, product innovation and orig- inal equipment manufacturer sales. The Company’s line of Airguide marine, weather and automotive instruments is distrib- uted primarily in the United States through large retail store chains and OEMs. Airguide products are manufactured by the Company or sourced from third-party manufacturers. In 2001, the Company exited the weather and automotive instrument categories. Fishing In March 2000, the Company sold its Fishing business (consisting of the marketing of rods, reels, lures, spoons and fishing line). As a result, the operations and related assets and liabilities of the Fishing business have been restated as discontinued for financial reporting purposes. A significant loss on the sale of the business was recog- nized, but the tangible net worth of the Company was not adversely impacted. See Note 4 to the Consolidated Financial Statements for financial information. Financial Information for Business Segments See Note 13 to the Consolidated Financial Statements for financial information comparing each business segment. International Operations See Note 13 to the Consolidated Financial Statements for financial information comparing the Company’s domestic and international operations. Research and Development The Company commits significant resources to research and new product develop- ment. The Company expenses research and development costs as incurred. The amounts expended by the Company in connection with research and development activities for each of the last three fiscal years are set forth in the Consolidated Statements of Operations. Competition The Company believes its products compete favorably on the basis of product inno- vation, product performance and marketing support and, to a lesser extent, price. Diving: The main competitors in Diving include Oceanic, Aqualung and Suunto, each of which competes on the basis of product innovation, performance, quality and safety. Watercraft: The Company primarily competes in the paddle sport segment of canoes and kayaks. Main competitors are Watermark and Confluence, who also make a full range of boats. These companies compete on the basis of their design, performance and quality. Outdoor Equipment: The Company’s brands and products compete in the specialty segments of the outdoor equipment market and not in the mass market. Coleman, Jansport and private label brands have a strong position in tents and packs sold in mass outlets, and the Company does not intend to compete head on with these man- ufacturers. The Company intends to compete with the specialty companies such as North Face and Kelty on the basis of materials and innovative designs for consumers who want performance products priced at a value. Motors: The main competitor in electric trolling motors is Motor Guide from Brunswick, who manufactures and sells a full range of trolling motors and accessories. Competition in this segment is focused on product benefits and features for fishing. 3 Employees At September 28, 2001, the Company had approximately 1,400 employees. The Company considers its employee relations to be excellent. Temporary employees are utilized to manage peaks in the seasonal manufacturing of products. Backlog Unfilled orders for future delivery of products of continuing operations totaled approximately $51.6 million at September 28, 2001 and $61.0 million at September 29, 2000. The Company’s businesses do not receive significant orders in advance of expected shipment dates for the majority of their products. Patents, Trademarks and Proprietary Rights The Company owns no single patent that is material to its business as a whole. However, the Company holds several patents, principally for diving products, rota- tional-molded canoes and electric motors, and regularly files applications for patents. The Company has numerous trademarks and trade names which it considers impor- tant to its business, many of which are discussed on the preceding pages. The Company vigorously defends its intellectual property rights. Sources and Availability of Materials The Company’s products use materials that are generally in adequate supply. Seasonality The Company’s business is seasonal. The following table shows, for the past three fis- cal years, total net sales and operating profit or loss related to continuing operations of the Company for each quarter, as a percentage of the total year. Strategic charges totaling $1.4 million, $2.4 million and $2.8 million impacted operating results in 2001, 2000 and 1999, respectively. September 28, 2001 September 29, 2000 1% Net Operating Sales Profit 16% 28 33 23 100% 39 56 4 100% Quarter Ended December March June September Net Sales 17% 29 33 21 100% Operating Profit (Loss) (23)% 42 83 (2) 100% 4 Year Ended October 1, 1999 Operating Profit (Loss) (16)% 43 70 3 100% 100% Net Sales 16% 28 33 23 Executive Officers The following list sets forth certain information, as of December 1, 2001, regarding the executive officers of the Company. Helen P. Johnson-Leipold, age 44, became Chairman and Chief Executive Officer of the Company in March 1999. From September 1998 until March 1999, Ms. Johnson-Leipold was Vice President, Worldwide Consumer Products-Marketing of S. C. Johnson & Son, Inc. (SCJ). From October 1997 to September 1998, she was Vice President, Personal and Home Care Products of SCJ. From October 1995 until July 1997, Ms. Johnson-Leipold was Executive Vice President - North American Businesses of the Company. From 1992 to September 1995, she was Vice President - Consumer Marketing Services Worldwide of SCJ. Patrick J. O’Brien, age 43, became President and Chief Operating Officer of the Company in April 1999. From October 1997 until March 1999, Mr. O’Brien was Vice President and General Manager, Home Storage of SCJ. From July 1997 until October 1997, Mr. O’Brien was Vice President - Strategic Business of SCJ; from April 1996 until June 1997, he was Vice President - North American Sales of SCJ; from June 1995 until March 1996, he was Director - North American Sales of SCJ and from January 1993 until May 1995, he was National Sales Manager of SCJ. Paul A. Lehmann, age 48, became Vice President and Chief Financial Officer of the Company in May 2001. From October 1999 to May 2001, Mr. Lehmann was Vice President, Finance and Strategic Planning of Steelcase North America (SCNA). From June 1997 to October 1999, Mr. Lehmann was Vice President, Operations Finance of SCNA. From November 1995 to June 1997, he was Director of Customer Pricing and Contracts for SCNA. Mamdouh Ashour, age 63, has been a Group Vice President of the Company since October 1997 and President - Worldwide Diving since August 1996. From 1994 to August 1996, he served as President of Scubapro Europe. He has been employed by the Company since 1973. There are no family relationships between the above executive officers. ITEM 2. PROPERTIES The Company maintains both leased and owned manufacturing, warehousing, dis- tribution and office facilities throughout the world. The Company believes that its facilities are well maintained and have capacity adequate to meet its current needs. See Note 6 to the Consolidated Financial Statements for a discussion of lease obligations. ITEM 3. LEGAL PROCEEDINGS See Note 16 to the Consolidated Financial Statements for a discussion of legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the last quar- ter of the year ended September 28, 2001. The Company’s principal manufacturing (identified with an asterisk) and other locations are: PA R T I I Albany, New Zealand (Watercraft) Antibes, France (Diving) Bad Säkingen, Germany (Diving) Barcelona, Spain (Diving) Basingstoke, Hampshire, England (Diving) Batam, Indonesia* (Diving) Binghamton, New York* (Outdoor Equipment) Burlington, Ontario, Canada (Motors, Outdoor Equipment) Chatswood, Australia (Diving) Chi Wan, Hong Kong (Diving) El Cajon, California (Diving) Ferndale, Washington* (Watercraft) Genoa, Italy* (Diving) Grand Rapids, Michigan* (Watercraft) Grayling, Michigan* (Watercraft) Hallwil, Switzerland* (Diving) Hamburg, Germany (Diving) Henggart, Switzerland (Diving) Idstein, Germany (Outdoor Equipment) Mankato, Minnesota* (Motors) Mansonville, Quebec, Canada* (Watercraft) Miami, Florida* (Watercraft) Napier, New Zealand (Watercraft) Nyköping, Sweden (Diving) Old Town, Maine* (Watercraft) Tijuana, Mexico* (Motors, Diving) Tokyo (Kawasaki), Japan (Diving) The Company’s corporate headquarters is located in Mount Pleasant, Wisconsin. The Company’s mailing address is Sturtevant, Wisconsin. ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Certain information with respect to this item is included in Notes 5, 9, 10 and 11 to the Consolidated Financial Statements. The Company’s Class A common stock is traded on The Nasdaq Stock Market® under the symbol: JOUT. There is no public market for the Company’s Class B common stock. However, the Class B common stock is convertible at all times at the option of the holder into shares of Class A com- mon stock on a share for share basis. As of November 1, 2001, the Company had 755 holders of record of its Class A common stock and 58 holders of record of its Class B common stock. The Company has never paid, and has no current intention to pay, a dividend on its common stock. A summary of the high and low prices for the Company’s Class A common stock during each quarter of the years ended September 28, 2001 and September 29, 2000 is as follows: First Quarter Second Quarter Third Quarter Fourth Quarter 2001 2000 2001 2000 2001 2000 2001 2000 Stock prices: High Low Last $7.00 4.75 5.88 $9.19 6.13 7.10 $7.56 $8.50 6.13 6.19 5.50 6.13 $8.49 $9.69 6.13 7.06 5.90 6.74 $7.39 $7.94 5.75 6.94 5.98 6.47 5 ITEM 6. SELECTED FINANCIAL DATA A summary of the Company’s operating results and key balance sheet data for each of the years in the five-year period ended September 28, 2001 is presented below. All periods have been restated to reflect the discontinuation of the Company’s Fishing business. September 28 2001 September 29 2000 (thousands, except per share data) Operating Results(1) Net sales Gross profit Operating expenses(2) Operating profit Interest expense Other expense (income), net Income from continuing operations before income taxes Income tax expense Income from continuing operations before cumulative effect of change in accounting principle Income (loss) from discontinued operations Income (loss) on disposal of discontinued operations Effect of change in accounting principle Net income (loss) Basic earnings (loss) per common share: Continuing operations Discontinued operations Effect of change in accounting principle Net income (loss) Diluted earnings (loss) per common share: Continuing operations Discontinued operations Effect of change in accounting principle $345,637 136,703 120,985 15,718 9,085 543 6,090 2,480 $ $ $ $ 3,610 — — 1,755 5,365 0.44 — 0.22 0.66 0.44 — 0.22 0.66 8,170 $354,889 142,813 118,094 24,719 9,799 (160) 15,080 6,705 8,375 (940) (24,418) — $ (16,983) $ $ $ 1.03 (3.12) — (2.09) 1.03 (3.12) — (2.09) 8,130 $ $ Net income (loss) Diluted average common shares outstanding Balance Sheet Data Current assets(3) Total assets Current liabilities(4) Long-term debt, less current maturities Total debt Shareholders’ equity (1) The year ended October 3, 1997 includes 53 weeks. All other years include 52 weeks. (2) Includes strategic charges of $1,448, $2,369, $2,773, $1,388 and $335 in 2001, 2000, 1999, 1998 and 1997, respectively. (3) Includes net assets of discontinued operations of $56,114, $58,462 and $66,507 in 1999, 1998 and 1997, respectively. (4) Excluding short-term debt and current maturities of long-term debt. $144,194 257,971 46,941 45,857 105,319 100,832 $133,180 244,913 36,568 84,550 97,535 105,779 6 October 1 1999 $310,198 125,774 106,261 19,513 9,565 (71) 10,019 4,158 5,861 1,161 — — 7,022 0.72 0.15 — 0.87 0.72 0.15 — 0.87 8,108 $ $ $ $ $ $185,733 299,025 45,072 72,744 122,071 127,178 October 2 1998 $274,005 110,789 92,433 18,356 9,631 (539) 9,264 3,885 5,379 (167) — — 5,212 0.66 (0.02) — 0.64 0.66 (0.02) — 0.64 8,114 $ $ $ $ $ $188,224 292,380 39,448 81,508 124,001 124,386 Year Ended October 3 1997 $242,351 94,147 80,266 13,881 8,413 (624) 6,092 2,721 3,371 (1,315) — — 2,056 0.42 (0.17) — 0.25 0.42 ( 0.17) — 0.25 8,115 $ $ $ $ $ $184,555 272,605 36,772 87,926 113,676 117,731 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion includes comments and analysis relating to the Company’s results of operations and financial condition for the three years ended September 28, 2001. Unless otherwise noted, the discussion refers to continuing operations. This discussion should be read in conjunction with the Consolidated Financial Statements and related notes thereto. Results of Operations Summary consolidated financial results from continuing operations are as follows: (millions, except per share data) Net sales Gross profit Operating expenses(1) Operating profit Interest expense Income from continuing operations Diluted earnings per common share 2001 $345.6 136.7 121.0 15.7 9.1 3.6 from continuing operations before change in accounting principle 0.44 2000 $354.9 142.8 118.1 24.7 9.8 8.4 1999 $310.2 125.8 106.3 19.5 9.6 5.9 1.03 0.72 (1)Includes strategic charges of $1.4 million, $2.4 million and $2.8 million in 2001, 2000 and 1999, respectively. 2001 vs 2000 Net Sales Net sales totaled $345.6 million in 2001 compared to $354.9 million in 2000, a decrease of 3%. Sales as measured in U.S. dollars were impacted by the effects of for- eign currencies relative to the U.S. dollar in comparison to 2000. Excluding the effects of foreign currency movements, sales were nearly flat when compared with 2000. The flat trend in sales was a result of a soft economy both in the United States (U.S.) and abroad. Sales were impacted by customer bankruptcies in both the Motors and Diving businesses. The Company believes these bankruptcies impacted sales in 2001 by approximately $4.8 million. As a result of the soft economy, we saw marginal growth or even contraction in the markets of our businesses. However, market data indicated that the Company gained market share in nearly all of our businesses. The Outdoor Equipment business was strong, increasing sales 10% over 2000, pri- marily related to strong performances by Jack Wolfskin and military tents. Diving sales were down 3% from 2000, primarily related to the negative impact of foreign currency movements from 2000. Excluding the effects of foreign currency move- ments, Diving sales increased 3% from 2000. The Watercraft and Motors businesses were impacted the most by the soft economy, with sales declines of 5% and 16%, respectively. The Motors business gained market share in a contracting market and lost approximately $4.0 million in sales related to the bankruptcy of a large OEM customer. However, the Company feels a majority of these sales will return in 2002, as the OEM customer was sold out of bankruptcy and has begun placing orders. The Watercraft business saw a significant decline in market growth after three plus years of double digit growth in that category. Operating Results The Company recognized an operating profit of $15.7 million in 2001 compared to an operating profit of $24.7 million in 2000. Gross profit margins decreased from 40.2% in 2000 to 39.6% in 2001, as improvements in the Diving and Outdoor Equipment businesses were more than offset by declines in the Watercraft and Motors businesses. Shortfalls in sales volume for 2001 negatively impacted gross profits by $3.4 million due to unfavorable manufacturing labor and overhead variances, prima- rily in the Watercraft business, and to a lesser extent, the Motors business. Operating expenses, excluding strategic charges, totaled $119.5 million, or 34.6% of sales, in 2001 compared to $115.7, or 32.6% of sales in 2000. Amortization of acquisition costs were $5.3 million in 2001, which included a $2.5 million write- down for impaired goodwill related to the Airguide brand in the Motors business, compared to $3.0 million in 2000. Bad debt expense related to the previously men- tioned customer bankruptcies added approximately $0.9 million to operating expenses in 2001. The Outdoor Equipment business increased operating profit by $3.8 million, or 47%, to $12.0 million in 2001 compared to $8.2 million in 2000. Strong results by Jack Wolfskin and military tents more than offset softness in the consumer and com- mercial tent businesses. The Diving business was also strong, increasing operating profits by 7% to $11.6 million in 2001, despite a sales decline, by improving prod- uct mix towards higher margin products along with a decline in operating expenses. Excluding the $2.5 million write-down for impaired goodwill, the Motors business had operating profits of $2.8 million in 2001 compared to $3.9 million in 2000. A decline in operating expense, excluding strategic charges, of $1.0 million versus the prior year, helped mitigate the decline in operating profit. 7 The Watercraft business was impacted by several issues, resulting in a decline in oper- ating profits in 2001 to $1.3 million from operating profits of $10.3 million in 2000. The business experienced the trailing affects of significant growth, over-capac- ity and the impacts of too much complexity in this segment of our business. In addi- tion to the gross profit issues described above, operating expenses grew by $3.1 million, or 11% from 2000 levels due to investment in infrastructure to support the previous significant growth of the business and additional costs supporting the com- plex structure of the business. The Company believes the issues related to Watercraft can and are being fixed, as evidenced by the closure and relocation of two manufac- turing facilities in 2001. The Company is in the process of streamlining U.S. East coast distribution from five warehouses down to one and has hired both a new gen- eral manager and operations manager at our Old Town Canoe business, to drive improved results from this important operation in the Watercraft business. The Company will continue to investigate synergistic opportunities in this business over the next year. The Company recognized strategic charges totaling $1.4 million in 2001 for sever- ance, moving and other costs related to the closure and relocation of two manufac- turing facilities in the Watercraft business. The Company believes that these actions will save approximately $1.5 million in operating expenses on an annual basis after completion. The Company anticipates incurring additional strategic charges related to these actions of approximately $0.7 million in 2002. In 2000, the Company incurred strategic charges of $2.4 million from severance, moving and other costs related to the closure and relocation of a manufacturing facility in the Motors busi- ness and for severance, relocation and recruitment costs in the North American Outdoor Equipment business. Other Income and Expenses Interest expense decreased $0.7 million in 2001, reflecting a decline in interest rates from prior year levels and a reduction in working capital needs versus 2000 levels. Foreign currency translation losses related to the mark to market of foreign currency denominated debt and foreign currency forward contracts resulted in an increase of $0.7 million in translation losses over the prior year levels. Results From Continuing Operations The Company recognized income from continuing operations before cumulative effect of change in accounting principle of $3.6 million in 2001 or $0.44 per diluted share, compared to $8.4 million in 2000 or $1.03 per diluted share. The Company recorded income tax expense of $2.5 million in 2001, an effective tax rate of 40.7%. This decreased rate (from 44.5% in 2000) is mainly the result of changes in mix of earnings from jurisdictions with higher tax rates to those with lower tax rates. Discontinued Operations In March 2000, the Company sold its Fishing business. The Company recorded a loss on disposal of a discontinued business, net of tax, of $24.4 million in 2000, tak- ing into account operating results of the business from the measurement date to the date of disposal. In addition, the Company recorded an after tax loss from operations up to the measurement date of $0.9 million in 2000. Change in Accounting Principle Effective September 30, 2000, the Company adopted SFAS 133, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in fair value of the derivative and the hedged item are rec- ognized in earnings. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in earnings when the hedged item affects earnings. The adoption of SFAS 133 resulted in an effect of change in accounting principle after tax gain of $1.8 million in 2001. Net Income (Loss) The Company recognized net income of $5.4 million in 2001, or $0.66 per diluted share, compared to a net loss of $17.0 million in 2000, or $2.09 per diluted share. 2000 vs 1999 Net Sales Net sales totaled $354.9 million in 2000 compared to $310.2 million in 1999, an increase of 14%. Sales as measured in U.S. dollars were impacted by the effect of for- eign currencies relative to the U.S. dollar in comparison to 1999. Excluding the effects of foreign currency movements, sales increased 17% from 1999. The increase was partially driven by the introduction of innovative new products in the Watercraft and Motors businesses, as well as growth in sales of existing products in Watercraft, Motors and Outdoor Equipment. 8 Operating Results The Company recognized an operating profit of $24.7 million in 2000 compared to an operating profit of $19.5 million in 1999. Gross profit margins decreased from 40.5% in 1999 to 40.2% in 2000, as significant improvements in the Diving and Outdoor Equipment businesses, as well as improvement in the Motors business (due to emphasis on higher margin products, increases in volume and improved produc- tion efficiencies) were offset by a decline in Watercraft (due to production issues related to a 26.4% growth in Watercraft revenues). Operating expenses, excluding strategic charges, totaled $115.7 million, or 32.6% of sales, in 2000 compared to $103.5 million, or 33.3% of sales, in 1999. The 12% growth in operating expenses in 2000 was less than the growth rate of sales, which contributed to the improved operating results. Nearly all items in operating expenses declined as a percentage of sales from 1999. measurement date to the date of disposal. In addition, the Company recorded an after tax loss from operations up to the measurement date of $0.9 million in 2000 and an after tax gain of $1.2 million in 1999. Net Income The Company recognized a net loss of $17.0 million, or $2.09 per diluted share in 2000, compared to net income of $7.0 million, or $0.87 per diluted share in 1999. 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 related to con- tinuing operations at the end of each of the past three years: The Company recognized strategic charges totaling $2.4 million in 2000 and $2.8 million in 1999. These charges resulted from severance, moving and other costs related primarily to the closure and relocation of a manufacturing facility in the Motors business and for severance, relocation and recruitment costs in the North American Outdoor Equipment business. (millions) Current assets(1) Current liabilities(2) Working capital Current ratio 2001 $133.2 36.6 $ 96.6 3.6:1 2000 $144.2 46.9 $ 97.3 3.1:1 1999 $129.6 45.1 $ 84.5 2.9:1 Other Income and Expenses Interest expense increased $0.2 million in 2000, reflecting higher working capital lev- els primarily from accounts receivable and inventory, as well as higher interest rates. Results from Continuing Operations The Company recognized income from continuing operations of $8.4 million in 2000, or $1.03 per diluted share, compared to $5.9 million, or $0.72 per diluted share, in 1999. The Company recorded income tax expense of $6.7 million in 2000, an effec- tive rate of 44.5%. The increased rate from 41.5% in 1999 is due to an increase in state income tax and change in expected recoverability of state net operating losses. Discontinued Operations In March 2000, the Company sold its Fishing business. As a result, operations and related assets and liabilities of the Fishing group have been classified as discontinued for all periods presented herein. The sale price totaled $47.3 million, including $14.1 million of accounts receivable retained by the Company and $2.4 million of debt assumed by the buyer. The Company recorded a loss of $24.4 million, net of tax, related to the sale of the business, taking into account operating results from the (1)Excludes net assets of discontinued operations. (2)Excludes short-term debt and current maturities of long-term debt. Cash flows provided by operations totaled $15.5 million in 2001, $9.8 million in 2000 and $24.8 million in 1999. The Company’s profitability and decreases in accounts receivable of $6.8 million, contributed to the positive cash flows in 2001. Decreases in accounts payable and other accrued liabilities of $11.4 million reduced the overall positive cash flows provided by operations in 2001. Profitability and increases in accounts payable and other accrued liabilities of $3.9 million, con- tributed to the positive cash flows in 2000 and 1999. Growth in accounts receivable and inventories of $10.7 million and $8.4 million, respectively, reduced the overall positive cash flows provided by operations in 2000. Accounts receivable growth of $3.5 million reduced the overall positive cash flows provided by operations in 1999. Depreciation and amortization charges were $13.5 million in 2001, $12.5 million in 2000 and $12.6 million in 1999. Amortization of intangible assets from the Company’s acquisitions and increased depreciation from capital spending accounted for the increase from 2000 to 2001. The Company recorded a charge for impairment of goodwill of $2.5 million in 2001. 9 Investing Activities Cash flows provided by (used for) investing activities were ($9.6) million, $20.0 mil- lion and ($26.1) million in 2001, 2000 and 1999, respectively. Expenditures for prop- erty, plant and equipment were ($9.8) million in 2001, ($14.1) million in 2000 and ($13.0) million in 1999. The Company’s recurring investments are primarily related to tooling for new products, facilities and information systems improvements. In 2002, capital expenditures are anticipated not to exceed 2001 levels. These expendi- tures are expected to be funded by working capital or existing credit facilities. The Company received $33.1 million in proceeds from the sale of their Fishing busi- ness in 2000, which contributed to the cash flows provided by investing activities for that year. These proceeds were used to reduce both short-term and long-term debt. The Company paid, net of cash acquired, $0.6 million for two small businesses acquired in 2001, $0.9 million for one business acquired in 2000 and $13.6 million for three businesses acquired in 1999. In November 2001, subsequent to the end of the 2001 fiscal year, the Company completed the sale and leaseback of their head- quarters facility in Sturtevant, Wisconsin. Approximately $5.0 million of additional cash flow was provided by this transaction. Financing Activities The following table sets forth the Company’s debt and capital structure at the end of the past three years: (millions) Current debt Short-term debt to be refinanced Long-term debt Total debt Shareholders’ equity Total capitalization Total debt to total capitalization 2001 $ 13.0 50.0 34.5 97.5 105.8 $203.3 2000 $ 59.5 — 45.8 105.3 100.8 $206.1 1999 $ 49.4 — 72.7 122.1 127.2 $249.3 48.0% 51.1% 49.0% Cash flows used for financing activities totaled $7.9 million in 2001, $12.5 million in 2000 and $0.8 million in 1999. Payments on long-term debt were $6.8 million, $22.0 million and $7.7 million, in 2001, 2000 and 1999, respectively. Included in 2000 was $15.1 million in payments from the proceeds of the sales of the Fishing business. In December 2001, subsequent to the end of the 2001 fiscal year, the Company con- summated a private placement of long-term debt totaling $50.0 million. As a result of this financing, short-term debt to be repaid totaling $50.0 million at September 28, 2001 was classified as long-term. At September 28, 2001, the Company had available unused credit facilities in excess of $33.8 million, which is believed to be adequate for its needs. Market Risk Management The Company is exposed to market risk stemming from changes in foreign exchange rates, interest rates and, to a lesser extent, commodity prices. Changes in these fac- tors could cause fluctuations in earnings and cash flows. In the normal course of business, exposure to certain of these market risks is managed by entering into hedg- ing transactions authorized under Company policies that place controls on these activities. Hedging transactions involve the use of a variety of derivative financial instruments. Derivatives are used only where there is an underlying exposure: not for trading or speculative purposes. Foreign Operations The Company has significant foreign operations, for which the functional currencies are denominated primarily in Swiss and French francs, German marks, Italian lire, Japanese yen and Canadian dollars. As the values of the currencies of the foreign countries in which the Company has operations increase or decrease relative to the U.S. dollar, the sales, expenses, profits, assets and liabilities of the Company’s foreign operations, as reported in the Company’s Consolidated Financial Statements, increase or decrease, accordingly. The Company mitigates a portion of the fluctua- tions in certain foreign currencies through the purchase of foreign currency swaps, forward contracts and options to hedge known commitments, primarily for pur- chases of inventory and other assets denominated in foreign currencies. Interest Rates The Company’s debt structure and interest rate risk are managed through the use of fixed and floating rate debt. The Company’s primary exposure is to United States interest rates. The Company also periodically enters into interest rate swaps, caps or collars to hedge its exposure and lower financing costs. 10 Commodities Certain components used in the Company’s products are exposed to commodity price changes. The Company manages this risk through instruments such as pur- chase orders and non-cancelable supply contracts. Primary commodity price expo- sures are metals and packaging materials. Sensitivity to Changes in Value The estimates that follow are intended to measure the maximum potential fair value or earnings the Company could lose in one year from adverse changes in foreign exchange rates or market interest rates under normal market conditions. The calcu- lations are not intended to represent actual losses in fair value or earnings that the Company expects to incur. The estimates do not consider favorable changes in mar- ket rates. Further, since the hedging instrument (the derivative) inversely correlates with the underlying exposure, any loss or gain in the fair value of derivatives would be generally offset by an increase or decrease in the fair value of the underlying expo- sures. The positions included in the calculations are foreign exchange forwards, cur- rency swaps and fixed rate debt. Certain instruments are included in both categories of risk exposure calculated below. The calculations do not include the underlying for- eign exchange positions that are hedged by these market risk sensitive instruments. The table below presents the estimated maximum potential one year loss in fair value and earnings before income taxes from a 10% movement in foreign currencies and a 100 basis point movement in interest rate market risk sensitive instruments out- standing at September 28, 2001: (millions) Foreign exchange rate instruments Interest rate instruments Estimated Impact on Earnings Before Income Taxes $0.7 0.3 Fair Value $0.7 1.1 Other Factors The Company has not been significantly impacted by inflationary pressures over the last several years. The Company anticipates that changing costs of basic raw materi- als may impact future operating costs and, accordingly, the prices of its products. The Company is involved in continuing programs to mitigate the impact of cost increases through changes in product design and identification of sourcing and manufactur- ing efficiencies. Price increases and, in certain situations, price decreases are imple- mented for individual products, when appropriate. Pending Accounting Changes In June 2001, the FASB issued SFAS No. 142 Goodwill and Other Intangibles (SFAS 142). SFAS 142 addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. Upon adoption of SFAS 142, good- will will no longer be subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test. Other intangible assets will be required to be separately rec- ognized if the benefit of the intangible asset can be sold, transferred, licensed, rented, or exchanged. Amortization of these intangibles over their useful lives is required. The Company has elected to adopt SFAS 142 as of the beginning of fiscal 2002. The Company is currently assessing the impact of adopting SFAS 142 and believes, excluding impairments, net income for fiscal year 2002 will be increased, since good- will is no longer subject to amortization, by approximately $2.5 million. In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 establishes a single accounting model for long-lived assets to be disposed of by sale and provides additional imple- mentation guidance for assets to be held and used and assets to be disposed of other than by sale. There will be no financial implication related to the adoption of SFAS 144, and the guidance will be applied on a prospective basis. The Company is required to adopt SFAS 144 in the first quarter of fiscal 2003. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information with respect to this item is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Market Risk Management.” ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information with respect to this item is included on pages F-1 to F-19. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 11 PA R T I I I PA R T I V ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to this item, except for certain information on executive offi- cers (which appears at the end of Part I of this report) is included in the Company’s Proxy Statement for its February 19, 2002 Annual Meeting of Shareholders, which is incorporated herein by reference, under the headings “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,” provided, however, that the subsection entitled “Election of Directors – Audit Committee Report” shall not be deemed to be incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information with respect to this item is included in the Company’s Proxy Statement for its February 19, 2002 Annual Meeting of Shareholders, which is incorporated herein by reference, under the headings “Election of Directors - Compensation of Directors” and “Executive Compensation;” provided, however, that the subsection entitled “Executive Compensation - Compensation Committee Report on Executive Compensation” shall not be deemed to be incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to this item is included in the Company’s Proxy Statement for its February 19, 2002 Annual Meeting of Shareholders, which is incorporated herein by reference, under the heading “Stock Ownership of Management and Others.” ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information with respect to this item is included in the Company’s Proxy Statement for its February 19, 2002 Annual Meeting of Shareholders, which is incorporated herein by reference, under the heading “Certain Transactions.” ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 8-K The following documents are filed as a part of this Form 10-K: Financial Statements Included in Item 8 of Part II of this Form 10-K are the following Reports of Independent Public Accountants Consolidated Balance Sheets - September 28, 2001 and September 29, 2000 Consolidated Statements of Operations - Years ended September 28, 2001, September 29, 2000 and October 1, 1999 Consolidated Statements of Shareholders’ Equity - Years ended September 28, 2001, September 29, 2000 and October 1, 1999 Consolidated Statements of Cash Flows - Years ended September 28, 2001, September 29, 2000 and October 1, 1999 Notes to Consolidated Financial Statements Financial Statement Schedules All schedules are omitted because they are not applicable, are not required or equiv- alent information has been included in the Consolidated Financial Statements or notes thereto. Exhibits See Exhibit Index. Reports on Form 8-K No reports on Form 8-K were filed during the three months ended September 28, 2001. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Mount Pleasant and State of Wisconsin, on the 13th day of December 2001. JOHNSON OUTDOORS INC. (Registrant) By /s/ Helen P. Johnson-Leipold Helen P. Johnson-Leipold Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated on the 13th day of December 2001. /s/ Helen P. Johnson-Leipold (Helen P. Johnson-Leipold) Chairman and Chief Executive Officer and Director (Principal Executive Officer) /s/ Thomas F. Pyle, Jr. (Thomas F. Pyle, Jr.) /s/ Samuel C. Johnson (Samuel C. Johnson) /s/ Gregory E. Lawton (Gregory E. Lawton) /s/ Glenn N. Rupp (Glenn N. Rupp) /s/ Terry E. London (Terry E. London) (John M. Fahey, Jr.) /s/ Paul A. Lehmann (Paul A. Lehmann) Vice Chairman of the Board and Director Director Director Director Director Director Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 13 EXHIBIT INDEX Exhibit Title Page No. Exhibit Title Page No. 3.1 Articles of Incorporation of the Company as amended through February 17, 2000. (Filed as Exhibit 3.1(a) to the Company’s Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference.) 3.2 Bylaws of the Company as amended through March 22, 2000. (Filed as Exhibit 3.2(a) to the Company’s Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference.) 4.1 Note Agreement dated October 1, 1995. (Filed as Exhibit 4.1 to Company’s Form 10-Q for the quarter ended December 29, 1995 and incorporated herein by reference.) 4.2 First Amendment dated October 31, 1996 to Note Agreement dated October 1, 1995. (Filed as Exhibit 4.3 to the Company’s Form 10-Q for the quarter ended December 27, 1996 and incorporated herein by reference.) 4.3 Second Amendment dated September 30, 1997 to Note Agreement dated October 1, 1995. (Filed as Exhibit 4.8 to the Company’s Form 10-K for the year ended October 3, 1997 and incorporated herein by reference.) 4.4 Third Amendment dated October 3, 1997 to Note Agreement dated October 1, 1995. (Filed as Exhibit 4.9 to the Company’s Form 10-K for the year ended October 3, 1997 and incorporated herein by reference.) 4.5 Fourth Amendment dated January 10, 2000 to Note Agreement dated October 1, 1995. (Filed as Exhibit 4.9 to the Company’s Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference.) 4.6 Fifth Amendment dated December 13, 2001 to Note Agreement dated October 1, 1995. * * * * * * * * 14 4.7 Note Agreement dated as of September 15, 1997. (Filed as Exhibit 4.15 to the Company’s Form 10-K for the year ended October 3, 1997 and incorporated herein by reference.) 4.8 First Amendment dated January 10, 2000 to Note Agreement dated September 15, 1997. (Filed as Exhibit 4.10 to the Company’s Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference.) 4.9 Second Amendment dated December 13, 2001 to Note Agreement dated September 15, 1997. 4.10 3-Year Revolving Credit Agreement dated as of August 31, 2001. 4.11 Amendment No. 1 to 3-Year Revolving Credit Agreement dated as of December 18, 2001. 4.12 Note Agreement dated as of December 13, 2001. 9 Johnson Outdoors 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 Stock Purchase Agreement, dated as of January 12, 2000, by and between Johnson Outdoors Inc. and Berkley Inc. (Filed as Exhibit 2.1 to the Company’s Form 8-K dated March 31, 2000 and incorporated herein by reference.) 10.2 Amendment to Stock Purchase Agreement, dated as of February 28, 2000, by and between Johnson Outdoors Inc. and Berkley Inc. (Filed as Exhibit 2.2 to the Company’s Form 8-K dated March 31, 2000 and incorporated herein by reference.) 10.3 Johnson Outdoors 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.) * * ** ** ** ** * * * * Title Page No. Exhibit Title Page No. Exhibit 10.4 * * Registration Rights Agreement regarding Johnson Outdoors 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 Outdoors 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 Outdoors 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.) 10.12+ Johnson Outdoors Inc. 1994 Non-Employee Director Stock Ownership Plan. (Filed as Exhibit 4 to the Company’s Form S-8 Registration Statement No. 333-88089 and incorporated herein by reference.) 10.13+ Johnson Outdoors Economic Value Added Bonus Plan (Filed as Exhibit 10.15 to the Company’s Form 10-K for the year ended October 3, 1997 and incorporated herein by reference.) 10.14+ Johnson Outdoors Inc. 2000 Long-Term Stock Incentive Plan. * * * (Filed as Exhibit 10.16 to the Company’s Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference.) 11. Statement regarding computation of per share earnings. (Note 15 * to the Consolidated Financial Statements of the Company’s 2001 Form 10-K is incorporated herein by reference.) 21. Subsidiaries of the Company as of September 28, 2001. 23.1 Consent of Arthur Andersen LLP. 23.2 Consent of KPMG LLP ** ** ** 99. Definitive Proxy Statement for the 2002 Annual Meeting of Shareholders. Except to the extent specifically incorporated herein by reference, the Proxy Statement for the 2002 Annual Meeting of Shareholders shall not be deemed to be filed with the Securities and Exchange Commission as part of this Form 10-K. The Proxy Statement for the 2002 Annual Meeting of Shareholders will be filed with the Securities and Exchange Commission under regulation 14A within 120 days after the end of the Company’s fiscal year. * 10.11+ Johnson Outdoors Inc. 1994 Long-Term Stock Incentive Plan. (Filed as Exhibit 4 to the Company’s Form S-8 Registration Statement No. 333-88091 and incorporated herein by reference.) * ** Incorporated herein by reference. ** Exhibits not included in this annual report. *+ A management contract or compensatory plan or arrangement. 15 CONSOLIDATED FINANCIAL STATEMENTS REPORT OF MANAGEMENT Table of Contents Page Report of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1 Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . .F-2 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-3 Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-4 Consolidated Statements of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . .F-5 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . .F-7 The management of Johnson Outdoors Inc. is responsible for the preparation and integrity of all financial statements and other information contained in this Form 10-K. 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 man- agement’s authorization and that the financial statements are prepared on a world- wide basis in accordance with accounting principles generally accepted in the United States of America. The financial statements for each of the years covered in this Form 10-K have been audited by independent public accountants, who have provided an independent assessment as to the fairness of the financial statements, after obtaining an under- standing 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 direc- tors who are not officers of the Company, meets with management and the inde- pendent public accountants to review the results of their work and to satisfy itself that their respective responsibilities are being properly discharged. The independent public accountants have full and free access to the Audit Committee and have regu- lar discussions with the Committee regarding appropriate auditing and financial reporting matters. Helen P. Johnson-Leipold Chairman and Chief Executive Officer Paul A. Lehmann Vice President and Chief Financial Officer F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS’ REPORT Shareholders and Board of Directors Johnson Outdoors Inc.: Shareholders and Board of Directors Johnson Outdoors Inc.: We have audited the consolidated balance sheet of Johnson Outdoors Inc. and sub- sidiaries as of September 28, 2001 and the related consolidated statements of opera- tions, shareholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s manage- ment. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We have audited the consolidated balance sheet of Johnson Outdoors Inc. and sub- sidiaries as of September 29, 2000 and the related consolidated statements of opera- tions, shareholders’ equity, and cash flows for each of the years in the two-year period ended September 29, 2000. These consolidated financial statements are the respon- sibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 sup- porting 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 audit provides a reasonable basis for our opinion. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 Outdoors Inc. and sub- sidiaries as of September 28, 2001 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. As explained in Note 1 to the consolidated financial statements, effective September 30, 2000, the Company changed its method of accounting for derivative instruments. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Johnson Outdoors Inc. and sub- sidiaries as of September 29, 2000 and the results of their operations and their cash flows for each of the years in the two-year period ended September 29, 2000, in con- formity with accounting principles generally accepted in the United States of America. Arthur Andersen LLP Milwaukee, Wisconsin November 8, 2001, except for Notes 5 and 17, as to which the date is December 21, 2001. KPMG LLP Milwaukee, Wisconsin November 6, 2000 F-2 CONSOLIDATED BALANCE SHEETS (thousands, except share data) Assets Current assets: Cash and temporary cash investments Accounts receivable, less allowance for doubtful accounts of $3,739 and $3,895, respectively Inventories Deferred income taxes Other current assets Total current assets Property, plant and equipment, net Deferred income taxes Intangible assets, net Other assets Total assets Liabilities And Shareholders’ Equity Current liabilities: Short-term debt and current maturities of long-term debt Accounts payable Accrued liabilities: Salaries and wages Income taxes Other Total current liabilities Long-term debt, less current maturities Other liabilities Total liabilities Shareholders’ equity: Preferred stock: none issued Common stock: Class A shares issued: September 28, 2001, 6,946,012; September 29, 2000, 6,924,630 Class B shares issued (convertible into Class A shares): September 28, 2001, 1,222,729; September 29, 2000, 1,222,729 Capital in excess of par value Retained earnings Contingent compensation Accumulated other comprehensive income - cumulative translation adjustment Total shareholders’ equity Total liabilities and shareholders’ equity The accompanying notes are an integral part of the Consolidated Financial Statements. F-3 September 28 2001 September 29 2000 $ 16,069 45,585 61,700 5,269 4,557 133,180 35,879 19,577 55,288 989 $ 244,913 $ 12,985 12,157 5,968 1,206 17,237 49,553 84,550 5,031 139,134 — 347 61 44,411 80,162 (44) (19,158) 105,779 $ 244,913 $ 17,363 54,825 62,708 4,613 4,685 144,194 37,369 17,311 57,866 1,231 $ 257,971 $ 59,462 12,928 7,421 140 26,452 106,403 45,857 4,879 157,139 — 346 61 44,291 74,797 (77) (18,586) 100,832 $ 257,971 CONSOLIDATED STATEMENTS OF OPERATIONS (thousands, except per share data) Net sales Cost of sales Gross profit Operating expenses: Marketing and selling Administrative management, finance and information systems Research and development Amortization of acquisition costs Profit sharing Strategic charges Total operating expenses Operating profit Interest income Interest expense Other expense, net Income from continuing operations before income taxes and before cumulative effect of change in accounting principle Income tax expense Income from continuing operations before cumulative effect of change in accounting principle Income (loss) from discontinued operations, net of income tax expense (benefit) of $(563) and $771 for 2000 and 1999, respectively Loss on disposal of discontinued operations, net of income tax benefit of $1,840 Effect of change in accounting principle, net of income tax expense of $845 Net income (loss) Basic earnings (loss) per common share: Continuing operations Discontinued operations Net effect of change in accounting principle Net income (loss) Diluted earnings (loss) per common share: Continuing operations Discontinued operations Net effect of change in accounting principle Net income (loss) The accompanying notes are an integral part of the Consolidated Financial Statements. September 28 2001 $ 345,637 208,934 136,703 76,114 29,138 7,565 5,288 1,432 1,448 120,985 15,718 (548) 9,085 1,091 6,090 2,480 3,610 — — 1,755 5,365 0.44 — 0.22 0.66 0.44 — 0.22 0.66 $ $ $ $ $ September 29 2000 $354,889 212,076 142,813 73,685 28,442 7,854 2,951 2,793 2,369 118,094 24,719 (421) 9,799 261 15,080 6,705 8,375 (940) (24,418) — $ (16,983) $ $ $ $ 1.03 (3.12) — (2.09) 1.03 (3.12) — (2.09) Year Ended October 1 1999 $310,198 184,424 125,774 64,930 26,372 6,878 2,912 2,396 2,773 106,261 19,513 (294) 9,565 223 10,019 4,158 5,861 1,161 — — 7,022 0.72 0.15 — 0.87 0.72 0.15 — 0.87 $ $ $ $ $ F-4 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (thousands) Common Stock Capital in Excess of Par Value Retained Earnings Contingent Compensation Balance at October 2, 1998 $406 $ 44,205 $ 85,068 Net income Issuance of restricted stock Issuance of stock under employee stock purchase plan Amortization of contingent compensation Translation adjustment — — — — — — — — — — Balance at October 1, 1999 406 44,205 Net loss Issuance of restricted stock Issuance of stock under employee stock purchase plan Amortization of contingent compensation Translation adjustment Translation adjustment reclassified to net loss on sale of Fishing business — — 1 — — — — 19 67 — — — Balance at September 29, 2000 407 44,291 Net income Issuance of restricted stock Issuance of stock under employee stock purchase plan Amortization of contingent compensation Translation adjustment Translation adjustment reclassified to cumulative effect of change in accounting principle — — 1 — — — — 50 70 — — — 7,022 (137) (121) — — 91,832 (16,983) — (52) — — — 74,797 5,365 — — — — — $ (27) — (182) — 75 — (134) — (19) — 76 — — (77) — (50) — 83 — — Accumulated Other Comprehensive Loss-Cumulative Translation Adjustment $ (4,651) — — — — (4,398) (9,049) — — — — (10,346) 809 (18,586) — — — — 2,402 (2,974) Treasury Stock $(615) — 319 214 — — (82) — — 82 — — — — — — — — — — Comprehensive Income (Loss) $ 7,022 — — — (4,398) $ 2,624 $ (16,983) — — — (10,346) — $ (27,329) $ 5,365 — — — 2,402 — BALANCE AT SEPTEMBER 28, 2001 $408 $44,411 $80,162 $(44) $(19,158) $ — $ 7,767 The accompanying notes are an integral part of the Consolidated Financial Statements. F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands) Cash Provided By Operations Net income (loss) Less income (loss) from discontinued operations Less income from cumulative effect of change in accounting principle Income from continuing operations Adjustments to reconcile income from continuing operations to net cash provided by operating activities of continuing operations: Depreciation and amortization Provision for doubtful accounts receivable Provision for inventory reserves Deferred income taxes Impairment of goodwill Change in assets and liabilities, net of effect of businesses acquired or sold: Accounts receivable Inventories Accounts payable and accrued liabilities Other, net Cash Provided By (Used For) Investing Activities Proceeds from sale of business, net of cash Payments for purchase of businesses, net of cash acquired Net additions to property, plant and equipment Sales of property, plant and equipment Cash Used For Financing Activities Principal payments on senior notes and other long-term debt Net change in short-term debt Common stock transactions Effect of foreign currency fluctuations on cash Net cash provided by (used for) discontinued operations Increase (decrease) in cash and temporary cash investments Cash And Temporary Cash Investments Beginning of year End of year The accompanying notes are an integral part of the Consolidated Financial Statements. September 28 2001 September 29 2000 $ 5,365 — 1,755 3,610 13,516 2,460 1,529 (2,922) 2,526 6,780 124 (11,391) (760) 15,472 — (573) (9,765) 730 (9,608) (6,784) (1,143) 71 (7,856) 698 — (1,294) $(16,983) (25,358) — 8,375 12,523 1,812 853 (374) — (10,728) (8,358) 3,910 1,738 9,751 33,126 (864) (14,075) 1,838 20,025 (21,969) 9,351 97 (12,521) (1,790) (8,076) 7,389 Year Ended October 1 1999 $ 7,022 1,161 — 5,861 12,597 2,162 801 (48) — (3,466) 1,012 5,975 (106) 24,788 — (13,584) (13,035) 501 (26,118) (7,705) 6,764 94 (847) (541) 2,361 (357) 17,363 $ 16,069 9,974 $ 17,363 10,331 $ 9,974 F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Johnson Outdoors Inc. is an integrated, global outdoor recreation products com- pany engaged in the design, manufacture and marketing of brand name outdoor equipment, diving, watercraft and motors products. All monetary amounts, other than share and per share amounts, are stated in thou- sands and are from continuing operations. 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The Consolidated Financial Statements include the accounts of Johnson Outdoors Inc. and all majority owned subsidiaries (the Company) and are stated in conform- ity with accounting principles generally accepted in the United States of America. Significant intercompany accounts and transactions have been eliminated in con- solidation. The preparation of financial statements 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 esti- mates include the allowance for doubtful accounts receivable, reserves for inventory valuation, reserves for sales returns and the valuation allowance for deferred tax assets. The Company’s fiscal year ends on the Friday nearest September 30. The fiscal years ended September 28, 2001 (hereinafter 2001) and September 29, 2000 (hereinafter 2000) and October 1, 1999 (hereinafter 1999) 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 instru- ments with an original maturity of three months or less to be equivalent to cash. The Company maintains cash in bank accounts in excess of insured limits. The Company has not experienced any losses as a result of this practice and does not believe that significant credit risk exists. Inventories Inventories are stated at the lower of cost (determined using the first-in, first-out method) or market. Inventories attributable to continuing operations at the end of the respective years consist of the following: Raw materials Work in process Finished goods Less reserves 2001 $ 19,892 2,592 42,620 65,104 3,404 $ 61,700 2000 $23,122 2,238 40,297 65,657 2,949 $62,708 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 attributable to continuing operations at the end of the respective years consist of the following: Property and improvements Buildings and improvements Furniture, fixtures and equipment Less accumulated depreciation 2001 $ 1,423 21,861 86,221 109,505 73,626 $ 35,879 2000 $ 1,423 19,303 82,994 103,720 66,351 $ 37,369 F-7 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. Intangible assets attributable to continuing operations at the end of the respective years consist of the following: Federal and state income taxes are provided on foreign subsidiary income distributed to, or taxable in, the United States during the year. At September 28, 2001, net undistributed earnings of foreign subsidiaries total approximately $63,200. A sub- stantial 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. Goodwill Patents, trademarks and other Less accumulated amortization 2001 $ 68,830 4,275 73,105 17,817 $ 55,288 2000 $69,546 4,122 73,668 15,802 $57,866 Impairment of Long-Lived Assets The Company annually assesses the recoverability of property, plant and equipment and intangible assets, primarily by determining whether the depreciation and amor- tization of the balance over its remaining life can be recovered through projected undiscounted future operating cash flows of the related businesses. The amount of impairment, if any, is measured primarily based on the deficiency of projected dis- counted future operating cash flows relative to the value of the assets, using a dis- count rate reflecting the Company’s cost of capital, which currently approximates 10%. In 2001, the Company recognized a $2.5 million write-down for impaired goodwill related to the Airguide brand in the Motors business. 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. 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 dif- ferences 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 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 shar- ing plans. Pension obligations, which are generally based on compensation and years of service, are funded by payments to pension fund trustees. 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 and other retirement costs are funded at least annually. Foreign Operations and Derivative Financial Instruments Assets and liabilities of foreign operations are translated into U.S. 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 accumulated other compre- hensive income (loss), a separate component of shareholders’ equity. The Company operates internationally, which gives rise to exposure to market risk from movements in foreign currency exchange rates. To minimize the effect of fluc- tuating foreign currencies on its income, the Company enters into foreign currency forward contracts. The Company primarily hedges assets, inventory purchases and loans denominated in foreign currencies. The Company does not enter into foreign exchange contracts for trading purposes. Gains and losses on unhedged exposures are recorded in operating results. The contracts are used to hedge known foreign currency transactions on a continu- ing basis for periods consistent with the Company’s exposures. Beginning September 30, 2000 upon the adoption of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS 137, Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of SFAS Statement No. 133 and SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, the effective portion of the gain or loss on the foreign currency forward F-8 contact is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earn- ings. The remaining gain or loss on the futures contact, if any, is recognized in cur- rent earnings during the period of changes. Adoption of these new accounting standards resulted in a cumulative after-tax gain of approximately $1.8 million and an accumulated other comprehensive loss of approximately $3.0 million in the first quarter of fiscal 2001. At September 28, 2001, foreign currency contracts with contractual amounts total- ing approximately $6,500 are in place, hedging existing and anticipated transac- tions. The contracts, which are executed with major financial institutions, generally mature within one year with no credit loss anticipated for failure of the counterpar- ties to perform. At September 28, 2001, the fair value of these instruments is approximately $200 greater than the contractual amount. Revenue Recognition Revenue from sales is recognized when all substantial risk of ownership transfers to the customer, which is generally upon shipment of products. Estimated costs of returns and allowances are accrued when revenue is recognized. Advertising The Company expenses substantially all costs related to production of advertising the first time the advertising takes place. Cooperative promotional arrangements are accrued in relation to sales. Advertising expense attributable to continuing operations in 2001, 2000 and 1999 totaled $18,282, $18,435 and $16,258, respectively. Capitalized costs attributable to continuing operations at September 28, 2001 and September 29, 2000 totaled $1,653 and $1,360, respectively, and primarily include catalogs and costs of adver- tising which has not yet run for the first time. Shipping and Handling Costs In July 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue 00-10, Accounting for Shipping and Handling Fees and Costs. EITF 00-10 requires companies to classify as revenues shipping and handling fees billed to customers. Previously, shipping revenues and shipping expenses were included in marketing and selling expenses. All periods presented in the Consolidated Statements of Operations have been reclassified to conform to the current year presentation. The adoption of this statement increased net sales and marketing and selling expenses by $7,114, $7,601 and $5,104 for 2001, 2000 and 1999, respectively. Shipping and handling expense attributable to continuing operations included in marketing and selling expense was $12,821, $13,007 and $9,525 for 2001, 2000 and 1999, respectively. Research and Development Research and development costs are expensed as incurred. Stock-Based Compensation The Company accounts for stock options using the intrinsic value based method. Accordingly, compensation cost is generally recognized only for stock options issued with an exercise price lower than the market price on the date of grant. The Company’s practice is to issue options with an exercise price equal to the fair mar- ket value on the date of the grant. The fair value of restricted shares awarded in excess of the amount paid for such shares is recognized as contingent compensation and is amortized over 1 to 3 years from the date of award, the period after which all restrictions generally lapse. Pending Accounting Changes In June 2001, the FASB issued SFAS No. 142 Goodwill and Other Intangibles (SFAS 142). SFAS 142 addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. Upon adoption of SFAS 142, good- will will no longer be subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test. Other intangible assets will be required to be separately recog- nized if the benefit of the intangible asset can be sold, transferred, licensed, rented, or exchanged. Amortization of these intangibles over their useful lives is required. The Company has elected to adopt SFAS 142 as of the beginning of fiscal 2002. The Company is currently assessing the impact of adopting SFAS 142 and believes, excluding impairments, net income for fiscal year 2002 will be increased, since goodwill is no longer subject to amortization, by approximately $2,500. F-9 In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 establishes a single accounting model for long-lived assets to be disposed of by sale and provides additional imple- mentation guidance for assets to be held and used and assets to be disposed of other than by sale. There will be no financial implication related to the adoption of SFAS 144, and the guidance will be applied on a prospective basis. The company is required to adopt SFAS 144 in the first quarter of fiscal 2003. Reclassifications Certain reclassifications have been made to prior years’ amounts to conform with the current year presentation. 2 STRATEGIC CHARGES In 2001, 2000 and 1999, the Company recorded strategic charges totaling $1,448, $2,369 and $2,773, respectively. In 2001 strategic charges included severance, moving and other exit costs related primarily to the closure and relocation of manufacturing facilities in the Watercraft business. Severance costs included in the strategic charges totaled $660 and approx- imately 88 employees were impacted by these actions. Unexpended funds at year end related to these actions were approximately $1,020. In 2000 strategic charges included severance, moving and other exit costs related primarily to the closure and relocation of a manufacturing facility in the Motors business. Severance costs included in the strategic charges totaled $1,469 and approximately 95 employees were impacted by these actions. There are no unex- pended funds related to this action as of the end of 2001. In 1999, a portion of the charges included severance, moving and recruiting costs related to the relocation of certain sales and marketing functions of the Company’s Outdoor Equipment business. The balance of the charges were related to the inte- gration of acquired businesses. Severance costs included in these charges totaled $1,101 and approximately 30 employees were impacted. There are no unexpended funds related to this action as of the end of 2001. 3 ACQUISITIONS During 2001, the Company completed the acquisition of two small businesses which manufacture paddles and marine accessories. The initial purchase price, including direct expenses, for the acquisitions was approximately $600, of which approximately $420 was recorded as intangible assets and is being amortized over 25 years. During 2000, the Company completed the acquisition of the common stock of Pacific Kayak Ltd., a manufacturer of sit-on-top and sea touring kayaks located in Auckland, New Zealand. The initial purchase price, including direct expenses, for the acquisition was approximately $962, of which approximately $584 was recorded as intangible assets and is being amortized over 25 years. An additional payment of approximately $70 was earned in 2001 based upon achievement of specified levels of sales of the acquired business. During 1999, the Company completed the acquisition of the common stock of Extrasport, Inc., a privately held manufacturer and marketer of personal flotation devices. The initial purchase price, including direct expenses, for the acquisition was approximately $3,300, of which approximately $2,500 was recorded as intangible assets and is being amortized over 25 years. Additional payments of approximately $150 for both 2000 and 2001 were earned based upon achievement of specified lev- els of sales. An additional payment in 2002 is dependent upon achievement of spec- ified levels of sales of the acquired business. Also during 1999, the Company completed the acquisition of substantially all of the assets and the assumption of certain liabilities of Escape Sailboat Company LLC, a privately held manufacturer and marketer of recreational sailboats. The initial pur- chase price, including direct expenses, for the acquisition was approximately $4,800, of which approximately $3,100 was recorded as intangible assets and is being amor- tized over 25 years. In December 1998, the Company completed the acquisition of substantially all of the assets and the assumption of certain liabilities of True North Paddle & Necky Kayaks Ltd., a privately held manufacturer and marketer of Necky kayaks, and an affiliated entity. The initial purchase price, including direct expenses, for the acqui- sition was approximately $5,700, of which approximately $3,200 was recorded as intangible assets and is being amortized over 25 years. Additional payments of approximately $170 and $600 were earned in 2000 and 1999, respectively. Additional payments in the years 2002 and 2003 are dependent upon the achieve- ment of specified levels of sales and profitability of the acquired business. F-10 All 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. 4 SALE OF FISHING BUSINESS In March 2000, the Company sold its Fishing business. As a result, operations and related assets and liabilities of the Fishing group have been classified as discontinued for all periods presented herein. The sale price totaled $47,279, including $14,056 of accounts receivable retained by the Company and $2,367 of debt assumed by the buyer. The Company recorded a loss of $24,418, net of tax, related to the sale of the business, taking into account operating results from the measurement date to the date of disposal. In addition, the Company recorded an after tax loss from operations up to the measurement date of $940 in 2000, an after tax gain of $1,161 in 1999. Net sales of the Fishing group were $32,667 and $59,184 for 2000 and 1999, respectively. Interest expense of $90 and $154 that is directly attributable to the Fishing group is allocated to discontinued operations. 5 INDEBTEDNESS Short-term debt at the end of the respective years consists of the following: Commercial paper and bank loans Current maturities of long-term debt Less short-term debt to be refinanced 2001 $ 49,643 13,342 50,000 $ 12,985 2000 $53,434 6,028 — $59,462 Short-term credit facilities provide for borrowings with interest rates set periodically by reference to market rates. Commercial paper rates are set by competitive bidding. The weighted average interest rate on short-term indebtedness was 5.8% and 7.6% at September 28, 2001 and September 29, 2000, respectively. The Company’s pri- mary facility is a $70,000 revolving credit agreement expiring in 2004, which includes a maximum amount of $30,000 in support of commercial paper issuance. The Company has lines of credit, both foreign and domestic, totaling $92,500 of which $33,825 is available at September 28, 2001. The Company also utilizes let- ters of credit for trade financing purposes. Long-term debt at the end of the respective years consists of the following: 1998 senior notes 1996 senior notes Short-term debt to be refinanced Other long-term notes, maturing through January 2002 Less current maturities 2001 $ 18,800 23,700 50,000 5,392 97,892 13,342 $ 84,550 2000 $16,176 29,700 — 6,009 51,885 6,028 $45,857 In December 2001, subsequent to the end of the 2001 fiscal year, the Company issued unsecured notes totaling $50,000 with an interest rate of 7.82%. The senior notes have annual principal payments of $10,000 beginning December 13, 2004 with a final payment due December 13, 2008. Proceeds from the issuance of the senior notes were used to reduce outstanding indebtedness under the Company’s primary revolving credit facility. Outstanding short-term debt totaling $50,000 at September 28, 2001 is classified as long-term in anticipation of refinancing with the proceeds of the senior notes. In 1998, the Company issued unsecured senior notes totaling $25,000 with an interest rate of 7.15%. Simultaneous with the commitment of the 1998 senior notes, the Company executed a foreign currency swap, denominating in Swiss francs all principal and interest payments required under the 1998 senior notes. The effec- tive interest rate paid on the 1998 senior notes as a result of the currency swap was 4.32%. The Company terminated the currency swap in December 2000. A portion of the proceeds from the divestiture of the Fishing business was used to make an unscheduled principal payment of $5,335 in March 2000. The 1998 senior notes have annual principal payments of $2,000 to $7,000 beginning October 2001 with a final payment due October 2007. F-11 The Company financed a portion of the initial purchase price for the common stock of Uwatec AG in 1997 with a note from the sellers. Interest on the deferred amount is payable annually at 6%. This obligation is denominated in Swiss francs. The out- standing balance of $5,214 is due in 2002. A corresponding amount of the Company’s primary revolving credit facility is reserved in support of this obligation through issuance of a letter of credit. In 1996, the Company issued unsecured senior notes totaling $30,000 with an interest rate of 7.77% and $15,000 with an interest rate of 6.98%. A portion of the proceeds from the divestiture of the Fishing business was used to make an unsched- uled principal payment of $9,800 in March 2000. Total annual principal payments ranging from $5,500 to $7,500 are due beginning in October 2000 through 2006. Aggregate scheduled maturities of long-term debt in each of the five years ending September 2006 are as follows: Certain of the Company’s loan agreements require that Samuel C. Johnson, mem- bers of his family and related entities (hereinafter the Johnson Family) continue to own stock having votes sufficient to elect a 51% majority of the directors. At September 28, 2001, the Johnson Family held approximately 3,380,000 shares or 49% of the Class A common stock, approximately 1,168,000 shares or 96% of the Class B common stock and approximately 78% of the voting power of both classes of common stock taken as a whole. The agreements also contain restrictive covenants regarding the Company’s net worth, indebtedness, fixed charge coverage and distribution of earnings. The Company is in compliance with the restrictive covenants of such agreements, as amended from time to time. 6 LEASES AND OTHER COMMITMENTS The Company leases certain operating facilities and machinery and equipment under long-term, noncancelable operating leases. Future minimum rental commit- ments under noncancelable operating leases attributable to continuing operations having an initial term in excess of one year at September 28, 2001 are as follows: Year 2002 2003 2004 2005 2006 Thereafter $ 13,342 8,050 9,500 15,700 13,500 37,800 Year 2002 2003 2004 2005 2006 Thereafter $5,600 3,800 2,600 2,200 2,100 7,600 Interest paid was $9,178, $10,471 and $9,740 for 2001, 2000 and 1999, respectively. Based on the borrowing rates currently available to the Company for debt with sim- ilar terms and average maturities, the fair value of the Company’s long-term debt as of September 28, 2001 and September 29, 2000 is approximately $98,300 and $53,000, respectively. The carrying value of all other financial instruments approx- imates the fair value. Rental expense attributable to continuing operations under all leases was approxi- mately $6,739, $6,727 and $6,438 for 2001, 2000 and 1999, respectively. The Company makes commitments in a broad variety of areas, including capital expenditures, contracts for services, sponsorship of broadcast media and supply of fin- ished products and components, all of which are in the ordinary course of business. F-12 7 INCOME TAXES Income tax expense (benefit) attributable to continuing operations for the respec- tive years consists of the following: The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities attributable to continuing operations at the end of the respective years are presented below: 2001 2000 1999 2001 2000 Current: Federal State Foreign Deferred $ — 101 5,301 (2,922) $ 2,480 $ 17 490 6,572 (374) $6,705 $ 34 683 3,489 (48) $ 4,158 The significant components of deferred tax expense (benefit) attributable to continuing operations are as follows: 2001 2000 1999 Deferred tax expense (benefit) (exclusive of effects of other components listed below) Increase (decrease) in beginning of the year balance of the valuation allowance for deferred tax assets $ (3,185) $ (822) $ 89 263 $ (2,922) 488 $ (374) (137) (48) $ Deferred tax assets: Inventories Compensation Foreign tax credit carryforwards Net operating loss carryforwards Other Total gross deferred tax assets Less valuation allowance Deferred tax liabilities: Foreign statutory reserves Goodwill and other intangibles Total deferred tax liabilities Net deferred tax asset $ 2,089 2,978 3,761 21,562 5,138 35,528 8,046 27,482 1,867 769 2,636 $ 24,846 $ 1,966 3,502 3,791 16,808 5,869 31,936 7,783 24,153 1,952 277 2,229 $21,924 Deferred tax assets relating to net operating losses of discontinued operation of $5,555 has been reflected as assets of continuing operations in 2000 as the benefit will ultimately be realized by the continuing operations. Following is the income (loss) from continuing operations before income taxes for domestic and foreign operations: United States Foreign 2001 $ (5,719) 11,809 $ 6,090 2000 $ (1,436) 16,516 $15,080 1999 $ (1,269) 11,288 $10,019 F-13 The significant differences between the statutory federal tax rate and the effective income tax rates for income from continuing operations are as follows: Statutory U.S. federal income tax rate State income taxes, net of federal income tax benefit Foreign rate differential Change in beginning of year valuation allowance Foreign operating losses (benefit) Other 2001 2000 1999 34.0% 34.0% 34.0% 0.9 1.3 4.3 — 0.2 40.7% 3.8 1.4 3.0 0.6 1.7 44.5% 0.7 5.1 — 1.9 (0.2) 41.5% At September 28, 2001, the Company has $3,761 of foreign tax credit carryfor- wards available to be offset against future U.S. tax liability. The credits expire in 2002 through 2007 if not utilized. These carryforwards have been fully reserved for in the valuation allowance. At September 28, 2001, the Company has a U.S. federal operating loss carryforward of $40,542 and various state net operating loss carryforwards. During 2001, 2000 and 1999, foreign net operating loss carryforwards were utilized, resulting in a reduction in income tax expense of $32, $152 and $137, respectively. In addition, certain of the Company’s foreign subsidiaries have net operating loss carryforwards totaling $3,120. These amounts are available to offset future taxable income over the next 14 to 20 years and are anticipated to be utilized during this period. Taxes paid attributable to continuing operations were $4,337, $9,935 and $6,648 for 2001, 2000 and 1999, respectively. 8 EMPLOYEE BENEFITS Net periodic pension cost for noncontributory defined benefit pension plans includes the following components. Service cost Interest on projected benefit obligation Less return on plan assets Amortization of unrecognized: Net loss Prior service cost Transition asset Net amount recognized 2001 $343 792 631 1 26 (80) $451 2000 $315 763 592 4 26 (81) $435 1999 $273 713 558 4 26 (81) $377 The following provides a reconciliation of the changes in the plans benefit obliga- tion and fair value of assets for 2001 and 2000 and a statement of the funded status at the end of each year: 2001 2000 Benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Actuarial (gain) loss Benefits paid Benefit obligation at end of year Fair value of plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Company contributions Benefits paid Fair value of plan assets at end of year Funded status: Funded status of the plan Unrecognized net loss Unrecognized prior service cost Unrecognized transition asset Net liability recognized $10,332 343 792 1,094 (632) $11,929 $ 8,620 (582) 278 (632) $ 7,684 $ (4,245) 2,084 123 (211) $ (2,249) $ 9,604 315 763 259 (609) $10,332 $ 8,070 888 271 (609) $ 8,620 $(1,712) 80 148 (291) $(1,775) F-14 The following summarizes the components of the net liability recognized in the con- solidated balance sheets at the end of the respective years: 10 COMMON STOCK Common stock at the end of the respective years were as follows: Prepaid benefit cost Accrued benefit liability Net liability recognized 2001 $ — (2,249) $(2,249) 2000 $ — (1,775) $(1,775) Plan assets are invested primarily in stock and bond mutual funds and insurance contracts. Actuarial assumptions used to determine the projected benefit obligation are as follows: Discount rate Long-term rate of return Average salary increase rate 2001 7.25% 8 5 2000 1999 8% 8 5 8% 8 5 A majority of the Company’s full-time employees are covered by profit sharing and defined contribution programs. Participating entities determine profit sharing dis- tributions 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. Class A, $.05 par value: Authorized Outstanding Class B, $.05 par value: Authorized Outstanding 2001 2000 20,000,000 6,946,012 20,000,000 6,924,630 3,000,000 1,222,729 3,000,000 1,222,729 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 con- vertible at any time into one share of Class A common stock. During 2001, no shares of Class B common stock were converted into Class A common stock. During 2000 and 1999, respectively, 132 and 1,000 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 direc- tors. All stock 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. Stock options generally have a term of 10 years. Current plans also allow for issuance of restricted stock or stock appreciation rights in lieu of options. Grants of restricted shares are not significant in any year presented. No stock appre- ciation rights have been granted. F-15 A summary of stock option activity related to the Company’s plans is as follows: Outstanding at October 2, 1998 Granted Cancelled Outstanding at October 1, 1999 Granted Cancelled Outstanding at September 29, 2000 Granted Cancelled Outstanding at September 28, 2001 Shares 602,061 353,000 (176,224) 778,837 268,500 (95,107) 952,230 235,000 (100,435) 1,086,795 Weighted Average Exercise Price $ 17.43 8.53 14.67 14.02 7.58 15.23 12.08 5.50 17.00 $10.20 The range of options outstanding at September 28, 2001 is as follows: Price Range per Share $ 5.31–11.50 $12.94–17.50 $18.63–24.38 Number of Options Outstanding/Exercisable 820,999/331,461 156,222/156,222 109,574/109,574 1,086,795/597,257 Weighted Average Exercise Price Outstanding/Exercisable $ 7.47/$ 8.59 $16.59/$16.59 $21.54/$21.54 $10.20/$13.06 Weighted Average Remaining Contractual Life (in years) 8.20 5.75 2.92 7.31 The weighted average fair market value of options granted during the year was $2.18 in 2001, $3.20 in 2000 and $3.31 in 1999. Had compensation cost for the Company’s stock options been determined using the fair value method, the Company’s pro forma operating results would have been as follows: Income from continuing operations Diluted earnings per common share from continuing operations 2001 $3,112 $ 0.38 2000 $7,744 $ 0.95 1999 $5,221 $ 0.64 For purposes of calculating pro forma operating results, the fair value of each option grant was estimated using the Black-Scholes option pricing model with an expected volatility of 35%, a risk free rate equivalent to five year U.S. Treasury securities and an expected life of five years. The pro forma operating results reflect only options granted after 1995. 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 2001, 2000 and 1999 13,382, 16,701, 13,722 shares, respectively, were issued under this plan. 12 RELATED PARTY TRANSACTIONS Various transactions are conducted between the Company and organizations con- trolled by the Johnson Family. These include consulting services, office rental, roy- alties and certain administrative activities. Total net costs of these transactions are $546, $542, $474 for 2001, 2000 and 1999, respectively. 13 SEGMENTS OF BUSINESS The Company conducts its worldwide operations through separate global business units, each of which represent major product lines. Operations are conducted in the United States and various foreign countries, primarily in Europe, Canada and the Pacific Basin. Net sales and operating profit include both sales to customers, as reported in the Company’s consolidated statements of operations, and interunit transfers, which are priced to recover cost plus an appropriate profit margin. Identifiable assets represent assets that are used in the Company’s operations in each business unit at the end of the years presented. There were no concentrations in revenue from a particular cus- tomer, product or geographic area in each of the years presented. F-16 A summary of the Company’s continuing operations by business segment is pre- sented below: A summary of the Company’s continuing operations by geographic area is pre- sented below: 2001 2000 1999 2001 2000 1999 Net sales: Outdoor equipment: Net sales: United States: Unaffiliated customers Interunit transfers $114,875 89 $104,052 67 $ 92,951 14 Unaffiliated customers Interarea transfers $228,491 5,828 Europe: Unaffiliated customers Interarea transfers Other Interarea transfers Eliminations Identifiable assets: United States Europe Other 89,995 7,267 27,151 7,170 (20,265) $345,637 $133,659 94,490 16,764 $244,913 Watercraft: Unaffiliated customers Interunit transfers Diving: Unaffiliated customers Interunit transfers Motors: Unaffiliated customers Interunit transfers Other Eliminations Operating profit (loss): Outdoor equipment Watercraft Diving Motors Other Identifiable assets: Outdoor equipment Watercraft Diving Motors Other 85,841 343 80,426 62 64,446 539 49 (1,033) $345,637 $ 12,015 1,293 11,638 231 (9,459) $ 15,718 $ 49,027 65,147 85,393 22,819 22,527 $244,913 90,178 397 82,840 5 76,680 1,363 1,139 (1,832) $354,889 $ 8,182 10,327 10,832 3,936 (8,558) $ 24,719 $ 49,512 63,394 87,818 30,208 27,039 $257,971 70,160 260 80,610 9 64,671 1,783 1,806 (2,066) $310,198 $ 3,546 12,598 4,749 3,497 (4,877) $ 19,513 $195,461 6,622 90,772 6,510 23,965 5,495 (18,627) $310,198 $239,079 6,540 88,567 7,800 27,243 7,863 (22,203) $354,889 $148,186 91,684 18,101 $257,971 F-17 14 VALUATION AND QUALIFYING ACCOUNTS The following summarizes changes to valuation and qualifying accounts: The following sets forth the computation of basic and diluted earnings per common share: Additions Balance at Charged to Costs and Beginning Expenses of Year Reserves of Businesses Acquired or Sold Less Deductions Balance at End of Year Year ended September 28, 2001: Allowance for doubtful accounts $3,895 $2,460 $ — $2,616 $3,739 Reserves for inventory valuation 2,949 1,529 — 1,074 3,404 Year ended September 29, 2000: Allowance for doubtful accounts 3,236 1,812 Reserves for inventory valuation Year ended October 1, 1999: Allowance for 4,911 853 doubtful accounts 2,153 2,161 Reserves for inventory valuation 5,196 801 — — 14 — 1,153 3,895 2,815 2,949 1,092 3,236 1,806 4,911 Deductions include the net impact of foreign currency fluctuations on the respec- tive accounts. 15 EARNINGS PER SHARE Basic earnings per share excludes any dilutive effects of options, warrants and con- vertible securities. Diluted earnings per share is similar to the previously reported fully diluted earnings per share. Income from continuing operations before cumulative effect of change in accounting principle for basic and diluted earnings per share Weighted average shares outstanding Less nonvested restricted stock Basic average common shares Dilutive stock options and restricted stock Diluted average common shares Basic earnings per common share from continuing operations before cumulative effect of change in accounting principle Diluted earnings per common share from continuing operations before cumulative effect of change in accounting principle 2001 2000 1999 $3,610 8,161,624 15,162 8,146,462 23,227 8,169,739 $8,375 8,139,340 17,265 8,122,075 8,208 8,130,283 $5,861 8,108,781 12,206 8,096,575 11,653 8,108,228 $0.66 $1.03 $0.72 $0.66 $1.03 $0.72 16 LITIGATION The Company is subject to various legal actions and proceedings in the normal course of business, including those related to environmental matters. The Company is insured against loss for certain of these 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 material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company. 17 SUBSEQUENT EVENT In November 2001, subsequent to the end of the 2001 fiscal year, the Company completed the sale and leaseback of their headquarters facility in Sturtevant, Wisconsin to an affiliated party. Proceeds from the sale were $5.0 million. F-18 18 QUARTERLY FINANCIAL SUMMARY (unaudited) The following summarizes quarterly operating results: Net Sales Gross profit Operating profit loss Income (loss) from continuing operations before cumulative effect of change in accounting principle Loss from discontinued operations Loss on disposal of discontinued operations Cumulative effect of change in accounting principle, net of tax Net income (loss) Basic earnings (loss) per common share: Continuing operations Discontinued operations Cumulative effect of change in accounting principle, net of tax Net income (loss) Diluted earnings (loss) per common share: Continuing operations Discontinued operations Cumulative effect of change in accounting principle, net of tax Net income (loss) 2001 $ 58,750 23,324 (3,569) First Quarter 2000 $57,299 23,010 139 Second Quarter 2001 $ 98,719 39,358 6,595 2000 $ 98,734 41,101 9,584 2001 $ 113,927 46,552 13,000 Third Quarter 2000 $116,662 47,996 13,912 (3,229) — — (1,035) (940) (23,109) 2,203 — — 3,896 — (1,309) 1,755 $ (1,474) — $(25,084) — $ 2,203 — $ 2,587 $ $ $ $ (0.40) — 0.22 (0.18) (0.40) — 0.22 (0.18) $ (0.13) (2.96) — $ (3.09) $ (0.13) (2.96) — $ (3.09) $ $ $ $ 0.27 — — 0.27 0.27 — — 0.27 $ $ $ $ 0.48 (0.16) — 0.32 0.48 (0.16) — 0.32 6,283 — — — 6,283 0.77 — — 0.77 0.77 — — 0.77 $ $ $ $ $ 5,958 — — — 5,958 0.73 — — 0.73 0.73 — — 0.73 $ $ $ $ $ Fourth Quarter 2001 $ 74,241 27,469 (308) 2000 $82,194 30,706 1,084 (1,647) — — — $ (1,647) $ (444) — — — (444) $ (0.20) — $ (0.05) — — $ (0.20) — $ (0.05) $ (0.20) — $ (0.05) — — $ (0.20) — $ (0.05) F-19 B o a r d o f D i r e c t o r s SAMUEL C. JOHNSON, 73 GREGORY E. LAWTON, 51 THOMAS F. PYLE, JR., 60 JOHN M. FAHEY, JR., 49 Director since 1970. Chairman Emeritus of Director since 1997. Vice Chairman of the Board. Director since 2001. President and Chief Executive Officer Director since 1987. President and Chief Executive S.C. Johnson & Son, Inc. of Johnson Wax Professional. Chairman, The Pyle Group. Officer and Chairman of the Chairman, Johnson International. Also Director of SCJ Commercial Also Director of Executive Committee of the Also Director of H. J. Heinz Company. HELEN P. JOHNSON-LEIPOLD, 44 Markets, Inc., General Cable Sub Zero Corporation. Board of Trustees of the Corporation and Superior Metal Products, Inc.. GLENN N. RUPP, 57 Director since 1997. National Geographic Society. Also Director of Jason Foundation for Education. Chairman and Chief Executive Officer. TERRY E. LONDON, 52 Former Chairman and Chief Director since 1994. Director since 1999. Executive Officer of Converse Inc. President of London Partners LLC Shareholders' Information CORPORATE HEADQUARTERS Johnson Outdoors Inc. 1326 Willow Road Sturtevant, Wisconsin 53177 USA (262) 884-1500 INTERNET ADDRESSES (WWW.) JohnsonOutdoors.com carlislepaddles.com (Carlisle Paddles) dimensionkayaks.com (Dimension) escapesail.com (Escape Sailboats) extrasport.com (Extrasport) llboats.com (Leisure Life) necky.com (Necky) oceankayak.com (Ocean Kayak) oldtowncanoe.com (Old Town) minnkotamotors.com (Minn Kota Motors) scubapro.com (Scubapro) uwatec.com (Uwatec) eurekatent.com (Eureka! tents) wolfskin.de (Jack Wolfskin) COMMON STOCK Johnson Outdoors Inc. Class A Common Stock is traded on The Nasdaq Stock Market® under the symbol: JOUT. ANNUAL MEETING The Annual Meeting of Shareholders will con- vene at 10:00 a.m. (CST) on February 19, 2002, at the Company's Headquarters. TRANSFER AGENT AND REGISTRAR Firstar Bank Milwaukee, N.A. Corporate Trust Department P.O. Box 2077 Milwaukee, Wisconsin 53201 (414) 905-5000 SHAREHOLDER INQUIRIES Communication concerning the transfer of shares, lost certificates or changes of address should be directed to the Transfer Agent. Executive Officers HELEN P. JOHNSON-LEIPOLD, 44 Chairman and Chief Executive Officer PATRICK J. O'BRIEN, 43 President and Chief Operating Officer PAUL A. LEHMANN, 48 Vice President and Chief Financial Officer MAMDOUH ASHOUR, 63 Group Vice President and President – Worldwide Diving J o h n s o n O u t d o o r s I n c . 1 3 2 6 W i l l o w R o a d S t u r t e v a n t , W i s c o n s i n 5 3 1 7 7 U S A ( 2 6 2 ) 8 8 4 - 1 5 0 0 

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