Johnson Outdoors Annual Report 2003

Plain-text annual report

Own the experience with innovation and passion annual report Our Vision... Own the Experience with Innovation and Passion Our Mission... In the Outdoor Recreational Industry, our stakeholders will recognize us as: The Innovation Leader Bringing Excitement and Growth to our Markets A Strong, Talented Team with Exceptional Passion This will translate into: (cid:127) Strong brand equities and leading market shares (cid:127) Increased sales and proﬁ ts (cid:127) Steady shareholder returns J o h n s o n O u t d o o r s I n c . 2 0 0 3 A n n u a l R e p o r t Johnson Outdoors Inc. designs, Operating Results Summary Financial Information (thousands, except per share data) 2001 2002 2003 manufactures and markets outdoor recreation products in four businesses: Watercraft, Motors, Diving, and Outdoor Equipment. More than 1,300 employees work in twenty-four locations worldwide. All of the brand names appearing throughout this report are trademarks of Johnson Outdoors Inc. Table of Contents 1 Summary Financial Information 2 Letter to Shareholders 4 Business Profile 6 Watercraft 8 Motors 10 Diving 12 Outdoor Equipment 14 Product Gallery 16 CFO Commentary (cid:127) Form 10-K Inside Back Cover Directors and Officers Shareholders’ Information Net sales Gross profit $345,637 $342,532 $315,892 138,781 141,054 127,989 Operating profit 15,718 19,751 11,613 Diluted earnings per common share Diluted average common shares outstanding Capitalization Total debt $0.44 $3.59(1) $0.63 8,170 8,430 8,600 $97,535 $88,253 $77,473 Shareholders’ equity 105,779 124,145 144,194 Total debt to total capital 48.0% 41.6% 35.0% (1)Includes a gain on sale of subsidiary of $2.65 per diluted share. Certain matters discussed in this 2003 Annual Report are “forward-looking statements” intended to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, including certain matters discussed in the Chairman’s Letter to Shareholders and the CFO Commentary. Please see “Forward Looking Statements” in the 2003 Form 10-K for a discussion of uncertainties and risks associated with these statements. 1 At Johnson Outdoors, we are deﬁ ned by our innovation and distinctive in our passion. Our market-leading brands are known worldwide for outstanding quality and performance, backed by excellent customer service. We are recognized for bringing excitement and growth to our markets. In 2003 we grew net sales from our continuing busi- nesses, despite a weak econ- omy, and outperformed competition while investing in the future with new sys- tems, processes and talent. Profits and earnings were lowered due to these invest- ments and the operational issues we addressed. Our focus and drive against our business success model resulted in solid progress toward our vision this year as we worked to create sustain- able, long-term growth and enhance shareholder value. Helen P. Johnson-Leipold Chairman and Chief Executive Of f icer Innovation Our business success model is built upon innovation. It is the lifeblood of our busi- ness, affecting everything we do. Our customers expect it, our consumers demand it and Johnson Outdoors can deliver because no one knows the outdoor recre- ational consumer better, or invests more in turning that insight into successful product innovation. Today’s consumer wants to experi- ence the outdoors, and our job is to make that experience as easy, fun and accessible as possible. Our investment in high- tech, low-cost rapid-proto- typing technology ensures consistent consumer feed- back from concept to com- mercialization, enabling us to bring products to market faster, better and more efficiently, supported by breakthrough sales and marketing programs. We draw on the best talent available —in-house or external —and empower S R E D L O H E R A H S O T R E T T E L 2 them with the resources they need and an environ- ment where creativity is encouraged and valued, and productivity is bal- anced with personal needs. Effective Portfolio Management Our diverse portfolio is a strategic asset in an industry that can experi- ence significant market variability. For instance, while the war in Iraq unfa- vorably affected some of our businesses this year, it drove record military sales and profit in our Outdoor Equipment business. Our strong cash and financial profile allows us to con- sider various acquisition targets, all of which must prove to enhance shareholder value and contribute to our long- term sustainability. We assess these targets against our core business criteria: #1 or #2 in the market, in a category that rewards innovation with strong growth potential. Business Success Model Portfolio Management Expanding Markets Network Model + + I N N O V A T I O N = Long-term Profitable Growth Expanding Markets New products and devel- oping new trade channels and customers are key drivers behind market expansion. Nearly a third of 2003 total net sales for Johnson Outdoors came from new products, which included, among others: a new composite material that reduced kayak weight by over 30%; the first kayak specially designed for women—the Ocean Kayak Venus; a full line of battery chargers and the first wire- less remote steering acces- sory for fisherman from Minn Kota; the new Twin Speed Fin and Crystal Vu Mask from SCUBAPRO; the Eureka! Dry Doc backpack; the Silva Digital Compass. Our targeted National Accounts initia- tive reported 2003 revenue in excess of $50 million, growing to nearly 20% of total net sales in less than two years. Five years ago we had never made a mili- tary tent, and today we are a leading provider of the modular general purpose tent system (MGPTS) used by U.S. armed forces overseas. Network Operation Model Johnson Outdoors is building a strong network of empowered businesses, guided by a core vision and strategy, and supported with centralized expertise and resources. We work to leverage synergies, real- ize efficiencies and share best practices. This year in Watercraft we aggressively addressed redundancies and underutilized facilities, and moved to a centers-of-excel- lence management structure to simplify and streamline these operations. Improved business processes and financial systems are also helping to drive stability, growth and profitability in this business. The network further benefited from an independent assessment of Global Diving operations, supporting best practices in designing and manu- facturing dive equipment. Our global sourcing initia- tive continues to harness and optimize the collective buying power of our four businesses. The Future Continuous innovation will drive our success in 2004 and bring even more excite- ment and growth to our markets in the years ahead. Every day we become a stronger, more vibrant company, true to our entre- preneurial heritage, yet better poised and ready to capitalize on new oppor- tunities and maximize our growth potential and profitability. We are more excited than ever about the future of our business. Helen P. Johnson-Leipold Chairman and Chief Executive Officer 3 W A T E R C R A F T M O T O R S Old Town | Canoes and kayaks Necky | Kayaks WaterQuest | Canoes, small boats and kayaks Ocean Kayak | Sit-on-top kayaks Escape | Pedal boats, sail boats and deck boats Carlisle | Paddles and oars Extrasport | Personal flotation devices Dimension | Kayaks 4 25% of Net Sales M A R K E T P O S I T I O N With $79 million in sales, we hold the #1 share of the market in small paddle craft and pedal boats. 2 0 0 3 H I G H L I G H T S Transition to new systems, pro- cesses and talent, and resource realignment increase flexibility, strengthen operations and maxi- mize efficiency. Strategic sales partnerships open new channels of distribution for more brands, reduce customers’ cost of doing business and ensure faster, better service. L O O K I N G F O R W A R D We’re working to fill the pipeline with exciting, innovative products and accessories, reaching out to an even broader consumer base. At the same time, we’re focused on driving continuous improvement in opera- tional performance and increasing profitability. ® 27% of Net Sales Minn Kota | Electric boat motors, battery chargers and accessories M A R K E T P O S I T I O N Minn Kota continues to lead the trolling motor category with $86 million in sales. 2 0 0 3 H I G H L I G H T S Motors turned in an outstanding performance this year, delivering record sales and proﬁ ts through an emphasis on innovative products, like the Minn Kota CoPilot, and higher-end products, like the Maxxum bow-mounted trolling motor. L O O K I N G F O R W A R D Our onboard battery charger line is now complete, and we consider it a promising growth area. We’re also looking to grow the category with our ﬁ rst electric primary propulsion motors. New products will feature creative use of technology as we continue to drive growth through innovation. D I V I N G O U T D O O R E Q U I P M E N T SCUBAPRO | Regulators, buoyancy compensators, masks, fins, wet and dry suits, gloves, dive lights and other accessories UWATEC | Dive computers and other electronic instruments 25% of Net Sales M A R K E T P O S I T I O N SCUBAPRO and UWATEC sales of $78 million this year ensure our leading global position in the dive equipment market. 2 0 0 3 H I G H L I G H T S We increased market share in regu- lators, masks and ﬁ ns, moving into the lead sales position in all three categories. Increased emphasis on global marketing and sales strate- gies and programs enhanced brand image and strengthened customer relationships worldwide. L O O K I N G F O R W A R D Our SCUBAPRO product develop- ment plan emphasizes innovation, with increased R&D across all cat- egories. UWATEC will reach out to new consumers while maintaining leadership in premium dive com- puters. As the economy improves and travel rebounds, we expect to see more growth in this business. Eureka! | Camping tents, accessories and military and commercial tents CampTrails | Backpacks and accessories Silva | Field compasses 23% of Net Sales M A R K E T P O S I T I O N We’re the leader in niche markets in this highly fragmented category, with $73 million in sales and a continued strong presence in military tents. 2 0 0 3 H I G H L I G H T S Military tent sales drove OEG’s out- standing results, as we continued to develop this important partnership. Exciting innovation helped Consumer tents gain share and new distri- bution. Operating profit for both Consumer and Commercial tents grew significantly due to tight expense controls and improved products. L O O K I N G F O R WA R D We’re working for greater balance in this business portfolio, “think- ing big and acting fast” to grow all segments. Innovative new prod- ucts and programs are expected to expand markets for both Commercial and Consumer tents, as we work to broaden our military customer base. 5 (cid:127) Old Town Casco (cid:127) Necky Chatham (cid:127) Ocean Kayak Prowler Watercra Old Town Discovery Sport STRATEGIC MOVES BUILD MOMENTUM We’re investing in the systems to drive Watercraft forward and setting our products apart with unique features and materials. In 2003 Necky, Ocean Kayak and Old Town introduced more new products than anyone else at the Outdoor Retailer show, while our revamped sales force marketed the entire line. Innovation abounds: the Escape Jazz pedal boat with water cannon, Ocean Kayak’s ﬁ rst ﬁ shing kayak, Necky’s show-stopping carbon surf kayak…all creating new standards and new growth. 6 Kayaking has been the fastest growing outdoor activity over the past ﬁ ve years. 2002 SGMA SUPER STUDY ft “The right kayak makes me more effective in the water. It turns easily and sharply, and I don’t have to exert too much energy when I stroke.” L e a h N e m e t z Fishing is the number one outdoor recreational activity in the US. 2002 SGMA SUPER STUDY Motors “I value my free time, and I don’t want to have to think about equipment. I’ve used Minn Kota motors for 15 years, and they’ve never let me down.” A l e x G i n t n e r 8 Minn Kota CoPilot FAVORABLE MIX FUELS PROFITS Motors grew sales and market share with inno- vative products like Minn Kota’s CoPilot wireless remote steering accessory, named Best of Show at the 2002 ICAST trade show. New E-Drive electric primary propulsion motors tap a grow- ing market, as does our now-complete line of onboard battery chargers. And Riptide saltwater motors, backed by the industry’s ﬁ rst three-year warranty, emphasize our continuing quality. Minn Kota E-Drive Minn Kota MK220 Onboard Charger 9 UWATEC Smart PRO Wrist INNOVATION TRUMPS ECONOMY Diving signiﬁ cantly increased market share in 2003 despite internal challenges and a slow travel industry. We led the competition in regulator sales and also moved into the #1 sales position with both our Crystal Vu mask and Twin Jet fin. With new products accounting for more than a third of sales, SCUBAPRO is increasing R&D across all categories. UWATEC will emphasize premium com- puter lines while also reaching out to more recreational divers. SCUBAPRO Glide Star BC 10 SCUBAPRO MK25SA/X650 Regulator Females are the fastest growing segment in scuba diving and account for 40% of all divers. 2003 JOHNSON OUTDOORS RESERVOIR STUDY Diving “I’m lead diver for the county sheriff ’s search and rescue team. I also do a lot of technical diving— ice diving, cave systems, ship wrecks. SCUBAPRO is what I prefer to use.” B r a d l e y F r i e n d 11 Camping is the most popular outdoor family activity in the US. 2002 SGMA SUPER STUDY Outdoor Equ “An easy-to-set-up tent can make all the difference between a good camping experience and a frustrating one– especially when you’re camping with kids.” K i m P o l z i n 12 ipme nt LEADER SHIP DRIVES SALES This year Outdoor Equipment Group products made news with innovation and reliability. The New York Times called the Eureka! Condo tent “cushy new gear,” while Silva’s classic Ranger CL Compass earned Backpacker magazine’s prestigious Editor’s Choice Gold Award. We’re extending our leadership to new channels. Since 1999, we’ve provided some 90,000 spe- cial order tents for U.S. troops. And we’re #2 in commercial tents. Eureka! Commercial Tent Eureka! Combat Tent Silva Digital Compass Product Extrasport Cienna and Tricky Arrow Carlisle Black Magic Minn Kota E-Drive Minn Kota Riptide 3X Minn Kota Maxxum Minn Kota Vector 3X Ocean Kayak Malibu Two XL Old Town Ojibway Ocean Kayak Manitou Minn Kota Deckhand 40 Minn Kota CoPilot Minn Kota MK11OP Portable Charger OT Sport Jolt Minn Kota MK220 Onboard Charger Escape Jazz Escape 12 14 I N N O V A T I O N SCUBAPRO Twin Speed Fin SCUBAPRO Glide Star BC SCUBAPRO Crystal Vu Eureka! Backcountry Outfitter Eureka! Titan Eureka! Kahuna Silva Digital Compass Eureka! Dry Doc Shield Pack SCUBAPRO MK25SA/5600 SCUBAPRO Dive-n-Roll Gear Bag SCUBAPRO EverFlex Eureka! Northern Breeze Screen house 15 C F O C O M M E N T A R Y This year’s results for Johnson Outdoors reﬂ ect our investment in systems, structures and processes to drive sustainable growth. As we eliminated obstacles to growth, we incurred expenses that affected proﬁ ts and earnings. But it was the right time to take these steps and move toward the opportunities we see ahead. We continue to focus on maintaining a healthy balance sheet with substantial liquidity, for the ﬂ exibility we need to pursue our objectives. At the corporate level, we are more disciplined in our management of debt and interest rates. Tighter currency transaction management added $3 million to pre-tax proﬁ ts. Average receivables increased during the year, according to plan. And we have never been more focused on expense control. Throughout our network we continue to improve manufacturing capabilities, speed inventory turns and seek the most productive use of assets. The impact of these actions is woven through the ﬁ nancial statements. For example, in closing underused facilities, we eliminate overhead and vastly improve margins, but we also face severance and inventory rationalization costs. Meanwhile, the diversity of our businesses is an important buffer against the recreation market’s variability. Motors gives us a stellar model of consistent margin improvement and bottom-line growth. The Outdoor Equipment Group this year realized beneﬁ ts from outstanding customer service, quickly turning around orders for the U.S. military. We see a continuing strong partnership here and, as with any other customer, will work to do what is right for their business and ours. Diving held performance steady, while auditing processes to ensure best practices are in place. Our ﬂ awless execution of the Smart Com dive computer recall strengthened brand image by delivering new product in half the promised time. Watercraft, though a greater challenge than we foresaw, now has the right people and the right focus; we expect meaningful progress in the coming season. This is the last year results include numbers from Jack Wolfskin, the outdoor clothing business we sold in September 2002. That will make future reporting and comparisons clearer and easier. We are conﬁ dent our actions throughout 2003 will beneﬁ t Johnson Outdoors. We own our perfor- mance. And we are committed to improving that performance, enhancing long-term proﬁ tability and shareholder value. Paul A. Lehmann Vice President and Chief Financial Officer 16 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 3, 2003 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.) 555 Main Street, Racine, Wisconsin 53403 (Address of principal executive offices, including zip code) (262) 631-6600 (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 (Title of Class) 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, 2003, 7,385,661 shares of Class A and 1,222,297 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 $34,070,330 on March 28, 2003. For purposes of this calculation only, shares of voting stock are deemed to have a market value of $8.90 per share, the closing price of the Class A common stock as reported on The NASDAQ Stock Market, Inc. on March 28, 2003. Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [ X ] DOCUMENTS I NC ORP ORATE D BY REF ER ENCE Document Johnson Outdoors Inc. Notice of Annual Meeting of Shareholders and Proxy Statement for the Annual Meeting of Shareholders to be held February 25, 2004. Part and Item Number of Form 10-K into which Incorporated Part III, Items 10, 11, 12, 13 and 14 TABL E OF CONTE NT S Business Properties Legal Proceedings Submission of Matters to a Vote of Security Holders Market for Registrant’s Common Equity and Related Stockholder Matters Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures about Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions Principal Accountant Fees and Services Exhibits, Financial Statement Schedules and Reports on Form 8-K Signatures Exhibit Index Consolidated Financial Statements Page 2 5 6 6 6 6 8 16 16 16 16 16 17 17 17 17 17 18 18 F-1 1 FORWARD LOOKING STATEMENTS Certain matters discussed in this Form 10-K and in the accompanying 2003 Annual Report are “forward-looking statements,” and the Company intends these forward- looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of those safe harbor provisions. These for- ward-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 spend- ing patterns; the Company’s success in implementing its strategic plan, including its focus on innovation; actions of companies that compete with the Company; the Company’s success in managing inventory; movements in foreign currencies or interest rates; unanticipated issues related to the Company’s military tent business; the success of suppliers and customers; the ability of the Company to deploy its capital successfully; unanticipated outcomes related to outstanding litigation mat- ters and a European Commission investigation; and adverse weather conditions. Shareholders, potential investors and other readers are urged to consider these fac- tors in evaluating the forward-looking statements and are cautioned not to place un- due reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this Form 10-K and Annual Report and the Company undertakes no obligation to publicly update such forward-look- ing statements to reflect subsequent events or circumstances. 2 PART 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 competition and advance the Company’s strong brand names. Its subsidiaries are organized in a network that is intended to promote entrepreneurialism and leverage best practices and synergies, following the strategic vision set by senior managers and approved by the Company’s Board of Directors. 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 manufactures and distributes technical underwater diving products, which it sells under the SCUBAPRO and Snorkel Pro names. The Company mar- kets a full line of underwater diving and snorkeling equipment, 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 independent specialty dive stores worldwide. These specialty dive stores generally provide a wide range of services to divers, including sales, instruction, travel 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 hun- dreds of patents on proprietary products. Consumer advertising focuses on building the brand and communicating exclusive features and benefits of the SCUBAPRO UWATEC product lines. The Company’s advertising and dealer network reinforce the SCUBAPRO UWATEC brands’ position as the industry’s high quality and innovation leader. The Company advertises its equipment in diving magazines, via website and through dive specialty stores. The Company also manufactures and markets diving buoyancy compensators under the SCUBAPRO brand. The Company maintains manufacturing and assembly facilities in Switzerland, Mexico, Italy and Indonesia and procures a majority of its proprietary rubber and plastic products and components from third-party manufacturers. Watercraft The Company manufactures and markets canoes, kayaks, paddles, oars, recre- ational 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, Leisure Life and Dimension. The Company’s Old Town Canoe subsidiary produces high quality canoes, kay- aks 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 distributes 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 markets high quality Necky sea touring and whitewater kayaks; Escape recreational sailboats; Extrasport and Swiftwater personal flotation devices; small thermo- formed recreational boats, including canoes, pedal boats, deck boats and tenders, under the Leisure Life brand; the Dimension brand of kayaks; and other paddle and watercraft accessory brands. 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 four locations in the United States, one location in Canada and in New Zealand. The Company is also active in Europe with most of the brands noted above. The North American market for both canoes and kayaks has slowed over the past year along with the economy. The Company believes, based on industry and other data, that it has grown market share and continues to be a leading manufacturer of canoes and kayaks in the United States in both unit and dollar sales. Outdoor Equipment The Company’s Outdoor Equipment Group’s product includes Eureka! military, commercial and consumer tents and backpacks and Silva field compasses. Eureka! consumer tents and packs compete primarily in the mid- to high-price range and are sold in the United States and Canada through independent sales representa- tives, primarily to sporting goods stores, catalog and mail order houses and camping and backpacking specialty stores. The Company entered the mass market segment of the category in 2003 with specifically designed tents sold through Wal-Mart stores. Marketing of the Company’s tents and backpacks is focused on building the Eureka! brand name and establishing the Company as a leader in tent design and innovation. Although the Company’s camping tents and backpacks are produced primarily by third-party manufacturing sources, design and innovation is conducted at the Bing- hamton, NY business location. Eureka! camping products are sold under license in Japan and Australia as well as by distribution agreement in Europe. Eureka! commercial tents include party tents, sold primarily to general rental stores, and other commercial tents sold directly to tent erectors. Commercial tents are man- ufactured by the Company in the United States. Products range from 10x10 cano- pies to 120’ wide pole tents and other large scale frame structures. Eureka! also designs and manufactures large, heavy-duty tents and lightweight backpacking tents for the military. The Company was awarded a one-year contract with four option years for the Extreme Cold Weather Tent on September 28, 2001. The Company is in the second option year and currently expects the third option year to be exercised in April 2004. The Company is operating under three additional one-year contracts from the U.S. Armed forces. Current tents in production are a lightweight, two-man combat tent for the Marine Corps; a lightweight one-person tent for the Army; and a modular, general purpose tent for the Army. During 2003, sales to the United States military accounted for 13.4% of total Company net sales. The Company was recently notified that it was not awarded a new multi-year con- tract for the modular general purpose tent. The Company has a significant backlog of orders under existing military contracts. In December 2003, the Company was awarded a $42.9 million urgent need military tent order. The order is for 6,500 modular general purpose tent systems to be delivered over the next 15 months. Addi- tionally, there is potential for volume from other contracts on which the Company is currently bidding. 3 Silva field compasses, which are manufactured by third parties, are marketed exclusively in North America, the area for which the Company owns Silva trademark rights. heading “Foreign Operations,” to the Consolidated Financial Statements for infor- mation respecting risks attendant to the Company’s foreign operations. In September 2002, the Company sold its Jack Wolfskin business (a marketer of high quality technical outdoor clothing, footwear, camping tents, backpacks, travel gear and accessories). The Company’s North American Jack Wolfskin operations were not included in the sale. The Company exited this business over the last year. 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 propul- sion. 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, catalogs such as Bass Pro Shops and Cabelas, sporting goods specialty stores, marine distributors, and original equipment manufacturers (OEM) including Ranger® Boats, Skeeter Boats, Triton, Lowe, and Stratos/Javilin. 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 generally been flat over a number of years, the Company has been able to gain share by emphasizing marketing, product inno- vation and original equipment manufacturer sales. In 2002, the Company rebranded its compass line of products to Minn Kota and discontinued use of the Airguide product line. In 2003 the Company discontinued its Minn Kota compass line altogether. In 2001, the Company exited the weather and automotive instrument categories. In 2003, the Company began a concerted effort to grow in the marine charger market with several new products branded as Minn Kota. These products complement and are sold through the same channels as the Company’s Motors business. Financial Information for Business Segments See Note 14 to the Consolidated Financial Statements for financial information comparing each business segment. International Operations See Note 14 to the Consolidated Financial Statements for financial information comparing the Company’s domestic and international operations. See Note 1, sub- 4 Research and Development The Company commits significant resources to research and new product devel- opment. 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 State- ments 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, both of which 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 sport- ing goods and specialty segments of the outdoor equipment market. Competitive brands with a strong position in the sporting goods channel include Coleman, Jans- port and private label brands. The Company also competes with the specialty com- panies 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, which manufactures and sells a full range of trolling motors and acces- sories. Competition in this segment is focused on product quality/durability as well as product benefits and features for fishing. The main competitors in the charger market are Dual Pro from Charging Systems International, Guest from Marinco and ProMariner from Professional Mariner. Competition in this segment is focused on charging time, safety, performance and durability. Employees At October 3, 2003, the Company had approximately 1,300 employees. The Com- pany considers its employee relations to be excellent. Temporary employees are uti- lized to manage peaks in the seasonal manufacturing of products. Backlog Unfilled orders for future delivery of products of continuing operations totaled approximately $68.3 million at October 3, 2003 and $34.8 million at September 27, 2002. For the majority of products, the Company’s businesses do not receive significant orders in advance of expected shipment dates, with the exception of the military business which contributed to the 2003 increase. Patents, Trademarks and Proprietary Rights The Company owns no single patent that is material to its business as a whole. How- ever, the Company holds various patents, principally for diving products, rotational- molded canoes and electric motors, and regularly files applications for patents. The Company has numerous trademarks and trade names which it considers important 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 are made using materials that are generally in adequate supply and are available from a variety of third-party suppliers. The Company has an exclusive supply contract with a single vendor for materials used in its military business. Interruption or loss in the availability of this material could have an impact on sales and operating results of the Outdoor Equipment business. Executive Officers The following list sets forth certain information, as of December 1, 2003, regarding the executive officers of the Company. Helen P. Johnson-Leipold, age 46, became Chairman and Chief Executive Officer of the Company in March 1999. Prior to joining the Company, Ms. Johnson-Leipold was employed by S.C. Johnson & Son, Inc. (SCJ) for twelve years. From September 1998 until March 1999, Ms. Johnson-Leipold was Vice President, Worldwide Con- sumer Products-Marketing of SCJ. Jervis B. Perkins, age 48, became Chief Operating Officer of the Company in Janu- ary 2003. Prior to joining the Company, Mr. Perkins was employed by Brunswick Corporation for seven years, most recently as Group General Manager of the Bowl- ing Products business beginning in February 2000. He was Executive Vice Presi- dent, Sales and Marketing at Brunswick’s Mercury Marine Division from January 1998 to February 2000. Paul A. Lehmann, age 50, became Vice President and Chief Financial Officer of the Company in May 2001. Prior to joining the Company, Mr. Lehmann was employed by Steelcase North America, Inc. (SCNA) for seven years. From October 1999 to May 2001, Mr. Lehmann was Vice President, Finance and Strategic Planning of SCNA. From June 1997 to October 1999, Mr. Lehmann was Vice President, Opera- tions Finance of SCNA. There are no family relationships between the above executive officers. Seasonality The Company’s business is seasonal. The following table shows, for the past three fiscal years, total net sales and operating profit or loss related to continuing opera- tions of the Company for each quarter, as a percentage of the total year. 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. Quarter Ended December March June September Operating Profit (Loss) October 3, 2003 Net Sales 17% 27 34 22 100% 53 77 (31) 100% 1% See Note 7 to the Consolidated Financial Statements for a discussion of lease obligations. September 27, 2002 Net Operating Profit (Loss) Sales 5% 17% 42 29 66 34 (13) 20 100% 100% Year Ended September 28, 2001 Operating Net Profit (Loss) Sales (23)% 17% 42 29 83 33 (2) 21 100% 100% 5 The Company’s principal manufacturing (identified with an asterisk) and other locations are: PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Certain information with respect to this item is included in Notes 10 and 11 to the Consolidated Financial Statements. The Company’s Class A common stock is traded on The NASDAQ Stock Market, Inc. 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 common stock on a share for share basis. As of November 1, 2003, the Company had 712 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 cur- rent 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 October 3, 2003 and September 27, 2002 is as follows: First Quarter Second Quarter Third Quarter Fourth Quarter 2003 2002 2003 2002 2003 2002 2003 2002 Stock prices: High Low Last $13.67 $9.04 $12.12 $10.49 $14.00 $20.20 $15.75 $17.32 12.55 9.83 13.50 10.90 9.90 13.15 16.83 6.90 6.21 10.28 7.95 8.40 8.90 7.47 9.85 8.76 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 October 3, 2003 is presented below. All periods have been restated to reflect the discontinuation of the Company’s Fishing business. 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) Greenville, South Carolina (Watercraft) Hallwil, Switzerland* (Diving) Henggart, Switzerland (Diving) Mankato, Minnesota* (Motors) Mansonville, Quebec, Canada* (Watercraft) Napier, New Zealand (Watercraft) Old Town, Maine* (Watercraft) Tijuana, Mexico* (Motors, Diving) Tokyo (Kawasaki), Japan (Diving) The Company’s corporate headquarters is located in Racine, Wisconsin. 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 quarter of the year ended October 3, 2003. 6 (thousands, except per share data) Operating Results(1) Net sales Gross profit Operating expenses Operating profit Interest expense Other expense (income), net(2) 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 Income (loss) on disposal of discontinued operations Income (loss) from 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 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 October 3 2003 September 27 2002 September 28 2001 September 29 2000 $ 315,892 127,989 116,376 11,613 5,165 (3,254) 9,702 4,281 5,421 — — — $ 5,421 $ $ 0.64 — — 0.64 $ $ 0.63 — — 0.63 8,600 $ 195,135 277,657 50,032 67,886 77,473 144,194 $ 342,532 141,054 121,303 19,751 6,630 (27,372) 40,493 10,185 30,308 — 495 (22,876) $ 7,927 $ $ 3.69 0.06 (2.79) 0.96 $ 3.59 0.06 (2.71) 0.94 $ 8,430 $ 192,137 271,285 53,589 80,195 88,253 124,145 $ 345,637 138,781 123,063 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 $ $ $ $ $ $ 133,180 244,913 36,568 84,550 97,535 105,779 $ 354,889 144,574 119,855 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 $ 144,194 257,971 46,941 45,857 105,319 100,832 Year Ended 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 (1) The year ended October 3, 2003 includes 53 weeks. All other years include 52 weeks. The Company sold its European Jack Wolfskin business during 2002; 2002 includes ten months of results from this business. (2) Includes gain on sale of the European Jack Wolfskin business of $27,251 in 2002. (3) Includes cash of $88,910 and $100,830 in 2003 and 2002, respectively, and net assets of discontinued operations of $56,114 in 1999. (4) Excluding short-term debt and current maturities of long-term debt. 7 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 October 3, 2003. This discussion should be read in conjunction with the Consolidated Finan- cial Statements and related notes thereto. Results of Operations Summary consolidated financial results from continuing operations are as follows: (m illions, exc ept per share data) Operating Results(1) Net sales Gross profit Operating expenses Operating profit Interest expense Gain of sale of subsidiary Income 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(2) 2003 2002 2001 $315.9 128.0 116.4 11.6 5.2 — $342.5 141.1 121.3 19.8 6.6 27.3 $345.6 138.8 123.1 15.7 9.1 — 5.4 30.3 3.6 $ 0.63 $ 3.59 $ 0.44 (1) The year ended October 3, 2003 includes 53 weeks. All other years include 52 weeks. The Company sold its European Jack Wolfskin business during 2002; 2002 includes ten months of results from this business. (2) In 2002, the after tax gain on sale of subsidiary was $2.65 per diluted share. 2003 vs 2002 Net Sales Net sales totaled $315.9 million in 2003 compared to $342.5 million in 2002, a decrease of 7.8% or $26.6 million. Excluding the results of the Company’s Jack Wolfskin subsidiary, which was sold in the forth quarter of 2002, sales of the Com- pany’s continuing businesses increased 6.7% or $19.8 million over the prior year. A reconciliation of the Company’s sales excluding Jack Wolfskin to sales as reported in the Statement of Operations is set forth below. Foreign currency translations favorably impacted year-to-date sales by $8.3 million in comparison to 2002. Three of the Company’s continuing business units experienced sales growth over the prior year. The markets in which the Company’s business units participate were relatively 8 flat versus 2002, however, the Company was able to maintain or increase its share in those markets. The Outdoor Equipment business as a whole incurred a sales decline of $33.6 million, or 31.6%. This decline is directly attributable to the disposition of the Company’s Jack Wolfskin subsidiary. Sales for the continuing portion of the Company’s Outdoor Equipment business increased $12.9 million, or 21.6%, as a result of strength in military sales. The consumer tent business continued to experi- ence competition from the low-price mass market and private label segment of the category. The Company entered the mass market segment of the category in 2003 with specifically designed tents sold through Wal-Mart stores. The same tents will be in place for fiscal 2004. The Motors business sales increased $5.1 million, or 6.4%, to $85.7 million as a result of strength in new products as well as continued market share strength. The Diving business sales increased $5.4 million, or 7.5%, to $78.0 million as a result of new product sales as well as currency impacts aided by the strengthening of the Euro against the U.S. Dollar. The Watercraft business saw sales decline $3.9 million, or 4.7%, to $79.0 million primarily related to market softness compounded by integration and operational difficulties. Operating Results The Company recognized an operating profit of $11.6 million in 2003 compared to an operating profit of $19.8 million in 2002. The Jack Wolfskin operation con- tributed $5.0 million to operating profit in 2002. Improvements in the Motors and Outdoor Equipment businesses were offset by declines in the Diving and Water- craft businesses. Gross profit margins declined to 40.5% in 2003 from 41.2% in 2002. The Motors and Outdoor Equipment businesses improved gross margin by 3.1 and 1.6 percentage points, respectively. The Diving business had a slight gross margin improvement despite recording $1.8 million in charges related to the vol- untary recall of the UWATEC Smart Pro and Smart Com diving computers. The Watercraft business drove the overall decline in gross margin due to operational inefficiencies; inventory, tooling and equipment write-offs; and operating company integration issues. Operating expenses totaled $116.4 million, or 36.8% of sales, in 2003 com- pared to $121.3 million, or 35.4% of sales, in 2002. Operating expenses in 2002 included $13.4 million of expenses from the Jack Wolfskin operations. Factors that contributed to operating expense increases in 2003 included charges related to a product recall in the Diving business totaling $1.0 million, a discontinued acquisition totaling $0.8 million, reorganization in the Watercraft and Outdoor Equipment businesses of $0.7 million, and the closing of the Company’s Extra- sport facility of $0.1 million. The Outdoor Equipment business operating profit increased by $0.3 million, or 2.1%, to $12.1 million in 2003. The Company’s Jack Wolfskin subsidiary contrib- uted $0.1 million and $4.9 million of operating profit to the Outdoor Equipment business in 2003 and 2002, respectively. The continuing Outdoor Equipment busi- ness benefited from strength in military and commercial tents, partially offset by softness in the consumer tent business. The Diving business saw operating profit decline by $1.9 million in 2003, resulting in an operating profit margin of 11.0% of sales in 2003 compared to 14.5% of sales in 2002. Improved gross profit was more than offset by charges taken during the year related to product recalls as well as other increases in operating expenses. The Motors business had operating profit of $12.0 million in 2003 compared to $8.2 million in 2002. The increase was driven by improved gross profit related to production efficiencies from higher volume, cost savings and improved pricing yield resulting from favorable changes in product mix and the impact of new products. The Watercraft business incurred an operating loss of $9.0 million in 2003 com- pared to operating profits of $1.2 million in 2002. The operating loss in 2003 was primarily related to declines in gross profit due to operational inefficiencies, as well as charges related to inventory, tooling and equipment write downs of $1.7 million and costs related to the closing of the Extrasport facility of $0.8 million. Other Income and Expenses Interest expense decreased $1.5 million in 2003, reflecting a decline in interest rates from prior year levels primarily related to favorable positions on interest rate swap agreements the Company had in place during 2003. The Company realized cur- rency gains of $2.8 million in 2003. In 2002, the Company recorded a pretax gain from the sale of the Jack Wolfskin business of $27.3 million. Results from Continuing Operations The Company recognized income from continuing operations before cumula- tive effect of change in accounting principle of $5.4 million in 2003, or $0.63 per diluted share, compared to $30.3 million in 2002 or $3.59 per diluted share. Included in 2002 income from continuing operations before cumulative effect of change in accounting principle was a gain on the sale of the Jack Wolfskin busi- ness of $22.4 million, after tax, or $2.65 per diluted share. The Company recorded income tax expense of $4.3 million in 2003, an effective rate of 44.1%, compared to income tax expense of $10.2 million in 2002, an effective tax rate of 25.2%. The effective tax rate in 2003 was negatively impacted by a $0.5 million provision made to account for an ongoing income tax audit in Germany. The favorable effective tax rate in 2002 was mainly due to favorable tax treatment on the sale of the Jack Wolfskin business. At October 3, 2003, the Company had U.S. federal operating loss carryforwards of $34.7 million, which begin to expire in 2012, as well as various state net operating loss carryforwards. The U.S. federal operating loss carryforwards are available to offset future taxable income over the next 9 to 20 years. The Company believes it will realize the deferred tax assets through the generation of future taxable income, tax planning strategies and reversals of deferred tax liabilities. Change in Accounting Principles Effective September 29, 2001, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142. In accordance with the adoption of this new standard, the Company ceased the amortization of goodwill. As required under SFAS No. 142, the Company performed an assessment of the car- rying value of goodwill using a number of criteria, including the value of the overall enterprise as of September 29, 2001. This assessment resulted in a write off of good- will during the quarter ended December 28, 2001 totaling $22.9 million, net of tax ($2.76 per diluted share) and was reflected as a change in accounting principle. The write off was associated with the Watercraft ($12.9 million) and Diving ($10.0 mil- lion) business units. Future impairment charges from existing operations or other acquisitions, if any, will be reflected as an operating expense in the consolidated statement of operations. Net Income The Company recognized net income of $5.4 million in 2003, or $0.63 per diluted share, compared to net income of $7.9 million in 2002, or $0.94 per diluted share. 2002 vs 2001 Net Sales Net sales totaled $342.5 million in 2002 compared to $345.6 million in 2001, a decrease of 0.9%. Sales as measured in United States (U.S.) dollars were positively impacted by the effects of foreign currencies relative to the U.S. dollar in comparison to 2001. Excluding the effects of foreign currency movements, sales decreased 1.5% when compared with 2001. Sales were also impacted by the sale of the Jack Wolfskin business. In 2002, Jack Wolfskin sales were $46.8 million compared to $49.7 million in 2001. With the continued soft economy both in the U.S. and abroad, the Com- pany saw marginal growth or even contraction in most of its markets. The Company, however, was able to maintain or increase its share in those markets. Sales were posi- tively impacted in the Motors business from growth in this category, strong sales from new products and a recovery in the OEM market, while in the Diving business the market continued to be negatively impacted by a sluggish travel industry. 9 Outdoor Equipment business sales decreased 7.4% from 2001 levels. The Com- pany’s Jack Wolfskin subsidiary contributed $46.8 million and $49.7 million in sales to the Outdoor Equipment business in 2002 and 2001, respectively. The Out- door Equipment business benefited from sales in its military tent business, which increased 2.1% over 2001, while the commercial and consumer businesses had dou- ble digit declines. The consumer tent business is experiencing competition from the low-price mass market and private label segment of the category. Diving sales were down 9.8% from 2001, primarily related to declines in the travel industry. Declines were broad-based as all Diving operating companies in the U.S. and Europe were down versus prior year. The Motors business was very strong, with a sales increase of $16.4 million (25.0%) versus the prior year primarily due to market share gains related to strong new product sales and recovery in the OEM markets. The Water- craft business experienced continued soft markets with sales down 3% from a year ago. Sales were also impacted by transition issues related to the integration of the Necky/Ocean Kayak operations. Operating Results The Company recognized an operating profit of $19.8 million in 2002 compared to an operating profit of $15.7 million in 2001. Gross profit margins increased to 41.2% in 2002 from 40.2% in 2001, as improvements in the Motors and Outdoor Equipment businesses were partially offset by declines in the Watercraft and Diving businesses. Lower sales volume for 2002 negatively impacted gross margins in Diving and Watercraft due to unfavorable manufacturing labor and overhead variances. Operating expenses totaled $121.3 million, or 35.4% of sales, in 2002 compared to $123.1 million, or 35.6% of sales, in 2001. Amortization of acquisition costs were $0.4 million in 2002, compared to $5.3 million in 2001. This decline is the result of the adoption of Financial Accounting Standard Board No. 142, Goodwill and Other Intangibles (SFAS No. 142), during 2002 and a writedown of goodwill of $2.5 million related to the Company’s Airguide brand during 2001. The adoption of SFAS No. 142 ceased the amortization of goodwill, which resulted in a decrease in operating expenses of approximately $2.4 million in 2002. The Outdoor Equipment business operating profit decreased by $0.1 million, or 1.1%, to $11.9 million in 2002 compared to $12.0 million in 2001. The Company’s Jack Wolfskin subsidiary contributed $4.9 million and $5.1 million of operating profit to the Outdoor Equipment business in 2002 and 2001, respectively. The Outdoor Equipment business benefited from strength in military tents, offset by softness in the consumer and commercial tent businesses. The Diving business saw operating profit decline by $1.1 million in 2002, in line with the sales decline. 10 Declines in gross profit due to lower sales volume were partially offset by reductions in operating expenses resulting in an operating profit margin equal to 2001 at 14.5% of sales. The Motors business had operating profit of $8.2 million in 2002 compared to $0.2 million in 2001. The increase was driven by improved gross profit related to production efficiencies from higher volume, cost savings and improved pricing yield resulting from favorable changes in product mix and the impact of new products. In addition, 2001 contained a $2.5 million write-down of goodwill related to the Company’s Airguide brand. The Watercraft business had a decline in operating profit in 2002 to $1.2 million from operating profits of $1.3 million in 2001. Declines in gross profit related to lower volume and operating company integration issues were nearly offset by reductions in operating expenses. Operating profit levels remain significantly lower than 2000 as the Company continues to work on the trailing affects of significant growth, over-capacity and the impacts of too much complexity in this segment of our business. Other Income and Expenses Interest expense decreased $2.5 million in 2002, reflecting a decline in interest rates from prior year levels and a reduction in working capital needs versus 2001 levels. Interest income increased $0.4 million to $1.0 million in 2002 from $0.5 million in 2001 due to improved cash flow and proceeds from the sale of the Jack Wolfskin business. In 2002, the Company recorded a pretax gain from the sale of the Jack Wolfskin business of $27.3 million. Results from Continuing Operations The Company recognized income from continuing operations before cumulative effect of change in accounting principle of $30.3 million in 2002 or $3.59 per diluted share, compared to $3.6 million in 2001 or $0.44 per diluted share. Included in 2002 income from continuing operations before cumulative effect of change in accounting principle was a gain on the sale of the Jack Wolfskin business of $22.4 million, after tax, or $2.65 per diluted share. The Company recorded income tax expense of $10.2 million in 2002, an effective tax rate of 25.2%. The decline in the effective tax rate (from 40.7% in 2001) is mainly due to favorable tax treatment on the sale of the Jack Wolfskin business. Excluding the impact on the effective tax rate from the sale transaction, the Company’s effective tax rate declined approximately 1.4% due to changes in the mix of earnings from jurisdictions with higher tax rates to those with lower tax rates. Discontinued Operations In March 2002, the Company recognized a gain from the disposal of discontinued operations of $0.5 million, net of tax, related to the final accounting on the sale of the Fishing business, which was sold in March of 2000. Reconciliation of Results Adjusted for Sale of Subsidiary The following tables show the adjusted results of the Company’s continuing busi- nesses excluding the gain on the sale, the North America exit costs and the operating results of the Jack Wolfskin subsidiaries. Change in Accounting Principles Effective September 29, 2001, the Company adopted SFAS No. 142. In accordance with the adoption of this new standard, the Company ceased the amortization of goodwill. If SFAS No. 142 had been in effect for the prior periods presented, the Company’s income from continuing operations before cumulative effect of change in accounting principle would have been $6.0 million or $0.73 per diluted share for the year ended September 28, 2001. As required under SFAS No. 142, the Company performed an assessment of the carrying value of goodwill using a number of criteria, including the value of the overall enterprise as of September 29, 2001. This assessment resulted in a write off of goodwill totaling $22.9 million, net of tax ($2.71 per diluted share) and has been reflected as a change in accounting principle. The write off is associated with the Watercraft ($12.9 million) and Diving ($10.0 million) business units. Future impairment charges from existing operations or other acquisitions, if any, will be reflected as an operating expense in the statement of operations. Effective September 30, 2000, the Company adopted SFAS No. 133, which estab- lishes accounting and reporting standards for derivative instruments, including cer- tain 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 recognized 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 No. 133 resulted in a cumulative effect of change in account- ing principle after tax gain of $1.8 million in 2001. Net Income The Company recognized net income of $7.9 million in 2002, or $0.94 per diluted share, compared to net income of $5.4 million in 2001, or $0.66 per diluted share. The Company reports its financial results of operations in accordance with gener- ally accepted accounting principles (“GAAP”). The Company has also provided in this Form 10-K certain non-GAAP financial measures to complement its financial information presented in accordance with GAAP. These non-GAAP financial mea- sures relate to the Company’s results excluding the Jack Wolfskin business, which was sold in the fourth quarter of fiscal 2002. The Company believes the non-GAAP financial information is useful to the readers of this Form 10-K because it (a) pro- vides comparable year over year financial information based on the Company’s con- tinuing businesses and (b) better enables the reader to evaluate the performance of these businesses. The presentation of the non-GAAP financial information should not be considered in isolation or in lieu of the results prepared in accordance with GAAP, but should be considered in conjunction with the results prepared in accordance with GAAP. Adjusted Results of Continuing Businesses: (thousands, except per share data ) Net sales Gross profit Operating profit Income from continuing operations before cumulative effect of change in accounting principle Diluted EPS–Continuing business 2003 $315,546 127,982 11,675 2002 $295,718 122,687 14,822 2001 $295,987 118,416 10,621 5,461 $ 0.64 5,563 $ 0.66 798 $ 0.10 11 Reconciliation of Adjusted Results to Reported Results for 2003: Reconciliation of Adjusted Earnings per Diluted Share: (t housand s, except per share data) Net sales Gross profit Operating profit Income from continuing operations before cumulative effect of change in accounting principle Diluted EPS As Reported Results $315,892 127,989 11,613 Jack Wolfskin $ 346 7 62 Continuing Results $315,546 127,982 11,675 Income from continuing operations (according to GAAP) Add back (subtract): Gain on sale of Jack Wolfskin Closing cost for North American 2003 2002 2001 $0.63 $3.59 $ 0.44 — (2.65) — 5,421 $ 0.63 (40) $(0.01) 5,461 $ 0.64 — Jack Wolfskin operations Jack Wolfskin operating results 0.01 Adjusted income from continuing businesses $0.64 0.05 (0.33) $0.66 — (0.34) $ 0.10 Reconciliation of Adjusted Results to Reported Results for 2002: (t housand s, except per share data) Net sales Gross profit Operating profit Income from continuing operations before cumulative effect of change in accounting principle Diluted EPS As Reported Results $342,532 141,054 19,751 Jack Wolfskin $46,814 18,367 4,929 Continuing Results $295,718 122,687 14,822 30,308 $ 3.59 24,745 $ 2.93 5,563 $ 0.66 Reconciliation of Adjusted Results to Reported Results for 2001: (t housand s, except per share data) Net sales Gross profit Operating profit Income from continuing operations before cumulative effect of change in accounting principle Diluted EPS As Reported Results $345,637 138,781 15,718 Jack Wolfskin $49,650 20,365 5,097 Continuing Results $295,987 118,416 10,621 3,610 $ 0.44 2,812 $ 0.34 798 $ 0.10 12 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 continuing operations at the end of each of the past three years: (millions) Current assets (1) Current liabilities (2) Working capital (2) Current ratio (2) 2003 $195.1 50.0 $145.1 3.9:1 2002 $192.1 53.6 $138.5 3.6:1 2001 $133.2 36.6 $ 96.6 3.6:1 (1)2003 and 2002 include cash of $88.9 and $100.8 million, respectively. (2)Excludes short-term debt and current maturities of long-term debt. Cash flows provided by (used for) operations totaled ($3.5) million in 2003, $33.8 million in 2002 and $15.5 million in 2001. Declines in accounts payable and other accrued liabilities of $8.1 million and increases in inventory of $9.0 million and accounts receivable of $1.9 million contributed to the overall cash flows used for operations in 2003. The Company’s improved profitability and working capital management, contributed to the positive cash flows in 2002. Increases in accounts payable and other accrued liabilities of $15.2 million and declines in inventory of $4.8 million contributed to the overall positive cash flows provided by operations in 2002. The changes in 2002 are exclusive of changes resulting from the disposal of the Jack Wolfskin business. 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. Depreciation and amortization charges were $8.2 million in 2003, $9.1 million in 2002 and $13.5 million in 2001. The adoption of SFAS No. 142, which ceased the amortization of goodwill, as well as reduced capital spending accounted for the decrease in 2002 from 2001. The Company recorded a charge for impairment of goodwill of $2.5 million in 2001. Investing Activities Cash flows provided by (used for) investing activities were ($9.6) million, $56.8 million and ($9.6) million in 2003, 2002 and 2001, respectively. In 2002, proceeds from the sale of the Jack Wolfskin business contributed $59.3 million to the Com- pany’s investing activities, while proceeds from the sale of the Company’s former headquarters facility contributed $5.0 million. Expenditures for property, plant and equipment were ($9.8) million in 2003, ($7.7) million in 2002 and ($9.8) million in 2001. The Company’s recurring investments are primarily related to tooling for new products, facilities and information systems improvements. In 2004, capital expenditures are anticipated to be consistent with 2003 levels. These expenditures are expected to be funded by working capital or existing credit facilities. The Company paid, net of cash acquired, $0.6 million for two small businesses acquired in 2001. Financing Activities The following table sets forth the Company’s debt and capital structure at the end of the past three years: (m illions) Current debt Long-term debt Total debt Shareholders’ equity Total capitalization Total debt to total capitalization 2003 $ 9.6 67.9 77.5 144.2 $221.7 35.0% 2002 $ 8.1 80.2 88.3 124.1 $212.4 41.6% 2001 $ 13.0 84.5 97.5 105.8 $203.3 48.0% Cash flows used for financing activities totaled $6.1 million in 2003, $8.4 million in 2002 and $7.9 million in 2001. In December 2001 the Company consummated a private placement of long-term debt totaling $50.0 million. Cash provided by the private placement debt was used to pay down short-term debt of $48.4 million in 2002. Payments on long-term debt were $8.0 million, $11.6 million and $6.8 mil- lion in 2003, 2002 and 2001, respectively. At October 3, 2003, the Company had available unused credit facilities in excess of $76.7 million, which is believed to be adequate for its needs for the fore- seeable future. Obligations and Off Balance Sheet Arrangements The Company has obligations and commitments to make future payments under debt and operating leases. The following schedule details these obligations at October 3, 2003. Payment Due by Period After (millions) 2-3 years 5 years $76,592 $ 9,587 $29,205 $27,800 $10,000 Long-term debt (1) Operating lease obligations 4,584 Total contractual obligations $97,648 $14,674 $36,462 $31,928 $14,584 Less than 1 year 21,056 5,087 4,128 4-5 years 7,257 Total (1) Excludes fair value adjustment of hedged debt. The Company also utilizes letters of credit for trade financing purposes. Letters of credit outstanding at October 3, 2003 total $2.5 million. The Company has no off-balance sheet arrangements. 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. The Company may reduce exposure to certain of these market risks by entering into hedging transactions authorized under Company policies that place controls on these activities. Hedging transactions involve the use of a variety of derivative financial instruments. Deriva- tives are used only where there is an underlying exposure, not for trading or specula- tive purposes. Foreign Operations The Company has significant foreign operations, for which the functional currencies are denominated primarily in Euros, Swiss francs, Japanese yen and Canadian dol- lars. 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. 13 The Company has mitigated a portion of the fluctuations in certain foreign curren- cies through the purchase of foreign currency swaps, forward contracts and options to hedge known commitments, primarily for purchases of inventory and other assets denominated in foreign currencies, however, no such transactions were entered into during 2003. 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 U.S. interest rates. The Company also periodically enters into interest rate swaps, caps or collars to hedge its exposure and lower financing costs. Commodities Certain components used in the Company’s products are exposed to commodity price changes. The Company manages this risk through instruments such as 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 market interest rates under normal market conditions. The calculations are not intended to represent actual losses in fair value or earnings that the Company expects to incur. The estimates do not consider favorable changes in market rates. The table below presents the estimated maximum potential one year loss in fair value and earnings before income taxes from a 100 basis point movement in interest rates on the senior notes outstanding at October 3, 2003: (m illions) Interest rate instruments Estimated Impact on Fair Value $1.4 Earnings Before Income Taxes $0.8 The Company has outstanding $76.5 million in unsecured senior notes as of Octo- ber 3, 2003. The senior notes have interest rates that range from 6.98% to 7.82% and principal payments through December 2008. The fair market value of the Company’s fixed rate debt was $86.9 million as of October 3, 2003. In January 2002, the Company entered into interest rate swap agreements relating to a portion of the senior notes. As of October 3, 2003, the notional amount of the swaps was $38.7 million. The swap agreements effectively reduced interest rates to a range of 3.46% to 4.49% on the notional amounts. The swap agreements expire in fiscal years 2005 and 2006. The fair market value of the Company’s swap agree- ments was $0.9 million as of October 3, 2003. Other Factors The Company has not been significantly impacted by inflationary pressures over the last several years. The Company anticipates that changing costs of basic raw materials may impact future operating costs and, accordingly, the prices of its prod- ucts. The Company is involved in continuing programs to mitigate the impact of cost increases through changes in product design and identification of sourcing and manufacturing efficiencies. Price increases and, in certain situations, price decreases are implemented for individual products, when appropriate. Critical Accounting Policies and Estimates The Company’s management discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial state- ments, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related footnote disclosures. On an on- going basis, the Company evaluates its estimates, including those related to customer programs and incentives, product returns, bad debts, inventories, intangible assets, income taxes, warranty obligations, pensions and other post-retirement benefits, and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more sig- nificant judgments and estimates used in the preparation of its consolidated finan- cial statements. Management has discussed these policies with the Audit Committee of the Company’s Board of Directors. Allowance for Doubtful Accounts The Company recognizes revenue when title and risk of ownership have passed to the buyer. Allowances for doubtful accounts are estimated at the individual operat- ing companies based on estimates of losses related to customer receivable balances. 14 Estimates are developed by using standard quantitative measures based on histori- cal losses, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receiv- able balances. Though the Company considers these balances adequate and proper, changes in economic conditions in specific markets in which the Company operates could have a favorable or unfavorable effect on reserve balances required. to record impairment charges for these assets not previously recorded. On Septem- ber 29, 2001 the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” and was required to analyze its goodwill for impairment issues during the first six months of fiscal 2002, and then on a periodic basis thereafter. As a result of this analysis, the Company recorded a goodwill impairment charge of $22.9 million, net of tax, in the second quarter of fiscal 2002. Inventories The Company values inventory at the lower of cost (determined using the first- in first-out method) or market. Management’s judgment is required to determine the reserve for obsolete or excess inventory. Inventory on hand may exceed future demand either because the product is outdated or because the amount on hand is more than can be used to meet future needs. Inventory reserves are estimated at the individual operating companies using standard quantitative measures based on criteria established by the Company. The Company also considers current fore- cast plans, as well as, market and industry conditions in establishing reserve levels. Though the Company considers these balances to be adequate, changes in eco- nomic conditions, customer inventory levels or competitive conditions could have a favorable or unfavorable effect on reserve balances required. Deferred Taxes The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has consid- ered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Goodwill and Intangible Impairment In assessing the recoverability of the Company’s goodwill and other intangibles, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, the Company may be required Warranties The Company accrues a warranty reserve for estimated costs to provide warranty services. The Company’s estimate of costs to service its warranty obligations is based on historical experience, expectation of future conditions and known product issues. To the extent the Company experiences increased warranty claim activity or increased costs associated with servicing those claims, revisions to the estimated warranty reserve would be required. The Company engages in product quality pro- grams and processes, including monitoring and evaluating the quality of its suppli- ers, to help minimize warranty obligations. New Accounting Pronouncements In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 requires expanded and more prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method on reported results. The Company has not adopted a method under SFAS No. 148 to expense stock options but rather continues to apply the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for those plans. No stock- based employee compensation expense is reflected in net income for the fiscal years presented as all options granted under those plans had an exercise price equal to the market value of the underlying common stock at the date of grant. A pro forma effect table is presented in the notes to the Company’s consolidated financial statements on net income and earnings per share assuming the fair value recognition provisions of SFAS No. 123 would have been adopted for options granted since fiscal 1995. 15 In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities, which requires the consolidation of variable interest entities (VIEs). VIEs are entities for which control is achieved through means other than voting rights. The consolidation requirements of FIN No. 46 were applicable immediately to all VIEs in which an interest was acquired after January 31, 2003. For VIEs in which an interest was acquired before February 1, 2003, the consolidation requirements of FIN No. 46 are generally effective at the end of our fiscal year 2004. FIN No. 46 has not had, and is not expected to have, a significant impact on our consolidated financial statements. 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 “Mar- ket Risk Management.” ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information with respect to this item is included on pages F-1 to F-21. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES (a) As of the end of the period covered by this Form 10-K, the Company carried out an evaluation, under the supervision and with the participation of its management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure con- trols and procedures (as defined in Exchange Act Rule 13a-15(e)). Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the fiscal year ended October 3, 2003 to ensure that material infor- mation relating to the Company (including consolidated subsidiaries) was made known to them by others within those entities, particularly during the period in which this Form 10-K was being prepared. (b) There were no changes in internal control over financial reporting that occurred during the quarter ended October 3, 2003 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information with respect to this item, except for certain information on executive officers (which appears at the end of Part I of this Form 10-K) is included in the Company’s Proxy Statement for its February 25, 2004 Annual Meeting of Shareholders, which, upon filing with the Securities and Exchange Commission, will be included in the Company’s Proxy Statement for its February 25, 2004 Annual Meeting of Shareholders, which, upon filing with the Securities and Exchange Com- mission, will be incorporated herein by reference, under the headings “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,” pro- vided, however, that the subsection entitled “Election of Directors – Audit Commit- tee Report” shall not be deemed to be incorporated herein by reference. Employee Code of Conduct and Code of Ethics and Procedures for Reporting of Accounting Concerns The Company adopted an Employee Code of Conduct (the “Code of Conduct”). The Company requires all directors, officers and employees to adhere to the Code of Conduct in addressing legal and ethical issues encountered in conducting their work. The Code of Conduct requires the Company’s employees to avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity and in the Company’s best interest. The Company also adopted a Code of Ethics for its Chief Executive Officer, its Chief Financial Officer, its Controller and all other financial officers and execu- tives (the “Code of Ethics”). The Code of Ethics supplements the Code of Conduct and is intended to deter wrongdoing and to promote honest and ethical conduct, including the ethical handling of conflicts of interest; full, fair, accurate, timely and understandable disclosure in the Company’s public documents; compliance with applicable laws and regulations; the prompt reporting of violations of the Code of Ethics; and accountability for adherence to the Code of Ethics. The Company has posted a copy of the Code of Ethics on the Company’s website at www.johnsonout- doors.com. The Company intends to satisfy the disclosure requirements under Item 10 of Form 8-K regarding amendments to, or waivers from, the Code of Ethics by posting such information on its website at www.johnsonoutdoors.com. Further, the Company has established “whistle-blower procedures” which provide a process for the confidential and anonymous submission, receipt, retention and treat- 16 ment of complaints regarding accounting, internal accounting controls or auditing matters. These procedures provide substantial protections to employees who report Company misconduct. ITEM 11. EXECUTIVE COMPENSATION Information with respect to this item is included in the Company’s Proxy Statement for its February 25, 2004 Annual Meeting of Shareholders, which, upon filing with the Securities and Exchange Commission, will be incorporated herein by reference, under the headings “Election of Directors - Compensation of Directors” and “Exec- utive 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 AND RELATED STOCKHOLDER MATTERS Information with respect to this item is included in the Company’s Proxy Statement for its February 25, 2004 Annual Meeting of Shareholders, which, upon filing with the Securities and Exchange Commission, will be incorporated herein by reference, under the heading “Stock Ownership of Management and Others” and under the heading “Equity Compensation Plan Information.” ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information with respect to this item is included in the Company’s Proxy Statement for its February 25, 2004 Annual Meeting of Shareholders, which, upon filing with the Securities and Exchange Commission, will be incorporated herein by reference, under the heading “Certain Transactions.” ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information with respect to this item is included in the Company’s Proxy Statement for its February 25, 2004 Annual Meeting of Shareholders, which, upon filing with the Securities and Exchange Commission, will be incorporated herein by reference, under the heading “Independent Auditors’ Fees.” PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 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 : Report of Management Reports of Independent Auditors Consolidated Balance Sheets - October 3, 2003 and September 27, 2002 Consolidated Statements of Operations - Years ended October 3, 2003, September 27, 2002 and September 28, 2001 Consolidated Statements of Shareholders’ Equity - Years ended October 3, 2003, September 27, 2002 and September 28, 2001 Consolidated Statements of Cash Flows - Years ended October 3, 2003, September 27, 2002 and September 28, 2001 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 On July 18, 2003, the Company filed a Current Report on Form 8-K dated July 18, 2003 furnishing under Item 12 the Company’s preliminary financial results press release for the reporting period ended June 27, 2003. On July 24, 2003, the Company filed a Current Report on Form 8-K dated July 24, 2003 furnishing under Item 12 the Company’s earnings press release for the report- ing period ended June 27, 2003. 17 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 City of Racine and State of Wiscon- sin, on the 22nd day of December 2003. 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 on behalf of the registrant and in the capacities indicated on the 22nd day of December 2003. /s/ Helen P. Johnson-Leipold (Helen P. Johnson-Leipold) /s/ Thomas F. Pyle, Jr. (Thomas F. Pyle, Jr.) /s/ Samuel C. Johnson (Samuel C. Johnson) /s/ Gregory E. Lawton (Gregory E. Lawton) /s/ Terry E. London (Terry E. London) /s/ John M. Fahey, Jr. (John M. Fahey, Jr.) /s/ Paul A. Lehmann (Paul A. Lehmann) Chairman and Chief Executive Officer and Director (Principal Executive Officer) Vice Chairman of the Board and Director Director Director Director Director Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 18 EXHIBIT INDEX Exhibit 3.1 Title 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(a) Bylaws of the Company as amended through December 4, 2003 3.2(b) Amendment to Bylaws of the Company dated as of December 4, 2003 4.1 4.2 4.3 4.4 4.5 4.6 4.7 Note Agreement dated October 1, 1995. (Filed as Exhibit 4.1 to the Company’s Form 10-Q for the quarter ended December 29, 1995 and incorporated herein by reference.) 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.) 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.) 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.) 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.) Fifth Amendment dated December 13, 2001 to Note Agreement dated October 1, 1995. (Filed as Exhibit 4.6 to the Company’s Form 10-K for the year ended September 27, 2002 and incorporated herein by reference.) Consent and Amendment dated of September 6, 2002 to Note Agreement dated October 1, 1995. (Filed as Exhibit 4.7 to the Company’s Form 10-K for the year ended September 27, 2002 and incorporated herein by reference. Exhibit 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 9 Title 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.) 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.) Second Amendment dated December 13, 2001 to Note Agreement dated September 15, 1997. (Filed as Exhibit 4.9 to the Company’s Form 10-K for the year ended September 27, 2002 and incorporated herein by reference.) Consent and Amendment dated as of September 6, 2002 to Note Agreement dated September 15, 1997. (Filed as Exhibit 4.11 to the Company’s Form 10-K for the year ended September 27, 2002 and incorporated herein by reference.) 3-Year Revolving Credit Agreement dated as of August 31, 2001. (Filed as Exhibit 4.10 to the Company’s Form 10-K for the year ended September 27, 2002 and incorporated herein by reference.) Amendment No. 1 to 3-Year Revolving Credit Agreement dated as of December 18, 2001. (Filed as Exhibit 4.11 to the Company’s Form 10-K for the year ended September 27, 2002 and incorporated herein by reference.) Note Agreement dated as of December 13, 2001. (Filed as Exhibit 4.12 to the Company’s Form 10-K for the year ended September 27, 2002 and incorporated herein by reference.) Consent and Amendment dated of September 6, 2002 to Note Agreement dated as of December 13, 2001. (Filed as Exhibit 4.15 to the Company’s Form 10-K for the year ended September 27, 2002 and incorporated herein by reference.) 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.) Exhibit 10.1 10.2 10.3+ 10.4 10.5 10.6+ 10.7+ 10.8+ 10.9+ Title 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.) 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.) 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.) 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.) 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.) 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.) 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.) 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.) 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.) 19 Exhibit 10.10 10.11+ 10.12+ 10.13+ 10.14+ 10.15+ 10.16+ 10.17+ Title Exhibit Title 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.) 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.) 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.) 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.) 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.) Share Purchase and Transfer Agreement, dated as of August 28, 2002, by and between, among others, Johnson Outdoors Inc. and an affiliate of Bain Capital Fund VII-E (UK), Limited Partnership. (Filed as Exhibit 2.1 to the Company’s Form 8-K dated September 9, 2002 and incorporated herein by reference.) Johnson Outdoors Inc. Worldwide Key Executive Phantom Share Long- Term Incentive Plan (Filed as Exhibit 10.1 to the Company’s Form 10-Q dated March 28, 2003 and incorporated herein by reference.) Johnson Outdoors Inc. Worldwide Key Executives’ Discretionary Bonus Plan. (Filed as Exhibit 10.2 to the Company’s Form 10-Q dated March 28, 2003 and incorporated herein by reference.) 23.2 Note Regarding Consent of Arthur Andersen LLP. 31.1 31.2 32.1 32.2 99 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a). Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a). Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. Definitive Proxy Statement for the 2004 Annual Meeting of Share- holders. Except to the extent specifically incorporated herein by reference, the Proxy Statement for the 2004 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 2004 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. + A management contract or compensatory plan or arrangement. 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 October 3, 2003. 23.1 Consent of Ernst & Young LLP. 20 CONSOLIDATED FINANCIAL STATEMENTS REPORT OF MANAGEMENT Table of Contents Page Report of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . F-6 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-8 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 assur- ances that assets are safeguarded, that transactions are executed in accordance with management’s authorization and that the financial statements are prepared on a worldwide basis in accordance with 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 auditors, who have provided an independent assessment as to the fairness of the financial statements, after obtaining an understanding of the Company’s systems and procedures and performing such other tests as deemed necessary. The Audit Committee of the Board of Directors, which is composed solely of direc- tors who are not officers of the Company, meets with management and the inde- pendent auditors to review the results of their work and to satisfy itself that their respective responsibilities are being properly discharged. The independent auditors have full and free access to the Audit Committee and have regular discussions with the Committee regarding appropriate auditing and financial reporting matters. Helen P. Johnson-Leipold Chairman and Chief Executive Officer Paul A. Lehmann Vice President and Chief Financial Officer F-1 goodwill, as a result of initially applying Statement No. 142 to the Company’s un- derlying records obtained from management, and (b) testing the mathematical ac- curacy of the reconciliation of adjusted net income to reported net income, and the related earnings-per-share amounts. In our opinion, the disclosures for 2001 in Note 1 are appropriate. However, we were not engaged to audit, review, or apply any pro- cedures to the 2001 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole. As explained in Note 1 to the consolidated financial statements, effective September 29, 2001, the Company changed its method of accounting for goodwill and other intangible assets. Ernst & Young LLP Milwaukee, Wisconsin November 14, 2003, except for Note 16, as to which the date is December 22, 2003. REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors Johnson Outdoors Inc.: We have audited the accompanying consolidated balance sheets of Johnson Outdoors Inc. and subsidiaries as of October 3, 2003 and September 27, 2002 and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The financial statements of Johnson Outdoors Inc. as of September 28, 2001, and for the year then ended were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated November 8, 2001, except for Notes 5 and 17 as to which the date is December 21, 2001. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of mate- rial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes as- sessing the accounting principles used and significant estimates made by manage- ment, 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 financial statements referred to above present fairly, in all mate- rial respects, the consolidated financial position of Johnson Outdoors Inc. and sub- sidiaries as of October 3, 2003 and September 27, 2002 and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. As discussed above, the financial statements of Johnson Outdoors Inc. as of Sep- tember 28, 2001, and for the year then ended were audited by other auditors who have ceased operations. As described in Note 1, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards (Statement) No. 142, Goodwill and Other Intangible Assets, which was adopted by the Company as of September 29, 2001. Our audit pro- cedures with respect to the disclosures in Note 1 with respect to 2001 included (a) agreeing the previously reported net income to the previously issued financial statements and the adjustments to reported net income representing amortization expense (including any related tax effects) recognized in those periods related to F-2 The following report is a copy of a report previously issued by Arthur Andersen LLP in connection with the Company’s Annual Report on Form 10-K for the year ended September 28, 2001. This opinion has not been reissued by Arthur Andersen LLP. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 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 consolidat- ed financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. 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 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 audit provides 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 deriva- tive instruments. Arthur Andersen LLP Milwaukee, Wisconsin November 8, 2001, except for Notes 5 and 17, as to which the date is December 21, 2001. F-3 CONSOLIDATED BALANCE SHEETS (thousands, except share data) Assets Current assets: Cash and temporary cash investments Accounts receivable less allowance for doubtful accounts of $4,214 and $4,028, 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: October 3, 2003, 7,382,979; September 27, 2002, 7,112,155 Class B shares issued (convertible into Class A shares): October 3, 2003, 1,222,647; September 27, 2002, 1,222,729 Capital in excess of par value Retained earnings Deferred compensation Accumulated other comprehensive income (loss) Total shareholders’ equity Total liabilities and shareholders’ equity The accompanying notes are an integral part of the Consolidated Financial Statements. F-4 October 3 2003 September 27 2002 $ 88,910 43,104 50,594 6,392 6,135 195,135 31,023 18,637 29,573 3,289 $277,657 $100,830 39,972 42,231 5,083 4,021 192,137 29,611 19,588 27,139 2,810 $271,285 $ 9,587 15,627 $ 8,058 13,589 8,899 499 25,006 59,618 67,886 5,959 133,463 — 369 61 50,093 93,510 (20) 181 144,194 $277,657 9,428 6,567 24,005 61,647 80,195 5,298 147,140 — 355 61 47,583 88,089 (22) (11,921) 124,145 $271,285 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 Gain on sale of subsidiary Other (income) expense, net Income from continuing operations before income taxes and cumulative effect of change in accounting principle Income tax expense Income from continuing operations before cumulative effect of change in accounting principle Income from disposal of discontinued operations, net of income tax expense of $255 Income (loss) from effect of change in accounting principle, net of income tax expense (benefit) of $(2,200) and $845 for 2002 and 2001, respectively Net income Basic earnings per common share: Continuing operations Discontinued operations Income (loss) from net effect of change in accounting principle Net income Diluted earnings per common share: Continuing operations Discontinued operations Income (loss) from net effect of change in accounting principle Net income The accompanying notes are an integral part of the Consolidated Financial Statements. October 3 2003 $315,892 187,903 127,989 74,555 33,438 6,682 304 1,397 — 116,376 11,613 (798) 5,165 — (2,456) 9,702 4,281 5,421 — — $ 5,421 $ 0.64 — — $ 0.64 $ 0.63 — — $ 0.63 September 27 2002 $342,532 201,478 141,054 78,224 31,929 6,729 374 2,340 1,707 121,303 19,751 (968) 6,630 (27,251) 847 40,493 10,185 30,308 495 (22,876) $ 7,927 $ 3.69 0.06 (2.79) $ 0.96 $ 3.59 0.06 (2.71) $ 0.94 Year Ended September 28 2001 $345,637 206,856 138,781 78,192 29,138 7,565 5,288 1,432 1,448 123,063 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 F-5 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (t housand s) Balance at September 29, 2000 Net income Issuance of restricted stock Issuance of stock under employee stock purchase plan Amortization of deferred compensation Translation adjustment Translation adjustment recognized in the cumulative effect of change in accounting principle Balance at September 28, 2001 Net income Issuance of restricted stock Exercise of stock options Issuance of stock under employee stock purchase plan Amortization of deferred compensation Translation adjustment Translation adjustment recognized in the gain on sale of Jack Wolfskin subsidiary Additional minimum pension liability Building gain Balance at September 27, 2002 Net income Issuance of restricted stock Exercise of stock options Issuance of stock under employee stock purchase plan Amortization of deferred compensation Translation adjustment Additional minimum pension liability Common Stock $407 — — 1 — — — 408 — — 7 1 — — — — — 416 — — 13 1 — — — Capital in Excess of Par Value $44,291 — 50 70 — — — 44,411 — 60 1,735 75 — — — — 1,302 47,583 — 50 2,378 82 — — — Retained Earnings Deferred Compensation $74,797 5,365 — — — — — 80,162 7,927 — — — — — — — — 88,089 5,421 — — — — — — $(77) — (50) — 83 — — (44) — (60) — — 82 — — — — (22) — (50) — — 52 — — Accumulated Other Comprehensive Income (loss) Cumulative Translation Adjustment $(18,586) — — — — 2,402 (2,974) (19,158) — — — — — 4,378 3,057 — — (11,723) — — — — — 12,174 — Minimum Pension Liability Comprehensive Income (Loss) $ — — — — — — — — — — — — — — — (198) — (198) — — — — — — (72) $ 5,365 — — — 2,402 — $ 7,767 $ 7,927 — — — — 4,378 — (198) — $12,107 $ 5,421 — — — — 12,174 (72) BALANCE AT OCTOBER 3, 2003 The accompanying notes are an integral part of the Consolidated Financial Statements. $430 $50,093 $93,510 $(20) $ 451 $(270) $17,523 F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS (t housand s) Cash Provided By (Used For) Operations Net income Less income from discontinued operations Less income (loss) from cumulative effect of change in accounting principle Income from continuing operations before cumulative effect of change in accounting principle Adjustments to reconcile income from continuing operations before cumulative effect of change in accounting principle to net cash provided by (used for) operating activities of continuing operations: Depreciation and amortization Provision for doubtful accounts receivable Provision for inventory reserves Deferred income taxes Gain on sale of subsidiary 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 Proceeds from sale of property, plant and equipment Cash Used For Financing Activities Proceeds from issuance of senior notes 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 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. October 3 2003 September 27 2002 $ 5,421 — — 5,421 $ 7,927 495 (22,876) 30,308 Year Ended September 28 2001 $ 5,365 — 1,755 3,610 8,198 1,216 3,296 (358) — — (1,878) (8,983) (8,142) (2,253) (3,483) — — (9,767) 187 (9,580) — (8,044) — 1,994 (6,050) 7,193 (11,920) 9,096 1,937 1,798 4,026 (27,251) — (4,488) 4,821 15,218 (1,661) 33,804 59,295 — (7,697) 5,182 56,780 50,000 (11,604) (48,364) 1,536 (8,432) 2,609 84,761 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) 100,830 $ 88,910 16,069 $100,830 17,363 $16,069 F-7 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 confor- mity with accounting principles generally accepted in the United States. Significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and operat- ing results and the disclosure of commitments and contingent liabilities. Actual results could differ significantly from those estimates. For the Company, significant estimates include the allowance for doubtful accounts receivable, reserves for inven- tory valuation, recoverability of goodwill, reserves for sales returns, reserves for war- ranty service and the valuation allowance for deferred tax assets. The Company’s fiscal year ends on the Friday nearest September 30. The fiscal year ended October 3, 2003 (hereinafter 2003) comprises 53 weeks. The fiscal years ended September 27, 2002 (hereinafter 2002) and September 28, 2001 (hereinafter 2001) each comprise 52 weeks. Accounts receivable Accounts receivable are stated net of allowance for doubtful accounts. The valua- tion of the allowance for doubtful accounts is based on a combination of factors. In circumstances where specific identification exists, a reserve is established to value the account receivable to what is believed will be collected. For all other customers, the Company recognizes allowances for bad debts based on historical experience of bad debts as a percent of accounts receivable for each business unit. Uncollectible accounts are written off against the allowance for doubtful accounts after collection efforts have been exhausted. The Company typically does not require collateral on its accounts receivable. 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 2003 $19,009 2,065 33,362 54,436 3,842 $50,594 2002 $17,709 1,072 25,633 44,414 2,183 $42,231 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, with the following ranges: Cash and Temporary Cash Investments The Company considers all short-term investments in interest-bearing bank accounts, securities and other instruments with an original maturity of three months or less to be equivalent to cash. Property improvements Buildings and improvements Furniture, fixtures and equipment 5-20 years 20-40 years 3-10 years 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. 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. F-8 Property, plant and equipment at the end of the respective years consist of the following: Property and improvements Buildings and improvements Furniture, fixtures and equipment Less accumulated depreciation 2003 $ 1,115 20,623 83,715 105,453 74,430 $ 31,023 2002 $ 1,103 18,920 80,315 100,338 70,727 $ 29,611 Impairment of Property, Plant and Equipment The Company annually assesses, if indicators of impairment are identified, the recoverability of property, plant and equipment, primarily by determining whether the depreciation of the balance over the remaining life of the underlying assets 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 discounted future operating cash flows relative to the value of the assets, using a discount rate reflecting the Company’s cost of capital, which currently approximates 10%. There was no impairment of property, plant and equipment during 2003 or 2002. Intangible Assets Intangible assets are stated at cost less accumulated amortization. Amortization is computed using the straight-line method with periods ranging from 3 to 16 years for patents, trademarks and other intangible assets. Intangible assets at the end of the respective years consist of the following: Goodwill Patents, trademarks and other Less accumulated amortization 2003 $42,042 4,965 47,007 17,434 $29,573 2002 $38,541 4,840 43,381 16,242 $27,139 Amortization of patents, trademarks and other intangible assets was $302, $374, and $422 for 2003, 2002 and 2001, respectively. Amortization of these intangible assets is expected to continue at consistent levels for each of the next five years. Impairment of Goodwill and Other Intangibles Effective September 29, 2001, the Company adopted SFAS No. 142. In accordance with the adoption of this new standard, the Company ceased the amortization of goodwill. If SFAS No. 142 had been in effect for the year ended September 28, 2001, the Company’s income from continuing operations before cumulative effect of change in accounting principle would have been $5,950 or $0.73 per diluted share. As required under SFAS No. 142, the Company performed an assessment of the carrying value of goodwill using a number of criteria, including the value of the overall enterprise as of September 29, 2001. This assessment resulted in a write off of goodwill totaling $22,876, net of tax ($2.71 per diluted share) and has been reflected as a change in accounting principle. The write off is associated with the Watercraft ($12,900) and Diving ($10,000) business units. Future impairment charges from existing operations or other acquisitions, if any, will be reflected as an operating expense in the statement of operations. In 2001, under the guidance prior to the adoption of SFAS No. 142, the Com- pany recognized in operating expenses a $2,526 write-down for impaired goodwill related to the Airguide brand in the Motors business. Warranties The Company has recorded product warranty accruals of $3,270 as of October 3, 2003. The Company provides for warranties of certain products as they are sold in accordance with SFAS No. 5, Accounting for Contingencies. The following table summarizes the warranty activity for the year ended October 3, 2003 in accordance with Financial Accounting Standards Board Interpretation No. 45, Guarantor’s Accounting and Disclosures Requirements for Guarantees, Including Indirect Guaran- tees of Indebtedness with Others. Balance at September 27, 2002 Expense accruals for warranties issued during the year Less current year warranty claims paid Balance at October 3, 2003 $1,846 3,855 2,431 $3,270 F-9 Earnings per Share Basic earnings per share is computed by dividing net earnings by the weighted-aver- age number of common shares outstanding. Diluted earnings per share is computed by dividing net earnings by the weighted-average number of common shares out- standing, adjusted for the net effect of dilutive stock options. The following table sets forth the computation of basic and diluted earnings per common share from continuing operations before cumulative effect of change in accounting principle: 2003 2002 2001 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 5,367 $5,421 $30,308 $3,610 8,411,713 8,224,655 8,161,624 15,162 8,406,346 8,214,461 8,146,462 23,277 8,600,162 8,429,769 8,169,739 193,816 215,308 10,194 $0.64 $3.69 $0.44 The Company accounts for its stock-based compensation plans under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. The pro forma information below was determined using the fair value method based on provisions of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, issued in December 2002. Income from continuing operations before cumulative effect of change in accounting principle Total stock-based employee compensation expense determined under fair value method for all awards net of tax Pro forma income from continuing operations before cumulative effect of change in accounting principle Basic earnings per common share from continuing operations before cumulative effect of change in accounting principle As reported Pro forma Diluted earnings per common share from continuing operations before cumulative effect of change in accounting principle 2003 2002 2001 $5,421 $30,308 $3,610 (273) (459) (498) $5,148 $29,849 $3,112 $ 0.64 $ 0.61 $3.69 $3.66 $0.44 $0.38 $0.63 $3.59 $0.44 As reported Pro forma $ 0.63 $ 0.60 $3.59 $3.55 $0.44 $0.38 Stock options that could potentially dilute basic earnings per share in the future that were not included in the fully diluted computation for 2003 and 2002 because they would have been antidilutive were 87,500 and 186,222, respectively. 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 granted with an exercise price lower than the market price on the date of grant. The Company’s practice is to grant options with an exercise price equal to the fair market 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 compensation and is amortized over 1 to 3 years from the date of award, the period after which all restric- tions generally lapse. 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 approximately 35-50%, a risk free rate equivalent to five year U.S. Trea- sury securities, an expected life of five years and no dividends. The pro forma operat- ing results reflect only options granted after 1995. Based on these assumptions, the weighted average fair market value of options granted during the year was $5.30 in 2003, $2.90 in 2002 and $2.18 in 2001. The Company’s employee stock purchase plan provides for the issuance 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 2003, 2002 and 2001, 9,585, 10,378, 13,382 shares, respec- tively, were issued under this plan. Shares available for purchase by employees under this plan were 56,829 at October 3, 2003. F-10 Income Taxes The Company provides for income taxes currently payable and deferred income taxes resulting from temporary differences between financial statement and tax- able income. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion, or all of the deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the years in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Federal and state income taxes are provided on foreign subsidiary income distrib- uted to, or taxable in, the U.S. during the year. At October 3, 2003, net undistrib- uted earnings of foreign subsidiaries total approximately $106,638. The Company considers these unremitted earnings to be permanently invested abroad and no pro- vision for federal or state taxes have been made on these amounts. In the future, if foreign earnings are returned to the U.S., provision for income taxes will be made. The Company’s U.S. entities file a consolidated federal income tax return. Employee Benefits The Company and certain of its subsidiaries have various retirement and profit sharing 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 Related Derivative Financial Instruments The functional currencies of the Company’s foreign operations are the local curren- cies. Accordingly, 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 comprehensive income (loss), a separate component of shareholders’ equity. Currency gains and losses are realized as assets and liabilities of foreign opera- tions, denominated in other than the local currency, are first adjusted based on the denominated currency. Additionally, currency gains and losses are realized through the settlement of transactions denominated in other than local currency. The Company realized currency gains (losses) from transactions of $2,791, ($622) and ($555) for 2003, 2002 and 2001, respectively. The Company operates internationally, which gives rise to exposure to market risk from movements in foreign currency exchange rates. To minimize the effect of fluctuating foreign currencies on its income, the Company periodically enters into foreign currency forward contracts. The Company primarily hedges assets, inven- tory 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 continuing basis for periods consistent with the Company’s exposures. Beginning September 30, 2000 upon the adoption of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of SFAS Statement No. 133 and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, the effective portion of the gain or loss on the for- eign currency forward contract is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings. The remaining gain or loss on the futures contract, if any, is recognized in current earnings during the period of changes. Adoption of these new accounting standards resulted in a cumulative after-tax gain of approxi- mately $1.8 million and an accumulated other comprehensive loss of approximately $3.0 million in the first quarter of fiscal 2001. At October 3, 2003 and September 27, 2002, the Company had no foreign cur- rency contracts. 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. F-11 In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities, which requires the consolidation of variable interest entities (VIEs). VIEs are entities for which control is achieved through means other than voting rights. The consolidation requirements of FIN No. 46 were applicable immediately to all VIEs in which an interest was acquired after January 31, 2003. For VIEs in which an interest was acquired before February 1, 2003, the consolidation requirements of FIN No. 46 are generally effective at the end of our fiscal year 2004. FIN No. 46 has not had, and is not expected to have, a significant impact on our consolidated financial statements. Reclassifications Certain reclassifications have been made to prior years’ amounts to conform with the current year presentation. 2 STRATEGIC CHARGES In 2002 and 2001, the Company recorded strategic charges totaling $1,707 and $1,448, respectively. In 2002 strategic charges included moving and other exit costs related to the reloca- tion of manufacturing facilities in the Watercraft business and severance and clo- sure costs increased reserves for doubtful accounts receivable and excess inventory related to the North American Jack Wolfskin closure. Severance costs included in the strategic charges totaled $150 and approximately three employees were impacted by these actions. There are no unexpended funds related to this action as of the end of 2003. 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. There are no unexpended funds related to this action as of the end of 2003. 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 2003, 2002 and 2001 totaled $14,909, $16,340 and $18,282, respectively. Capitalized costs at October 3, 2003 and September 27, 2002 totaled $772 and $726, respectively, and primarily include catalogs and costs of advertising which has not yet run for the first time. Shipping and Handling Costs Shipping and handling expense attributable to continuing operations included in marketing and selling expense was $11,723, $12,208 and $12,821 for 2003, 2002 and 2001, respectively. Research and Development Research and development costs are expensed as incurred. New Accounting Pronouncements In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 requires expanded and more prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method on reported results. The Company has not adopted a method under SFAS No. 148 to expense stock options but rather continues to apply the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for those plans. No stock- based employee compensation expense for options is reflected in net income for the fiscal years presented as all options granted under those plans had an exercise price equal to the market value of the underlying common stock at the date of grant. A pro forma effect table is presented in the Stock-Based Compensation section of Note 1, which assumes the fair value recognition provisions of SFAS No. 123 would have been adopted for all options granted since fiscal 1995. F-12 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. 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. 4 SALE OF JACK WOLFSKIN BUSINESS In September 2002, the Company sold its Jack Wolfskin business. The sale price totaled 60,320 Euros ($59,295 U.S. dollars) after an adjustment based on net work- ing capital of the business as finally determined. The Company recorded a gain on the sale of $22,351, after tax. In connection with the sale, the Company exited its North American Jack Wolfskin operations in 2003. The Company recorded charges amounting to $450 related to exiting these operations in fiscal year 2002. 5 SALE OF FISHING BUSINESS In March 2002, the Company recognized a gain from discontinued operations of $495, net of tax, related to the final accounting for the sale of the Fishing business. The sale of the Fishing business occurred in March 2000. INDEBTEDNESS 6 Short-term credit facilities provide for borrowings with interest rates set periodi- cally by reference to market rates. Commercial paper rates are set by competi- tive bidding. The Company’s primary facility is a $70,000 unsecured revolving credit agreement expiring in August 2004, which includes a maximum amount of $15,000 in support of commercial paper issuance. At October 3, 2003, the Com- pany’s interest rate on this credit agreement was LIBOR plus 100 basis points. Per the agreement, the LIBOR rate is determined based on the term of the borrowing. At October 3, 2003, the Company had no outstanding borrowings on this credit agreement. The Company has lines of credit, both foreign and domestic, totaling $81,310, of which $76,667 is available at October 3, 2003. The Company also utilizes letters of credit for trade financing purposes. Letters of credit outstanding at October 3, 2003 total $2,505. Long-term debt at the end of the respective years consists of the following: 2001 senior notes 1998 senior notes 1996 senior notes Other long-term notes Fair value adjustment of hedged debt Less current maturities 2003 $ 50,000 14,800 11,700 92 76,592 881 77,473 9,587 $ 67,886 2002 $ 50,000 16,800 17,700 1,988 86,488 1,765 88,253 8,058 $ 80,195 In December 2001, the Company issued unsecured senior notes totaling $50,000 with an interest rate of 7.82%. The senior notes have annual principal payments of $10,000 beginning December 2004 with a final payment due December 2008. In 1998, the Company issued unsecured senior notes totaling $25,000 with an interest rate of 7.15%. The 1998 senior notes have remaining annual principal pay- ments of $800 to $7,000 with a final payment due October 2007. 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%. The 1996 senior notes have remaining annual principal payments of $500 to $5,000 with a final payment due October 2005. The Company’s policy is to manage interest cost using a mix of fixed and variable- rate debt. To manage this risk in a cost efficient manner, the Company enters into interest rate swaps in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk- management objectives and strategies for understanding hedge transactions. Interest rate swaps that met specific conditions under SFAS No. 133 are accounted for as fair value hedges. Accordingly, the changes in the fair value of these instru- ments are immediately recorded in earnings. The mark-to-market values of both the fair value hedging instruments and the underlying debt obligations are recorded F-13 as equal and offsetting gains and losses in the interest expense component of the statement of operations. The fair value of the Company’s interest rate swap agree- ments was approximately $881 at October 3, 2003 and included in other assets on the consolidated balance sheet. All existing fair value hedges are 100% effective. As a result, there is no impact to earnings due to hedge ineffectiveness. Based on the borrowing rates currently available to the Company for debt with similar terms and average maturities, the fair value of the Company’s long-term debt as of October 3, 2003 and September 27, 2002 was approximately $86,900 and $89,900, respectively. The carrying value of all other financial instruments approximates the fair value. In January 2002, the Company entered into the interest rate swap agreements described below, which effectively convert some of the fixed rate senior notes to variable rate debt. Hedged Debt 2001 senior notes - 7.82% 1998 senior notes - 7.15% 1996 senior notes - 7.77% 1996 senior notes - 6.98% Notional Amount of Swap Effective Interest Rate(1) Fiscal Year Expiration Swap Fair Value $20,000 7,000 8.300 3,400 3.80% 3.84% 4.49% 3.46% 2006 2006 2006 2005 $584 189 85 23 $881 (1) Effective rate for the year ended October 3, 2003 of notional amount of senior notes based on interest rate swaps entered into in January 2002 On November 6, 2003, the Company terminated the swap instruments relating to the 1998 and 2001 debt instruments. The Company realized gains on the 1998 and 2001 instruments of $161 and $744, respectively. The gains will be amortized as a reduction in interest expense over the remaining life of the underlying debt instruments. Aggregate scheduled maturities of long-term debt in each of the next five years end- ing September 2008 and thereafter are as follows: Year 2004 2005 2006 2007 2008 Thereafter $ 9,587 15,705 13,500 17,000 10,800 10,000 Interest paid was $4,762, $6,214 and $9,178 for 2003, 2002 and 2001, respectively. F-14 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 October 3, 2003, the Johnson Family held approximately 3,385,000 shares or 46% of the Class A common stock, approximately 1,168,000 shares or 96% of the Class B common stock and approximately 77% 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 distri- bution of earnings. The Company is in compliance with the restrictive covenants of such agreements, as amended from time to time. 7 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 having an initial term in excess of one year at October 3, 2003 are as follows: Year 2004 2005 2006 2007 2008 Thereafter $5,087 4,046 3,211 2,140 1,988 4,584 Future minimum rental commitments to related parties are $652 and $490 for 2004 and 2005, respectively. Rental expense attributable to continuing operations under all leases was approximately $6,926, $6,830 and $6,739 for 2003, 2002 and 2001, 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. INCOME TAXES 8 Income tax expense (benefit) attributable to continuing operations for the respective 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: Current: Federal State Foreign Deferred 2003 2002 2001 $ 23 71 4,545 (358) $4,281 $ 204 74 9,732 175 $10,185 $ — 101 5,301 (2,922) $2,480 The significant components of deferred tax expense (benefit) attributable to continu- ing operations are as follows: Deferred tax benefit (exclusive of effects of other components listed below) Increase in beginning of the year balance of the valuation allowance for deferred tax assets 2003 2002 2001 $(358) $(177) $(3,185) — $(358) 352 $ 175 263 $(2,922) Deferred tax assets: Inventories Compensation Foreign tax credit carryforwards Goodwill and other intangibles Net operating loss carryforwards Other Total gross deferred tax assets Less valuation allowance Deferred tax liabilities: Foreign statutory reserves Net deferred tax asset 2003 2002 $ 2,309 4,355 506 1,391 18,755 4,821 32,137 6,527 25,610 $ 1,838 4,800 2,240 1,579 19,758 2,869 33,084 8,398 24,686 581 $25,029 15 $24,671 The net deferred tax asset is recorded as $6,392 in current and $18,637 in non- current assets for 2003 and $5,083 in current and $19,588 in non-current assets for 2002. Following is the income (loss) from continuing operations before income taxes and cumulative effect of change in accounting principle for domestic and foreign operations: United States Foreign 2003 2002 2001 $ 110 9,592 $9,702 $ (1,477) 41,970 $40,493 $(5,719) 11,809 $ 6,090 F-15 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 2003 2002 2001 34.0% 34.0% 34.0% tax benefit — Foreign rate differential 11.0 Change in beginning of year valuation allowance — 0.1 Foreign operating losses (1.0) Other 44.1% — (8.8) 0.1 0.1 (0.2) 25.2% 0.9 1.3 4.3 — 0.2 40.7% The foreign rate differential of 11.0 and (8.8) for 2003 and 2002, respectively, is comprised of several foreign tax related items; most notably an ongoing German income tax audit in 2003 and the favorable tax treatment on the sale of the Jack Wolfskin business in 2002. At October 3, 2003, the Company has $506 of foreign tax credit carryforwards available to be offset against future U.S. tax liabilities. The credits expire in 2004 through 2008 if not utilized. These carryforwards have been fully reserved for in the valuation allowance. The balance of the valuation allowance relates to state and foreign net operating loss carryforwards and other tax credits. At October 3, 2003, the Company has a U.S. federal operating loss carryforward of $34,705 which begin to expire in 2012, and various state net operating loss car- ryforwards. During 2003, 2002 and 2001, foreign net operating loss carryforwards were utilized, resulting in a reduction in income tax expense of $384, $27 and $32, respectively. In addition, certain of the Company’s foreign subsidiaries have net operating loss carryforwards totaling $2,240. These amounts are available to offset future taxable income over the next 9 to 20 years and are anticipated to be utilized during this period. Taxes paid attributable to continuing operations were $10,708, $4,663 and $4,337 for 2003, 2002 and 2001, respectively. 9 EMPLOYEE BENEFITS Net periodic pension cost for noncontributory defined benefit pension plans includes the following components. Service cost Interest on projected benefit obligation Less estimated return on plan assets Amortization of unrecognized: Net loss Prior service cost Transition asset Net amount recognized 2003 $464 878 676 11 26 (71) $632 2002 $471 841 652 28 26 (80) $634 2001 $343 792 631 1 26 (80) $451 The following provides a reconciliation of the changes in the plans benefit obliga- tion and fair value of assets for 2003 and 2002 and a statement of the funded status at the end of each year: 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 (loss) 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 2003 2002 $12,581 464 878 (80) (690) $13,153 $11,929 471 841 21 (681) $12,581 $ 7,037 901 1,211 (690) $ 8,459 $ 7,684 (298) 332 (681) $ 7,037 $(4,694) $(5,544) 2,702 97 (130) $(1,963) $(2,875) 2,709 71 (49) F-16 The following summarizes the components of the net liability recognized in the consolidated balance sheets at the end of the respective years: 10 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. Prepaid benefit cost Accrued benefit liability Intangible asset Accumulated other comprehensive income Net liability recognized 2003 2002 $ — $ — (3,269) (2,439) 90 66 304 410 $(1,963) $(2,875) 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 2003 2002 2001 7.25% 8 5 7.25% 8 5 7.25% 8 5 A majority of the Company’s full-time employees are covered by profit sharing and defined contribution programs. Participating entities determine profit shar- ing distributions under various performance and service based formulas. Expense attributable to continuing operations under the defined contribution programs was approximately $2,500, $2,300 and $2,200 for 2003, 2002 and 2001, respectively. 11 COMMON STOCK Common stock at the end of the respective years was as follows: Class A, $.05 par value: Authorized Outstanding Class B, $.05 par value: Authorized Outstanding 2003 2002 20,000,000 20,000,000 7,112,155 7,382,979 3,000,000 1,222,647 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 convertible at any time into one share of Class A common stock. During 2003, 82 shares of Class B common stock were converted into Class A common stock. Dur- ing 2002 and 2001, no shares of Class B common stock were converted into Class A common stock. F-17 12 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 appreciation rights have been granted. In December 2002, the Company adopted a phantom share plan to provide an alternative vehicle for the granting of long-term incentives. In 2003, awards were made under the phantom share plan but were not significant. A summary of stock option activity related to the Company’s plans is as follows: Outstanding at September 29, 2000 Granted Cancelled Outstanding at September 28, 2001 Granted Exercised Cancelled Outstanding at September 27, 2002 Granted Exercised Cancelled Outstanding at October 3, 2003 Shares 952,230 235,000 (100,435) 1,086,795 277,755 (148,952) (151,579) 1,064,019 20,750 (256,327) (137,557) 690,885 Weighted Average Exercise Price $12.08 5.50 17.00 10.20 7.64 10.15 13.54 9.06 10.36 7.26 13.79 $ 8.80 Shares available for grant to key executives and non-employee directors are 142,691 at October 3, 2003. The range of options outstanding at October 3, 2003 is as follows: 13 RELATED PARTY TRANSACTIONS Various transactions are conducted between the Company and other organizations controlled by the Johnson Family. These include consulting services, aviation ser- vices, office rental, royalties and certain administrative activities. Total net costs of these transactions are $1,825, $1,219 and $546 for 2003, 2002 and 2001, respec- tively. The majority of the increase in 2002 resulted from a new three year lease agreement with a Johnson Family controlled entity for the Company’s new head- quarters facility. On November 30, 2001, the Company entered into a sale/leaseback transaction for its prior headquarters facility with a related party. The Company sold the facility for $4,982 in cash and related furniture and fixtures for $200 in cash and entered into a month-to-month lease agreement with the related party, which terminated May 31, 2002. The Company and the related party engaged an independent appraiser to determine the sale price of the facility. The gain of $1,302, net of income tax of $675, was recorded as an additional contribution to equity. The gain on the sale could not be recognized in the statement of operations due to the related party nature of the transaction. 14 SEGMENTS OF BUSINESS The Company conducts its worldwide operations through separate global busi- ness units, each of which represent major product lines. Operations are conducted in the U.S. 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. Total assets represent assets that are used in the Company’s operations in each business unit at the end of the years presented. Number of Options 605,885/414,769 Weighted Average Exercise Price Outstanding/Exercisable Outstanding/Exercisable $ 7.35/$ 7.41 16.51/ 16.57 23.06/ 23.06 $ 8.80/$ 9.38 51,000/49,000 34,000/34,000 690,885/497,769 Weighted Average Remaining Contractual Life (in years) 6.4 3.8 0.7 5.9 Price Range per Share $ 5.31–11.50 12.94–17.50 18.63–24.38 F-18 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 presented below: 2003 2002 2001 2003 2002 2001 Net sales: Outdoor equipment: Unaffiliated customers Interunit transfers 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 Total assets: Outdoor equipment Watercraft Diving Motors Other $ 72,704 $106,318 $114,875 89 141 82 78,971 946 82,865 534 85,841 343 77,974 38 72,565 25 80,426 62 85,703 867 540 (1,933) 64,446 539 49 (1,033) $315,892 $342,532 $345,637 80,577 761 207 (1,461) $ 12,136 $ 11,882 $ 12,015 1,293 11,638 231 (9,459) $ 11,613 $ 19,751 $ 15,718 (8,983) 8,579 11,993 (12,112) 1,162 10,502 8,248 (12,043) $ 25,535 $ 23,114 54,480 78,403 21,423 93,865 $277,657 $271,285 58,013 92,254 23,682 78,173 Net sales: United States: Unaffiliated customers Interarea transfers Europe: Unaffiliated customers Interarea transfers Other Interarea transfers Eliminations Total assets: United States Europe Other Long-term assets(1): United States Europe Other $242,100 $232,383 $228,491 5,828 6,760 5,947 46,792 10,593 27,000 3,170 (20,523) 89,995 7,267 27,151 7,170 (20,265) $315,892 $342,532 $345,637 83,696 7,993 26,453 4,032 (17,972) $164,336 $114,198 136,007 21,080 $277,657 $271,285 89,541 23,780 $ 33,121 $ 32,680 23,241 1,873 $ 62,454 $ 57,794 26,816 2,517 (1) Long-term assets consist of net property, plant and equipment, net intangible assets and other assets excluding financial instruments. The Company’s Outdoor Equipment business recognized sales to the United States military totaling $42,444 in 2003. No customer accounted for more than 10% of sales in 2002 or 2001. F-19 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 of any pending litigation will have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company. On February 21, 2003, the competition department of the European Commission initiated formal proceedings in a case concerning certain provisions in the former distribution arrangements of the Company’s European SCUBAPRO UWATEC subsidiaries. The Company responded to the Commission’s views at a hearing on July 1, 2003. The Company has been and will aggressively pursue its position. At this preliminary stage in the procedure, the Commission has indicated that it is considering imposing an unspecified fine on the Company and its European SCUBAPRO UWATEC subsidiaries. The Company cannot currently predict the outcome of the investigation. On December 22, 2003, the Company entered into a confidential settlement agree- ment with a former employee. Under the terms of the agreement the Company is entitled to receive up to $2.0 million. Any consideration received pursuant to the settlement agreement will be recorded in the quarter in which it occurs. 15 VALUATION AND QUALIFYING ACCOUNTS The following summarizes changes to valuation and qualifying accounts: Additions Reserves of Businesses Acquired Balance at Charged to Costs and Beginning Expenses of Year Less or Sold Deductions Balance at End of Year Year ended October 3, 2003: Allowance for doubtful accounts $4,028 $1,216 $ — $1,030 $4,214 Reserves for inventory valuation 2,183 3,296 — 1,637 3,842 Year ended September 27, 2002: Allowance for doubtful accounts 3,739 1,937 (438) 1,210 4,028 Reserves for inventory valuation 3,404 1,798 (848) 2,171 2,183 Year ended September 28, 2001: Allowance for doubtful accounts 3,895 2,460 Reserves for inventory valuation 2,949 1,529 — — 2,616 3,739 1,074 3,404 Deductions include the net impact of foreign currency fluctuations on the respective accounts. F-20 17 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 Gain on disposal of discontinued operations, net of tax Loss from 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) 2003 $54,895 23,683 166 First Quarter 2002 $ 59,738 25,290 991 Second Quarter 2003 $83,265 36,193 6,124 2002 $97,718 40,741 8,258 2003 $108,546 43,508 8,919 Third Quarter 2002 $116,699 49,382 12,974 Fourth Quarter 2003 $69,186 24,605 (3,596) 2002 $68,377 25,641 (2,472) (280) (396) 4,297 3,889 5,060 6,433 (3,656) 20,382 — — — — 495 — — — — $ (280) (22,876) $(23,272) — $ 4,297 — $ 4,384 — $ 5,060 — $ 6,433 — $ (3,656) — $20,382 $ (0.03) — $ (0.05) — $ 0.51 — $ 0.48 0.06 $ 0.60 — $ 0.78 — $ (0.43) — $ 2.45 — — $ (0.03) (2.80) $ (2.85) — $ 0.51 — $ 0.54 — $ 0.60 — $ 0.78 — $ (0.43) — $ 2.45 $ (0.03) $ (0.05) — — $ 0.50 — $ 0.46 0.06 $ 0.59 — $ 0.75 — $ (0.43) — $ 2.38 — — $ (0.03) (2.80) $ (2.85) — $ 0.50 — $ 0.52 — $ 0.59 — $ 0.75 — $ (0.43) — $ 2.38 During the fourth quarter of 2003, the Company incurred approximately $4.0 million in charges stemming from operational changes to improve long-term efficiency and rationalize the Company’s manufacturing capacity and inventory investments. Due to changes in stock prices during the year and timing of issuance of shares, the cumulative total of quarterly net income (loss) per share amounts may not equal the net income per share for the year. F-21 B o a r d o f D i r e c t o r s SAMUEL C. JOHNSON, 75 Director since 1970. Chairman Emeritus of S.C. Johnson & Son, Inc. Chairman, Johnson Financial Group HELEN P. JOHNSON-LEIPOLD, 46 Chairman and Chief Executive Officer. Director since 1994. Also Director of S.C. Johnson & Son, Inc. and JohnsonDiversey, Inc. TERRY E. LONDON, 54 Director since 1999. President of London Partners LLC. Also Director of Pier 1 Imports, Inc. THOMAS F. PYLE, JR., 62 Vice Chairman of the Board. Director since 1987. Chairman, The Pyle Group. Also Director of Sub Zero Corporation. GREGORY E. LAWTON, 52 Director since 1997. President and Chief Executive Officer and Director of JohnsonDiversey, Inc. Also Director of General Cable Corporation and Superior Metal Products, Inc. JOHN M. FAHEY, JR., 51 Director since 2001. President and Chief Executive Officer and Chairman of the Executive Committee of the Board of Trustees of the National Geographic Society. Also Director of Jason Foundation for Education. S h a re h o l d e rs ’ I n fo r m a t i o n CORPORATE HEADQUARTERS Johnson Outdoors Inc. 555 Main Street Racine, Wisconsin 53403 USA Phone: (262) 631-6600 Fax: (262) 631-6601 INTERNET ADDRESSES (www.) JohnsonOutdoors.com camptrails.com (CampTrails) carlislepaddles.com (Carlisle Paddles) dimensionkayak.com (Dimension) escapesail.com (Escape Sailboats) eurekatent.com (main Eureka! page) extrasport.com (Extrasport) llboats.com (Leisure Life) minnkotamotors.com (Minn Kota Motors) necky.com (Necky kayaks) oceankayak.com (Ocean Kayak) oldtowncanoe.com (Old Town) otsport.com (OT Sport) scubapro-uwatec.com (SCUBAPRO and UWATEC) silvacompass.com (Silva) waterquestboats.com (Waterquest) 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 convene at 10:00 a.m. (CST) on February 25, 2004, at the Company’s Headquarters. TRANSFER AGENT AND REGISTRAR LaSalle Bank 135 South LaSalle Street Chicago, Illinois 60603 Phone: (312) 904-2450 Fax: (312) 904-2236 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, 46 Chairman and Chief Executive Officer JERVIS B. PERKINS, 48 Chief Operating Officer PAUL A. LEHMANN, 50 Vice President and Chief Financial Officer ww w.john son out door s.com J o h n s o n O u t d o o r s I n c . 5 5 5 M a i n S t r e e t R a c i n e , W i s c o n s i n 5 3 4 0 3 -1015 U S A ( 2 6 2 ) 6 31 - 6 6 0 0

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