UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2004

April 1, 2005

OR

[_]    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________from_________ to _________

Commission file number 0-16255



JOHNSON OUTDOORS INC.
(Exact name of Registrant as specified in its charter)

Wisconsin
39-1536083
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
incorporation or organization)

555 Main Street, Racine, Wisconsin 53403
(Address of principal executive offices)


(262) 631-6600
(Registrant's telephone number, including area code)


Indicate by check mark whether the RegistrantRegistrant: (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][ X ]  No [_]

[   ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes [X][ X ]  No [_]

[   ]

As of January 5,April 15, 2005, 7,618,3317,639,668 shares of Class A common stock and 1,221,715 shares of Class B common stock of the Registrant were outstanding.




JOHNSON OUTDOORS INC.

Form 10-Q

April 1, 2005


Index
Page No.
  
PART IFINANCIAL INFORMATION 

 Item 1.Financial Statements

 
Consolidated Statements of Operations - Three months
and six months ended December 31, 2004April 1, 2005 and JanuaryApril 2, 2004
1

 
Consolidated Balance Sheets - December 31, 2004,
April 1, 2005, October 1, 2004 and JanuaryApril 2, 20042

 
Consolidated Statements of Cash Flows - ThreeSix months
ended December 31, 2004April 1, 2005 and JanuaryApril 2, 20043

 
Notes to Consolidated Financial Statements4

 Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations109

 Item 3.Quantitative and Qualitative Disclosures About Market Risk16
 17

 		Item 4.Controls and Procedures1716

PART IIOTHER INFORMATION

Item 4.Submission of Matters to a Vote of Security Holders17
 Item 6.Exhibits17

 
Signatures18

 
Exhibit Index19



PART IFINANCIAL INFORMATION


Item 1.Financial Statements


JOHNSON OUTDOORS INC.


CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

(unaudited)

(thousands, except per share data)
Three Months Ended
December 31
2004
January 2
2004
Net sales  $74,982 $62,941 
Cost of sales   44,710  35,971 
Gross profit   30,272  26,970 
Operating expenses:  
    Marketing and selling   17,833  16,306 
    Administrative management, finance and information systems   10,069  7,557 
    Research and development   2,445  1,761 
Total operating expenses   30,347  25,624 
Operating profit (loss)   (75) 1,346 
Interest income   (107) (175)
Interest expense   1,197  1,379 
Other income, net   (119) (120)
Income (loss) before income taxes   (1,046) 262 
Income tax expense (benefit)   (15) 102 
Net income (loss)  $(1,031)$160 
Basic and diluted earnings (loss) per common share  $(0.12)$0.02 

(thousands, except per share data)
 Three Months Ended Six Months Ended 
  
April 1
2005
 
April 2
2004
 
April 1
2005
 
April 2
2004
 
Net sales 
$
106,168
 
$
95,595
 
$
181,150
 
$
158,536
 
Cost of sales  
60,394
  
53,316
  
105,104
  
89,287
 
Gross profit  
45,774
  
42,279
  
76,046
  
69,249
 
Operating expenses:             
Marketing and selling  
23,337
  
21,133
  
41,169
  
37,439
 
Administrative management, finance and information systems  
10,323
  
9,461
  
19,875
  
16,465
 
Research and development  
2,586
  
1,894
  
5,031
  
3,655
 
Amortization of intangibles  
50
  
81
  
101
  
173
 
Profit sharing  
1,080
  
1,024
  
1,546
  
1,486
 
Total operating expenses  
37,376
  
33,593
  
67,722
  
59,218
 
Operating profit  
8,398
  
8,686
  
8,324
  
10,031
 
Interest income  
(61
)
 
(78
)
 
(168
)
 
(253
)
Interest expense  
1,088
  
1,058
  
2,286
  
2,437
 
Other (income) expense, net  
(603
)
 
68
  
(721
)
 
(53
)
Income before income taxes  
7,974
  
7,638
  
6,927
  
7,900
 
Income tax expense  
3,236
  
2,842
  
3,221
  
2,944
 
Net income 
$
4,738
 
$
4,796
 
$
3,706
 
$
4,956
 
Basic Earnings Per Common Share 
$
0.55
 
$
0.56
 
$
0.43
 
$
0.58
 
Diluted Earnings Per Common Share 
$
0.54
 
$
0.55
 
$
0.42
 
$
0.57
 


The accompanying notes are an integral part of the consolidated financial statements.



1



-1-

JOHNSON OUTDOORS INC.

CONSOLIDATED BALANCE SHEETS

(thousands, except share data)
December 31
2004
(unaudited)
October 1
2004
(audited)
January 2
2004
(unaudited)
ASSETS        
Current assets:  
    Cash and temporary cash investments  $34,980 $69,572 $60,558 
    Accounts receivable, less allowance for doubtful  
        accounts of $3,045, $2,807 and $4,361, respectively   57,736  49,727  50,922 
    Inventories, net   65,523  60,426  61,835 
    Income taxes refundable   2,322  --  1,292 
    Deferred income taxes   8,780  8,737  5,838 
    Other current assets   7,754  6,179  9,973 
Total current assets   177,095  194,641  190,418 
Property, plant and equipment, net   33,980  34,355  31,187 
Deferred income taxes   16,873  16,939  18,645 
Intangible assets, net   45,944  43,851  31,212 
Other assets   4,225  3,928  2,074 
Total assets  $278,117 $293,714 $273,536 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities:  
    Short-term debt and current maturities of long-term  
        debt  $17,024 $16,222 $15,769 
    Accounts payable   18,649  16,634  21,453 
    Accrued liabilities:  
        Salaries, wages and benefits   8,661  16,700  7,323 
        Accrued discounts and returns   4,661  4,395  3,605 
        Accrued interest payable   717  2,053  1,663 
        Income taxes payable   --  286  -- 
        Other   14,796  19,042  15,205 
Total current liabilities   64,508  75,332  65,018 
Long-term debt, less current maturities   37,800  50,797  51,322 
Other liabilities   7,550  6,941  6,284 
Total liabilities   109,858  133,070  122,624 
Shareholders' equity:  
    Preferred stock: none issued   --  --  -- 
    Common stock:  
    Class A shares issued:  
        December 31, 2004, 7,618,331;  
        October 1, 2004, 7,599,831;  
        January 2, 2004, 7,438,294   381  380  372 
    Class B shares issued (convertible into Class A):  
        December 31, 2004, 1, 221,715;  
        October 1, 2004, 1,221,715;  
        January 2, 2004, 1,222,297   61  61  61 
    Capital in excess of par value   52,850  52,640  50,597 
    Retained earnings   101,166  102,199  93,670 
    Contingent compensation   (7) (20) (7)
    Accumulated other comprehensive income   13,808  5,384  6,219 
Total shareholders' equity   168,259  160,644  150,912 
Total liabilities and shareholders' equity  $278,117 $293,714 $273,536 

(unaudited)

 
(thousands, except share data)
 
April 1
2005
 
October 1
2004
 
April 2
2004
 
Assets       
Current assets:       
Cash and temporary cash investments 
$
11,338
 
$
69,572
 
$
36,241
 
Accounts receivable, less allowance for doubtful accounts of $3,106, $2,807 and $4,187, respectively  
89,141
  
49,727
  
80,646
 
Inventories, net  
69,411
  
60,426
  
67,746
 
Deferred income taxes  
8,787
  
8,737
  
6,900
 
Other current assets  
8,856
  
6,179
  
7,075
 
Total current assets  
187,533
  
194,641
  
198,608
 
Property, plant and equipment, net  
33,043
  
34,355
  
30,806
 
Deferred income taxes  
16,788
  
16,939
  
18,733
 
Intangible assets, net  
44,631
  
43,851
  
30,241
 
Other assets  
4,243
  
3,928
  
3,022
 
Total assets 
$
286,238
 
$
293,714
 
$
281,410
 
Liabilities And Shareholders' Equity          
Current liabilities:          
Short-term debt and current maturities of long-term debt 
$
13,488
 
$
16,222
 
$
15,755
 
Accounts payable  
22,984
  
16,634
  
18,348
 
Accrued liabilities:          
Salaries and wages  
9,826
  
16,700
  
9,378
 
Accrued discounts and returns  
4,803
  
4,395
  
3,950
 
Accrued interest payable  
1,666
  
2,053
  
2,345
 
Income taxes  
546
  
286
  
1,491
 
Other  
19,287
  
19,042
  
18,062
 
Total current liabilities  
72,600
  
75,332
  
69,329
 
Long-term debt, less current maturities  
37,800
  
50,797
  
51,365
 
Other liabilities  
7,391
  
6,941
  
6,629
 
Total liabilities  
117,791
  
133,070
  
127,323
 
Shareholders' equity:          
Preferred stock: none issued  
¾
  
¾
  
¾
 
Common stock:          
Class A shares issued:
April 1, 2005, 7,638,833;
October 1, 2004, 7,599,831;
April 2, 2004, 7,553,084
  
382
  
380
  
378
 
Class B shares issued (convertible into Class A):
April 1, 2005, 1,221,715;
October 1, 2004, 1,221,715;
April 2, 2004, 1,222,297
  
61
  
61
  
61
 
Capital in excess of par value  
53,088
  
52,640
  
52,026
 
Retained earnings  
105,903
  
102,199
  
98,465
 
Contingent compensation  
¾
  
(20
)
 
(45
)
Accumulated other comprehensive income  
9,013
  
5,384
  
3,202
 
Total shareholders' equity  
168,447
  
160,644
  
154,087
 
Total liabilities and shareholders' equity 
$
286,238
 
$
293,714
 
$
281,410
 

The accompanying notes are an integral part of the consolidated financial statements.

-2-



2


JOHNSON OUTDOORS INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

(unaudited)

(thousands)
Three Months Ended
December 31
2004
January 2
2004
CASH USED FOR OPERATIONS      
Net income (loss)  $(1,031)$160 
Adjustments to reconcile net income (loss) to net cash used for  
    operating activities:  
        Depreciation and amortization   2,590  1,838 
        Deferred income taxes   53  536 
Change in assets and liabilities:  
    Accounts receivable, net   (6,639) (6,550)
    Inventories, net   (3,257) (9,442)
    Accounts payable and accrued liabilities   (14,891) (2,803)
    Other, net   (1,619) (3,432)
    (24,794) (19,693)
CASH USED FOR INVESTING ACTIVITIES  
Additions to property, plant and equipment   (1,682) (1,374)
Proceeds from sold property, plant and equipment   365  -- 
    (1,317) (1,374)
CASH USED FOR FINANCING ACTIVITIES  
Change in short-term debt   4,000  -- 
Principal payments on senior notes and other long-term debt   (16,200) (9,538)
Common stock transactions   127  382 
    (12,073) (9,156)
Effect of exchange rate changes on cash   3,592  1,871 
Decrease in cash and temporary cash investments   (34,592) (28,352)
CASH AND TEMPORARY CASH INVESTMENTS  
Beginning of period   69,572  88,910 
End of period  $34,980 $60,558 

(thousands)
 Six Months Ended 
  
April 1
2005
 
April 2
2004
 
Cash Used For Operations     
Net income 
$
3,706
 
$
4,956
 
Adjustments to reconcile net income to net cash used for operating activities:       
Depreciation and amortization  
4,982
  
3,905
 
Deferred income taxes  
131
  
(558
)
Change in assets and liabilities:       
Accounts receivable, net  
(38,760
)
 
(36,617
)
Inventories, net  
(8,204
)
 
(16,167
)
Accounts payable and accrued liabilities  
(321
)
 
3,538
 
Other, net  
(3,059
)
 
(1,277
)
   
(41,525
)
 
(42,220
)
Cash Used For Investing Activities       
Net additions to property, plant and equipment  
(3,024
)
 
(3,187
)
   
(3,024
)
 
(3,187
)
Cash Used For Financing Activities       
Principal payments on senior notes and other long-term debt  
(16,200
)
 
(9,538
)
Change in short-term debt  
477
  
¾
 
Common stock transactions  
292
  
1,501
 
   
(15,431
)
 
(8,037
)
Effect of foreign currency fluctuations on cash  
1,746
  
775
 
Decrease in cash and temporary cash investments  
(58,234
)
 
(52,669
)
Cash And Temporary Cash Investments       
Beginning of period  
69,572
  
88,910
 
End of period 
$
11,338
 
$
36,241
 

The accompanying notes are an integral part of the consolidated financial statements.

3





-3-

JOHNSON OUTDOORS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1        Basis of Presentation
The consolidated financial statements included herein are unaudited. In the opinion of management, these statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Johnson Outdoors Inc. and subsidiaries (the Company) as of April 1, 2005 and the results of operations for the three and six months ended April 1, 2005 and cash flows for the six months ended April 1, 2005. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 2004.
Because of seasonal and other factors, the results of operations for the three and six months ended April 1, 2005 are not necessarily indicative of the results to be expected for the full year.
All monetary amounts, other than share and per share amounts, are stated in thousands.
2         Earnings per Share
The following table sets forth the computation of basic and diluted earnings per common share:

(unaudited)
  Three Months Ended Six Months Ended 
  
April 1
2005
 
April 2
2004
 
April 1
2005
 
April 2
2004
 
Net income for basic and diluted earnings per share 
$
4,738
 
$
4,796
 
$
3,706
 
$
4,956
 
Weighted average common shares outstanding  
8,606,694
  
8,573,653
  
8,604,024
  
8,546,676
 
Less nonvested restricted stock  
1,879
  
3,211
  
2,197
  
4,020
 
Basic average common shares  
8,604,815
  
8,570,442
  
8,601,827
  
8,542,656
 
Dilutive stock options and restricted stock  
171,511
  
195,866
  
175,669
  
189,769
 
Diluted average common shares  
8,776,326
  
8,766,308
  
8,777,496
  
8,732,425
 
Basic earnings per common share 
$
0.55
 
$
0.56
 
$
0.43
 
$
0.58
 
Diluted earnings per common share 
$
0.54
 
$
0.55
 
$
0.42
 
$
0.57
 
3         

1Basis of Presentation
Stock-Based Compensation and Stock Ownership Plans
The Company accounts for stock options using the intrinsic value method pursuant to Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to Employees. 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 over 1 to 3 years from the date of award, the period over which all restrictions generally lapse.

The consolidated financial statements included herein are unaudited. In the opinion of management, these statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Johnson Outdoors Inc. and subsidiaries (the Company) as of December 31, 2004 and the results of operations and cash flows for the three months ended December 31, 2004. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 1, 2004.
4

Because of seasonal and other factors, the results of operations for the three months ended December 31, 2004 are not necessarily indicative of the results to be expected for the full year.
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.
  Three Months Ended Six Months Ended 
  
April 1
2005
 
April 2
2004
 
April 1
2005
 
April 2
2004
 
Net income 
$
4,738
 
$
4,796
 
$
3,706
 
$
4,956
 
Total stock-based employee compensation included in net income  9  9  18  18 
Total stock-based employee compensation expense determined under fair value method for all awards, net of tax  
(11
)
 
(67
)
 
(23
)
 
(96
)
Pro forma net income 
$
4,736
 
$
4,738
 
$
3,701
 
$
4,878
 
Basic earnings per common share             
As reported 
$
0.55
 
$
0.56
 
$
0.43
 
$
0.58
 
Pro forma 
$
0.55
 
$
0.55
 
$
0.42
 
$
0.57
 
Diluted earnings per common share             
As reported 
$
0.54
 
$
0.55
 
$
0.42
 
$
0.57
 
Pro forma 
$
0.54
 
$
0.54
 
$
0.42
 
$
0.56
 
The Company’s current equity incentive plans provide for the issuance of options to acquire shares of Class A common stock by key executives and non-employee directors. All stock options have been granted with an exercise price equal to the fair market value on 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. The current plans also allow for the issuance of restricted stock or stock appreciation rights in lieu of options. Grants of restricted shares are not significant in any year presented.
The Company's employees’ 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. Shares available for purchase by employees under this plan were 33,957 at April 1, 2005. No common stock has been issued under this plan to date during the six months ended April 1, 2005.
A summary of stock option activity related to the Company’s plans is as follows:
 SharesWeighted Average Exercise Price
Outstanding at October 1, 2004480,766$8.56
Exercised(39,002)  7.55
Outstanding at April 1, 2005441,764$8.65
Options to purchase525,933shares of common stock with a weighted average exercise price of$8.55per share were outstanding at April 2, 2004.
The Company adopted a phantom stock plan during fiscal 2003. Under this plan, certain employees earn cash bonus awards based upon the performance of the Company’s Class A common stock. No phantom stock has been issued under this plan to date during the six months ended April 1, 2005.

All monetary amounts, other than share and per share amounts, are stated in thousands.
5

Certain amounts as previously reported have been reclassified to conform to the current period presentation.
4         Pension Plans
The components of net periodic benefit cost related to Company administered benefit plans for the three and six months ended April 1, 2005 and April 2, 2004, respectively, were as follows.
  Three Months Ended Six Months Ended 
  
April 1
2005
 
April 2
2004
 
April 1
2005
 
April 2
2004
 
Components of net periodic benefit cost:         
Service cost 
$
144
 
$
144
 
$
288
 
$
287
 
Interest on projected benefit obligation  
222
  
222
  
444
  
443
 
Less estimated return on plan assets  
191
  
191
  
382
  
382
 
Amortization of unrecognized:             
Net loss  
25
  
20
  
50
  
40
 
Prior service cost  
6
  
6
  
12
  
13
 
Transition asset  
(10
)
 
(15
)
 
(20
)
 
(31
)
Net amount recognized 
$
196
 
$
186
 
$
392
 
$
370
 
5      Restructuring
On July 27, 2004 the Company announced plans to outsource manufacturing then being undertaken at its Grand Rapids, Michigan facility, and to shift production from Mansonville, Canada to its Old Town, Maine operation, as part of the Company's on-going efforts to increase efficiency and improve profitability of its Watercraft business unit. The Company ceased manufacturing operations at the Michigan and Canadian locations in September 2004. Consistent with prior disclosures, costs and charges associated with these plans are estimated at $3.1 million and will be incurred across fiscal years 2004 and 2005. The decision resulted in the reduction of 71 positions across the two locations.
Total charges incurred in the three and six months ended April 1, 2005 were $44 and $507, respectively. Charges consisted of the following major categories of costs: one-time employee termination benefits of $(2) and $335, respectively, and other costs primarily related to disposal of equipment of $46 and $172, respectively. These charges are included in the “Administrative management, finance and information systems” and “Cost of sales” lines in the Consolidated Statement of Operations.
A summary of charges, payments and accruals for the six months ended April 1, 2005 in connection with the restructuring plans are as follows:
Accrued liabilities as of October 1, 2004 $1,193 
Activity during the six month period ended April 1, 2005:    
Additional charges  
507
 
Settlement payments against charges and other  
(1,293
)
Accrued liabilities as of April 1, 2005  407 
Additional anticipated 2005 charges  
101
 
Total anticipated remaining restructuring payments $508 

2Earnings (loss) per Share
6       New Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123(R),Share-Based Payment, a revision to SFAS 123,Accounting for Stock-Based Compensation. This statement supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees. SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement requires that the cost of share based payment transactions be recorded as an expense at their fair value determined by applying a fair value measurement method. The provisions of this statement are effective for fiscal years beginning after June 15, 2005. The Company will adopt this statement for fiscal 2006 using the modified prospective approach. This statement is not expected to have a material impact on the financial results of the Company.

The following table sets forth the computation of basic and diluted earnings (loss) per common share:
6

Three Months Ended
December 31
2004
January 2
2004
Net income (loss) for basic and diluted earnings per share  $(1,031)$160 
Weighted average common shares outstanding   8,601,354  8,519,698 
Less nonvested restricted stock   2,515  4,830 
Basic average common shares   8,598,839  8,514,868 
Dilutive stock options and restricted stock   --  195,364 
Diluted average common shares   8,598,839  8,710,232 
Basic and diluted earnings (loss) per common share  $(0.12)$0.02 
7       Income Taxes
The provision for income taxes includes deferred taxes and is based upon estimated annual effective tax rates in the tax jurisdictions in which the Company operates. The effective tax rate for the three and six months ended April 1, 2005 was impacted by expenses recognized related to the buy-out proposal, subject to a final determination regarding the deductibility of these costs, and not benefiting certain losses of foreign subsidiaries.
8Inventories
Inventories at the end of the respective periods consist of the following:
  
April 1
2005
 
October 1
2004
 
April 2
2004
 
Raw materials 
$
27,534
 
$
24,194
 
$
24,594
 
Work in process  
1,626
  
2,106
  
2,117
 
Finished goods  
43,294
  
36,768
  
44,244
 
   
72,453
  
63,068
  
70,955
 
Less reserves  
3,042
  
2,642
  
3,209
 
  
$
69,411
 
$
60,426
 
$
67,746
 
9       Warranties
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 six months ended April 1, 2005 and April 2, 2004.
  
April 1
2005
 
April 2
2004
 
Balance at beginning of period 
$
3,533 
$
3,270 
Warranty accruals for products sold during the period  
1,046
  
1,211
 
Less current period warranty claims paid  
1,057
  
1,283
 
Balance at end of period 
$
3,522 
$
3,198
 
10     Comprehensive Income (Loss)
Comprehensive income (loss) includes net income and changes in shareholders’ equity from non-owner sources. For the Company, the difference between net income and comprehensive income is due to cumulative foreign currency translation adjustments. Strengthening of the Euro, Swiss franc, Canadian dollar and other worldwide currencies against the U.S. dollar created the translation adjustment income for the three months and six months ended April 1, 2005.
Comprehensive income (loss) for the respective periods consists of the following:
  Three Months Ended Six Months Ended 
  
April 1
2005
 
April 2
2004
 
April 1
2005
 
April 2
2004
 
Net income 
$
4,738
 
$
4,796
 
$
3,706
 
$
4,956
 
Translation adjustment  
(4,795
)
 
(3,017
)
 
3,629
  
3,021
 
Comprehensive income (loss) 
$
(57
)
$
1,779
 
$
7,335
 
$
7,977
 

3Stock-Based Compensation and Stock Ownership Plans
7
11     Segments of Business
The Company conducts its worldwide operations through separate global business units, each of which represents major product lines. Operations are conducted in the United States and various foreign countries, primarily in Europe, Canada and the Pacific Basin. The Company’s Outdoor Equipment business recognized net sales to the United States military which totaled approximately 11.2% and 14.3% of the total Company net sales during the three months ended April 1, 2005 and April 2, 2004, respectively, and 14.8% and 16.5% of the total Company net sales during the six months ended April 1, 2005 and April 2, 2004, respectively.
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 are those assets used in the Company's operations in each business unit at the end of the periods presented.
A summary of the Company’s operations by business unit is presented below:

The Company accounts for stock options using the intrinsic value method pursuant to Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to Employees. 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 over 1 to 3 years from the date of award, the period over which all restrictions generally lapse.
  Three Months Ended Six Months Ended 
  
April 1
2005
 
April 2
2004
 
April 1
2005
 
April 2
2004
 
Net sales:         
Marine electronics:         
Unaffiliated customers 
$
47,145
 
$
31,662
 
$
74,884
 
$
49,596
 
Interunit transfers  
48
  
221
  
107
  
296
 
Outdoor equipment:             
Unaffiliated customers  
20,861
  
24,143
  
39,701
  
39,940
 
Interunit transfers  
7
  
27
  
18
  
33
 
Watercraft:             
Unaffiliated customers  
18,827
  
19,620
  
30,790
  
31,845
 
Interunit transfers  
185
  
73
  
288
  
288
 
Diving:             
Unaffiliated customers  
19,236
  
20,045
  
35,557
  
36,981
 
Interunit transfers  
7
  
3
  
11
  
9
 
Other  
99
  
125
  
218
  
174
 
Eliminations  
(247
)
 
(324
)
 
(424
)
 
(626
)
  
$
106,168
 
$
95,595
 
$
181,150
 
$
158,536
 
Operating profit (loss):             
Marine electronics 
$
9,214
 
$
7,517
 
$
12,101
 
$
10,556
 
Outdoor equipment  
3,060
  
4,451
  
6,467
  
6,932
 
Watercraft  
(964
)
 
(2,062
)
 
(3,783
)
 
(5,573
)
Diving  
1,450
  
3,065
  
1,314
  
4,750
 
Other  
(4,362
)
 
(4,285
)
 
(7,775
)
 
(6,634
)
  
$
8,398
 
$
8,686
 
$
8,324
 
$
10,031
 
Total assets (end of period):             
Marine electronics       
$
85,836
 
$
48,056
 
Outdoor equipment        
27,317
  
32,534
 
Watercraft        
68,596
  
71,971
 
Diving        
83,437
  
100,601
 
Other        
21,052
  
28,248
 
        
$
286,238
 
$
281,410
 
8

The pro forma information below was determined using the fair value method based on provisions of SFAS No. 123,Accounting forStock-Based Compensation, as amended by SFAS No. 148,Accounting for Stock-Based Compensation – Transition and Disclosure.

-4-

JOHNSON OUTDOORS INC.12  
Three Months Ended
December 31
2004
January 2
2004
Net income (loss)  $ (1,031)$ 160 
Total stock-based employee compensation included in net income (loss)  
    13  13 
Total stock-based employee compensation expense determined under fair  
     value method for all awards, net of tax   (15) (28)
Pro forma net income (loss)  $ (1,033)$ 145 
Basic earnings per common share  
        As reported  $ (0.12)$ 0.02 
        Pro forma  $ (0.12)$ 0.02 
Diluted earnings per common share  
        As reported  $ (0.12)$ 0.02 
        Pro forma  $ (0.12)$ 0.02 

The Company’s current equity incentive plans provide for the issuance of options to acquire shares of Class A common stock by key executives and non-employee directors. All stock options have been granted with an exercise price equal to the fair market value on 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. The current plans also allow for the issuance of restricted stock or stock appreciation rights in lieu of options. Grants of restricted shares are not significant in any year presented.

The Company’s employees’ 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. Shares available for purchase by employees under this plan were 33,957 at December 31, 2004.

A summary of stock option activity related to the Company’s plans is as follows:

Shares
Weighted Average
Exercise Price
Outstanding at October 1, 2004   480,766 $ 8.56 
Exercised   (18,500) 6.91 
Outstanding at December 31, 2004   462,266 $ 8.63 

Options to purchase 620,586 shares of common stock with a weighted average exercise price of $8.80 per share were outstanding at January 2, 2004.

The Company adopted a phantom stock plan during fiscal 2003. Under this plan, certain employees earn cash bonus awards based upon the performance of the Company’s Class A common stock.





-5-

JOHNSON OUTDOORS INC.Litigation

4Pension Plans

The components of net periodic benefit cost related to Company sponsored benefit plans for the three months ended December 31, 2004 and January 2, 2004 were as follows.

Three Months Ended
December 31
2004
January 2
2004
Components of net periodic benefit cost:      
    Service cost  $ 144 $ 144 
    Interest on projected benefit obligation   222  222 
    Less estimated return on plan assets   (191) (191)
    Amortization of unrecognized:  
        Net loss   25  20 
        Prior service cost   6  6 
        Transition asset   (10) (15)
Net amount recognized  $ 196 $ 186 

5Restructuring

On July 27, 2004 the Company announced plans to outsource manufacturing then being undertaken at its Grand Rapids, Michigan facility, and to shift production from Mansonville, Canada to its Old Town, Maine operation, as part of the Company’s on-going efforts to increase efficiency and improve profitability of its Watercraft business unit. The Company ceased manufacturing operations at the Michigan and Canadian locations in September 2004. Consistent with prior disclosures, costs and charges associated with these plans are estimated at $3.1 million and will be incurred across fiscal years 2004 and 2005. The decision resulted in the reduction of 71 positions across the two locations.

Total charges incurred in the quarter ended December 31, 2004 were $463 and consisted of the following major categories of costs: one-time employee termination benefits of $221 and other costs primarily related to disposal of equipment of $35. These charges are included in the “Administrative management, finance and information systems” and “Cost of sales” lines in the Consolidated Statement of Operations.

A summary of charges, payments and accruals for the quarter ended December 31, 2004 are as follows:

Accrued liabilities as of October 1, 2004$ 1,193
Activity during quarter ended December 31, 2004:
    Additional charges463
    Settlement payments against charges and other747
Accrued liabilities as of December 31, 2004909
Additional anticipated 2005 charges141
Total anticipated remaining restructuring payments$ 1,050

6New Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123(R),Share-Based Payment, a revision to SFAS 123,Accounting for Stock-BasedCompensation. This statement supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees. SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement requires that the cost of share based payment transactions be recorded as an expense at their fair value determined by applying a fair value measurement method. The provisions of this statement are effective as of the first interim reporting period beginning after June 15, 2005. The Company will adopt this statement during the fourth quarter of its fiscal 2005 year on a prospective basis. This statement is not expected to have a material impact on the financial results of the Company.

-6-

The Company is subject to various legal actions and proceedings in the normal course of business, including those related to product liability and 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.
JOHNSON OUTDOORS INC.13     
7Income Taxes

The provision for income taxes includes deferred taxes and is based upon estimated annual effective tax rates in the tax jurisdictions in which the Company operates. The effective tax rate for the quarter ended December 31, 2004 was impacted by non-deductibility of expenses recognized related to the buy-out proposal and not benefiting certain losses with foreign subsidiaries.

8Inventories

Inventories at the end of the respective periods consist of the following:

December 31
2004
October 1
2004
January 2
2004
Raw materials  $ 25,535 $ 24,194 $ 23,834 
Work in process   2,132  2,106  2,544 
Finished goods   40,776  36,768  38,742 
    68,443  63,068  65,120 
Less reserves   2,920  2,642  3,285 
   $ 65,523 $ 60,426 $ 61,835 

9Warranties

The Company provides for warranties of certain products as they are sold in accordance with SFAS No. 5,Accounting forContingencies. The following table summarizes the warranty activity for the three months ended December 31, 2004 and January 2, 2004.

December 31
2004
January 2
2004
Balance at beginning of quarter  $ 3,533 $ 3,270 
Warranty accruals for products sold during the period   529  473 
Less current period warranty claims paid   546  419 
Balance at end of quarter  $ 3,614 $ 3,324 

10Comprehensive Income

Comprehensive income includes net income and changes in shareholders’ equity from non-owner sources. For the Company, the difference between net income and comprehensive income is due to cumulative foreign currency translation adjustments. Strengthening of the Euro, Swiss franc, Canadian dollar and other worldwide currencies against the U.S. dollar created the translation adjustment income for the three months ended December 31, 2004.





-7-

JOHNSON OUTDOORS INC.Buy-out Proposal

Comprehensive income (loss) for the respective periods consists of the following:

Three Months Ended
December 31
2004
January 2
2004
Net income (loss)  $ (1,031)$ 160 
Translation adjustment   8,424  6,038 
Comprehensive income  $ 7,393 $ 6,198 

11Segments of Business

The Company conducts its worldwide operations through separate global business units, each of which represents major product lines. Operations are conducted in the United States and various foreign countries, primarily in Europe, Canada and the Pacific Basin. The Company’s Outdoor Equipment business recognized net sales to the United States military which totaled approximately 20% of total Company’s net sales during the quarters ended December 31, 2004 and January 2, 2004, respectively.

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 are those assets used in the Company’s operations in each business unit at the end of the periods presented.













-8-

On October 28, 2004, the Company entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with JO Acquisition Corp., an entity established by members of the family of the late Samuel C. Johnson, including Helen P. Johnson-Leipold, Chairman and Chief Executive Officer of the Company. Under the terms of the merger proposed by the Merger Agreement (the “Merger”), public shareholders of the Company would have received $20.10 per share in cash, and the members of the Johnson family would have acquired 100% ownership of the Company.
The Merger was subject to a number of conditions contained in the Merger Agreement, including shareholder approval of the Merger Agreement. On March 22, 2005, a special meeting of the shareholders of the Company was held in order to vote upon a proposal to approve the Merger Agreement. The required shareholder vote was not obtained at such meeting and the Merger Agreement was terminated on March 31, 2005 by the Company and the Purchaser pursuant to the terms of the Merger Agreement. The termination of the Merger Agreement did not result in the imposition of any penalties on the Company.
JOHNSON OUTDOORS INC.
A summary of the Company’s operations by business unit is presented below:

Three Months Ended
December 31
2004
January 2
2004
Net sales:      
    Marine electronics:  
        Unaffiliated customers  $27,738 $17,934 
        Interunit transfers   111  75 
    Outdoor equipment:  
        Unaffiliated customers   18,840  15,797 
        Interunit transfers   11  6 
    Watercraft:  
        Unaffiliated customers   11,963  12,225 
        Interunit transfers   103  215 
    Diving:  
        Unaffiliated customers   16,321  16,936 
        Interunit transfers   3  6 
    Other   120  49 
    Eliminations   (228) (302)
   $74,982 $62,941 
Operating profit (loss):  
    Marine electronics  $2,887 $3,038 
    Outdoor equipment   3,408  2,481 
    Watercraft   (2,819) (3,511)
    Diving   (136) 1,685 
    Other   (3,415) (2,347)
   $(75)$1,346 
Total assets (end of period):  
    Marine electronics  $69,045 $32,526 
    Outdoor equipment   23,473  27,209 
    Watercraft   59,683  60,205 
    Diving   102,394  99,652 
    Other   23,522  53,944 
   $278,117 $273,536 

12Litigation

The Company is subject to various legal actions and proceedings in the normal course of business, including those related to product liability and 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.

13Buy-out Proposal

On October 28, 2004, the Company’s Board of Directors approved a definitive merger agreement with JO Acquisition Corp., a newly formed entity established by members of the family of the late Samuel C. Johnson, including Helen P. Johnson-Leipold, Chairman and Chief Executive Officer of the Company. Under the terms of the proposed merger, public shareholders of the Company would receive $20.10 per share in cash, and the members of the Johnson family would acquire 100% ownership of the Company.

-9-

JOHNSON OUTDOORS INC.

The merger is subject to a number of conditions, including shareholder approval of the merger agreement and receipt of debt financing. GE Commercial Finance has committed, subject to customary conditions, to provide debt financing for the transaction.

The Company has tentatively scheduled a special meeting of its shareholders on March 22, 2005 for the purpose of obtaining shareholder approval of the merger agreement. If the necessary shareholder approval is obtained, then the merger is expected to be completed in the first calendar quarter of 2005, subject to customary conditions and approvals.

Item 2     Management’s2.Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion includes comments and analysis relating to the results of operations and financial condition of Johnson Outdoors Inc. and its subsidiaries (the Company) for the three and six months ended December 31, 2004April 1, 2005 and JanuaryApril 2, 2004. This discussion should be read in conjunction with the consolidated financial statements and related notes that immediately precede this section, as well as the Company’s Annual Report on Form 10-K for the fiscal year ended October 1, 2004.

Forward Looking Statements

Certain matters discussed in this Form 10-Q are “forward-looking statements,” and the Company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of those safe harbor provisions. These forward-looking statements can generally be identified as such because the context of the statement includes phrases such as the Company “expects,” “believes” or other words of similar meaning. Similarly, statements that describe the Company’s future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include changes in consumer spending patterns; unanticipated issues related to the Company’s military tent business; 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; the success of suppliers and customers; the ability of the Company to deploy its capital successfully; unanticipated outcomes related to outsourcing certain manufacturing processes; unanticipated outcomes related to outstanding litigation matters; adverse weather conditions; and unanticipated events related to the Buy-Out transaction. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this Form 10-Q. The Company assumes no obligation, and disclaims any obligation, to update such forward-looking statements to reflect subsequent events or circumstances.


9
Trademarks

The Company has registered the following trademarks which are used in this Form 10-Q: Minn Kota(R)Kota®; Humminbird(R)Humminbird®; and Eureka!(R)®.

Overview

The Company designs, manufactures and markets top-quality outdoor recreational products for the whole family. Through a combination of innovative products, strong marketing and distribution, the Company meets the needs of the consumer, seekingseeks to set itself apart from the competition. Its subsidiaries comprise a network that promotes entrepreneurialism and leverages best practices and synergies, following the strategic vision set by executive management and approved by the Company’s Board of Directors.



-10-

JOHNSON OUTDOORS INC.

The 19.1%11.1% and 14.3% increase in net sales for the three and six months ended December 31, 2004April 1, 2005, respectively, resulted primarily from strong military tent sales (up 19.3%) and the addition of Techsonic Industries Inc. (Techsonic), which was acquired in May 2004. This acquisition added the popularHumminbird® brand to the Company’s Marine Electronics portfolio (the Marine Electronics business was known as the Motors business prior to July 2, 2004). The Techsonic business added $9.0$15.8 million in net sales to the current quarter.quarter and $24.8 million in net sales for the six months ended April 1, 2005.

Although strong growth has been seen in military tent sales in recent years, sales in this business are expected to drop up to 40% in fiscal 2005 as current contracts and emergency orders come to an end. Though it remains a strong brand, the Company’sEureka!consumer line of camping products continues to face a declining market for its higher quality consumer tents, as the shift to lower priced and private label products continues in its retail channels. TheEureka! commercial line of tents continues to maintain its position in a flat market.

Watercraft business net sales declined 3.0% from1.1% and 1.9% in the year ago period.three months and six months ended April 1, 2005, respectively, due to the discontinued sales of certain low margin products that had accounted for net sales of $1.4 million and $1.5 million for the three months and six months ended April 2, 2004, respectively. In July 2004, the Company began a $3.1 million restructuring plan to increase efficiency and improve profitability of this business. This effort is intended to make Watercraft leaner, yet more flexible, more focused, and more competitive going forward. It should make the Watercraft business better prepared to deliver financial performance equal to the strength of the Company’s brands.

The Diving business’ net sales include $0.9$0.6 million and $1.6 million of favorable currency translation whichduring the three months and six months ended April 1, 2005, respectively. This partially offsets declines in net sales compared to the first quartersame periods of last year. Continued soft market conditions in Europe and Asia and the delayed introduction of new products drove much of the decline. Profits declined with lower net sales and were also negatively affected by unfavorable volume-related manufacturing variances, lower margins on close-out product sales and unfavorable impact of currencies on operating expenses.changes in currency exchange rates. Continued investment is needed to support better performance by the Company’s Diving business.

Debt-to-total capitalization stands at 25%23% at the end of the quarter, well below historical levels. Compared to prior year levels, the increases in trade receivables and inventories primarily reflect the addition of Techsonic and the impact of currency fluctuation in the Company’sCompany's foreign operations

operations.


10

Due to the seasonality of the Company’s businesses, firstsecond quarter results are not expected to be indicative of the Company's average quarterly results for fiscal 2005 because the second quarter falls within the Company’s primary selling period, which takes place in its second and third fiscal quarters. The table below sets forth a historical view of the Company’s seasonality.

Year Ended
October 1, 2004
October 3, 2003
September 27, 2002
Quarter Ended
Net
Sales
Operating
Profit (Loss)
Net
Sales
Operating
Profit (Loss)
Net
Sales
Operating
Profit (Loss)
December   18% 7% 17% 1% 17% 5%
March   27  45  27  53  29  42 
June   34  72  34  77  34  66 
September   21  (24) 22  (31) 20  (13)
    100% 100% 100% 100% 100% 100%




-11-

                                                                                                Year Ended
 
  
October 1, 2004
 
October 3, 2003
 
September 27, 2002
 
 
Quarter Ended
 
              Net
               Sales
 
       Operating
    Profit (Loss)
 
                 Net
                 Sales
 
       Operating
     Profit (Loss)
 
               Net
                Sales
 
       Operating
     Profit (Loss)
 
December  
18
%
 
7
%
 
17
%
 
1
%
 
17
%
 
5
%
March  
27
  
45
  
27
  
53
  
29
  
42
 
June  
34
  
72
  
34
  
77
  
34
  
66
 
September  
21
  
(24
)
 
22
  
(31
)
 
20
  
(13
)
   
100
%
 
100
%
 
100
%
 
100
%
 
100
%
 
100
%

JOHNSON OUTDOORS INC.

Results of Operations

The Company’s sales and operating earnings by segment are summarized as follows:

(millions)
Three Months Ended
December 31
2004
January 2
2004
Net sales:      
    Marine electronics  $ 27.9 $ 18.0 
    Outdoor equipment   18.8  15.8 
    Watercraft   12.1  12.4 
    Diving   16.3  16.9 
    Other/eliminations   (0.1) (0.2)
Total  $ 75.0 $ 62.9 
Operating profit:  
    Marine electronics  $ 2.9 $ 3.0 
    Outdoor equipment   3.4  2.5 
    Watercraft   (2.8) (3.5)
    Diving   (0.1) 1.7 
    Other/eliminations   (3.5) (2.4)
Total  $ (0.1)$ 1.3 

(millions)
 
Three Months Ended
 
Six Months Ended
 
  
April 1
2005
 
April 2
2004
 
April 1
2005
 
April 2
2004
 
Net sales:         
Marine electronics 
$
47.1
 
$
31.9
 
$
75.0
 
$
49.9
 
Outdoor equipment  
20.9
  
24.2
  
39.7
  
40.0
 
Watercraft  
19.0
  
19.7
  
31.1
  
32.1
 
Diving  
19.2
  
20.0
  
35.6
  
37.0
 
Other/eliminations  
¾
  
(0.2
)
 
(0.2
)
 
(0.5
)
Total 
$
106.2
 
$
95.6
 
$
181.2
 
$
158.5
 
Operating profit (loss):             
Marine electronics 
$
9.2
 
$
7.5
 
$
12.1
 
$
10.6
 
Outdoor equipment  
3.1
  
4.5
  
6.5
  
6.9
 
Watercraft  
(1.0
)
 
(2.1
)
 
(3.8
)
 
(5.6
)
Diving  
1.5
  
3.1
  
1.3
  
4.8
 
Other/eliminations  
(4.4
)
 
(4.3
)
 
(7.8
)
 
(6.7
)
Total 
$
8.4
 
$
8.7
 
$
8.3
 
$
10.0
 
See Note 11 in the notes to the consolidated financial statements for the definition of segment net sales and operating profits.

Net sales on a consolidated basis for the three months ended December 31, 2004April 1, 2005 totaled $75.0$106.2 million, an increase of 19.1%11.1% or $12.0$10.6 million, compared to $62.9$95.6 million in the three months ended JanuaryApril 2, 2004. The Company acquired Techsonic on May 5, 2004. Net sales for the Techsonic business for the three months ended December 31, 2004April 1, 2005 were $9.0$15.8 million. Foreign currency translations favorably impacted quarterly sales by $1.3$1.0 million in the firstsecond quarter of fiscal 2005. Two of the Company’s business units had sales growth over the prior year. The Marine Electronics business sales increased $9.8$15.3 million, or 54.7%47.9%, to $27.9 million. This increase was primarily the result of$47.1 million, including the addition of the Techsonic business which added $9.0 million to sales.noted above. Sales for the Outdoor Equipment business increased $3.0decreased $3.3 million, or 19.3%13.6%, to $18.8 million. Military tent sales in the current fiscal year accounted for this growth; however, the Company’s backlog of orders under existing military contracts only extends through approximately April of 2005. Subsequent to April of 2005, the Company anticipates declines in military tent sales$20.9 million as a result of declining military tent sales and the expirationconclusion of existing contracts.a two-year test program of Eureka! in the mass channel. The Watercraft business sales decreased $0.4$0.7 million, or 3.0%3.6%, to $12.1 million.$19.0 million due to the discontinued sales of certain low margin products that accounted for $1.4 million in net sales in the same period last year. The Diving business sales decreased $0.6$0.8 million, or 3.6%4.0%, to $16.3$19.2 million, includingdespite favorable currency translations totaling $0.9$0.6 million resulting from the strengthening of the Euro and Swiss Franc against the U.S. Dollar. The declines in the Diving business are the result of continued market softness and delayed new product launches due to implementation of the Company’s new enhanced design validation process. Diving’s sales were also negatively impacted by actions taken to eliminate sales through undesirable channels, including E-bay sellers and grey market traders.


11

Net sales for the six months ended April 1, 2005 increased $22.6 million, or 14.3%, to $181.2 million, compared to $158.5 million in the six months ended April 2, 2004. This increase included net sales for the Techsonic business for the six months ended April 1, 2005 of $24.8 million. Additionally, foreign currency translations favorably impacted year-to-date sales by $2.3 million. The Marine Electronics business sales increased $25.1 million, or 50.3%, to $75.0 million due primarily to the addition of the Techsonic business. Sales for the Outdoor Equipment business decreased $0.3 million, or 0.3%, to $39.7 million mainly as a result of the conclusion of a two-year test program of Eureka! in the mass channel. The Watercraft business sales decreased $1.1 million, or 3.3%, to $31.1 million mainly as a result of discontinued product sales which were $1.5 million last year-to-date. The Diving business sales decreased $1.4 million, or 3.8%, to $35.6 million. The Diving business volume decrease was offset by the strengthening of the Euro and Swiss Franc against the U.S. Dollar.
Gross profit as a percentage of sales was 40.4%43.1% for the three months ended December 31, 2004April 1, 2005 compared to 42.8%44.2% in the corresponding period in the prior year. The overall gross margin rate was negatively affected by the addition of the Techsonic business, where gross margin rates are well below the Company’s overall gross margin rate. Declines in margins in the Diving businessand Outdoor Equipment businesses also contributed to the lower rate in the quarter. The Diving business margins have declined from the prior year as a result of lower volumes from continued market softness, unfavorable volume-related manufacturing variances, and lower pricing on close-out product sales. Margins in the Watercraft and Outdoor Equipment businessesbusiness improved over the prior year as operational improvements take effect.
Gross profit as a percentage of sales was 42.0% for the six months ended April 1, 2005 compared to 43.7% in the corresponding period in the prior year. The Marine Electronicsoverall gross margin rate was negatively affected by the addition of the Techsonic business, saw margins decline aswhere gross margin rates are below the margins forCompany’s overall gross margin rate. Additionally the overall margin rate was impacted by significant improvements achieved in the Watercraft operations, these improvements were more than offset by declines in the Diving business due primarily to volume declines and operating inefficiencies, and impacts of close out sales in the Minn Kota business were flat and marginsearly in the year.
Operating expenses for the newly acquired Humminbirdquarter were $37.4 million, up $3.8 million or 11.3% from the same period in fiscal 2004, due primarily to the addition of the Techsonic business, which added $3.6 million in operating expenses. The increased spending also included $1.0 million of expenses related to the buyout proposal, compared to $0.3 million in the second quarter of fiscal 2004. Year-to-date operating expenses were lower than$67.7 million, up $8.5 million or 14.4% from the historical margins forsame period in fiscal 2004. The Techsonic business added $6.1 million in additional operating expenses and the Minn Kota business.

-12-

JOHNSON OUTDOORS INC.

buy-out proposal costs further contributed $2.0 million year-to-date in additional operating expenses, compared to $0.3 million in the prior year-to-date. Unfavorable currency translations also affected year-to-year comparisons of operating expenses.

The Company recognized an operating lossprofit of $0.1$8.4 million for the three months ended December 31, 2004April 1, 2005 compared to an operating profit of $1.3$8.7 million for the corresponding period of the prior year. The Outdoor Equipment business improvements were driven by increased military sales. Diving incurred anFor the six months ended April 1, 2005 operating loss of $0.1profit was $8.3 million as a result of the issues noted in previous paragraphs. Watercraftcompared to operating lossesprofit for the three months were improved over the losses incurredsame period in the prior year as a result of improvements made to the business’s operations. Operating profit in fiscal 2005 was also negatively impacted by expenses (approximately $0.9) recorded at the corporate level related to the Company’s going private transaction.

$10.0 million.

Interest expense declined to $1.2totaled $1.1 million for the three months ended December 31, 2004, from $1.4April 1, 2005, which remained relatively flat when compared to the corresponding period of the prior year. Interest expense totaled $2.3 million for the threesix months ended January 2, 2004.April 1, 2005 compared to $2.4 million for the corresponding period of the prior year. In the current year, the Company benefited from scheduled reductions in overall debt.

debt, but had higher effective interest rates as rate swaps that benefited last year expired.

Interest income declined to $0.1 million and $0.2 million, respectively, for the three and six months ended December 31, 2004 from $0.2 million for the three months ended January 2, 2004,April 1, 2005, as cash balances and market rates on short-term cash investments declined.

Other income for the quarter included $0.6 million in favorable currency exchange rate gains.

The Company’s effective tax rate for the three and six months ended December 31, 2004April 1, 2005 was insignificant,40.6% and 46.5%, respectively, compared to 38.7%37.2% and 37.3%, respectively, for the corresponding periodperiods of the prior year. The effective tax rate in the current year was impacted by the non-deductibility of certain expenses related to the buy-out proposal and not benefiting certain losses with foreign subsidiaries.


12

Net Income (Loss)

Net lossincome for the three months ended December 31, 2004April 1, 2005 was $1.0$4.7 million, or $0.12$0.54 per diluted share, compared to net income of $0.2$4.8 million, or $0.02$0.55 per diluted share, for the corresponding period of the prior year dueyear.
Net income for the six months ended April 1, 2005 was $3.7 million, or $0.42 per diluted share, compared to $5.0 million, or $0.57 per diluted share, for the factors noted above.

corresponding period of the prior year.

Buy-Out Proposal

On October 28, 2004, the Company’s Board of Directors approvedCompany entered into a definitive merger agreementAgreement and Plan of Merger (the “Merger Agreement”) with JO Acquisition Corp., a newly formedan entity established by members of the family of the late Samuel C. Johnson, including Helen P. Johnson-Leipold, Chairman and Chief Executive Officer of the Company. Under the terms of the merger proposed merger,by the Merger Agreement (the “Merger”), public shareholders of the Company would receivehave received $20.10 per share in cash, and the members of the Johnson family would acquirehave acquired 100% ownership of the Company.

The merger isMerger was subject to a number of conditions contained in the Merger Agreement, including shareholder approval of the merger agreement and receipt of debt financing. GE Commercial Finance has committed, subject to customary conditions, to provide debt financing for the transaction.

The Company has tentatively scheduledMerger Agreement. On March 22, 2005, a special meeting of itsthe shareholders of the Company was held in order to vote upon a proposal to approve the Merger Agreement. The required shareholder vote was not obtained at such meeting and the Merger Agreement was terminated on March 22,31, 2005 forby the purpose of obtaining shareholder approvalCompany and the Purchaser pursuant to the terms of the merger agreement. IfMerger Agreement. The termination of the necessary shareholder approval is obtained, then the merger is expected to be completedMerger Agreement did not result in the first calendar quarterimposition of 2005, subject to customary conditions and approvals.





-13-

any penalties on the Company.

JOHNSON OUTDOORS INC.

Financial Condition

The Company’s cash flow from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, is summarized in the following table:

(millions)
Three Months Ended
December 31
2004
January 2
2004
Cash used for:      
    Operating activities  $ (24.8)$ (19.7)
    Investing activities   (1.3) (1.4)
    Financing activities   (12.1) (9.2)
    Effect of exchange rate changes   3.6  1.9 
Decrease in cash and temporary cash investments  $ (34.6)$ (28.4)

In


(millions)
 Three Months Ended 
  
April 1
2005
 
April 2
2004
 
Cash used for:     
Operating activities 
$
(41.5
)
$
(42.2
)
Investing activities  
(3.0
)
 
(3.2
)
Financing activities  
(15.4
)
 
(8.0
)
Effect of exchange rate changes  
1.7
  
0.8
 
Decrease in cash and temporary cash investments 
$
(58.2
)
$
(52.7
)
As of the firstend of the Company’s second fiscal quarter of 2005, the Company typically investsis heavily invested in operating assets in anticipation ofto support the Company’sits selling season, which is strongest in the second and third quarters of the Company’s fiscal year.

The Company’sCompany's debt to capitaltotal capitalization ratio has declined to 25%23% as of December 31, 2004April 1, 2005 from 31%30% as of JanuaryApril 2, 2004, further strengthening the Company’sCompany's liquidity and strategic flexibility.

Operating Activities

Cash flows used for operations totaled $24.8$41.5 million for the threesix months ended December 31, 2004April 1, 2005 compared with $19.7$42.2 million used for operations for the corresponding period of the prior year.

Accounts receivable increased $6.6$38.8 million for the threesix months ended December 31, 2004, flat with the increase in the year ago period. Inventories increased by $3.3 million for the three months ended December 31, 2004April 1, 2005, compared to an increase of $9.4$36.6 million in the prior year period. Inventories increased by $8.2 million for the six months ended April 1, 2005 compared to an increase of $16.2 million in the prior year period. The reduced inventory build up in the current year is primarily related to a build-up of products for the Company’s selling season. The decline in the inventory build compared withon hand to support the prior years isMilitary business, as the result of improved inventory managementMilitary sales are expected to drop by up to 40% in the Watercraft businessfiscal 2005 as current contracts and declines in inventory levels in the Outdoor Equipment business that are in-line with the expiration of military tent contracts.emergency orders come to an end. The Company believes it is producing products at levels adequate to meet expected customer demand.


13

Accounts payable and accrued liabilities decreased $14.9increased $0.3 million for the threesix months ended December 31, 2004April 1, 2005 versus a decrease of $2.8$3.5 million for the corresponding period of the prior year. The decrease duringThis change is due to the quarter ended January 2, 2004 wastiming of the result of settlement of various accruals.

short term accrued obligations.

Depreciation and amortization charges were $2.6$5.0 million for the threesix months ended December 31, 2004April 1, 2005 and $1.8$3.9 million for the corresponding period of the prior year.

Investing Activities

Cash used for investing activities, consisting solely of expenditures for property, plant and equipment, totaled $1.7$3.0 million for the threesix months ended December 31, 2004April 1, 2005 versus $1.4$3.2 million for the corresponding period of the prior year. The Company’s recurring investments are made primarily for tooling for new products and enhancements. In 2005, capitalized expenditures are anticipated to be in line with prior year levels. These expenditures are expected to be funded by working capital or existing credit facilities. The Company received $0.4 million in cash from the sale of its facility in Mansonville, Quebec during the three months ended December 31, 2004.

-14-

JOHNSON OUTDOORS INC.

Financing Activities

Cash flows used for financing activities totaled $12.1$15.4 million for the three months ended December 31, 2004April 1, 2005 and $9.2$8.0 million for the corresponding period of the prior year. The Company made principal payments on senior notes and other long-term debt of $16.2 million and $9.5, respectively, million during the first quarters of fiscal years 2005 and 2004.

On October 29, 2004, the Company entered into a new $30.0 million unsecured revolving credit facility agreement expiring in October 2005. This agreement is expected to provide adequate funding for the Company’s operations during that period. The Company had no borrowings outstanding on its revolving credit facilities of $4.0 million as of December 31, 2004

April 1, 2005

Obligations and Off Balance Sheet Arrangements

The Company has obligations and commitments to make future payments under debt agreements and operating leases. The following schedule details these obligations at December 31, 2004.

Payment Due by Period
(millions)
Total
Less than
1 year
2-3 years
4-5 years
After 5 year
Long-term debt  $54.8 $17.0 $17.0 $20.8 $-- 
Operating lease obligations   19.2  3.9  7.4  4.3  3.6 
Open purchase orders   54.7  54.7  --  --  -- 
Contractually obligated interest  
    payments   9.2  1.9  5.7  1.6  -- 
Total contractual obligations  $137.9 $77.5 $30.1 $26.7 $3.6 

April 1, 2005.

  Payment Due by Period 
(millions)
 
Total
 
Less than
1 year
 
2-3 years
 
4-5 years
 
After 5 years
 
Long-term debt 
$
51.3
 
$
13.5
 
$
17.0
 
$
20.8
 
$
─
 
Operating lease obligations  
17.9
  
2.6
  
7.4
  
4.3
  
3.6
 
Open purchase orders  
45.1
  
45.1
  
─
  
─
  
─
 
Contractually obligated interest payments  9.2  1.9  5.7  1.6  ─ 
Total contractual obligations 
$
123.5
 
$
63.1
 
$
30.1
 
$
26.7
 
$
3.6
 
The Company also utilizes letters of credit for trade financing purposes. Letters of credit outstanding at December 31, 2004April 1, 2005 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 factors 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. Derivatives are used only where there is an underlying exposure, not for trading or speculative purposes.


14
Foreign Operations

The Company has significant foreign operations, for which the functional currencies are denominated primarily in Euros, Swiss francs, Japanese yen and Canadian dollars. As the values of the currencies of the foreign countries in which the Company has operations increase or decrease relative to the U.S. Dollar, the sales, expenses, profits, losses, assets and liabilities of the Company’s foreign operations, as reported in the Company’s consolidated financial statements, increase or decrease, accordingly. The Company has mitigated a portion of the fluctuations in certain foreign currencies 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 fiscal 2004 or the first quartertwo quarters of fiscal 2005.

-15-

JOHNSON OUTDOORS INC.

Interest Rates

The Company’s debt structure and interest rate risk are managed through the use of fixed and floating rate debt. The Company’s primary exposure is to United States interest rates. The Company also periodically enters into interest rate swaps, caps or collars to hedge its exposure and lower financing costs.

Commodities

Certain components used in the Company’s products are exposed to commodity price changes. The Company manages this risk through instruments such as purchase orders and non-cancelable supply contracts. Primary commodity price exposures 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 notesall debt outstanding at December 31, 2004:

(millions)
Estimated Impact on
Fair Value
Earnings Before
Income Taxes
Interest rate instruments  $    0.9 $    0.5 

April 1, 2005:

(millions)
Estimated Impact on
 
 
Fair Value
 
Earnings Before
Income Taxes
Interest rate instruments$0.9 $0.5
The Company has outstanding $50.8 million in unsecured senior notes as of December 31, 2004.April 1, 2005. The senior notes bear interest rates that range from 7.15% to 7.82% and are to be repaid through December 2008. The fair market value of the Company’s fixed rate debtunsecured senior notes was $55.4$55.5 million as of December 31, 2004.

April 1, 2005.

On November 6, 2003, the Company terminated the swap instruments relating to certain 1998 and 2001 debt instruments. The Company realized gains on the 1998 and 2001 instruments of $0.2 million and $0.7 million, respectively. The gains are being amortized as a reduction in interest expense over the remaining life of the underlying debt instruments through October 2005. The unamortized gain related to the 1998 and 2001 instruments was $0.2 million as of December 31, 2004.

April 1, 2005.


15
Other Factors

The Company has experienced inflationary pressures during 2004 and 2005 on energy, metals and resins. The Company anticipates that changing costs of basic raw materials may impact future operating costs and, accordingly, the prices of its products. The Company is involved in continuing programs to mitigate the impact of cost increases through changes in product design and identification of sourcing and manufacturing efficiencies. Price increases and, in certain situations, price decreases are implemented for individual products, when appropriate.

Critical Accounting Policiesand Estimates

The Company’s critical accounting policies are identified in the Company’s Annual Report on Form 10-K for the fiscal year ending October 1, 2004 inManagement’s Discussion and Analysis of Financial Conditionand Results of Operations under the heading “Critical Accounting Policies and Estimates.” There were no significant changes to the Company’s critical accounting policies during the three months ended December 31, 2004.April 1, 2005.

-16-

JOHNSON OUTDOORS INC.

New Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123(R),Share-Based Payment, a revision to SFAS 123,Accounting for Stock-Based Compensation. This statement supersedes APB Opinion No. 25,Accountingfor Stock Issued to Employees. SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement requires that the cost of share based payment transactions be recorded as an expense at their fair value determined by applying a fair value measurement method. The provisions of this statement are effective as of the first interim reporting periodfor fiscal years beginning after June 15, 2005. The Company will adopt this statement duringfor fiscal 2006 using the fourth quarter of its fiscal 2005 year on amodified prospective basis.approach. This statement is not expected to have a material impact on the financial results of the Company.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Information with respect to this item is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Market Risk Management.”

Item 4.Controls and Procedures
(a)In accordance with Rule 13a –- 15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Form 10-Q, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, the Company completed itscarried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-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 quarter ended December 31, 2004in timely alerting them to ensure that material information relating to the Company (including consolidated subsidiaries) required to be included in the Company's periodic filings with the Securities and Exchange Commission. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was made knownrequired to them by others within those entities, particularly duringapply its judgment in evaluating the period in which this Form 10-Q was being prepared.cost-benefit relationship of possible controls and procedures. The Company has designed its disclosure controls and procedures to reach a level of reasonable assurance of achieving the desired control objectives and, based on the evaluation described above, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective at reaching that level of reasonable assurance.

(b)There were no changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2004April 1, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

16
PART IIOTHER INFORMATION

Item 6.     Exhibits

 
Item 4.
 
 
Submission of Matters to a Vote of Security Holders
 
At the Company's Special Meeting held on March 22, 2005, the shareholders voted on a proposal to approve the Agreement and Plan of Merger, dated as of October 28, 2004, by and between JO Acquisition Corp. and Johnson Outdoors Inc.
 
Votes CastFor (1)
Votes Cast
Against (1)
AbstentionsTotalVoted
 
Class A & Class B as a single class(1)
 
16,850,826
 
2,043,167
 
43,106
 
18,937,099
 
Class A as a single class
 
4,727,956
 
2,039,867
 
43,106
 
6,810,929
 
Class B as a single class
 
1,212,287
 
330
 
─
 
1,212,617
 
Disinterested Class A & Class B as a single class(1)
 
1,772,477
 
2,043,167
 
43,106
 
3,858,750
 
(1) Votes cast for or against and abstentions with respect to the proposal reflect that holders of Class B shares are entitled to 10 votes per share when voting is combined with holders of Class A shares.
 
Item 6.
Exhibits
 
The following exhibits are filed as part of this Form 10-Q:

 2
31.1
Agreement and Plan of Merger, dated October 28, 2004, by and between JO Acquisition Corp. and Johnson Outdoors Inc. (filed as Exhibit 2 to the Company's Form 8-K, dated October 28, 2004, and incorporated herein by reference).

31.1
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
31.2
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 
32(1)
Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(1) This certification is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

17


-17-

JOHNSON OUTDOORS INC.

SIGNATURES

Pursuant to the requirements 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.


JOHNSON OUTDOORS INC.

Signatures Dated: February 9,May 11, 2005

 		/s/ Helen P. Johnson-Leipold
Helen P. Johnson-Leipold
Helen P. Johnson-Leipold
Chairman and Chief Executive Officer


 
/s/ Paul A. Lehmann
Paul A. Lehmann
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)


18










-18-

Exhibit Index to Quarterly Report on Form 10-Q


Exhibit
Exhibit
Number
Description

2Agreement and Plan of Merger, dated October 28, 2004, by and between JO Acquisition Corp. and Johnson Outdoors Inc. (filed as Exhibit 2 to the Company's Form 8-K, dated October 28, 2004, and incorporated herein by reference).

31.1
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32
32(1)
Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(1) This certification is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.











-19-

19