STAMFORD, Conn., Sept. 28 /PRNewswire/ -- On August 18, 2005 Dolphin
Limited Partnership I, L.P. sent the following letter to Ms. Helen
Johnson-Leipold, Chairman and CEO of Johnson Outdoors Inc. (Nasdaq: JOUT).
Dolphin has now been informed that this letter was recently forwarded to the
entire board and the board 'will be discussing the proposals outlined in the
letter at its upcoming meeting.' In its letter Dolphin advocates a one
million share $19-$21 per share
Dolphin Limited Partnership I, L.P.
Ninety-Six Cummings Point Road
Stamford, Ct 06902
August 18, 2005
Via Facsimile and Federal Express
Ms. Helen P. Johnson-Leipold
Chairman and Chief Executive Officer
Johnson Outdoors Inc.
555 Main Street
Racine, WS 53403
Dear Helen:
After so many months of not being able to connect with you, it was a pleasure to finally speak with you on JOUT's August 9, 2005 third quarter conference call. It appears from the Company's strong third quarter results that JOUT's inherent value is crystallizing for investors. We congratulate you and your colleagues on taking good first steps to resolve some outstanding operating challenges.
You indicated on the call that the company 'doesn't talk about internal budget expectations', so you would not indicate whether the 2005 nine month results exceeded the Company's plan. Nevertheless, we observed the following:
1. As of July 1, 2005, the Company's high cost debt had declined by $16.2
million. This debt carries an onerous prepayment penalty which, we
believe, meaningfully increased the cost of the going private
transaction and, we assume, correspondingly decreased the
consideration offered to minority shareholders.
2. Net debt declined $15.6 million year over year to $11.2 million;
however, with the seasonal high in accounts receivable of $83.7
million at July 1, 2005 (up from $49.7 million at Fiscal Year End,
October 1, 2004), as we predicted in our letter of March 31, 2005, we
suspect JOUT is more likely now in an average net cash position.
3. JOUT's shares are currently trading at approximately 1.0x book value
and 1.2x tangible book value.
4. Consistent with the Company's 2004 10-K, the sizable EBITDA loss at
Watercraft was reduced by $2.9 million for the 2005 nine months and,
as indicated on the call, it appears more progress is expected.
5. Without adjusting for the anticipated drop in military tent sales and
higher energy and raw materials costs, it appears that adjusted EBITDA
for the 2005 nine months increased approximately 4%. As we were
requesting on the call for the Company to produce for all investors,
below we have 'more finely broken out' this comparison:
($ Millions)
Nine Months Ended
July 1, 2005 July 2, 2004
Net Sales $ 303.6 $ 279.7
Reported Operating Profit $ 20.1 $ 23.7
Depreciation & Amortization $ 7.1 $ 6.2
Non-Cash Equity Compensation .4 --
Watercraft Charge .7
Litigation Settlement Received -- (2.0)
Diving Accrual Reversal (.7)
Merger Costs 2.5 1.4
Adjusted EBITDA* $ 29.8 $ 28.6
* After corporate overhead (without merger costs) of $10.7 and $10.4,
respectively. Full Fiscal Year 2004 corporate overhead was $14.1
million.
While the operating picture appears to be clarifying, this has not translated into value for all shareholders. Given JOUT's nine months operating results and its very favorable balance sheet position, we encourage you and the board to proactively implement steps to improve the price of JOUT's shares and their liquidity. In this regard, we request the board to initiate a Dutch auction tender offer for 1.0 million Class A shares at a price from $19 to $21 /share where all shareholders may participate pro rata. With over $39.0 million of low yielding cash and a seasonally high accounts receivable balance at July 1, 2005 , the cash requirements for this transaction appear modest when compared to JOUT's financial capability. Accordingly, this would not detract from JOUT's ability to make accretive acquisitions. If, for example, one million shares were acquired at $21 /share, we believe this would be significantly accretive.
We further suggest that these initiatives be followed by a 2:1 stock split and the implementation of an appropriate quarterly dividend. As you know, some investors can not own shares in a company that does not pay a dividend. We believe this program represents a compelling opportunity for the board to deliver short-term and long-term value for all shareholders.
We look forward to discussing this with you in person at your earliest convenience and will follow-up directly with you shortly.
Very truly yours,
Donald T. Netter
Senior Managing Director
SOURCE Dolphin Limited Partnership I, L.P.
