Johnson Outdoors Inc (JOUT) 2017 Q4 法說會逐字稿

Hello, everyone, and welcome to the Johnson Outdoors Fourth Quarter 2017 Earnings Conference Call.

Today's call will be led by Helen Johnson-Leipold, Johnson Outdoors' Chairman and Chief Executive Officer. Also on the call is David Johnson, Vice President and Chief Financial Officer. (Operator Instructions) Also, this call is being recorded. Your participation implies consent to our recording this call. If you do not agree to these terms, simply drop off the line.

I would now like to turn the call over to Patricia Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

Thank you, James. Good morning, everyone, and thank you for joining us for our discussion of Johnson Outdoors results for the 2017 fiscal fourth quarter and full year. If you need a copy of today's news release, it is available on our website at www.johnsonoutdoors.com under Investor Relations.

I also need to remind you that this conference call may contain forward-looking statements. These statements are made on the basis of our current views and assumptions and are not guarantees of future performance. Actual events may differ materially from those statements due to a number of factors, many beyond Johnson Outdoors' control. These risks and uncertainties include those listed in our press release and filings with the Securities and Exchange Commission.

If you have additional questions following the call, please contact Dave Johnson or me.

It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Thanks, Pat. Good morning, and thanks for joining us. I'll begin with an overview of our results, give perspective on our brands performances here and outline the priorities for next year. Dave will review the financial highlights, and then we'll take your questions.

Johnson Outdoors had record results in fiscal 2017. Annual sales grew 13% to $490 million, profit surged 99% to nearly $46 million, and net income expanded 160% to $35.2 million or $3.51 per diluted share.

Strong positive momentum continued into our fiscal fourth quarter, the period when the warm weather outdoor rec industry is ramped down mode. Net sales during the quarter rose 22% above last year's fourth quarter to almost $92 million, and net income improved to $600,000 or $0.06 per diluted share.

Overall, we had an exceptional year driven by unprecedented growth across our flagship Minn Kota and Humminbird fishing brand on the strength of significant new product successes. For perspective, fishing new products this year accounted for about 60% of their entire product offering. Normally, the new product target level is about 1/3. Leading the way was the pioneering Minn Kota Ultrex fishing motor, which made big waves in the marketplace this year. The award-winning patented Ultrex is the most technologically advanced electric cable steer motor, the first and only to give foot pedal control anglers all our breakthrough steering and navigational features and technology at the tap of the foot. This is a group of avid anglers who've been eager for us to achieve this technical leap in their motor of choice. Additionally, last year's restate of our electric steer motors, which upgraded wireless and GPS technology in these units, powered growth across the entire lineup. Legacy technology innovations, i-Pilot and i-Pilot Link, added to Minn Kota's success with another year of double-digit growth.

Humminbird had an equally good year driven by continued strong marketplace demand for the Helix series of fish finders, particularly large screen models. The availability of our new-to-world MEGA Side Imaging and MEGA Down Imaging in second-generation Helix models created even more excitement around this fishfinder series. MEGA launches fish finding sonar technology into the megahertz range for the first time ever to provide the greatest underwater clarity detail and definition ever seen. This year, the formidable combination of Minn Kota and Humminbird delivered growth in every key fishing channel for the year, both in sales and units. And while new products have done extremely well, sales in base business segments and models for both brands are also strong, so a fair amount of trading up without erosion of the base business. Net-net, an incredible year for our Fishing brands.

Going forward, we expect continued growth at a slower pace in Fishing. Together, Minn Kota and Humminbird are the primary engines of profitable growth for the Johnson Outdoors, and we'll continue to invest in sustaining the technology and market leadership of these brands.

In 2017, we also benefited from our work to revitalize innovation in SCUBAPRO, the world's most respected dive equipment brand. Demand for both the new HYDRO's buoyancy compensator and G2 dive computer exceeded expectations this year and strengthened the SCUBAPRO share in core life support categories. The success of these new products, along with our work to reduce infrastructure overhead, brought value back to profitability. We've made good progress in our turnaround efforts in this business, but we're not where we want to be yet. Key global dive markets remained pressured by a number of geopolitical and economic factors, and more work is needed to ensure SCUBAPRO's sustained profitable growth trajectory against such fluid market dynamics.

Lastly, very challenging market conditions constrained growth in Watercraft Recreation and Camping brands this year. Both tents and kayak markets were impacted by retailer bankruptcies and market restructurings, which led to overall softness in these markets. Continued solid growth in Jetboil was simply not enough to offset the market drag on Eureka!. Work to reposition Eureka! for future success against new emerging camp consumer targets is underway to alter the current dynamic. More time will be required to maximize value and deliver improved results for Eureka!. The continued success of our Old Town Predator series of fishing boats, particularly in the strong reception to this year's new Predator pedal drive drove share gains in an otherwise lack-luster kayak market. We're very excited about our new ocean kayak Malibu Pedal drive craft, which sets the bar higher for fun and fitness paddling, our growing rec [act] target segment.

Returning Watercraft Recreation back to profitability ahead of schedule was an important step in our efforts to create a strong future for these brands. Our work continues to further strengthen innovation, broaden distribution and enhance marketplace competitiveness for long-term success of our Watercraft Recreational brands.

Looking back, outstanding new product successes this year underscore the critical importance of our consumer-centric transformation to long-term growth. Everything we do, every touch point with our consumers must emanate from our intimate understanding of exactly who our consumers are, what they want, need and expect for an overall great outdoor experience. Richer consumer insights are the catalysts behind our winning innovation and, going forward, will be the genesis of targeted cutting-edge marketing. These insights also pay a -- play a pivotal role in the transformation of our overall digital landscape, which is now underway. With more and more consumers beginning their outdoor experience online, it is imperative we make their shopping and purchasing experience the best it can be.

Looking forward, ultimately, we view success as the evolution of our company into a portfolio of thriving businesses with market-winning brands delivering consistent sustained growth and profitability. To that end, continued advances against our strategic priorities are necessary. Progress will require more work, more time and increased investment, particularly in the digital transformation and global systems infrastructure to take us to the next higher level of success.

Now I'll turn the call over to Dave and our review of the financial highlights.

Thank you, Helen. We came into our seasonally slow fourth quarter with a strong tailwind as demand continued to be strong around new product offerings. Higher volume and pricing to value drove gross margins to 42.3%, an increase of nearly 4 points year-over-year. Operating expenses for the quarter were $5 million higher than last year's quarter. The key drivers were higher volume-related expenses, restructuring costs in Diving and higher incentive compensation. Rising health care costs and warranty expense also contributed to the increase. While operating expenses grew in dollars quarter-over-quarter, they compared favorably by 2.7 points on a percentage sales basis. Operating margin improved 6.5 points versus the prior year as operating loss shrunk to just $100,000 compared with a loss of nearly $5 million in last year same quarter.

Now looking ahead to next year, we expect a slower rate of top line growth and a slight decrease to the operating profit margin due to increased spending against digital priorities. We also expect significant growth in capital spending due to the digital investments in a global systems infrastructure upgrade. Additionally, we expect the effective tax rate to return to a more normal level.

At the end of the year, cash and short-term investments grew $23.1 million from the year ago to $110.4 million. Our growing cash position enables continued investment in organic and new growth strategies for our brands. As always, targeted strategic acquisitions remain a growth strategy for Johnson Outdoors, with the goal of strengthening capabilities, enhancing our connection to the outdoor rec consumers and expanding our playing field. There's no timetable on when acquisition opportunities may emerge. That's why we have an active ongoing and disciplined M&A radar screen process, enabling us to proactively identify and evaluate technologies, brands and innovation-building targets, with unique application to our segments. Ultimately, we're looking for acquisitions at a reasonable valuation that deliver an appropriate return on investments to our business and our shareholders.

Importantly, the balance sheet's strong, and our healthy cash position enables us to continue invest in growth opportunities while continuing to pay cash dividends to our investors. The terms of our new 5-year revolving credit agreement, which was recently completed with our bank group, gives us the flexibility to invest in growth while supporting the ongoing needs of our business.

Now I'll turn the call back over to the operator for the Q&A session. Operator?

(Operator Instructions) Our first question comes from Brian Rafn with Morgan Dempsey.

Dave, you made a comment. We've had kind of an extended Indian summer here in the Northern Great Plains, Great Lakes. What -- was -- was this event maybe a record fourth quarter for you guys? And how has this kind of tempered weather? Did it allow for any inventory replenishment orders? Or with fishermen, when the boats get stowed away, does that just really kind of put an end to the season?

This is Helen. I think in the end of the season, I don't think people -- I think it does help us from an activity level, but I don't think it necessarily pushes the purchase process because there's no prediction of how long it's going to last. But I think, in general, we had such a great year that we did have the retailers filling up their inventory because of the purchases that happened earlier in the season. But I would say it's more of the impact of the new products in general and not necessarily the weather.

Okay. All right. When you look at it, and I think you mentioned almost 60% in the Marine Electronics side, what -- if you look at -- you talked about sensitivity in consumer insights. From the standpoint, if you look at, say, Marine Electronics and either Minn Kota or Humminbird versus the Diving, SCUBAPRO, the 2 areas where you had a lot of high technology, what is your -- the kind of the adoption rate of your consumer? Is it faster in Fishing and a little slower in Diving? Or are they both about the same? Kind of give me a sense, when you bring out new products, which markets are very electric relative to that new adoption.

Well, I think, there's other factors that play a role, and I think it's how quick the distribution channel is to take on the new products. And I think if there -- so it's more a function of availability and accessibility in store because both -- if there's a core target in each of those businesses, that innovation drives purchase, and I would say that the fishing market is much more efficient at getting the product on the shelf and available to the consumers. So when we launch in scuba diving, the channel is very fragmented, and it takes a little longer to get the new products into the market. So I think distribution is more of a challenge in Diving. Fishing is very efficient, and -- but both sets of consumers are innovation drives purchase.

Okay. When you look at those channels, Helen, what have -- can you -- if you look over the last 5 or 6 years, is it the same amount of wholesaler distribution shows? Or how do you get that technology to inspire some of those retailers? Is it faster today? Is the education process quicker? Because obviously, that -- you need them to adopt those in store. How do you -- how has that market changed?

Well, in Fishing, it's a much bigger and, I think, more sophisticated channel, and I think they trust us as the market leader. And that we -- when we come out with innovation, they know we've done our homework. So I would say, in general, we've done more innovating in the last 5 years. And so that has, I think, sped up their acceptance of the fact that new products drive sales. So I think both -- because of the electronics in that all the iPhone technology, the turns have -- innovation is driving turns, in general. And so that has sped up. But I think, in Fishing, our retailers trust us. And when we come out with something new, they know it's going to work.

Yes, okay. And what's, from a standpoint of time, between the time you conceptualize an engineering design and then get it to market, how quickly -- I mean, do you have a -- do you look at it in Fishing on a seasonal basis? We've got to have this new products by November. What's the kind of the season pattern for filling up that for the next year?

Well, we have industry shows that it's -- where we have to have our new products out there for our dealers, our customers and consumers to see prior to them ordering. So we do kind of time our launches, so that we can have a good showing at these important shows that kind of educate the channel on what to purchase. So it is cyclical, and we try to get it out there in time where they can have preseason orders, and that's important. So it is. We time it, so that they have enough lead time to get it in the store and market the product.

Okay. As you've guessed, I know a zip about Fishing. So when are those shows? Is that a -- if you're -- if you want to get the, obviously, the fishermen, when the ice goes out in the early spring, when are you actually having those educational dealer shows?

It's in the early summer for Fishing and it's also -- Diving is more of a fall show time. But that kind of is what we back into from a new product standpoint. For the next year, if you get -- so it's -- the summer is for the next season, so it's really -- if we kind of add some lead time, we also need time to build inventory. So it's -- there's a long lead time.

Actually, no, I think -- I appreciate the color on it, Helen. And then, Dave, you talked a little bit about -- in the text about more capital expenditures or more capital next year. Is that capacity utilization constraint? Is it factory floorspace? Is it machinery? What are you talking about there?

There's 2 large items there. One is our digital strategy where we are revamping our websites and investing our digital marketing efforts. So capital is going to be required -- incremental capital will be required for that in '18 versus '17, and we also are upgrading our ERP system in 2018, so a technical upgrade in our system.

Okay. What -- CapEx 2018 versus 2017, what would the gross numbers look like?

I can't -- I'm not going to give numbers, but it's a meaningful increase. It's not double, but it's -- it'll be a meaningful increase in capital spending.

Can you give me the base number? I don't have a K in front of me for '17.

Yes. Well, '17 was about $12 million.

Got you. Okay. All right. That gives me a sense of -- you talked just quickly a little bit on restructuring charges in scuba diving and then there was the -- Helen made a comment about Eureka!. What specifically things that you've done in that area? Obviously, the Diving has been a little longer.

Well, we are constantly looking at simplification of our business. And I think diving is one of those areas where I think we have to -- we are going to be doing some -- a little bit of streamlining and consolidation, but it's ongoing. We also have some challenges with operating expense, obviously, in Diving. Our sales are -- have good momentum, and we're looking at ways to be more effective and efficient.

Okay. Helen, in the Diving area, how much -- and I asked Dave all the time about military in Eureka! tents, how much is resorts, dive centers, police and sheriff, Navy Seals, Delta Force, all those special forces guys in the Navy, how much demand does SCUBAPRO, of its sales, what portion goes to those niche, maybe more commercial-type sales?

Well, I think we were very focused on the hardcore consumer for a while. And I think we talked about it that going after and looking at military as a target going forward is an area of growth for us. So it's more about the future than the current.

Okay. And then I'll just ask one more question from this standpoint. You talked a little bit about the Camping side having the impacts. We've seen it on the guns side with Gander Mountain and some of those. What are you guys doing from this standpoint? Are you introducing yourselves on a Camping side some more mom-and-pop proprietors? Or are you waiting for Gander Outdoors to reopen? Or what's kind of the channel going into '18?

Well certainly, the channel's disruption has turned the Camping industry upside down. But we are really focused on repositioning the brand and to appeal to the omni-channel aspect of things. We are going online as well, but Camping, in general, is a category or an industry that has really grown in the e-commerce class of trade. And so our goal is to really -- naturally, that's to our benefit because what we're doing is working on very -- on targeting the right consumer with the right message, and the tools that digital will allow us to get to those people is perfect for us because I think it's hard to predict how the channel is going to -- the bricks-and-mortar is going to work out long term. So we're excited about that aspect because we -- it gives us a chance to get to the right target.

Our next question comes from George Kelly with Imperial Capital.

A couple of questions for you. So starting with restructuring, you mentioned that there were some Diving restructuring costs in the quarter. Can you quantify what they were and what they were in the full year?

Yes. Do I have the quarter number here? $1 million. Yes. $1 million for the quarter in Diving. And I think a similar number for the full year, so most of that was in the fourth quarter.

And will that be an ongoing? What's your expectation for 2018?

We continue to look to simplify in that business, so I don't expect a large hit on that line necessarily in 2018, but we continue to work on simplifying the business. So more to come.

Okay. And then secondly, on the Fishing segment, you mentioned that you have -- you expect it to grow next year but at a slower pace. What gives you -- it's been such a big new product here. What gives you confidence you can continue growing Fishing?

Well, the dynamics of that business, it really -- as we look at it, because it's long-purchase cycle products, so launch is not necessarily a 12-month time frame. So you could actually call launch, maybe it's 2 years worth of launch. But if -- given you -- many of our fishermen, if they have bought a product within the last few years, they need 1 more year to wait until they're ready to turn it. It's not like we've got multiple purchases in same consumer every year. So that's 1 dimension. The other dimension is our new products were hitting a segment that is quite large, the southern -- one of our big new products hit the southern Bass market, and that's a large group of fishermen, and they are known to be pretty loyal to their products. So you would -- as we look at it, it -- there's a pretty large opportunity there to penetrate a significant segment of the market. And so we feel it's certainly got more legs in terms of gaining momentum.

Okay. And did -- so just to your point that it's -- that when a new product launches, it's a several years' dynamic, it's now what? Did Ulterra -- I know Ulterra has been in the market now for a few years. Did that grow this year?

Yes, Ulterra did grow this year.

And again, that's another indication of the long launch frame, and we do -- we have an innovation strategy that we don't hit the same consumer segment every year with a new product because we want -- they're not in the market every year for a new product. We try to launch and alternate the consumers, so that they have time even to absorb the launch from the previous year.

Sure. And then, are there any major -- I believe Talon has a new product this fall or right now that's in the market [already]. What are the major news? Or are there any brand-new things to the market or product, Minn Kota extensions or anything else that you're baking into your expectations for next year?

Yes. You hit on Talon, so that's a new product for us this year, 15-foot shallow water anchor with Bluetooth technology. Humminbird is going to continue with its MEGA imaging new products, so there's more models coming up under the MEGA. So that's exciting as well. And then we've got new products in Watercraft. We've got a pedal craft coming out under the Ocean brand name, which is we're very excited about. So that's are some of the highlights.

Okay. And -- but I know in past calls you've talked about looking into Minn Kota and where else can you take the brand. Any kind of any update there?

Well, Talon is certainly one of our key current efforts to extend the brand outside of just the trolling motor. I think right now, the effort is coming up with new capabilities that connect Humminbird and Minn Kota, which is truly new functionality and provides new consumer benefits. But we're always, again, looking for ways to extend the strength of the brand equity and provide extra value. So those are little longer term in development, so -- but certainly, top of my mind.

Okay. And then just a couple of modeling questions. In your press release, you commented that operating margin is expected to decline. Can you quantify that at all?

Unfortunately, George, I can't. We -- I think we put the word slightly declined in there. So that's the best I can do for you. But we're investing in digital, and that's driving some incremental expense next year.

Okay. And then the tax bill. Is there anything that you're seeing in this reform package that scares you? Or should you be pretty, if at all, clear, so you'd be pretty close to that sort of low-20 rate?

You know without getting into the details on that and understand kind of where they are and not predicting where they could end up. We expect it would be kind of be where the corporate tax rate would be.

Okay. And then last question for me, on your cash. It's really a big number now. So do you feel like you're getting any closer on acquisitions? Or with your balance sheet, why doesn't it make sense to do a special dividend or something? Because I'm sure that you could access -- it would be easy to find debt if you did find an acquisition. So can you just talk about the strategy in your balance sheet?

Yes. I mean, the strategy continues. I mean, we're active. We're very focused on putting that cash to work. We're investing internally, so that will continue. We love to have a dividend that's meaningful and growing. That's important for us. And the acquisition will continue. So it's kind of -- the strategy is -- are that 3-pronged effort, and we continue to have discussions about how we can best put that to work. And we're very cognizant with the fact that we've get a lot of cash.

And just add to that, we are very strategic about what we play in and where we play, and I think also of the kinds of multiples that are out there right now. And so I actually feel we are constantly looking, but we are not going to do an acquisition just to do an acquisition. And we have to -- we've got -- we've evolved our strategies, and this past planning process has really helped us focus on what our long-term opportunities are. And so we will be very disciplined in how we evaluate and look at acquisitions. So they aren't always out there, but we are looking, and we need to make sure that we've got the cash in the balance sheet to do what we want to do when that time comes. So again, our view is a long-term view about strong, sustainable growth. So I feel good about where we are, and I feel good about what we're doing. And I really feel the discipline that we have to know what we're good at and to know where the opportunities are is really a key aspect of the success of the business. And I know it sometimes makes people impatient, but it's the right thing to do right now.

(Operator Instructions) We have a follow-up from Brian Rafn.

Dave, can you clear a little numeric color on what you're seeing in M&A? I think Helen said multiples are a little expensive. Are you seeing more financial buyers versus strategic buyers? And what are you're talking -- what's your range or what is an acceptable multiple of EBITDA or sales? And what are you seeing in the market right now?

Yes. I mean, valuations are still high versus history, so that's a factor. In terms of the buyers, I mean, it's mixed. So we do see stuff come across the desk, and we continue to look out there. So -- but as Helen said, I mean, valuations are kind of high versus history...

But let me just add. It's not just the multiples. Certainly, it is a strategic fit that really drives our energy. And our goal is to make sure that what we do buy that we can generate value and that we can bring added value to that acquisition and we can integrate it appropriately, whatever, and it's the right brand. I think all those things would say we're not afraid of high multiples, if, in fact, the brand and the product and the company is the right strategic fit, I would -- so it's -- there's -- it's not a formula, certainly, not a financial formula that we are looking at. It's more of what can we bring to the party that will really leverage our expertise and be able to add value to whatever the acquisition is. So I -- and if we have a formula, that really doesn't work for how we do business, so we're looking.

Yes. Let me add is you're very good at articulating, I think, with some of your thought process. Would it be fair to say from your standpoint that a niche technology that you could expand, you could to scale up sales, you could add line extensions would for Johnson Outdoors mean be more attractive than buying a large sales outdoor product that's more of a restructuring play?

We are looking at both of those. But obviously, technology is critical to being able to innovate. And so I think those are both areas of interest for us. So you did a good job of articulating those , but I don't think -- it just depends. We got to find at the right time what's available, and sometimes you can't control that piece of it, and most of the time, you can't. But we're looking at both.

Yes. Okay. And Dave, on your comment on the ramping up the digital side, the website, are you talking computers? Are you talking e-commerce, people, headcount? Are you talking call centers? What specifically is that money going for?

It's website work, infrastructure to support the digital marketing and social media and other things. We're also ramping up capability in digital marketing, both internally and externally.

Okay. So infrastructure. Is that guys? Or is that boots on the ground? Or is that like computers? Or what is that when you say infrastructure?

It would be technology. Most of it is technology, meaning, yes, with the website.

Okay. And then what -- if you look at -- and I appreciate you, Dave, sending me the square footage on the plants. That was awesome. So that's a big, big help. If you look at your biggest plants like, I'm thinking Binghamton or Alpharetta or Mankato or Little Falls, Old Town, and Batam out in Indonesia where you guys do the Diving, what makes you guys to be running kind of capacity utilization, number of shifts? Or is that really not an issue at this point given how well you guys have done in sales?

It's not necessarily an issue for us. We're not running full-out kind of anywhere. We've got shifts that we've been adding, so I think right now, we're in good shape.

Would you be 1 shift plus overtime? Or kind of your factory is 1 shift going to 2 shifts? Where might you be in that evolution?

It kind of depends on the factory. Yes, I mean, some are running 1 shift and overtime, and others are running 3 shifts right now.

Oh, okay, all right. Okay, okay. Helen, you talked a little bit about consumer insights and digital connections, some of the things. If you went back 3 or 4, 5 years, what have you added today from an expertise in understanding your customers on how you look at that versus what you might have done 5 years ago?

Well, we have made a consistent effort to evolve our marketing capability. We've historically been very good at manufacturing and sales, and so we've evolved our marketing piece of it and also invested in marketing tools and marketing partners in terms of agencies. And so we don't expect to have all the expertise in-house, and so developing those good partnerships externally is important as well. We spent more money in the research area, so that we can get into the consumer segment, and that's a little bit different for our company, but it is really -- it is opening our eyes to lots of exciting opportunities. So I would say it's been an evolution and not all of it in-house but it's recognizing areas that we have to tap the expertise outside as well. So it's been a process.

Okay. No, I appreciate it. You talked a little bit about -- you made a comment, I think, Helen, relative that your trade-up fisherman guy, your early adopter, first mover initiative guy, the guy that's really looking for that cutting edge, you had those sales, but you really also didn't impair the base. In the Fishing area, be it either Minn Kota or Humminbird, what percentage or how big is that trade-up guy is that Fish biz? Is he 1/3 of the business? Is he 10%? I'm getting a sense as to how big that guy is.

Well, I would say we don't have the exact numbers on that, but our success in recent years has been the fact our motors, our products, we are -- feel very good about the quality of our products. And in terms of how long they last, they last a long time, and they continue to perform. What we have done is when we've introduced a new product, we innovate. We give them enough of an added value and added features that they're willing to turn their product, which means, "Okay, my motor still works, but I love those new features. I'm going to purchase a new motor even though mine still works." So our -- we're getting growth in a number of ways, but one of them is that we're condensing the purchase cycle across many of the segments, and that's what innovation does. So site whether there -- in all those purchase site fills , we get the increased price point. Some of it is big. Some of it isn't. But I -- there's some that we'll -- we've always got that it is probably be a pretty big percent of our consumers that will wait until the motor breaks. But it's that avid, passionate fisherman that will want the latest and greatest, and that's the segment that really contributes to the majority of the high -- trade-up to the higher price point products. So the exact percentage, it's -- but we don't have that, but they obviously -- it's not -- it's more likely the 80/20 rule, which should be the smaller segment is the one that is really contributing to the growth.

No, I got you. When you look at the electronics and technology, so you've talked about be it either Minn Kota or Humminbird on the fishermen side, is the technology revolution such that it's easier for you to package new technology in a completely new product, be it a fish sonar or a motor or -- are you able to do upgrade software that you can install in the older legacy base that's already out there for the guy that may not have the dollars to go out and actually dump the old motor and get a new one? I'm just trying to understand that business.

Well, I don't think it's -- I would say that applies more to the Humminbird brand, and we do both, but I would say having the ability to do upgrades in software and that is something we're working into the product, which adds more value to the consumer as well. But Minn Kota is -- now got Bluetooth, but it's a little bit more of mechanical, so it's a little harder to do those as you're going kind of upgrades.

Right. I got you. Is there a much -- I'm just curious, is there a much trade-in? I know the gasoline outboard racing market for motors, which is the Mercury and Johnson, the Evanrude side. I don't really know the Fishing side. What's kind of the overhang? And we have it even in another field and sport is a guns side. You can have trade-in guns impact new gun sales. Is there much of a trade-in market on the Minn Kota side? Or does the guy just throw the motor in the back of the garage and go and buy a new one?

No. I think with the advent of the online sales and the eBays of the world, there's a much bigger secondary market for our products. And again, there's a -- for those that are the avid and want to buy the latest and greatest, there's -- there is a big market of people who would never spend the money on a truly a new motor, if their motor still works. So I think that secondary market actually helps us to get the purchase cycles shorter.

That's awesome. And Dave, where is the cash invested, the $110 million?

A good chunk of it is here in the U.S. We repatriate about $22 million in the first quarter from Europe. So we got a good chunk of the cash back here in the U.S.

And what's the -- and I -- what's the -- given where the term structure interest rates are, what's the denominated yield? Or what's it invested in?

Yes. It's all short-term money and -- with the bank, so it's a pretty nominal yield right now.

Okay. And from a standpoint, if you look on the M&A side, is it you pulling for deals? Is it bankers pitching you guys deals? How was your kind of radar for deal setup?

Yes. I mean, it's both. We -- we're out there probing all the time. And of course, stuff comes across our desks.

And just to add to that. We have identified the -- our strategic plan, the areas of opportunity and growth, which helped us kind of do the proactive look and -- plus, we are the recipient of people wanted to bring things our attention when they pop up. So it is both.

Okay. And then just one on the Camping side. Is the camping, the hiking, the rock climbing, is that all the same end guy? Or are those different end markets?

They're -- I would say, from an equipments standpoint, they are different, and that the camp -- the climbing guy is a different guy. But there's certainly a lot of overlap between those segments. If you're an outdoor camper, you probably hike, and you are more likely to be the climber versus if -- there's a lot of relationships there, so there is, at the core, there probably is overlap. But it's not just -- when you think about those, it's a -- there's a cytographic that is very different there. So we consider the -- even the camper for the Eureka! brand versus the Jetboil, they're different types of campers. So -- but you name -- there is a tendency if you -- to have a higher propensity to do multiple sports once you're in it. So -- but they tend to be very...

Yes, I appreciate that. Dave, on health care costs, anything that stands out, the premiums or umbrellas or what specifically? Or is it just a higher incidence of having to pay for one-off surgeries? Or what was the...

It's -- yes, basically, our own experience has been driving it. So it just -- it was not a year for a lock there.

Our next question comes from [Eric Brudos] with Westfield Capital Management.

Just a follow-up on the questions regarding strategy. Is there an element that requires you to be in somebody's businesses that are lower margin and sort of a loft leader, for instance, the Camping or boating? Or why won't you take advantage of a strong M&A market and shed some of those assets and focus on the higher-margin businesses?

Well, easier said than done. But in our mind, these are very important strategic categories to be in. We have expertise in them. I think the market evolution has -- the disruption with the channels has, I think, created a little bit of a situation that we have to adjust to. But we do have a decent -- it's not a -- that one is low, that these are lower, but with innovation, we can drive decent margins. I think our long-term goal is that they will contribute a good level of profitability. It's just how it looks right now. But Camping is one of the biggest outdoor markets that exist right now, and we want to be a player in that. And with the new digital tools and our ability to target, we think that we can do that, but again, that takes time, and we're still ramping up our whole digital capability. And I think in Watercraft, we're one of the leading global manufacturers of Watercraft, and the consumer is changing. We're bringing technology in, and our goal is to have it as a both businesses as a strong margin contributor. We didn't have a vision that, for that, I think then we would have to consider alternatives. But we feel good about the future. It just takes time.

Okay. Great. Yes, that makes sense. And as you think about the spending in digital and marketing, to get those to drive innovation and also to sort of get higher share and higher margins, what's your sort of return on investment view? And kind of what's your long-term view in terms of how far you think you can expand margins in those businesses?

Yes. I mean, obviously, the digital strategy is a key for us to drive margins and new growth. So we're confident that we can do that. As Helen said, it's a big effort, so I think the margin expansion play across the businesses is definitely a part of our vision.

But we've already -- motors is doing a great job. The Fishing business has -- it's been driving great margins, and I think Diving has room to generate much stronger margins. So I would say we've done a good job in Fishing; and the others, it's an opportunity.

Sure. Yes, I understand that. But I mean , when you put pencil to paper and you think about spending an incremental $5 million or $10 million in CapEx, you must have a view on your return on investment. And what your payback is going to be on that is going to be a 3-year, 5-year kind of payback.

Yes. We definitely have a view to that. It's just that we're not going to talk about that. So it's something that we are very cognizant of the investment and the payback that needs to happen.

Okay. And then on the tax rate, when you talked about getting to a normalized tax rate, what does that mean exactly? Because if I look at fiscal '14, '15, '16 and '17, your tax rates are 47%, 32%, 43% and 27%. There's not a lot of normalization to that.

Yes, good point. Yes, we take a look at it at the federal rate, plus a couple of points. So federal corporate tax rate right now is at 35%.

I show no further questions in queue. So I'd like to turn the call back over to Ms. Johnson-Leipold for closing remarks.

Okay. Well, thanks, everyone for joining us. And we hope you have a great holiday. We look forward to talking to you next year. Thank you.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.