HIGHLIGHTS
Client: Johnson Outdoors
Objective
Introduce a way to hedge the USD denominated inventory purchases of the firm's foreign subsidiaries
Requirements
- Make valuation process reliable, transparent and auditable
- Easy to use and implement solution
- Cost-effective solution pricing
"The result (of using FINCAD) for us was a significant time savings – a valuations process that took hours, now only takes minutes."
Lori Strangberg, Corporate Controller, Johnson Outdoors
Background
Johnson Outdoors Inc. is a leading global outdoor recreation company that turns ideas into adventure with innovative, top-quality products. The company designs, manufactures and markets a portfolio of award winning, consumer-preferred brands across four categories: Watercraft, Marine Electronics, Diving and Outdoor Equipment.
Challenge
As a global company, Johnson Outdoors needed to institute a program to hedge the US dollar denominated inventory purchases of its foreign subsidiaries. Their foreign subsidiaries purchase raw materials priced in US dollars from overseas suppliers, exposing the company to volatility in the spot foreign exchange markets. The company entered into FX forward contracts in order to hedge against the volatility in the FX markets. Johnson Outdoors started a pilot program to manage these FX risks and needed a reliable, transparent, efficient and auditable valuation solution.
Solution
Johnson Outdoors wanted a valuation solution that was easy-to-use, easy to implement and cost effective. FINCAD offered the best mix of features, including simple implementation, scalability and ease-of-use, making it the clear choice. The company was pleased that the maintenance and system, upgrades could all be handled by FINCAD, thus reducing the total cost of ownership and overhead.
Results
Reducing Operational Risk: "As a publicly traded company, there is a lot of visibility to the derivatives information in our financial disclosures. There is a high degree of accounting risk with derivatives, so the solution we employed to house the data, perform the valuation and report our hedge portfolio needed to be sound and auditable," said Lori Strangberg, Corporate Controller. FINCAD fulfilled these goals.
Enhanced Reporting: With FINCAD, Johnson Outdoors can view their portfolio at a high level using dashboards, and view reports for each trade. "Producing reports is very easy. Calculations can be scheduled so reports are automatically generated – all we need to do is run the reports and we can be confident that the numbers are accurate," remarked Lori.
Time Savings: "Considerable time is saved in our valuations because we don’t need to take the time to set up a spreadsheet, verify the accuracy of the exchange rates and calculations, and then distribute reports to the appropriate stakeholders. All of this is done automatically for us with FINCAD. The result for us was a significant time savings – a valuations process that took hours, now only takes minutes," said Lori.
Looking Forward
Johnson Outdoors will continue to rely on FINCAD as their hedging program grows. Since the system is web-based, they can expand the volume of trades without having to invest in new hardware and software. Best of all, the amount of time saved can now be directed towards adding value to their business.
"FINCAD offers the necessary transparency and reporting to pass audit scrutiny and made it easy for Johnson Outdoors’ accounting and treasury departments to keep control over the process."