Johnson Outdoors Case Study
Johnson Outdoors Inc uses Fair Value Insight to save time through automation on valuations.
THE CUSTOMER
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.
THE ISSUE
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 decided to enter 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 chose Fair Value Insight as the system to ensure the valuation process was reliable, transparent, efficient and auditable.
THE SEARCH FOR THE RIGHT SOLUTION - FAIR VALUE INSIGHT
When looking for a solution, Johnson Outdoors wanted something that was easy-to-use, easy to implement and cost effective. In comparison to other vendors, Fair Value Insight offered the best mix of features, including simple implementation, scalability and ease-of-use, making it the clear choice. Since Fair Value Insight is a web-based system that can be accessed from anywhere, it meant that maintenance and upgrades to the system are all handled by FINCAD thus reducing the total cost of ownership and overhead required to manage software in-house.
WHY FAIR VALUE INSIGHT?
Reducing Operational Risk through Automation
Manual approaches can lead to costly mistakes such as contracts not being captured and valued, or the calculations not being performed correctly due to user error. The result is that the accounting department receives numbers based on incorrect valuations.
"As a publically 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. Fair Value Insight 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.
Johnson Outdoors needed to ensure that all of the contracts in their hedging program were being accounted for correctly. With Fair Value Insight, trades are entered into the system once and can easily be checked against the original contracts. The system automatically retrieves the necessary currency rate information to perform the calculations so there is no risk of transposing a rate – the numbers used for the valuation are accurate. Also, since the values are calculated by the system there is no way that a user can accidentally or intentionally modify the calculation, providing further control over the process.
Easily View and Distribute Information through Enhanced Reporting
With Fair Value Insight, Johnson Outdoors can view their portfolio at a high level using the available dashboards in the system as well as viewing 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 Strangberg, Corporate Controller.
Reports can then be easily distributed to subsidiaries and stakeholders around the world via email. Johnson Outdoors is provided with reporting that is clear and easy to understand, so when reports are sent to their subsidiaries the values will be entered correctly into their accounting system.
Johnson Outdoors also uses the counterparty reporting functionality as a way to isolate certain trades and report against them more easily. In addition, the reports in the system assist the firm in meeting fair value disclosure requirements, such as Topic 820 (previously known as FAS 157), by providing Johnson Outdoors with the ability to segregate valuations by fair value hierarchy.
Easily View and Distribute Information through Enhanced Reporting
Time is always at a premium. For Johnson Outdoors they needed a system that would save them significant time in performing valuations and reporting. Since the valuation process is automated in Fair Value Insight, once you’ve entered the contract into the system, the necessary data required to run the model is automatically retrieved. The calculation can be scheduled to run automatically based on the frequency that the user specifies. Entering contracts is also easy – the ability to duplicate a trade makes it more convenient to add a similar trade so building out portfolios in the different currencies takes less time.
"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 Fair Value Insight. The result for us was a significant time savings – a valuations process that took hours, now only takes minutes," said Lori Strangberg, Corporate Controller.
THE FUTURE WITH FAIR VALUE INSIGHT
Johnson Outdoors can continue to rely on Fair Value Insight as their hedging program grows. Since the system is a web-based application, they can expand the volume of trades without having to invest in new hardware and software. Best of all, the amount of time saved portfolio can now be directed towards adding value to their businesses.
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