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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the quarterly period ended June 30, 2014
or
¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 0-18607
ARCTIC CAT INC.
(Exact name of registrant as specified in its charter)
Minnesota | 41-1443470 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
505 Hwy 169 North, Suite 1000 Plymouth, Minnesota | 55441 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
(763) 354-1800
Indicate by check mark whether the registrant (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 No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
At August 1, 2014, the registrant had 12,922,548 shares of Common Stock outstanding.
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ARCTIC CAT INC.
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Part I – FINANCIAL INFORMATION
Arctic Cat Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, 2014 | March 31, 2014 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 24,265,000 | $ | 22,524,000 | ||||
Short-term investments | 8,000 | 60,008,000 | ||||||
Accounts receivable, less allowances | 33,194,000 | 42,003,000 | ||||||
Inventories | 185,264,000 | 140,652,000 | ||||||
Prepaid expenses | 4,218,000 | 3,815,000 | ||||||
Income taxes receivable | 953,000 | 1,323,000 | ||||||
Deferred income taxes | 16,063,000 | 14,971,000 | ||||||
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Total current assets | 263,965,000 | 285,296,000 | ||||||
Property and Equipment | ||||||||
Machinery, equipment and tooling | 183,434,000 | 181,028,000 | ||||||
Land, buildings and improvements | 29,758,000 | 29,758,000 | ||||||
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213,192,000 | 210,786,000 | |||||||
Less accumulated depreciation | 157,939,000 | 154,855,000 | ||||||
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55,253,000 | 55,931,000 | |||||||
Other Assets | 1,036,000 | 1,067,000 | ||||||
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$ | 320,254,000 | $ | 342,294,000 | |||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 80,298,000 | $ | 93,882,000 | ||||
Accrued expenses | 46,267,000 | 54,659,000 | ||||||
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Total current liabilities | 126,565,000 | 148,541,000 | ||||||
Deferred Income Taxes | 8,895,000 | 8,710,000 | ||||||
Commitments and Contingencies | — | — | ||||||
Shareholders’ Equity | ||||||||
Preferred stock, par value $1.00; 2,050,000 shares authorized; none issued | — | — | ||||||
Preferred stock – Series B Junior Participating, par value $1.00; 450,000 shares authorized; none issued | — | — | ||||||
Common stock, par value $.01; 37,440,000 shares authorized; shares issued and outstanding: 12,914,282 at June 30, 2014 and 12,882,705 at March 31, 2014 | 129,000 | 129,000 | ||||||
Additional paid-in-capital | 673,000 | — | ||||||
Accumulated other comprehensive loss | (4,984,000 | ) | (2,110,000 | ) | ||||
Retained earnings | 188,976,000 | 187,024,000 | ||||||
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Total shareholders’ equity | 184,794,000 | 185,043,000 | ||||||
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$ | 320,254,000 | $ | 342,294,000 | |||||
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The accompanying notes are an integral part of these condensed consolidated statements.
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Arctic Cat Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
Net sales | ||||||||
Snowmobile & ATV units | $ | 119,978,000 | $ | 98,914,000 | ||||
Parts, garments & accessories | 23,661,000 | 21,854,000 | ||||||
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Total net sales | 143,639,000 | 120,768,000 | ||||||
Cost of goods sold | ||||||||
Snowmobile & ATV units | 97,701,000 | 77,908,000 | ||||||
Parts, garments & accessories | 15,137,000 | 13,700,000 | ||||||
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Total cost of goods sold | 112,838,000 | 91,608,000 | ||||||
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Gross profit | 30,801,000 | 29,160,000 | ||||||
Operating expenses | ||||||||
Selling & marketing | 6,981,000 | 6,994,000 | ||||||
Research & development | 5,346,000 | 5,282,000 | ||||||
General & administrative | 12,904,000 | 8,411,000 | ||||||
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Total operating expenses | 25,231,000 | 20,687,000 | ||||||
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Operating profit | 5,570,000 | 8,473,000 | ||||||
Other income (expense) | ||||||||
Interest income | 4,000 | 9,000 | ||||||
Interest expense | (40,000 | ) | (3,000 | ) | ||||
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Total other income (expense) | (36,000 | ) | 6,000 | |||||
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Earnings before income taxes | 5,534,000 | 8,479,000 | ||||||
Income tax expense | 1,965,000 | 3,011,000 | ||||||
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Net earnings | $ | 3,569,000 | $ | 5,468,000 | ||||
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Net earnings per share | ||||||||
Basic | $ | 0.28 | $ | 0.41 | ||||
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Diluted | $ | 0.27 | $ | 0.40 | ||||
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Weighted average shares outstanding | ||||||||
Basic | 12,896,000 | 13,215,000 | ||||||
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Diluted | 13,082,000 | 13,711,000 | ||||||
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The accompanying notes are an integral part of these condensed consolidated statements.
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Arctic Cat Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
Net earnings | $ | 3,569,000 | $ | 5,468,000 | ||||
Other comprehensive income (loss): | ||||||||
Foreign currency translation adjustments | (304,000 | ) | 638,000 | |||||
Unrealized gain (loss) on derivative instruments, net of tax | (2,570,000 | ) | 3,131,000 | |||||
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Comprehensive income | $ | 695,000 | $ | 9,237,000 | ||||
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The accompanying notes are an integral part of these condensed consolidated statements.
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Arctic Cat Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 3,569,000 | $ | 5,468,000 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 3,116,000 | 3,440,000 | ||||||
Deferred income tax expense | 603,000 | 1,485,000 | ||||||
Stock-based compensation expense | 1,904,000 | 1,329,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Trading securities | 60,000,000 | 76,396,000 | ||||||
Accounts receivable, less allowances | 8,683,000 | (8,316,000 | ) | |||||
Inventories | (44,932,000 | ) | (52,367,000 | ) | ||||
Prepaid expenses | (404,000 | ) | (619,000 | ) | ||||
Accounts payable | (17,644,000 | ) | 8,640,000 | |||||
Accrued expenses | (8,368,000 | ) | (11,742,000 | ) | ||||
Income taxes | 565,000 | (6,125,000 | ) | |||||
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Net cash provided by operating activities | 7,092,000 | 17,589,000 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (2,415,000 | ) | (2,815,000 | ) | ||||
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Net cash used in investing activities | (2,415,000 | ) | (2,815,000 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock | 9,000 | 19,000 | ||||||
Payments for income taxes on net-settled option exercises | (966,000 | ) | (1,355,000 | ) | ||||
Tax benefit from stock options exercises | 732,000 | 1,522,000 | ||||||
Dividends paid | (1,617,000 | ) | (1,326,000 | ) | ||||
Repurchase of common stock | (1,006,000 | ) | (1,438,000 | ) | ||||
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Net cash used in financing activities | (2,848,000 | ) | (2,578,000 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (88,000 | ) | 289,000 | |||||
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Net increase in cash and cash equivalents | 1,741,000 | 12,485,000 | ||||||
Cash and cash equivalents at beginning of period | 22,524,000 | 35,566,000 | ||||||
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Cash and cash equivalents at end of period | $ | 24,265,000 | $ | 48,051,000 | ||||
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Supplemental disclosure of cash payments for: | ||||||||
Income taxes | $ | 32,000 | $ | 5,539,000 | ||||
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Interest | $ | 24,000 | $ | 3,000 | ||||
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The accompanying notes are an integral part of these condensed consolidated statements.
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Arctic Cat Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE A–BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Arctic Cat Inc. (the “Company”) have been prepared in accordance with Regulation S-X pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading.
In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position as of June 30, 2014, results of operations for the three-month periods ended June 30, 2014 and 2013 and cash flows for the three-month periods ended June 30, 2014 and 2013. Results of operations for the interim periods are not necessarily indicative of results for the full year. The condensed consolidated balance sheet as of March 31, 2014 is derived from the audited balance sheet as of that date.
Preparation of the Company’s condensed consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from those estimates.
NOTE B–STOCK-BASED COMPENSATION
Stock Option Plans
The Company has stock-based compensation plans, previously approved by the Company’s shareholders that provide for incentive and non-qualified stock options and restricted stock awards to be granted to directors, officers and other key employees. The stock options granted generally have a five to ten year life, vest over a period of one to three years, and have an exercise price equal to the fair market value of the stock on the date of grant. The stock options are generally subject to accelerated vesting if there is a change in control, as defined in the plans. The restricted stock awards generally vest over a period of two to three years and do not require cash payments from restricted stock award recipients. At June 30, 2014, the Company had 1,009,434 shares of common stock available for grant under the plans.
For the three months ended June 30, 2014 and 2013, the Company recorded stock-based compensation expense for stock options and restricted stock awards of $1,904,000 and $1,329,000, respectively, which have been included in general and administrative expenses. The Company’s total stock-based compensation related expense reduced both basic and diluted earnings per share by $0.09 and $0.06 for each of the three months ended June 30, 2014 and 2013, respectively.
At June 30, 2014, the Company had $3,325,000 of unrecognized compensation costs related to non-vested stock options and restricted stock awards that are expected to be recognized over a weighted average period of approximately two years.
The Company accounts for stock option based compensation by estimating the fair value of options granted using a Black-Scholes option valuation model. For stock options issued during the three months ended June 30, 2014 and 2013, the following assumptions were used to determine fair value:
Three Months Ended June 30, 2014 | ||||||||
Assumptions used: | 2014 | 2013 | ||||||
Expected term (in years) | 6 years | 5 years | ||||||
Expected volatility | 49.0 | % | 49.0 | % | ||||
Risk free interest rate | 0.8 | % | 0.8 | % | ||||
Expected dividend | 1.0 | % | 1.0 | % | ||||
Fair Value | $ | 20.50 | $ | 21.68 |
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Option transactions under the plans during the three months ended June 30, 2014, are summarized as follows:
Shares | Weighted Average Exercise Price | Weighted Average Contractual Life | Aggregate Intrinsic Value | |||||||||||||
Outstanding at March 31, 2014 | 480,837 | $ | 24.95 | |||||||||||||
Granted | 38,794 | 47.79 | ||||||||||||||
Exercised | (91,345 | ) | 15.62 | |||||||||||||
Cancelled | (60 | ) | 15.77 | |||||||||||||
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Outstanding at June 30, 2014 | 428,226 | $ | 29.01 | 6.31 years | $ | 5,415,000 | ||||||||||
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Exercisable at June 30, 2014 | 338,994 | $ | 24.78 | 5.59 years | $ | 5,407,000 | ||||||||||
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The aggregate intrinsic value is based on the difference between the exercise price and the Company’s June 30, 2014 common share market value for in-the-money options.
The following tables summarize information concerning currently outstanding and exercisable stock options at June 30, 2014:
Options Outstanding and Exercisable
Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||
$6.26 | 7,800 | 2.54 years | $ | 6.26 | 7,800 | $ | 6.26 | |||||||||||||
9.57-13.59 | 54,287 | 5.76 years | 10.79 | 54,287 | 10.79 | |||||||||||||||
14.68-21.03 | 139,421 | 6.99 years | 16.18 | 139,421 | 16.18 | |||||||||||||||
21.96-27.69 | 24,000 | 9.35 years | 24.83 | 24,000 | 24.83 | |||||||||||||||
33.67-47.79 | 202,718 | 5.78 years | 44.07 | 113,486 | 43.30 | |||||||||||||||
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428,226 | 6.31 years | $ | 29.01 | 338,994 | $ | 24.78 | ||||||||||||||
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In August 2013, the Company’s shareholders adopted the 2013 Omnibus Stock and Incentive Plan (the “2013 Plan”). The 2013 Plan permits the granting of stock options, stock appreciation rights, restricted stock and restricted stock units, performance awards, other stock awards and dividend and dividend equivalents. At June 30, 2014, 1,009,434 shares of common stock remain available for issuance under the 2013 Plan.
In August 2007, the Company’s shareholders adopted the 2007 Omnibus Stock and Incentive Plan (the “2007 Plan”, and along with the 2013 Plan, “the Plans”). The terms of the 2007 Plan are substantially identical to those of the 2013 Plan. With the adoption of the 2013 Plan, the Company’s Board of Directors determined no further awards will be granted from the 2007 Plan.
The expected term of options granted is the safe harbor period. The volatility is based on historic volatilities from the traded shares of the Company over the past two and one-half years. The risk-free interest rate for periods matching the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend is based on the historic dividend of the Company. The Company has analyzed the forfeitures of stock and option grants and has used a ten percent forfeiture rate in the expense calculation.
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Restricted Stock
The 2013 Plan provides for grants of restricted common stock and restricted stock units to executives and key employees of the Company. The restricted common stock and restricted stock units are valued based on the Company’s market value of common stock on the date of grant and the amount of any award is expensed over the requisite service period which approximates two to three years. If grantees are retirement eligible and awards would either fully vest upon retirement or continue to vest after retirement, the full amount of the related expense is recognized upon grant. At June 30, 2014, the Company had 7,600 shares of restricted common stock issued and outstanding and 18,405 unvested restricted stock units outstanding under the 2007 Plan and 8,000 shares of restricted common stock issued and outstanding and 42,195 unvested restricted stock units outstanding under the 2013 Plan. The shares of restricted common stock awarded have voting rights and participate equally in all dividends and other distributions duly declared by the Company’s Board of Directors.
Compensation expenses associated with restricted stock awards totaled $121,000 and $87,000 for the three months ended June 30, 2014 and 2013, respectively. Compensation expenses associated with restricted stock units totaled $698,000 and $290,000 for the three months ended June 30, 2014 and 2013, respectively. The Company recognizes the expense for grants of restricted stock and restricted stock units on a straight-line basis in the statement of operations as general and administrative expense based on their fair value over their requisite service periods. At June 30, 2014, unamortized compensation expense of restricted stock totaled $503,000 and of restricted stock units totaled $1,672,000. The unamortized expense as of June 30, 2014 is expected to be recognized over a weighted average period of 1.4 years for restricted stock and restricted stock units.
Restricted stock and restricted stock unit award activity under the Plans during the three months ended June 30, 2014 and 2013 is summarized as follows:
2014 | 2013 | |||||||||||||||
Restricted Shares | Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | ||||||||||||
Non-vested shares at March 31, | 16,200 | $ | 43.45 | 42,820 | $ | 19.33 | ||||||||||
Awarded | 7,500 | 34.02 | — | — | ||||||||||||
Vested | (8,100 | ) | 33.33 | (3,674 | ) | 12.90 | ||||||||||
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Non-vested shares at June 30, | 15,600 | $ | 44.17 | 39,146 | $ | 19.93 | ||||||||||
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Restricted Stock Units | Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | ||||||||||||
Non-vested shares at March 31, | 40,103 | $ | 35.35 | 41,607 | $ | 27.35 | ||||||||||
Granted | 43,772 | 37.05 | 17,976 | 42.99 | ||||||||||||
Vested | (23,275 | ) | 29.41 | (16,643 | ) | 23.75 | ||||||||||
Forfeited | — | — | (1,217 | ) | 27.60 | |||||||||||
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Non-vested shares at June 30, | 60,600 | $ | 38.86 | 41,723 | $ | 35.52 | ||||||||||
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NOTE C–NET EARNINGS PER SHARE
The Company’s basic net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares. The Company’s diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and common share equivalents relating to stock options, when dilutive. Options to purchase 200,656 shares of common stock with a weighted average exercise price of $44.18 outstanding during the three month period ended June 30, 2014, were excluded from the computation of common share equivalents because they were anti-dilutive as the per share exercise prices exceeded the per share market value. No options outstanding were excluded from the computation of common share equivalents because they were anti-dilutive during the three month periods ended June 30, 2013.
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Weighted average shares outstanding consist of the following for the three months ended June 30, 2014 and 2013:
Three Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
Weighted average number of common shares outstanding | 12,896,000 | 13,215,000 | ||||||
Dilutive effect of option plan | 186,000 | 496,000 | ||||||
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Common and potential shares outstanding—diluted | 13,082,000 | 13,711,000 | ||||||
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NOTE D–SHORT-TERM INVESTMENTS
Trading securities consisted of $8,000 and $60,008,000, invested in various money market funds at June 30, 2014 and March 31, 2014, respectively. All of the trading securities are deemed to be Level 1 investments.
NOTE E–INVENTORIES
Inventories consist of the following:
June 30, 2014 | March 31, 2014 | |||||||
Raw materials and sub-assemblies | $ | 53,937,000 | $ | 52,580,000 | ||||
Finished goods | 96,313,000 | 55,327,000 | ||||||
Parts, garments and accessories | 35,014,000 | 32,745,000 | ||||||
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$ | 185,264,000 | $ | 140,652,000 | |||||
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NOTE F–LINE OF CREDIT
The Company entered into a $100,000,000 senior secured revolving credit agreement in November 2013 for documentary and stand-by letters of credit, working capital needs and general corporate purposes, which amended and restated the Company’s prior $60,000,000 senior secured revolving credit agreement. This agreement is scheduled to expire in November 2017. Under the agreement, the Company may borrow up to $100,000,000 during May through November and up to $50,000,000 during all other months of the fiscal year. Borrowings under the line of credit bear interest at the greater of the following rates: the prime rate plus 0.75%, the federal funds rate plus 0.50% or LIBOR for a 30 day interest period plus 1.00%. As of June 30, 2014, the effective rate was 3.5%. All borrowings are collateralized by substantially all of the Company’s assets, including all real estate, accounts receivable and inventory. No borrowings from the line of credit were outstanding at June 30, 2014 and March 31, 2014. The outstanding letters of credit balances were $9,316,000 and $11,145,000 at June 30, 2014 and 2013, and borrowings under the line are subject to certain covenants and restrictions on indebtedness, financial guarantees, business combinations and other related items. The Company was in compliance with the terms of the credit agreement as of June 30, 2014. Outstanding letters of credit will be repaid during the six month period following execution or renewal of the letter of credit.
NOTE G–ACCRUED EXPENSES
Accrued expenses consist of the following:
June 30, 2014 | March 31, 2014 | |||||||
Marketing | $ | 9,726,000 | $ | 11,671,000 | ||||
Compensation | 5,059,000 | 9,338,000 | ||||||
Warranties | 19,423,000 | 19,357,000 | ||||||
Insurance | 5,839,000 | 7,026,000 | ||||||
Other | 6,220,000 | 7,267,000 | ||||||
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$ | 46,267,000 | $ | 54,659,000 | |||||
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NOTE H–PRODUCT WARRANTIES
The Company generally provides a limited warranty to the owner of snowmobiles for twelve months from the date of consumer registration and for six months from the date of registration on all-terrain vehicles (“ATVs”) and recreational off-highway vehicles (“ROVs”). The Company provides for estimated warranty costs at the time of sale based on historical rates and trends and makes subsequent adjustments to its estimate as actual claims become known or the amounts are determinable. The following represents changes in the Company’s accrued warranty liability for the three-month periods ended June 30:
2014 | 2013 | |||||||
Balance at beginning of period | $ | 19,357,000 | $ | 18,709,000 | ||||
Warranty provision | 3,096,000 | 2,347,000 | ||||||
Warranty claim payments | (3,030,000 | ) | (3,024,000 | ) | ||||
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Balance at end of period | $ | 19,423,000 | $ | 18,032,000 | ||||
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NOTE I–SHAREHOLDERS’ EQUITY
Share Repurchase Authorization
During the three months ended June 30, 2014 and 2013, the Company invested $1,006,000 and $1,438,000, respectively, to repurchase and cancel 26,951 and 31,364 shares of common stock, respectively, pursuant to the Board of Directors’ prior share repurchase program authorizations. At June 30, 2014 and 2013, the Company has remaining authorization to repurchase up to $1,076,000 and $28,833,000 of its common stock, or approximately 27,000 and 641,000 shares based on the per share closing price of $39.42 and $44.98 as of June 30, 2014 and 2013, respectively.
Additional Paid-in-Capital
The components of the changes in additional paid-in-capital during the following periods were as follows:
Three Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
Balance at beginning of period | $ | — | $ | 10,945,000 | ||||
Proceeds from issuance of common stock | 9,000 | 19,000 | ||||||
Payment for income taxes on net-settled option exercises | (966,000 | ) | (1,355,000 | ) | ||||
Tax benefits from stock options exercised | 732,000 | 1,522,000 | ||||||
Repurchase of common stock | (1,006,000 | ) | (1,438,000 | ) | ||||
Stock-based compensation expense | 1,904,000 | 1,329,000 | ||||||
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Balance at end of period | $ | 673,000 | $ | 11,022,000 | ||||
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Accumulated Other Comprehensive Loss
The components of the changes in accumulated other comprehensive loss during the following periods were as follows:
Three Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
Balance at beginning of period | $ | (2,110,000 | ) | $ | (4,166,000 | ) | ||
Unrealized gain (loss) on derivative instruments, net of tax | (2,570,000 | ) | 3,131,000 | |||||
Foreign currency translation adjustment | (304,000 | ) | 638,000 | |||||
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Balance at end of period | $ | (4,984,000 | ) | $ | (397,000 | ) | ||
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Retained Earnings
The components of the changes in retained earnings during the following periods were as follows:
Three Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
Balance at beginning of period | $ | 187,024,000 | $ | 167,561,000 | ||||
Net earnings | 3,569,000 | 5,468,000 | ||||||
Dividends paid | (1,617,000 | ) | (1,326,000 | ) | ||||
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Balance at end of period | $ | 188,976,000 | $ | 171,703,000 | ||||
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NOTE J–COMMITMENTS AND CONTINGENCIES
Dealer Financing
Finance companies provide the Company’s North American dealers with floorplan financing. The Company has agreements with these finance companies to repurchase certain repossessed products sold to its dealers. At June 30, 2014, the Company was contingently liable under these agreements for a maximum repurchase amount of approximately $65,704,000. The Company’s financial exposure under these agreements is limited to the difference between the amount paid to the finance companies for repurchases and the amount received upon the resale of the repossessed product. Losses incurred under these agreements during the periods presented have not been material. The financing agreements also have loss sharing provisions should any dealer default, whereby the Company shares certain losses with the finance companies. The maximum potential liability to the Company under these provisions is approximately $2,367,000 at June 30, 2014.
Litigation
The Company is subject to legal proceedings and claims which arise in the ordinary course of business. Accidents involving personal injury and property damage may occur in the use of snowmobiles, ATVs and ROVs. Claims have been made against the Company from time to time relating to these accidents, and from time to time, parties assert claims relating to their intellectual property. It is the Company’s policy to vigorously defend against these actions. The Company is not involved in any legal proceedings which it believes will have the potential for a materially adverse impact on the Company’s business or financial condition, results of operations or cash flows. The Company has recorded a reserve based on its estimated range of potential exposures based on the legal proceedings and claims that it is aware of. Should any settlement occur that exceeds the Company’s estimate or a new claim arise, the Company may need to adjust its overall reserve and, depending on the amount, such adjustment could be material.
NOTE K–FAIR VALUE MEASUREMENTS
As of June 30, 2014, we have notional Canadian dollar denominated cash flow hedges of approximately $126,982,000 (USD) with a weighted average contract exchange rate of 90.06 USD to CAD. The Company’s foreign currency contract fair value was a liability totaling $4,503,000 and considered a Level 2 measurement as of June 30, 2014. As of March 31, 2014, the Company’s foreign currency contract fair value was a liability totaling $424,000 and considered a Level 2 measurement. See Note L for additional information regarding the Company’s Derivative Instruments and Hedging Activities.
NOTE L–DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to certain risks relating to its ongoing business operations. Foreign currency risk is the primary risk that is managed. Forward contracts are entered into in order to manage the foreign exchange risk associated with the forecasted revenue denominated in a foreign currency.
The Company’s foreign currency management objective is to reduce earnings volatility related to movements in foreign exchange rates and limit the risk of loss in value of certain of its foreign currency-denominated cash flows. The Company actively manages certain forecasted foreign currency exposures, principally its exports sales to Canada. To protect against the reduction in value of forecasted foreign currency cash flows resulting from export sales, the Company hedges portions of its forecasted revenue denominated in foreign currencies with forward contracts. When the dollar strengthens against the foreign currency, the decline in present value of future foreign
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currency revenue is offset by gains in the fair value of the forward contracts designated as hedges. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by losses in the fair value of the forward contracts. The duration is linked to the timing of the underlying exposure, with the connection between the two being regularly monitored. The Company does not use any financial contracts for trading purposes.
At June 30, 2014, the Company had the following open foreign currency contracts:
Foreign Currency | Notional Amounts (in US Dollars) | Net Unrealized Gain (Loss) | ||||||
Canadian Dollar | $ | 126,982,000 | $ | (4,503,000 | ) | |||
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These contracts, with maturities through March 31, 2015, met the criteria for cash flow hedges and the unrealized gains or losses, after tax, are recorded as a component of accumulated other comprehensive income in shareholders’ equity.
The table below summarizes the carrying values of derivative instruments as of June 30, 2014 and March 31, 2014:
Carrying Values of Derivative Instruments as of June 30, 2014 | ||||||||||||
Derivatives designated as hedging instruments | Fair Value Assets | Fair Value (Liabilities) | Derivative Net Carrying Value | |||||||||
Foreign exchange contracts (1) | $ | — | $ | 4,503,000 | $ | 4,503,000 | ||||||
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Carrying Values of Derivative Instruments as of March 31, 2014 | ||||||||||||
Derivatives designated as hedging instruments | Fair Value Assets | Fair Value (Liabilities) | Derivative Net Carrying Value | |||||||||
Foreign exchange contracts (1) | $ | — | $ | 424,000 | $ | 424,000 | ||||||
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(1) | Assets are included in Accounts Receivable and liabilities are included in Accounts Payable on the accompanying consolidated balance sheets. |
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income and reclassified into the income statement in the same period during which the hedged transaction affects the income statement. Gains and losses on the derivative representing hedge ineffectiveness are recognized in the current income statement. The table below provides data about the amount of gains and losses, net of tax, related to derivative instruments designated as cash flow hedges included in accumulated other comprehensive income for the three months ended June 30, 2014 and 2013:
Derivatives in Cash Flow Hedging Relationships | Three Months Ended June 30, | |||||||
2014 | 2013 | |||||||
Foreign currency contracts | $ | (2,570,000 | ) | $ | 3,131,000 | |||
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The ineffective portion of foreign currency contracts was not material for the three month periods ended June 30, 2014 and 2013.
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NOTE M–SEGMENT REPORTING
The Company manages each segment based on gross margin and there are no material transactions between the segments. Operating, tax and other expenses are not allocated to individual segments. Additionally, given the crossover of customers, manufacturing and asset management, the Company does not maintain separate balance sheets for each segment. Accordingly, the segment information presented below is limited to sales and margin data.
Three Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
Net sales | ||||||||
Snowmobile & ATV units | $ | 119,978,000 | $ | 98,914,000 | ||||
Parts, garments, & accessories | 23,661,000 | 21,854,000 | ||||||
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Total net sales | 143,639,000 | 120,768,000 | ||||||
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Cost of goods sold | ||||||||
Snowmobile & ATV units | 97,701,000 | 77,908,000 | ||||||
Parts, garments, & accessories | 15,137,000 | 13,700,000 | ||||||
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Total cost of goods sold | 112,838,000 | 91,608,000 | ||||||
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Gross profit | ||||||||
Snowmobile & ATV units | 22,277,000 | 21,006,000 | ||||||
Parts, garments, & accessories | 8,524,000 | 8,154,000 | ||||||
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Total gross profit | $ | 30,801,000 | $ | 29,160,000 | ||||
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Three Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
Net sales by product line | ||||||||
Snowmobile units | $ | 56,152,000 | $ | 22,574,000 | ||||
ATV units | 63,826,000 | 76,340,000 | ||||||
Parts, garments, & accessories | 23,661,000 | 21,854,000 | ||||||
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Total net sales | $ | 143,639,000 | $ | 120,768,000 | ||||
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Three Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
Net sales by geography, based on location of the customer | ||||||||
United States | $ | 88,587,000 | $ | 61,884,000 | ||||
Canada | 41,445,000 | 41,220,000 | ||||||
Europe and other | 13,607,000 | 17,664,000 | ||||||
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Total net sales | $ | 143,639,000 | $ | 120,768,000 | ||||
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The Company has identifiable long-lived assets with total carrying values of approximately $708,000 and $751,000 at June 30, 2014 and March 31, 2014, respectively, outside the United States in Canada and Europe.
NOTE N–RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2014-09,Revenue from Contracts with Customers, which provides guidance for revenue recognition that supersedes existing revenue recognition guidance (but does not apply to nor supersede accounting guidance for lease contracts). The ASU’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASU is effective for reporting periods beginning after December 15, 2016, and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company is currently in the process of evaluating the impact of the adoption of this ASU on the Company’s consolidated results.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Arctic Cat Inc. (the “Company” or “Arctic Cat,” or “we,” “our” or “us”) is a Minnesota corporation with principal executive offices in Plymouth, Minnesota. We design, engineer, manufacture and market snowmobiles, all-terrain vehicles (“ATVs”) and recreational off-highway vehicles (“side-by-sides” or “ROVs”) under the Arctic Cat® brand name, as well as related parts, garments and accessories (“PG&A”). We market our products through a network of independent dealers located throughout the United States, Canada, and Europe and through distributors representing dealers in Europe, Russia, South America, the Middle East, Asia and other international markets. The Arctic Cat brand name has existed for more than 50 years and is among the most widely recognized and respected names in the snowmobile, ATV and side-by-side industry. We were incorporated in 1982. Our common stock trades on the NASDAQ Global Select Market under the symbol ACAT.
Executive Overview
The following discussion pertains to our results of operations and financial position for the quarter ended June 30, 2014. Due to the seasonality of the snowmobile, ATV and PG&A businesses, and due to certain changes in production and shipping cycles, the results of such period are not necessarily indicative of the results to be expected for the full year.
For the first quarter ended June 30, 2014, we reported net sales of $143.6 million and net earnings of $3.6 million, or $0.27 per diluted share, compared to first quarter ended June 30, 2013 net sales of $120.8 million and net earnings of $5.5 million, or $0.40 per diluted share. We recorded an executive severance charge during the first quarter that reduced earnings by $0.08 per diluted share. Excluding this charge, our first quarter earnings totaled $0.35 per diluted share. Increased sales were not enough to overcome the unfavorable Canadian currency and the planned increase in lower margin OEM sales in the 2015 first quarter, resulting in lower profitability compared to record earnings in the first quarter last year. Going forward, we remain focused on increasing sales this fiscal year by introducing innovative new products, as well as continuing to leverage our operating efficiency.
Our snowmobile sales in the fiscal 2015 first quarter increased 148.7% to $56.2 million, up from $22.6 million in the prior-year quarter. The increase in snowmobile sales during the quarter was largely due to Arctic Cat’s expanded OEM partnership. Following strong retail sales and market share gains in fiscal 2014, we anticipate higher snowmobile sales to our dealers in the current fiscal year. We are committed to investing in research and development in order to remain an industry innovation leader. We expect fiscal 2015 North American industry retail snowmobile sales to be flat to up 3%.
Our ATV/side-by-side sales for the first quarter decreased 16.4% to $63.8 million versus $76.3 million in the prior-year quarter, as planned to reduce our dealer inventories ahead of our ATV dealer show in September 2014. We expect fiscal 2015 North American core ATV industry retail sales will grow up to 2%, and the side-by-side industry will continue to show growth in the 6% to 9% range.
First quarter PG&A sales increased 8.3% to $23.7 million versus $21.9 million in the prior-year quarter. Contributing to the increased sales were strong sales of newly developed Wildcat Trail accessories, as well as core ATV accessories. Arctic Cat continues to expect its PG&A business to grow in fiscal 2015 through the expansion of its Wildcat accessories and continued growth of the parts business.
For the fiscal year ending March 31, 2015, we now estimate full-year net earnings to be in the range of $2.25 to $2.35 per diluted share, which includes the executive severance charge of $0.08 recorded in the fiscal 2015 first quarter, on anticipated sales in the range of $775 million to $786 million. Previously, the Company estimated full-year earnings in the range of $2.33 to $2.43 per diluted share.
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Results of Operations
Product Line Sales
Three Months Ended June 30, | ||||||||||||||||||||
($ in thousands) | 2014 | Percent of Net Sales | 2013 | Percent of Net Sales | Change 2014 vs. 2013 | |||||||||||||||
Snowmobile | $ | 56,152 | 39.1 | % | $ | 22,574 | 18.7 | % | 148.7 | % | ||||||||||
ATV | 63,826 | 44.4 | % | 76,340 | 63.2 | % | (16.4 | )% | ||||||||||||
Parts, garments & accessories | 23,661 | 16.5 | % | 21,854 | 18.1 | % | 8.3 | % | ||||||||||||
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Net Sales | $ | 143,639 | 100.0 | % | $ | 120,768 | 100.0 | % | 18.9 | % | ||||||||||
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During the first quarter of fiscal 2015, net sales increased 18.9% to $143.6 million from $120.8 million in the first quarter of fiscal 2014, due to sales increases for snowmobile and PG&A businesses. Snowmobile unit volume increased 78.8%, ATV unit volume decreased 6.8%, and PG&A sales increased $1.8 million or 8.3%. The increase in net sales was driven by higher snowmobile sales to our OEM partner, in addition to increased sales from our PG&A business, due to the increase in sales of newly developed accessories for the new Wildcat Trail model, as well as core ATV accessories. Sales of ATVs and side-by-sides were lower in the first quarter as planned to reduce dealer inventories ahead of our ATV dealer show in September 2014.
Cost of Goods Sold
Three Months Ended June 30, | ||||||||||||||||||||
($ in thousands) | 2014 | Percent of Net Sales | 2013 | Percent of Net Sales | Change 2014 vs. 2013 | |||||||||||||||
Snowmobile & ATV units | $ | 97,701 | 68.0 | % | $ | 77,908 | 64.5 | % | 25.4 | % | ||||||||||
Parts, garments & accessories | 15,137 | 10.5 | % | 13,700 | 11.3 | % | 10.5 | % | ||||||||||||
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Total Cost of Goods Sold | $ | 112,838 | 78.5 | % | $ | 91,608 | 75.8 | % | 23.2 | % | ||||||||||
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During the first quarter of fiscal 2015, cost of sales increased 23.2% to $112.8 million from $91.6 million for the first quarter of fiscal 2014. Fiscal 2015 snowmobile and ATV unit cost of sales increased 25.4% to $97.7 million from $77.9 million, which was directionally in line with increases in unit sales during the first quarter of fiscal 2015 compared to the first quarter of fiscal 2014. The first quarter of fiscal 2015 cost of sales for PG&A increased 10.5% to $15.1 million from $13.7 million for the first quarter of fiscal 2014 due to increased sales.
Gross Profit
Three Months Ended June 30, | ||||||||||||
($ in thousands) | 2014 | 2013 | Change 2014 vs. 2013 | |||||||||
Gross Profit Dollars | $ | 30,801 | $ | 29,160 | 5.6 | % | ||||||
Percentage of Net Sales | 21.4 | % | 24.1 | % | (2.7 | )% |
Gross profit increased 5.6% to $30.8 million in the first quarter of fiscal 2015 from $29.2 million in the first quarter of fiscal 2014. The gross profit percentage for the first quarter of fiscal 2015 decreased to 21.4% versus 24.1% in fiscal 2014. The decrease in the first quarter of fiscal 2015 gross profit percentages was primarily due to unfavorable Canadian currency exchange and increased sales of lower margin OEM snowmobiles compared to the first quarter of fiscal 2014.
Operating Expenses
Three Months Ended June 30, | ||||||||||||
($ in thousands) | 2014 | 2013 | Change 2014 vs. 2013 | |||||||||
Selling & Marketing | $ | 6,981 | $ | 6,994 | (0.2 | )% | ||||||
Research & Development | 5,346 | 5,282 | 1.2 | % | ||||||||
General & Administrative | 12,904 | 8,411 | 53.4 | % | ||||||||
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Total Operating Expenses | $ | 25,231 | $ | 20,687 | 22.0 | % | ||||||
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Percentage of Net Sales | 17.6 | % | 17.1 | % |
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Selling and Marketing expenses were essentially flat at $7.0 million in the first quarter of fiscal 2015 from $7.0 million in the first quarter of fiscal 2014. Research and Development expenses increased 1.2% to $5.3 million in the first quarter of fiscal 2015 compared to $5.3 million in the first quarter of fiscal 2014, primarily due to higher product development expenses. General and Administrative expenses increased 53.4% to $12.9 million in the first quarter of fiscal 2015 from $8.4 million in the first quarter of fiscal 2014, primarily due to higher Canadian hedge costs, higher legal expenses and a $1.5 million severance charge relating to the departure of our former CEO in May 2014.
Other Income / Expense
We had $4,000 in interest income in the first quarter of fiscal 2015 compared to $9,000 in the first quarter of fiscal 2014. Interest expense increased to $40,000 in the first quarter of fiscal 2015 from $3,000 in the first quarter of fiscal 2014. Interest expense was higher due to increased borrowing levels resulting primarily from lower cash levels at the beginning of the fiscal year compared to last year.
Liquidity and Capital Resources
The seasonality of our snowmobile production cycle and the lead time between the commencement of snowmobile and ATV production and commencement of shipments late in the first quarter create significant fluctuations in our working capital requirements. Historically, we have financed our working capital requirements out of available cash balances at the beginning and end of the production cycle and with short-term bank borrowings during the middle of the cycle. Our cash balances traditionally peak early in the fourth quarter and then decrease as working capital requirements increase when our snowmobile and ATV production cycles begin in the spring. Accounts receivable decreased to $33.2 million at June 30, 2014 from $43.7 million at June 30, 2013, primarily due to timing of snowmobile and ATV/side-by-side shipments. The accounts receivable balance at March 31, 2014 was $42.0 million. Inventory increased to $185.3 million at June 30, 2014 from $149.7 million at June 30, 2013, primarily due to increased snowmobile production as well as increased ATV/side-by-side inventory. Inventory was $140.7 million at March 31, 2014. The increases in our inventory balances as of June 30, 2014 compared to March 31, 2014 are due to the seasonality of our snowmobile, ATV and PG&A businesses as well as the items discussed above. During the three months ended June 30, 2014, we repurchased 26,951 shares of our common stock at a total cost of $1.0 million under the share repurchase program previously approved by the Board of Directors in May 2013, and we repurchased an additional 60,689 shares of our common stock at a total cost of $2.4 million for the exercise and related income taxes for net-settled stock options and RSUs. Cash and short-term investments were $24.3 million and $48.9 million at June 30, 2014 and 2013, respectively, and $82.5 million at March 31, 2014. Cash and short-term investments decreased from March 31, 2014, due to the seasonality of our business. Our investment objectives are first, safety of principal, and second, rate of return. No short-term bank borrowings were outstanding at June 30, 2014 and 2013 and March 31, 2014.
We believe current available cash and cash generated from operations together with working capital financing through our available line of credit will provide sufficient funds to finance operations on a short and long-term basis.
Line of Credit
We entered into a $100,000,000 senior secured revolving credit agreement in November 2013 for documentary and stand-by letters of credit, working capital needs and general corporate purposes, which amended and restated our prior $60,000,000 senior secured revolving credit agreement. We may borrow up to $100,000,000 during May through November and up to $50,000,000 during all other months of the fiscal year. We were in compliance with the terms of the credit agreement as of June 30, 2014. See Note F of the notes to condensed consolidated financial statements herein for further discussion.
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Dealer Floorplan Financing
We have agreements with GE Commercial Distribution Finance in the United States and TCF Commercial Finance Canada in Canada to provide snowmobile, ATV and ROV floorplan financing for our dealers. These agreements improve our liquidity by financing dealer purchases of products without requiring substantial use of our working capital. We are paid by the floorplan companies shortly after shipment and as part of our marketing programs, we pay the floorplan financing of our dealers for certain set time periods depending on the size of a dealer’s order.
Certain Information Concerning Off-Balance Sheet Arrangements
As of June 30, 2014, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
Critical Accounting Policies
See our most recent Annual Report on Form 10-K for the year ended March 31, 2014 for a discussion of our critical accounting policies.
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2014-09,Revenue from Contracts with Customers, which provides guidance for revenue recognition that supersedes existing revenue recognition guidance (but does not apply to nor supersede accounting guidance for lease contracts). The ASU’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASU is effective for reporting periods beginning after December 15, 2016, and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company is currently in the process of evaluating the impact of the adoption of this ASU on the Company’s consolidated results.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements. This Quarterly Report on Form 10-Q, and future filings with the Securities and Exchange Commission, our press releases and oral statements made with the approval of an authorized executive officer, contain forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. The words “aim,” “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that indicate future events and trends identify forward-looking statements, including statements related to our fiscal 2015 outlook, business strategy and expected product introductions and demand. In particular, these include, among others, statements relating to our anticipated capital expenditures, research and development expenditures, product introductions, the effect of weather conditions and dealer ordering processes on our net sales, legal proceedings, our expectations regarding financing arrangements, our wholesale and retail sales and market share expectations, inventory levels, industry wholesale and retail sales and demand expectations, depreciation and amortization expense, dividends, sufficiency of funds to finance our operations and capital expenditures, raw material and component supply expectations, adequacy of insurance, and the effect of regulations on us and our industry and our compliance with such regulations. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors including, but not limited to the following: product mix and volume; competitive pressure on sales, pricing and sales incentives; increases in material or production cost which cannot be recouped in product pricing; changes in the sourcing of engines; interruption of dealer floorplan financing; warranty expenses and product recalls; foreign currency exchange rate fluctuations; product liability claims and other legal proceedings in excess of reserves or insured amounts; environmental and product safety regulatory activity; effects of the weather; general economic conditions and political changes; interest rate changes; consumer demand and confidence; and those factors set forth in the Company’s Annual Report on Form 10-K for the year ended March 31, 2014, under heading “Item 1A. Risk Factors.” We do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to certain market risks relating to changes in inflation, foreign currency exchange rates and interest rates. These market risks have not changed significantly since March 31, 2014. As of June 30, 2014, we have notional Canadian dollar denominated cash flow hedges of approximately $126,982,000 (USD) with a weighted average contract exchange rate of 90.06 USD to CAD. The fair values of the Canadian dollar contracts at June 30, 2014 represent an unrealized loss of $4,503,000. A ten percent fluctuation in the currency rates as of June 30, 2014 would have resulted in a change in the fair value of the Canadian dollar hedge contracts of approximately $12,698,000. However, since these contracts hedge foreign currency denominated transactions, any change in the fair value of the contracts would be offset by changes in the underlying value of the transactions being hedged.
Information regarding inflation, foreign currency exchange rates and interest rates is discussed within “Quantitative and Qualitative Disclosures About Market Risk-Foreign Exchange Rates and Interest Rates” and Footnote A to the Financial Statements in the Company’s 2014 Annual Report on Form 10-K. Interest rate market risk is managed for cash and short-term investments by investing in a diversified frequently maturing portfolio consisting of municipal bonds and money market funds that experience minimal volatility and are not deemed to be significant.
Item 4. Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) pursuant to Rule 13a-15 under the Exchange Act as of June 30, 2014. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
There have been no changes in internal control over financial reporting during the fiscal quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Company Purchases of Company Equity Securities
On May 15, 2013, the Company’s Board of Directors approved a $30,000,000 common stock share repurchase program. The share repurchase program does not have an expiration date. The following table presents the total number of shares repurchased during the first quarter of fiscal 2015 by fiscal month, the average price paid per share, the number of shares that were purchased as part of a publicly announced repurchase plan, and the approximate dollar value of shares that may yet be purchased pursuant to our stock repurchase program as of the end of the first quarter of fiscal 2015:
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (2) | ||||||||||||
April 1, 2014 – April 30, 2014 | 5,093 | $ | 47.51 | 0 | 50,942 | |||||||||||
May 1, 2014 – May 31, 2014 | 992 | 40.22 | 0 | 55,845 | ||||||||||||
June 1, 2014 – June 30, 2014 | 81,555 | 38.11 | 26,951 | 27,304 | ||||||||||||
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Total | 87,640 | $ | 38.68 | 26,951 | 27,304 | |||||||||||
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(1) | 26,951 shares purchased were under the share repurchase program and 60,689 shares were withheld for the exercise and related income taxes for net-settled stock options and RSUs. |
(2) | The Maximum Number of Shares that May Yet Be Purchased for the periods represents the number of shares purchasable at the closing price of the Company’s common stock on the last day of the month under the share repurchase program. |
We have historically purchased our common stock primarily to offset the dilution created by employee stock option exercises and because the Board of Directors believes investment in our common stock is a good use of our excess cash.
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Exhibit | Description | |||||
3 (a) | Amended and Restated Articles of Incorporation of the Company | (1 | ) | |||
3 (b) | Amended and Restated By-Laws of the Company | (2 | ) | |||
4 (a) | Form of specimen common stock certificate | (3 | ) | |||
10.1 | Limited Term Employment Agreement, dated June 2, 2014, between the Company and Christopher A. Twomey. | (4 | ) | |||
10.2 | Amendment to Employment Agreement, dated June 2, 2014, between the Company and Timothy C. Delmore. | (4 | ) | |||
31.1 | CEO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | (5 | ) | |||
31.2 | CFO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | (5 | ) | |||
32.1 | CEO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002 | (5 | ) | |||
32.2 | CFO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002 | (5 | ) | |||
101 | Financial statements from the quarterly report on Form 10-Q of the Company for the quarter ended June 30, 2014, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to the Condensed Consolidated Financial Statements. | (5 | ) |
(1) | Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997. |
(2) | Incorporated herein by reference to the Company’s Current Report on Form 8-K filed January 16, 2013. |
(3) | Incorporated herein by reference to the Company’s Form S-1 Registration Statement. (File Number 33-34984) |
(4) | Incorporated herein by reference to the Company’s Current Report on form 8-K filed June 5, 2014. |
(5) | Filed with this Quarterly Report on Form 10-Q. |
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Table of Contents
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.
ARCTIC CAT INC. | ||||||
Date: August 7, 2014 | By | /s/ Christopher A. Twomey | ||||
Christopher A. Twomey | ||||||
Chief Executive Officer | ||||||
Date: August 7, 2014 | By | /s/ Timothy C. Delmore | ||||
Timothy C. Delmore | ||||||
Chief Financial Officer |
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