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Table of Contents

 

 

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.

 

 

 


Table of Contents

ARCTIC CAT INC.

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION

  

ITEM 1.

  FINANCIAL STATEMENTS      3   
  UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS      3   
  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS      4   
  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME      5   
  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS      6   
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS      7   

ITEM 2.

  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      15   

ITEM 3.

  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      19   

ITEM 4.

  CONTROLS AND PROCEDURES      19   

PART II OTHER INFORMATION

  

ITEM 2.

  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS      20   

ITEM 6.

  EXHIBITS      21   

 

2


Table of Contents

Part I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

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   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 
     213,192,000        210,786,000   

Less accumulated depreciation

     157,939,000        154,855,000   
  

 

 

   

 

 

 
     55,253,000        55,931,000   

Other Assets

     1,036,000        1,067,000   
  

 

 

   

 

 

 
   $ 320,254,000      $ 342,294,000   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current Liabilities

    

Accounts payable

   $ 80,298,000      $ 93,882,000   

Accrued expenses

     46,267,000        54,659,000   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

Total shareholders’ equity

     184,794,000        185,043,000   
  

 

 

   

 

 

 
   $ 320,254,000      $ 342,294,000   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated statements.

 

3


Table of Contents

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   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

Total cost of goods sold

     112,838,000        91,608,000   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

Total operating expenses

     25,231,000        20,687,000   
  

 

 

   

 

 

 

Operating profit

     5,570,000        8,473,000   

Other income (expense)

    

Interest income

     4,000        9,000   

Interest expense

     (40,000     (3,000
  

 

 

   

 

 

 

Total other income (expense)

     (36,000     6,000   
  

 

 

   

 

 

 

Earnings before income taxes

     5,534,000        8,479,000   

Income tax expense

     1,965,000        3,011,000   
  

 

 

   

 

 

 

Net earnings

   $ 3,569,000      $ 5,468,000   
  

 

 

   

 

 

 

Net earnings per share

    

Basic

   $ 0.28      $ 0.41   
  

 

 

   

 

 

 

Diluted

   $ 0.27      $ 0.40   
  

 

 

   

 

 

 

Weighted average shares outstanding

    

Basic

     12,896,000        13,215,000   
  

 

 

   

 

 

 

Diluted

     13,082,000        13,711,000   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated statements.

 

4


Table of Contents

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   
  

 

 

   

 

 

 

Comprehensive income

   $ 695,000      $ 9,237,000   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated statements.

 

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Table of Contents

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
  

 

 

   

 

 

 

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
  

 

 

   

 

 

 

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
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 24,265,000      $ 48,051,000   
  

 

 

   

 

 

 

Supplemental disclosure of cash payments for:

    

Income taxes

   $ 32,000      $ 5,539,000   
  

 

 

   

 

 

 

Interest

   $ 24,000      $ 3,000   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated statements.

 

6


Table of Contents

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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Table of Contents

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         
  

 

 

   

 

 

       

Outstanding at June 30, 2014

     428,226      $ 29.01         6.31 years       $ 5,415,000   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at June 30, 2014

     338,994      $ 24.78         5.59 years       $ 5,407,000   
  

 

 

   

 

 

    

 

 

    

 

 

 

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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     428,226         6.31 years       $ 29.01         338,994       $ 24.78   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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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Table of Contents

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   
  

 

 

   

 

 

    

 

 

   

 

 

 

Non-vested shares at June 30,

     15,600      $ 44.17         39,146      $ 19.93   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

     2014      2013  

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   
  

 

 

   

 

 

    

 

 

   

 

 

 

Non-vested shares at June 30,

     60,600      $ 38.86         41,723      $ 35.52   
  

 

 

   

 

 

    

 

 

   

 

 

 

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   
  

 

 

    

 

 

 

Common and potential shares outstanding—diluted

     13,082,000         13,711,000   
  

 

 

    

 

 

 

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   
  

 

 

    

 

 

 
   $ 185,264,000       $ 140,652,000   
  

 

 

    

 

 

 

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   
  

 

 

    

 

 

 
   $ 46,267,000       $ 54,659,000   
  

 

 

    

 

 

 

 

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Table of Contents

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
  

 

 

   

 

 

 

Balance at end of period

   $ 19,423,000      $ 18,032,000   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

Balance at end of period

   $ 673,000      $ 11,022,000   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

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
  

 

 

   

 

 

 

Balance at end of period

   $ 188,976,000      $ 171,703,000   
  

 

 

   

 

 

 

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
  

 

 

    

 

 

 

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   
  

 

 

    

 

 

    

 

 

 

 

     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   
  

 

 

    

 

 

    

 

 

 

 

(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   
  

 

 

   

 

 

 

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   
  

 

 

    

 

 

 

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   
  

 

 

    

 

 

 

Total cost of goods sold

     112,838,000         91,608,000   
  

 

 

    

 

 

 

Gross profit

     

Snowmobile & ATV units

     22,277,000         21,006,000   

Parts, garments, & accessories

     8,524,000         8,154,000   
  

 

 

    

 

 

 

Total gross profit

   $ 30,801,000       $ 29,160,000   
  

 

 

    

 

 

 

 

     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   
  

 

 

    

 

 

 

Total net sales

   $ 143,639,000       $ 120,768,000   
  

 

 

    

 

 

 

 

     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   
  

 

 

    

 

 

 

Total net sales

   $ 143,639,000       $ 120,768,000   
  

 

 

    

 

 

 

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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Item 2.

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
  

 

 

    

 

 

   

 

 

    

 

 

   

Net Sales

   $ 143,639         100.0   $ 120,768         100.0     18.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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
  

 

 

    

 

 

   

 

 

    

 

 

   

Total Cost of Goods Sold

   $ 112,838         78.5   $ 91,608         75.8     23.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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
  

 

 

   

 

 

   

Total Operating Expenses

   $ 25,231      $ 20,687        22.0
  

 

 

   

 

 

   

 

 

 

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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Part II – OTHER INFORMATION

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   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     87,640       $ 38.68         26,951         27,304   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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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Item 6. Exhibits

 

Exhibit
Number

 

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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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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