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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

 

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended March 31, 2015

or

 

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition period from                      to                     

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 Highway 169 North, Suite 1000

Plymouth, Minnesota

  55441
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code:

(763) 354-1800

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $.01 par value   The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

  

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required 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 Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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   ¨    Accelerated filer   x
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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter was approximately: $450,347,012.

At May 22, 2015, the registrant had 12,952,617 shares of Common Stock outstanding.

Documents Incorporated by Reference:

Portions of the registrant’s Proxy Statement for its Annual Meeting of Shareholders currently scheduled to be held on August 6, 2015 are incorporated by reference into Part III of this Form 10-K.

 

 

 


Table of Contents

ARCTIC CAT INC.

FORM 10-K

TABLE OF CONTENTS

 

PART I   1   

ITEM 1.

BUSINESS

  1   

ITEM 1A.

RISK FACTORS

  10   

ITEM 1B.

UNRESOLVED STAFF COMMENTS

  12   

ITEM 2.

PROPERTIES

  12   

ITEM 3.

LEGAL PROCEEDINGS

  12   

ITEM 4.

MINE SAFETY DISCLOSURES

  13   
PART II   14   

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

  14   

ITEM 6.

SELECTED FINANCIAL DATA

  16   

ITEM 7.

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

  17   

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  23   

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  23   

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

  23   

ITEM 9A.

CONTROLS AND PROCEDURES

  23   

ITEM 9B.

OTHER INFORMATION

  24   
PART III   26   

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

  26   

ITEM 11.

EXECUTIVE COMPENSATION

  26   

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

  26   

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

  26   

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

  26   
PART IV   27   

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

  27   
SIGNATURES   28   
CONSOLIDATED BALANCE SHEETS   29   
CONSOLIDATED STATEMENTS OF OPERATIONS   30   
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY   31   
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME   32   
CONSOLIDATED STATEMENTS OF CASH FLOWS   33   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   34   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   47   


Table of Contents

PART I

ITEM 1. BUSINESS

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 and all-terrain vehicles (“ATVs”) and recreational off-highway vehicles (“side-by-sides” or “ROVs”), as well as related parts, garments and accessories (“PG&A”) under the Arctic Cat® and MotorFist® brand names. 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, China, 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 industries. We were incorporated in 1982. Our common stock trades on the NASDAQ Global Select Market under the symbol ACAT.

Industry Background

Snowmobiles—The snowmobile, developed in the 1950s, was originally intended to be used as a utility vehicle, but today the overwhelming majority of the industry’s sales are for recreational use. Between the late 1950s and early 1970s, the industry expanded dramatically, reaching a peak of over 100 manufacturers and a high of nearly 495,000 units sold to retail customers in North America in 1971. Today the industry has consolidated to four major participants: Arctic Cat, Bombardier Recreational Products Inc. (“BRP”), Polaris Industries Inc. (“Polaris”) and Yamaha Motor Co., Ltd. (“Yamaha”). We believe there are currently more significant barriers to entry into the snowmobile market than existed in the 1970s. These barriers include increased brand loyalty, long-standing dealer and distributor networks and relationships, emissions and safety regulations, four-stroke engine development costs, manufacturing and engineering expertise and higher initial start-up costs. Industry-wide snowmobile sales to retail customers in North America were approximately 109,025 units for the 2015 model year. Arctic Cat snowmobiles are sold in numerous markets including the United States, Canada, Scandinavia, Russia and other international markets.

ATVs—The ATV industry evolved from the three-wheel model that was developed in the early 1970s to the four-wheel models that are sold today. The most popular ATV use is general recreation, followed by farming/ranching, hunting/fishing, hauling/towing, transportation, and commercial use. From 1970 to 1986, the number of ATVs sold in the United States continued to grow until reaching an initial peak of 535,000 units in 1986. From 1987 to 1991, the number of ATVs sold declined to a low of approximately 147,000 units. From 1991 to 2004, sales of ATVs by Arctic Cat and its major competitors grew to 814,000 units; however, ATV sales declined each year from 2005 to 2011, primarily driven by overall weak economic conditions and the shift to side-by-side vehicles. In 2012, the industry started to turn around and experienced a 2.6% increase in sales, its first increase in industry sales since 2005. For the 2014 calendar year, industry-wide sales were 281,000 units in the North America, up 0.3%, for its 2nd straight increase in year-over-year retail sales. ATVs are sold in numerous markets including the United States, Canada, Europe, Russia, Australia, China, the Middle East and Latin America. Major competitors in the industry include Yamaha, BRP, Polaris, Honda Motor Co., Ltd. (“Honda”), Kawasaki Motors Corp. (“Kawasaki”) and Suzuki Motor Corporation (“Suzuki”). In addition to these companies, multiple other companies, including numerous Chinese and Taiwanese manufacturers, sell ATVs.

Side-by-Side Recreational Off-highway Vehicles (“side-by-sides” or “ROVs”)—ROVs are multiple passenger off-highway all-terrain vehicles and, like ATVs, are used for general recreation, farming/ranching, hunting/fishing, hauling/towing, transportation, commercial and military use. We estimate that calendar year 2014 industry side-by-side vehicle retail sales in North America were 266,000 units, up 17.4% from the previous year. The main competitors for our side-by-side vehicles are Yamaha, BRP, Polaris, Kawasaki, Kubota, Deere & Company (“Deere”) and Honda.

Products

Snowmobiles—We produce a full line of snowmobiles, consisting of 60 models, marketed under the Arctic Cat brand name and designed to satisfy most market segments. The 2015 Arctic Cat models carry suggested U.S. retail prices ranging from $6,499 to $16,049, excluding a youth model sold at a suggested U.S. retail price of $2,699. Our 2015 model year snowmobiles are categorized as Performance, Crossover, Mountain, Touring and Utility. We market: Performance models under the names ZR and Sno Pro; Crossover models under the name XF; Mountain models under the name M and HCR; Touring models under the name Pantera and Lynx; and Utility models under the name Bearcat. In addition, to encourage family involvement in snowmobiling, we offer a youth snowmobile marketed under the ZR 120 name.

 

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In the more than 50 years of Arctic Cat snowmobiles, the basic framework of the snowmobile has stayed the same: two skis, an engine and drive system and a suspended chassis that supports the rider. Yet there has been a progression in performance, comfort, durability and capability achieved through a half century of innovative engineering and development.

Snowmobiles have advanced from 12-mph rear-engine farm implements to turbo-charged 4-stroke performance machines with advanced bump-soaking suspensions, electric heated seats, 150-mile fuel ranges and the ability to climb tall mountains.

In the sport of snowmobiling, where the customer demands continuous improvement in the vehicle’s ride, quality and performance, companies must progress through innovation. We believe we have a team of talented, driven-to-win people whose passion for snowmobiles is matched by their desire to innovate and improve, a major reason why Arctic Cat has delivered a stunning array of innovative, pioneering technology and products during the last half-century.

For the last three fiscal years ended March 31, 2015, 2014 and 2013, snowmobiles accounted for 43%, 39% and 39%, respectively, of our net sales.

Awards—The industry’s media professionals spoke out by highlighting our 2015 models with several Best-In-Class awards:

 

    2015 Pantera 7000 Limited, SnowGoer Canada—Most Impressive 2-up Touring

 

    2015 ZR 5000 LXR, SnowGoer Canada—Most Impressive Value

 

    2015 ZR 6000 RR, OSM Magazine—Best High Performance Terrain Sleds

 

    2015 ZR 6000 RR, American Snowmobiler—Editor’s Choice Award

 

    2015 Pantera 7000 Limited, American Snowmobiler—Best Two-Up Touring

 

    2015 Bearcat 5000 XT Limited, American Snowmobiler—Best Utility Snowmobile

 

    2015 ZR 6000 LXR, Supertrax—Best 600

 

    2015 Pantera 7000 LTD, Supertrax—Best 2-Up Touring

 

    2016 M-Series, SnoWest—Best Arctic Cat Mountain Snowmobiles Yet

Team Arctic Snowmobile Racers proved they win in 2015. In his 15th professional snocross season, Tucker Hibbert won 13 of the 17 ISOC Pro Open finals, leading to his 9th Pro National championship, recorded his 100th Pro National win with a jaw-dropping come-from-behind win in Deadwood, won a record-breaking eighth consecutive X Games gold medal, and was voted ISOC’s Fan Favorite Snocross Racer of the Year for the second consecutive time.

In the premier national snocross, cross-country, hillclimb and enduro snowmobile racing events during the 2015 season, Team Arctic captured 163 class wins, 400 podium finishes and 20 High Point Championship titles.

ATVs—In December 1995, we introduced our first ATV. Since that time, our line has grown to 28 models. Features like fully independent front and rear suspensions, hydraulic disc brakes, hi-low range transmission, long travel suspension with high ground clearance, Speed Point accessory system, automatic transmissions, selectable 2WD/4WD shaft drive, locking differentials, EFI, a large fuel tank, and electronic power steering all make our ATVs consumer friendly. We also have special two rider models that provide a proper alternative for customers that want to ride double on an ATV. In 2007, we introduced the industry’s first diesel ATV, capable of using biodiesel fuels, and in 2008 we introduced the Thundercat 1000, the ATV with the largest displacement engine in the industry. We launched our new value line-up of ATVs in 2011, which included the 350 4X4 automatic and the 425 EFI 4X4 automatic. For model year 2013, we launched a new range of value models which included a 400 4X4 automatic ATV, 450 EFI 4X4 automatic ATV, 500 EFI 4X4 automatic ATV, 400 4X4 automatic TRV and 500 EFI 4X4 automatic TRV. For model year 2015, we launched XR ATV series available in 550cc and 700 cc categories. The model year 2015 Arctic Cat ATVs carry suggested U.S. retail prices ranging from $4,299 to $14,399, excluding youth models which are sold at suggested U.S. retail prices ranging from $2,799 to $3,699.

Side-by-Side Recreational Off-highway Vehicles (“side-by-sides” or “ROVs”)—We introduced our new Prowler utility side-by-side vehicle into the utility segment in 2006. The Prowler is configured with a variety of different engines that range in size from 550cc to 1000cc that are manufactured by us, and also includes a rear cargo box, dual bucket seats as well as our renowned long travel suspension and ride characteristics. In 2011, we launched our first heavy duty utility side-by-side vehicle, the Prowler HDX, with an extended chassis, extra-large cargo box, bench seating and electronic power steering standard. In fiscal 2012, we introduced the all-new Wildcat 1000 sport model ROV. This model is aimed at a rapidly growing segment of the ROV market where consumers are seeking a side-by-side designed vehicle that offers comfort & handling in

 

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rough off-highway terrain. In fiscal 2013, we expanded our Wildcat line-up to include a Wildcat 1000 Limited with factory installed accessories, a Wildcat 4 1000 which allows for seating of 4 full sized adults and a Wildcat X 1000 which increases the horse power to +90. In fiscal 2014, we further expanded the Wildcat line-up to include a Wildcat X 1000 Limited, Wildcat 4X 1000 and Wildcat 4X 1000 Limited, all with the high horsepower X engine. We also launched a narrower 50-inch wide, trail-legal platform that allows riders access to authorized ATV trails. In addition to its trail legal capabilities, the Wildcat Trail offers industry-leading suspension, coupled with the lowest price in the 50-plus horsepower segment. We also expanded our HDX utility line-up to include a Prowler HDX 500, which has many of the same features as the Prowler 700 HDX, only with a smaller engine. Finally, we introduced the new Wildcat Sport which is 60 inches wide and is positioned to compete in the mid-size Pure Sport and Sport/Recreation segments. Currently, we offer a total of sixteen models with retail prices between $10,999 and $23,699. Side-by-side/ROV sales are included with ATV sales for financial reporting purposes.

We entered in to a multi-year agreement to build side-by-side utility models for the Toro Company. This agreement features two models branded separately under both the Toro and eXmark brands and was rolled out in the fourth quarter of fiscal year 2015.

For the last three fiscal years ended March 31, 2015, 2014 and 2013, ATVs and ROVs collectively accounted for 41%, 45%, and 45%, respectively, of our net sales.

Awards—Our ATV’s and ROV’s are born and bred to tackle everything from the tightest trails to mountain road switchbacks and are recognized for their ergonomic comfort, ride quality and styling. Here’s what the industry’s media professionals had to say:

 

    “Compared to a RzR 900 the Wildcat Sport has a better ride quality for extreme conditions and is 200lbs lighter”—ATV Action

 

    “The Wildcat Sport is lightweight, has a hearty engine and is tuned for excellence”—UTV Offroad

 

    “Arctic Cat really stepped it up with the 2015 XR 550. Everything works without flaws from power delivery and suspension to handling and steering”—Dirtwheels

 

    “When it’s all said and done, the 2015 Wildcat Trail takes the trophy for Best 50-inch UTV”—DirtTrax Magazine

 

    “After riding the all-new 2015 XR line of ATVs, it’s immediately obvious the high level of engineering embodied in the new ATV platform”—ATVEscape.com

 

    “The new 2015 XR model ATVs are the perfect mix for work and play”—ATV World Magazine

 

    “The 2015 XR 500 and 700 are the best designed ATV’s that Arctic Cat has ever produced”—ATVriders.com

International Markets— We have continued to expand into international markets by focusing on new product development, adding new distributors and dealers, entering new geographies, and developing new markets. In July 2005, we acquired a 100% interest in a European company to strengthen our European presence and further expand our ATV model offerings for on-road use, the most prevalent use in Europe. Our snowmobiles and ATVs are currently sold in all major markets.

Parts, Garments and Accessories—We are the exclusive provider of genuine Arctic Cat Snowmobile, ATV and ROV parts, garments and accessories. Replacement parts for our current and noncurrent models of Snowmobiles, ATVs and ROVs are an important part of our product mix along with maintenance supplies such as oil and fuel additives. We also sell a broad array of accessories such as bumpers, cabs, luggage racks, lights, snow plows, backrests, windshields, wheels, track systems and winch kits that consumers buy to increase their comfort factor, shorten their task or personalize their ride. We recently launched a new line of accessories specifically created for the new Wildcat Trail. During fiscal 2014, we added new accessory options for this exciting new vehicle. In addition to genuine Arctic Cat parts and accessories, we sell market leading brands in various categories such as Fox Float shocks, Speed point attachments and BCA Float Avalanche Airbags.

We offer a full range of snowmobile garments for adults and children under the “Arcticwear” brand. Jackets, coats, pants and casual sportswear items are produced and sold in a wide variety of styles and sizes combining fashion with function. The Arcticwear line of clothing encompasses wearables designed to keep the rider warm and dry during the most demanding snowmobile conditions (insulated outerwear, hats, mittens, helmets, boots) and comfortable relaxing after the ride (sweatshirts, T-shirts, casual wear). The snowmobile garment line includes multiple options with varying levels of performance (insulation warmth, waterproofing, breathability)—to answer consumers’ needs across a broad range of weather conditions.

 

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Several years ago we introduced a second line of insulated outerwear under the “Drift Racing” brand to compete against the aftermarket outerwear manufacturers selling into the snowmobile market. The “Drift Racing” line of outerwear provides riders of multiple brands of snowmobiles a high performing, fashionable outerwear option. Over the last two years we have expanded our Drift Racing line (insulated jackets similar to those worn by the snowmobile racers), have added more general outerwear options to the Arcticwear line (down filled parkas) and expanded our sportswear wearables sold under the “Arcticwear” brand.

In fiscal year 2015, we acquired substantially all of the assets of MotorFist, LLC, a privately owned company based in Idaho Falls, Idaho, that designs, develops and distributes technical snowmobile riding garments and accessories. Founded in 2009, MotorFist does business throughout North America, as well as Russia, Sweden, Norway, Finland, Japan, Iceland, and Greenland. MotorFist’s products are engineered with its proprietary eVent® waterproof, windproof and breathable fabric, delivering rugged solutions for harsh conditions. After only a few years of manufacturing, the MotorFist brand has set a high benchmark for premium snowmobile gear.

For ATV and ROV riders, we manufacture and sell garments under the “Arcticwear ATV Gear” label. This line of clothing is geared toward function and comfort and includes suits, jackets, gloves, helmets, gear bags, sweatshirts, T-shirts and hats. The trend to “wear what you ride” continues to be much stronger with snowmobile consumers than with ATV and ROV consumers. We continue to successfully expand our ATV and ROV clothing lines with more performance-geared clothing to provide more rider comfort.

For the last three fiscal years ended March 31, 2015, 2014 and 2013, parts, garments and accessories accounted for 16% of our net sales in each year.

Manufacturing, Engineering and Research and Development

Arctic Cat snowmobiles, ROVs and most ATVs are manufactured at our facilities in Thief River Falls, Minnesota. A Taiwanese company manufactures our 90cc to 450cc ATVs according to our specifications. We have strategically identified specific core manufacturing competencies for vertical integration and have chosen outside suppliers to provide other parts. We have developed relationships with selected high quality suppliers in order to obtain access to particular capabilities and technologies outside the scope of our expertise. We often design component parts in cooperation with our suppliers, contract with them for the development of tooling, and then enter into agreements with these suppliers to purchase component parts manufactured utilizing the tooling. In our vertically integrated operations, we manufacture foam seats, machine, weld, and paint other components, and complete the total assembly of most of our products at our facilities in Thief River Falls, Minnesota. Manufacturing operations include robotics as well as digital and computer automated equipment to speed production, reduce costs and improve the quality, fit and finish of every product.

During late fiscal 2005, we began manufacturing select Arctic Cat designed ATV engines as part of a strategic first step in a new engine program. We believe that having the capability to design and manufacture our own ATV engines enables us to offer customers more choices, provide excellent value, lower Japanese yen currency exposure and enhance our long-term competitive position. In 2007, we transitioned our engine manufacturing from the Thief River Falls facility to our facility in St. Cloud, Minnesota.

We have expanded our snowmobile engine design capabilities and work with a variety of suppliers for various engine component parts. In February 2013, we announced an engine supply agreement with Yamaha through which we purchase select Yamaha 4-stroke engines. The first engine we received was a 135 horse power 4-stroke engine and was used in our new model year 2014 snowmobiles. We also announced our first snowmobile engine that we manufactured in our St. Cloud, Minnesota facility, a 600cc 2-stroke engine that was produced for model year 2014. In addition to purchasing Yamaha engines, we also reached an agreement to build select 4-stroke Yamaha snowmobiles using Yamaha engines. These snowmobiles are built in our Thief River Falls, Minnesota facility and started production during fiscal year 2014.

Since we began snowmobile production, we have followed a build-to-order policy to control inventory levels. Under this policy, we only manufacture a number of snowmobiles equivalent to the orders received from our dealers and distributors, plus a number of uncommitted units used for dealer and market development, in-house testing and miscellaneous promotional purposes.

Most sales of snowmobiles to retail customers begin in the early fall and continue during the winter. Orders by dealers and distributors for each year’s production are placed in the spring following dealer and distributor meetings. Snowmobiles are built commencing in late spring and continuing through late autumn.

 

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Retail sales of ATVs and ROVs occur throughout the year with seasonal highs occurring in the spring and fall. We build and purchase ATVs and build ROVs throughout the year to coincide with dealer and consumer demand.

In April 2015, we began a two-year investment program in Thief River Falls to enhance manufacturing capabilities. The first investment is a new approximately $12 million powder paint system which we anticipate will be up and running in January 2016. The next phase will be implementing new assembly processes which we anticipate will be started in April 2016.

We are committed to an ongoing engineering and research and development program dedicated to innovation and to continued improvements in the quality and performance of our products as well as new product introduction. We currently employ 175 individuals in the design and development of new and existing products, with an additional 23 individuals directly involved in the testing of snowmobiles, ATVs and ROVs in normal and extraordinary conditions. In addition, these units are tested in conditions and locations similar to those in which they are used. We use computer aided design and manufacturing systems to shorten the time between initial concept and final production. For fiscal years ended March 31, 2015, 2014 and 2013, we spent approximately $24,341,000, $23,998,000 and $20,693,000, respectively, on engineering, research and development. In addition, utilizing their particular expertise, our suppliers regularly test and apply new technologies to the design and production of component parts.

Sales and Marketing

Our products are currently sold through an extensive network of independent dealers located throughout the United States, Canada, and Europe and through distributors representing dealers in Europe, Russia, China, South America, the Middle East, Asia and other international markets. To promote new dealerships and to service our existing North American dealer network, we also employ district sales managers throughout the United States, Canada and parts of Western Europe.

Our dealers enter into yearly contracts and are required to maintain status as an authorized dealer in order to continue selling our products. To obtain and maintain such status, dealers are expected to order a sufficient number of snowmobiles, and/or ATVs and ROVs to adequately service their respective market areas. In addition, dealers must perform service on these units and maintain satisfactory service performance levels, and their mechanics are expected to complete special training provided by us. Dealers are also expected to carry adequate levels of inventory of genuine Arctic Cat parts, garments and accessories. As is typical in the industry, most of our dealers also sell some combination of motorcycles, marine products, lawn and garden products and other related products.

We utilize distributors in some countries outside the United States and Canada to take advantage of their knowledge and experience in their respective markets and to increase market penetration of our products. Canadian sales are made in Canadian dollars, nearly all of which are financed through a Canadian financial institution. Most sales to distributors outside North America are made in U.S. dollars and are supported to some extent by letters of credit or credit insurance. Our European subsidiary’s sales to its dealers and distributors are denominated in Euros and are supported by credit insurance.

Our sales and marketing efforts include dealer and consumer promotions, direct advertising and cooperative advertising programs with our dealers. We and many of our distributors conduct dealer shows or other sales events annually in order to introduce the upcoming year’s models and to promote dealer orders. Marketing activities are designed to promote directly to consumers. Products are advertised and promoted by us in consumer magazines, online and through other media. In addition, we engage in extensive dealer cooperative advertising on a local and national level, whereby we and our dealers share advertising costs. Each season we produce product brochures, point of purchase displays, leaflets, posters and banners, and other promotional items for use by our dealers. We also participate in key regional consumer shows and rallies with dealers and sponsor independent racers who participate in snowmobile races throughout the world. In order for our dealers and distributors to remain price competitive and to reduce retail inventories, we will from time to time make available to them rebate programs, discounts, or other incentives. In order to build brand loyalty we publish online magazines called Pride (snowmobile) and Ride (ATV and ROV).

We place strong emphasis on identifying and addressing the specific needs of our customers by periodically conducting dealer and consumer surveys and focus group meetings. Additionally, we hold many demo rides throughout the year which also allows for direct consumer feedback. We warrant our snowmobiles, ATVs and ROVs under a limited warranty against defects in materials and workmanship for a period generally ranging from six months to one year from the date of retail sale or for a period of 90 days from the date of commercial or rental use. Repairs or replacements under warranty are administered through our dealers and distributors.

 

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Competition

The snowmobile, ATV and ROV markets are highly competitive, based on a number of factors, including performance, ride, suspension, innovation, technology, styling, fit and finish, brand loyalty, reliability, durability, price and distribution. We believe Arctic Cat snowmobiles, ATVs and ROVs are highly regarded by consumers in all of these competitive categories. Certain of our competitors are more diversified and have financial and marketing resources which are substantially greater than ours. For a list of snowmobile and ATV competitors, please see “Industry Background” above.

Regulation

Both federal and state authorities have vigorous environmental control requirements relating to air, water and noise pollution that affect our manufacturing operations. We endeavor to insure that our facilities comply with all applicable environmental regulations and standards.

Certain materials used in snowmobile, ATV and ROV manufacturing that are toxic, flammable, corrosive or reactive are classified by federal and state governments as “hazardous materials.” Control of these substances is regulated by the Environmental Protection Agency (“EPA”) and various state pollution control agencies, which require reports and inspection of facilities to monitor compliance. Our manufacturing facilities are subject to the regulations promulgated by, and may be inspected by, the Occupational Safety and Health Administration.

The Consumer Product Safety Commission (“CPSC”) has federal oversight over product safety issues related to snowmobiles, ATVs and ROVs and from time to time promulgates rules related to safety. For example, in October 2009, the CPSC issued an Advance Notice of Proposed Rulemaking to establish mandatory safety standards for ROVs. The CPSC has not issued final rules on this matter. Under the Consumer Product Safety Improvement Act passed by Congress in August 2008, the prior ATV voluntary standard and certain other safety requirements became a mandatory CPSC standard. Arctic Cat has been and remains in compliance with these standards. Various states have also promulgated safety regulations regarding snowmobiles, ATVs and ROVs, none of which have had a materially more burdensome impact on us than CPSC regulations.

The EPA adopted regulations affecting snowmobiles and ATVs for model years 2006 and beyond. We believe that we are and will continue to be in compliance with these regulations. We support balanced and appropriate programs that educate the customer on the safe use of our products and protect the environment.

When we sell our products outside the United States our products are also subject to international laws and regulations related to emissions and safety matters. Europe currently regulates ATV and ROV emissions and our products meet such requirements. The European Commission has recently developed substantial changes (Euro IV) to the existing regulations which will come into effect starting January 1, 2016. We are aware of the new product standards and adaptations required to meet the new regulations and have established a product plan to achieve compliance.

We are a member of the International Snowmobile Manufacturers Association (“ISMA”), a trade association formed to promote safety in the manufacture and use of snowmobiles, among other things. The ISMA is currently made up of Arctic Cat, BRP, Yamaha, and Polaris. The ISMA members are also members of the Snowmobile Safety and Certification Committee (“SSCC”), which promulgates voluntary safety standards for snowmobiles. The SSCC standards, which require testing and evaluation by an independent testing laboratory of each model category produced by participating snowmobile manufacturers, have been adopted by the Canadian Ministry of Transport. Following the development of the SSCC standards, the CPSC denied a petition to develop a mandatory federal safety standard for snowmobiles in light of the high degree of adherence to the SSCC standards in the United States. Since our inception, all of our models have complied with the SSCC standards.

We are a member of the Specialty Vehicle Institute of America, a trade association organized to foster and promote the safe and responsible use of ATVs manufactured and/or distributed throughout the United States and which promulgates voluntary standards for ATVs. Additionally, we are a member of the Recreational Off-highway Vehicle Association, a trade association organized to foster and promote safe and responsible use of recreational off-highway vehicles and which promulgates voluntary standards for ROV’s. We are also a member of the Canadian Off-Highway Vehicle Distributors Council, as well as the All-Terrain Vehicle Industry European Association.

 

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Effects of Weather

While from time to time lack of snowfall in a particular region may adversely affect snowmobile retail sales within that region, we work to mitigate this effect by taking snowmobile orders in the spring for the following winter season. In the past, weather conditions have materially affected snowmobile sales and weather conditions may materially affect our future sales of snowmobiles, ATVs, ROVs and parts, garments and accessories.

Employees

At March 31, 2015, we had 1,670 employees, including 359 salaried and 1,311 hourly and production personnel. Our employees are not represented by a union or subject to a collective bargaining agreement. We have never experienced a strike or work stoppage and consider our relations with our employees to be excellent.

Intellectual Property

We patent significant innovations that we consider patentable and we own numerous patents for our snowmobiles, ATVs, ROVs and other products. Additionally we vigorously defend against the infringement of our patents by third parties. Trademarks are also important to our snowmobile, ATV and related parts, garments and accessories business activities. We believe that our “Arctic Cat” registered trademark is our most significant trademark. Additionally, we have numerous registered trademarks, trade names and logos, both in the United States and internationally.

Financial Information about Geographic Areas

Financial information regarding domestic and geographic areas is included in Note J, Segment Reporting, of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

Available Information

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended and its rules and regulations (the “Exchange Act”). The Exchange Act requires us to file periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Copies of these reports, proxy statements and other information can be read and copied at the SEC Public Reference Room, 100 F Street, N.E., Washington D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a Web site that contains reports, proxy statements, and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s Web site at http://www.sec.gov.

We maintain a Website at www.arcticcat.com, the contents of which are not part of or incorporated by reference into this Annual Report on Form 10-K. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (and amendments to those reports) available on our Website, free of charge, as soon as reasonably practicable after such reports have been filed with or furnished to the SEC. Our Code of Conduct, as well as any waivers from and amendments to the Code of Conduct that would otherwise be required to be reported on Form 8-K, are also posted on our Website.

 

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EXECUTIVE OFFICERS OF REGISTRANT

 

Name

   Age   

Position

Christopher T. Metz    50    President and Chief Executive Officer
Christopher J. Eperjesy    47    Chief Financial Officer
Tracy J. Crocker    55    Vice President—General Manager, ATV and Parts, Garments and Accessories
Bradley D. Darling    49    Vice President—General Manager, Snowmobile and North American Sales
Paul A. Fisher    58    Vice President—Operations
William J. Nee    54    Vice President—Human Resources
Michael D. Okerlund    42    Vice President—Legal Affairs and Corporate Secretary
Greg Williamson    46    Chief Marketing Officer

Mr. Metz has been our Chief Executive Officer since December 2014. He came to the company with a more than 20-year track record of successful executive leadership positions at global organizations in the consumer and durable goods areas. From 2005 to 2014, he worked as Managing Director at Sun Capital Partners, Inc., a private investment firm that he helped grow to $10 billion in capital under management and more than 80 standalone companies. From 1992 to 2005, Mr. Metz worked in various roles at Black & Decker, Inc., eventually rising to the rank of President, leading its Hardware and Home Improvement Group from 1999 to 2005. Mr. Metz held several other leadership positions during his 13-year tenure at Black & Decker, including Vice President and General Manager at Frankfurt, Germany-based Professional Tools and Accessories.

Mr. Eperjesy has been our Chief Financial Officer since February 2015. He brought more than 25 years of financial experience, including a strong background in manufacturing and international business and proven experience with mergers and acquisitions. Mr. Eperjesy spent 12 years as Chief Financial Officer at Twin Disc, Inc. (NASDAQ: TWIN) a publicly held manufacturer and world-wide distributor of heavy-duty, off-highway and marine power transmission equipment. There he was responsible for all public company reporting, finance and internal controls, treasury, IT and legal functions. From 2001 to 2002, Mr. Eperjesy worked at Kmart Corporation as Divisional Vice President of Corporate Finance, responsible for all corporate-level planning and forecasting activities. Prior to Kmart, Mr. Eperjesy worked for Chrysler Corporation/DaimlerChrysler AG from 1995 to 2001 in various leadership roles, including international positions in Brussels, Belgium, and Stuttgart, Germany. Mr. Eperjesy began his career as an accountant with Coopers & Lybrand (now PricewaterhouseCoopers) from 1990 to 1994.

Mr. Crocker has been our Vice President—General Manager, ATV and Parts, Garments and Accessories, since November 2014. Prior to that, he was our Vice President—General Manager, Parts, Garments and Accessories from June 2013 to October 2014, Vice President—Special Projects from April 2013 to May 2013 and Vice President—General Manager, All-Terrain Vehicles from March 2012 to March 2013. Prior to joining us, Mr. Crocker worked for Ecolab from 2002 to 2011, serving as Senior Vice President of Ecolab’s Hospitality, Healthcare and Commercial markets businesses. Prior to that he served as Ecolab’s Senior Vice President and General Manager for Latin America and as a division Vice President of Marketing. Before joining Ecolab, he worked in sales and operating roles for Next Generation Network, Nabisco and Pepsi.

Mr. Darling has been our Vice President—General Manager, Snowmobile and North American Sales since November 2014. Prior to that, he was our Vice President—General Manager, Snowmobile from June 2011 to October 2014 and North American Sales Director since July 2008 and National Sales Manager (Canada) since October 2004. He started with us in May 2000 as District Sales Manager.

Mr. Fisher has been our Vice President—Operations since May 2010. Prior to joining us, Mr. Fisher worked for Ingersoll Rand from 2005 to 2010, where he served as business leader of the Trane Residential Division operations for five years. Before joining Ingersoll Rand, Mr. Fisher was employed by Maytag Corporation for approximately 21 years, most recently as Vice President of Southwest Operations for Maytag’s Hoover Vacuum Division.

Mr. Nee has been our Vice President —Human Resources since August 2010. Prior to joining us, Mr. Nee worked for Express Scripts from September 2008 to April 2010, where he served as Vice President—Human Resources, Operations. Before joining Express Scripts, Mr. Nee was employed as Senior Vice President at Fiskars Brands, Inc. from October 2004 to September 2008. Prior to that, Mr. Nee spent 12 years with Newell Rubbermaid in senior human resources assignments.

 

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Mr. Okerlund has been our Vice President—Legal Affairs since July 2014 and Corporate Secretary since January 2015. Prior to that, he served as our Director—Legal, having joined the company in January 2012. Prior to joining us, Mr. Okerlund served from 2008 to 2012 as the General Counsel of Hysitron, Inc., a nanotechnology company based in Eden Prairie, MN. Prior to that he served as a litigation attorney specializing in Intellectual Property at the law firm of Robins, Kaplan, Miller & Ciresi L.L.P. from 2003 to 2007.

Mr. Williamson has been our Chief Marketing Officer since April 2015. Prior to that, Mr. Williamson served as Chief Marketing Officer at Spectrum Brands Hardware and Home Improvement Division from July 2013 to April 2015 where he led the product, channel and brand strategies for several industry-leading hardware brands, including Kwikset, Baldwin, Weiser, and National Hardware. Prior to that Mr. Williamson served as President at Spectrum Brands Pfister Faucet Company from June 2011 to June 2013 and before that Vice President of Sales and Marketing at Spectrum Brands Pfister Faucet Company from December 2005 to May 2011.

 

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ITEM 1A. RISK FACTORS

The following are significant factors known to us that could adversely affect our business, financial condition, or operating results, as well as adversely affect the value of an investment in our common stock. These risks could cause our actual results to differ materially from our historical experience and from results predicted by forward-looking statements. All forward-looking statements made by us are qualified by the risks described below. There may be additional risks that are not presently material or known. You should carefully consider each of the following risks and all other information set forth in this Annual Report on Form 10-K.

General economic conditions and other external factors may adversely affect our industry and results of operations.

Companies within the snowmobile, ATV and ROV industries are subject to volatility in operating results due to external factors such as general economic conditions, including high unemployment and economic recession. Specific factors affecting the industry include:

 

    Overall consumer confidence and the level of discretionary consumer spending;

 

    Interest rates and related higher dealer floorplan costs;

 

    Sales incentives and promotional costs;

 

    Adverse impact on margins due to increases in raw material and transportation costs that companies are unable to pass on to dealers without negatively affecting sales; and

 

    Fluctuation in foreign currency exchange rates.

Our products are subject to extensive federal and state safety, environmental and other government regulations that may require us to incur expenses or modify product offerings in order to maintain compliance with regulations.

Our products are subject to extensive laws and regulations relating to safety, environmental and other regulations promulgated by the U.S. and Canadian federal governments and individual states and provinces as well as international regulatory authorities. Although we believe that our snowmobiles, ATVs and ROVs have always complied with applicable vehicle safety and emissions standards and related regulations, future regulations may require additional safety standards or emission reductions that would require additional expenses and/or modification of product offerings in order to maintain such compliance. We are unable to predict the ultimate impact of adopted or proposed regulations on our business and operating results.

A significant adverse determination in any material product liability or intellectual property claim against us could adversely affect our operating results or financial condition.

We are 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 and claims have been made against us from time to time relating to these accidents. In addition, our products, and the products of our competitors, incorporate significant amounts of intellectual property developed by us and others and, from time to time, parties assert claims against us relating to their intellectual property. It is our policy to vigorously defend against these product liability and intellectual property claims. We have recorded a reserve based on our estimated range of potential exposures to the legal proceedings and claims of which we are aware. Should any judgment or settlement occur that exceeds our estimate, or a new claim arise, we may need to adjust our overall reserve and, depending on the amount, such adjustment could be material and adversely affect our operating results or financial condition.

Significant repair and/or replacement with respect to product warranty claims or product recalls could have a material adverse impact on our results of operations.

We provide a limited warranty on retail sales for a period of six months for our ATVs and ROVs and one year for our snowmobiles. We may provide longer warranties in certain geographical markets as determined by local regulations and market conditions. Although we employ quality control procedures, sometimes a product is distributed that requires repair or replacement. Our standard warranties require us through our dealers to repair or replace defective products during such warranty periods at no cost to the consumer. Historically, product recalls have been administered through our dealers and distributors and have not had a material effect on our business.

 

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Changing weather conditions may reduce demand for certain of our products and negatively impact net sales.

Lack of snowfall in any year in particular regions of North America and Northern Europe may adversely affect snowmobile retail sales and related parts, garments and accessories sales in that region. Weather conditions may materially affect our future sales of snowmobiles, ATVs, ROVs and parts, garments and accessories.

We face intense competition in all product lines, from competitors that have greater financial and marketing resources. Failure to compete effectively against competitors would negatively impact our business and operating results.

The snowmobile, ATV and ROV markets worldwide are highly competitive. Competition is based upon a number of factors, including performance, ride, suspension, innovation, technology, styling, fit and finish, brand loyalty, reliability, durability, price and distribution. At the dealer level, competition is based on a number of factors including sales and marketing support programs (such as sales incentives and cooperative advertising). Many of our competitors are more diversified and have financial and marketing resources that are substantially greater than ours. In addition, our products compete with other recreational products for the discretionary spending of consumers. If we are not able to effectively compete in this environment, our business and operating results will be negatively impacted.

Termination or interruption of engine and other supply arrangements could have a material adverse effect on our business or results of operations.

In the event that we need to obtain substitute supply arrangements for engine or other raw materials or components for which we rely upon limited sources of supply, alternate supply arrangements may not be available with comparable terms.

Fluctuations in foreign currency rates could result in declines in our reported net sales and net earnings

Our reported net sales and cost of goods sold are subject to fluctuations in foreign currency exchange rates. During fiscal 2015, sales to Canadian dealers that are denominated in Canadian dollars comprised 27.6% of total net sales. Sales to European on-road ATV dealers and distributors are made in Euros with the Euro serving as the functional currency. During fiscal 2015, sales to European on-road ATV dealers comprised 4.9% of total net sales. During fiscal 2015, we utilized cash flow hedges to help mitigate the variability in Canadian exchange rate changes relating to Canadian dollar fund transfers to the United States. During fiscal 2015, approximately 9.8% of our total cost of goods sold was purchased from Japanese yen denominated suppliers. The majority of these purchases were made from Suzuki and Yamaha for engines for our snowmobiles. We have an agreement with Suzuki for snowmobile engine purchases to share the impact of fluctuations in the exchange rate between the U.S. dollar and the Japanese yen above and below a fixed range contained in the agreement. A change in foreign currency exchange rates could materially affect our business and operating results.

Interruption of dealer floorplan financing could have a material impact on our business operations.

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 North American dealers. These agreements improve our liquidity by financing dealer purchases of our 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. While we expect to continue with our current multi-year dealer floorplan arrangements, these arrangements may not remain available or the costs and other terms of new financing arrangements may be significantly less favorable to us than have historically been available.

Termination, interruption or nonrenewal of bank credit agreements could have a material adverse effect on our business or results of operations.

The seasonality of our snowmobile, ATV and ROV production cycles generates significant fluctuations in our working capital requirements during each year. 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 this cycle. While we expect to continue with our current multi-year working capital financing agreement from our

 

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lender, working capital financing arrangements may not remain available or the costs and other terms of new financing arrangements may be significantly less favorable to us than have historically been available. In addition, our current bank credit agreement contains covenants which we might be unable to meet in some future period requiring the need for waivers or alternate financing.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results and prevent fraud.

A material weakness is a control deficiency, or a combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual and interim financial statements will not be prevented or detected and corrected on a timely basis.

Our efforts to maintain our internal controls may not be successful, and we may be unable to maintain effective controls over our financial processes and reporting in the future and comply with the certification and reporting obligations under Sections 302 and 404 of the Sarbanes-Oxley Act. Any failure to maintain effective controls could result in material misstatements that are not prevented or detected and corrected on a timely basis, which could potentially subject us to sanction or investigation by the SEC or other regulatory authorities. Ineffective internal controls could also cause investors to lose confidence in our reported financial information and adversely affect our business and our stock price.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The following sets forth our material property holdings as of March 31, 2015.

 

Location

  

Facility Type / Use

   Owned or
Leased
   Sq. Ft.  
Thief River Falls, Minnesota    Manufacturing    Owned      585,000   
Thief River Falls, Minnesota    Warehouse    Owned      25,000   
Thief River Falls, Minnesota    Warehouse    Leased      27,000   
Bucyrus, Ohio    Distribution Center    Owned      202,000   
Winnipeg, Manitoba    Service Center    Leased      9,929   
Island Park, Idaho    Test & Development Facility    Owned      3,000   
St. Johann, Austria    Administrative/Distribution    Leased      44,409   
St. Cloud, Minnesota    Manufacturing    Owned      60,800   
Plymouth, Minnesota    Corporate Office    Leased      11,420   
Idaho Falls, Idaho    MotorFist Office    Leased      5,800   
Rigby, Idaho    MotorFist Warehouse    Leased      6,000   

The Company believes that the Company’s material property holdings are suitable for the Company’s current operations and purposes.

ITEM 3. LEGAL PROCEEDINGS

Accidents involving personal injury and property damage occur in the use of recreational products. Claims have been made against us from time to time relating to these accidents, and from time to time parties assert claims relating to their intellectual property. It is our policy to vigorously defend against these actions. We are not involved in any legal proceedings that we believe will have the potential for a materially adverse impact on our business or financial condition, results of operations or cash flows. We have recorded a reserve based on our estimated range of potential exposures based on the legal proceedings and claims of which we are aware. Should any settlement occur that exceeds our estimate or a new claim arise, we may need to adjust the overall reserve and, depending on the amount, such adjustment could be material.

We presently maintain product liability insurance on a “per occurrence” basis (with coverage being provided in respect of accidents which occurred during the policy year, regardless of when the related claim is made) in the amount of $10,000,000 in the aggregate, with a $10,000,000 self-insured retention. We believe such insurance is adequate.

 

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ITEM 4. MINE SAFETY DISCLOSURES

None.

 

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on The NASDAQ Global Select Market under the NASDAQ symbol “ACAT.” Quotations below represent the high and low sale prices as reported by NASDAQ. Our stock began trading on NASDAQ on June 26, 1990.

 

     2015      2014  
Years ended March 31, Quarterly Prices    High      Low      High      Low  

First Quarter

   $ 48.41       $ 31.95       $ 48.84       $ 38.19   

Second Quarter

     40.59         34.51         59.33         44.99   

Third Quarter

     35.75         30.11         61.13         47.50   

Fourth Quarter

     39.72         26.00         59.73         41.00   

As of May 22, 2015, we had approximately 278 stockholders of record, including the nominee of Depository Trust Company which held 12, 952,617 shares of common stock.

Cash Dividends Paid

Cash dividends were declared and paid quarterly from 1995 through the third quarter of fiscal year 2009. In response to the economic recession and to conserve cash, we suspended quarterly cash dividends in the fourth quarter of fiscal 2009. On May 15, 2013 we announced the reinstatement of a $0.10 per share quarterly cash dividend for each quarter of the 2014 fiscal year. On May 15, 2014, we announced the increase of the quarterly cash dividend by 25 percent to $0.125 per share to shareholders. The most recently declared dividend is $0.125 payable on or about June 12, 2015 to shareholders of record on May 29, 2015. We continually consider our cash position and projected cash needs in regards to our dividend policy.

Company Purchases of Company Equity Securities

On August 8, 2014, the Company’s Board of Directors approved a $25,000,000 common stock share repurchase program, which supplements the program previously approved in May 2013. The share repurchase program does not have an expiration date. The following table presents the total number of shares repurchased during the fourth 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 fiscal 2015:

 

Period

   Total Number
of Shares
Purchased (2)
     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 (1)
 

January 1, 2015- January 31, 2015

     —         $ —           —           775,619   

February 1, 2015- February 28, 2015

     —           —           —           715,203   

March 1, 2015- March 31, 2015

     3,443         36.56         974         716,986   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  3,443    $ 36.56      974      716,986   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 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.

 

(2) All shares purchased were under the share repurchase program, except 2,469 shares that were for the exercise and related income taxes for net-settled stock options.

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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Performance Graph

In accordance with the rules of the SEC, the following performance graph compares the performance of our common stock on The NASDAQ Stock Market to the Standard & Poor’s 500 Index, and to the Recreational Vehicles Index prepared by Hemscott, Inc., of which we are a component. The graph compares on an annual basis the cumulative total shareholder return on $100 invested on March 31, 2010, assumes reinvestment of all dividends and has been adjusted to reflect stock splits. The performance graph is not necessarily indicative of future investment performance.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Arctic Cat Inc., the S&P 500 Index

and Hemscott—Recreational Vehicles Index

Assumes $100 invested on 3/31/10 in stock or index

Assumes Dividend Reinvested

Fiscal year ended March 31,

 

     2010      2011      2012      2013      2014      2015  

Arctic Cat Inc.

   $ 100.00       $ 143.32       $ 394.84       $ 402.76       $ 443.96       $ 342.11   

S&P 500 Index

     100.00         115.65         125.52         143.05         174.31         196.51   

Hemscott—Recreational Vehicles Index

     100.00         145.97         182.95         217.25         302.21         294.43   

 

LOGO

 

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ITEM 6. SELECTED FINANCIAL DATA

 

(In thousands, except per share amounts)

Years ended March 31,

   2015     2014     2013     2012     2011  

OPERATING STATEMENT DATA:

          

Net sales

          

Snowmobile & ATV units

   $ 584,873      $ 615,608      $ 563,464      $ 477,329      $ 363,015   

Parts, garments & accessories

     113,883        114,883        108,124        107,939        101,636   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

  698,756      730,491      671,588      585,268      464,651   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of goods sold

Snowmobile & ATV units

  505,383      506,707      450,291      388,523      302,783   

Parts, garments & accessories

  73,924      72,705      70,401      66,126      60,359   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of goods sold

  579,307      579,412      520,692      454,649      363,142   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

  119,449      151,079      150,896      130,619      101,509   

Operating expenses

Selling & marketing

  39,656      38,028      37,402      36,549      33,540   

Research & development

  24,341      23,998      20,693      17,862      15,029   

General & administrative

  48,914      28,557      32,087      30,318      34,805   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

  112,911      90,583      90,182      84,729      83,374   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

  6,538      60,496      60,714      45,890      18,135   

Interest income

  25      30      49      86      107   

Interest expense

  (353   (122   (84   (8   (11
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before income taxes

  6,210      60,404      60,679      45,968      18,231   

Income tax expense

  1,290      21,000      20,934      16,027      5,224   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings

$ 4,920    $ 39,404    $ 39,745    $ 29,941    $ 13,007   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings per share

Basic

$ 0.38    $ 2.97    $ 3.02    $ 1.79    $ 0.71   

Diluted

$ 0.38    $ 2.90    $ 2.89    $ 1.72    $ 0.70   

Cash dividends per share

$ 0.50    $ 0.40    $ —      $ —      $ —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding

Basic

  12,926      13,275      13,155      16,721      18,232   

Diluted

  13,089      13,598      13,761      17,458      18,539   

 

As of March 31,

   2015      2014      2013      2012      2011  

BALANCE SHEET DATA (In thousands):

              

Cash and short-term investments

   $ 41,262       $ 82,532       $ 112,807       $ 62,597       $ 125,113   

Working capital

     122,765         136,755         132,052         98,825         144,596   

Total assets

     316,846         342,294         306,145         255,416         272,906   

Long-term debt

     —           —           —           —           —     

Shareholders’ equity

     180,371         185,043         174,472         138,472         183,036   

 

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QUARTERLY FINANCIAL DATA (unaudited)

 

(In thousands, except per share amounts)

   Total Year      First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter
 

Net Sales

              

2015

   $ 698,756       $ 143,639       $ 262,479       $ 193,735       $ 98,903   

2014

     730,491         120,768         238,525         225,790         145,408   

2013

     671,588         111,311         229,030         218,016         113,231   

Gross Profit (Loss)

              

2015

   $ 119,449       $ 30,801       $ 55,081       $ 34,913       $ (1,346

2014

     151,079         29,160         61,674         40,213         20,032   

2013

     150,896         22,479         64,030         50,798         13,589   

Net Earnings (Loss)

              

2015

   $ 4,920       $ 3,569       $ 15,389       $ 7,487       $ (21,525

2014

     39,404         5,468         23,365         12,120         (1,549

2013

     39,745         2,008         24,959         17,853         (5,075

Net Earnings (Loss) Per Share

              

2015 Basic

   $ 0.38       $ 0.28       $ 1.19       $ 0.58       $ (1.66

 Diluted

     0.38         0.27         1.18         0.57         (1.66

2014 Basic

     2.97         0.41         1.75         0.90         (0.12

 Diluted

     2.90         0.40         1.70         0.89         (0.12

2013 Basic

     3.02         0.15         1.90         1.35         (0.38

 Diluted

     2.89         0.14         1.80         1.30         (0.38

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Executive Level Overview

Fiscal 2015 net sales decreased 4.3% to $698.8 million from $730.5 million in fiscal 2014. Fiscal 2015 net earnings decreased 87.5% to $4.9 million or $0.38 per diluted share compared to net earnings of $39.4 million or $2.90 per diluted share in fiscal 2014. The following charges: executive severance of $0.08 per diluted share in the first quarter; warranty expense of $0.32 per diluted share in the second quarter, executive transition costs of $0.11 per diluted share in the third quarter and $0.05 per diluted share in the fourth quarter; and $0.46 per diluted share for the planned reduction in core ATV inventory in the fourth quarter, lowered our 2015 full-year net earnings by $1.02 per diluted share. We had strong contributions to sales from its Wildcat™ recreational off-highway vehicle (“ROV”) line. During fiscal year 2015, gross margins decreased as expected to 17.1% from 20.7%, primarily due to planned lower sales volumes, the $7.6 million charge for the core ATV inventory reduction campaign and foreign currency impact. Unfavorable foreign currency exchange reduced gross profit by approximately $18.1 million, or an estimated $1.10 per diluted share. Operating expenses as a percent of sales increased to 16.2% and operating profits were $6.5 million versus $60.5 million last year.

During fiscal year 2015, snowmobile sales increased 6.5%, driven primarily by new snowmobile models we launched at the beginning of the year as well as snowmobiles supplied to Yamaha. During the year, we gained a slight increase in market share in the industry as our retail sales were at 9.4% versus the industry growth rate of 8.1%. The increase is primarily due to the early snowfall and colder weather in North America.

During fiscal 2015, ATV/side-by-side sales decreased 14.7% to $284.1 million, while sales of Wildcat side-by-sides increased and core ATV sales decreased, as we continue our efforts to lower core ATV inventory at our North America dealers. In fiscal 2015, Arctic Cat expanded its line of Wildcat side-by-sides with the introduction of the Wildcat Sport and Wildcat Trail models. The Wildcat Sport has a 60-inch wide chassis, offering consumers a mid-sized option between the original Wildcat and the Wildcat Trail model, with its narrower 50-inch stance. Arctic Cat also introduced the Wildcat Trail Limited EPS, which is a more fully featured version of the Wildcat Trail.

 

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Fiscal year 2015 snowmobile sales increased 6.5% to $300.7 million from $282.4 million in fiscal 2014. Snowmobiles comprised 43% of our net sales in fiscal 2015. ATV and side-by-side sales decreased 14.7% in fiscal 2015 to $284.1 million from $333.2 million in fiscal 2014. ATV and side-by-side net sales comprised 41% of our net sales in fiscal 2015. Parts, garments and accessories sales decreased 0.9% in fiscal 2015 to $113.9 million from $114.9 million in fiscal 2014. Parts, garments and accessories sales were 16% of our net sales in fiscal 2015.

Results of Operations

Product Line Sales for the Fiscal Year Ended March 31,

 

($ in thousands)

   2015      Percent of
Net Sales
    2014      Percent of
Net Sales
    Change
2015 vs. 2014
    2013      Percent of
Net Sales
    Change
2014 vs. 2013
 

Snowmobile

   $ 300,731         43.0   $ 282,442         38.7     6.5   $ 263,693         39.3     7.1

ATV

     284,142         40.7     333,166         45.6     (14.7 )%      299,771         44.6     11.1

Parts, garments & accessories

     113,883         16.3     114,883         15.7     (0.9 )%      108,124         16.1     6.3
  

 

 

    

 

 

   

 

 

    

 

 

     

 

 

    

 

 

   

Net Sales

$ 698,756      100.0 $ 730,491      100.0   (4.3 )%  $ 671,588      100.0   8.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Product Line Sales. During fiscal 2015, net sales decreased 4.3% to $698.8 million from $730.5 million in fiscal 2014. Snowmobile unit volume increased 8.6%, ATV unit volume decreased 8.2%, and parts, garments and accessories sales decreased $1.0 million or 0.9%. The decrease in net sales was driven by decreased net sales in core ATVs. Although snowmobile unit volume increased 8.6% snowmobile net sales increased only 6.5% due to increased sales of lower priced snowmobile models built for Yamaha and a weaker Canadian dollar. During fiscal 2014, net sales increased 8.8% to $730.5 million from $671.6 million in fiscal 2013. Snowmobile unit volume increased 13.7%, ATV unit volume increased 11.0%, and parts, garments and accessories sales increased $6.8 million or 6.3%. The increase in net sales was driven by increased net sales in all three product lines led by the sales of Wildcat Trail and Wildcat X side-by-sides. Although snowmobile unit volume increased 13.7% snowmobile net sales increased only 7.1%, due to lower selling prices on snowmobile models built for Yamaha and a weaker Canadian dollar. In addition, increased sales of parts contributed to the sales increase.

Cost of Goods Sold for the Fiscal Year Ended March 31,

 

($ in thousands)

   2015      Percent of
Net Sales
    2014      Percent of
Net Sales
    Change
2015 vs. 2014
    2013      Percent of
Net Sales
    Change
2014 vs. 2013
 

Snowmobiles & ATV units

   $ 505,383         72.3   $ 506,707         69.3     (0.3 )%    $ 450,291         67.0     12.5

Parts, garments & accessories

     73,924         10.6     72,705         10.0     1.7     70,401         10.5     3.3
  

 

 

    

 

 

   

 

 

    

 

 

     

 

 

    

 

 

   

Total Cost of Goods Sold

$ 579,307      82.9 $ 579,412      79.3   0.0 $ 520,692      77.5   11.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Cost of Goods Sold. During fiscal 2015, cost of goods sold was essentially flat at $579.3 million compared with $579.4 million for fiscal 2014. Fiscal 2015 snowmobile and ATV unit cost of goods sold decreased 0.3% to $505.4 million from $506.7 million. The unit cost of goods sold as a percentage of sales increased to 86.4% from 82.3% primarily due to anticipated lower selling prices on snowmobile models built for Yamaha, product mix, the ATV warranty recall, the core ATV inventory reduction program, and a weaker Canadian dollar. The fiscal 2015 cost of goods sold for parts, garments and accessories increased to $73.9 million from $72.7 million for fiscal 2014 due primarily to product mix and a higher volume of products at reduced selling prices. Fiscal 2014 cost of goods sold increased 11.3% to $579.4 million from $520.7 million for fiscal 2013. Fiscal 2014 snowmobile and ATV unit cost of goods sold increased 12.5% to $506.7 million from $450.3 million due primarily to increased sales. The unit cost of goods sold as a percentage of sales increased to 82.3% from 79.9% primarily due to lower selling prices on snowmobile models built for Yamaha, product mix and a weaker Canadian dollar. The fiscal 2014 cost of goods sold for parts, garments and accessories increased to $72.7 million from $70.4 million for fiscal 2013 due primarily to product mix and increased distribution costs.

 

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Gross Profit for the Fiscal Year Ended March 31,

 

($ in thousands)

   2015     2014     Change
2015 vs. 2014
    2013     Change
2014 vs. 2013
 

Gross Profit Dollars

   $ 119,449      $ 151,079        (20.9 )%    $ 150,896        0.1

Percentage of Net Sales

     17.1     20.7     (3.6 )%      22.5     (1.8 )% 

Gross Profit. Gross profit decreased 20.9% to $119.4 million in fiscal 2015 from $151.1 million in fiscal 2014. The gross profit percentage for fiscal 2015 decreased to 17.1% compared with 20.7% in fiscal 2014. The decrease in the fiscal 2015 gross profit percentage was primarily due to lower gross margins on snowmobile models built for Yamaha, product mix, the ATV warranty recall, the core ATV inventory reduction program, and a weaker Canadian dollar. Gross profit increased 0.1% to $151.1 million in fiscal 2014 from $150.9 million in fiscal 2013. The gross profit percentage for fiscal 2014 decreased to 20.7% versus 22.5% in fiscal 2013. The decrease in the fiscal 2014 gross profit percentage was primarily due to lower gross margins on snowmobile models built for Yamaha, product mix and a weaker Canadian dollar.

Operating Expenses for the Fiscal Year Ended March 31,

 

($ in thousands)

   2015     2014     Change
2015 vs. 2014
    2013     Change
2014 vs. 2013
 

Selling & Marketing

   $ 39,656      $ 38,028        4.3   $ 37,402        1.7

Research & Development

     24,341        23,998        1.4     20,693        16.0

General & Administrative

     48,914        28,557        71.3     32,087        (11.0 )% 
  

 

 

   

 

 

     

 

 

   

Total Operating Expenses

$ 112,911    $ 90,583      24.6 $ 90,182      0.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Percentage of Net Sales

  16.2   12.4   13.4

Operating Expenses. Selling and Marketing expenses increased 4.3% to $39.7 million in fiscal 2015 from $38.0 million in fiscal 2014, primarily due to increased ATV dealer show expenses and other selling and marketing expenses related to all product lines. Selling and Marketing expenses increased 1.7% to $38.0 million in fiscal 2014 from $37.4 million in fiscal 2013, primarily due to increased snowmobile and ATV selling and marketing expenses. Research and Development expenses increased 1.4% to $24.3 million in fiscal 2015 compared to $24.0 million in fiscal 2014, due primarily to higher compensation and development expenses. Research and Development expenses increased 16.0% to $24.0 million in fiscal 2014 compared to $20.7 million in fiscal 2013, due primarily to higher compensation and development expenses. General and Administrative expenses increased 71.3% to $48.9 million in fiscal 2015 from $28.6 million in fiscal 2014, due primarily to increased legal costs, executive transition costs and increased Canadian hedge costs. General and Administrative expenses decreased 11.0% to $28.6 million in fiscal 2014 from $32.1 million in fiscal 2013, due primarily to increased Canadian hedge benefits and a $0.8 million reduction in our bad debt reserve.

Net Earnings. Fiscal 2015 net earnings were $4.9 million, or $0.38 per diluted share, compared with net earnings of $39.4 million, or $2.90 per diluted share, for fiscal 2014. Net earnings as a percentage of net sales were 0.7% and 5.4% in fiscal 2015 and 2014, respectively. The decreased earnings in fiscal 2015 are attributable to lower gross margins, which are primarily a result of product mix and the unfavorable Canadian currency impact, as well as the ATV warranty recall, the core ATV reduction program, increased legal costs and the executive transition costs. The effective tax rate for fiscal year 2015 was lower than fiscal years 2014 and 2013 primarily due to the higher R&D tax credit representing a higher percentage of pre-tax earnings. Fiscal 2014 net earnings were $39.4 million, or $2.90 per diluted share, versus net earnings of $39.7 million, or $2.89 per diluted share, for fiscal 2013. Net earnings as a percentage of net sales were 5.4% and 5.9% in fiscal 2014 and 2013, respectively. The decreased earnings in fiscal 2014 are attributable to lower gross margins, which are primarily a result of product mix and the unfavorable Canadian currency impact. However, earnings per share were up slightly in fiscal 2014 compared with fiscal 2013 due to lower outstanding shares driven by our share repurchase program.

Inflation

Inflation historically has not significantly impacted our business. We generally have been able to offset the impact of increasing costs through a combination of productivity gains and product price increases.

Critical Accounting Policies

The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amount of reported assets

 

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and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates. We reviewed the development and selection of the critical accounting policies and believe the following are the most critical accounting policies that could have an effect on our reported results. These critical accounting policies and estimates have been reviewed with the Audit Committee of the Board of Directors.

Revenue Recognition

We recognize revenue and provide for estimated marketing and sales incentive costs when products are shipped to dealers and distributors pursuant to their order, the price is fixed and collection is reasonably assured. We have agreements with dealer floorplan finance companies to repurchase products repossessed up to certain limits. Our financial exposure to repurchase products is limited to the difference between the amount paid to the finance company and the resale value of the repossessed products. No material losses have been incurred under these agreements; however, adverse changes in retail sales could cause this situation to change.

Marketing and Sales Incentive Costs

We provide for various marketing and sales incentive costs that are offered to our dealers and consumers at the later of when the revenue is recognized or when the marketing and sales incentive program is approved and communicated. Examples of these costs include: dealer and consumer rebates, dealer floorplan financing assistance and other incentive and promotion programs. Adverse market conditions resulting in lower than expected retail sales or the matching of competitor programs could cause accrued marketing and incentive costs to materially increase if we authorize and communicate new programs to our dealers. We estimate marketing and sales incentive costs based on expected usage and historical experience. The accrual for marketing and sales incentive costs at March 31, 2015 and 2014 was $14.5 million and $11.7 million, respectively, and is included in accrued expenses in our balance sheet. The increase in this accrual was a result of announced and communicated marketing and sales incentive programs and retail market conditions. To the extent current experience differs from previous estimates the accrued liability for marketing and sales incentives is adjusted accordingly.

Product Warranties

We generally provide a limited warranty to the owner of snowmobiles for 12 months from the date of consumer registration and for six months from the date of consumer registration on ATVs and ROVs. We provide for estimated warranty costs at the time of sale based on historical rates and trends and make subsequent adjustments to this estimate as actual claims become known or the amounts are determinable. Adverse changes in actual warranty costs compared to our initial estimates could cause accrued warranty costs to materially change. The accrual for warranty costs was $23.1 million and $19.4 million at March 31, 2015 and 2014, respectively. The increase was primarily due to an ATV safety recall during fiscal year 2015.

Inventories

We periodically assess inventories for obsolescence and potential excess. This assessment is based primarily on assumptions and estimates regarding future production demands, anticipated changes in technology or design, and historical and expected future sales patterns. Our inventories consist of materials and products that are subject to changes in our planned production of future snowmobile and ATV products and competitive market conditions which may cause lower of cost or market adjustments to our finished goods inventory. If market conditions or future demand are less favorable than our current expectations, additional inventory write downs or reserves may be required, which could have an adverse effect on our reported results in the period the adjustments are made. Inventory items that are identified as obsolete or excess are reserved on our balance sheet.

Product Liability and Litigation

We are subject to product liability and intellectual property claims, as well as other litigation in the normal course of business. We maintain insurance for product liability claims although we retain a self-insured retention accrual within the balance sheet caption “Insurance” within accrued expenses. The estimated costs resulting from any losses not covered by insurance are charged to operating expenses when it is probable a loss has been incurred and the amount of the loss is reasonably determinable.

 

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We utilize historical trends and other analysis to assist in determining the appropriate loss estimate. Adverse changes in the final determination of product liability or other claims made against us could have a material impact on our financial condition.

Liquidity and Capital Resources

The seasonality of our snowmobile and ATV production cycles generates significant fluctuations in our working capital requirements during the year. The following table represents net sales and ending inventories by each quarter in the fiscal years ended March 31, 2015 and 2014.

 

($ in thousands)

   First      Second      Third      Fourth      Total  

2015

              

Net Sales

              

Snowmobile

   $ 56,152       $ 157,791       $ 81,523       $ 5,265       $ 300,731   

ATV

     63,826         69,591         83,930         66,795         284,142   

PG&A

     23,661         35,097         28,282         26,843         113,883   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Net Sales

$ 143,639    $ 262,479    $ 193,735    $ 98,903    $ 698,756   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Inventories

$ 185,264    $ 170,084    $ 144,577    $ 152,443   
  

 

 

    

 

 

    

 

 

    

 

 

    

2014

Net Sales

Snowmobile

$ 22,574    $ 135,425    $ 118,061    $ 6,382    $ 282,442   

ATV

  76,340      72,651      78,234      105,941      333,166   

PG&A

  21,854      30,449      29,495      33,085      114,883   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Net Sales

$ 120,768    $ 238,525    $ 225,790    $ 145,408    $ 730,491   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Inventories

$ 149,736    $ 171,174    $ 137,189    $ 140,652   
  

 

 

    

 

 

    

 

 

    

 

 

    

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. 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. However, there can be no assurance that adequate working capital financing arrangements will remain available or that the costs and other terms of such new financing arrangements will not be significantly less favorable to us than has historically been available.

Cash and Short-Term Investments

Cash and short-term investments decreased to $41,262,000 at March 31, 2015 from $82,532,000 at March 31, 2014 because of increased working capital requirements. Our cash balances traditionally peak early in the fourth quarter and then decrease as working capital requirements increase when our snowmobile and spring ATV production cycles begin. Our investment objectives are first, safety of principal, and second, rate of return.

Financing Arrangements and Cash Flows

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. The agreement was amended in May 2015 to consent to the formation of MotorFist LLC, a Minnesota limited liability company, and the purchase of certain assets of MotorFist LLC, an Idaho limited liability company, as well as to waive an existing default related to the acquisition and abandonment of intellectual property resulting from the MotorFist acquisition. This agreement is scheduled to expire in November 2017. 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. The total letters of credit issued at March 31, 2015 were $7,913,000.

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.

 

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The financing agreements require repurchase of repossessed new and unused units and set limits upon our potential liability for annual repurchases. The aggregate potential liability was approximately $69,324,000 at March 31, 2015. We have incurred no material losses under these agreements. We believe current available cash and cash generated from operations provide sufficient funding in the event there is a requirement to perform under these guarantee and repurchase agreements. The financing agreements also have loss sharing provisions should any dealer default whereby the Company shares certain losses with the floorplan finance companies. The maximum potential liability to the Company under these provisions was approximately $2,388,000 at March 31, 2015.

In fiscal 2015, we invested $22,187,000 in capital expenditures. We expect that capital expenditures will increase to approximately $42,000,000 in fiscal 2016. Since 1996, we have repurchased over 17,600,000 shares of our common stock. In August 2014, the Company’s Board of Directors approved a $25,000,000 common stock share repurchase program, which supplements the program previously approved in May 2013. There is approximately $23,958,000 remaining on the Board of Directors’ total share repurchase program authorizations. We believe that cash generated from operations and available cash and short-term investments will be sufficient to meet our working capital, capital expenditure, and common stock repurchase requirements on a short and long-term basis.

Contractual Obligations

The following table summarizes our significant future contractual obligations at March 31, 2015 (in millions):

 

     Payment Due by Period  

Contractual Obligations

   Total      Less
than
1 Year
     1-3
years
     3-5
Years
     More
than
5 years
 

Operating Lease Obligations

   $ 1.2       $ 0.2       $ 0.7       $ 0.3         —     

Purchase Obligations(1)

     69.5         69.5         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Contractual Obligations

$ 70.7    $ 69.7    $ 0.7    $ 0.3      —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) We have outstanding purchase obligations with suppliers and vendors at March 31, 2015 for raw materials and other supplies and services as part of the normal course of business.

Certain Information Concerning Off-Balance Sheet Arrangements

As of March 31, 2015, 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.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements. This Annual Report on Form 10-K, as well as our annual report to shareholders 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,” “plan,” “estimate” and other expressions that indicate future events and trends identify forward-looking statements, including statements related to our fiscal 2016 outlook, business strategy and product development. 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, the effect of foreign currency exchange rates, 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

 

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anticipated depending on a variety of factors, including, but not limited to the risk factors described in Item 1A of this Annual Report on Form 10-K. 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Rates and Interest Rates

During fiscal 2015, approximately 9.8% of our total cost of goods sold was purchased from Japanese yen denominated suppliers. The majority of these purchases were made from Suzuki and Yamaha for engines for our snowmobiles. We have an agreement with Suzuki for snowmobile engine purchases to share the impact of fluctuations in the exchange rate between the U.S. dollar and the Japanese yen above and below a fixed range contained in the agreement. As of March 31, 2015, we had open Japanese yen forward exchange contracts, maturing through August 2015, with notional amounts totaling $19,046,000. During fiscal 2015, the exchange rate fluctuation between the U.S. dollar and the Japanese yen had a modest positive impact on our operating results.

Sales to Canadian dealers are made in Canadian dollars. During fiscal 2015, sales to Canadian dealers comprised 27.6% of total net sales. During fiscal 2015, the exchange rate fluctuation between the U.S. dollar and the Canadian dollar reduced operating income by approximately $15.2 million compared to a reduction of approximately $6.0 million in fiscal 2014. During fiscal 2015, we utilized cash flow hedges to mitigate the variability in Canadian exchange rate changes relating to Canadian dollar fund transfers to the United States. At March 31, 2015, we had Canadian dollar forward exchange contracts outstanding with a notional amount of $76.3 million. Looking forward to fiscal year 2016, we expect the weakness of the Canadian dollar to continue to negatively impact our sales and earnings.

To monitor our Canadian currency exchange rate risks, we use sensitivity analysis, which measures the effect of devaluation of the Canadian dollar. An average unhedged 10% devaluation in the Canadian dollar exchange rate during fiscal 2014 would have reduced our operating income by approximately $24.0 million.

Sales to European on-road ATV dealers and distributors are made in Euros. During fiscal 2015, sales to European on-road ATV dealers comprised 4.9% of total net sales. During fiscal 2015, the exchange rate fluctuation between the U.S. dollar and the Euro had a negative impact of $2.9 million on operating profit. 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. The carrying amount of our short-term investments approximate related fair value and the associated market risk is not deemed to be significant.

We are a party to a secured bank line of credit arrangement under which we currently may borrow up to an aggregate of $100,000,000. The total letters of credit issued, under this arrangement, at March 31, 2015 were $7,913,000. Interest is charged at variable rates based on either LIBOR or the prime rate. Because the interest rate risk related to the line of credit is not deemed to be significant, we do not actively manage this exposure.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements, Notes, and Report of Independent Registered Public Accounting Firm appear on pages 31 through 49. Quarterly financial data appears in Item 6.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this report, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective as of March 31, 2015.

 

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Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of March 31, 2015. In making this assessment, our management used the criteria for effective internal control over financial reporting described in the 2013 “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting was effective as of March 31, 2015.

The Company’s internal control over financial reporting as of March 31, 2015 has been audited by Grant Thornton LLP, as stated in their report included elsewhere herein.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders of

Arctic Cat Inc.

We have audited the internal control over financial reporting of Arctic Cat Inc. (a Minnesota corporation) and subsidiaries (the “Company”) as of March 31, 2015, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report of Internal Control Over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2015, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended March 31, 2015, and our report dated May 29, 2015, expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

Minneapolis, Minnesota

May 29, 2015

 

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information included under the headings “Election of Directors,” “Corporate Governance,” “Audit Committee Report” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held August 6, 2015, is incorporated herein by reference.

Pursuant to instruction 3 to Item 401(b) of Regulation S-K, information as to our executive officers is set forth in Part I of this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information included under the headings “Compensation Discussion and Analysis,” “Corporate Governance—Compensation and Human Resources Committee Interlocks and Insider Participation” and “Executive Compensation and Other Information” in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held August 6, 2015, is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information included under the heading “Beneficial Ownership of Capital Stock” in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held August 6, 2015, is incorporated herein by reference.

Equity Compensation Plan Information

The following table provides information regarding our Common Stock that may be issued upon the exercise of options, warrants and rights under all of our existing compensation plans as of March 31, 2015, consisting of our 2007 Omnibus Stock and Incentive Plan and 2013 Omnibus Stock and Incentive Plan.

 

Plan category

   Number of securities to be issued
upon exercise of outstanding
options, warrants and rights

(a)
     Weighted average exercise price
of outstanding options,
warrants and rights

(b)
     Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a))

(c)
 

Equity compensation plans approved by security holders

     604,218       $ 29.39         808,807   

Equity compensation plans not approved by security holders

     N/A         N/A         N/A   

Total

     604,218       $ 29.39         808,807   

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information included under the headings “Corporate Governance—Policies and Procedures Regarding Related Person Transactions” and “Corporate Governance—Director Independence” in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 6, 2015, is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information included under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm—Audit and Non-Audit Fees” in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 6, 2015 is incorporated herein by reference.

 

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a) Documents filed as part of report

 

1. Financial Statements.

The following consolidated financial statements of the Company and its subsidiaries are filed as part of this Annual Report on Form 10-K:

 

          Form 10-K
Reference Page
 
(i)    Consolidated Balance Sheets as of March 31, 2015 and 2014      29   
(ii)    Consolidated Statements of Operations for the years ended March 31, 2015, 2014 and 2013      30   
(iii)    Consolidated Statements of Shareholders’ Equity for the years ended March 31, 2015, 2014 and 2013      31   
(iv)    Consolidated Statements of Comprehensive Income (Loss) for the years ended March 31, 2015, 2014 and 2013      32   
(v)    Consolidated Statements of Cash Flows for the years ended March 31, 2015, 2014 and 2013      33   
(vi)    Notes to Consolidated Financial Statements      34-46   
(vii)    Report of Independent Registered Public Accounting Firm      47   

 

2. Schedules filed as part of this Annual Report on Form 10-K.

The information required to be disclosed within Schedule II—Valuation and Qualifying Accounts is provided within the Consolidated Financial Statements of the Company, filed as part of this Annual Report on Form 10-K.

 

3. Exhibits

See Exhibit Index following the financial statements.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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: May 29, 2015       /s/ CHRISTOPHER T. METZ
      Christopher T. Metz
      President and Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes Christopher T. Metz and D. Christian Koch as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

 

Signature

 

Date

/s/ CHRISTOPHER T. METZ

Christopher T. Metz

President and Chief Executive Officer

(Principal Executive Officer)

   

May 29, 2015

/s/ CHRISTOPHER J. EPERJESY

Christopher J. Eperjesy

Chief Financial Officer

(Principal Financial and Accounting Officer)

   

May 29, 2015

/s/ TONY J. CHRISTIANSON

Tony J. Christianson, Director

   

May 29, 2015

/s/ D. CHRISTIAN KOCH

D. Christian Koch, Director

   

May 29, 2015

/s/ SUSAN LESTER

Susan Lester, Director

   

May 29, 2015

/s/ JOSEPH PUISHYS

Joseph Puishys, Director

   

May 29, 2015

/s/ KENNETH J. ROERING

Kenneth Roering, Director

   

May 29, 2015

/s/ CHRISTOPHER A. TWOMEY

Christopher A. Twomey, Director

   

May 29, 2015

 

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ARCTIC CAT INC.

CONSOLIDATED BALANCE SHEETS

 

     March 31,  
     2015     2014  

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 40,253,000      $ 22,524,000   

Short-term investments

     1,009,000        60,008,000   

Accounts receivable, less allowances

     28,695,000        42,003,000   

Inventories

     152,443,000        140,652,000   

Prepaid expenses

     5,363,000        3,815,000   

Income taxes receivable

     5,151,000        1,323,000   

Deferred income taxes

     14,485,000        14,971,000   
  

 

 

   

 

 

 

Total current assets

  247,399,000      285,296,000   

Property and Equipment

Machinery, equipment and tooling

  194,074,000      181,028,000   

Land, building and improvements

  30,004,000      29,758,000   
  

 

 

   

 

 

 
  224,078,000      210,786,000   

Less accumulated depreciation

  161,210,000      154,855,000   
  

 

 

   

 

 

 
  62,868,000      55,931,000   

Goodwill, intangibles and other assets

  6,579,000      1,067,000   
  

 

 

   

 

 

 
$ 316,846,000    $ 342,294,000   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities

Accounts payable

$ 70,691,000    $ 93,882,000   

Accrued expenses

  53,942,000      54,659,000   
  

 

 

   

 

 

 

Total current liabilities

  124,633,000      148,541,000   

Deferred income taxes

  11,151,000      8,710,000   

Other liabilities

  690,000      —     

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: 12,949,702 at March 31, 2015 and 12,882,705 at March 31, 2014

  130,000      129,000   

Additional paid-in-capital

  1,940,000      —     

Accumulated other comprehensive loss

  (7,142,000   (2,110,000

Retained earnings

  185,444,000      187,024,000   
  

 

 

   

 

 

 

Total shareholders’ equity

  180,372,000      185,043,000   
  

 

 

   

 

 

 
$ 316,846,000    $ 342,294,000   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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ARCTIC CAT INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Years ended March 31,  
     2015     2014     2013  

Net sales

      

Snowmobile & ATV units

   $ 584,873,000      $ 615,608,000      $ 563,464,000   

Parts, garments, & accessories

     113,883,000        114,883,000        108,124,000   
  

 

 

   

 

 

   

 

 

 

Total net sales

  698,756,000      730,491,000      671,588,000   
  

 

 

   

 

 

   

 

 

 

Cost of goods sold

Snowmobile & ATV units

  505,383,000      506,707,000      450,291,000   

Parts, garments, & accessories

  73,924,000      72,705,000      70,401,000   
  

 

 

   

 

 

   

 

 

 

Total cost of goods sold

  579,307,000      579,412,000      520,692,000   
  

 

 

   

 

 

   

 

 

 

Gross profit

  119,449,000      151,079,000      150,896,000   

Operating expenses

Selling & marketing

  39,656,000      38,028,000      37,402,000   

Research & development

  24,341,000      23,998,000      20,693,000   

General & administrative

  48,914,000      28,557,000      32,087,000   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

  112,911,000      90,583,000      90,182,000   
  

 

 

   

 

 

   

 

 

 

Operating profit

  6,538,000      60,496,000      60,714,000   

Other income (expense)

Interest income

  25,000      30,000      49,000   

Interest expense

  (353,000   (122,000   (84,000
  

 

 

   

 

 

   

 

 

 

Total other expense

  (328,000   (92,000   (35,000
  

 

 

   

 

 

   

 

 

 

Earnings before income taxes

  6,210,000      60,404,000      60,679,000   

Income tax expense

  1,290,000      21,000,000      20,934,000   
  

 

 

   

 

 

   

 

 

 

Net earnings

$ 4,920,000    $ 39,404,000    $ 39,745,000   
  

 

 

   

 

 

   

 

 

 

Net earnings per share

Basic

$ 0.38    $ 2.97    $ 3.02   
  

 

 

   

 

 

   

 

 

 

Diluted

$ 0.38    $ 2.90    $ 2.89   
  

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding

Basic

  12,926,000      13,275,000      13,155,000   
  

 

 

   

 

 

   

 

 

 

Diluted

  13,089,000      13,598,000      13,761,000   
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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ARCTIC CAT INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

Years ended March 31,

   Common Stock     Additional
Paid-in Capital
    Accumulated
Other
Comprehensive
Income (Loss)
    Retained
Earnings
    Total  
   Shares     Amount          

Balances at March 31, 2012

     13,055,887      $ 131,000      $ 13,233,000      $ (2,708,000   $ 127,816,000      $ 138,472,000   

Exercise of stock options

     554,854        6,000        5,967,000        —          —          5,973,000   

Tax benefits from stock options exercised

     —          —          6,971,000        —          —          6,971,000   

Repurchase of common stock

     (424,145     (5,000     (17,563,000     —          —          (17,568,000

Restricted stock awards and units

     18,211        —          —          —          —          —     

Restricted stock forfeited

     (1,125     —          —          —          —          —     

Stock-based compensation expense

     —          —          2,337,000        —          —          2,337,000   

Net earnings

     —          —          —          —          39,745,000        39,745,000   

Unrealized loss on derivative instruments, net of tax

     —          —          —          (305,000     —          (305,000

Foreign currency adjustment

     —          —          —          (1,153,000     —          (1,153,000
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at March 31, 2013

  13,203,682      132,000      10,945,000      (4,166,000   167,561,000      174,472,000   

Exercise of stock options

  616,951      6,000      9,701,000      —        —        9,707,000   

Tax benefits from stock options exercised

  —        —        7,499,000      —        —        7,499,000   

Repurchase of common stock

  (958,559   (9,000   (30,729,000   —        (14,624,000   (45,362,000

Restricted stock awards and units

  21,131      —        —        —        —        —     

Restricted stock forfeited

  (500   —        —        —        —        —     

Stock-based compensation expense

  —        —        2,584,000      —        —        2,584,000   

Net earnings

  —        —        —        —        39,404,000      39,404,000   

Unrealized loss on derivative instruments, net of tax

  —        —        —        (241,000   —        (241,000

Foreign currency adjustment

  —        —        —        2,297,000      —        2,297,000   

Dividends ($0.40 per share)

  —        —        —        —        (5,317,000   (5,317,000
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at March 31, 2014

  12,882,705      129,000      —        (2,110,000   187,024,000      185,043,000   

Exercise of stock options

  95,346      1,000      1,451,000      —        —        1,452,000   

Tax benefits from stock options exercised

  —        —        287,000      —        —        287,000   

Repurchase of common stock

  (82,908   (1,000   (3,158,000   —        —        (3,159,000

Restricted stock awards and units

  57,559      1,000      (727,000   —        —        (726,000

Restricted stock forfeited

  (3,000   —        —        —        —        —     

Stock-based compensation expense

  —        —        4,087,000      —        —        4,087,000   

Net earnings

  —        —        —        —        4,920,000      4,920,000   

Unrealized loss on derivative instruments, net of tax

  —        —        —        2,279,000      —        2,279,000   

Foreign currency adjustment

  —        —        —        (7,311,000   —        (7,311,000

Dividends ($0.50 per share)

  —        —        —        —        (6,500,000   (6,500,000
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at March 31, 2015

  12,949,702    $ 130,000    $ 1,940,000    $ (7,142,000 $ 185,444,000    $ 180,372,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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ARCTIC CAT INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

     Years ended March 31,  
     2015     2014     2013  

Net earnings

   $ 4,920,000      $ 39,404,000      $ 39,745,000   

Other comprehensive income:

      

Foreign currency translation adjustments

     (7,311,000     2,297,000        (1,153,000

Unrealized gain (loss) on derivative instruments, net of tax

     2,279,000        (241,000     (305,000
  

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

$ (112,000 $ 41,460,000    $ 38,287,000   
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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ARCTIC CAT INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Years ended March 31,  
     2015     2014     2013  

Cash flows from operating activities

      

Net earnings

   $ 4,920,000      $ 39,404,000      $ 39,745,000   

Adjustments to reconcile net earnings to net cash provided by operating activities

      

Depreciation and amortization

     15,509,000        14,189,000        11,999,000   

Loss on the disposal of assets

     51,000        3,000        50,000   

Deferred income tax expense

     1,489,000        6,076,000        1,128,000   

Stock-based compensation expense

     4,087,000        2,584,000        2,337,000   

Changes in operating assets and liabilities

      

Trading securities

     58,999,000        17,232,000        (38,781,000

Accounts receivable, less allowances

     14,813,000        (10,949,000     (3,010,000

Inventories

     (14,024,000     (42,159,000     1,584,000   

Prepaid expenses

     (844,000     (774,000     138,000   

Accounts payable

     (21,617,000     26,768,000        5,420,000   

Accrued expenses

     (188,000     (1,264,000     3,020,000   

Income taxes

     (3,494,000     (6,931,000     9,054,000   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

  59,701,000      44,179,000      32,684,000   

Cash flows from investing activities

Purchases of property and equipment

  (22,187,000   (24,377,000   (16,276,000

Acquisition of business

  (8,428,000   —        —     

Purchases of intangibles and other assets

  (9,000   —        —     

Proceeds from the sale of assets

  —        36,000      —     
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

  (30,624,000   (24,341,000   (16,276,000

Cash flows from financing activities

Proceeds from issuance of common stock

  34,000      185,000      12,000   

Payments for income taxes on net-settled option exercises

  (1,897,000   (7,652,000   (6,206,000

Tax benefit from stock option exercises

  758,000      7,499,000      6,971,000   

Dividends paid

  (6,500,000   (5,317,000   —     

Repurchase of common stock

  (1,042,000   (28,190,000   (5,401,000
  

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

  (8,647,000   (33,475,000   (4,624,000

Effect of exchange rate changes on cash and cash equivalents

  (2,701,000   595,000      (356,000
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

  17,729,000      (13,042,000   11,428,000   

Cash and cash equivalents at beginning of year

  22,524,000      35,566,000      24,138,000   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of year

$ 40,253,000    $ 22,524,000    $ 35,566,000   
  

 

 

   

 

 

   

 

 

 

Supplemental disclosure of cash payments for:

Income taxes

$ 3,271,000    $ 13,892,000    $ 8,282,000   

Interest

$ 353,000    $ 122,000    $ 84,000   
  

 

 

   

 

 

   

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

As of March 31, 2015 and 2014, the unrealized gain (loss) on derivative instruments, net of tax was $2,279,000 and $(241,000), respectively.

The accompanying notes are an integral part of these statements.

 

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ARCTIC CAT INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015, 2014 and 2013

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Arctic Cat Inc. (the “Company”) designs, engineers, manufactures and markets snowmobiles and all-terrain vehicles (ATVs) and recreational off-highway vehicles (“side-by-sides” or “ROVs”) under the Arctic Cat® and MotorFist® brand names, and related parts, garments and accessories principally through its facilities in Thief River Falls, Minnesota. The Company’s products are sold through a network of independent dealers located throughout the United States, Canada, and Europe and through distributors in Europe, Russia, South America, the Middle East, Asia and other international markets.

Use of Estimates

Preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, related revenues and expenses and disclosure about contingent assets and liabilities at the date of the financial statements. Actual results could differ from the estimates used by management.

Principles of Consolidation

The consolidated financial statements include the accounts of Arctic Cat Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. At times, certain bank deposits may be in excess of federally insured limits. As of March 31, 2015 and 2014, the Company had approximately $19,212,000 and $14,948,000, respectively, of cash located in foreign banks primarily in Europe and Canada.

Fair Values of Financial Instruments

Except where noted, the carrying value of current financial assets and liabilities approximates their fair value, due to their short-term nature.

Short-Term Investments

Short-term investments are reported at fair value. The Company utilizes the specific identification method in accounting for its short-term investments.

Accounts Receivable

The Company’s accounts receivable balance consists of amounts due from its dealers and finance companies. The Company extends credit to its dealers based on an evaluation of the dealers’ financial condition. The Company’s collection exposure relating to accounts receivable amounts due from dealer floorplan finance companies is limited due to the financial strength of the finance companies and provisions of its existing agreements. Accounts receivable is presented net of an allowance for estimated uncollectible amounts due from its dealers. The Company estimates the uncollectible amounts considering numerous factors, mainly historical trends as well as current available information. The Company’s allowance for uncollectible accounts was $1,897,000 and $1,988,000 at March 31, 2015 and 2014, respectively. The activity within the allowance for uncollectible accounts for the three years ended March 31, 2015 was not significant. Accounts receivable amounts written off have been within management’s expectations.

 

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The activity in the allowance for uncollectible accounts for accounts receivable is as follows:

 

     2015      2014  

Balance at beginning of period

   $ 1,988,000       $ 2,759,000   

Provisions charged to expense

     287,000         (872,000

Deductions for amounts written-off

     (378,000      101,000   
  

 

 

    

 

 

 

Balance at end of period

$ 1,897,000    $ 1,988,000   
  

 

 

    

 

 

 

Inventories

Inventories are stated at the lower of cost or market, with cost determined using the first-in, first-out method.

Derivative Instruments and Hedging Activities

The Company enters into forward exchange contracts to protect against exposure to currency fluctuations on transactions denominated in foreign currencies, namely Canadian dollar and Japanese yen. The contracts are designated as, and meet the criteria for, cash flow hedges. The Company does not enter into forward contracts for the purpose of trading. Gains and losses on forward contracts are recorded in accumulated other comprehensive income (loss), net of tax, and subsequently reclassified into operating expense upon completing transfers of Canadian dollar or Japanese yen funds.

As of March 31, 2015, the Company had open Canadian dollar forward exchange contracts, maturing through March 2016, with notional amounts totaling $76,328,000 and the total net fair value of $3, 628,000 is included in accounts receivable. As of March 31, 2015, the Company had open Japanese yen forward exchange contracts, maturing through August 2015, with notional amounts totaling $19,046,000 and the total net fair value of $434,000 is included in accounts payable. As of March 31, 2014, the Company had open Canadian dollar forward exchange contracts, maturing through March 2014, with notional amounts totaling $89,649,000 and the total net fair value of $424,000 is included in accounts payable. The Company did not enter into any forward contracts in currencies other than the Canadian dollar in the year ended March 31, 2014 and the Canadian dollar and Japanese yen in the year ended March 31, 2015.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy has been established which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities; Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. As of March 31, 2015, the Company’s Canadian dollar foreign currency contracts fair value was an asset totaling $3,628,000 and considered a Level 2 measurement. As of March 31, 2015, the Company’s Japanese yen foreign currency contracts fair value was a liability totaling $434,000 and considered a Level 2 measurement. As of March 31, 2014, Company’s Canadian dollar foreign currency contract fair value was a liability totaling $424,000 and considered a Level 2 measurement. There were no open Japanese yen foreign currency contracts at March 31, 2014. The Company utilizes the income approach to measure fair value of foreign currency contracts which is based on significant other observable inputs. The asset or liability is measured at fair value on a recurring basis each reporting period end.

Property and Equipment

Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, using the straight-line method for all property, equipment and tooling. Repairs and maintenance cost that are considered not to extend the useful life of the property and equipment are expensed as incurred. Tooling is amortized over the life of the product, generally 3-5 years. Estimated service lives range from 15 - 39 years for buildings and improvements and 5 - 7 years for machinery and equipment. Accelerated and straight-line methods are used for income tax reporting.

 

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Impairment of Long-Lived Assets

The Company evaluates the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the assets, the carrying value is reduced to the estimated fair value as measured by the associated discounted cash flows. Based on impairment indicators not being present, the Company determined the carrying value of long-lived assets was not impaired.

Goodwill and Other Intangible Assets

ASC Topic 350 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. An impairment charge for goodwill is recognized only when the estimated fair value of a reporting unit, including goodwill, is less than its carrying amount. The Company has not performed the annual impairment test, since the acquisition of MotorFist occurred on February 25, 2015. In accordance with Topic 350, the Company will continue to complete an impairment analysis on an annual basis or more frequently if an event or circumstance that would more likely than not reduce the fair value of a reporting unit below its carrying amount occurs. Identified intangible assets are acquired customer relationships, homologation licenses, and a non-compete agreement. Goodwill, intangibles and other assets, consist of $6,579,000 net of accumulated amortization, for the period ended March 31, 2015. Goodwill, intangibles and other assets, consist $1,067,000 net of accumulated amortization, for the period ended March 31, 2014. Other assets consist of $436,000, net of accumulated amortization for period ended March 31, 2015 and 2014.

Additions to goodwill and other intangible assets in fiscal year 2015 relate primarily to the acquisition of MotorFist, LLC, (“MotorFist”), in February 2015. MotorFist is an innovative growing company in the power sports apparel market with a strong reputation as a provider of technical snowmobile riding gear.

For the acquisition, the aggregate purchase price was allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition. MotorFist’s financial results are included in the Company’s consolidated results from the date of acquisition.

The changes in the carrying amount of goodwill and other identified intangible assets for the fiscal years ended March 31, 2015 and 2014 are as follows:

 

     2015      2014  

Balance at beginning of period

   $ 631,000       $ 659,000   

Goodwill acquired during the period

     3,342,000         —     

Intangible assets acquired during the period

     2,255,000         56,000   

Currency translation effect on foreign balances

     (2,000      (1,000

Current year amortization

     (83,000      (83,000
  

 

 

    

 

 

 

Balance at end of period

$ 6,143,000    $ 631,000   
  

 

 

    

 

 

 

Identified intangible assets are acquired customer relationships, homologation licenses, non-compete agreements, trademarks/names, dealer network and in-process research and development. Intangible assets before accumulated amortization were $4,314,000 at March 31, 2015 and $2,060,000 at March 31, 2014. Accumulated amortization was $1,511,000 and $1,428,000 at March 31, 2015 and 2014, respectively. Amortization expense is expected to be approximately $383,000 in each of fiscal 2016, 2017, 2018, 2019 and 2020.

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 consumer registration on ATVs and 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, including costs associated with safety recalls, which may occur after the standard warranty period. The following represents changes in the Company’s accrued warranty liability for the fiscal years ended March 31,

 

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     2015      2014      2013  

Balance at beginning of period

   $ 19,357,000       $ 18,709,000       $ 18,521,000   

Warranty provision

     21,499,000         16,770,000         19,449,000   

Warranty claim payments

     (17,794,000      (16,122,000      (19,261,000
  

 

 

    

 

 

    

 

 

 

Balance at end of period

$ 23,062,000    $ 19,357,000    $ 18,709,000   
  

 

 

    

 

 

    

 

 

 

Insurance

The Company is self-insured for employee medical, workers’ compensation, and product liability claims. Specific stop loss coverages are provided for catastrophic claims. Losses and claims are charged to operations when it is probable a loss has been incurred and the amount can be reasonably estimated.

Revenue Recognition

The Company recognizes revenue and provides for estimated marketing and sales incentive costs when products are shipped to dealers and distributors pursuant to their order, the price is fixed and collection is reasonably assured. Shipping and handling costs are recorded as a component of costs of goods sold and shipping charges to the dealers are recorded as revenue at the time products are shipped.

Return allowances for parts and accessories are recorded as a reduction of revenue when the products are sold based on the company’s return allowance program and historical experience.

Sales tax collected from customers is remitted to the appropriate taxing jurisdictions and is excluded from sales revenue as the Company considers itself a pass-through conduit for collecting and remitting sales taxes.

Marketing and Sales Incentive Costs

At the time product revenue is recognized the Company provides for various marketing and sales incentive costs that are offered to its dealers and consumers. Examples of these costs, which are recognized as a reduction of revenue when the products are sold, include dealer and consumer rebates, dealer floor plan financing assistance and other incentive and promotion programs. Generally, the Company records provisions for these marketing programs at the later of when the revenue is recognized or when the sales incentive or marketing program is approved and communicated for products previously shipped. Sales incentives that involve a free product or service delivered to the consumer are recorded as a component of cost of goods sold. The Company estimates the costs of these various incentive and marketing programs at the time of sale or subsequently when programs are approved and communicated based on historical experience. To the extent current experience differs with previous estimates the accrued liability for marketing and sales incentives is adjusted accordingly.

Dealer Holdback

The Company records a dealer holdback program liability at the time certain products are shipped to its dealers. If the products subject to the holdback program are sold within the program time period, the Company refunds a portion of the original sale price, referred to as dealer holdback, to the dealer within the program time period and refunds any remaining balances to its dealers when the program time periods end. The Company’s dealer holdback program liability, included within accounts payable, was $19,751,000 and $19,448,000 as of March 31, 2015 and 2014, respectively.

Research and Development

Research and development costs are expensed as incurred. Research and development expense was $24,341,000, $23,998,000 and $20,693,000 during fiscal 2015, 2014 and 2013, respectively.

Advertising

The Company expenses advertising costs as incurred, except for cooperative advertising obligations arising related to the sale of the Company’s products to its dealers. The estimated cost of cooperative advertising, which the dealer is

 

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required to support, is recorded as marketing expense at the time the product is sold. Cooperative advertising was $3,566,000, $3,440,000 and $3,556,000 in fiscal 2015, 2014 and 2013, respectively. Total advertising expense, including cooperative advertising, was $18,588,000, $17,562,000 and $17,232,000 in fiscal 2015, 2014 and 2013, respectively.

Net Earnings Per Share

The Company’s diluted weighted average shares outstanding include common shares and common share equivalents relating to stock options, when dilutive. Options to purchase 156,432 shares of common stock with weighted average exercise prices of $44.14 were outstanding during fiscal 2015 but were excluded from the computation of common share equivalents because they were anti-dilutive. No options outstanding were excluded from the computation of common share equivalents during fiscal 2014. Options to purchase 70,470 shares of common stock with weighted average exercise prices of $43.79 were outstanding during fiscal 2013 but were excluded from the computation of common share equivalents because they were anti-dilutive.

Weighted average shares outstanding consist of the following for the fiscal years ended March 31:

 

     2015      2014      2013  

Weighted average number of common shares outstanding

     12,926,000         13,275,000         13,155,000   

Dilutive effect of option plan

     163,000         323,000         606,000   
  

 

 

    

 

 

    

 

 

 

Common and potential shares outstanding—diluted

  13,089,000      13,598,000      13,761,000   
  

 

 

    

 

 

    

 

 

 

Foreign Currency Translation

The Company’s activities with Canadian dealers are denominated in Canadian currency. The Company’s activities with European on-road ATV dealers and distributors are denominated in the Euro. Assets and liabilities denominated in Canadian currency and the Euro are translated using the exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average foreign exchange rates in effect for the period. Translation gains and losses relating to the Canadian currency are reflected in the results of operations and Euro currency are reflected as a component of other comprehensive income.

Comprehensive Income (Loss)

Comprehensive income (loss) represents net earnings adjusted for the unrealized gain or loss on derivative instruments, and foreign currency translation adjustments and is shown in the consolidated statements of comprehensive income (loss).

Segment Reporting

The Company’s operations include three operating segments based on its product lines – snowmobile; ATV; and parts, garments and accessories (“PG&A). For purposes of segment reporting the Company aggregates the snowmobile and ATV segments as the segments have similar economic characteristics. Detailed segment information is reported in Note J.

B. SHORT-TERM INVESTMENTS

Trading securities consists of $1,009,000 and $60,008,000, invested in various money market funds at March 31, 2015 and 2014, respectively. All of the trading securities are deemed to be level 1 investments.

C. INVENTORIES

Inventories consist of the following at March 31:

 

     2015      2014  

Raw materials and sub-assemblies

   $ 41,045,000       $ 52,580,000   

Finished goods

     77,763,000         55,327,000   

Parts, garments and accessories

     33,635,000         32,745,000   
  

 

 

    

 

 

 
$ 152,443,000    $ 140,652,000   
  

 

 

    

 

 

 

 

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D. ACCRUED EXPENSES

Accrued expenses consist of the following at March 31:

 

     2014      2014  

Marketing

   $ 14,495,000       $ 11,671,000   

Compensation

     4,429,000         9,338,000   

Warranties

     23,062,000         19,357,000   

Insurance

     5,729,000         7,026,000   

Other

     6,227,000         7,267,000   
  

 

 

    

 

 

 
$ 53,942,000    $ 54,659,000   
  

 

 

    

 

 

 

E. FINANCING

The Company entered into a $100,000,000 senior secured revolving bank 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. The agreement was amended in May 2015 to consent to the formation of MotorFist LLC, a Minnesota limited liability company, and the purchase of certain assets of MotorFist LLC, an Idaho limited liability company, as well as to waive an existing default related to the acquisition and abandonment of intellectual property resulting from the MotorFist acquisition. 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 the LIBOR for a 30 day interest period plus 1.00%. As of March 31, 2015, the effective rate was 3.50%. 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 March 31, 2015 and 2014. The outstanding letters of credit balances were $7,913,000 and $15,938,000 at March 31, 2015 and 2014, respectively, 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 March 31, 2015. Outstanding letters of credit will be repaid over the following six months in accordance with the credit agreement and any such renewal.

F. RETIREMENT SAVINGS PLAN

The Company’s 401(k) retirement savings plan covers substantially all eligible employees. Employees may contribute up to 50% of their compensation with the Company matching 50% of the employee contributions, up to a maximum of 4% of the employee’s cash compensation capped at $255,000. Matching contributions of $1,217,000 and $1,035,000 were made in fiscal 2015 and 2014, respectively. The Company can elect to make additional contributions at its discretion.

G. INCOME TAXES

Arctic Cat’s income before income taxes was generated from its United States and foreign operations as follows:

 

     For the years ended March 31,  
     2015      2014      2013  

United States

   $ 5,532,000       $ 58,655,000       $ 60,148,000   

Foreign

     678,000         1,749,000         531,000   
  

 

 

    

 

 

    

 

 

 

Income before income taxes

$ 6,210,000    $ 60,404,000    $ 60,679,000   
  

 

 

    

 

 

    

 

 

 

Income tax expense consists of the following for the fiscal years ended March 31:

 

     2015      2014      2013  

Current

        

Federal

   $ 2,610,000       $ 13,345,000       $ 18,624,000   

State

     149,000         900,000         937,000   

Foreign

     168,000         436,000         132,000   

Deferred

     (1,637,000      6,319,000         1,241,000   
  

 

 

    

 

 

    

 

 

 
$ 1,290,000    $ 21,000,000    $ 20,934,000   
  

 

 

    

 

 

    

 

 

 

 

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The following is a reconciliation of the federal statutory income tax rate to the effective tax rate for the fiscal years ended March 31:

 

     2015     2014     2013  

Statutory income tax rate

     35.0     35.0     35.0

State taxes

     1.9        1.7        2.2   

Research and other tax credit

     (16.5     (1.0     (2.0

Domestic manufacturers deduction

     (0.9     (1.4     (1.2

Uncertain tax positions

     (2.3     (0.1     (0.2

US subpart F adjustments

     11.1        0.4        0.4   

Foreign tax rate difference

     (9.1     (0.2     (0.1

Stock options

     1.3        (0.1     0.1   

Other

     0.3        0.5        0.3   
  

 

 

   

 

 

   

 

 

 
  20.8   34.8   34.5
  

 

 

   

 

 

   

 

 

 

The cumulative temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes under the liability method are as follows at March 31:

 

     2015      2014  

Current deferred income tax assets

     

Accrued expenses

   $ 5,134,000       $ 5,976,000   

Accrued warranty

     8,045,000         6,199,000   

Inventory related items

     4,152,000         4,175,000   

State research and development credits

     1,043,000         703,000   

Other

     313,000         441,000   

Less: valuation allowance

     (1,043,000      (703,000
  

 

 

    

 

 

 

Total assets

  17,644,000      16,791,000   

Current deferred income tax liability

Prepaid expenses

  1,463,000      1,349,000   

Other

  1,696,000      471,000   
  

 

 

    

 

 

 

Total liabilities

  3,159,000      1,820,000   
  

 

 

    

 

 

 

Net current deferred tax asset

$ 14,485,000    $ 14,971,000   
  

 

 

    

 

 

 

Non-current deferred income tax liability

Property and equipment

$ 11,151,000    $ 8,710,000   
  

 

 

    

 

 

 

Non-current deferred tax liability

$ 11,151,000    $ 8,710,000   
  

 

 

    

 

 

 

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes potential interest and penalties related to income tax positions as a component of the provision for income taxes on the consolidated statements of operations. The Company had liabilities recorded related to unrecognized tax benefits totaling $2,215,000 and $2,025,000 at March 31, 2015 and 2014, including reserves related to potential interest and penalties of $387,000 and $318,000, respectively. The amount of the liability, net of federal benefits for uncertain state tax positions, at March 31, 2015, if recognized, would affect the Company’s effective tax rate. The Company currently anticipates approximately $236,000 of unrecognized tax benefits will be recognized during the next twelve months. The Company has state research and development credit carryforwards of $1,043,000 and $703,000 offset by valuation allowances as of March 31, 2015 and 2014, respectively, with expiration dates to March 2030. With few exceptions, the Company is no longer subject to federal, state, or foreign income tax examinations for years prior to March 31, 2011. A reconciliation of the amount of unrecognized tax benefits excluding interest and penalties is as follows:

 

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     2015      2014  

Balance at beginning of period

   $ 1,707,000       $ 1,384,000   

Increases related to prior year tax positions

     72,000         104,000   

Decreases related to prior year tax positions

     (143,000      (88,000

Increases related to current year tax positions

     192,000         307,000   

Settlements

     —           —     
  

 

 

    

 

 

 

Balance at end of period

$ 1,828,000    $ 1,707,000   
  

 

 

    

 

 

 

The Company is subject to income taxes in the U.S. federal jurisdiction, and various state jurisdictions, as well as various European jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the relevant tax laws and regulations and require significant judgment to apply.

H. 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 March 31, 2015, the Company was contingently liable under these agreements for a maximum repurchase amount of approximately $69,324,000. 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 liability to the Company under these provisions is approximately $2,388,000 at March 31, 2015.

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.

Leases

The Company leases buildings and equipment under non-cancelable operating leases. Total rent expense under all lease agreements was $1,942,000, $1,413,000 and $1,111,000 for fiscal 2015, 2014 and 2013, respectively. Future minimum lease payments, exclusive of other costs required under non-cancelable operating leases at March 31, 2015 are approximately $239,000 in fiscal years 2016 through 2018 and $92,000 in fiscal years 2019 and 2020.

I. SHAREHOLDERS’ EQUITY

Stock Option Plans

The Company has outstanding equity awards under a 2013 Omnibus Stock and Incentive Plan (the “2013 Plan”) and a 2007 Omnibus Stock and Incentive Plan (the “2007 Plan,” and along with the 2013 Plan, the “Plans”), previously approved by the Company’s shareholders. The Plans provide for incentive and non-qualified stock options, restricted stock and restricted stock unit awards and other incentive awards to be granted to directors, officers, other key employees and consultants. 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 March 31, 2015, the Company had 808,807 shares of common stock available for grant under the plans.

 

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For the fiscal years ended March 31, 2015, 2014 and 2013, the Company recorded stock-based compensation expense for stock options and restricted stock awards of $4,087,000, $2,584,000 and $2,337,000, respectively, which have been included in general and administrative expenses. The Company’s total stock-based compensation expense reduced both basic and diluted earnings per share by $0.24, $0.12 and $0.11 for the fiscal years ended March 31, 2015, 2014 and 2013, respectively. At March 31, 2015, the Company had $8,045,000 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 fair value of each stock option award was estimated on the date of grant using the Black-Scholes options pricing model. The following assumptions were used to estimate the fair value of options:

 

     2015      2014      2013  

Assumptions:

        

Dividend yield

     1.0%         1.0%         1.0%   

Average term

     6 years         5 years         5 years   

Volatility

     49%         49%         47%   

Risk-free rate of return

     0.8%         0.8%         1.3%   

The weighted average fair value of options granted during each of the following years ended March 31:

 

     2015      2014      2013  

Fair value of options granted

   $ 15.24       $ 16.91       $ 23.58   
  

 

 

    

 

 

    

 

 

 

Stock option transactions under the plans during each of the three years in the period ended March 31, are summarized as follows:

 

     Number of
Shares under
option
     Weighted
average exercise
price
 

Outstanding at March 31, 2012

     1,504,677       $ 13.84   

Granted

     72,532         43.50   

Cancelled

     (11,705      17.78   

Exercised

     (554,854      10.76   
  

 

 

    

 

 

 

Outstanding at March 31, 2013

  1,010,650      17.61   

Granted

  96,209      42.99   

Cancelled

  (9,071   25.68   

Exercised

  (616,951   15.73   
  

 

 

    

 

 

 

Outstanding at March 31, 2014

  480,837      24.95   

Granted

  289,766      35.53   

Cancelled

  (2,104   47.52   

Expired

  (68,936   43.28   

Exercised

  (95,345   15.23   
  

 

 

    

 

 

 

Outstanding at March 31, 2015

  604,218    $ 29.39   
  

 

 

    

 

 

 

Options exercisable at March 31 are as follows:

2013

  648,103    $ 16.46   
  

 

 

    

 

 

 

2014

  262,734    $ 17.83   
  

 

 

    

 

 

 

2015

  266,806    $ 20.30   
  

 

 

    

 

 

 

Stock options outstanding had an aggregate intrinsic value of $5,332,000 at March 31, 2015 and a weighted-average contractual life of 8.03 years. Exercisable stock options had an aggregate intrinsic value of $4,587,000 at March 31, 2015 and a weighted-average contractual life of 6.38 years. The aggregate intrinsic value is based on the difference between the exercise price and the Company’s March 31, 2015 common share market value for in-the-money options.

 

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The following tables summarize information concerning currently outstanding and exercisable stock options at March 31, 2015:

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

     3,800         4.35 years       $ 6.26         3,800       $ 6.26   

  9.57 - 13.84

     54,287         5.01 years         10.79         54,287         10.79   

14.68 - 21.03

     139,421         6.24 years         16.18         139,421         16.18   

21.96 - 27.69

     24,000         8.60 years         24.83         24,000         24.83   

32.93 - 47.79

     382,710         9.12 years         37.35         45,298         43.16   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  604,218      8.03 years    $ 29.39      266,806    $ 20.30   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 six years. The risk-free interest rate for periods matching the expected 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.

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 March 31, 2015, the Company had no shares of restricted common stock issued and outstanding and 11,895 unvested restricted stock units outstanding under the 2007 Plan and 22,500 shares of restricted common stock issued and outstanding and 43,810 unvested restricted stock units outstanding under the 2013 Plan and 60,734 unvested restricted stock units outstanding under a Board of Directors authorized executive inducement grant. 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.

Restricted stock and restricted stock unit award activity under the Plans for the fiscal years ended March 31, 2015 and 2014 is summarized as follows:

 

     2015      2014  

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

     20,200         33.67         8,000         53.91   

Vested

     (10,900      33.81         (34,120      15.66   

Forfeited

     (3,000      37.60         (500      41.52   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-vested shares at March 31,

  22,500    $ 40.12      16,200    $ 43.45   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     2015      2014  

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

     135,564         34.81         17,976         42.99   

Vested

     (57,295      33.14         (18,263      25.16   

Forfeited

     (1,933      43.81         (1,217      27.60   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-vested shares at March 31,

  116,439    $ 35.67      40,103    $ 35.35   
  

 

 

    

 

 

    

 

 

    

 

 

 

Preferred Stock

The Company’s Board of Directors is authorized to issue 2,500,000 shares of $1.00 par value preferred stock in one or more series, 450,000 shares of which were designated Series B Junior Participating preferred stock in connection with the previous Shareholder Rights Plan. The Board of Directors can determine voting, conversion, dividend and redemption rights and other preferences of each series. No shares have been issued.

Share Repurchase Authorization

The Company invested $1,042,000, $28,188,000, and $5,401,000 during fiscal 2015, 2014, and 2013, respectively, to repurchase and cancel 27,925, 633,816, and 149,424 shares of common stock, respectively, pursuant to the Board of Directors’ authorizations. On August 8, 2014, the Board authorized the repurchase of $25,000,000 or approximately 687,000 shares of common stock, which supplements the program previously approved in May 2013. At March 31, 2015, the Board’s authorization to repurchase $26,041,000, or approximately 716,986 shares of common stock, remains outstanding.

J. 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.

 

     Years ended March 31,  
     2015      2014      2013  

Net sales

        

Snowmobile & ATV units

   $ 584,873,000       $ 615,608,000       $ 563,464,000   

Parts, garments, & accessories

     113,883,000         114,883,000         108,124,000   
  

 

 

    

 

 

    

 

 

 

Total net sales

  698,756,000      730,491,000      671,588,000   
  

 

 

    

 

 

    

 

 

 

Cost of goods sold

Snowmobile & ATV units

  505,383,000      506,707,000      450,291,000   

Parts, garments, & accessories

  73,924,000      72,705,000      70,401,000   
  

 

 

    

 

 

    

 

 

 

Total cost of goods sold

  579,307,000      579,412,000      520,692,000   
  

 

 

    

 

 

    

 

 

 

Gross profit

Snowmobile & ATV units

  79,490,000      108,901,000      113,173,000   

Parts, garments, & accessories

  39,959,000      42,178,000      37,723,000   
  

 

 

    

 

 

    

 

 

 

Total gross profit

$ 119,449,000    $ 151,079,000    $ 150,896,000   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Years ended March 31,  
     2015      2014      2013  

Net sales by product line

        

Snowmobile units

   $ 300,731,000       $ 282,442,000       $ 263,693,000   

ATV units

     284,142,000         333,166,000         299,771,000   

Parts, garments, & accessories

     113,883,000         114,883,000         108,124,000   
  

 

 

    

 

 

    

 

 

 

Total net sales

$ 698,756,000    $ 730,491,000    $ 671,588,000   
  

 

 

    

 

 

    

 

 

 

 

     Years ended March 31,  
     2015      2014      2013  

Net sales by geography, based on location of the customer

        

United States

   $ 420,687,000       $ 404,347,000       $ 337,250,000   

Canada

     192,524,000         215,631,000         215,569,000   

Europe and other

     85,545,000         110,513,000         118,769,000   
  

 

 

    

 

 

    

 

 

 

Total net sales

$ 698,756,000    $ 730,491,000    $ 671,588,000   
  

 

 

    

 

 

    

 

 

 

The Company has identifiable long-lived assets with total carrying values of approximately $336,000, $751,000 and $1,533,000 at March 31, 2015, 2014 and 2013, respectively, outside the United States in Canada and Europe.

Sales to Yamaha and its subsidiaries in the aggregate accounted for 10.4% of net sales in fiscal year 2015. No sales to an individual customer accounted for more than 10% of fiscal years 2014 and 2013 net sales.

K. 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, 2017, 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.

L. ACQUISITION

In February 2015, the Company acquired substantially all of the assets of MotorFist, LLC, a privately owned company based in Idaho Falls, Idaho, that designs, develops and distributes high-performance technical riding gear. The Company completed this acquisition to more broadly expand PG&A product offerings for our North America and international markets. The Company invested $9,118,000, to acquire the assets, resulting in an excess purchase price over the estimated fair value of net assets of approximately $3,342,000. The total amount of goodwill is deductible for tax purposes. The acquisition cost included contingent consideration consisting of up to five earnout payments, plus a catch-up payment, for a total of up to $4.0 million. The earnout periods are years one through five with a maximum payout in years one through four of $500,000, and a maximum payment in year five of $2.0 million plus any shortfalls from years one through four. The estimated fair value of the earnout payments included in the consideration for purchase was $690,000. The operating activity from acquisition date to March 31, 2015 was immaterial. The operating revenues of MotorFist, LLC for the two years prior to acquisition are not considered material to these consolidated financial statements. The Company has completed its evaluation of the purchase price and the allocation of the acquisition costs is as follows:

 

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Table of Contents

Total consideration for purchase

$ 9,118,000   

Accounts receivable

  1,137,000   

Inventories

  1,579,000   

Other

  636,000   

Intangible assets

  2,580,000   
  

 

 

 

Total assets acquired

  5,932,000   

Total liabilities assumed

  156,000   
  

 

 

 

Net assets acquired

  5,776,000   
  

 

 

 

Goodwill acquired

$ 3,342,000   
  

 

 

 

 

 

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders of

Arctic Cat Inc.

We have audited the accompanying consolidated balance sheets of Arctic Cat Inc. (a Minnesota corporation) and subsidiaries (the “Company”) as of March 31, 2015 and 2014, and the related consolidated statements of operations, shareholders’ equity, comprehensive income (loss), and cash flows for each of the three years in the period ended March 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Arctic Cat Inc. and subsidiaries as of March 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of March 31, 2015, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 29, 2015, expressed an unqualified opinion thereon.

/s/ GRANT THORNTON LLP

Minneapolis, Minnesota

May 29, 2015

 

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Table of Contents

ARCTIC CAT INC.

EXHIBIT INDEX

 

Exhibit Number

    3.1    Amended and Restated Articles of Incorporation of the Company - incorporated by reference to Exhibit 3(a) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997 filed with the SEC on June 30, 1997.
    3.2    Articles of Amendment of Restated Articles of Incorporation of Arctic Cat Inc. - incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 11, 2014.
    3.3    Amended and Restated By-Laws of the Company - incorporated by reference to Exhibit 3.1to the Registrant’s Current Report on Form 8-K filed with the SEC on January 16, 2013.
    3.4    Amendment to Amended and Restated Bylaws of Arctic Cat Inc. - incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 11, 2014.
    4.1    Form of specimen common stock certificate - incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File Number 33-34984) filed with the SEC on May 21, 1990.
  10.1*    Form of Employment Agreement between the Company and Tracy J. Crocker, Bradley D. Darling, Paul A. Fisher and William J. Nee - incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K filed with the SEC on May 30, 2015.
  10.2*    2007 Omnibus Stock and Incentive Plan - incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC August 14, 2007.
  10.3*    First Amendment to 2007 Omnibus Stock and Incentive Plan - incorporated by reference to Exhibit 10.1 the Registrant’s Current Report on Form 8-K filed with the SEC August 12, 2009.
  10.4*    Second Amendment to 2007 Omnibus Stock and Incentive Plan - incorporated by reference to Exhibit 10.1 the Registrant’s Current Report on Form 8-K filed with the SEC April 5, 2011.
  10.5*    Form of Restricted Stock Unit Agreement for Non-Employee Directors for 2007 Omnibus Stock and Incentive Plan - incorporated by reference to Exhibit 10.3 the Registrant’s Current Report on Form 8-K filed with the SEC April 5, 2011.
  10.6*    Form of Restricted Stock Unit Agreement for Executive Officers for 2007 Omnibus Stock and Incentive Plan - incorporated by reference to Exhibit 10.4 the Registrant’s Current Report on Form 8-K filed with the SEC April 5, 2011.
  10.7*    Form of Incentive Stock Option Agreement for 2007 Omnibus Stock and Incentive Plan - incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC August 14, 2007.
  10.8*    Form of Non-Qualified Stock Option Agreement for 2007 Omnibus Stock and Incentive Plan - incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the SEC August 14, 2007.
  10.9*    Amended Form of Director Non-Qualified Stock Option Agreement for 2007 Omnibus Stock and Incentive Plan - incorporated by reference to Exhibit 10.2 the Registrant’s Current Report on Form 8-K filed with the SEC April 5, 2011.
  10.10*    Form of Restricted Stock Agreement for 2007 Omnibus Stock and Incentive Plan - incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on April 7, 2008.
  10.11*    Form of Stock-Settled Appreciation Rights Agreement for 2007 Omnibus Stock and Incentive Plan - incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on April 7, 2008.
  10.12*    The Arctic Cat Inc. 2013 Omnibus Stock and Incentive Plan - incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 12, 2013.
  10.13*    Form of Director Non-Qualified Stock Option Agreement - incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 8, 2013.
  10.14*    Form of Executive Officer Non-Qualified Stock Option Agreement - incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 8, 2013.
  10.15*    Form of Executive Officer Incentive Stock Option Agreement - incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 8, 2013.
  10.16*   

Form of Registered Stock Unit Agreement for Non-Employee Directors - incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 8, 2013.

 


Table of Contents
  10.17* Form of Restricted Stock Unit Agreement for Executive Officers - incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 8, 2013.
  10.18* Form of Stock-Settled Appreciation Rights Agreement - incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 8, 2013.
  10.19 Vendor Agreement dated October 14, 2009, between the Company, Arctic Cat Sales Inc. and GE Commercial Distribution Finance Corporation - incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 20, 2009.
  10.20 Amendment No. 1 dated October 20, 2009 to Vendor Agreement between the Company, Arctic Cat Sales, Inc., and GE Commercial Distribution Finance Corporation dated October 14, 2009 - incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 20, 2009.
  10.21 Amended and Restated Loan and Security Agreement, dated as of November 8, 2013, among the Company, certain financial institutions as lenders and Bank of America, N.A. as lender and administrative agent for the lenders - incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 15, 2013.
  10.22* Amended and Restated Employment Agreement dated October 27, 2010 between the Company and Claude J. Jordan - incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 28, 2010.
  10.23 Amendment No. 3 dated September 30, 2010 to Vendor Agreement between the Company, Arctic Cat Sales, Inc., and GE Commercial Distribution Finance Corporation dated October 14, 2009 - incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 8, 2010.
  10.24+* Form of Arctic Cat Inc. Change in Control Agreement for Executive Officers.
  10.25* Limited Term Employment Agreement, dated June 2, 2014, between the Company and Christopher A. Twomey - incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 5, 2014.
  10.26* Amendment to Employment Agreement, dated June 2, 2014, between the Company and Timothy C. Delmore - incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 5, 2014.
  10.27* Employment Agreement, dated November 10, 2014, between the Company and Christopher T. Metz - incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 14, 2014.
  10.28* Change in Control Agreement, dated November 10, 2014, between the Company and Christopher T. Metz - incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 14, 2014.
  10.29* Inducement Non-Qualified Stock Option Agreement between the Registrant and Christopher T. Metz - incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on February 6, 2015.
  10.30* Inducement Restricted Stock Unit Agreement between the Registrant and Christopher T. Metz - incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on February 6, 2015.
  10.31* Form of Indemnification Agreement - incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on February 6, 2015.
  10.32* Employment Agreement, dated February 3, 2015, between the Company and Christopher J. Eperjesy - incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 9, 2015.
  10.33* Change in Control Agreement, dated February 3, 2015, between the Company and Christopher J. Eperjesy - incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 9, 2015.
  21.1+ Subsidiaries of the Registrant
  23.1+ Consent of Independent Registered Public Accounting Firm
  24.1+ Power of Attorney (see signature page)
  31.1+ Section 302 Certification of Chief Executive Officer
  31.2+ Section 302 Certification of Chief Financial Officer
  32.1+ Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  32.2+

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 


Table of Contents
101+ Financial statements from the annual report on Form 10-K of the Company for the year ended March 31, 2015, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Shareholders’ Equity, (iv) the Consolidated Statements of Comprehensive Income, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements.

 

* Management compensatory plan or arrangement
+ Filed with this Annual Report on Form 10-K