Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read together with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition, the statements in this discussion and analysis regarding our expectations concerning the performance of our business, anticipated financial results, liquidity and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” above and in “Risk Factors” set forth in our 2021 Annual Report on Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Certain statements in the following discussions are based on non-GAAP financial measures. A “non-GAAP financial measure” is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with U.S. GAAP in the statements of operations, balance sheets or statements of cash flows of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Non-GAAP financial measures do not include operating and statistical measures. The Company includes non-GAAP financial measures in Management’s Discussion and Analysis, as the Company’s management believes that these measures and the information they provide are useful to users of the financial statements, including investors, because they permit users of the financial statements to view the Company’s performance using the same tools that management utilizes and to better evaluate the Company’s ongoing business performance. In order to better align the Company’s reported results with the internal metrics used by the Company's management to evaluate business performance as well as to provide better comparisons to prior periods and peer data, non-GAAP measures exclude the impact of purchase accounting amortization related to business acquisitions.
Overview
The COVID-19 pandemic has facilitated strong marine retail demand as consumers have taken advantage of more flexible work schedules allowing for more leisure time and marine product usage. This strong retail demand has created historically low dealer inventory levels which, in turn, has increased wholesale demand for our products. Year over year, we have increased production rates to address wholesale demand. While supply chain disruptions, production inefficiencies, and inflationary pressures have impacted the results for the three and six months ended January 2, 2022 as discussed below, net sales increased 36.4 percent for the first half of fiscal 2022 compared to the same prior-year period.
Supply Chain Disruptions. Demand for raw materials and components used in the production of our products has surged. As a result, some of the materials and components that we use are in short supply. To reduce the impact of supply chain disruptions on production, we have increased our raw materials safety stock and pursued alternative sourcing of raw materials and components where possible. Additionally, work in process has increased as a result of supply chain shortages delaying our ability to finish production units.
Production Inefficiencies . Business processes have been altered to address completion of boats waiting on parts while maintaining normal production lines, resulting in increased labor costs. Absenteeism and implementing COVID-19 mitigating procedures also burdened our work force as we continue to focus on ramp-up of production.
Inflationary Pressures. Inflationary pressures have increased the costs of raw materials and components used to build our products, negatively impacting our margins during the first half of 2022. New model year price increases took effect for fiscal 2022; however, these price increases did not fully offset the increased material costs caused by inflation. In response to worsening inflationary pressures, we began phasing in additional mid-cycle price increases during the second quarter of fiscal 2022.
As we continue to navigate the unprecedented confluence of demand and disruption precipitated by the COVID-19 pandemic, our production rates and results going forward will depend, in large part, on our and our suppliers’ capacity and ability to alleviate ongoing and changing risks.
18
We will continue to actively monitor the impact of the COVID-19 pandemic and may take further actions to alter business operations as may be required by government authorities, or that are determined to be in the best interest of our employees, dealers, suppliers, and stakeholders. The full extent of the COVID-19 pandemic impact on our business, operations, and financial results will depend on evolving factors that we cannot predict. See “Risk Factors — Risks Relating to Our Business — Actual or potential public health emergencies, epidemics, or pandemics, such as the current coronavirus (“COVID-19”) pandemic, could have a material adverse effect on our business, results of operations, or financial condition” set forth in our 2021 Annual Report on Form 10-K.
19
Results of Operations
Consolidated Results
The table below presents our consolidated results of operations for the three and six months ended:
Three Months Ended
2022 vs. 2021
Six Months Ended
2022 vs. 2021
January 2,
January 3,
%
January 2,
January 3,
%
2022
2021
Change
Change
2022
2021
Change
Change
Consolidated statements of operations :
NET SALES
$
159,465
$
118,677
$
40,788
34.4
%
$
303,475
$
222,422
$
81,053
36.4
%
COST OF SALES
124,267
89,404
34,863
39.0
%
238,155
166,919
71,236
42.7
%
GROSS PROFIT
35,198
29,273
5,925
20.2
%
65,320
55,503
9,817
17.7
%
OPERATING EXPENSES:
Selling and marketing
3,395
2,989
406
13.6
%
7,677
5,896
1,781
30.2
%
General and administrative
10,263
8,352
1,911
22.9
%
19,933
17,284
2,649
15.3
%
Amortization of other intangible assets
987
987
—
0.0
%
2,013
1,974
39
2.0
%
Goodwill impairment
—
—
—
—
1,100
—
1,100
—
Total operating expenses
14,645
12,328
2,317
18.8
%
30,723
25,154
5,569
22.1
%
OPERATING INCOME
20,553
16,945
3,608
21.3
%
34,597
30,349
4,248
14.0
%
OTHER EXPENSE:
Interest expense
357
870
(513
)
(59.0
%)
739
1,889
(1,150
)
(60.9
%)
INCOME BEFORE INCOME TAX EXPENSE
20,196
16,075
4,121
25.6
%
33,858
28,460
5,398
19.0
%
INCOME TAX EXPENSE
4,794
3,574
1,220
34.1
%
8,070
6,392
1,678
26.3
%
NET INCOME
$
15,402
$
12,501
$
2,901
23.2
%
$
25,788
$
22,068
$
3,720
16.9
%
Additional financial and other data:
Unit sales volume:
MasterCraft
886
773
113
14.6
%
1,669
1,407
262
18.6
%
Crest
690
575
115
20.0
%
1,406
1,012
394
38.9
%
NauticStar
310
355
(45
)
(12.7
%)
601
646
(45
)
(7.0
%)
Aviara
23
11
12
109.1
%
42
24
18
75.0
%
Consolidated unit sales volume
1,909
1,714
195
11.4
%
3,718
3,089
629
20.4
%
Net sales:
MasterCraft
$
106,773
$
79,511
$
27,262
34.3
%
$
198,788
$
149,102
$
49,686
33.3
%
Crest
29,718
20,969
8,749
41.7
%
62,498
39,008
23,490
60.2
%
NauticStar
15,065
14,949
116
0.8
%
28,425
27,291
1,134
4.2
%
Aviara
7,909
3,248
4,661
143.5
%
13,764
7,021
6,743
96.0
%
Consolidated net sales
$
159,465
$
118,677
$
40,788
34.4
%
$
303,475
$
222,422
$
81,053
36.4
%
Net sales per unit:
MasterCraft
$
121
$
103
$
18
17.5
%
$
119
$
106
$
13
12.3
%
Crest
43
36
7
19.4
%
44
39
5
12.8
%
NauticStar
49
42
7
16.7
%
47
42
5
11.9
%
Aviara
344
295
49
16.6
%
328
293
35
11.9
%
Consolidated net sales per unit
84
69
15
21.7
%
82
72
10
13.9
%
Gross margin
22.1
%
24.7
%
(260) bps
21.5
%
25.0
%
(350) bps
20
Net sales increased 34.4 percent and 36.4 percent during the second quarter and first six months of fiscal 2022, respectively, when compared with the same prior year periods. Net sales in the MasterCraft, Crest, and Aviara segments benefited from increased sales volume as our dealers continue to have high retail demand and look to restock their inventories. Higher prices, favorable model mix, and higher option sales were also favorable compared to the prior period.
Gross margin percentage declined 260 basis points and 350 basis points during the second quarter and first six months of fiscal 2022, respectively, compared to the same prior year periods. Higher revenues yielded a lower margin due to supply chain disruptions and inflationary pressures that drove material and labor costs higher. Though we began phasing in mid-cycle price increases to offset these headwinds, the impact will not be fully realized until the second half of fiscal 2022. In addition, overhead from the new Aviara facility created unfavorable overhead absorption.
Operating expense increased 18.8 percent and 22.1 percent during the second quarter and first six months of fiscal 2022 when compared to the same prior year periods. Despite our increased costs, selling, general, and administrative expenses as a percentage of sales have decreased for the second quarter and first half of 2022 when compared to the same prior year periods. Selling and marketing expense increased due to timing of prior-year expenses being impacted by the COVID-19 pandemic, resulting in lower costs for the second quarter and first half of fiscal 2021. General and administrative expenses increased as a result of increased variable compensation costs and continued investments in information technology. Additionally, an impairment charge related to the allocated goodwill associated with the Aviara segment was recorded in the first quarter of fiscal 2022, as discussed in Note 4 to the Unaudited Condensed Consolidated Financial Statements.
Interest expense decreased due to lower effective interest rates and lower average outstanding debt balances during the current year periods compared to the prior year periods.
Segment Results
As discussed in Note 1 to our Unaudited Condensed Consoslidated Financial Statements and beginning with the first quarter of fiscal 2022, our CODM began to manage our business, allocate resources, and evaluate performance based on the reportable segments of MasterCraft, Crest, NauticStar, and Aviara.
MasterCraft Segment
The following table sets forth MasterCraft segment results for the three and six months ended:
Three Months Ended
2022 vs. 2021
Six Months Ended
2022 vs. 2021
January 2,
January 3,
%
January 2,
January 3,
%
2022
2021
Change
Change
2022
2021
Change
Change
Net sales
$
106,773
$
79,511
$
27,262
34.3
%
$
198,788
$
149,102
$
49,686
33.3
%
Operating income
21,302
16,660
4,642
27.9
%
37,482
31,027
6,455
20.8
%
Purchases of property, plant and equipment
1,468
1,063
405
38.1
%
3,532
2,699
833
30.9
%
Unit sales volume
886
773
113
14.6
%
1,669
1,407
262
18.6
%
Net sales per unit
$
121
$
103
$
18
17.5
%
$
119
$
106
$
13
12.3
%
Net sales increased 34.3 percent and 33.3 percent during the second quarter and first six months of fiscal 2022, respectively, when compared with the same prior year periods, primarily driven by an increase in sales volume and favorable model mix. Additionally, net sales benefited from higher prices and higher option sales.
Operating income increased $4.6 million and $6.5 million during the second quarter and first half of fiscal 2022, respectively, when compared to the same prior year periods. The increase was driven by higher net sales, and partially offset by inflationary pressures, the production inefficiencies from supply chain disruptions, and higher general and administrative costs.
21
Crest Segment
The following table sets forth Crest segment results for the three and six months ended:
Three Months Ended
2022 vs. 2021
Six Months Ended
2022 vs. 2021
January 2,
January 3,
%
January 2,
January 3,
%
2022
2021
Change
Change
2022
2021
Change
Change
Net sales
$
29,718
$
20,969
$
8,749
41.7
%
$
62,498
$
39,008
$
23,490
60.2
%
Operating income
4,637
2,650
1,987
75.0
%
8,436
4,312
4,124
95.6
%
Purchases of property, plant and equipment
673
23
650
2826.1
%
1,044
23
1,021
4439.1
%
Unit sales volume
690
575
115
20.0
%
1,406
1,012
394
38.9
%
Net sales per unit
$
43
$
36
$
7
19.4
%
$
44
$
39
$
5
12.8
%
Net sales increased $8.7 million and $23.5 million during the second quarter and first half of fiscal 2022, respectively, when compared to the same prior year periods, as a result of higher sales volumes and higher prices.
Operating income for second quarter and first half of fiscal 2022 increased 75.0 percent and 95.6 percent, respectively, when compared to the same prior year periods. The increase is primarily the result of higher net sales, partially offset by higher costs from inflationary pressures.
NauticStar Segment
The following table sets forth NauticStar segment results for the three and six months ended:
Three Months Ended
2022 vs. 2021
Six Months Ended
2022 vs. 2021
January 2,
January 3,
%
January 2,
January 3,
%
2022
2021
Change
Change
2022
2021
Change
Change
Net sales
$
15,065
$
14,949
$
116
0.8
%
$
28,425
$
27,291
$
1,134
4.2
%
Operating loss
(3,066
)
(326
)
(2,740
)
840.5
%
(5,402
)
(1,945
)
(3,457
)
177.7
%
Purchases of property, plant and equipment
702
516
186
36.0
%
1,770
759
1,011
133.2
%
Unit sales volume
310
355
(45
)
(12.7
%)
601
646
(45
)
(7.0
%)
Net sales per unit
$
49
$
42
$
7
16.7
%
$
47
$
42
$
5
11.9
%
Net sales were $15.1 million and $28.4 million for the second quarter and first six months of fiscal 2022, respectively. Net sales benefited from higher prices and higher option sales, and was offset by decreased sales volume, when compared to the same prior year periods.
Operating loss was $3.1 million and $5.4 million for the second quarter and first six months of fiscal 2022, respectively, when compared to the same prior year periods. Higher costs from inflationary pressures, supply chain disruptions, and labor challenges offset higher net sales.
22
Aviara Segment
The following table sets forth Aviara segment results for the three and six months ended:
Three Months Ended
2022 vs. 2021
Six Months Ended
2022 vs. 2021
January 2,
January 3,
%
January 2,
January 3,
%
2022
2021
Change
Change
2022
2021
Change
Change
Net sales
$
7,909
$
3,248
$
4,661
143.5
%
$
13,764
$
7,021
$
6,743
96.0
%
Operating loss
(2,320
)
(2,039
)
(281
)
13.8
%
(5,919
)
(3,045
)
(2,874
)
94.4
%
Goodwill impairment
—
—
—
—
1,100
—
1,100
—
Purchases of property, plant and equipment
254
15,349
(15,095
)
(98.3
%)
369
15,422
(15,053
)
(97.6
%)
Unit sales volume
23
11
12
109.1
%
42
24
18
75.0
%
Net sales per unit
$
344
$
295
$
49
16.6
%
$
328
$
293
$
35
11.9
%
Net sales increased $4.7 million and $6.7 million during the second quarter and first six months of fiscal 2022, respectively, when compared to the same prior year periods, due to an increase in unit sales volume attributed to increased capacity from the new Merritt Island facility and favorable model mix.
During the second quarter and first six months of 2022, all Aviara boats were manufactured in our 140,000 square foot Merritt Island, Florida facility, which we purchased in October 2020 for $14.2 million. During the second quarter and first six months of 2021, the production of Aviara boats at our MasterCraft facility in Vonore, Tennessee, was winding down and transitioning to the Merritt Island facility. As a result of this transition, overhead costs attributable to Aviara increased significantly which creates a dilutive near-term impact on Aviara’s margins and profitability.
Operating loss increased $0.3 million and $2.9 million for the second quarter and first half of fiscal 2022, respectively, when compared to the same prior year periods, as a result of ramp up related inefficiencies in the Merritt Island facility, including higher overhead costs associated with the new facility. Additionally, a goodwill impairment charge was recorded during the first quarter of fiscal 2022. See Note 4 in Notes to Unaudited Condensed Consolidated Financial Statements for more information on the impairment charge.
Non-GAAP Measures
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin
We define EBITDA as earnings before interest expense, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted to eliminate certain non-cash charges or other items that we do not consider to be indicative of our core and/or ongoing operations. For the periods presented herein, these adjustments include Aviara transition costs and certain non-cash items including goodwill impairment and share-based compensation. We define Adjusted EBITDA margin as Adjusted EBITDA expressed as a percentage of Net sales.
Adjusted Net Income and Adjusted Net Income Per Share
We define Adjusted Net Income and Adjusted Net Income per share as net income adjusted to eliminate certain non-cash charges or other items that we do not consider to be indicative of our core and/or ongoing operations and reflecting income tax expense on adjusted net income before income taxes at our estimated annual effective tax rate. For the periods presented herein, these adjustments include Aviara transition costs and certain non-cash items including goodwill impairment, other intangible asset amortization, and share-based compensation.
23
EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income per share, which we refer to collectively as the Non-GAAP Measures, are not measures of net income or operating income as determined under accounting principles generally accepted in the United States, or U.S. GAAP. The Non-GAAP Measures are not measures of performance in accordance with U.S. GAAP and should not be considered as an alternative to net income, net income per share, or operating cash flows determined in accordance with U.S. GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of cash flow. We believe that the inclusion of the Non-GAAP Measures is appropriate to provide additional information to investors because securities analysts and investors use the Non-GAAP Measures to assess our operating performance across periods on a consistent basis and to evaluate the relative risk of an investment in our securities. We use Adjusted Net Income and Adjusted Net Income per share to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with U.S. GAAP, provides a more complete understanding of factors and trends affecting our business than does U.S. GAAP measures alone. We believe Adjusted Net Income and Adjusted Net Income per share assists our board of directors, management, investors, and other users of the financial statements in comparing our net income on a consistent basis from period to period because it removes certain non-cash items and other items that we do not consider to be indicative of our core and/or ongoing operations and reflecting income tax expense on adjusted net income before income taxes at our estimated annual effective tax rate. The Non-GAAP Measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
•
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements;
•
Adjusted EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
•
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•
Adjusted EBITDA does not reflect our tax expense or any cash requirements to pay income taxes;
•
Adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest payments on our indebtedness; and
•
Adjusted Net Income, Adjusted Net Income per share, and Adjusted EBITDA do not reflect the impact of earnings or charges resulting from matters we do not consider to be indicative of our core and/or ongoing operations, but may nonetheless have a material impact on our results of operations.
In addition, because not all companies use identical calculations, our presentation of the Non-GAAP Measures may not be comparable to similarly titled measures of other companies, including companies in our industry.
24
The following table presents a reconciliation of net income as determined in accordance with U.S. GAAP to EBITDA, and Adjusted EBITDA, and net income margin (expressed as a percentage of net sales) to Adjusted EBITDA Margin (expressed as a percentage of net sales) for the periods indicated:
Three Months Ended
Six Months Ended
January 2,
% of Net
January 3,
% of Net
January 2,
% of Net
January 3,
% of Net
2022
sales
2021
sales
2022
sales
2021
sales
Net income
$
15,402
9.7%
$
12,501
10.5%
$
25,788
8.5%
$
22,068
9.9%
Income tax expense
4,794
3,574
8,070
6,392
Interest expense
357
870
739
1,889
Depreciation and amortization
3,241
2,861
6,595
5,599
EBITDA
23,794
14.9%
19,806
16.7%
41,192
13.6%
35,948
16.2%
Share-based compensation
1,208
643
2,104
1,283
Goodwill impairment (a)
—
—
1,100
—
Aviara transition costs (b)
—
847
—
1,025
Adjusted EBITDA
$
25,002
15.7%
$
21,296
17.9%
$
44,396
14.6%
$
38,256
17.2%
(a)
Represents a non-cash charge recorded in the Aviara segment for impairment of goodwill. See Note 4 for more information on the goodwill impairment charge.
(b)
Represents costs to transition production of the Aviara brand from Vonore, Tennessee to Merritt Island, Florida. Costs include duplicative overhead costs and costs not indicative of ongoing operations (such as training and facility preparation).
The following table presents a reconciliation of net income as determined in accordance with U.S. GAAP to Adjusted Net Income for the periods indicated:
Three Months Ended
Six Months Ended
January 2,
January 3,
January 2,
January 3,
2022
2021
2022
2021
(Dollars in thousands, except per share data)
Net income
$
15,402
$
12,501
$
25,788
$
22,068
Income tax expense
4,794
3,574
8,070
6,392
Share-based compensation
1,208
643
2,104
1,283
Amortization of acquisition intangibles
960
960
1,959
1,921
Goodwill impairment (a)
—
—
1,100
—
Aviara transition costs (b)
—
847
—
1,025
Adjusted Net Income before income taxes
22,364
18,525
39,021
32,689
Adjusted income tax expense (c)
5,143
4,261
8,974
7,518
Adjusted Net Income
$
17,221
$
14,264
$
30,047
$
25,171
Adjusted Net Income per share:
Basic
$
0.92
$
0.76
$
1.60
$
1.34
Diluted
$
0.91
$
0.75
$
1.59
$
1.33
Weighted average shares used for the computation of:
Basic Adjusted Net Income per share
18,722,386
18,807,316
18,786,343
18,790,826
Diluted Adjusted Net Income per share
18,899,136
18,928,408
18,951,627
18,897,617
(a)
Represents a non-cash charge recorded in the Aviara segment for impairment of goodwill. See Note 4 for more information on the goodwill impairment charge.
(b)
Represents costs to transition production of the Aviara brand from Vonore, Tennessee to Merritt Island, Florida. Costs include duplicative overhead costs and costs not indicative of ongoing operations (such as training and facility preparation).
(c)
Reflects income tax expense at an income tax rate of 23.0% for each period presented.
25
The following table presents the reconciliation of net income per diluted share to Adjusted Net Income per diluted share for the periods presented:
Three Months Ended
Six Months Ended
January 2,
January 3,
January 2,
January 3,
2022
2021
2022
2021
Net income per diluted share
$
0.81
$
0.66
$
1.36
$
1.17
Impact of adjustments:
Income tax expense
0.25
0.19
0.43
0.34
Share-based compensation
0.06
0.03
0.11
0.07
Amortization of acquisition intangibles
0.05
0.05
0.10
0.10
Goodwill impairment (a)
—
—
0.06
—
Aviara transition costs (b)
—
0.04
—
0.05
Adjusted Net Income per diluted share before income taxes
$
1.17
$
0.97
$
2.06
$
1.73
Impact of adjusted income tax expense on net income per diluted share before income taxes (c)
(0.26
)
(0.22
)
(0.47
)
(0.40
)
Adjusted Net Income per diluted share
$
0.91
$
0.75
$
1.59
$
1.33
(a)
Represents a non-cash charge recorded in the Aviara segment for impairment of goodwill. See Note 4 for more information on the goodwill impairment charge.
(b)
Represents costs to transition production of the Aviara brand from Vonore, Tennessee to Merritt Island, Florida. Costs include duplicative overhead costs and costs not indicative of ongoing operations (such as training and facility preparation).
(c)
Reflects income tax expense at an income tax rate of 23.0% for each period presented.
Liquidity and Capital Resources
Our primary liquidity and capital resource needs are to finance working capital, fund capital expenditures, service our debt, and fund our stock repurchase program. Our principal sources of liquidity are our cash balance, cash generated from operating activities, our revolving credit agreement and the refinancing and/or new issuance of long-term debt.
Cash and cash equivalents totaled $13.6 million as of January 2, 2022, a decrease of $25.6 million from $39.3 million as of June 30, 2021. Total debt as of January 2, 2022 and June 30, 2021 was $73.7 million and $93.1 million, respectively.
Our working capital was impacted by the $24.9 million increase in inventory during the first half of fiscal 2022 mainly due to an increase in raw materials to support higher production volumes and to increase safety stock to manage supply chain risk. Work in process has increased due to supply chain disruptions.
As of January 2, 2022, we had $15.7 million outstanding under the Revolving Credit Facility, leaving $84.3 million of available borrowing capacity. Refer to Note 7 — Long Term Debt in the Notes to Unaudited Condensed Consolidated Financial Statements for further details.
On June 24, 2021, the board of directors of the Company authorized a stock repurchase program that allows for the repurchase of up to $50.0 million of our common stock during the three-year period ending June 24, 2024. During the six months ending January 2, 2022 the Company repurchased 414,675 shares of common stock for $11.4 million in cash, including related fees and expenses.
We are continuing to monitor the impact of supply chain disruptions, production inefficiencies, and inflationary pressures on our business. However, we believe our cash balance, cash from operations, and our ability to borrow will be sufficient to provide for our liquidity and capital resource needs, including authorized stock repurchases.
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The following table summarizes our cash flows from operating, investing, and financing activities:
Six Months Ended
January 2,
January 3,
2022
2021
(Dollars in thousands)
Total cash provided by (used in):
Operating activities
$
12,224
$
30,155
Investing activities
(6,715
)
(18,903
)
Financing activities
(31,114
)
(15,497
)
Net change in cash
$
(25,605
)
$
(4,245
)
Six Months Ended January 2, 2022 Cash Flow
Net cash provided by operating activities for the first half of 2022 was $12.2 million mainly due to net income, partially offset by working capital usage. Working capital usage primarily consisted of an increase in inventory and a decrease in accounts payable. Partially offsetting the working capital usage was a decrease in accounts receivable and an increase in accrued expenses and other current liabilities. As discussed above, inventory increased $24.9 million for first half of 2022. Accounts payable decreased as a result of the timing of purchases and payment of invoices. Accounts receivable decreased as a result of timing of customer payments. Accrued expenses and other current liabilities increased due to an increase in customer deposits, as described in Note 2 – Revenue Recognition, and warranty costs, partially offset by the payment in the first quarter of fiscal 2022 of variable compensation that was accrued at June 30, 2021.
Net cash used for investing activities was $6.7 million, which included capital expenditures. Our capital spending was focused on expanding our capacity and maintenance capital.
Net cash used for financing activities was $31.1 million, which included net payments of $19.5 million on long-term debt and funding of the stock repurchase program totaling $11.4 million.
Six Months Ended January 3, 2021 Cash Flow
Net cash provided by operating activities in first quarter 2021 totaled $30.2 million primarily due to net income, an increase in accrued expenses and other current liabilities, and an increase in accounts payable, partially offset by an increase in inventory and accounts receivable. Accrued expenses and other current liabilities increased due to timing of variable compensation costs and an increase in customer deposits. Accounts payable and inventory increased as a result of increased production. Accounts receivable increased as a result of increased sales.
Net cash used for investing activities was $18.9 million, which consisted of capital expenditures, including the purchase of the Merritt Island, Florida manufacturing facility.
Net cash used for financing activities was $15.5 million and related primarily to payments of long-term debt.
Contractual Obligations
In October 2021, we signed a new supplier agreement to purchase marine outboard engines during fiscal 2022. During the term of the agreement, we committed to purchasing a minimum annual gross dollar value of $27.0 million in engines. Except for the new purchase agreement and the net repayment of debt of $19.5 million during the six months ended January 2, 2022, there were no material changes to our contractual obligations disclosed in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.
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Off Balance Sheet Arrangements
The Company did not have any off balance sheet financing arrangements as of January 2, 2022.
Critical Accounting Policies
As of January 2, 2022 there were no significant changes in or changes to the application of our critical accounting policies or estimation procedures from those presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, which was filed with the SEC on September 2, 2021 .
ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK.
Refer to our 2021 Annual Report for a complete discussion of the Company’s market risk. There have been no material changes in market risk from those disclosed therein.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.