UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended June 30, 1998 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-18607
ARCTIC CAT INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1443470
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
601 Brooks Avenue South, Thief River Falls, Minnesota 56701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (218) 681-8558
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
At August 11, 1998, 20,330,289 shares of Common Stock and 7,560,000 shares of
Class B Common Stock of the Registrant were outstanding.
Part I - Financial Information
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, March 31,
ASSETS 1998 1998
CURRENT ASSETS
Cash and equivalents $ 3,652,000 $ 24,764,000
Short-term investments 12,459,000 33,781,000
Accounts receivable, less allowances 35,918,000 30,217,000
Inventories 123,886,000 88,149,000
Prepaid expenses 2,034,000 1,771,000
Income tax receivable - 2,111,000
Deferred income taxes 10,767,000 9,088,000
___________ ___________
Total current assets 188,716,000 189,881,000
PROPERTY, PLANT AND EQUIPMENT - at cost
Machinery, equipment and tooling 72,373,000 70,611,000
Land, buildings and improvements 14,811,000 14,568,000
__________ __________
87,184,000 85,179,000
Less accumulated depreciation 48,326,000 45,342,000
__________ __________
38,858,000 39,837,000
__________ __________
$227,574,000 $229,718,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 25,898,000 $ 20,671,000
Accrued expenses 23,316,000 26,967,000
___________ __________
Total current liabilities 49,214,000 47,638,000
DEFERRED INCOME TAXES 4,575,000 4,575,000
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00;
2,050,000 shares authorized; none issued - -
Preferred stock - Series A 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; 20,630,289 at June 30, 1998;
20,857,909 at March 31, 1998 206,000 209,000
Class B common stock, par value $.01;
7,560,000 shares authorized, issued,
and outstanding 76,000 76,000
Additional paid-in capital 5,802,000 9,356,000
Retained earnings 167,701,000 167,864,000
____________ ___________
173,785,000 177,505,000
____________ ___________
$227,574,000 $229,718,000
============ ===========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended June 30,
___________________________
1998 1997
_______ ______
Net sales $88,651,000 $85,467,000
Cost of goods sold 66,700,000 64,075,000
__________ __________
Gross profit 21,951,000 21,392,000
Selling, general and
administrative expenses 19,979,000 20,374,000
__________ __________
Operating profit 1,972,000 1,018,000
Other income
Interest income 425,000 381,000
Interest expense (26,000) (47,000)
__________ __________
399,000 334,000
Earnings before income taxes 2,371,000 1,352,000
Income tax expense 842,000 480,000
__________ __________
Net earnings $1,529,000 $ 872,000
========== ==========
Net earnings per share
Basic $0.05 $0.03
Diluted $0.05 $0.03
========== ==========
Weighted average shares outstanding
Basic 28,157,000 29,178,000
Diluted 28,300,000 29,267,000
========== ==========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended June 30,
___________________________
1998 1997
Cash flows from operating activities ________ _______
Net earnings $1,529,000 $ 872,000
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities
Depreciation 2,991,000 2,698,000
Deferred income taxes (1,679,000) 796,000
Changes in operating assets
and liabilities:
Trading securities 20,820,000 32,490,000
Accounts receivable (5,701,000) (22,699,000)
Inventories (35,737,000) (24,538,000)
Prepaid expenses (263,000) 164,000
Accounts payable 5,227,000 16,466,000
Accrued expenses (3,651,000) (8,284,000)
Income taxes 2,111,000 2,684,000
Net cash used in __________ __________
operating activities (14,353,000) 649,000
Cash flows from investing activities
Additions to property, plant and
equipment (2,012,000) (3,535,000)
Sales and maturities of
available-for-sale securities 502,000 507,000
Purchases of available-for-sale
securities - (806,000)
Net cash provided by (used in) __________ __________
investing activities (1,510,000) (3,834,000)
Cash flows from financing activities
Dividends paid (1,692,000) (1,751,000)
Proceeds from issuance of common stock - 1,385,000
Repurchase of common stock (3,557,000) (1,274,000)
Net cash used in __________ __________
financing activities (5,249,000) (1,640,000)
__________ __________
Net increase (decrease) in cash and
equivalents (21,112,000) (4,825,000)
Cash and equivalents at the beginning
of period 24,764,000 5,540,000
__________ __________
Cash and equivalents at the end of
period $3,652,000 $ 715,000
========== ==========
Supplemental disclosure of cash payments
for income taxes $ 252,000 $ 71,000
========== ==========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with Regulation S - X pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although management believes
that the disclosures are adequate to make the information presented not
misleading.
In the opinion of management, the unaudited condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position as of
June 30, 1998, and the results of operations and the cash flows for the three
month periods ended June 30, 1998 and 1997. Results of operations for the
interim periods are not necessarily indicative of results for the full year.
Preparation of the Company's consolidated financial statements requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual results could
differ from those estimates.
NOTE B--NET EARNINGS PER SHARE
The Company's basic net earnings per share is computed by dividing net
earnings by the weighted average number of outstanding common shares. The
Company's diluted net earnings per share is computed by dividing net earnings
by the weighted average number of outstanding common shares and common share
equivalents relating to stock option, when dilutive. Options to purchase
1,154,442 and 1,120,442 shares of common stock with weighted average exercise
prices of $12.11 and $12.11 were outstanding during the three months ended June
30, 1998 and 1997, but were excluded from the computation of common share
equivalents because they were anti-dilutive.
NOTE C--SHORT-TERM INVESTMENTS
Short-term investments consist of the following:
June 30, March 31,
1998 1998
___________ __________
Trading securities - $20,820,000
Available-for-sale debt securities $12,459,000 12,961,000
___________ __________
$12,459,000 $33,781,000
=========== ==========
NOTE D--INVENTORIES
Inventories consist of the following:
June 30, March 31,
1998 1998
___________ __________
Raw materials and sub-assemblies $33,986,000 $30,154,000
Finished goods 56,555,000 31,756,000
Parts, garments and accessories 33,345,000 26,239,000
___________ __________
$123,886,000 $ 88,149,000
=========== ==========
NOTE E--OTHER MATTERS
Dividend Declaration
On July 28, 1998, the Company's Board of Directors declared a regular
quarterly cash dividend of $0.06 per share, payable on September 1, 1998 to
shareholders of record on August 17, 1998.
Share Repurchase
During fiscal 1996, the Company's Board of Directors authorized the
repurchase of 1,500,000 shares of common stock. During March of 1998, the
Company's Board of Directors authorized the repurchase of an additional
1,500,000 shares of common stock. Since the inception of the share repurchase,
program, through July 24, 1998, the Company has invested $19,939,475 to
repurchase and cancel 2,045,000 shares.
NOTE F--NEW ACCOUNTING PRONOUNCEMENT
On April 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
Comprehensive income includes certain changes in equity that are currently
excluded from net earnings. The adoption of this statement did not impact
the Company's consolidated financial statements; historically there have been
no differences between net earnings and comprehensive income.
NOTE G--RECLASSIFICATIONS
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Arctic Cat Inc. and Subsidiaries (the "Company"), design, engineer,
manufacture and market snowmobiles and all-terrain vehicles (ATVs) under the
Arctic Cat brand name, and personal watercraft (PWC) under the Tigershark brand
name, as well as related parts, garments and accessories principally through
its facilities in Thief River Falls, Minnesota. The Company markets its
products through a network of independent dealers located throughout the
contiguous United States and Canada, and through distributors representing
dealers in Alaska, Europe, the Middle East, Asia, and other international
markets. The Arctic Cat brand name has existed for more than 30 years and is
among the most widely recognized and respected names in the snowmobile
industry. The Company trades on the Nasdaq Stock Market under the symbol ACAT.
Results of Operations
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1997.
The Company anticipates moderately lower revenues for fiscal 1999 based
upon snowmobile orders received from dealers. In response to the decrease in
snowmobile revenues the Company is identifying operating expense and product
cost reductions that are expected to soften the earnings impact resulting from
the expected decrease in revenue.
Net sales for the first quarter increased 3.7% to $88,651,000 from
$85,467,000 for the same quarter in 1998. The increase in net sales is due to
the timing and mix of snowmobile shipments resulting in a 21.6% increase in
snowmobile sales. Snowmobile unit volume for the quarter decreased 11.7% as
more full sized snowmobiles were shipped out this year compared to last year
when a large number of Kitty Cats, child sized models, were shipped in the
first quarter . ATV unit volume decreased 15.6% due to a planned shift in the
order and shipping schedule from the end of the first quarter in the prior year
to the second quarter in fiscal 1999, as the Company was completing dealer
shows and the order process and beginning production of 1999 ATV models. PWC
unit volume decreased 58.8% as again this season a higher percentage of the
summers seasons build was shipped prior to the start of this quarter. Parts,
garments and accessory sales increased 23.3% as the Company shipped a higher
percentage of preseason orders in the first quarter this year compared to last
year.
Gross profits increased 2.6% to $21,951,000 from $21,392,000 for the
same quarter of fiscal 1998. This increase is mainly due to increased sales
in snowmobiles. As a percent of net sales, the gross profit percentage for
the quarter remained relatively constant at 24.8% compared to 25.0% for the
same period last year.
Operating expenses for the quarter decreased 1.9% to $19,979,000 from
$20,374,000. As a percent of net sales, operating expenses for the quarter
decreased to 22.5% compared to 23.8% for the same period last year. The
decrease in operating expenses, was primarily due to reduced PWC marketing
expenses which was offset to a certain degree by increased ATV marketing
expenses.
Net earnings for the first quarter of fiscal 1999 were $1,529,000, or
$0.05 per share on a diluted basis, as compared to net earnings of $872,000,
or $0.03 per diluted share, for the first quarter of fiscal 1998.
Liquidity and Capital Resources
The seasonality of the Company's snowmobile production cycle and the
lead time between the commencement of snowmobile and ATV production in the
early spring and commencement of shipments late in the first quarter have
resulted in significant fluctuations in the Company's working capital
requirements during the year. Historically, the Company has financed its
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. Cash and short-term investments were $16,111,000
at June 30, 1998. The Company's cash balances traditionally peak early in
the fourth quarter and decrease as working capital requirements increase when
the Company's snowmobile production cycle begins. The Company's investment
objectives are first, safety of principal and second, rate of return.
The Company believes that cash generated from operations and cash
availability under its credit facility will be sufficient to meet its working
capital, regular quarterly dividend, share repurchase program, and capital
expenditure requirements in the forseeable future.
Line of Credit
The Company has a $75,000,000 unsecured credit agreement with a bank
for documentary and stand-by letters of credit and for working capital
purposes. Total working capital borrowings under the credit agreement are
limited to $30,000,000. The credit agreement is due on demand and expires
July 30, 1999.
Year 2000
The Company has evaluated its computer systems for century compliance
issues. Any of the Company's computer programs, or its vendors' or customers'
computer programs, that recognize a date using "00" as the year 1900 rather
than the year 2000 could result in errors or system failures. The Company
utilizes a number of computer programs across its entire operation. Management
believes that the Company will correct century compliance issues either through
the replacement of non-compliant systems or through the reprogramming of its
systems. The Company is also contacting its vendors and customers with the
objective of identifying and resolving century compliance issues. Currently,
the Company believes that the costs of achieving century dating compliance
will not have a material adverse impact on its financial position.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for certain forward-looking statements. This 10-Q contains forward-
looking statements that reflect the Company's current views with respect to
future events and financial performance. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from historical results or those anticipated. The words
"aim," "believe," "expect," "anticipate," "intend," "estimate," and other
expressions that indicate future events and trends identify forward-looking
statements. Actual future results and trends may differ materially from
historical results or those anticipated depending on a variety of factors,
including, but not limited to: product mix and volume; competitive pressure on
sales and pricing; increase in material or production cost which cannot be
recouped in product pricing; changes in the sourcing of engines from Suzuki;
warranty expenses; foreign currency exchange rate fluctuations; product
liability claims and other legal proceedings in excess of insured amounts;
environmental and product safety regulatory activity; effects of the weather;
overall economic conditions; and consumer demand and confidence. Further
information concerning the Company and its business, including factors that
potentially could materially affect the Company's financial results, is
contained in the Company's other filings with the Securities and Exchange
Commission.
PART II - OTHER INFORMATION
Item 5. Other Information
As disclosed in this year's Proxy statement, the deadline for
submission of shareholder proposals pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended, for inclusion in the Company's Proxy
Statement for its 1999 Annual Meeting of Shareholders is March 2, 1999.
Additionally, if the Company receives notice of a separate shareholder proposal
before May 8, 1999 or after June 7, 1999, such proposal will be considered
untimely pursuant to Rule 14a-4 and 14a-5(e) and the persons named in proxies
solicited by the Board of Directors of the Company for its 1999 Annual Meeting
of Shareholders may exercise discretionary voting power with respect to such
proposal.
Item 6. Exhibits and Reports on Form 8-K
________________________________________
(a) Exhibits
27.1 financial data schedule
(b) There were no reports on Form 8-K filed during the quarter ended
June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARCTIC CAT INC.
Date: August 11, 1998 By s/Christopher A. Twomey
________________ _________________________
Christopher A. Twomey
Chief Executive Officer
Date: August 11, 1998 By s/Timothy C. Delmore
________________ _________________________
Timothy C. Delmore
Chief Financial Officer
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 3,652,000
<SECURITIES> 12,459,000
<RECEIVABLES> 36,418,000
<ALLOWANCES> 500,000
<INVENTORY> 123,886,000
<CURRENT-ASSETS> 188,716,000
<PP&E> 87,184,000
<DEPRECIATION> 48,326,000
<TOTAL-ASSETS> 227,574,000
<CURRENT-LIABILITIES> 49,214,000
<BONDS> 0
0
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<COMMON> 282,000
<OTHER-SE> 173,503,000
<TOTAL-LIABILITY-AND-EQUITY> 227,574,000
<SALES> 88,651,000
<TOTAL-REVENUES> 88,651,000
<CGS> 66,700,000
<TOTAL-COSTS> 66,700,000
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<INTEREST-EXPENSE> 26,000
<INCOME-PRETAX> 2,371,000
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