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 December 31, 1997 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 February 13, 1998, 21,011,909 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)
December 31, March 31,
ASSETS 1997 1997
CURRENT ASSETS
Cash and cash equivalents $ 24,961,000 $ 5,540,000
Short-term investments 36,891,000 45,200,000
Accounts receivable, less allowances 47,622,000 27,393,000
Inventories 81,776,000 86,502,000
Prepaid expenses 1,035,000 1,618,000
Income tax receivable - 3,838,000
Deferred income taxes 12,690,000 8,369,000
___________ ___________
Total current assets 204,975,000 178,460,000
PROPERTY, PLANT AND EQUIPMENT - at cost
Machinery, equipment and tooling 67,915,000 60,534,000
Buildings and improvements 13,669,000 11,244,000
Land 527,000 527,000
__________ __________
82,111,000 72,305,000
Less accumulated depreciation 42,630,000 32,798,000
__________ __________
39,481,000 39,507,000
__________ __________
$244,456,000 $217,967,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 12,721,000 $ 21,586,000
Accrued expenses 36,098,000 25,270,000
Income tax payable 6,497,000 -
__________ __________
Total current liabilities 55,316,000 46,856,000
DEFERRED INCOME TAXES 4,386,000 4,373,000
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, 21,310,309 at December 31,
1997; 21,533,136 at March 31, 1997 213,000 215,000
Class B common stock, par value $.01;
7,560,000 shares authorized, issued,
and outstanding 76,000 76,000
Additional paid-in capital 13,367,000 17,069,000
Retained earnings 171,098,000 149,378,000
___________ ___________
184,754,000 166,738,000
___________ ___________
$244,456,000 $217,967,000
=========== ===========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Nine Months
Ended December 31, Ended December 31,
__________________________ ______________________
1997 1996 1997 1996
______ ______ ______ ______
Net sales $139,808,000 $133,877,000 $422,121,000 $400,928,000
Cost of goods sold 98,752,000 98,162,000 304,358,000 297,285,000
___________ ___________ ___________ ___________
Gross profit 41,056,000 35,715,000 117,763,000 103,643,000
Selling, general and
administrative expenses 31,941,000 26,916,000 76,998,000 64,931,000
___________ ___________ ___________ ___________
Operating profit 9,115,000 8,799,000 40,765,000 38,712,000
Other Income (expense)
Interest income 488,000 536,000 1,107,000 1,100,000
Interest expense (1,000) (2,000) (59,000) (109,000)
___________ ___________ ___________ ___________
487,000 534,000 1,048,000 991,000
Earnings before
income taxes 9,602,000 9,333,000 41,813,000 39,703,000
Income tax expense 3,409,000 3,313,000 14,844,000 14,094,000
___________ ___________ ___________ ___________
Net earnings $ 6,193,000 $ 6,020,000 $26,969,000 $25,609,000
=========== =========== =========== ===========
Net earnings per share
Basic $0.21 $0.20 $0.93 $0.87
=========== =========== =========== ===========
Diluted $0.21 $0.20 $0.92 $0.86
=========== =========== =========== ===========
Weighted average common and
common equivalent
shares outstanding
Basic 28,974,000 29,452,000 29,101,000 29,556,000
=========== =========== =========== ===========
Diluted 29,071,000 29,605,000 29,193,000 29,750,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended December 31,
_____________________________
1997 1996
Cash flows from operating activities ________ ________
Net earnings $26,969,000 $25,609,000
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities
Depreciation and amortization 9,832,000 8,727,000
Deferred income taxes (4,308,000) (3,127,000)
Changes in operating assets
and liabilities:
Trading securities 8,575,000 (23,120,000)
Accounts receivable (20,229,000) ( 9,628,000)
Inventories 4,726,000 12,900,000
Prepaid expenses 583,000 987,000
Accounts payable (8,865,000) (9,813,000)
Accrued expenses 10,828,000 15,361,000
Income taxes 10,335,000 1,225,000
Net cash provided by (used in) __________ __________
operating activities 38,446,000 19,121,000
Cash flows from investing activities
Additions to property, plant and
equipment (9,806,000) (15,034,000)
Sales and maturities of available-for-sale
securities 1,052,000 2,899,000
Purchases of available-for-sale
securities (1,318,000) (1,161,000)
Net cash provided by (used in) __________ __________
investing activities (10,072,000) (13,296,000)
Cash flows from financing activities
Dividends paid (5,249,000) (5,318,000)
Proceeds from issuance of common stock 827,000 292,000
Common stock retired (4,531,000) (2,356,000)
Net cash used in __________ __________
financing activities (8,953,000) (7,382,000)
__________ __________
Net increase (decrease) in cash and
equivalents 19,421,000 (1,557,000)
Cash and equivalents at the beginning
of period 5,540,000 9,032,000
__________ __________
Cash and equivalents at the end of
period $24,961,000 $7,475,000
========== ==========
Supplemental disclosure of cash payments
for income taxes $12,655,000 $11,185,000
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
December 31, 1997, the results of operations for the three and nine month
periods ended December 31, 1997 and 1996 and cash flows for the nine month
periods ended December 31, 1997 and 1996. 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 these estimates.
NOTE B--SHORT-TERM INVESTMENTS
Short-term investments consist of the following:
December 31, March 31,
1997 1997
___________ __________
Trading securities $23,915,000 $32,490,000
Available-for-sale debt securities 12,976,000 12,710,000
___________ __________
$36,891,000 $45,200,000
=========== ==========
NOTE C--INVENTORIES
Inventories consist of the following:
December 31, March 31,
1997 1997
___________ __________
Raw materials and sub-assemblies $27,988,000 $32,784,000
Finished goods 23,391,000 32,573,000
Parts, garments and accessories 30,397,000 21,145,000
___________ __________
$81,776,000 $86,502,000
=========== ==========
NOTE D--NET EARNINGS PER SHARE
On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 - "Earnings per Share"("SFAS 128"). As required
by SFAS 128, all current and prior year earnings per share data have been
restated to conform to the provisions of SFAS 128.
The Company's basic net earnings per share amounts have been computed
by dividing net earnings by the weighted average number of outstanding common
shares. The Company's diluted net earnings per share is computed by dividing
net earnings by the weighted average number of outstanding common shares and
common share equivalents relating to stock options, when dilutive. Options to
purchase 517,192 and 1,094,942 shares of common stock with a weighted average
exercise price of $13.84 and $12.14 were outstanding during the three months
ended December 31, 1997 and 1996, and options to purchase 718,275 and
863,609 shares of common stock with a weighted average exercise price of
$12.94 and $12.57 were outstanding during the nine months ended December 31,
1997 and 1996, all of which have been excluded from the computation of common
share equivalents because they were anti-dilutive.
NOTE E--OTHER MATTERS
Dividend Declaration
On January 30, 1998, the Company announced that its Board of Directors
had declared a regular quarterly cash dividend of $0.06 per share, payable on
March 03, 1998 to shareholders of record on February 17, 1998.
Share Repurchase
During the fourth quarter of fiscal 1996, the Company's Board of
Directors authorized the repurchase of up to 1,500,000 shares of common stock.
Since the inception of the share repurchase program, through February 10, 1998,
the Company has invested $13,794,832 to repurchase and cancel 1,378,400 shares.
NOTE F--NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement No.130
"Reporting Comprehensive Income" and Statement No. 131 "Disclosures about
Segments of an Enterprise and Related Information" which are effective for
fiscal years beginning after December 15, 1997. Statement No.130 will require
a company to display an amount representing total comprehensive income, as
defined by the statement, as part of a company's basic financial statments.
Comprehensive income will include items such as unrealized gains or losses on
certain investment securities and foreign currency items. The adoption of
SFAS 130 should not affect the Company's financial statements.
Statement No.131 will require a company to disclose financial and other
information about its business segments, their products and services,
geographic areas, major customers, revenues, profits, assets and other
information. The Company has not yet assessed what impact SFAS 131 will have
on the Company's financial statements.
NOTE G--RECLASSIFICATIONS
Certain Fiscal 1997 amounts have been reclassified to conform to the
Fiscal 1998 presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Arctic Cat Inc., a Thief River Falls, Minnesota based company, designs,
engineers, manufactures and markets 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.
The Company's products are currently sold 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 AND NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE
THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 1996.
Net sales for the third quarter increased 4.4% to $139,808,000 from
$133,877,000 for the same quarter in fiscal 1997. The increase in net sales
for the quarter is primarily due to a 78.2% ATV unit volume increase and a 1.2%
snowmobile unit volume increase. These increases were offset by a 51.9% PWC
unit volume decrease caused by the timing of shipments and decreased orders.
Parts, garments and accessory sales decreased 3.8% from the prior year.
Year-to-dates sales increased 5.3% to $422,121,000 from $400,928,000 for the
same period last year. This was due to a 47.2% ATV unit volume increase, a
9.2% snowmobile unit volume increase and a 68.1% PWC unit volume decrease.
This decrease was largely caused by a shift of shipments of the season's PWC
build from the first quarter of fiscal 1998 to the last quarter of fiscal 1997
as well as fewer third quarter fiscal 1998 PWC shipments. Year-to-date parts,
garments and accessory sales increased 6.7%.
Gross profits increased 15.0% to $41,056,000 from $35,715,000 for the
same quarter of fiscal 1997. The gross profit percentage for the quarter
increased to 29.4% from 26.7% for the same period last year mainly due to a
positive fluctuation between the US dollar and the Japanese yen and cost
reductions in the snowmobile product line. As a percent of net sales, year-to-
date gross profit percentages increased to 27.9% from 25.9%. This increase is
primarily due to increased snowmobile margins due to a positive fluctuation in
the exchange rate between the US dollar and the Japanese yen and improved
margins in both ATV and snowmobile product lines resulting from continued cost
reduction efforts.
Operating expenses for the quarter increased 18.7% to $31,941,000 from
$26,916,000. As a percent of net sales, operating expenses for the third
quarter were 22.8% compared to 20.1% for the same period last year. Year-to-
date operating expenses were $76,998,000 compared to $64,931,000 in fiscal
1997. Quarterly and year-to-date increases in operating expenses were
primarily due to increased marketing and research and development for all
product lines.
Net earnings for the third quarter of fiscal 1998 were $6,193,000, or
$0.21 per share on a diluted basis, as compared to net earnings of $6,020,000,
or $0.20 per diluted share, for the third quarter of fiscal 1997. Year-to-date
net earnings were $26,969,000, or $0.92 per share on a diluted basis, as
compared to net earnings of $25,609,000 or $0.86 per diluted share, for the
same period last year.
Adoption of New Accounting Standards
On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 - "Earnings per Share"("SFAS 128"). As required
by SFAS 128, all current and prior year earnings (loss) per share data have
been restated to conform to the provisions of SFAS 128.
Liquidity and Capital Resources
The seasonality of the Company's snowmobile production cycle and the
lead time between the commencement of production in February 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 $61,852,000 at December 31, 1997. 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 the 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 foreseeable future.
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 depending on a variety of factors, including, but not limited to:
product mix; 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; 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; and overall economic conditions and consumer
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 6. Exhibits and Report on Form 8-K
________________________________________
(a) Exhibits
27.1 financial data schedule
(b) There are no reports on Form 8-K filed during the Quarter ended
December 31, 1997.
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: February 17, 1998
__________________ _________________________
Christopher A. Twomey
Chief Executive Officer
Date: February 17, 1998
__________________ _________________________
Timothy C. Delmore
Chief Financial Officer
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<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 24,961,000
<SECURITIES> 36,891,000
<RECEIVABLES> 48,122,000
<ALLOWANCES> 500,000
<INVENTORY> 81,776,000
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<COMMON> 289,000
<OTHER-SE> 184,465,000
<TOTAL-LIABILITY-AND-EQUITY> 244,456,000
<SALES> 422,121,000
<TOTAL-REVENUES> 422,121,000
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<LOSS-PROVISION> 291,000
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