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, 1999 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, 1999, 18,220,275 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.
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, March 31,
ASSETS 1999 1999
CURRENT ASSETS
Cash and equivalents $ 29,888,000 $ 51,413,000
Short-term investments 22,198,000 43,795,000
Accounts receivable, less allowances 37,041,000 23,263,000
Inventories 96,643,000 68,644,000
Prepaid expenses 2,457,000 2,925,000
Deferred income taxes 13,269,000 12,220,000
___________ ___________
Total current assets 201,496,000 202,260,000
PROPERTY AND EQUIPMENT - at cost
Machinery, equipment and tooling 75,947,000 75,500,000
Land, buildings and improvements 15,577,000 15,548,000
__________ __________
91,524,000 91,048,000
Less accumulated depreciation 55,715,000 53,162,000
__________ __________
35,809,000 37,886,000
__________ __________
$237,305,000 $240,146,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 29,737,000 $ 23,665,000
Accrued expenses 32,561,000 33,244,000
Income tax payable - 3,312,000
___________ __________
Total current liabilities 62,298,000 60,221,000
DEFERRED INCOME TAXES 4,796,000 4,446,000
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; 18,362,775 at June 30, 1999;
18,828,775 at March 31, 1999 182,000 188,000
Class B common stock, par value $.01;
7,560,000 shares authorized, issued,
and outstanding 76,000 76,000
Retained earnings 169,953,000 175,215,000
____________ ___________
170,211,000 175,479,000
____________ ___________
$237,305,000 $240,146,000
============ ===========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended June 30,
___________________________
1999 1998
_______ ______
Net sales $86,928,000 $88,651,000
Cost of goods sold 65,213,000 66,700,000
__________ __________
Gross profit 21,715,000 21,951,000
Selling, general and
administrative expenses 19,600,000 19,979,000
__________ __________
Operating profit 2,115,000 1,972,000
Other income
Interest income 770,000 425,000
Interest expense - (26,000)
__________ __________
770,000 399,000
Earnings before income taxes 2,885,000 2,371,000
Income tax expense 1,024,000 842,000
__________ __________
Net earnings $1,861,000 $1,529,000
========== ==========
Net earnings per share
Basic $0.07 $0.05
Diluted $0.07 $0.05
========== ==========
Weighted average shares outstanding
Basic 25,952,000 28,157,000
Diluted 25,983,000 28,300,000
========== ==========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended June 30,
___________________________
1999 1998
Cash flows from operating activities ________ _______
Net earnings $1,861,000 $1,529,000
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities
Depreciation 2,553,000 2,991,000
Deferred income taxes (699,000) (1,679,000)
Changes in operating assets
and liabilities:
Trading securities 21,592,000 20,820,000
Accounts receivable (13,778,000) (5,701,000)
Inventories (27,999,000) (35,737,000)
Prepaid expenses 468,000 (263,000)
Accounts payable 6,072,000 5,227,000
Accrued expenses (683,000) (3,651,000)
Income taxes (3,312,000) 2,111,000
Net cash used in __________ __________
operating activities (13,925,000) (14,353,000)
Cash flows from investing activities
Additions of property and equipment (476,000) (2,012,000)
Sale and maturity of
available-for-sale securities 5,000 502,000
Net cash provided by (used in) __________ __________
investing activities (471,000) (1,510,000)
Cash flows from financing activities
Dividends paid (1,557,000) (1,692,000)
Repurchase of common stock (5,572,000) (3,557,000)
Net cash used in __________ __________
financing activities (7,129,000) (5,249,000)
__________ __________
Net increase (decrease) in cash and
equivalents (21,525,000) (21,112,000)
Cash and equivalents at the beginning
of period 51,413,000 24,764,000
__________ __________
Cash and equivalents at the end of
period $29,888,000 $3,652,000
========== ==========
Supplemental disclosure of cash payments
for income taxes $ 3,474,000 $ 252,000
========== ==========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc.
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, 1999, and the results of operations and the cash flows for the three
month periods ended June 30, 1999 and 1998. Results of operations for the
three months ended June 30, 1999 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
1,613,119 and 1,154,442 shares of common stock with weighted average exercise
prices of $11.23 and $12.11 were outstanding during the three months ended June
30, 1999 and 1998, 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,
1999 1999
___________ __________
Trading securities $ 9,794,000 $31,386,000
Available-for-sale debt securities 12,404,000 12,409,000
___________ __________
$22,198,000 $43,795,000
=========== ==========
NOTE D--INVENTORIES
Inventories consist of the following:
June 30, March 31,
1999 1999
___________ __________
Raw materials and sub-assemblies $20,456,000 $22,067,000
Finished goods 49,507,000 24,291,000
Parts, garments and accessories 26,680,000 22,286,000
___________ __________
$ 96,643,000 $ 68,644,000
=========== ==========
NOTE E--OTHER MATTERS
Dividend Declaration
On July 28, 1999, the Company's Board of Directors declared a regular
quarterly cash dividend of $0.06 per share, payable on September 1, 1999 to
shareholders of record on August 18, 1999.
Share Repurchase
During fiscal 1996 and 1998, the Company's Board of Directors
authorized the repurchase of a total of 3,000,000 shares of common stock.
During March of 1999, the Company's Board of Directors authorized the
repurchase of an additional 1,500,000 shares of common stock. In April of
1999, the Company's Board of Directors authorized the repurchase of up to
$30,000,000 in additional shares. Since April 1, 1996 through August 4, 1999,
the Company has invested $38,441,000 to repurchase and cancel 4,095,000 shares.
NOTE F--RISKS AND UNCERTAINTIES
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the year 2000. The
potential effect of the Year 2000 issue on the Company and its business
partners will not be fully determinable until 2000 and thereafter. If Year
2000 modifications are not properly completed either by the Company, or
entities the Company conducts business with, the Company's net sales and
financial condition could be adversely effected.
NOTE H--RECLASSIFICATIONS
Certain fiscal 1998 amounts have been reclassified to conform to the
fiscal 1999 presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Arctic Cat Inc. (the "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 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 National Market under the symbol ACAT.
Results of Operations
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1998.
Net sales were down slightly from the first quarter last year because
of a planned decrease in snowmobile shipments resulting from the previously
announced moderately lower orders from dealers. The Company anticipates that
growth of ATV and personal watercraft (PWC) sales will offset the anticipated
decline in snowmobile sales and as a result, continues to expect total revenues
for fiscal 2000 to be similar to those in fiscal 1999.
Net sales for the quarter decreased 1.9% to $86,928,000 from
$88,651,000 for the same quarter in fiscal 1999. This decrease is due to a
12.2% decrease in snowmobile unit volume as discussed above, and a 51.4%
decrease in personal watercraft unit volume. Also affecting this decrease is
a 4.3% ATV unit volume decrease as the Company completed its 1999 model year
and presented its 2000 model lineup to its dealers during the end of June
1999. Based on ATV orders received from dealers, the Company continues to
expect to outpace the ATV industry's double digit growth again this year.
Parts, garments and accessories sales increased 53.6% primarily due to
increased sales of generators and ATV accessories.
Gross profits decreased 1.1% to $21,715,000 from $21,951,000 for the
same quarter of fiscal 1999. This decrease is primarily due to decreased
sales. As a percent of net sales, the gross profit percentage for the quarter
increased% from 24.8%.
Operating expenses for the quarter decreased 1.9% to $19,600,000
from $19,979,000 for the same quarter of fiscal 1999. The decrease in
operating expenses was mainly due to reduced PWC marketing expenses. As a
percent of net sales, operating expenses for the quarter stayed the same as
fiscal 1999 at 22.5%.
Net earnings for the first quarter of fiscal 2000 were $1,861,000 or
$0.07 per share on a diluted basis, as compared to net earnings of $1,529,000
or $0.05 per diluted share, for the first quarter of fiscal 1999.
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 $52,086,000
at June 30, 1999. The Company's cash balances traditionally peak early in
the fourth quarter and then decrease as working capital requirements increase
when the Company's snowmobile and spring ATV production cycles begin. The
Company's investment objectives are first, safety of principal and second,
rate of return.
The Company believes that cash generated from operations and available
cash will be sufficient to meet its working capital, regular quarterly
dividend, share repurchase program, and capital expenditure requirements for
the forseeable future.
Line of Credit
The Company has an unsecured credit agreement with a bank for the
issuance of up to $75,000,000 of documentary and stand-by letters of credit and
for working capital. Total working capital borrowings under the credit
agreement are limited to $30,000,000.
Year 2000
The Company continues to assess and address the impact of the Year 2000
issue on its business. This issue affects computer systems that have date-
sensitive programs that may not properly recognize the year 2000. The Company
uses software and related technologies throughout its business. The Company
has completed its assessment of the information systems (IS) used in its
internal business operations, and its procurement and production processes. In
addition, the Company has completed its assessments of the Year 2000 readiness
of its non-IS systems, as well as supplier and customer readiness.
The Company's Year 2000 initiative is being managed by a team of
internal staff with the assistance of outside consultants. The team's
activities are designed to ensure that there is no adverse effect on the
Company's business operations and that transactions with suppliers, financial
institutions and customers are fully supported. The Company has completed the
majority of these activities; any remaining non-critical issues are scheduled
to be completed during the summer of 1999. While the Company believes its
planning efforts are adequate to address its Year 2000 concerns, there can be
no guarantee that the systems of other companies on which the Company's systems
and operations rely will be converted on a timely basis and will not have a
material adverse effect on the Company's results of operations and financial
condition. The most reasonably likely effects of non-Year 2000 compliance by
third parties includes the disruption or inaccuracy of data and business
disruption caused by failure of suppliers to provide key component parts.
The cost of the Year 2000 initiatives is estimated at less than
$500,000 with $227,000 expensed in fiscal 1999 and all remaining year 2000
costs to be expensed in fiscal 2000. At the present time there are no
contingency plans being developed in the event of a worst case scenario. If it
becomes apparent during the remainder of 1999 that essential internal and third
party systems relied on by the Company will not be Year 2000 compliant prior to
the end of 1999, the Company will develop contingency plans. Factors that
could influence the amount and timing of costs include the success of the
Company in identifying systems and programs that are not Year 2000 compliant,
the nature and amount of programming required to upgrade or replace each of the
affected programs or systems, and the availability, cost and magnitude of
related labor and consulting costs.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to certain market risk relating to changes
in interest rates and foreign currency exchange rates. Information
regarding foreign currency exchange rates is discussed within
"Management's Discussion and Analysis -- Inflation and Exchange
Rate" in the 1999 Annual Report on 10-K. Interest rate market risk
is managed for cash and short-term investments by investing in a
diversified frequently maturing portfolio consisting of municipal
bonds and money market funds that experience minimal volatility. The
carrying amount of available-for-sale debt securities approximate
related fair value and the associated market risk is not deemed to be
significant.
PART II - OTHER INFORMATION
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, 1999.
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, 1999 By /s/Christopher A. Twomey
________________ _________________________
Christopher A. Twomey
Chief Executive Officer
Date: August 11, 1999 By /s/Timothy C. Delmore
________________ _________________________
Timothy C. Delmore
Chief Financial Officer
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<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 29,888,000
<SECURITIES> 22,198,000
<RECEIVABLES> 37,541,000
<ALLOWANCES> 500,000
<INVENTORY> 96,643,000
<CURRENT-ASSETS> 201,496,000
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<COMMON> 258,000
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<CGS> 65,213,000
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