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, 2000 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 10, 2000, 16,681,475 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 2000 2000
CURRENT ASSETS
Cash and equivalents $ 28,923,000 $ 60,028,000
Short-term investments 28,439,000 48,249,000
Accounts receivable, less allowances 37,159,000 18,348,000
Inventories 88,479,000 61,669,000
Prepaid expenses 1,839,000 2,880,000
Deferred income taxes 18,544,000 18,975,000
___________ ___________
Total current assets 203,383,000 210,149,000
PROPERTY AND EQUIPMENT - at cost
Machinery, equipment and tooling 76,143,000 71,936,000
Land, buildings and improvements 17,147,000 16,861,000
__________ __________
93,290,000 88,797,000
Less accumulated depreciation 54,470,000 52,411,000
__________ __________
38,820,000 36,386,000
__________ __________
$242,203,000 $246,535,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 29,597,000 $ 27,318,000
Accrued expenses 45,462,000 49,777,000
Income tax payable 14,000 982,000
___________ __________
Total current liabilities 75,073,000 78,077,000
DEFERRED INCOME TAXES 5,787,000 5,900,000
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; 17,157,975 at June 30, 2000;
17,327,975 at March 31, 2000 171,000 173,000
Class B common stock, par value $.01;
7,560,000 shares authorized, issued,
and outstanding 76,000 76,000
Retained earnings 161,096,000 162,309,000
____________ ___________
161,343,000 162,558,000
____________ ___________
$242,203,000 $246,535,000
============ ===========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended June 30,
___________________________
2000 1999
_______ ______
Net sales $85,961,000 $86,928,000
Cost of goods sold 64,387,000 65,213,000
__________ __________
Gross profit 21,574,000 21,715,000
Selling, general and
administrative expenses 19,619,000 19,600,000
__________ __________
Operating profit 1,955,000 2,115,000
Other income
Interest income 1,107,000 770,000
__________ __________
Earnings before income taxes 3,062,000 2,885,000
Income tax expense 1,010,000 1,024,000
__________ __________
Net earnings $2,052,000 $1,861,000
========== ==========
Net earnings per share
Basic $0.08 $0.07
Diluted $0.08 $0.07
========== ==========
Weighted average shares outstanding
Basic 24,807,000 25,952,000
Diluted 24,903,000 25,983,000
========== ==========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended June 30,
___________________________
2000 1999
Cash flows from operating activities ________ _______
Net earnings $2,052,000 $1,861,000
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities
Depreciation 2,065,000 2,553,000
Deferred income taxes 318,000 (699,000)
Changes in operating assets
and liabilities:
Trading securities 19,805,000 21,592,000
Accounts receivable (18,811,000) (13,778,000)
Inventories (26,810,000) (27,999,000)
Prepaid expenses 1,041,000 468,000
Accounts payable 2,279,000 6,072,000
Accrued expenses (4,315,000) (683,000)
Income taxes (968,000) (3,312,000)
Net cash used in __________ __________
operating activities (23,344,000) (13,925,000)
Cash flows from investing activities
Additions of property and equipment (4,499,000) (476,000)
Sale and maturity of
available-for-sale securities 5,000 5,000
Net used in investing __________ __________
activities (4,494,000) (471,000)
Cash flows from financing activities
Dividends paid (1,487,000) (1,557,000)
Repurchase of common stock (1,780,000) (5,572,000)
Net cash used in __________ __________
financing activities (3,267,000) (7,129,000)
__________ __________
Net decrease in cash and
equivalents (31,105,000) (21,525,000)
Cash and equivalents at the beginning
of period 60,028,000 51,413,000
__________ __________
Cash and equivalents at the end of
period $28,923,000 $29,888,000
========== ==========
Supplemental disclosure of cash payments
for income taxes $ 650,000 $ 3,474,000
========== ==========
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, 2000, and the results of operations and the cash flows for the three
month periods ended June 30, 2000 and 1999. Results of operations for the
three months ended June 30, 2000 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 options, when dilutive. Options to purchase
936,021 and 1,543,271 shares of common stock with weighted average exercise
prices of $12.00 and $11.04 were outstanding during the three months ended June
30, 2000 and 1999, 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,
2000 2000
___________ __________
Trading securities $16,590,000 $36,395,000
Available-for-sale debt securities 11,849,000 11,854,000
___________ __________
$28,439,000 $48,249,000
=========== ==========
NOTE D--INVENTORIES
Inventories consist of the following:
June 30, March 31,
2000 2000
___________ __________
Raw materials and sub-assemblies $14,495,000 $20,669,000
Finished goods 41,359,000 15,607,000
Parts, garments and accessories 32,625,000 25,393,000
___________ __________
$ 88,479,000 $ 61,669,000
=========== ==========
NOTE E--ACCRUED EXPENSES
Accrued expenses as of June 30, 2000 consisted of marketing,
$10,730,000, warranties, $12,838,000, PWC exit costs, $9,545,000 and other
$12,349,000. Accrued expenses as of June 30, 1999 consisted of marketing,
$10,305,000, warranties, $8,036,000 and other $14,220,000. Accrued expenses as
of March 31, 2000 consisted of marketing, $12,158,000, warranties, $11,097,000,
PWC exit costs, $10,893,000 and other $15,629,000.
NOTE F--DISCONTINUED PERSONAL WATERCRAFT BUSINESS AND RELATED COSTS
On October 7, 1999, the Company announced that it was exiting the
personal watercraft (PWC) business effective September 30, 1999 and recorded
a charge of $21,462,000. The charge included $8,961,000 for consumer
incentives to aid Company dealers in the disposition of their current
inventory. Additionally, the Company analyzed all long-lived watercraft assets
in connection with this exit that indicated an impaired carrying value. The
Company expects to utilize a portion of these assets in other production areas.
All long-lived assets with no alternative use, totaling $3,480,000, were
taken out of service and written off. Costs to dispose as well as any gain
on sale of long-lived assets are expected not to be significant. The Company
also analyzed inventories and determined a charge of $2,835,000 to reduce the
current carrying value to a net realizable value. The Company will not produce
additional PWC units beyond the completed production of the 1999 model.
Therefore, the Company identified inventories of $2,451,000 that will not be
used beyond September 30, 1999 and were written off. The Company also accrued
$2,400,000 relating to other dealer matters. The Company has written off
certain PWC technology of $700,000. The remaining $635,000 represent charges
for other costs. The Company anticipates the majority of the PWC exit plan
will conclude by September 30, 2001.
The approximate net sales of the watercraft product line was $184,000
for the three month period ended June 30, 2000.
During the period ending June 30, 2000, activity within the
consumer incentives and other exit costs were $1,334,000 and $13,000. The
remaining accrued expenses, included within the balance sheet caption accrued
expenses, for these items at June 30, 2000 were $5,000,000 and $3,911,000.
There were no adjustments to the initial recorded accrual in conjunction with
the PWC exit plan for the period ending June 30, 2000.
NOTE G--OTHER MATTERS
Dividend Declaration
On July 27, 2000, the Company's Board of Directors declared a regular
quarterly cash dividend of $0.06 per share, payable on September 1, 2000 to
shareholders of record on August 18, 2000.
Share Repurchase
The Company invested $14,411,000, $18,493,000 and $8,392,000 during
2000, 1999 and 1998 to repurchase and cancel 1,500,800, 2,049,114, and
834,900 shares pursuant to two Board of Directors' authorizations for the
repurchase of up to 4,500,000 shares and an additional $30,000,000 of shares.
Cumulative shares repurchased through June 30, 2000 under these authorizations
totaled 5,166,722 for a total of $48,933,688 and the Company has approximately
$25,000,000 remaining under its current authorization.
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, 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, 2000 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1999.
Net sales were down slightly from the first quarter last year, as the
Company continues to cycle out the discontinuation of its personal watercraft
(PWC) business. The Company anticipates growth in the ATV business will more
than offset the weather-related decrease in snowmobile sales and as a result
the Company expects record-breaking revenues in fiscal 2001.
Net sales for the quarter decreased 1.1% to $85,961,000 from
$86,928,000 for the same quarter in fiscal 2000. This decrease is due to a
27.9% decrease in snowmobile unit volume as discussed above, and a $1,480,000
decrease in discontinued personal watercraft sales. Offsetting these decreases
is a 204.5% ATV unit volume increase or a $24,130,000 increase. 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 decreased 16.5% primarily due to lower sales of generators
related to last year's successful one-time Y2K sales program.
Gross profits were essentially flat at $21,574,000 compared to
$21,715,000 for the same quarter of fiscal 2000. As a percent of net sales,
the gross profit percentage for the quarter was 25.1% versus 25.0% for the
same quarter last year.
Operating expenses for the quarter were flat at $19,619,000
compared to $19,600,000 for the same quarter of fiscal 2000. As a percent of
net sales, operating expenses were 22.8% versus 22.5% for the same quarter last
year.
Interest income increased 43.8% to $1,107,000 for the quarter compared
to $770,000 for the first quarter last year due to increased average cash
balances and higher interest rates.
Net earnings for the first quarter of fiscal 2001 were $2,052,000 or
$0.08 per share on a diluted basis, as compared to net earnings of $1,861,000
or $0.07 per diluted share, for the first quarter of fiscal 2000.
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 $57,362,000
at June 30, 2000. 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 short and long-term basis.
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.
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 2000 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, 2000.
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 14, 2000 By /s/Christopher A. Twomey
________________ _________________________
Christopher A. Twomey
Chief Executive Officer
Date: August 14, 2000 By /s/Timothy C. Delmore
________________ _________________________
Timothy C. Delmore
Chief Financial Officer
