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, 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 February 9, 2000, 17,454,975 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
December 31, March 31,
ASSETS 1999 1999
CURRENT ASSETS
Cash and equivalents $ 67,424,000 $ 51,413,000
Short-term investments 49,187,000 43,795,000
Accounts receivable, less allowances 35,328,000 23,263,000
Inventories 56,829,000 68,644,000
Deferred income taxes 23,172,000 12,220,000
Prepaid expenses 946,000 2,925,000
___________ ___________
Total current assets 232,886,000 202,260,000
PROPERTY AND EQUIPMENT - at cost
Machinery, equipment and tooling 70,003,000 75,500,000
Land, buildings and improvements 15,777,000 15,548,000
__________ __________
85,780,000 91,048,000
Less accumulated depreciation 53,802,000 53,162,000
__________ __________
31,978,000 37,886,000
__________ __________
$264,864,000 $240,146,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 15,439,000 $ 23,665,000
Accrued expenses 64,816,000 33,244,000
Income tax payable 11,014,000 3,312,000
__________ __________
Total current liabilities 91,269,000 60,221,000
DEFERRED INCOME TAXES 5,018,000 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, 18,071,975 at December 31,
1999; 18,828,775 at March 31, 1999 180,000 188,000
Class B common stock, par value $.01;
7,560,000 shares authorized, issued,
and outstanding 76,000 76,000
Retained earnings 168,321,000 175,215,000
___________ ___________
168,577,000 175,479,000
___________ ___________
$264,864,000 $240,146,000
=========== ===========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Nine Months
Ended December 31, Ended December 31,
__________________________ ______________________
1999 1998 1999 1998
______ ______ ______ ______
Net sales $109,009,000 $109,750,000 $401,444,000 $391,783,000
Cost of goods sold 75,595,000 78,227,000 294,674,000 285,045,000
Watercraft inventory
writedown - - 2,835,000 -
___________ ___________ ___________ ___________
Gross profit 33,414,000 31,523,000 103,935,000 106,738,000
Selling, general and
administrative expenses 28,210,000 25,781,000 75,481,000 69,949,000
Watercraft exit costs - - 15,147,000 -
Watercraft asset impairment - - 3,480,000 -
___________ ___________ ___________ ___________
Operating profit 5,204,000 5,742,000 9,827,000 36,789,000
Other income (expense)
Interest income 1,480,000 892,000 3,109,000 1,759,000
Interest expense - (1,000) - (27,000)
___________ ___________ ___________ ___________
1,480,000 891,000 3,109,000 1,732,000
Earnings before
income taxes 6,684,000 6,633,000 12,936,000 38,521,000
Income tax expense 2,373,000 2,355,000 4,592,000 13,675,000
___________ ___________ ___________ ___________
Net earnings $ 4,311,000 $ 4,278,000 $ 8,344,000 $24,846,000
=========== =========== =========== ===========
Net earnings per share
Basic $0.17 $0.16 $0.32 $0.89
=========== =========== =========== ===========
Diluted $0.17 $0.16 $0.32 $0.89
=========== =========== =========== ===========
Weighted average
shares outstanding
Basic 25,542,000 27,480,000 25,733,000 27,822,000
=========== =========== =========== ===========
Diluted 25,630,000 27,515,000 25,785,000 27,858,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended December 31,
_____________________________
1999 1998
Cash flows from operating activities ________ ________
Net earnings $ 8,344,000 $24,846,000
Adjustments to reconcile net earnings
to net cash provided by
operating activities
Depreciation 8,919,000 9,905,000
Deferred income taxes (10,380,000) (3,074,000)
Watercraft inventory writedown,
exit costs and asset impairment 21,462,000
Changes in operating assets
and liabilities net of effect of total
watercraft charges:
Trading securities (5,392,000) 1,013,000
Accounts receivable (12,065,000) (10,658,000)
Inventories 6,529,000 10,159,000
Prepaid expenses 1,280,000 1,046,000
Accounts payable (3,954,000) (10,050,000)
Accrued expenses 13,973,000 12,974,000
Income taxes 7,702,000 10,925,000
Net cash provided by __________ __________
operating activities 36,418,000 47,086,000
Cash flows from investing activities
Additions to property, plant and
equipment ( 5,161,000) ( 6,556,000)
Sales and maturities of available-for-sale
securities - 785,000
Purchases of available-for-sale
securities - (248,000)
Net cash used in investing __________ __________
activities ( 5,161,000) ( 6,019,000)
Cash flows from financing activities
Dividends paid (4,635,000) (5,016,000)
Proceeds from issuance of common stock - -
Repurchase of common stock (10,611,000) (10,754,000)
Net cash used in __________ __________
financing activities (15,246,000) (15,770,000)
__________ __________
Net increase in cash and
equivalents 16,011,000 25,297,000
Cash and equivalents at the beginning
of period 51,413,000 24,764,000
__________ __________
Cash and equivalents at the end of
period $67,424,000 $50,061,000
========== ==========
Supplemental disclosure of cash payments
for income taxes $ 8,022,000 $ 7,424,000
The accompanying notes are an integral part of these statements.
Arctic Cat Inc.
NOTES TO CONDENSED 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, 1999, the results of operations for the three and nine month
periods ended December 31, 1999 and 1998 and cash flows for the nine month
periods ended December 31, 1999 and 1998. Results of operations for the interim
periods are not necessarily indicative of results for the full year.
Preparation of the Company's condensed 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--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
1,033,869 and 1,342,692 shares of common stock with weighted average exercise
prices of $12.19 and $11.71 were outstanding during the three months ended
December 31, 1999 and 1998 and options to purchase 1,360,619 and 1,279,942
shares of common stock with weighted average exercises prices of $11.63 and
$11.84 were outstanding during the nine months ended December 31, 1999 and 1998
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:
December 31, March 31,
1999 1999
___________ __________
Trading securities $34,475,000 $31,386,000
Available-for-sale debt securities 14,712,000 12,409,000
___________ __________
$49,187,000 $43,795,000
=========== ==========
NOTE D--INVENTORIES
Inventories consist of the following:
December 31, March 31,
1999 1999
___________ __________
Raw materials and sub-assemblies $15,127,000 $22,067,000
Finished goods 11,971,000 24,291,000
Parts, garments and accessories 29,731,000 22,286,000
___________ __________
$56,829,000 $68,644,000
=========== ==========
NOTE E--ACCRUED EXPENSES
Accrued expenses as December 31, 1999 consisted of marketing,
$14,181,000, warranties, $15,365,000, PWC exit costs, $12,739,000 and other
$22,531,000. Accrued expenses as December 31, 1998 consisted of marketing,
$11,374,000, warranties, $11,390,000 and other $17,177,000. Accrued expenses
as March 31, 1999 consisted of marketing, $10,888,000, warranties, $5,548,000
and other $16,808,000.
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 $3,814,000
for the nine month period ended December 31, 1999.
During the period ending December 31, 1999, activity within the
consumer incentives, other dealer matters and PWC technology, tooling and other
exit costs were $482,000, $0, and $105,000. The remaining accrued expenses,
included within the balance sheet caption other accrued expense, for these
items at December 31, 1999 were $8,479,000, $2,400,000, and $1,860,000.
Current activity includes consumer incentive paid to dealers and costs to
dismantle non-production PWC assets and inventory.
NOTE G--OTHER MATTERS
Dividend Declaration
On January 26, 2000, the Company announced that its Board of Directors
had declared a regular quarterly cash dividend of $0.06 per share, payable on
March 2, 2000 to shareholders of record on February 17, 2000.
Share Repurchase
During fiscal 1996, 1998 and 1999, the Company's Board of Directors
authorized the repurchase of a total of 4,500,000 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. From April 1, 1996 through January 31,
2000 the Company has invested $46,360,000 to repurchase and cancel 4,901,000
shares.
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 AND NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE
THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 1998.
Net sales for the third quarter decreased 0.7% to $109,009,000 from
$109,750,000 for the same quarter in fiscal 1999. This decrease is primarily
due to a 119.8% ATV unit volume increase as the Company continued its expansion
in the ATV market, a 16.3% decrease in snowmobile unit volume reflecting
moderately lower dealer orders related to snow conditions and PWC sales of
$1,535,000 as the Company reduced virtually all of its PWC finished goods
inventory as it exited the PWC business. For the third quarter, parts,
garments and accessory sales were $20,988,000 compared to $20,981,000 in fiscal
1999. Year-to-date sales increased 2.5% to $401,444,000 from $391,783,000
for the same period in fiscal 1999. Year-to-date snowmobile unit volume
decreased 12.6% for the same reason as stated above while year-to-date ATV
unit volume increased 60.4%. Parts, garments and accessory sales increased
13.6% to $62,371,000 from $54,915,000 over the prior fiscal year.
Gross profits increased 6.0% to $33,414,000 from $31,523,000 for the
same quarter in fiscal 1999. This increase is primarily due to improved
margins on both snowmobile and ATVs due to cost reductions and lower warranty
costs. As a percent, gross profits for the quarter increased to 30.6% as
compared with 28.7% for the same period last year. This increase is primarily
due to improved margins on both snowmobile and ATVs due to cost reductions and
lower warranty costs. Year-to-date gross profit percentage was 25.9% compared
with 27.2%. The year-to-date decrease is mainly due to the exit costs
associated with the discontinued PWC business, change in estimated warranty and
increased ATV sales.
Operating expenses for the quarter increased 9.4% to $28,210,000 from
$25,781,000 compared to the same quarter in fiscal 1999 due to increased
snowmobile marketing expenses and a planned increase in ATV marketing. As a
percent of net sales, operating expenses for the quarter were 25.9% compared
to 23.5% for the same period last year. Year-to-date operating expenses were
$94,108,000 as compared to $69,949,000 for the same period last year. The
year-to-date increase is mainly due to $18,627,000 of exit costs associated
with the discontinued PWC business. These charges mainly consist of items
such as consumer incentive programs, write-offs of equipment and tooling and
inventories, and costs related to the Company's dealers. Year-to-date
operating expenses also increased due to charges of $2,410,000 relating
to legal and other matters. Without the exit costs associated with the
discontinued PWC business operating expenses would have increased 7.9% to
$75,481,000 from $69,949,000 compared to the same period last year, for the
same reasons described for the quarter. As a percent of net sales, year-to-
date operating expenses, excluding PWC exit costs would have been 18.8%
compared with 17.8% for the same period last year.
Net earnings for the third quarter of fiscal 2000 were $4,311,000 or
$0.17 per diluted share, compared to net earnings of $4,278,000 or $0.16 per
diluted share, for the third quarter of fiscal 1999. Year-to-date net earnings
were $8,344,000 or $0.32 per diluted share, compared to net earnings of
$24,846,000 or $0.89 per diluted share, for the same period last year. Without
the exit costs associated with the discontinued PWC business, year-to-date net
earnings would have been $25,243,000 or $0.98 per diluted share, as compared
to net earnings of $24,846,000 or $0.89 per diluted share, for the same period
last year.
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 result
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 $116,611,000 at December 31,
1999. The Company's cash balances traditionally peak early in the fourth
quarter and then decrease as 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 the 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 foreseeable 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 cost of the Year 2000 initiatives incurred to date was less than
$350,000, funded out of current operations, and was expensed in fiscal years
1999 and 2000. Based on currently available information, the Company has not
experienced material adverse impact from Year 2000 issues. The Company will
continue to monitor its internal systems, suppliers and customers on an
on-going basis.
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; 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 and
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 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, 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: February 9, 2000 By s/Christopher A. Twomey
__________________ _________________________
Christopher A. Twomey
Chief Executive Officer
Date: February 9, 2000 By s/Timothy C. Delmore
__________________ _________________________
Timothy C. Delmore
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 67,424,000
<SECURITIES> 49,187,000
<RECEIVABLES> 36,410,000
<ALLOWANCES> 1,082,000
<INVENTORY> 56,829,000
<CURRENT-ASSETS> 232,886,000
<PP&E> 85,780,000
<DEPRECIATION> 53,802,000
<TOTAL-ASSETS> 264,864,000
<CURRENT-LIABILITIES> 91,269,000
<BONDS> 0
0
0
<COMMON> 253,000
<OTHER-SE> 168,321,000
<TOTAL-LIABILITY-AND-EQUITY> 264,864,000
<SALES> 401,444,000
<TOTAL-REVENUES> 401,444,000
<CGS> 297,509,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 656,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,936,000
<INCOME-TAX> 4,592,000
<INCOME-CONTINUING> 8,344,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,344,000
<EPS-BASIC> $0.32
<EPS-DILUTED> $0.32
</TABLE>
