-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L+taUjubc7JSx0LLu544/Zatxj+cnfw46CdkUYYsFMa8UfwKiwNogFge4FuJmGE0 MK9Um6GqvtcJPOaggt7qsg== 0000719866-00-000001.txt : 20000215 0000719866-00-000001.hdr.sgml : 20000215 ACCESSION NUMBER: 0000719866-00-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARCTIC CAT INC CENTRAL INDEX KEY: 0000719866 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS TRANSPORTATION EQUIPMENT [3790] IRS NUMBER: 411443470 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18607 FILM NUMBER: 540732 BUSINESS ADDRESS: STREET 1: 600 BROOKS AVE SOUTH STREET 2: P O BOX 810 CITY: THIEF RIVER FALLS STATE: MN ZIP: 56701 BUSINESS PHONE: 2186818558 FORMER COMPANY: FORMER CONFORMED NAME: ARCTCO INC DATE OF NAME CHANGE: 19940224 10-Q 1 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 EX-27 2
5 9-MOS MAR-31-2000 DEC-31-1999 67,424,000 49,187,000 36,410,000 1,082,000 56,829,000 232,886,000 85,780,000 53,802,000 264,864,000 91,269,000 0 0 0 253,000 168,321,000 264,864,000 401,444,000 401,444,000 297,509,000 0 0 656,000 0 12,936,000 4,592,000 8,344,000 0 0 0 8,344,000 $0.32 $0.32
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