-----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, AOgznvAa/sxtsIR0EtaCg4pMJ7QMhalcBfEdr86AjJKm18Lyd8Ek4djGjYP7ovf9 IYLgHcZr0S2yCskJXr5rVA== 0000719866-01-000001.txt : 20010213 0000719866-01-000001.hdr.sgml : 20010213 ACCESSION NUMBER: 0000719866-01-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010212 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: 1533939 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 0001.txt 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, 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 February 12, 2001, 16,323,390 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 2000 2000 CURRENT ASSETS ___________ ___________ Cash and equivalents $ 30,460,000 $ 60,028,000 Short-term investments 49,268,000 48,249,000 Accounts receivable, less allowances 54,689,000 18,348,000 Inventories 65,899,000 61,669,000 Prepaid expenses 2,382,000 2,880,000 Deferred income taxes 22,201,000 18,975,000 ___________ ___________ Total current assets 224,899,000 210,149,000 PROPERTY & EQUIPMENT - at cost Machinery, equipment and tooling 86,107,000 71,936,000 Land, buildings and improvements 17,944,000 16,861,000 __________ __________ 104,051,000 88,797,000 Less accumulated depreciation 60,739,000 52,411,000 __________ __________ 43,312,000 36,386,000 __________ __________ $268,211,000 $246,535,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 22,534,000 $ 27,318,000 Accrued expenses 58,901,000 49,777,000 Income tax payable 7,306,000 982,000 __________ __________ Total current liabilities 88,741,000 78,077,000 DEFERRED INCOME TAXES 5,806,000 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, 16,301,369 at December 31, 2000; 17,327,975 at March 31, 2000 163,000 173,000 Class B common stock, par value $.01; 7,560,000 shares authorized, issued, and outstanding 76,000 76,000 Retained earnings 173,425,000 162,309,000 __________ ___________ 173,664,000 162,558,000 __________ ___________ $268,211,000 $246,535,000 =========== =========== The accompanying notes are an integral part of these condensed statements. Arctic Cat Inc. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) Three Months Nine Months Ended December 31, Ended December 31, __________________________ ______________________ 2000 1999 2000 1999 ______ ______ ______ ______ Net sales $154,865,000 $109,009,000 $433,680,000 $401,444,000 Cost of goods sold 112,751,000 75,595,000 318,344,000 294,674,000 Watercraft inventory writedown - - - 2,835,000 ___________ ___________ ___________ ___________ Gross profit 42,114,000 33,414,000 115,336,000 103,935,000 Selling, general and administrative expenses 32,270,000 28,210,000 76,571,000 75,481,000 Watercraft exit costs - - - 15,147,000 Watercraft asset impairment - - - 3,480,000 ___________ ___________ ___________ ___________ Operating profit 9,844,000 5,204,000 38,765,000 9,827,000 Other income Interest income 1,149,000 1,480,000 3,060,000 3,109,000 Interest expense - - - - __________ ___________ ___________ ___________ 1,149,000 1,480,000 3,060,000 3,109,000 Earnings before income taxes 10,993,000 6,684,000 41,825,000 12,936,000 Income tax expense 3,628,000 2,373,000 13,802,000 4,592,000 ___________ ___________ ___________ ___________ Net earnings $ 7,365,000 $ 4,311,000 $28,023,000 $ 8,344,000 =========== =========== =========== =========== Net earnings per share Basic $0.31 $0.17 $1.15 $0.32 Diluted $0.30 $0.17 $1.14 $0.32 =========== =========== =========== =========== Weighted average shares outstanding Basic 23,939,000 25,542,000 24,347,000 25,733,000 Diluted 24,162,000 25,630,000 24,537,000 25,785,000 =========== =========== =========== =========== The accompanying notes are an integral part of these condensed statements. Arctic Cat Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended December 31, _____________________________ 2000 1999 Cash flows from operating activities ________ ________ Net earnings $28,023,000 $ 8,344,000 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation 8,328,000 8,919,000 Deferred income taxes (3,320,000) (10,380,000) Watercraft inventory writedown exit costs and asset impairment - 21,462,000 Changes in operating assets and liabilities, net effect of watercraft charges Trading securities (1,679,000) (5,392,000) Accounts receivable (36,341,000) (12,065,000) Inventories (4,230,000) 6,529,000 Prepaid expenses 498,000 1,280,000 Accounts payable (4,784,000) (3,954,000) Accrued expenses 9,124,000 13,973,000 Income taxes 6,324,000 7,702,000 Net cash provided by __________ __________ operating activities 1,943,000 36,418,000 Cash flows from investing activities Purchase of property and equipment (15,254,000) (5,161,000) Sale and maturity of available-for-sale securities 660,000 - Net cash used in __________ __________ investing activities (14,594,000) (5,161,000) Cash flows from financing activities Proceeds from issuance of common stock 1,485,000 - Dividends paid (4,380,000) (4,635,000) Repurchase of common stock (14,022,000) (10,611,000) Net cash used in __________ __________ financing activities (16,917,000) (15,246,000) __________ __________ Net increase (decrease) in cash and equivalents (29,568,000) 16,011,000 Cash and equivalents at the beginning of period 60,028,000 51,413,000 __________ __________ Cash and equivalents at the end of period $30,460,000 $67,424,000 ========== ========== Supplemental disclosure of cash payments for income taxes $10,957,000 $8,022,000 ========== ========== The accompanying notes are an integral part of these condensed 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, 2000, the results of operations for the three and nine month periods ended December 31, 2000 and 1999 and cash flows for the nine month periods ended December 30, 2000 and 1999. 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 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 446,344 and 1,033,869 shares of common stock with weighted average exercise prices of $13.94 and $12.19 were outstanding during the three months ended December 31, 2000 and 1999 and options to purchase 525,570 and 1,360,619 shares of common stock with weighted average exercises prices of $13.09 and $11.63 were outstanding during the nine months ended December 31, 2000 and 1999, all of which 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, 2000 2000 ___________ __________ Trading securities $ 38,074,000 $36,395,000 Available-for-sale debt securities 11,194,000 11,854,000 ___________ __________ $49,268,000 $48,249,000 =========== ========== NOTE D--INVENTORIES Inventories consist of the following: December 31, March 31, 2000 2000 ___________ __________ Raw materials and sub-assemblies $12,833,000 $20,669,000 Finished goods 22,776,000 15,607,000 Parts, garments and accessories 30,290,000 25,393,000 ___________ __________ $65,899,000 $61,669,000 =========== ========== NOTE E--ACCRUED EXPENSES Accrued expenses as of December 31, 2000 consisted of marketing, $15,424,000, warranties, $18,903,000, PWC exit costs, $8,088,000 and other $16,486,000. Accrued expenses as of 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 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 not expected to be significant. The Company also analyzed inventories and recorded a charge of $2,835,000 to reduce the current carrying value to a net realizable value. The Company has not produced additional PWC units beyond the completed production of the 1999 model. The Company identified and wrote off inventories of $2,451,000 that would not be used beyond September 30, 1999. The Company also accrued $3,735,000 relating to other exit costs. The Company anticipates the majority of the PWC exit plan will conclude by September 30, 2001. Net sales of the watercraft product line was approximately $184,000 for nine month period ended December 31, 2000. As of December 31, 2000, cumulative charges related to accrued consumer incentives and other accrued exit costs were $3,598,000 and $1,640,000. The remaining accrued expenses, included within the balance sheet caption accrued expenses, for these items at December 31, 2000 were $5,363,000 and $2,725,000. There were no adjustments to the initial recorded accrual in conjunction with the PWC exit plan for the period ending December 31, 2000. NOTE G--OTHER MATTERS Dividend Declaration On January 25, 2001, the Company announced that its Board of Directors had declared a regular quarterly cash dividend of $0.06 per share, payable on March 2, 2001 to shareholders of record on February 16, 2001. 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 additional shares with a value of up to $30,000,000. Cumulative shares repurchased through December 31, 2000 under these authorizations were 6,169,222 for a total of $61,022,595. 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, 2000 COMPARED TO THE THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 1999. Net sales increased as planned from the comparable three months and nine month period last year due to increased shipment of ATVs and the timing of snowmobile shipments. The Company continues to cycle out the discontinuation of its personal watercraft (PWC) business and anticipates growth in the ATV business will more than offset the weather-related decrease in snowmobile unit sales and as a result Arctic Cat expects record-breaking revenues in fiscal 2001. Net sales for the third quarter increased 42.1% to $154,865,000 from $109,009,000 for the same quarter in fiscal 2000. This increase is primarily due to a 40.3% ATV unit volume increase, a 16.1% increase in snowmobile unit volume and a 5.4% or $1,137,000 increase in parts, garments and accessory sales. Year-to-date sales increased 8.0% to $433,680,000 from $401,444,000 for the same period in fiscal 2000. This increase is due to a 35.6% ATV unit volume increase, and was offset by an 8.4% decrease in snowmobile unit volume, a $3,630,000 decrease in discontinued PWC sales and a 4.7% or $2,933,000 decrease in parts, garments and accessories sales. Gross profits increased 26.0% to $42,114,000 from $33,414,000 for the same quarter in fiscal 2000. As a percent, gross profits were 27.2% of sales versus 30.7% for the same quarter a year ago. The gross profit percentage for the quarter decreased as planned due to lower margins on, and a less rich mix of ATVs as well as a decreased percentage of high margin parts, garments and accessories in the sales mix. Year-to-date gross profits were $115,336,000 versus $103,935,000 for the same quarter a year ago. As a percent, gross profits were 26.6% of sales versus 25.9% for the same period a year ago. The increase in the year-to-date gross profit percentage is primarily due to a $2,835,000 watercraft inventory writedown recorded last year for the discontinued PWC business. Operating expenses for the quarter increased 14.4% to $32,270,000 from $28,210,000 a year ago. As a percent of sales, operating expenses were 20.8% of sales versus 25.9% of sales for the same period a year ago. The increase in operating expenses for the quarter is mainly due to increased ATV marketing expenses. Year-to-date operating expenses were $76,571,000 versus $94,108,000. The decrease in operating expenses was mainly due to watercraft exit costs of $18,627,000 recorded for the same period last year. Net earnings for the third quarter were $7,365,000 or $0.30 per diluted share compared to net earnings of $4,311,000 or $0.17 for the third quarter a year ago. Year-to-date net earnings were $28,023,000 or $1.14 per diluted share compared to net earnings of $8,344,000 or $0.32 per diluted share a year ago. Without the exit costs associated with the discontinued PWC business, the year-to-date net earnings for the nine month period ended December 31, 1999 would have been $25,243,000 or $0.98 per diluted share. 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 $79,728,000 at December 31, 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 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 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 form 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 form 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) None (b) There were no reports on Form 8-K filed during the Quarter ended December 31, 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: February 12, 2001 By s/Christopher A. Twomey __________________ _________________________ Christopher A. Twomey Chief Executive Officer Date: February 12, 2001 By s/Timothy C. Delmore __________________ _________________________ Timothy C. Delmore Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----