May 5, 2009
Mr. Juan Migone
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: | Arctic Cat Inc. |
| Form 10-K for the year ended March 31, 2008 |
| Filed June 13, 2008 |
| File Number: 000-18607 |
Dear Mr. Migone:
Attached to this email is the financial information you requested last week. This is the primary financial information we use to monitor our business. The Company considers the Chief Decision Maker (CDM) to be our Chief Executive Officer (CEO). Our CEO has been considered the CDM for many years as a result of his power sports industry knowledge as well as his many years of experience with our company. Although you have not requested the following, we thought it would benefit your review to understand how we analyze this financial information.
As you know, Arctic Cat designs, engineers, tests, manufactures, markets and sells power sports products to a network of dealers in North America and distributors around the world, of which the vast majority purchase and sell all of our products (ATV’s, snowmobiles and related parts, garments and accessories (PG&A)). In North America, we have a single sales force serving and monitoring the sale of our products to our dealer network. Arctic Cat and its dealers rely on sales of units of snowmobiles, ATVs and PG&A, along with the aftermarket sales of these products, to remain financially viable.
We believe our snowmobile and ATV unit sales and related PG&A businesses are highly interrelated. Our primary use of internal financial statements is to track top-line sales results for ATVs, snowmobiles and PG&A and aggregate bottom line earnings. We do not allocate resources to moderate our production or change our business operations as a sole result of these gross margins.
Additionally, we focus on the overall gross margin of the business by tracking specific product margins to measure our constant improvement effort and cost trends. When we review this financial information, we understand and expect the PG&A margin to be higher than ATVs and snowmobiles because we do not burden PG&A cost of sales with costs such as overhead and tooling expenses, which are entirely absorbed by our snowmobile and ATV businesses. While current PG&A gross margins would decrease if overhead and tooling expenses were
Arctic Cat Inc. 505 North Highway 169, Suite 1000, Plymouth, MN 55441
763.354.1818 Telephone; 763.354.1803 Fax
allocated, we have not performed an analysis of how much PG&A gross margin would decrease because a change in PG&A gross margin would not change our overall gross margin. In addition, a significant component of PG&A is replacement parts which are manufactured identically to the original parts and must meet the same safety and environmental requirements. Thus, we would not change our parts production as a result of any gross margin analysis.
Our internal financial statements include a category labeled as “other”. This category represents sales to our dealer and distributor network of non-current products, predominately ATVs and snowmobiles and, to lesser extent, PG&A. This information is separated to monitor our sales and related gross margin for non-current activity.
Additionally, we track sales incentives for our ATVs and snowmobile products. Although our overall sales incentives will increase or decrease from year to year for similar reasons, we separate this activity to better monitor current year sales and margin activity. Separate tracking of sales incentives is also important as a result of the accounting rules requiring expense recognition when sales incentive programs are announced and communicated versus accruing expense when the related unit is recognized as revenue. We have separated this activity ever since EITF 01-9 became effective a number of years ago.
The remaining internal financial information being provided includes our balance sheet which mirrors our external financial reporting format as well as information regarding inventories and accrued expenses.
| Thanks, |
|
|
| /s/ Timothy C. Delmore |
| Timothy C. Delmore |
| Arctic Cat – Chief Financial Officer |
CONFIDENTIAL TREATMENT REQUESTED BY ROBINS, KAPLAN, MILLER & CIRESI L.L.P.
ON BEHALF OF ARCTIC CAT INC. 000-18607-1
Confidential Treatment was requested under Rule 83 for the redacted portions and a clean, un-redacted version was submitted to the SEC’s Division of Corporation Finance.
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
MARCH 31,
(unaudited)
|
| 2008 |
| 2007 |
| ||
ASSETS |
|
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| ||
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|
|
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CURRENT ASSETS |
|
|
|
|
| ||
Cash and short-term Investments |
| $ | 35,063,068 |
| $ | 75,277,264 |
|
Accounts receivable |
| 38,196,250 |
| 40,427,672 |
| ||
Inventories |
| 126,981,409 |
| 98,524,373 |
| ||
Prepaid expenses |
| 3,196,471 |
| 3,487,856 |
| ||
Income taxes receivable |
| 7,149,576 |
| — |
| ||
Deferred Income taxes |
| 15,998,991 |
| 14,860,625 |
| ||
|
|
|
|
|
| ||
Total current assets |
| 226,585,764 |
| 232,577,790 |
| ||
|
|
|
|
|
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PROPERTY, PLANT AND EQUIPMENT |
|
|
|
|
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Land |
| 3,138,658 |
| 2,902,253 |
| ||
Building and Improvements |
| 24,718,816 |
| 25,665,896 |
| ||
Machinery, equipment and tooling |
| 182,856,014 |
| 184,119,128 |
| ||
|
| 210,713,487 |
| 212,687,278 |
| ||
Less accumulated depreciation |
| (136,309,993 | ) | (123,566,125 | ) | ||
|
| 74,403,495 |
| 89,121,152 |
| ||
OTHER ASSETS |
|
|
|
|
| ||
Goodwill |
| 1,750,000 |
| 1,750,000 |
| ||
Other |
| 2,522,764 |
| 2,755,351 |
| ||
|
| 4,272,764 |
| 4,505,351 |
| ||
|
|
|
|
|
| ||
|
| $ | 305,262,023 |
| $ | 326,204,293 |
|
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
|
|
|
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Accounts payable |
| $ | 56,550,789 |
| $ | 40,442,847 |
|
Dealer downpayments & holdbacks |
| 17,515,312 |
| 19,997,811 |
| ||
Accrued expenses |
| 39,212,517 |
| 61,755,973 |
| ||
Total current liabilities |
| 113,278,617 |
| 122,196,630 |
| ||
|
|
|
|
|
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LONG TERM DEBT |
| — |
| — |
| ||
|
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|
|
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DEFERRED INCOME TAXES |
| 11,121,000 |
| 11,787,000 |
| ||
|
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STOCKHOLDERS’ EQUITY |
|
|
|
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Common stock |
| 179,355 |
| 183,614 |
| ||
Additional paid-in capital |
| — |
| — |
| ||
Accumulated Other Comprehensive Income(Loss) |
| 4,767,806 |
| 2,117,178 |
| ||
Retained earnings |
| 179,174,166 |
| 167,850,042 |
| ||
Net income |
| (3,258,920 | ) | 22,069,829 |
| ||
|
| 180,862,406 |
| 192,220,662 |
| ||
|
|
|
|
|
| ||
|
| $ | 305,262,023 |
| $ | 326,204,293 |
|
CONFIDENTIAL TREATMENT REQUESTED BY ROBINS, KAPLAN, MILLER & CIRESI L.L.P.
ON BEHALF OF ARCTIC CAT INC. 000-18607-1
Confidential Treatment was requested under Rule 83 for the redacted portions and a clean, un-redacted version was submitted to the SEC’s Division of Corporation Finance.