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