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 June 30, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-18607
ARCTCO, 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.)
600 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value.
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 August 13, 1996, 22,052,803 shares of Common Stock and 7,560,000 shares of
Class B Common Stock of the Registrant were outstanding.
Arctco, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, March 31,
ASSETS 1996 1996
______ _________ _________
CURRENT ASSETS
Cash and cash equivalents $ 4,042,000 $ 9,032,000
Short-term investments 29,678,000 34,970,000
Accounts receivable, less allowances 44,323,000 36,465,000
Inventories 100,943,000 86,618,000
Prepaid expenses 2,519,000 2,404,000
Deferred income taxes 9,080,000 8,920,000
___________ ___________
Total current assets 190,585,000 178,409,000
PROPERTY, PLANT AND EQUIPMENT - at cost
Machinery, equipment and tooling 58,918,000 55,118,000
Buildings and improvements 6,463,000 6,191,000
Land 551,000 192,000
__________ __________
65,932,000 61,501,000
Less accumulated depreciation 34,176,000 31,914,000
__________ __________
31,756,000 29,587,000
__________ __________
$222,341,000 $207,996,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
____________________________________
CURRENT LIABILITIES
Accounts payable $ 41,727,000 $ 23,947,000
Accrued expenses 21,728,000 24,320,000
__________ __________
Total current liabilities 63,455,000 48,267,000
DEFERRED INCOME TAXES 3,630,000 3,536,000
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00;
2,300,000 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, 22,046,153 at June 30, 1996;
22,055,971 at March 31, 1996 220,000 221,000
Class B common stock, par value $.01;
7,560,000 shares authorized, issued,
and outstanding 76,000 76,000
Additional paid-in capital 22,345,000 22,502,000
Retained earnings 132,615,000 133,394,000
__________ ___________
155,256,000 156,193,000
__________ ___________
$222,341,000 $207,996,000
=========== ===========
The accompanying notes are an integral part of these statements.
Arctco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended June 30,
___________________________
1996 1995
______ ______
Net sales $89,126,000 $61,759,000
Cost of goods sold 70,587,000 49,953,000
__________ __________
Gross profit 18,539,000 11,806,000
Selling, general and
administrative expenses 17,328,000 19,023,000
__________ __________
Operating profit (loss) 1,211,000 (7,217,000)
Interest income 342,000 600,000
__________ __________
Earnings (loss) before income taxes 1,553,000 (6,617,000)
Income tax expense (benefit) 551,000 (2,349,000)
__________ __________
Net earnings (loss) $ 1,002,000 ($4,268,000)
========== ==========
Net earnings (loss) per share $ 0.03 ($0.14)
========== ==========
Weighted average shares outstanding 29,603,000 29,643,000
========== ==========
The accompanying notes are an integral part of these statements.
Arctco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended June 30,
1996 1995
Cash flows from operating activities ________ _______
Net earnings (loss) $1,002,000 ($4,268,000)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities
Depreciation 2,267,000 1,666,000
Deferred income taxes (66,000) (1,469,000)
Changes in operating assets
and liabilities:
Trading securities 3,418,000 22,372,000
Accounts receivable (7,858,000) (9,242,000)
Inventories (14,325,000) (20,916,000)
Prepaid expenses (115,000) 28,000
Accounts payable 17,780,000 14,466,000
Accrued expenses (2,592,000) (1,183,000)
Income taxes - (880,000)
Net cash provided by (used in) __________ __________
operating activities (489,000) 574,000
Cash flows from investing activities
Additions to property, plant and
equipment (4,436,000) (2,317,000)
Sales and maturities of available-for-sale
securities 1,874,000 250,000
Purchases of available-for-sale
securities - (248,000)
Net cash provided by (used in) __________ __________
investing activities (2,562,000) (2,315,000)
Cash flows from financing activities
Dividends paid (1,781,000) (1,779,000)
Proceeds from issuance of common stock - 135,000
Common stock retired (158,000) -
Net cash used in __________ __________
financing activities (1,939,000) (1,644,000)
__________ __________
Net decrease in cash and
equivalents (4,990,000) (3,385,000)
Cash and equivalents at the beginning
of period 9,032,000 5,632,000
__________ __________
Cash and equivalents at the end of
period $4,042,000 $2,247,000
========== ==========
Supplemental disclosure of cash payments
for income taxes $617,000 $62,000
The accompanying notes are an integral part of these statements.
Arctco, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(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
June 30, 1996, and the results of operations and the cash flows for the three
month periods ended June 30, 1996 and 1995. Results of operations for the
interim periods are not necessarily indicative of results for the full year.
NOTE B--SHORT-TERM INVESTMENTS
Short-term investments consist of the following:
June 30, March 31,
1996 1996
___________ __________
Trading securities $ 16,596,000 $20,014,000
Available-for-sale debt securities 13,082,000 14,956,000
___________ __________
$ 29,678,000 $34,970,000
=========== ==========
NOTE C--INVENTORIES
Inventories consist of the following:
June 30, March 31,
1996 1996
___________ __________
Raw materials and sub-assemblies $ 37,784,000 $39,027,000
Finished goods 33,088,000 22,727,000
Parts, garments and accessories 30,071,000 24,864,000
___________ __________
$100,943,000 $86,618,000
=========== ==========
NOTE D--DIVIDEND DECLARATION
On August 8, 1996, the Company announced that its Board of Directors had
declared a regular quarterly cash dividend of $0.06 per share, payable on
September 6, 1996 to shareholders of record on August 23, 1996.
NOTE E--CORPORATE NAME CHANGE
At its annual meeting on August 8, 1996, the Company's shareholders
approved a corporate name change to Arctic Cat Inc. Arctic Cat is the Company's
widely recognized trademark. The Company expects the name change to be
efffective by the end of August 1996.
NOTE F--RECLASSIFICATIONS
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Arctco, Inc., a Thief River Falls, Minnesota based company, designs,
engineers, manufactures and markets snowmobiles and all-terrain vehicles (ATV's)
under the Arctic Cat brand name, and personal watercraft (PWC) under the
Tigershark brand name, as well as related parts, garments and accessories. The
Company's products are sold 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.
Results of Operations
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1995.
The increase in net sales is primarily attributable to $15,723,000 in
shipments of ATVs as the Company continued its entry into the ATV market. Net
sales were also positively impacted by a 27% increase in PWC unit volume as
shipments of certain new models were shifted from the fourth quarter of fiscal
1996 to the first quarter of fiscal 1997. In addition, net sales increased as a
result of a 7% increase in snowmobile unit volume due to earlier shipments of
snowmobiles to the Company's North American dealers.
Gross profits were $18,539,000 through June 30, 1996, a 57.0% increase
over the first quarter last year. The gross profit percentage of 20.8%
increased from 19.1% through June 30, 1995. This increase was primarily due to
the increased sales of higher margin snowmobiles, and dealer direct shipments to
Canada which yield higher margins than last years shipments to Canadian
distributors, and to a much lesser extent a favorable fluctuation in the
exchange rate between the U.S. dollar and the Japanese yen. The Company shares
exchange rate fluctuations with Suzuki Motor Corporation, its engine supplier.
Operating expenses decreased 8.9% to $17,328,000 from $19,023,000.
As a percent of sales, operating expenses were 19.4% compared to 30.8% for the
same period last year. First quarter fiscal 1996 operating expenses were
affected by a charge for PWC factory to dealer retail incentives.
Net earnings (loss) were $1,002,000 through June 30, 1996 compared to
($4,268,000) through June 30, 1995. Net earnings (loss) per share were $0.03 at
the end of the first quarter compared to ($0.14) last year for the same period.
Liquidity and Capital Resources
The seasonality of the Company's snowmobile production cycle and the
lead time between the commencement of production in March 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 $33,720,000 June 30, 1996. The Company's cash balances traditionally peak
early in the fourth quarter and decrease as working capital requirements
increase when the Company's snowmobile production cycle begins. The Company's
investment objectives are first, safety of principal and second, rate of return.
The Company believes that the cash generated from operations will be
sufficient to meet its working capital, regular quarterly dividend, share
repurchase program, and capital expenditure requirements, including requirements
for the forseeable future.
PART II - OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
________________________________________
There are no exhibits filed herewith or reports on Form 8-K filed during the
Quarter ended June 30, 1996.
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.
ARCTCO, INC.
Date: August 14, 1996 By s/Christopher A. Twomey
________________ _________________________
Christopher A. Twomey
Chief Executive Officer
Date: August 14, 1996 By s/Timothy C. Delmore
________________ _________________________
Timothy C. Delmore
Chief Financial Officer