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 September 30, 1997 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 November 13, 1997, 21,580,309 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. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, March 31,
ASSETS 1997 1997
CURRENT ASSETS ___________ ___________
Cash and equivalents $ 9,221,000 $ 5,540,000
Short-term investments 13,384,000 45,200,000
Accounts receivable, less allowances 95,184,000 27,393,000
Inventories 97,308,000 86,502,000
Prepaid expenses 1,250,000 1,618,000
Income tax receivable - 3,838,000
Deferred income taxes 10,141,000 8,369,000
___________ ___________
Total current assets 226,488,000 178,460,000
PROPERTY, PLANT AND EQUIPMENT - at cost
Machinery, equipment and tooling 65,843,000 60,534,000
Buildings and improvements 12,635,000 11,244,000
Land 527,000 527,000
__________ __________
79,005,000 72,305,000
Less accumulated depreciation 39,319,000 32,798,000
__________ __________
39,686,000 39,507,000
__________ __________
$266,174,000 $217,967,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 37,686,000 $ 21,586,000
Accrued expenses 28,761,000 25,270,000
Income tax payable 12,109,000 -
__________ __________
Total current liabilities 78,556,000 46,856,000
DEFERRED INCOME TAXES 4,485,000 4,373,000
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, 21,580,309 at September 30,
1997; 21,533,136 at March 31, 1997 216,000 215,000
Class B common stock, par value $.01;
7,560,000 shares authorized, issued,
and outstanding 76,000 76,000
Additional paid-in capital 16,187,000 17,069,000
Retained earnings 166,654,000 149,378,000
__________ ___________
183,133,000 166,738,000
__________ ___________
$266,174,000 $217,967,000
=========== ===========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Six Months
Ended September 30, Ended September 30,
__________________________ _____________________
1997 1996 1997 1996
______ ______ ______ ______
Net sales $196,846,000 $177,925,000 $282,313,000 $267,051,000
Cost of goods sold 141,531,000 128,536,000 205,606,000 199,123,000
___________ ___________ ___________ ___________
Gross profit 55,315,000 49,389,000 76,707,000 67,928,000
Selling, general and
administrative expenses 24,683,000 20,687,000 45,057,000 38,015,000
___________ ___________ ___________ ___________
Operating profit 30,632,000 28,702,000 31,650,000 29,913,000
Other income (expense)
Interest income 238,000 222,000 619,000 564,000
Interest expense (11,000) (107,000) (58,000) (107,000)
__________ ___________ ___________ ___________
227,000 115,000 561,000 457,000
Earnings before
income taxes 30,859,000 28,817,000 32,211,000 30,370,000
Income tax expense 10,955,000 10,230,000 11,435,000 10,781,000
___________ ___________ ___________ ___________
Net earnings $19,904,000 $18,587,000 $20,776,000 $19,589,000
=========== =========== =========== ===========
Net earnings
per share $0.68 $0.63 $0.71 $0.66
=========== =========== =========== ===========
Weighted average common
and common equivalent 29,151,000 29,615,000 29,164,000 29,609,000
shares outstanding =========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended September 30,
_____________________________
1997 1996
Cash flows from operating activities ________ ________
Net earnings $20,776,000 $19,589,000
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities
Depreciation and amortization 6,530,000 5,330,000
Deferred income taxes (1,660,000) (1,289,000)
Changes in operating assets
and liabilities:
Trading securities 32,100,000 20,014,000
Accounts receivable (67,791,000) (41,719,000)
Inventories (10,806,000) ( 9,982,000)
Prepaid expenses 368,000 695,000
Accounts payable 16,100,000 15,051,000
Accrued expenses 3,491,000 8,945,000
Income taxes 15,947,000 5,869,000
Net cash provided by (used in) __________ __________
operating activities 15,055,000 22,503,000
Cash flows from investing activities
Additions to property, plant and
equipment (6,709,000) (9,398,000)
Sales and maturities of available-for-sale
securities 1,033,000 2,274,000
Purchases of available-for-sale
securities (1,317,000) (415,000)
Net cash provided by (used in) __________ __________
investing activities (6,993,000) (7,539,000)
Cash flows from financing activities
Dividends paid (3,500,000) (3,552,000)
Proceeds from issuance of common stock 1,385,000 -
Common stock retired (2,266,000) (370,000)
Net cash used in __________ __________
financing activities (4,381,000) (3,922,000)
__________ __________
Net increase (decrease) in cash and
equivalents 3,681,000 11,042,000
Cash and equivalents at the beginning
of period 5,540,000 9,032,000
__________ __________
Cash and equivalents at the end of
period $ 9,221,000 $20,074,000
========== ==========
Supplemental disclosure of cash payments
for income taxes $148,000 $1,391,000
The accompanying notes are an integral part of these statements.
Arctic Cat Inc. and Subsidiaries
NOTES TO 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
September 30, 1997, the results of operations for the three and six month
periods ended September 30, 1997 and 1996 and cash flows for the six month
periods ended September 30, 1997 and 1996. 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--SHORT-TERM INVESTMENTS
Short-term investments consist of the following:
September 30, March 31,
1997 1997
___________ __________
Trading securities $ 390,000 $32,490,000
Available-for-sale debt securities 12,994,000 12,710,000
___________ __________
$13,384,000 $45,200,000
=========== ==========
NOTE C--INVENTORIES
Inventories consist of the following:
September 30, March 31,
1997 1997
___________ __________
Raw materials and sub-assemblies $37,382,000 $32,784,000
Finished goods 29,722,000 32,573,000
Parts, garments and accessories 30,204,000 21,145,000
___________ __________
$97,308,000 $86,502,000
=========== ==========
NOTE D--OTHER MATTERS
Dividend Declaration
On October 30, 1997, the Company announced that its Board of Directors
had declared a regular quarterly cash dividend of $0.06 per share, payable on
December 2, 1997 to shareholders of record on November 17, 1997.
Share Repurchase
The Board of Directors has authorized the repurchase of up to 1,500,000
shares of common stock. Since the inception of the share purchase program,
through September 30, 1997, the Company has invested $8,238,000 to repurchase
and cancel 825,408 shares.
NOTE E--NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) as issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share, which is effective
for financial statements issued after December 15, 1997. Early adoption of the
new standard is not permitted. The new standard eliminates primary and fully
diluted earnings per share and requires presentation of basic and diluted
earnings per share together with disclosure of how the per share amounts were
computed. The effect of adopting this new standard would not be material for
the three or six months ended September 30, 1997 and 1996.
In June 1997, the FASB issued Statement No. 130 "Reporting
Comprehensive Income" and Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information" which are effective for fiscal years
beginning after December 15, 1997. Statement No. 130 will require the Company
to display an amount representing total comprehensive income, as defined by the
statment, as part of the Company's basic financial statements. Comprehensive
income will include items such as unrealized gains or losses on certain
investment securities and foreign currency items. Statement No. 131 will
require the Company to disclose financial and other information about its
business segments, their products and services, geographic areas, major
customers, revenues, profits, assets and other information. The adoption of
these two statments is not expected to have a material effect on the
consolidated financial statments of the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Arctic Cat Inc., a Thief River Falls, Minnesota based company, designs,
engineers, manufactures and markets snowmobiles and all-terrain vehicles (ATVs)
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 currently 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. The Company trades on the Nasdaq Stock Market under
the symbol ACAT.
Results of Operations
THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE
THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 1996.
Net sales for the second quarter increased 10.6% to $196,846,000 from
$177,925,000 for the same quarter in fiscal 1997. This increase was primarily
due to a 72.9% increase in ATV unit volume as the Company continued its entry
into the ATV market. Also affecting sales was a 1.8% increase in snowmobile
unit volume and a 24.8% increase in parts, garments and accessory sales. Year-
to-date sales increased 5.7% to $282,313,000 from $267,051,000 for the same
period last year. This was due to a 38.0% ATV unit volume increase, a 12.9%
snowmobile unit volume increase and a 74.4% PWC unit volume decrease as a
higher percentage of the season's PWC build was shipped prior to the start of
the first quarter of fiscal 1998. Model year PWC 1997 to model year PWC 1996
shipments decreased approximately 27%. Year-to-date parts, garments and
accessory sales increased 14.1%.
Gross profits increased 12.0% to $55,315,000 from $49,389,000 for the
same quarter of fiscal 1997. The gross profit percentage for the quarter
increased slightly to 28.1% from 27.8% for the same period last year mainly
due to improved margins on ATVs as the Company continued its cost reduction
efforts during its second full year of production of this product line. As a
percent of net sales, year-to-date gross profit percentages increased to 27.2%
from 25.4%. This increase is principally due to a higher percentage of sales
and improved margins both in the snowmobile and ATV product lines.
Operating expenses for the quarter increased 19.3% to $24,683,000 from
$20,687,000. As a percent of net sales, operating expenses for the second
quarter were 12.5% compared to 11.6% for the same period last year. Year-to-
date operating expenses increased 18.5% to $45,057,000 from $38,015,000. As
a percent of net sales, year-to-date operating expenses were 16.0% compared to
14.2% in fiscal 1997. Quarterly and year-to-date increases in operating
expenses were primarily due to increased research & development expenses and
marketing expenses for all product lines.
Net earnings for the second quarter of fiscal 1998 were $19,904,000, or
$0.68 per share, as compared to net earnings of $18,587,000, or $0.63 per
share, for the second quarter of fiscal 1997. Year-to-date net earnings were
$20,776,000, or $0.71 per share, as compared to net earnings of $19,589,000,
or $0.66 per 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 production in February 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 $22,605,000 at September 30, 1997. 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 and cash
availability under its credit facility will be sufficient to meet its working
capital, regular quarterly dividend, share repurchase program, and capital
expenditure requirements in the foreseeable future.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders:
On August 14, 1997 the Company held its Annual Meeting of Shareholders.
At the meeting, the following actions were taken:
(a) (i) The following persons were elected to the Company's Board of
Directors:
Votes For Votes Withheld
William G. Ness 19,457,488 160,310
Gregg A. Ostrander 19,365,867 251,931
(ii) The following directors' term of office continued after
the meeting:
Robert J. Dondelinger
William I. Hagen
Kenneth J. Roering
Lowell T. Swenson
Christopher A. Twomey
Takeshi Natori
(b) The Company's shareholders approved amendments to the
Company's 1989 Stock Option Plan and the 1995 Stock Plan to
bring both plans into compliance with Section 162(m) of the
Internal Revenue Code of 1986, as amended, by a vote of
27,090,799 shares voting in favor, 86,999 shares against, and
0 shares abstaining or subject to broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
________________________________________
(a) Exhibits
27.1 financial data schedule
(b) There were no reports on Form 8-K filed during the Quarter
ended September 30, 1997.
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: November 13, 1997 By s/Christopher A. Twomey
__________________ _________________________
Christopher A. Twomey
Chief Executive Officer
Date: November 13, 1997 By s/Timothy C. Delmore
__________________ _________________________
Timothy C. Delmore
Chief Financial Officer