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, 1998 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 11, 1999, 19,643,275 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)
December 31, March 31,
ASSETS 1998 1998
CURRENT ASSETS
Cash and equivalents $ 50,061,000 $ 24,764,000
Short-term investments 32,231,000 33,781,000
Accounts receivable, less allowances 40,875,000 30,217,000
Inventories 77,990,000 88,149,000
Prepaid expenses 725,000 1,771,000
Income tax receivable - 2,111,000
Deferred income taxes 12,381,000 9,088,000
___________ ___________
Total current assets 214,263,000 189,881,000
PROPERTY, PLANT AND EQUIPMENT - at cost
Machinery, equipment and tooling 76,217,000 70,611,000
Land, buildings and improvements 15,517,000 14,568,000
__________ __________
91,734,000 85,179,000
Less accumulated depreciation 55,246,000 45,342,000
__________ __________
36,488,000 39,837,000
__________ __________
$250,751,000 $229,718,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,621,000 $ 20,671,000
Accrued expenses 39,941,000 26,967,000
Income tax payable 8,814,000 -
__________ __________
Total current liabilities 59,376,000 47,638,000
DEFERRED INCOME TAXES 4,794,000 4,575,000
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, 19,712,275 at December 31,
1998; 20,857,909 at March 31, 1998 197,000 209,000
Class B common stock, par value $.01;
7,560,000 shares authorized, issued,
and outstanding 76,000 76,000
Additional paid-in capital - 9,356,000
Retained earnings 186,308,000 167,864,000
___________ ___________
186,581,000 177,505,000
___________ ___________
$250,751,000 $229,718,000
=========== ===========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Nine Months
Ended December 31, Ended December 31,
__________________________ ______________________
1998 1997 1998 1997
______ ______ ______ ______
Net sales $109,750,000 $139,808,000 $391,783,000 $422,121,000
Cost of goods sold 78,227,000 98,752,000 285,045,000 304,358,000
___________ ___________ ___________ ___________
Gross profit 31,523,000 41,056,000 106,738,000 117,763,000
Selling, general and
administrative expenses 25,781,000 31,941,000 69,949,000 76,998,000
___________ ___________ ___________ ___________
Operating profit 5,742,000 9,115,000 36,789,000 40,765,000
Other income (expense)
Interest income 892,000 488,000 1,759,000 1,107,000
Interest expense (1,000) (1,000) (27,000) (59,000)
___________ ___________ ___________ ___________
891,000 487,000 1,732,000 1,048,000
Earnings before
income taxes 6,633,000 9,602,000 38,521,000 41,813,000
Income tax expense 2,355,000 3,409,000 13,675,000 14,844,000
___________ ___________ ___________ ___________
Net earnings $ 4,278,000 $ 6,193,000 $24,846,000 $26,969,000
=========== =========== =========== ===========
Net earnings per share
Basic $0.16 $0.21 $0.89 $0.93
=========== =========== =========== ===========
Diluted $0.16 $0.21 $0.89 $0.92
=========== =========== =========== ===========
Weighted average
shares outstanding
Basic 27,480,000 28,974,000 27,822,000 29,101,000
=========== =========== =========== ===========
Diluted 27,515,000 29,071,000 27,858,000 29,193,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended December 31,
_____________________________
1998 1997
Cash flows from operating activities ________ ________
Net earnings $24,846,000 $26,969,000
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities
Depreciation 9,905,000 9,832,000
Deferred income taxes (3,074,000) (4,308,000)
Changes in operating assets
and liabilities:
Trading securities 1,013,000 8,575,000
Accounts receivable (10,658,000) (20,229,000)
Inventories 10,159,000 4,726,000
Prepaid expenses 1,046,000 583,000
Accounts payable (10,050,000) (8,865,000)
Accrued expenses 12,974,000 10,828,000
Income taxes 10,925,000 10,335,000
Net cash provided by (used in) __________ __________
operating activities 47,086,000 38,446,000
Cash flows from investing activities
Additions to property, plant and
equipment (6,556,000) ( 9,806,000)
Sales and maturities of available-for-sale
securities 785,000 1,052,000
Purchases of available-for-sale
securities (248,000) (1,318,000)
Net cash provided by (used in) __________ __________
investing activities ( 6,019,000) (10,072,000)
Cash flows from financing activities
Dividends paid (5,016,000) (5,249,000)
Proceeds from issuance of common stock - 827,000
Repurchase of common stock (10,754,000) (4,531,000)
Net cash used in __________ __________
financing activities (15,770,000) (8,953,000)
__________ __________
Net increase (decrease) in cash and
equivalents 25,297,000 19,421,000
Cash and equivalents at the beginning
of period 24,764,000 5,540,000
__________ __________
Cash and equivalents at the end of
period $50,061,000 $24,961,000
========== ==========
Supplemental disclosure of cash payments
for income taxes $ 7,424,000 $12,655,000
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
December 31, 1998, the results of operations for the three and nine month
periods ended December 31, 1998 and 1997 and cash flows for the nine month
periods ended December 31, 1998 and 1997. 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 these 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
1,342,692 and 553,192 shares of common stock with weighted average exercise
prices of $11.71 and $13.67 were outstanding during the three months ended
December 31, 1998 and 1997 and options to purchase 1,279,942 and 742,275 shares
of common stock with weighted average exercises prices of $11.84 and $13.15
were outstanding during the nine months ended December 31, 1998 and 1997
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,
1998 1998
___________ __________
Trading securities $19,807,000 $20,820,000
Available-for-sale debt securities 12,424,000 12,961,000
___________ __________
$32,231,000 $33,781,000
=========== ==========
NOTE D--INVENTORIES
Inventories consist of the following:
December 31, March 31,
1998 1998
___________ __________
Raw materials and sub-assemblies $18,003,000 $30,154,000
Finished goods 30,348,000 31,756,000
Parts, garments and accessories 29,639,000 26,239,000
___________ __________
$77,990,000 $88,149,000
=========== ==========
NOTE E--OTHER MATTERS
Dividend Declaration
On January 27, 1999, the Company announced that its Board of Directors
had declared a regular quarterly cash dividend of $0.06 per share, payable on
March 2, 1999 to shareholders of record on February 17, 1999.
Share Repurchase
During fiscal 1996, the Company's Board of Directors authorized the
repurchase of 1,500,000 shares of common stock. During March of 1998, the
Company's Board of Directors authorized the repurchase of an additional
1,500,000 shares of common stock. Since the inception of the share repurchase
programs, through January 27, 1999, the Company has invested $25,876,648 to
repurchase and cancel 2,668,014 shares.
NOTE F--RECLASSIFICATIONS
Certain Fiscal 1998 amounts have been reclassified to conform to the
Fiscal 1999 presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Arctic Cat Inc. and Subsidiaries (the "Company") design, engineer,
manufacture and market 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 principally
through their 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 Stock Market under the symbol ACAT.
Results of Operations
THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THE
THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 1997.
Net sales were lower than the third quarter last year because of the
previously announced planned decrease in snowmobile shipments resulting from
moderately lower orders from dealers. During the quarter snowmobile unit
volume decreased 16.2%, and PWC unit volume decreased 69.4% compared to the
same quarter last year. PWC shipments were down mainly as a result of lower
dealer orders for the 1999 summer season. ATV unit volume for the quarter
was down 4.5% as planned due to the timing of shipments. Parts, garments and
accessory sales for the quarter were $20,981,000 compared to $22,269,000 for
the same quarter last year. Year-to-date sales decreased 7.2% to $391,783,000
from $422,121,000 for the same period last year. This was due to a 14.1%
snowmobile unit volume decrease and a 63.8% PWC unit volume decrease due to
the reasons stated above and a 26.7% ATV unit volume increase as the Company
continues to expand its market penetration.
Gross profits decreased 23.2% to $31,523,000 from $41,056,000 for the
same quarter of fiscal 1998. The gross profit percentage for the quarter
decreased to 28.7% from 29.4% for the same period last year mainly due to a
change in the model mix and the negative fluctuation between the US dollar and
the Canadian dollar. Mitigating this decrease was the positive fluctuation
between the U.S. dollar and the Japanese yen. As a percent of net sales,
year-to-date gross profit percentages decreased to 27.2% from 27.9%. This
decrease is primarily due to decreased sales of higher margin snowmobiles and
parts, garments and accessories and increased sales of ATVs which yield a lower
margin.
Operating expenses for the quarter decreased 19.3% due to decreased
snowmobile and PWC marketing expenses. These were offset by increased ATV
marketing expenses related to increased sales. Year-to-date operating expenses
decreased 9.8% to $69,949,000 from $76,998,000 in fiscal 1998 due to lower PWC
marketing expenses and decreased expenses in various departments which were
offset by increased ATV marketing expenses.
Net earnings for the third quarter of fiscal 1999 were $4,278,000, or
$0.16 per share on a diluted basis, as compared to net earnings of $6,193,000,
or $0.21 per share on a diluted basis, for the third quarter of fiscal 1998.
Year-to-date net earnings were $24,846,000, or $0.89 per share on a diluted
basis, as compared to net earnings of $26,969,000, or $0.92 per diluted 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 snowmobile and ATV production in the
early spring and commencement of shipments late in the first quarter result
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 $82,292,000 at December 31, 1998.
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.
Line of Credit
The Company has a $75,000,000 unsecured credit agreement with a bank
for documentary and stand-by letters of credit and for working capital
purposes. Total working capital borrowings under the credit agreement are
limited to $30,000,000. The credit agreement is due on demand and expires
July 30, 1999.
Year 2000
The Company continues to assess and address the impact of the Year 2000
issue on its business. This issue affects computer systems that have date-
sensitive programs that may not properly recognize the year 2000. The Company
uses software and related technologies throughout its business. The Company
has completed its assessment of the information systems (IS) used in its
internal business operations, and its procurement and production processes. In
addition, the Company is beginning its assessments of the Year 2000 readiness
of its non-IS systems, as well as supplier and customer readiness.
The Company's Year 2000 initiative is being managed by a team of
internal staff with the assistance of outside consultants. The team's
activities are designed to ensure that there is no adverse effect on the
Company's business operations and that transactions with suppliers, financial
institutions and customers are fully supported. The Company is under way with
these efforts, which are scheduled to be completed during the Summer of 1999.
While the Company believes its planning efforts are adequate to address its
Year 2000 concerns, there can be no guarantee that the systems of other
companies on which the Company's systems and operations rely will be converted
on a timely basis and will not have a material adverse effect on the Company's
results of operation and financial condition. The most reasonably likely
effects of non-Year 2000 compliance by third parties includes the disruption or
inaccuracy of data and business disruption caused by failure of suppliers to
provide key component parts.
The cost of the Year 2000 initiatives is estimated at less than
$500,000 and will be funded out of current operations and expensed in fiscal
1999. At the present time there are no contingency plans being developed in
the event of a worst case scenario. If it becomes apparent during the Summer
of 1999 that essential internal and third party systems relied on by the
Company will not be Year 2000 compliant prior to the end of 1999, the Company
will develop contingency plans. Factors that could influence the amount and
timing of costs include the success of the Company in identifying systems and
programs that are not Year 2000 compliant, the nature and amount of programming
required to upgrade or replace each of the affected programs or systems, and
the availability, cost and magnitude of related labor and consulting costs.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for certain forward-looking statements. This 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; consumer demand and confidence; and inability to
successfully address year 2000 computer system issues. Further information
concerning the Company and its business, including factors that potentially
could materially affect the Company's financial results, is contained in the
Company's other filings with the Securities and Exchange Commission.
PART II - OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
________________________________________
(a) Exhibits
27.1 financial data schedule
(b) There are no reports on Form 8-K filed during the Quarter ended
December 31, 1998.
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 11, 1999 By s/Christopher A. Twomey
__________________ _________________________
Christopher A. Twomey
Chief Executive Officer
Date: February 11, 1999 By s/Timothy C. Delmore
__________________ _________________________
Timothy C. Delmore
Chief Financial Officer