EXHIBIT 99.1
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ARCTIC CAT
2007 ANNUAL REPORT
07
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FINANCIAL HIGHLIGHTS
(In thousands, except per share amounts)
Arctic Cat Inc. Years ended March 31, 2007 2006 2005
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INCOME STATEMENT DATA:
Net Sales $782,431 $732,794 $689,145
Operating Profit $ 31,933 $ 32,735 $ 40,035
Net Earnings $ 22,070 $ 23,746 $ 28,299
Earnings Per Diluted Share $ 1.15 $ 1.20 $ 1.36
Average Diluted Shares Outstanding 19,128 19,828 20,794
Net Margin 2.8% 3.2% 4.1%
Total Assets $326,204 $311,236 $291,733
Long-Term Debt $ 0 $ 0 $ 0
Shareholder's Equity $192,221 $189,365 $185,510
Shareholder's Equity Per Share $ 10.47 $ 9.75 $ 9.23
PERCENT OF SALES
BY PRODUCT LINE
[PIE CHART]
07 06 05
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All Terrain Vehicles 55% 54% 49%
Snowmobiles 32% 32% 37%
Parts, Garments
& Accessories 13% 14% 14%
[BAR GRAPH]
NET SALES NET EARNINGS EARNINGS PER SHARE
(in millions) (in millions) (diluted)
05 $689.1 $28.3 $1.36
06 $732.8 $23.7 $1.20
07 $782.4 $22.1 $1.15
CORPORATE PROFILE
ARCTIC CAT INC., based in Thief River Falls, Minnesota, designs, engineers,
manufacturers and markets snowmobiles and all-terrain vehicles (ATVs) under the
Arctic Cat(R) brand name, as well as related parts, garments and accessories.
Arctic Cat markets its productS through a network of independent dealers located
throughout the United States, Canada and Europe, and through distributors
representing dealers in Europe, the Middle East, Asia and other international
markets. The company trades on the Nasdaq Global Select Market under the symbol
ACAT. For more information, please visit Arctic Cat's website at
www.arcticcat.com.
ABOUT THE COVER:
Arctic Cat's new 700 Diesel Super Duty runs on six kinds of fuel and is the
industry's first biodiesel-compatible ATV ever built. The 700 Diesel reflects
our stewardship goal to be the environmental leader in all of our markets. It
meets all federal and California emissions regulations and is up to 50 percent
more fuel efficient than comparably powered gas ATVs.
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NOW THE LARGEST
U.S. SNOWMOBILE MANUFACTURER
Due to our continuing innovation and technology leadership, Arctic Cat is now
the largest U.S. snowmobile manufacturer for the first time in our history.
Demand for our extensive and high-performance line of parts, garments and
accessories has contributed to our growth. Riders can customize Arctic Cat sleds
to fit their individual needs, with options including SpeedRackTM cargo boxes,
touring packages, windshields, and customized accessories, among others.
Whether riders prefer to race, climb mountains or ride trails, Arctic Cat offers
an extensive, high-quality line of durable, performance clothing, helmets and
accessories.
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[PHOTO -- CHRISTOPHER A. TWOMEY]
TO OUR SHAREHOLDERS
WE ACHIEVED OUR SEVENTH CONSECUTIVE YEAR OF RECORD SALES IN FISCAL 2007 AND
REPORTED SALES GAINS ACROSS ALL PRODUCT LINES, DESPITE A CHALLENGING AND
INTENSELY COMPETITIVE YEAR IN OUR BUSINESS.
We also succeeded in gaining further all-terrain vehicle (ATV) and snowmobile
market share, as our retail sales continued to outpace sales in these
industries. However, difficult snowmobile market conditions caused by another
year of poor snow in the Midwest and East led to increased sales incentive
programs on snowmobiles, which dampened our overall profitability.
Arctic Cat's full-year net sales increased 7 percent to $782.4 million compared
with $732.8 million last fiscal year. Full-year net earnings totaled $22.1
million, or $1.15 per diluted share, including $0.08 per diluted share for the
non-cash expense of stock options in accordance with SFAS 123(R). The company
reported prior-year net earnings of $23.7 million, or $1.20 per diluted share,
which did not include the non-cash expense of stock options.
During fiscal 2007, we repurchased approximately 1.1 million shares of the
company's common stock, reflecting the board of directors' belief that the
company's stock remains a good investment and as part of our ongoing commitment
to enhance shareholder value. Arctic Cat has approximately $10.8 million
remaining on its current $20 million share repurchase authorization. The company
ended the fiscal year with a strong balance sheet, including $75 million in cash
and no long-term debt.
MORE ATV INDUSTRY "FIRSTS"
ATV sales rose 9 percent to $431.5 million, primarily due to strong
contributions from our Prowler(R) utility vehicle, which was named "Best Trail
Recreational Side-by-Side." The company also benefited from increased
international ATV sales, as we succeeded in establishing our international
dealer-direct distribution network in all major European markets during fiscal
2007. We believe the "on road" European ATV market represents a significant
opportunity to expand our business.
Another highlight during the fiscal year was the start of engine manufacturing
at our new facility in St. Cloud, Minn., which we opened for strategic reasons
in order to be first-to-market with the engines consumers want. This facility
also will enable us to increase our operational efficiency, profitability and
manufacturing flexibility. We began producing one model of ATV engine at this
site. We plan to expand the number of engine models we produce in St. Cloud and
add new ATV engines to Arctic Cat's model line during fiscal 2008. Among them
will be our new Thundercat(R) 1000, which offers the largest displacement ATV
engine in the industry. We introduced the Thundercat 1000 in June 2007. This ATV
exemplifies the innovative, technology leading engines Arctic Cat can now make
at our St. Cloud facility that are not available any place else in the market.
Arctic Cat also is setting new standards by offering the industry's first
biodiesel-compatible ATV, with the introduction of our new Diesel 700 model.
This machine reflects our stewardship goal to be an environmental leader in all
of our markets. It is ideally suited for use with our line of SPEEDPointTM
farming and landscaping attachments, making the machine highly functional and
versatile across a broad range of applications.
Looking ahead, we expect ATV growth to be driven by continued strong sales of
the Prowler UTV, increased international penetration and the introduction of
new, industry leading ATV products. We are excited about our ATV growth momentum
and plans.
THE #1 U.S. SNOWMOBILE MANUFACTURER
As expected, our full-year snowmobile revenues were higher in fiscal 2007 than a
year ago, fueled by the largest new model introduction in Arctic Cat's history.
Approximately 80 percent of our 2007 model line-up was comprised of brand new
models. With the 2008 model year introductions, nearly all of our snowmobile
models are new within the last two years. These innovative products have helped
drive retail sales of Arctic Cat's sleds despite a lack of snow in key regions.
As a result, for the 2007 fiscal year, the company's snowmobile sales rose 4
percent to $247.0 million.
For the first time, Arctic Cat is now the largest-selling U.S. manufacturer of
snowmobiles. We continued to gain market share during the fiscal year, as Arctic
Cat's retail snowmobile sales outpaced the industry's overall retail sales in
fiscal 2007 on the strength of our exciting, new products. In recognition of our
snowmobile innovation, three 2007 Arctic Cat sleds were named as the year's top
sleds: the Jaguar Z1, with the first 4-stroke engine built specifically for
snowmobiles; the F8 Sno Pro(R); and the M1000 mountain sled, which offers an
industry leading power-to-weight ratio.
CONTINUED PG&A GROWTH
Our full-year parts, garments and accessories sales increased 4 percent to
$103.9 million, mostly due to higher sales of ATV parts and accessories. We
believe the ATV accessory market offers significant opportunities for future
growth and we plan to concentrate on further building our PG&A business in the
ATV market. We also know that snow-related PG&A products can substantially
enhance sales when our customers see snow.
STRATEGIES TO IMPROVE GROWTH & PROFITABILITY
Although Arctic Cat's revenues in fiscal 2007 reached an all-time high, we are
not satisfied with our bottom-line results. We have taken several strategic
actions that are designed to improve our long-term profitability and growth
prospects.
First, we reduced our workforce by 4 percent in February 2007 to lower the
company's cost structure and align our resources with the current market
conditions, particularly for snow-related products.
ARCTIC CAT 2007 ANNUAL REPORT
2
Second, we announced plans for a one-time, 30 percent reduction in snowmobile
production during fiscal 2008. This adjustment will help our dealers lower their
snowmobile inventory levels to more closely match anticipated consumer demand in
the year ahead. We have taken this action because the lack of snowfall for 10
consecutive years in various regions of North America has led to lower
industrywide, retail snowmobile sales and slightly higher dealer inventories.
In fiscal 2007, as in past years, the areas of North America that received good
snow conditions experienced strong growth in retail sales by as much as 20
percent to 60 percent. However, in the rest of the country, where snow was
sparse or non-existent, retail sales declined and our dealers' inventories have
risen slightly. As a result, this year we decided to ask those dealers with
increased inventories to order fewer units in fiscal 2008, in order to bring
their inventories in line with demand. As inventories decline next year, we
expect dealers to increase their snowmobile orders modestly. The newness of our
entire snowmobile line-up means that even our dealer carryover inventory is
fresh and should sell well with snow.
Overall, we continue to be excited about the snowmobile business. Our customer
research and sales patterns show that there is pent-up demand among customers
who are simply waiting for snow. We plan to keep investing in this business at
levels that allow us to maintain our technological leadership and competitive
position, while realistically reflecting the current size of the market.
Our third strategic initiative is one that has been ongoing, however, we have
sharpened our focus on generating greater savings from global, low-cost
sourcing. This procurement effort is being led by cross-functional teams from
operations, engineering and quality. Our goal is to improve the company's
profitability through increased global sourcing, while maintaining our high
quality standards. As a result of this initiative, we already have identified
opportunities to reduce our costs by more than $8 million in fiscal 2009, with
additional opportunities in fiscal 2010.
Fourth, we announced our plan to reorganize Arctic Cat into three separate
business units for ATVs, snowmobiles and PG&A. Each business unit will be led by
a general manager with profit and loss responsibilities. This reorganized
structure will enable the company to better focus on profitably growing each
business.
In a related move, we also announced the planned relocation of our corporate
headquarters, certain corporate executives, general managers, and sales and
marketing personnel to the Minneapolis area by the fall of 2007. The company's
manufacturing operations will remain in their existing locations and will not be
affected. The reorganization and corporate headquarters move is anticipated to
cost approximately $1.6 million after tax, or $0.09 per diluted share, in fiscal
2008; half of this amount is expected to be a one-time expense. The new location
will improve the company's operating efficiencies by placing corporate personnel
closer to key business partners.
BOARD OF DIRECTOR CHANGES
William Hagen, who was one of our founding directors, retired from Arctic Cat's
board in fiscal 2007. We are grateful for his many years of dedicated service
and countless contributions, and we wish him well. We also welcomed incoming
board member David A. Roberts, who serves as chairman, president and chief
executive officer of Carlisle Companies. David brings tremendous global,
diversified manufacturing expertise that will serve Arctic Cat's shareholders
well, as we seek to expand our presence in the power sports industry in North
America and internationally. Arctic Cat currently has eight board members, of
which the majority are independent directors.
FOCUSED ON LONG-TERM RESULTS
Although we anticipate that the year ahead will be challenging, we remain
excited about Arctic Cat's significant opportunities for growth and efficiency.
Going forward, we expect continued strong revenue gains in our ATV business in
fiscal 2008 and beyond, driven by the Prowler, new model introductions and
increasing international ATV sales. With our international ATV distribution
network now in place, we expect strong double-digit international growth in
fiscal 2008. We also expect to modestly and profitably grow our snowmobile
business, after a one-time production adjustment this fiscal year. As a result
of this action, however, we are expecting lower net sales in the range of $710
million to $736 million in fiscal 2008.
Yet, the company is well-positioned to gain further market share across our
businesses, as we did in fiscal 2007. Arctic Cat will continue to offer the
best-in-class products that our customers want and that we are passionately
committed to delivering. And we are confident that the strategic initiatives
underway will generate increased revenues, improved profitability and greater
shareholder value for the long-term.
I look forward to updating you on our progress.
Sincerely,
/s/ Christopher A. Twomey
CHRISTOPHER A. TWOMEY
Chairman and
Chief Executive Officer
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ARCTIC CAT 2007 ANNUAL REPORT
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GAINING ATV MARKET SHARE
BY OFFERING THE BEST ATVS
Since 1996, Arctic Cat's sales have continually outpaced the growth of the ATV
industry and we've gained market share. Contributing to our recent growth is our
acclaimed Prowler(R) UTV, a multi-purpose, side-by-side performance utility
vehicle. A quieter 2008 model Prowler is available with a 650 H1 engine or the
new 700 H1 engine, both manufactured by Arctic Cat at our new state-of-the-art
facility in St. Cloud, Minn. Our comprehensive line of ATVs also includes the
all-new Thundercat(R) 1000, which is the most powerful ATV ever built and
features the new H2 engine from Arctic Cat. Regardless of size, Arctic Cat's
ATVs continue to offer best-in-class suspension travel, ground clearance, rack
and fuel capacity, and towing power, as well as outstanding performance, style
and versatility.
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The powerful 700 EFI's electric shift-on-the-fly takes you from two-wheel drive
to four-wheel drive with the flip of a switch.
Arctic Cat's race-bred suspension with "ride-in" calibration improves handling
control by automatically lowering a rider's seat height and center of gravity up
to 2 inches, without affecting ground clearance.
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[PHOTO -- RIDE]
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The 650 H1, powered by an Arctic Cat-built 4-stroke 650 Hemi engine, delivers
best-in-class performance.
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ARCTIC CAT 2007 ANNUAL REPORT
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Our new 1000 snowmobile engine is a 2-stroke locomotive offering the best of
both worlds - improved power with reduced fuel consumption. The 1000 is
available on our F Series high-performance, M Series and CrossfireTM performance
crossover models.
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A new deluxe gauge does it all, providing digital or analog speed, tachometer,
odometer, trip meters, clock, fuel indicator, altimeter, reverse indicator,
warning lights and a Cat CommTM communication system.
THE LEADER IN
SNOW INNOVATION
Our exciting new 2008 model snowmobile line-up builds on our legacy of
snowmobile innovation. We've completely revamped our line-up within the past two
years in order to offer riders even greater power, comfort, performance handling
and fuel efficiency than ever before. Our award-winning sleds offer many
industry "firsts," such as our introduction of the Twin Spar Chassis, which
places riders in an ideal, ergonomic position. This new chassis is the backbone
of our F Series, Jaguar and Touring sleds. Our snowmobiles also offer
industry-leading features such as adjustable seats, handlebars and footrests,
push-button reverse, and heated seats, just to name a few. No wonder a growing
number of riders prefer Arctic Cat.
ARCTIC CAT 2007 ANNUAL REPORT
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The CrossfireTM performance crossover model provides the perfect combination of
power and agility, no matter what the terrain.
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Plowing, hauling, mowing, digging and a myriad of other activities are made
easier with Arctic Cat's exclusive SpeedRackTM mounted accessories and
SPEEDPointTM pull-behind attachments.
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VERSATILITY THAT TAKES
YOU TO THE NEXT LEVEL
Talk about versatility. Adding Arctic Cat's extensive ATV accessories to our new
700 Diesel Super Duty makes it three machines in one. Ride it solo or pull two
pins and replace the rear SpeedRackTM with a comfortable passenger seat or
attach a heavy-duty cargo box. It can be hooked up to any SPEEDPointTM accessory
- - the plow, disc, harrow, cultivator, sprayers and more. And it runs on six
kinds of fuel, including biodiesel.
CORPORATE INFORMATION
BOARD OF DIRECTORS
ROBERT J. DONDELINGER(+o)
Chairman,
Northern Motors
Thief River Falls, MN
MASAYOSHI ITO
General Manager
America/Europe Motorcycle
Marketing Department,
Suzuki Motor Corporation
Hamamatsu, Japan
SUSAN E. LESTER(*o)
Private Investor
Director of First Community
Bancorporation and
Bremer Investment Funds, Inc.
Minneapolis, MN
WILLIAM G. NESS
Vice Chairman,
Arctic Cat Inc.
Hudson, WI
GREGG A. OSTRANDER(*+x)
Chairman, President and
Chief Executive Officer,
Michael Foods, Inc.
Minneapolis, MN
DAVID ROBERTS(+o)
Chairman, President and
Chief Executive Officer,
Carlisle Companies
Charlotte, NC
KENNETH J. ROERING(*ox)
Professor,
Carlson School of Management,
University of Minnesota
Minneapolis, MN
CHRISTOPHER A. TWOMEY
Chairman, President and
Chief Executive Officer,
Arctic Cat Inc.
Thief River Falls, MN
* Audit Committee Member
+ Compensation Committee Member
o Governance Committee Member
x Stock Grant Subcommittee Member
OFFICERS
CHRISTOPHER A. TWOMEY
Chairman, President and
Chief Executive Officer
TIMOTHY C. DELMORE
Chief Financial Officer
and Secretary
TERRY J. BLOUNT
Vice President -
Human Resources
RONALD G. RAY
Vice President -
Operations
ROGER H. SKIME
Vice President -
Research & Development
OLE E. TWEET
Vice President -
New Product Development
CORPORATE HEADQUARTERS
601 Brooks Avenue South
Thief River Falls, MN 56701
218-681-8558
LEGAL COUNSEL
Robins, Kaplan, Miller
& Ciresi L.L.P.
Minneapolis, MN
Ihle & Sparby, P.A.
Thief River Falls, MN 56701
AUDITOR
Grant Thornton LLP
Minneapolis, MN
COMMON STOCK
AND PERFORMANCE GRAPH
Arctic Cat's common stock is traded on the Nasdaq Global Select Market under the
symbol "ACAT." A performance graph comparing the performance of the Company's
Common Stock on the NASDAQ Global Select Market to the S&P Index and the
Recreational Vehicles Index is included in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held August 8, 2007, which accompanies this
Annual Report.
SHAREHOLDER ASSISTANCE
If you change your address, or if you have questions about payment of dividends,
combining two or more accounts, duplicate mailings, changes in registration or
lost stock certificates, please contact our Transfer Agent and Registrar.
Wells Fargo
Shareowner Services
161 N. Concord Exchange
South St. Paul, MN 55075
1-800-689-8788
matthew.d.paseka@wellsfargo.com
FURTHER INFORMATION
Shareholders may obtain a copy of the 2007 Form 10-K report, including the
financial statements, without charge upon written request to:
Timothy C. Delmore
Secretary
Arctic Cat Inc.
601 Brooks Avenue South
Thief River Falls, MN 56701
INTERNET ACCESS
To view the company's financial information, products, specifications and dealer
locations, access Arctic Cat on the Internet at: www.arcticcat.com
The Nancekivell Group www.nancekivell.com
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[ARCTIC CAT LOGO]
601 Brooks Avenue South
Thief River Falls, MN 56701
www.arcticcat.com