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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended March 31, 2001 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
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.
Preferred Stock Purchase Rights.
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 11, 2001 (based on the closing sale price of the Common
Stock on such date) was approximately $225,161,752.
At June 11, 2001, 16,273,178 shares of Common Stock and 7,560,000 shares of
Class B Common Stock of the Registrant were outstanding.
Documents Incorporated by Reference:
Portions of the Company's Proxy Statement for its Annual Meeting of
Shareholders currently scheduled to be held on August 9, 2001 is incorporated
by reference into Part III of this Form 10-K.
ARCTIC CAT INC.
FORM 10-K
TABLE OF CONTENTS
Description Page Numbers
PART I
ITEM 1. Business 3-8
ITEM 2. Properties 8
ITEM 3. Legal Proceedings 8
ITEM 4. Submission of Matters to a Vote of Security Holders 9
ITEM 4A. Executive Officers of Registrant 9
PART II
ITEM 5. Market for Registrant's Common Equity and Related 10
Stockholder Matters
ITEM 6. Selected Financial Data 10
Quarterly Financial Data 11
ITEM 7. Management's Discussion and Analysis of Financial 11-14
Condition and Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosures About 14
Market Risk
ITEM 8. Financial Statements and Supplementary Data 14
ITEM 9. Changes in and Disagreements with Accountants on 14
Accounting and Financial Disclosure
PART III
ITEM 10. Directors and Executive Officers of the Registrant 15
ITEM 11. Executive Compensation 15
ITEM 12. Security Ownership of Certain Beneficial Owners and 15
Management
ITEM 13. Certain Relationships and Related Transactions 15
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports 16
on Form 8-K
Signatures 17
Consolidated Balance Sheets 18
Consolidated Statements of Earnings 19
Consolidated Statements of Shareholders' Equity 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 22-27
Report of Independent Certified Public Accountants 28
Exhibit Index 29
Exhibit 21 29
Exhibit 23 29
PART I
ITEM 1. BUSINESS
Arctic Cat Inc. (the "Company"), based in Thief River Falls, Minnesota,
operates in a single industry segment and 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. 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.
Industry Background
Snowmobiles - The snowmobile, developed in the 1950's, was originally intended
to be used as a utility vehicle, but today the overwhelming majority of the
industry's sales are for recreational use. Between the late 1950's and early
1970's, the industry expanded dramatically reaching a peak of over 100
manufacturers and a high of almost 495,000 units sold to retail customers in
North America in 1971. Gasoline shortages, significant gasoline price
increases, high interest rates and recessions in the middle to late 1970's
through the early 1980's contributed to a significant industry downsizing.
Today the number of major industry participants has decreased to four.
Industry-wide snowmobile sales to retail customers in North America
were approximately 188,000 units for the 2001 model year. The Company believes
these sales were due, in part, to a number of factors such as an expanded
system of public and private snowmobile trails, a rapidly growing market among
the "baby boomer" generation, product innovations that have improved ride,
performance and handling, organized snowmobile clubs which promote the sport
and ongoing snowmobile replacement. Since 1971, approximately 6,100,000
snowmobiles have been sold in North America, and the Company estimates that
over 85 percent of current industry sales are to retail customers who own, or
previously owned, a snowmobile.
The industry consolidation that occurred in the mid-1970's through
the early 1980's has left four major participants in the North American
market: Arctic Cat, Bombardier (Ski-Doo), Polaris and Yamaha. The
Company believes the industry consolidation has contributed to improved
industry profit margins and closer monitoring of industry inventory levels.
The Company believes there are currently more significant barriers to entry
into the snowmobile market than existed in the 1970's.
These barriers include increased brand loyalty, long-standing dealer
and distributor networks and relationships, limited engine sources,
manufacturing and engineering expertise and higher initial start-up
costs.
Information in this document regarding the worldwide and North American
snowmobile market is derived from the International Snowmobile Manufacturers
Association. Non-North American sales for the industry are estimated to account
for less than 10% of worldwide sales; specific yearly information, with respect
to worldwide sales, is not considered by the Company as sufficiently consistent
or reliable for presentation in this report. All industry information is based
on a model year ending March 31, which is the same as the Company's fiscal
year-end, unless otherwise stated.
All-Terrain Vehicles (ATVs) - The ATV industry evolved from the
three-wheel model that was developed in the early 1970s to the four-
wheel models that are sold today. ATVs are generally one person
vehicles used for a variety of off-road uses. The most popular ATV
use is general recreation, followed by hunting/fishing, farm/ranch use,
hauling/towing, transportation, and commercial uses. From 1970 to
1986, the number of three and four-wheel ATVs sold in the United
States continued to grow until peaking in 1986 with approximately
535,000 units sold during that calendar year. From 1987 to 1991, the
number of ATVs sold declined to a low of approximately 151,000 units.
Since 1992, sales have gradually climbed until reaching approximately
646,000 units in calendar 2000. Major competitors in the industry
include Honda, Yamaha, Kawasaki, Bombardier, Polaris and Suzuki.
Personal Watercraft (PWC) - Arctic Cat entered the personal
watercraft business in 1993, during a time of rapid industry growth.
North American sales peaked at about 210,000 units in 1995, only two
years after the Company entered the market, and declined every year
since. By the 1999 model year, the market had dropped by half, to only
110,000 units. While the Company was uncertain how far the industry
would continue to fall, the personal watercraft market was not profitable
for Arctic Cat or its dealers. On October 7, 1999, Arctic Cat announced
that it was exiting the personal watercraft (PWC) business effective
September 30, 1999. The Company recorded a pre-tax charge of
$26.2 million related to the discontinuation of its Tigershark line of
PWCs. This charge includes the cost of closing down the production
line, and supporting dealers' efforts to sell remaining PWC inventory
and service existing PWC customers. Arctic Cat then refocused
management's time and the Company's significant financial resources
on the profitable and strong snowmobile business, and profitable and
rapidly growing ATV product line.
Products
Snowmobiles - The Company produces a full line of snowmobiles,
currently consisting of 32 models, marketed under the Arctic Cat brand
name, and designed to satisfy various market niches. The 2001 Arctic
Cat models carry suggested U.S. retail prices ranging from $3,699
to $10,249, excluding a children's model which is sold at a suggested
U.S. retail price of $1,899. Arctic Cat snowmobiles are sold in the
United States, Canada, Scandinavia and other international markets.
The Company's 2001 year snowmobile models are categorized as
High Performance, Trail Performance, Powder, Luxury Touring, Family
Trail, Family Touring and Sport Utility. The Company markets: High
Performance Arctic Cat snowmobiles under the names Thundercat,
ZRT, and ZR; Trail Performance Arctic Cat snowmobiles under the
name ZL; Powder snowmobiles under the name Mountain Cat; Luxury
Touring models under the names Triple Touring and Pantera; Family
Trail snowmobiles under the name Z; Family Touring snowmobiles
under the name Panther; and Sport Utility models under the name
Bearcat. In addition, to encourage family involvement in snowmobiling,
the Company offers snowmobiles designed especially for small
children, marketed under the Z120 name.
The Company believes the Arctic Cat brand name enjoys a premier
image among snowmobile enthusiasts and that its snowmobiles have
a long-standing reputation for quality, performance, style, comfort, ride
and handling. Arctic Cat snowmobiles offer a wide range of standard
and optional features which enhance the operation, riding comfort and
performance. Such features include hydraulic disc brakes and a
technologically advanced front and rear suspension. Arctic Cat is the
only company in the industry that offers an electronic fuel injection (EFI)
system on its snowmobiles. In 1999, the Company developed a new
corporate brand "ACT"TM (Arctic Cat Technology) in order to recognize
and leverage its industry-leading technology and engineering.
The above named features as well as other future exclusive Arctic
Cat innovations will carry this new ACT brand. Additional features on
certain models include electronic engine gauges and indicator lights,
electric starters, handlebar and thumb warmers, reverse gears, 2-up
seats, mirrors, custom windshields, hitches and luggage racks as well
as other features. These features may also be purchased separately
from independent Arctic Cat dealers as accessories.
Arctic Cat's on-going commitment to both high performance and its
retail customers has led the Company in a series of "firsts". In 1988,
the Company and Suzuki introduced a new line of compact, lightweight,
liquid-cooled twin cylinder engines. In 1990, the Prowler was the first
snowmobile to offer a new double-wishbone suspension. With its high
performance 1991 Wildcat model, the Company became the first in the
industry to offer a 700cc electronic fuel injection engine. In 1992, the
Arctic FasTrack, extra-long travel rear suspension was introduced on
several high performance models. In 1993, the Company became the
first to offer a 900cc, 3 cylinder snowmobile, called the Thundercat.
In 1997, Arctic Cat offered the first batteryless EFI system and in 2000
unveiled the first useable four-stroke snowmobile. In 2001, Arctic Cat
was the first company to offer a trail smoothing computerized rear
suspension system.
Arctic Cat believes that its leadership in innovation, technology, style
and performance has been demonstrated by its models being voted
"Snowmobile of the Year" by Snowmobile, Snowgoer and Sno West
magazines with respect to the EL Tigre 6000 in 1984, the Wildcat 650
in 1988, the Prowler in 1990, the EXT Special in 1991, the ZR 440 in
1994, the Powder Special EFI and the ZR 600 EFI in 1998. In 1999, the
ZR 500 EFI received the "Best in Class" award and the Powder Special
500 EFI received "Sport Mountain Sled of the Year". In 2000,
Snowmobile magazine rated the following machines "Best in Class":
Thundercat, ZRT 600, ZR 600 and Z370. In 2001, Snowmobile
magazine rated the following machines "Best in Class": ZR 500, ZL 650
EFI, Z120, Triple Touring, Panther 440 and Mountain Cat 500 EFI.
Arctic Cat believes that it has been able to grow in the worldwide
snowmobile retail sales due to its emphasis on new product
development. A new model has been introduced by the Company early
each year since its formation, and in recent years new models have
been among the Company's best sellers. In the 2001 model year,
approximately 85 percent of the Company's snowmobile sales were
from models or model variations not available three years earlier.
All-Terrain Vehicles (ATVs) - In December 1995, the Company
introduced its first ATV, the Bearcat 454 4X4, which provided many
industry-leading features such as exclusive rocker-shifter, full floor
boards, and a 50-inch wheelbase. Since that time, the Arctic Cat ATV
line has grown to include eight models: the Arctic Cat 500 4x4
automatic and the following manual models: 500 4x4, 400 4x4 and 400
2x4, 300 4x4, and 300 2x4, and 250 4x4 and 2x4. These heavy duty
models feature aspects ensuring ease of handling and agility over
rough terrain. Features like independent front suspensions, hydraulic
disc brakes, hi-low range and a plentiful 4.75 gallon fuel tank, all make
Arctic Cat ATVs consumer friendly. The 2001 Arctic Cat ATV models
carry suggested U.S. retail prices ranging from $3,599 to $6,999.
Arctic Cat believes its ATVs are renown for their power and durability
and are well received within the market. For model year 1998, the Arctic
Cat 300 was named "Editors Choice" by Sports Afield and "Best In
Class" by ATV Magazine. For model year 1999, ATV Magazine named
the 300 4x4 as "Best in Class" and the 500 4x4 as the Editors Pick for
"Best-for-Work" machine. Farm Industry News gave Arctic Cat 2000
models the FinOvation Award for having the greatest reader interest.
ATV magazine awarded the Arctic Cat 250 4x4 model "Best in Class"
in fiscal 2001.
Parts, Garments and Accessories - The Company is the exclusive
provider of genuine Arctic Cat snowmobile and ATV parts as well as
garments and accessories. Included are replacement parts for Arctic
Cat snowmobiles, items to upgrade a snowmobile such as an electric
start kit, a reverse gear kit and a two-speed transmission kit, as well
as accessories such as mirrors, windshields, luggage racks, backrests,
two-person seats, saddlebags, bumpers, gauges, tail light protectors
and snowmobile covers. Other items include maintenance supplies
such as oil and fuel additives, clutch and carburetor parts, track studs
and carbide runners, shocks and springs, accessory fuel tanks, vinyl
protectant, touch-up paint, hood and windshield cleaners, windshield
defogger and engine storage preservers. Arctic Cat ATV parts and
accessories include winch kits, plow kits, portable lights, utility bags
as well as maintenance supplies such as brake fluid, fuel de-icer,
anti-freeze, and fuel stabilizers. The Company also sells generators
under the "Arctic Cat" label.
The Company offers snowmobile garments for adults and children
under the "Arcticwear" label. Suits, jackets, pants and accessory
garments are offered in a wide variety of styles and sizes combining
fashion with functional utility designed for the demands of snowmobiling
and other winter activities. The Arcticwear line of clothing also includes
crew neck sweaters, pull-overs, riding gloves, hats, fog-resistant face
shields, helmets, boots, duffel bags, jerseys and T-shirts. The colors
and designs of many of these items are coordinated with specific Arctic
Cat snowmobile models.
The Company offers ATV garments under the "Arcticwear ATV Gear"
label. This line of clothing is geared toward function and comfort and
includes suits, jackets, gloves, boots, helmets, sweatshirts, T-shirts,
and caps.
The Company has in the past, and may in the future, consider
adding other products consistent with its manufacturing and marketing
expertise.
Manufacturing and Engineering
Arctic Cat snowmobiles and ATVs are manufactured at the Company's
facilities in Thief River Falls, Minnesota. The Company paints hoods
and produces other parts for its Arctic Cat snowmobiles and ATVs in
Madison, South Dakota. The Company also has a facility in Bucyrus,
Ohio which houses its service parts, garments and accessories
distribution operations. The Company has strategically identified
specific core manufacturing competencies for vertical integration and
has chosen outside vendors to provide other parts. The Company has
developed relationships with selected high quality vendors in order to
obtain access to particular capabilities and technologies outside the
scope of the Company's expertise. The Company designs component
parts often in cooperation with its vendors, contracts with them for the
development of tooling, and then enters into agreements with these
vendors to purchase component parts manufactured utilizing the tooling.
In its vertically integrated operations, the Company manufactures
hoods, foam seats and seat covers and machines, welds and paints
other components. The Company then completes the total assembly of
its products at its facilities in Thief River Falls. Manufacturing operations
include digital and computer-automated equipment to speed production,
reduce costs and improve the quality, fit and finish of every product.
The Company believes that all raw materials used in its manufacturing
process and all component parts, with the exception of engines and
carburetors, are available from multiple alternative vendors on short
notice at competitive prices.
Since the Company's inception, its snowmobile engines have been
manufactured by Suzuki Motor Corporation ("Suzuki") pursuant to a
supply agreement which is automatically renewed annually unless
terminated. While notice of termination of the supply agreement may
be given annually, effective cessation of supply would take at least one
model year due to the contractual notice requirement. The Company's
ATV models also incorporate engines manufactured by Suzuki.
The Company and Suzuki have enjoyed an excellent relationship
since the Company's inception. Suzuki purchased approximately 31%
of the Company's then outstanding capital stock in July 1988, prior to
the Company's initial public offering, and is currently the Company's
largest shareholder with approximately 32% of the Company's
outstanding capital stock. If Suzuki were ever to cease supplying
engines to the Company, such an interruption could materially and
adversely affect production. The Company believes it could take up to
two model years for a new engine supplier to be in a position to
manufacture the Company's specially designed engines.
Since the Company began production, it has followed a build-to-order
policy to control inventory levels. Under this policy, the Company only
manufactures a number of machines equivalent to the orders received
from its dealers and distributors, plus a small number of uncommitted
machines used for new dealer development, in-house testing and
miscellaneous promotional purposes. Speculative production and
excessive inventories in certain periods during the 1970's and early
1980's contributed to significant price discounting in the snowmobile
industry. Since the consolidation of the snowmobile industry in the mid-
1970's through the early 1980's, speculative production in the industry
has been reduced and dealer inventories have remained consistently
below historic peak levels. The Company believes dealer inventory
levels of non-current Arctic Cat model snowmobiles and ATVs have
regularly been and are currently among the lowest in the industry.
Most sales of snowmobiles to retail customers begin in the early
fall and continue during the winter. Orders by dealers and distributors
for each year's production are placed in the spring following a series
of dealer and distributor meetings. Snowmobiles are built-to-order
commencing in the spring and continuing through late autumn or early
winter. Since its inception, the Company has experienced a low level
of snowmobile order cancellations. Approximately 30% to 40% of the
Company's snowmobiles have historically been sold to retail customers
prior to the end of October, long before the season's snow conditions
are known.
Retail sales of ATVs occur throughout the year with seasonal highs
occurring in the spring and fall. As with the snowmobiles, the Company
produces ATV units on a build-to-order basis. The Company builds
ATVs throughout the year to coincide with dealer and consumer demands.
The Company is committed to an ongoing engineering program
dedicated to innovation and to continued improvements in the quality
and performance of its products as well as product diversification. The
Company currently employs 132 individuals in the design and
development of new and existing products, with an additional 35
individuals directly involved in the testing of snowmobiles, and ATVs in
normal and extraordinary conditions at the Company's test track. In addition,
snowmobiles and ATVs are tested in conditions and locations similar
to those in which they are used. The Company uses computer-aided
design and manufacturing systems to shorten the time between initial
concept and final production. For 2001, 2000 and 1999, the Company
spent approximately $10,449,000, $9,872,000 and $9,545,000, or 2.0%
of net sales each year, on engineering, research and development, all
of which was Company sponsored. In addition, utilizing their particular
expertise, the Company's vendors regularly test and apply new
technologies to the design and production of component parts.
Sales and Marketing
The Company's products are currently sold through an extensive
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. See Note L to the Consolidated Financial Statements for
discussion of international sales. To promote new dealerships and to
service its existing dealer network, the Company also employs sales
representatives throughout the United States and Canada to represent its
products.
The Company's dealers enter into an annual renewable contract
and are required to maintain status as an authorized dealer in order to
continue selling the Company's products. To obtain and maintain such
status, dealers are required to order a sufficient number of snowmobiles
and/or ATVs to service their market area adequately. In addition, the
dealers must perform service on these units and maintain satisfactory
service performance levels, and their mechanics must complete special
training provided by the Company. Dealers are also required to carry
an inventory of genuine Arctic Cat parts and accessories. As is typical
in the industry, most of the Company's dealers also sell some
combination of motorcycles, marine products, lawn and garden
products and other related products. Approximately 50% of the Company's dealers
sell only Arctic Cat snowmobiles, versus multiple brands of
snowmobiles. Relations with dealers are generally considered
excellent.
The Company utilizes exclusive distributors outside the contiguous
48 United States and Canada to take advantage of their knowledge
and experience in their respective markets and to increase market
penetration of its products. Each distributor is subject to a distribution
agreement which stipulates an exclusive territory for a term ranging
from one to three years with specified minimum sales and service
requirements for their territory. In fiscal 1997, the Company began
marketing its complete product lines to Canadian dealers. The
Company believes that marketing directly through dealers brings the
Company closer to its Canadian customers, which enables improved
service and more competitive prices on snowmobiles, ATVs and parts,
garments and accessories. Canadian sales are made in Canadian
dollars, nearly all of which is financed through certain Canadian
financial institutions. Sales outside North America are normally made in
U.S. dollars and most are supported by letters of credit or credit
insurance.
The Company's marketing efforts are comprised of dealer, distributor
and customer promotions, advertising and cooperative programs with
its dealers and distributors. Each year, the Company and its distributors
conduct dealer shows in order to introduce the upcoming year's models
and to promote dealer orders. Marketing activities are also designed
to promote directly to consumers. Products are advertised by the
Company in consumer magazines and through other media. In addition,
the Company engages in extensive dealer cooperative advertising, on
a local and national level, whereby the Company and its dealers share
advertising costs. Each season the Company produces promotional
films, product brochures, point of purchase displays, leaflets, posters
and banners, and other promotional items for use by dealers. The
Company also participates in consumer shows and rallies with dealers
and sponsors independent drivers who participate in races throughout
the world. In order for its dealers and distributors to remain price
competitive and to reduce retail inventories, the Company will from time
to time make available to them rebate programs, discounts, or other
incentives. The Company publishes and mails, four times a year, the
Pride magazine to all registered owners of its products.
The Company places strong emphasis on identifying and addressing
the specific needs of its customers by periodically conducting dealer
and consumer focus group meetings and surveys.
The Company warrants its snowmobiles and ATVs under a limited
warranty against defects in materials and workmanship for a period
ranging from six months to one year from the date of retail sale or for a
period of 90 days from the date of commercial or rental use. Repairs or
replacements under warranty are administered through the Company's
dealers and distributors.
Competition
The snowmobile and ATV markets are highly competitive, based on a
number of factors, including performance, styling, fit and finish, brand
loyalty, reliability, durability and price. The Company believes Arctic Cat
snowmobiles and ATVs are highly regarded by consumers in all of
these competitive categories. Certain of the Company's competitors
are more diversified and have financial and marketing resources which
are substantially greater than those of the Company.
Regulation
Both federal and state authorities have vigorous environmental control
requirements relating to air, water and noise pollution that affect the
manufacturing operations of the Company. The Company endeavors to
insure that its facilities comply with applicable environmental regulations
and standards. Various states and other governmental agencies have
also promulgated safety regulations regarding the use of snowmobiles
and ATVs. The Company has supported laws and regulations
pertaining to safety and noise abatement. The Company believes that
the adoption of any pending laws or regulations would not negatively
affect its products to any greater degree than those of its competitors.
California has enacted legislation setting emission standards for
ATVs, and the company currently meets these requirements. The
Company supports balanced and appropriate programs that educate
the customer on safe use of its products and protect the environment.
Although currently the snowmobile industry is not regulated by any
federal or state legislation, the Environmental Protection Agency (EPA)
has initiated a process to regulate snowmobile and ATV engines. The
Company expects a final ruling no earlier than September of 2002
affecting the model years 2006 and beyond.
Certain materials used in snowmobile and ATV manufacturing that
are toxic, flammable, corrosive or reactive are classified by the federal
and state governments as "hazardous materials." Control of these
substances is regulated by the EPA and various state pollution control
agencies, which require reports and inspection of facilities to monitor
compliance. The Company's cost of compliance with environmental
regulations has not been, and is not expected to be, material. The
Company's manufacturing facilities are subject to the regulations
promulgated by, and may be inspected by, the Occupational Safety
and Health Administration.
The Company is a member of the International Snowmobile
Manufacturers Association (ISMA), a trade association formed to
promote safety in the manufacture and use of snowmobiles, among
other things. The ISMA is currently made up of Arctic Cat, Bombardier
(Ski-Doo), Yamaha, and Polaris. The ISMA members are also
members of the Snowmobile Safety and Certification Committee
(SSCC), which promulgated voluntary safety standards for
snowmobiles. The SSCC standards, which require testing and
evaluation by an independent testing laboratory of each model
produced by participating snowmobile manufacturers, have been
adopted by the Canadian Department of Transport. Following the
development of the SSCC standards, the U.S. Consumer Products
Safety Commission denied a petition to develop a mandatory federal
safety standard for snowmobiles in light of the high degree of
adherence to the SSCC standards in the United States. Since the
Company's inception, all of its models have complied with the SSCC
standards.
The Company is a member of the Specialty Vehicle Institute of
America (SVIA), a trade association organized to foster and promote
the safe and responsible use of specialty vehicles manufactured and/
or distributed throughout the United States of America. The Company
is also a member of the Canadian All-Terrain Vehicle Distributors
Council (CATV), a council of similar function. In addition, the Arctic Cat
ATV conforms to certain U.S. Consumer Product Safety Commission
standards.
Effects of Weather
While from time to time lack of snowfall in a particular region of the
United States or Canada may adversely affect snowmobile retail sales
within that region, the Company works to mitigate this effect by taking
snowmobile orders in the spring for the following winter season and by
working with its dealers to move snowmobiles out of a region with light
snowfall to another region with heavier snowfall. Nonetheless, there
is no assurance that weather conditions will not materially effect the
Company's future sales of snowmobiles or ATVs.
Employees
At March 31, 2001, the Company had approximately 1,122 employees
including 276 salaried and 846 hourly and production personnel. Due
to the seasonal nature of sales and the Company's snowmobile
production schedule, prior to the introduction of the ATV, approximately
60% of hourly personnel worked only during the spring through the late
fall production period. However, during the past five fiscal years, a
majority of employees remained employed throughout the year to
produce the Arctic Cat ATV. The Company's employees are not
represented by a union or subject to a collective bargaining agreement.
The Company has never experienced a strike or work stoppage and
considers its relations with its employees to be excellent.
Intellectual Property
The Company makes an effort to patent all significant innovations that
it considers patentable and owns numerous patents and know-how
which relate to production of its snowmobiles, ATVs and other products.
Trademarks are important to the Company's snowmobile, ATVs and
related parts, garments and accessories business activities. While from
time to time the Company becomes aware of the unauthorized use of
its trademarks, particularly in the sale of promotional items, the
Company has a vigorous program of trademark enforcement to
eliminate the unauthorized use of its trademarks, thereby strengthening
the value of its trademarks and improving its image and customer
goodwill. The Company believes that its "Arctic Cat " registered United
States trademark is its most significant trademark. Additionally, the
Company has numerous registered trademarks, trade names and
logos, both in the United States and internationally.
ITEM 2. PROPERTIES
The Company owns its manufacturing facilities and executive offices
in Thief River Falls, Minnesota. The facilities consist of approximately
498,000 square feet of manufacturing, office and warehouse space on
49.5 acres, including approximately 417,000 square feet devoted to
manufacturing, and approximately 81,000 square feet devoted to office
and administrative uses. The Company also owns a separate building
on land contiguous to the manufacturing facilities and executive offices.
The building consists of approximately 60,000 square feet on two floors
of which the Company utilizes approximately two-thirds for its sewing
production of Arcticwear garments and snowmobile seats.
The Company owns three separate parcels of undeveloped land
adjacent to its Thief River Falls property totaling approximately 94.8
acres. This property is used by the Company for some of its testing
activities and remains available for future expansion.
The Company owns a 37,000 square foot building located in
Madison, South Dakota, which is used to paint hoods and produce
parts for snowmobiles and ATVs. The Company also owns a 220,000
square foot facility in Bucyrus, Ohio, to house its service parts,
garments and accessories distribution operations. The Company
believes the Bucyrus facility's proximity to central shipping hubs and
close access to Canada provides decreased delivery times to the
majority of its dealers.
ITEM 3. LEGAL PROCEEDINGS
Accidents involving personal injury and property damage occur in the
use of snowmobiles, PWC, and ATVs. Claims have been made against
the Company from time to time. It is the Company's policy to vigorously
defend against these actions. The Company believes that the cases in
discovery are adequately covered by reserves and product liability
insurance. Although the Company from time to time has been named
as a defendant in lawsuits involving product liability claims against
Arctic Enterprises, Inc. on the theory that the Company is a successor
of Arctic Enterprises, Inc., the Company is not a successor of Arctic
Enterprises, Inc. and has never been found liable in any such lawsuits.
The Company is not involved in any legal proceedings which are
considered to have the potential for a materially adverse impact on the
Company's business or financial condition.
Product liability insurance is presently maintained by the Company
on a "per occurrence" basis (with coverage being provided in respect of
accidents which occurred during the policy year, regardless of when the
related claim is made) in the amount of $10,000,000 in the aggregate,
with a $1,000,000 self-insured retention. The Company believes such
insurance is adequate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the shareholders' during the fourth quarter of
fiscal 2001.
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT
Name Age Position
- --------------- --- ---------------------------
William G. Ness 63 Chairman of the Board of Directors
Christopher A. Twomey 53 President and Chief Executive Officer
Terry J. Blount 58 Vice President - Human Resources
Robert Bonev 43 Vice President - Marketing
Timothy C. Delmore 47 Chief Financial Officer and Corporate Secretary
Ronald G. Ray 52 Vice President - Manufacturing
Roger H. Skime 58 Vice President - Research & Development
Ole E. Tweet 54 Vice President - New Product Development
Mr. Ness has been Chairman of the Board of Directors of the Company since its
inception in 1983. He is also a director of Northern Woodwork (specialty
furniture manufacturer), a director of Northern State Bank, Itasca Bemidji
Incorporated, and May Corporation.
Mr. Twomey has been President and Chief Executive Officer of the Company since
January 1986 and a director since 1987. He has held various executive officer
positions with the Company since 1983. Mr. Twomey is currently serving as a
director of The Toro Company.
Mr. Bonev has been Vice President - Marketing since June of 2001 and has over
18 years of marketing experience including senior marketing positions with
Mercury Marine, a division of Brunswick and Outboard Marine Corporation.
Mr. Blount has been Vice President - Human Resources since August of 1996. Mr.
Blount has over 31 years of Human Resource experience in the manufacturing
field. Prior to joining the Company, Mr. Blount worked as Vice President-Human
Resources at Washington Scientific Industries since 1981.
Mr. Delmore has been Chief Financial Officer of the Company since 1986 and has
been Corporate Secretary of the Company since 1989. Mr. Delmore, a CPA with
seven years of prior public accounting experience, joined the Company in 1985
as Controller.
Mr. Ray has been Vice President - Manufacturing since April of 1992 and has
over 30 years of manufacturing experience. Before joining Arctic Cat he served
eight years as Vice President of Manufacturing for a Minnesota based company.
Mr. Skime has been Vice President - Research and Development of the Company
since its inception in 1983 and has been employed in the snowmobile industry
for 40 years.
Mr. Tweet has been Vice President of New Product Development and General
Manager of the Marine Division since May 1992. Prior to that, he had been the
Company's Vice President - Marketing since its inception in 1983 and has been
employed in the snowmobile industry for 36 years.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National
Market under the Nasdaq symbol "ACAT". Quotations below represent
the high and low sale prices as reported by Nasdaq. The Company's
stock began trading on the Nasdaq National Market on June 26, 1990.
Years ended March 31, 2001 2000
Quarterly Prices High Low High Low
------ ------- ------ -------
First Quarter $12.00 $ 9.94 $10.00 $ 7.75
Second Quarter $13.13 $ 11.25 $10.50 $ 8.88
Third Quarter $13.00 $ 11.38 $10.50 $ 8.63
Fourth Quarter $15.00 $ 11.63 $10.31 $ 9.75
As of June 11, 2001, the Company had approximately 558
stockholders of record, including the nominee of Depository Trust
Company which held 14,280,591 shares of common stock.
On March 2, 1992, the Company initiated a $0.0267 per share
regular quarterly dividend. The quarterly dividend was increased to
$0.0355 per share on March 2, 1993 and subsequently increased to
$0.0467 per share on March 2, 1994. The Company has paid a
quarterly dividend of $0.06 per share since February 2, 1995.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Years ended March 31, 2001 2000 1999 1998 1997
INCOME STATEMENT DATA: ---- ---- ---- ---- ----
Net sales $530,648 $494,875 $489,503 $514,106 $477,007
Cost of goods sold 394,228 374,322 366,292 378,588 359,661
------- ------- ------- ------- -------
Gross profit 136,420 120,553 123,211 135,518 117,346
Selling, general and
administrative expenses 100,702 114,845 90,280 97,840 83,282
------- ------- ------- ------- -------
Operating profit 35,718 5,708 32,931 37,678 34,064
Interest income 4,563 4,591 2,933 1,837 1,798
Interest expense - - (27) (59) (109)
------- ------- ------- ------- -------
Earnings before income
taxes 40,281 10,299 35,837 39,456 35,753
Income taxes 13,293 2,678 12,722 14,007 12,692
------- ------- ------- ------- -------
Net earnings $26,988 $7,621* $23,115 $25,449 $23,061
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Net earnings per share
Basic $1.11 $0.30* $0.84 $0.88 $0.78
Diluted $1.10 $0.30* $0.84 $0.88 $0.78
Cash dividends per share $0.24 $0.24 $0.24 $0.24 $0.24
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average shares outstanding
Basic 24,231 25,535 27,632 28,974 29,476
Diluted 24,457 25,586 27,668 29,059 29,653
_____________________________________________________________________
As of March 31, 2001 2000 1999 1998 1997
BALANCE SHEET DATA
(In thousands):
Cash & short-term
investments $99,828 $108,277 $95,208 $58,545 $50,740
Working capital 127,216 132,072 142,039 142,243 131,604
Total assets 255,658 246,535 240,146 229,718 217,967
Long-term debt - - - - -
Shareholders' equity 170,442 162,558 175,479 177,505 166,738
* During fiscal 2000 the Company announced that it was exiting the
personal watercraft (PWC) business effective September 30, 1999. Fiscal 2000
results include a pretax charge of $26.2 million ($16.9 million after tax) or
$0.66 per share for certain costs related to the discontinued PWC business.
The charge consists of $21.5 million of exit related costs. In addition, other
PWC related charges include a $3.1 million change in estimate and $1.6 million
in other costs.
QUARTERLY FINANCIAL DATA (unaudited)
(In thousands, except Total First Second Third Fourth
per share amounts) Year Quarter Quarter Quarter Quarter
Net Sales ------- ------- ------- ------- -------
2001 $530,648 $87,965 $197,074 $158,032 $87,577
2000 494,875 88,916 209,759 111,402 84,798
1999 489,503 90,592 196,359 111,958 90,594
Gross Profit
2001 $136,420 $21,574 $51,648 $42,114 $21,084
2000 120,553 21,715 48,806 33,414 16,618
1999 123,211 21,951 53,264 31,523 16,473
Net Earnings (Loss)
2001 $26,988 $2,052 $18,606 $7,365 $(1,035)
2000 7,621 1,861 2,172 4,311 (723)
1999 23,115 1,529 19,039 4,278 (1,731)
Net Earnings (Loss) Per Share
2001 Basic $1.11 $0.08 $0.77 $0.31 $(0.04)
Diluted 1.10 0.08 0.76 0.30 (0.04)
2000 Basic & Diluted 0.30 0.07 0.08 0.17 (0.03)
1999 Basic & Diluted 0.84 0.05 0.68 0.16 (0.06)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Fiscal 2001 was a very successful year for Arctic Cat. The Company
reported record breaking revenues of $530.6 million. ATV sales
increased 20% as Arctic Cat continued to outpace the ATV industry's
double-digit growth. ATV growth continues to diversify the Company's
sales mix. In fiscal 2001 37% of net sales were from ATVs. U.S.
industry-wide retail sales of snowmobiles increased during the year as
a result of the first normal winter snowfall in four years and Arctic Cat
retail snowmobile sales outpaced the industry. Based on dealer orders,
last season's normal snow fall and Arctic Cat's excellent product line,
the Company believes snowmobile sales will increase in fiscal 2002.
During the year the Company repurchased 1.3 million shares of Arctic
Cat stock. Since 1996 the Company has repurchased over 6 million
shares of stock under various repurchase authorizations.
Results of Operations
2001 vs. 2000 - During fiscal 2001 net sales increased 7.2% to
$530,648,000 from $494,875,000 in fiscal 2000. ATV unit volume
increased 22.3% offset by a 7.1% decrease in snowmobile unit volume
and a $4,240,000 decrease in PWC sales dollars. Dollar sales of parts,
garments and accessories increased 3.2%. The Company believes the
continued increase in ATV sales is due both to enthusiastic dealer and
consumer reception of the Arctic Cat ATV and growth in the ATV
market. Snowmobile unit volume decreased because of lower dealer
orders related to warmer than usual weather during the prior winter
season. PWC dollar sales decreased because of the Company's
decision to exit the PWC business in mid fiscal 2000.
Gross profit increased 13.2% to $136,420,000 in 2001 from
$120,553,000 in 2000 and the gross profit percentage increased to
25.7% from 24.4% in 2000. The increase in the year-to-date gross profit
percentage was primarily due to exit and related costs recorded last
year for the discontinued PWC business.
Selling, general and administrative expenses decreased 12.3%
to $100,702,000 in 2001 from $114,845,000 in 2000. The decrease
in operating expenses was mainly due to watercraft exit costs of
$18,627,000 recorded last year, which were offset to a certain extent
by increased ATV marketing expenses this year. As a percent of net
sales, operating expenses were 19.0% compared with 19.4%,
excluding PWC exit costs for the same period last year. During mid
fiscal 2000 the Company exited the PWC business. There were no
adjustments to the initial exit plan restructuring charge during fiscal
2001. The Company estimates the following cash requirements for the exit
related costs after March 31, 2001; $5,097,000 for consumer incentives and
$2,861,000 for other exit costs.
Operating profits increased to $35,718,000 in 2001 from $5,708,000
in 2000. As a percent of net sales, operating profits increased to 6.7%
in 2001 compared to 1.2% in 2000 (see gross profit and operating
expense discussion).
Net earnings were $26,988,000 or $1.10 per share on a diluted
basis, as compared to net earnings of $7,621,000 or $0.30 per share
on a diluted basis for fiscal 2000. Net earnings as a percent of net sales
were 5.1% and 1.5% in 2001 and 2000, respectively. Without the exit
costs and related costs associated with the discontinued PWC
business, fiscal 2000 net earnings would have been $24,520,000 or
$0.96 per diluted share.
2000 vs. 1999 - During fiscal 2000 net sales increased 1.1 % to
$494,875,000 from $489,503,000 in fiscal 1999. ATV unit volume
increased 44.2% offset by a 13.3% decrease in snowmobile unit
volume, a 69.2% decrease in PWC unit volume and a 8.4 % increase
in dollar sales of parts, garments and accessories. The Company
believes the continued increase in its ATV sales was due both to
enthusiastic dealer and consumer reception of the Arctic Cat ATV and
growth in the ATV market. Snowmobile unit volume decreased because
of lower dealer orders related to warmer than usual weather during the
prior winter season. PWC unit volume decreased because of the
Company's decision to exit the PWC business in fiscal 2000.
Gross profit decreased 2.2% to $120,553,000 in 2000 from
$123,211,000 in 1999 and the gross profit percentage decreased
to 24.4 % from 25.2 % in 1999. These decreases were due to exit
and related costs associated with the PWC business.
Selling, general and administrative expenses increased 27.2% to
$114,845,000 in 2000 from 90,280,000 in 1999. The increase was
mainly due to $18,627,000 of exit costs associated with the
discontinued PWC business. These charges mainly consisted of items
such as consumer incentive programs, write-offs of equipment and tooling,
and costs related to the Company's dealers. Fiscal 2000 operating
expenses also increased due to costs of $2,410,000 relating to legal
and other matters. The remainder of the increase was attributable to
increased ATV marketing expenses related to higher sales levels.
Without the exit costs associated with the discontinued PWC business
operating expenses would have increased 6.6% to $96,218,000 from
$90,280,000 compared to the same period last year. As a percent of
net sales, year-to-date operating expenses, excluding PWC exit costs
would have been 19.9% compared with 18.8% for the same period
last year.
Operating profits decreased 82.7% to $5,708,000 in 2000 from
$32,931,000 in 1999. As a percent of net sales, operating profits
decreased to 1.2% in 2000 compared to 6.7 % in 1999 (see gross profit
and operating expense discussion).
Net earnings for fiscal 2000 decreased 67.0% to $7,621,000 or
$0.30 per share on a diluted basis, as compared to net earnings of
$23,115,000 or $0.84 per share on a diluted basis for fiscal 1999. Net
earnings as a percent of net sales were 1.5 % and 4.7 % in 2000 and
1999, respectively. Without the exit costs and related costs associated
with the discontinued PWC business, net earnings for fiscal 2000 would
have been $24,520,000 or $0.96 per diluted share, as compared to net
earnings of $23,115,000 or $0.84 per diluted share, in fiscal 1999.
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. The Company believes current available cash and cash
generated from operations will provide sufficient funds to finance the
Company on a short and long-term basis.
Cash and Short-Term Investments
Cash and short-term investments were $99,828,000 at March 31, 2001
compared to $108,277,000 at March 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.
Working Capital
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. The total letters
of credit issued at March 31, 2001 were $20,372,000, of which
$17,253,000 was issued to Suzuki Motor Corporation for engine
purchases. Since 1996, the Company has repurchased 6,360,814
shares of common stock. In May 2001, the Company's Board of Directors has
authorized an additional $20,000,000 share repurchase.
In 2001, the Company invested $23,100,000 in capital expenditures.
The Company expects that fiscal 2001 capital expenditures, including
tooling, will be approximately $20,000,000. The Company believes that
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 on a short and long-
term basis.
The Company has agreements with certain finance companies to
provide snowmobile and ATV floor plan financing for the Company's
North American dealers. These agreements improve the Company's
liquidity by financing dealer purchases of products without requiring
substantial use of the Company's working capital. The Company is paid
by the floor plan companies shortly after shipment and as part of its
marketing programs the Company pays the floor plan financing of its
dealers for certain set time periods depending on the size of a dealer's
order. The financing agreements require repurchase of repossessed
new and unused units and set limits upon the Company's potential
liability for annual repurchases. The aggregate potential liability was
approximately $11,807,000 at March 31, 2001. No material losses have
been incurred by the Company under these agreements, which are
terminable by either party upon 30 days notice. The Company has also
guaranteed approximately 50% of the amounts financed by its dealers
with one of the finance companies. At March 31, 2001, the Company's
maximum level of exposure under this guarantee was approximately
$73,698,000. No material losses have been incurred by the Company
under this agreement. The Company believes current available cash
and cash generated from operations provide sufficient funding in the
event there is a requirement to perform under this guarantee.
Inflation and Exchange Rates
Inflation is not expected to have a significant impact on the Company's
business. The Company generally has been able to offset the impact
of increasing costs through a combination of productivity gains and
price increases.
During fiscal 2001, 32% of the Company's cost of sales were
purchased from Japanese yen denominated suppliers. The majority
of these purchases were made from Suzuki Motor Corporation who
supplies engines for the Company's snowmobiles and ATVs. The
Company has an agreement with Suzuki Motor Corporation for
snowmobile engine purchases to share the impact of fluctuations in the
exchange rate between the U.S. dollar and the Japanese yen above
and below a fixed range contained in the agreement. This agreement
renews annually. During fiscal 2001, the exchange rate fluctuation
between the U.S. dollar and the Japanese yen had a modest negative
impact on the Company's operating results. From time to time the
Company utilizes foreign exchange hedging contracts to minimize the
impact of exchange rate fluctuations. At March 31, 2001, there were
$21,495,000 of foreign exchange contracts outstanding for Japanese
yen.
Sales to Canadian dealers are made in Canadian dollars with the
U.S. dollar serving as the functional currency. During fiscal 2001, sales
to Canadian dealers comprised 13.6% of total net sales. During fiscal
2001, the exchange rate fluctuation between the U.S. dollar and the
Canadian dollar had a modest negative impact on operating profits.
The Company hedged for this exchange rate fluctuation. At March 31,
2001 there were no foreign exchange contracts outstanding related to
the Canadian dollar.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for certain forward-looking statements. This Report on Form
10-K, as well as the Company's Annual Report and future filings with
the Securities and Exchange Commission, the Company's press
releases and oral statements made with the approval of an authorized
executive officer, contain 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 7A. 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" and footnote A to Financial Statements. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements, Notes, and Report of Independent Certified
Public Accountants appear on pages 18 through 28. Quarterly financial
data appears in Item 6.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the heading "Election of Directors" and
"Beneficial Ownership of Capital Stock-Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held August 9,
2001, is incorporated herein by reference.
Pursuant to instruction 3 to Item 401(b) of Regulation S-K,
information as to executive officers of the Company is set forth in Item
4A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information included under the heading "Executive Compensation
and Other Information" in the Company's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held August 9, 2001,
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information included under the heading "Beneficial Ownership
of Capital Stock" in the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held August 9, 2001, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related
transactions, appearing under the heading "Executive Compensation
and Other Information-Certain Transactions" in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be
held on August 9, 2001, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of report
1. Financial Statements.
The following consolidated financial statements of the Company
and its subsidiaries are filed as part of this Form 10-K:
Form 10-K
Page Reference
(i) Consolidated Balance Sheets 19
as of March 31, 2001 and 2000
(ii) Consolidated Statements of Earnings 20
for the three years ended March 31, 2001,
2000 and 1999
(iii) Consolidated Statements of Shareholders' 21
Equity for the three years ended March 31,
2001, 2000 and 1999
(iv) Consolidated Statements of Cash Flows 22
for the three years ended March 31, 2001,
2000 and 1999
(v) Notes to Consolidated Financial 23-28
Statements
(vi) Report of Independent Certified Public 29
Accountants
2. Schedules filed as part of this Form 10-K:
None
3. Exhibits
Method of Filing
3(a) Amended and Restated Articles of Incorporation (3)
of Company
3(b) Restated By-Laws of the Company (1)
4(a) Form of specimen Common Stock Certificate (1)
4(b) Rights Agreement by and between the Company and (4)
Norwest Bank Minnesota, N.A., dated September 5, 1991
10(a) 1989 Stock Option Plan, as amended (3)
10(b) 1995 Stock Option Plan, as amended (3)
10(c) Purchase/Supply Agreement dated as of (1)
March 1, 1985 between Suzuki Motor Co.,
Ltd. and the Company, and related Agreement
on Implementation of Warranty Provision.
10(d) Form of Employment Agreement between the (1)
Company and each of its executive officers
10(e) Floorplan Repurchase Agreement dated (1)
July 13, 1984, between the Company and
ITT Commercial Finance Corp.
10(f) Floorplan Repurchase Agreement dated as (1)
of June 15, 1988, between the Company and
ITT Commercial Finance, a division Of ITT
Industries of Canada, Ltd.
10(g) Discretionary Revolving Credit Facility, dated (3)
as of June 6, 1997, between the Company and
Norwest Bank Minnesota, National Association.
21 Subsidiaries of the Registrant (2)
23 Consent of Independent Certified Public Accountants (2)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
March 31, 2001.
(c) Exhibits
Reference is made to Item 14(a) 3.
(1) Incorporated herein by reference to the Company's Form S-1 Registration
Statement (File Number 33-34984).
(2) Filed with this Form 10-K.
(3) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1997.
(4) Incorporated by reference to Exhibit 1 to the Company's Registration on
Form 8-A filed with the SEC on September 9, 1991.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on the 28th day of June,
2001.
ARCTIC CAT INC.
/s/Christopher A. Twomey
_________________________
Christopher A. Twomey
President, Chief Executive Officer
and Director
(Principle Executive Officer and Director)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/William G. Ness June 28, 2001
___________________________ ___________________
William G. Ness
Chairman of the Board and Director
/s/Christopher A. Twomey June 28, 2001
___________________________ ___________________
Christopher A. Twomey
President, Chief Executive Officer
and Director
(Principle Executive Officer)
/s/Timothy C. Delmore June 28, 2001
___________________________ ___________________
Timothy C. Delmore
Chief Financial Officer
(Principle Financial and Accounting Officer)
/s/Robert J. Dondelinger June 28, 2001
___________________________ ___________________
Robert J. Dondelinger, Director
/s/William I. Hagen June 28, 2001
___________________________ ___________________
William I. Hagen, Director
/s/John C. Heinmiller June 28, 2001
___________________________ ___________________
John C. Heinmiller, Director
/s/Gregg A. Ostrander June 28, 2001
___________________________ ___________________
Gregg A. Ostrander, Director
/s/Kenneth J. Roering June 28, 2001
___________________________ ___________________
Kenneth J. Roering, Director
/s/Takata Katsumi June 28, 2001
___________________________ ___________________
Takata Katsumi, Director
ARCTIC CAT INC.
CONSOLIDATED BALANCE SHEETS
March 31,
2001 2000
ASSETS
Current Assets
Cash and equivalents $ 42,881,000 $ 60,028,000
Short-term investments 56,947,000 48,249,000
Accounts receivable, less allowances 24,897,000 18,348,000
Inventories 60,939,000 61,669,000
Prepaid expenses 2,401,000 2,880,000
Deferred income taxes 18,045,000 18,975,000
----------- -----------
Total current assets 206,110,000 210,149,000
Property and Equipment - At Cost
Machinery, equipment and tooling 86,799,000 71,936,000
Land, buildings and improvements 18,319,000 16,861,000
----------- -----------
105,118,000 88,797,000
Less accumulated depreciation 55,570,000 52,411,000
----------- -----------
49,548,000 36,386,000
----------- -----------
$255,658,000 $246,535,000
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 29,309,000 $ 27,318,000
Accrued expenses 49,585,000 49,777,000
Income taxes payable - 982,000
----------- -----------
Total current liabilities 78,894,000 78,077,000
Deferred Income Taxes 6,322,000 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, 16,228,412 in
2001; 17,327,975 in 2000 162,000 173,000
Class B common stock, par value $.01;
7,560,000 shares authorized, issued, and
outstanding 76,000 76,000
Accumulated other comprehensive income 320,000 -
Retained earnings 169,884,000 162,309,000
----------- -----------
170,442,000 162,558,000
----------- -----------
$255,658,000 $246,535,000
----------- -----------
----------- -----------
The accompanying notes are an integral part of these statements.
19
ARCTIC CAT INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended March 31,
2001 2000 1999
----------- ----------- ------------
Net sales $530,648,000 $494,875,000 $489,503,000
Cost of goods sold 394,228,000 371,487,000 366,292,000
Watercraft inventory writedown - 2,835,000 -
----------- ----------- -----------
Gross profit 136,420,000 120,553,000 123,211,000
Selling, general and administrative
expenses 100,702,000 96,218,000 90,280,000
Watercraft exit costs - 15,147,000 -
Watercraft asset impairment - 3,480,000 -
----------- ----------- -----------
Operating profit 35,718,000 5,708,000 32,931,000
Other income (expense)
Interest income 4,563,000 4,591,000 2,933,000
Interest expense - - (27,000)
----------- ----------- -----------
4,563,000 4,591,000 2,906,000
----------- ----------- -----------
Earnings before income taxes 40,281,000 10,299,000 35,837,000
Income tax expense 13,293,000 2,678,000 12,722,000
----------- ----------- -----------
Net earnings $ 26,988,000 $ 7,621,000 $ 23,115,000
----------- ----------- -----------
----------- ----------- -----------
Net earnings per share
Basic $1.11 $0.30 $0.84
Diluted $1.10 $0.30 $0.84
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding
Basic 24,231,000 25,535,000 27,632,000
Diluted 24,457,000 25,586,000 27,668,000
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these statements.
20
Arctic Cat Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended March 31,
Accumulated
Class B Additional Other
Common Stock Common Stock Paid-in Comprhensive Retained
Shares Amount Shares Amount Capital Income Earnings Total
________ ______ ______ ______ _______ ________ _____ ______ ________
Balances at April 1, 1998
20,857,909 $209,000 7,560,000 $76,000 $9,356,000 $ - $167,864,000
$177,505,000
Exercise of stock options
49,950 - - - 299,000 - -
299,000
Repurchase of common stock
(2,079,084) (21,000) - - (9,655,000) - (9,116,000)
(18,792,000)
Net earnings - - - - - - 23,115,000
23,115,000
Dividends ($0.24 per share)
- - - - - - (6,648,000)
(6,648,000)
________________________________________________________________________
Balances at March 31, 1999
18,828,775 188,000 7,560,000 76,000 - - 175,215,000
175,479,000
Repurchase of common stock
(1,500,800) (15,000) - - - - (14,396,000)
(14,411,000)
Net earnings - - - - - - 7,621,000
7,621,000
Dividends ($0.24 per share)
- - - - - - (6,131,000)
(6,131,000)
_______________________________________________________________________
Balances at March 31, 2000
17,327,975 173,000 7,560,000 76,000 - - 162,309,000
162,558,000
Exercise of stock options
290,859 3,000 - - 2,984,000 - -
2,987,000
Tax benefits from stock option exercises
- - - - 95,000 - -
95,000
Repurchase of common stock
(1,390,422) (14,000) - - (3,079,000) - (13,598,000)
(16,691,000)
Net earnings - - - - - - 26,988,000
26,988,000
Unrealized gain on securities available-
for-sale, net of tax
- - - - - 320,000 -
320,000
Total other comprehensive income
- - - - - - -
27,308,000
Dividends ($0.24 per share)
- - - - - - (5,815,000)
(5,815,000)
_______________________________________________________________________
Balances at March 31, 2001
16,228,412 $162,000 7,560,000 $76,000 - $320,000 $169,884,000
$170,442,000
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
21
ARCTIC CAT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31,
2001 2000 1999
Cash flows from operating activities ----------- ---------- -----------
Net earnings $ 26,988,000 $ 7,621,000 $ 23,115,000
Adjustments to reconcile net earnings
to net cash provided
by operating activities
Depreciation 9,985,000 10,569,000 12,486,000
Deferred income taxes 1,164,000 (5,301,000) (3,261,000)
Tax benefit from stock option
exercises 95,000 - -
Watercraft inventory writedown,
exit costs and asset impairment - 21,462,000 -
Changes in operating assets and
liabilities, net of effect of
watercraft charges:
Trading securities (8,855,000) (5,009,000) (10,566,000)
Accounts receivable (6,549,000) 4,915,000 6,954,000
Inventories 730,000 1,689,000 19,505,000
Prepaid expenses 479,000 (305,000) (1,154,000)
Accounts payable 1,991,000 3,303,000 2,994,000
Accrued expenses (192,000) 3,207,000 6,277,000
Income taxes (982,000) (2,330,000) 5,423,000
Net cash provided by ---------- ---------- ----------
operating activities 24,854,000 39,821,000 61,773,000
Cash flows from investing activities
Purchase of property and equipment (23,147,000) (11,219,000) (10,535,000)
Sale and maturity of available-for-
sale securities 665,000 555,000 552,000
Net cash used in ---------- ---------- ----------
investing activities (22,482,000) (10,664,000) (9,983,000)
Cash flows from financing activities
Proceeds from issuance of common stock 2,184,000 - -
Repurchase of common stock (15,888,000) (14,411,000) (18,493,000)
Dividends paid (5,815,000) (6,131,000) (6,648,000)
Net cash used in financing ---------- ---------- ----------
activities (19,519,000) (20,542,000) (25,141,000)
Net increase (decrease) in cash ---------- ---------- ----------
and equivalents (17,147,000) 8,615,000 26,649,000
Cash and equivalents at beginning of
year 60,028,000 51,413,000 24,764,000
---------- ---------- ----------
Cash and equivalents at end of year $ 42,881,000 $ 60,028,000 $ 51,413,000
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosure of cash
payments for income taxes $ 14,686,000 $ 11,168,000 $ 12,191,000
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosure of non-cash investing and financing activities:
During 2001, the unrealized gain on securities available-for-sale, net of
tax was $320,000. During 2001 and 1999, mature common shares with a fair
market value of $803,000 and $299,000 were exchanged in settlement for the
exercise of certain stock options.
The accompanying notes are an integral part of these statements.
22
Arctic Cat Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001, 2000 and 1999
A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Arctic Cat Inc. (the "Company") operates in a single industry segment
and designs, engineers, manufactures and markets snowmobiles
and all-terrain vehicles (ATVs) under the Arctic Catr brand name,
and related parts, garments and accessories principally through its
facilities in Thief River Falls, Minnesota. The Company's products are
sold through a network of independent dealers and distributors located
throughout the United States, Canada, Scandinavia and other
international markets.
Use of Estimates
Preparation of the Company's consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities,
related revenues and expenses and disclosure about contingent assets
and liabilities at the date of the financial statements. Actual results
could differ from the estimates used by management.
Principles of Consolidation
The consolidated financial statements include the accounts of Arctic
Cat Inc. and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash Equivalents
The Company considers highly liquid temporary investments with
an original maturity of three months or less to be cash equivalents.
Cash equivalents consist primarily of commercial paper and put bonds
and are stated at cost, which approximates market value based upon
quoted market prices. Cash equivalents totaled $39,321,000 and
$65,468,000 at March 31, 2001 and 2000.
Fair Values of Financial Instruments
Due to their short-term nature, the carrying value of current financial
assets and liabilities approximates their fair value.
Short-Term Investments
Short-term investments are reported at fair value and include trading
securities, with unrealized gains and losses included in net earnings,
and available-for-sale securities, with unrealized gains and losses
reported as a separate component of shareholders' equity. The
Company utilizes the specific identification method in accounting
for its short-term investments.
Inventories
Inventories are stated at the lower of cost or market, with cost
determined using the first-in, first-out method.
Property and Equipment
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives,
using the units of production method for tooling and the straight-line
method for all other property and equipment. Tooling is amortized over
the life of the product, generally three years. Estimated services lives
range from 15 - 20 years for buildings and improvements and 5 - 7
years for machinery and equipment. Accelerated and straight-line
methods are used for income tax reporting.
Product Warranties
The Company provides for estimated warranty costs at the time of
sale and accrues for specific items after the sale when their existence
is known and the amounts are determinable. During fiscal 2000, the
Company recognized an increase of approximately $3,100,000 to its
accrual for estimates of warranty costs.
Insurance
The Company is self-insured for employee medical, workers'
compensation, and product liability claims. Specific stop loss coverages
are provided for catastrophic claims. Losses and claims are charged to
operations when it is probable a loss has been incurred and the
amount can be reasonably estimated.
Revenue Recognition
The Company recognizes revenue and provides for estimated
marketing expenses when products are shipped to dealers.
Research and Development
Research and development costs are expensed as incurred and
are reported as a component of selling, general and administrative
expenses. Research and development expense was $10,449,000,
$9,872,000 and $9,545,000 during 2001, 2000 and 1999.
Advertising
The Company expenses advertising costs as incurred. Advertising
expense was $16,896,000, $17,225,000 and $16,238,000, during 2001,
2000 and 1999.
Stock-Based Compensation
The Company utilizes the intrinsic value method of accounting for
its employee stock-based compensation plans. Pro forma information
related to the fair value based method of accounting is contained
in Note K.
Net Earnings Per Share
The Company's diluted weighted average shares outstanding include
common shares and common share equivalents relating to stock
options, when dilutive. Options to purchase 438,583, 1,206,084 and
1,363,236 shares of common stock with weighted average exercise
prices of $13.44, $11.47 and $11.65 were outstanding during 2001,
2000 and 1999, but were excluded from the computation of common
share equivalents because they were anti-dilutive.
Foreign Currency
The Company's sales and marketing activities with Canadian dealers
are denominated in Canadian currency with the U.S. dollar serving as
the functional currency. Assets and liabilities denominated in Canadian
currency are translated using the exchange rate in effect at the balance
sheet date. Revenues and expenses are translated at the average
foreign exchange rate in effect for the period. Exchange gains and
losses are reflected in the results of operations.
The Company enters into forward exchange contracts to hedge
purchase commitments denominated in Japanese yen for ATV engines.
Gains and losses on the Japanese yen denominated forward exchange
contracts are deferred and included in the valuation of the acquired
inventory as the forward exchange contracts hedge the underlying
foreign exchange exposure. The Company also enters into forward
exchange contracts to hedge Canadian currency transfers to U.S. dollars.
Gains and losses on the Canadian currency forward exchange
contracts are reflected in the results of operations as they are utilized.
At March 31, 2001, the Company had open Japanese yen forward
exchange purchase contracts with notional amounts totaling
$21,495,000 maturing through June 2001. There were no open forward
contracts relating to Canadian currency transfers at March 31, 2001. The
Company does not enter into for-ward exchange contracts for trading
purposes.
New Accounting Pronouncements
The Company adopted Emerging Issues Task Force Issue 00-10 (EITF
00-10), "Accounting for Shipping and Handling Fees and Costs", in
2001. EITF 00-10 requires amounts billed to a customer for shipping
and handling to be presented as revenue and actual shipping and
handling costs presented as cost of goods sold. Historically, the
Company had presented shipping and handling revenue as a reduction
of cost of goods sold. The adoption of EITF 00-10 required the
Company to reclassify $10,923,000, $10,864,000 and $9,155,000 for
2001, 2000 and 1999 to revenue from cost of goods sold.
The Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, and No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities, which
are effective for fiscal years beginning after June 15, 2000. These
Standards require entities to recognize derivatives in their financial
statements as either assets or liabilities measured at fair value. The
accounting for changes in the fair value of a derivative depends on the
use of the derivative. The Company adopted these new standards on
April 1, 2001 and believes the adoption will not have a material effect
on the consolidated financial statements.
Emerging Issues Task Force Issue 00-14 (EITF 00-14), "Accounting
for Certain Sales Incentives", is effective for periods beginning after
December 15, 2001. EITF 00-14 requires that cash sale incentives
be classified as a reduction of sales and sales incentives that involve
a free product or service delivered at the time of sale be classified as
a cost of sale. Management believes the adoption of EITF 00-14 will
not have a material effect on the consolidated financial statements.
Emerging Issues Task Force Issue 00-25 (EITF 00-25), "Vendor
Income Statement Characterization of Consideration Paid to a Retailer
of Vendor's Products" is effective for periods beginning after December
15, 2001. EITF 00-25 requires that various forms of consideration from
a vendor to a retailer be classified as a reduction of revenue. EITF 00-25
also provides certain criteria to classify various forms of consideration
as expense if the vendor receives a benefit from the retailer.
Management believes the adoption of EITF 00-25 will not have a
material effect on the consolidated financial statements.
B-SHORT-TERM INVESTMENTS
Short-term investments consist primarily of a diversified portfolio of
municipal bonds and money market funds and are classified as follows
at March 31:
2001 2000
---------- ----------
Trading securities $45,251,000 $36,395,000
Available-for-sale debt securities 11,696,000 11,854,000
---------- ----------
$56,947,000 $48,249,000
---------- ----------
---------- ----------
The amortized cost and fair value of debt securities classified as
available-for-sale was $11,188,000 and $11,696,000, at March 31,
2001. The unrealized gain on available-for-sale debt securities is
reported, net of tax, as a separate component of shareholder's equity.
The contractual maturities of available-for-sale debt securities at
March 31, 2001, are as follows: $1,038,000 within one year, $8,505,000
from one year through five years, and $2,153,000 from five years
through ten years.
At March 31, 2001, $25,549,000 of the trading securities were
invested in four money market funds. At March 31, 2000, $21,994,000
of the trading securities were invested in three money market funds.
C-INVENTORIES
Inventories consist of the following at March 31:
2001 2000
---------- ----------
Raw materials and sub-assemblies $20,948,000 $20,669,000
Finished goods 16,147,000 15,607,000
Parts, garments and accessories 23,844,000 25,393,000
---------- ----------
$60,939,000 $61,669,000
---------- ----------
---------- ----------
D-ACCRUED EXPENSES
Accrued expenses consist of the following at March 31:
2001 2000
---------- ----------
Marketing $16,596,000 $12,158,000
Compensation 6,139,000 6,802,000
Warranties 11,922,000 11,097,000
Insurance 3,810,000 5,400,000
Watercraft exit costs 7,958,000 10,893,000
Other 3,160,000 3,427,000
---------- ----------
$49,585,000 $49,777,000
---------- ----------
---------- ----------
E-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
PWC assets in connection with this exit that indicated an impaired
carrying value. The Company was able to utilize a portion of these
assets in other production areas. All long-lived assets with no alter-
native 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
were not 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 did not produce additional PWC
units beyond the completed production of the 1999 model. Therefore,
the Company identified and wrote off inventories of $2,451,000 that
were not used beyond September 30, 1999. The Company also
accrued $3,735,000 relating to other matters. The Company incurred
the majority of the PWC exit plan costs by September 2000, although
some exit costs will be incurred through September 2001.
The approximate net sales of the PWC product line was $200,000
and $4,400,000 for the years ended March 31, 2001 and 2000.
As of March 31, 2001, cumulative charges related to accrued
consumer incentives and other accrued exit costs were $3,864,000 and
$874,000. The remaining accrued expenses, included within the
balance sheet caption accrued expenses, for these items at March 31,
2001 were $5,097,000 and $2,861,000. There were no adjustments
to the initial recorded accrual in conjunction with the PWC exit plan
for the period ending March 31, 2001.
F-FINANCING
The Company has a $75,000,000 unsecured bank credit agreement
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, 2001, however, management believes they will be able
to renew the existing line of credit under materially similar terms.
Interest on the working capital borrowings is payable monthly at
alternative interest rates, at the Company's election. The credit
agreement contains certain covenants. At March 31, 2001, there were
$20,372,000 of issued letters of credit out-standing and no working
capital borrowings outstanding. Of the issued letters of credit out-
standing, $17,253,000 were issued to Suzuki for engine purchases (see
note H). Outstanding letters of credit will be repaid over the following
seven months in accordance with the credit agreement and any such
renewal.
G-RETIREMENT SAVINGS PLAN
The Company's 401(k) retirement savings plan covers substantially all
eligible employees. Employees may con-tribute up to 20% of their
compensation with the Company matching 100% of the employee
contributions, up to a maximum of 3% of the employee's compensation.
The Company can elect to make additional contributions at its
discretion. Total Company matching contributions were $1,099,000,
$1,066,000 and $964,000 in 2001, 2000 and 1999. There were no
discretionary contributions made during 2001, 2000 and 1999.
H-RELATED PARTY TRANSACTIONS
The Company purchases engines and related parts from Suzuki Motor
Corporation (Suzuki - see note K) in Japan. Such purchases totaled
$124,910,000, $120,505,000 and $91,724,000 in 2001, 2000 and 1999.
The purchase price of the engines and related parts is determined
annually. The Company has an agreement with Suzuki for snowmobile
engine purchases to share the impact of fluctuations in the exchange
rate between the U.S. dollar and the Japanese yen above and below a
fixed range contained in the agreement. This agreement renews
annually.
The Company is dependent on Suzuki for the near term sup-ply of
its engines and related parts. An interruption of this supply could have
a material adverse effect on the Company's operations.
Freight services and certain raw materials are purchased from
companies in which certain of the Company's directors are officers or
significant shareholders. In 2001, 2000 and 1999, these transactions
aggregated $7,544,000, $7,612,000 and $4,791,000.
I-INCOME TAXES
Income tax expense consists of the following for the years ended
March 31:
2001 2000 1999
Current ---------- ---------- ----------
Federal $10,285,000 $ 6,923,000 $14,313,000
State 1,656,000 1,056,000 1,670,000
---------- ---------- ----------
Deferred 1,352,000 (5,301,000) (3,261,000)
---------- ---------- ----------
$13,293,000 $ 2,678,000 $12,722,000
---------- ---------- ----------
---------- ---------- ----------
The following is a reconciliation of the Federal statutory income tax
rate to the effective tax rate for the years ended March 31:
2001 2000 1999
----- ----- -----
Statutory income tax rate 35.0% 35.0% 35.0%
State taxes 2.1 4.0 2.5
Tax exempt interest (1.4) (5.1) (1.0)
Foreign sales corporation (1.7) (6.7) (1.4)
Other (1.0) (1.2) 0.4
----- ----- -----
33.0% 26.0% 35.5%
----- ----- -----
----- ----- -----
The effective rate decrease for the year ended March 31, 2000 is due to
the effect of decreased earnings subject to tax and implementation of income
tax reduction strategies.
The cumulative temporary differences between the tax bases of
assets and liabilities and their carrying amounts for financial reporting
purposes are as follows at March 31:
2001 2000
Short-term deferred income taxes ---------- ----------
Accrued expenses $11,969,000 $11,591,000
PWC exit costs 2,944,000 4,085,000
Inventory capitalization and writedowns 2,459,000 2,530,000
Other 673,000 769,000
---------- ----------
Net short-term deferred tax asset $18,045,000 $18,975,000
---------- ----------
---------- ----------
Long-term deferred income taxes
Property and equipment $ 2,134,000 $ 2,182,000
Other 4,188,000 3,718,000
---------- ----------
Net long-term deferred tax liability $ 6,322,000 $ 5,900,000
---------- ----------
---------- ----------
J-COMMITMENTS AND CONTINGENCIES
Dealer Financing
Finance companies provide certain of the Company's dealers and
distributors with floor plan financing. The Company has agreements
with these finance companies to repurchase certain repossessed
products sold to its dealers. At March 31, 2001, the Company was
contingently liable under these agreements for a maximum repurchase
amount of approximately $11,807,000. The Company has also
guaranteed approximately 50% of the amounts financed by its dealers
and distributors with one of the finance companies. At March 31, 2001,
the Company's maximum exposure under this guarantee was
$73,698,000. Losses incurred under these agreements during the
periods presented have not been significant.
Litigation
The Company is subject to legal proceedings and claims which arise in
the ordinary course of business. In the opinion of management, the
ultimate outcome of these matters will not be material to the Company's
consolidated financial position, results of operations or cash flows.
During fiscal 2000, the Company recognized an increase of
approximately $1,600,000 to its accrual for estimates of litigation costs.
K-SHAREHOLDERS' EQUITY
Stock Option Plans
The Company has stock option plans that provide for incentive and
non-qualified stock options to be granted to directors, officers and other
key employees. The stock options granted generally have a five to ten
year life, vest over a period of one to three years, and have an exercise
price equal to the fair market value of the stock on the date of grant.
At March 31, 2001, the Company had 645,301 shares of common stock
available for grant under the plans.
Transactions under the plans during each of the three years in the
period ended March 31, 2001 are summarized as follows:
Number of Weighted
shares under average
option exercise price
----------- -------------
Outstanding at April 1, 1998 1,543,563 $10.96
Granted 391,000 9.70
Exercised (49,950) 6.00
Canceled (120,573) 11.05
----------- -------------
Outstanding at March 31, 1999 1,764,040 10.80
Granted 320,000 9.38
Canceled (87,848) 14.35
----------- -------------
Outstanding at March 31, 2000 1,996,192 10.42
Granted 282,000 12.06
Exercised (290,859) 10.27
Canceled (78,721) 11.75
----------- -------------
Outstanding at March 31, 2001 1,908,612 $10.60
Options exercisable at March 31 are as follows:
Number of Weighted
shares under average
option exercise price
------------ --------------
1999 1,210,318 $11.24
2000 1,425,526 $10.78
2001 1,403,112 $10.59
The following tables summarize information concerning currently
outstanding and exercisable stock options at March 31, 2001:
Options Outstanding
Weighted Weighted
Average Average
Range of Number Remaining Exercise
Exercise Prices Outstanding Contractual Life Price
- --------------- ----------- ---------------- --------
$ 6.00-$ 6.11 131,571 1.1 years $ 6.02
9.38- 13.33 1,628,918 5.3 years 10.42
16.33- 19.75 148,123 3.1 years 16.74
- ---------------------------------------------------------------
1,908,612 $10.60
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Options Exercisable
Weighted
Average
Range of Number Exercise
Exercise Prices Exercisable Price
- --------------- ----------- --------
$ 6.00-$ 6.11 131,571 $ 6.02
9.38- 13.33 1,123,418 10.34
16.33- 19.75 148,123 16.74
- ---------------------------------------------------------------
1,403,112 $10.59
- ---------------------------------------------------------------
- ---------------------------------------------------------------
The Company's pro forma net earnings and basic and diluted net
earnings per share would have been as follows had the fair value
method been used for valuing stock options granted to employees:
2001 2000 1999
----------- ---------- -----------
Pro forma net earnings $26,108,000 $6,667,000 $22,190,000
Pro forma net earnings
per share
Basic $1.08 $0.26 $0.80
Diluted $1.07 $0.26 $0.80
The weighted average fair value of options granted and the weighted
average assumptions used in the binomial options pricing model are
as follows:
2001 2000 1999
--------- -------- ---------
Fair value of options granted $4.58 $3.75 $3.93
Assumptions:
Dividend yield 2% 2% 2%
Average term 6.7 years 8 years 7.7 years
Volatility 35% 35% 35%
Risk-free rate of return 6.2% 6.2% 6.2%
Class B Common Stock
Suzuki owns all outstanding shares of the Company's Class B common
stock. At the option of Suzuki, the Class B common stock is convertible
into an equal number of shares of the Company's common stock. The
Class B shareholder is entitled to elect one member of the Company's
Board of Directors but cannot vote for the election of other directors of
the Company. The Class B shareholder can vote on all other matters
submitted to the common shareholders. The Class B common stock
participates equally with the common stock in all dividends and other
distributions duly declared by the Company's Board of Directors.
The Class B common shares are converted into an equal number
of shares of common stock if: Suzuki owns less than 15% of the
aggregate number of out-standing common and Class B common
shares; the Company becomes a non-surviving party due to a merger
or recapitalization; the Company sells substantially all of its assets;
or Suzuki transfers its Class B common stock to any person.
In addition, the Company has a Stock Purchase Agreement with
Suzuki that prohibits the purchase of additional shares of the
Company's common stock unless, following such purchase, Suzuki's
owner-ship is less than or equal to 32% of the aggregate outstanding
shares of common and Class B common stock. The Company has the
first right of refusal to purchase any shares Suzuki intends to sell.
Suzuki has agreed not to compete in the manufacture of snowmobiles
or related parts so long as it supplies engines to the Company or owns
at least 10% of the aggregate common and Class B common shares
outstanding.
Preferred Stock
The Company's Board of Directors is authorized to issue 2,050,000
shares of $1.00 par value preferred stock in one or more series. The
board can determine voting, conversion, dividend and redemption rights
and other preferences of each series. No shares have been issued.
Shareholders' Rights Plan
In connection with the adoption of a Shareholders' Rights Plan, the
Company created a Series A Junior Participating preferred stock. Under
terms of the Company's Share-holder Rights Plan, upon the occurrence
of certain events, registered holders of common stock and Class B
common stock are entitled to purchase one-hundredth of a share of
Series A Junior Participating preferred stock at a stated price, or to
purchase either the Company's common shares or common shares of
an acquiring entity at half their market value. The Rights related to this
plan expire September 5, 2001.
Share Repurchase Authorization
The Company invested $15,733,000, $14,411,000 and $18,493,000
during 2001, 2000 and 1999 to repurchase and cancel 1,313,500,
1,500,800 and 2,049,114 shares, pursuant to Board of Directors'
authorizations. At March 31, 2001, authorizations to repurchase
$8,827,000 or approximately 644,000 shares remain outstanding.
Cumulative shares repurchased through March 31, 2001 under all
current and past authorizations totaled 6,360,814 shares for a total
of $63,560,000. In May 2001 the Board of Directors authorized an
additional share repurchase of up to $20,000,000 of shares.
L-EXPORT SALES
Sales to foreign customers, located primarily in Canada, amounted to
$96,640,000, $93,497,000 and $101,471,000 in 2001, 2000 and 1999.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Arctic Cat Inc.
We have audited the accompanying consolidated balance sheets
of Arctic Cat Inc. and subsidiaries as of March 31, 2001 and 2000,
and the related consolidated statements of earnings, shareholders'
equity, and cash flows for each of the three years in the period ended
March 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Arctic Cat Inc. and subsidiaries as of March 31, 2001 and 2000, and
the consolidated results of their operations and their consolidated cash
flows for each of the three years in the period ended March 31, 2001,
in conformity with accounting principles generally accepted in the
United States of America.
/s/ Grant Thornton LLP
_______________________
Minneapolis, Minnesota
May 11, 2001
29
ARCTIC CAT INC.
EXHIBIT INDEX
EXHIBIT NUMBER
21 Subsidiaries of Registrant
23 Consent of Independent Certified Public Accountants