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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended June 30, 2002 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-18607
ARCTIC CAT INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1443470
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
601 Brooks Avenue South, Thief River Falls, Minnesota 56701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (218) 681-8558
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
At August 12, 2002, 14,928,061 shares of Common Stock and 7,560,000 shares
of Class B Common Stock of the Registrant were outstanding.
PART I - FINANCIAL INFORMATION
Arctic Cat Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, March 31,
ASSETS 2002 2002
CURRENT ASSETS ___________ ___________
Cash and equivalents $ 3,042,000 $ 43,466,000
Short-term investments 23,379,000 58,574,000
Accounts receivable, less allowances 38,397,000 23,819,000
Inventories 108,423,000 61,552,000
Prepaid expenses 3,020,000 3,395,000
Income taxes receivable 1,745,000 3,937,000
Deferred income taxes 16,581,000 16,644,000
___________ ___________
Total current assets 194,587,000 211,387,000
PROPERTY & EQUIPMENT - at cost
Machinery, equipment and tooling 101,296,000 101,296,000
Land, buildings and improvements 19,257,000 19,257,000
__________ __________
120,553,000 120,553,000
Less accumulated depreciation 62,789,000 63,345,000
__________ __________
57,764,000 57,208,000
__________ __________
$252,351,000 $268,595,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 32,192,000 $ 27,788,000
Accrued expenses 43,049,000 49,814,000
__________ __________
Total current liabilities 75,241,000 77,602,000
DEFERRED INCOME TAXES 9,409,000 9,355,000
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00;
2,050,000 shares authorized; none issued - -
Preferred stock - Series B 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, 14,971,049 at June 30,
2002; 15,694,316 at March 31, 2002 149,000 157,000
Class B common stock, par value $.01;
7,560,000 shares authorized, issued,
and outstanding 76,000 76,000
Accumulated other comprehensive income (loss) 78,000 (122,000)
Retained earnings 167,398,000 181,527,000
___________ ___________
167,701,000 181,638,000
___________ ___________
$252,351,000 $268,595,000
=========== ===========
The accompanying notes are an integral part of these condensed statements.
Arctic Cat Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months
Ended June 30,
__________________________
2002 2001
______ ______
Net sales $ 78,283,000 $ 77,821,000
Cost of goods sold 59,440,000 58,945,000
___________ ___________
Gross profit 18,843,000 18,876,000
Selling, general and
administrative expenses 16,325,000 16,732,000
___________ ___________
Operating profit 2,518,000 2,144,000
Other income
Interest income 378,000 726,000
___________ ___________
Earnings before
income taxes 2,896,000 2,870,000
Income tax expense 927,000 913,000
___________ ___________
Net earnings $ 1,969,000 $ 1,957,000
=========== ===========
Net earnings
per share
Basic $0.09 $0.08
Diluted $0.08 $0.08
=========== ===========
Weighted average
shares outstanding
Basic 23,003,000 23,823,000
Diluted 23,324,000 24,188,000
=========== ===========
The accompanying notes are an integral part of these condensed statements.
Arctic Cat Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended June 30,
_____________________________
2002 2001
Cash flows from operating activities ________ ________
Net earnings $ 1,969,000 $ 1,957,000
Adjustments to reconcile net earnings
to net cash used in
operating activities
Depreciation 3,815,000 2,973,000
Tax benefit from stock option exercises 675,000 -
Changes in operating assets
and liabilities:
Trading securities 34,766,000 42,561,000
Accounts receivable (15,950,000) (21,279,000)
Inventories (45,328,000) (48,201,000)
Prepaid expenses 375,000 (933,000)
Accounts payable 4,404,000 6,888,000
Accrued expenses (6,765,000) (6,535,000)
Income taxes 2,192,000 -
Net cash used in __________ __________
operating activities (19,847,000) (22,569,000)
Cash flows from investing activities
Purchase of property and equipment (4,371,000) (674,000)
Sale and maturity of available-for-sale
securities 575,000 9,000
Net cash used in __________ __________
investing activities (3,796,000) (665,000)
Cash flows from financing activities
Proceeds from issuance of common stock 2,340,000 3,121,000
Dividends paid (1,383,000) (1,429,000)
Repurchase of common stock (17,738,000) (2,754,000)
Net cash used in __________ __________
financing activities (16,781,000) (1,062,000)
__________ __________
Net decrease in cash and equivalents (40,424,000) (24,296,000)
Cash and equivalents at the beginning
of period 43,466,000 42,881,000
__________ __________
Cash and equivalents at the end of
period $ 3,042,000 $18,585,000
========== ==========
Supplemental disclosure of cash payments
for income taxes $2,026,000 $ 329,000
========== ==========
The accompanying notes are an integral part of these condensed statements.
Arctic Cat Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Arctic Cat Inc. (the "Company") have been prepared in accordance with
Regulation S - X pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading.
In the opinion of management, the unaudited condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position as of
June 30, 2002, the results of operations for the three month period ended June
30, 2002 and 2001 and cash flows for the three month period ended June 30, 2002
and 2001. Results of operations for the interim periods are not necessarily
indicative of results for the full year.
Preparation of the Company's consolidated financial statements requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual results could
differ from those estimates.
NOTE B--NET EARNINGS PER SHARE
The Company's basic net earnings per share is computed by dividing net
earnings by the weighted average number of outstanding common shares. The
Company's diluted net earnings per share is computed by dividing net earnings
by the weighted average number of outstanding common shares and common share
equivalents relating to stock options, when dilutive. Options to purchase
24,721 and 170,502 shares of common stock with weighted average exercise
prices of $19.74 and $16.69 were outstanding during the three months ended
June 30, 2002 and 2001, all of which were excluded from the computation of
common share equivalents because they were anti-dilutive.
NOTE C--SHORT-TERM INVESTMENTS
Short-term investments consist of the following:
June 30, March 31,
2002 2002
___________ __________
Trading securities $13,330,000 $48,096,000
Available-for-sale debt securities 10,049,000 10,478,000
___________ __________
$23,379,000 $58,574,000
=========== ==========
NOTE D--INVENTORIES
Inventories consist of the following:
June 30, March 31,
2002 2002
___________ __________
Raw materials and sub-assemblies $19,726,000 $14,630,000
Finished goods 50,981,000 17,111,000
Parts, garments and accessories 37,716,000 29,811,000
___________ __________
$108,423,000 $61,552,000
=========== ==========
NOTE E--ACCRUED EXPENSES
Accrued expenses as of June 30, 2002 consisted of marketing,
$14,222,000, warranties, $12,941,000, PWC exit costs, $7,503,000 and other
$8,383,000. Accrued expenses as of March 31, 2002 consisted of marketing,
$16,305,000, warranties, $12,937,000, PWC exit costs, $7,509,000 and other
$13,063,000.
NOTE F--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. The Company
did not produce additional PWC units beyond the completed production of the
1999 models. The majority of the Company's PWC exit plan has concluded while
other aspects of the plan will extend beyond calendar 2002.
The Company had no significant sales related to the watercraft product
line for the three month periods ended June 30, 2002 and 2001.
At June 30, 2002 $4,649,000 is accrued for consumer incentives and
$2,854,000 for other exit costs in connection with this discontinued product
line. There were no adjustments to the initial recorded accrual in conjunction
with the PWC exit plan for the three month period ending June 30, 2002.
NOTE G--SHAREHOLDERS' EQUITY
Dividend Declaration
On July 23, 2002, the Company announced that its Board of Directors
had declared a regular quarterly cash dividend of $0.06 per share, payable on
September 3, 2002 to shareholders of record on August 16, 2002.
Share Repurchase
During the three months ended June 30, 2002 and 2001, the Company
invested $17,738,000 and $2,754,000 to repurchase and cancel 936,000 and
185,000 shares pursuant to Board of Directors' authorizations. On August 9,
2002, the Company's Board of Directors' authorized an additional repurchase of
$20 million of the Company's common shares.
Accumulated Other Comprehensive Income
The components and changes in accumulated other comprehensive income
(loss), net of taxes, during the following periods were as follows:
Three months ended
June 30, 2002 June 30, 2001
------------- -------------
Total Accumulated Other Comprehensive
Income (Loss)
Balance at beginning of period $ (122,000) $ 320,000
Unrealized gain on securities available-
for-sale, net of tax 92,000 -
Effect of adoption of SFAS No. 133 - (741,000)
Unrealized gain on derivative instruments,
net of tax 108,000 (129,000)
------------- --------------
Balance at end of period $ 78,000 $ (550,000)
------------- --------------
------------- --------------
Other Comprehensive Income
Other comprehensive income was as follows:
Three months ended
June 30, 2002 June 30, 2001
------------- -------------
Net earnings $ 1,969,000 $ 1,957,000
Unrealized gain on securities available-
for-sale, net of tax 92,000 -
Effect of adoption of SFAS No. 133 - (741,000)
Unrealized gain on derivative instruments,
net of tax 108,000 (129,000)
------------- -------------
Total Other Comprehensive Income $ 2,169,000 $ 1,087,000
------------- -------------
------------- -------------
NOTE H--COMMITMENTS AND CONTINGENCIES
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Arctic Cat Inc. (the "Company") 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 principally through
its facilities in Thief River Falls, Minnesota. The Company markets its
products through a network of independent dealers located throughout the
contiguous United States and Canada, and through distributors representing
dealers in Alaska, Europe, the Middle East, Asia, and other international
markets. The Arctic Cat brand name has existed for more than 30 years and is
among the most widely recognized and respected names in the snowmobile
industry. The Company trades on the Nasdaq National Market under the symbol
ACAT.
Results of Operations
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 2001.
Net sales for the first quarter of fiscal 2003 increased 0.6% to
$78,283,000 from $77,821,000 for the first quarter of fiscal 2002 due to a
5.7% or $2,617,000 increase in snowmobile sales and a 37.4% or $2,870,000
increase in parts, garments and accessory sales. These increases were offset
to a certain extent by a 20.7% or $4,975,000 decrease in ATV sales. Snowmobile
unit volume increased 14.9% and ATV unit volume decreased 11.2% for the first
quarter of fiscal 2003 compared to the same quarter last year. Quarter to
quarter sales mix and units shipped is determined primarily by production
cycles for snowmobiles and by production cycles and orders received for ATV
sales. For fiscal 2003 the Company expects snowmobile sales to decline by
approximately 7 to 10 percent but expects this decline to be offset by
increased sales of ATVs and parts, garments and accessories resulting in level
or a modest increase in sales for fiscal year 2003.
Gross profits for the first quarter of fiscal 2003 decreased 0.2% to
$18,843,000 from $18,876,000 for the same quarter in fiscal 2002. The
quarterly gross profit percentage was 24.1% compared to 24.3% for the first
quarter in fiscal 2002.
Operating expenses for the first quarter of fiscal 2003 decreased 2.4%
to $16,325,000 from $16,732,000 for the first quarter of last year. As a
percent of sales, operating expenses were 20.9% for the first quarter of
fiscal 2003 versus 21.5% for the same quarter last year.
Other income for the first quarter of fiscal 2003 decreased 47.9% to
$378,000 from $726,000 for the first quarter of last year resulting from lower
interest income earned on investments due to lower interest rates.
Net earnings for the first quarter of fiscal 2003 increased 0.6% to
$1,969,000 from $1,957,000 for the same quarter last year. Diluted earnings
per share were $0.08 for the first quarter of fiscal 2003 and 2002.
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'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. During
the quarter ended June 30, 2002, the Company repurchased $17,738,000 of common
shares compared to $2,754,000 in the same quarter of the prior year. In
August 2002, the Board of Directors authorized the repurchase of an additional
$20 million of common shares. Cash and short-term investments were $26,421,000
and $32,962,000 at June 30, 2002 and 2001. The Company's investment objectives
are first, safety of principal and second, rate of return.
The Company believes that the cash generated from operations and
available cash will be sufficient to meet its working capital, regular
quarterly dividend, share repurchase program, and capital expenditure
requirements for the short and long-term basis.
Line of Credit
The Company has an unsecured credit agreement with banks for the
issuance of up to $45,000,000 of documentary and stand-by letters of credit and
for working capital and in addition has a $15,000,000 seasonal credit agreement
for the Company's peak production period.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for certain forward-looking statements. This 10-Q contains forward-
looking statements that reflect the Company's current views with respect to
future events and financial performance. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from historical results or those anticipated. The words
"aim," "believe," "expect," "anticipate," "intend," "estimate," and other
expressions that indicate future events and trends identify forward-looking
statements. Actual future results and trends may differ materially from
historical results or those anticipated depending on a variety of factors,
including, but not limited to: product mix and volume; competitive pressure on
sales and pricing; increase in material or production cost which cannot be
recouped in product pricing; changes in the sourcing of engines from Suzuki;
warranty expenses; foreign currency exchange rate fluctuations; product
liability claims and other legal proceedings in excess of insured amounts;
environmental and product safety regulatory activity; effects of the weather;
overall economic conditions and consumer demand and confidence.
Item 3. 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"
in the 2002 Annual Report and 10-K and Note G of this Form 10-Q.
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 and is not deemed to be significant.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
________________________________________
Exhibit
Number Description
- ------- -----------
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)
Wells Fargo Bank Minnesota, N.A., dated September 17, 2001
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
Wells Fargo Bank Minnesota, National Association.
99.1 CEO Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (2)
99.2 CFO Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (2)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended June 30, 2002.
(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 20, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARCTIC CAT INC.
Date: August 14, 2002 By s/Christopher A. Twomey
__________________ _________________________
Christopher A. Twomey
Chief Executive Officer
Date: August 14, 2002 By s/Timothy C. Delmore
__________________ _________________________
Timothy C. Delmore
Chief Financial Officer