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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, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-18607
ARCTCO, 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.)
600 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.
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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 21, 1996 (based on the closing sale price of the Common
Stock on such date) was approximately $218,194,182.
At June 21, 1996, 22,043,528 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 8, 1996 is incorporated by reference
into Part III of this Form 10-K.
PART I
Item 1.Business
Arctco, Inc., a Thief River Falls, Minnesota based company, designs,
engineers, manufactures and markets snowmobiles and all-terrain vehicles (ATVs)
under the Arctic Cat brand name, and personal watercraft (PWC) under the
Tigershark brand name, as well as related parts, garments and accessories. The
Company's products are currently sold through a network of independent dealers
located throughout the contiguous United States and Canada, and through
distributors representing dealers in Alaska, Europe, the Middle East, Asia and
other international markets. The Arctic Cat brand name has existed for more
than 30 years and is among the most widely recognized and respected names in the
snowmobile industry.
Industry Background
Snowmobiles. The snowmobile was developed commercially in the 1950's to
serve 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, with a total of over 100
manufacturers in the industry at its peak 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. By 1983, North American sales to retail customers reached
a low of approximately 78,000 units and the number of major industry
participants had decreased to four.
Since 1983, snowmobile sales to retail customers in North America have
grown to approximately 235,000 units in 1996. A number of factors contributed
to this growth which was achieved despite below average snowfall in many areas
of the country in certain years during this period. First, a much expanded
system of public and private snowmobile trails has made snowmobiling more
accessible to a wider range of the North American population,including families.
In recent years, more people have begun transporting their snowmobiles to trails
located away from their homes, similar to use patterns with boats and other off
road motorized recreational vehicles. Second, the demographics for the
principal consumer market for snowmobiles have improved. As the "baby boom"
population ages, the 35 to 54 year old age category has become the fastest
growing segment of the U.S. population. Third, product innovations have
markedly improved the performance, reliability and comfort level of snowmobiles.
Fourth, snowmobile clubs organized at the local level and designed to promote
the sport have significantly increased in number and membership. Finally, the
ongoing replacement of snowmobiles sold during the peak industry years has been
a contributing factor to the industry sales growth. Since 1971, approximately
5,300,000 snowmobiles have been sold in North America, and the Company estimates
that over 90% of current industry sales are to retail customers who own or
previously owned a snowmobile.
The consolidation of the industry that occurred in the mid-1970's through
the early 1980's has resulted in there currently being only four major
participants in the North American snowmobile market: Arctco, Yamaha, Bombardier
(Ski-Doo) and Polaris. The Company believes the industry consolidation has
contributed to improved industry profit margins and closer monitoring of
industry inventory levels. Since the Company's formation, the Company and the
other U.S.-based producers have significantly increased their percentage share
of the North American market at the expense of non-U.S.-based producers. In
addition, the Company believes there are currently more significant barriers to
entry to 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 estimates by the primary industry source which
the Company considers reliable. Non-North American sales for the industry are
estimated to account for less than 6% of worldwide sales and 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.
Personal Watercraft (PWC). The PWC and the related industry evolved from
the one person stand-up craft that was developed in the mid 1960's to the two
and three person sit-down models that are the most popular today. PWC are craft
of up to ten feet in length that are propelled by jet pumps. They are ridden
for leisure fun on lakes, rivers, oceans and waterways. In 1995, U. S. retail
sales were approximately 200,000 units. Major competitors in the industry
include Yamaha, Bombardier (Sea-Doo), Polaris and Kawasaki.
All-terrain Vehicles (ATV). The ATV and the related 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 one person vehicles with oversized tires
used for a variety of off-road uses including farming/ranching, recreational
riding, utility and hunting. 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 that time, sales have continued to gradually climb until reaching
approximately 269,000 units in 1995. Major competitors in the industry include
Honda, Yamaha, Kawasaki, Polaris and Suzuki.
Products
Snowmobiles. The Company produces a full line of snowmobiles, currently
consisting of 13 basic models, all marketed under the Arctic Cat brand name.
In addition, more than 30 variations of the basic models are produced to satisfy
various market niches. The 1996 Arctic Cat models carry suggested U.S. retail
prices ranging from $3,249 to $9,399, excluding a children's model which is sold
at a suggested U.S. retail price of $1,269. Arctic Cat snowmobiles are sold in
the United States, Canada, Scandinavia and other international markets.
The Company's snowmobiles are categorized as High Performance, Family/
Touring and Utility. The Company markets High Performance Arctic Cat
snowmobiles under the names Thundercat , ZRT 800, ZRT 600, ZR 580, ZR 440,
ZL 440, Z 440 , EXT, EXT 600 Triple and Cougar. Family Touring models include
the Panther, Pantera, Jag and Puma and are designed for ease of ride and
handling and performance on the trail. The Company sells models for the Utility
segment under the name Bearcat. In addition, to encourage family involvement in
snowmobiling, the Company offers the only snowmobile in the industry designed
especially for small children, marketed under the Kitty Cat 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. The Company's
models offer a wide range of standard and optional features which enhance the
operation, riding comfort and performance of its snowmobiles. Such features
include hydraulic brakes, the technologically advanced double-wishbone front
suspension (AWS), the digital sequential/differential electronic fuel injection
(EFI) system, the extra-long travel slide-rail suspension (FasTrack), the
Arctco drive clutch, and extended aluminum spindles all adding to a more
controlled and comfortable ride. 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 the Company as accessories.
The Company has developed a number of technological advances which have
significantly improved its products. In 1965, Arctic Enterprises, Inc.
pioneered the slide rail rear suspension. In 1978, Arctic Enterprises, Inc. was
the first with independent front suspension on a production snowmobile. Also in
1978, Arctic Enterprises, Inc. was the first to offer trailing arm front
suspension. 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. For 1997, the Company is offering the first
batteryless EFI system. The Company believes that its leadership in innovation,
technology, style and performance has been demonstrated by its models being
voted "Snowmobile of the Year" 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 Company believes that it has been able to maintain its share of the
worldwide snowmobile market in recent years to a large extent as a result of its
emphasis on new product development. A new model has been introduced by the
Company nearly each year since its formation, and in recent years new models
have been among the Company's best sellers. In 1996, over 85% of the Company's
snowmobile sales were from models or model variations not available three years
earlier.
Personal Watercraft (PWC). Similar to Arctic Cat snowmobiles, Tigershark
PWC are a blend of performance, durability and style, with attention to comfort.
In fiscal 1996, the Company offered six models to cover major market segments in
the current PWC market ranging in price from $4,499 to $7,499. For the high
performance market, the Company offers the Daytona 770, a two-passenger model
designed for superior power and cornering ability. The Company offers three
family touring models including the Monte Carlo and Monte Carlo 770, three-
passenger machines designed for stability and the Monte Carlo 900 also a three-
passenger model with ample power to tow skiers. For the economy market the
Company offers the Montego and Montego Deluxe both two-passenger machines
built for exceptional stability and handling.
The Company believes Tigersharks have been well received in the market and
believes the Tigershark brand continues to maintain its reputation as the driest
ride in the industry. Ever since the Tigersharks inception, Watercraft World
has continued to recognize the Tigershark by selecting the 1993 Tigershark, the
1994 and 1995 Montego Deluxe as the "Best Buy" in the Recreational Runabout
category and in 1996 naming the Daytona 770 as the "Editors Choice Award".
During fiscal 1996, the Company continued to gain acceptance in a number
of PWC international markets. In the last three years, the Company has
increased its Tigershark distributor base from 10 to more than 45 distributors
in virtually every corner of the world. The Company also continued to expand
its Tigershark dealer network throughout North America by increasing the number
of Tigershark dealers to over 800.
All-terrain Vehicles (ATV). In December 1995, the Company shipped its
first ATV, the Bearcat 454 4X4. The unit has a retail price of $6,349. The
Bearcat is designed for the utility, farming/ranching and hunting markets which
account for approximately 70% of the total market. This heavy duty machine has
a fully independent front suspension system, semi-independent rear axles, an
auto clutch system and 9.2 inches of ground clearance - all aspects ensuring
ease of handling and agility over rough terrain.
Parts, Garments and Accessories. The Company is the exclusive provider of
genuine Arctic Cat snowmobile, Tigershark, and Arctic Cat ATV parts 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. Tigershark parts and accessories include
impellers, grates, bilge pumps, batteries, covers, mirrors, oil and beach
dollies. 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 Power 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 Tigershark garments under the Sharkwear label.
Included in the stylish line are neoprene and lycra wet suits, goggles,
sunglasses, coolers, duffle bags, water shoes and gloves, T-shirts, sweatshirts,
jackets, golf shirts, shorts and towels.
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.
For 1994, 1995 and 1996, the Company's net sales of parts, garments and
accessories constituted between 17% and 21% of total net sales. 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 ATV's and Tigershark PWC are manufactured at the
Company's facilities in Thief River Falls, Minnesota. The Company has chosen to
rely on outside vendors for some component parts and is vertically integrated in
other phases of its manufacturing process. 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, contracts with the vendors for
the development of tooling, and then enters into agreements to purchase
component parts manufactured utilizing the tooling. In its vertically
integrated operations, the Company manufactures hoods, foam seats and seat
covers and the Company 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 PWC and ATV models also incorporate engines
manufactured by Suzuki pursuant to separate agreements.
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 stockholder with approximately
25% of the Company's outstanding capital stock. If Suzuki were ever to cease
supplying engines to the Company, 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 snowmobile, PWC, and ATV 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 historical peak levels. The Company believes dealer inventory levels of
non-current Arctic Cat model snowmobiles and PWC 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 approximately March and
continuing through December. Since its inception, the Company has experienced
a low level of snowmobile order cancellation. 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.
Sales of PWC to retail customers generally begin in the spring and continue
during the summer. Orders by dealers and distributors for the Company's 1997
model line will be placed in the fall, following a series of dealer and
distributor meetings. The PWC is built to order commencing in the fall and
continuing through the early spring.
Retail sales of ATVs occur throughout the year with seasonal highs
occurring in the spring and fall. The Company will produce units based on
seasonal dealer and consumer demand.
The Company manufactures certain of its genuine Arctic Cat snowmobile and
ATV and Tigershark parts and accessories at its Thief River Falls facilities
and contracts with outside vendors for the production, to Company
specifications, of other genuine parts and accessories. In addition, the
Company maintains a sewing facility at its Thief River Falls plant to produce
many of its garments.
The Company is committed to an ongoing engineering program dedicated to
innovation and to continued improvements in the quality and performance of its
products. The Company currently employs 113 individuals in the design and
development of new and existing products, with an additional 50 individuals
directly involved in the testing of snowmobiles, PWC, and ATV's in normal and
extraordinary conditions at the Company's test track and test facility in Thief
River Falls as well as surrounding waterways. In addition, snowmobiles, PWC,
and ATV's 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 1994, 1995
and 1996, the Company spent approximately $4,448,000, $7,207,000, and
$9,317,000 respectively, or 1.7%, 2.0%, and 2.3% respectively, of net sales
for the 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. To promote new dealerships and to
service its existing dealer network, the Company also contracts on an
independent basis with sales representatives throughout the United States and
Canada to represent the Company and 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, PWC, and/or ATV's 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 and/or Tigershark
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 United States and
Canada to take advantage of their knowledge and experience in their respective
markets and to increase market penetration of the Company's 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. A Canadian distributor
accounted for approximately 7% of the Company's net sales during 1996. In
February 1995, the Company announced plans to begin marketing directly to
Canadian dealers. This transition was completed in March 1996. The Company
feels that marketing directly through dealers brings the Company more closely to
its Canadian customers which enables improved service and more competitive
prices on snowmobiles, PWC, ATV's and parts, garments and accessories. As of
March 31, 1996 Canadian sales are made in Canadian dollars, a major portion of
which is financed through certain Canadian Financial Institutions. Sales outside
North America are made in U.S. dollars and supported by irrevocable letters of
credit.
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,
pens 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. The Company publishes
and mails, four times a year, the Pride magazine to all registered owners
of Arctic Cat snowmobiles, registered owners of Tigershark PWC, and registered
owners of Arctic Cat ATVs. Cat's Pride Clubs, which are local dealer-sponsored
user groups, are also supported by the Company.
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 believes that the average Arctic
Cat customer is a 37 to 42 year old married male with an annual household income
of approximately $60,000. Since 1962, over 1,000,000 Arctic Cat snowmobiles
have been sold. The Company believes that during the last 5 years over 70% of
its retail customers previously owned an Arctic Cat snowmobile and that over 90%
own or previously owned a snowmobile of some kind.
The Company warrants its snowmobiles, PWC, and ATV's 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 and
have not had a material effect on the Company's business.
Since 1985, the Company has entered into an annual arrangement with certain
financial institutions to provide 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 floorplan companies within thirty
days of shipment and as part of its marketing program 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 sets limits upon the Company's potential liability for
annual repurchases, such aggregate potential liability being approximately
$9,400,000 at March 31, 1996. No material losses have been incurred by the
Company under these agreements, which are terminable by either party upon 30
days notice.
Competition
The snowmobile, PWC, and ATV markets are competitive, with competition
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 ATV's and Tigershark PWC 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, PWC and ATVs.
Certain materials used in snowmobile, PWC, 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 Environmental Protection Agency and various state pollution control
agencies which require reports and inspect 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
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 Arctco, 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 National Marine Manufacturers Association
(NMMA) and the Personal Watercraft Industry Association (PWIA). Tigershark
personal watercraft conform to applicable United States Coast Guard (USCG)
standards and Society of Automobile Engineer (SAE) recommended practices.
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 the U.S. Consumer Product Safety
Commission standards in respects to the wording on safety issues.
Governmental bodies have proposed legislation involving more stringent
emissions standards for two-cycle engines. Such engines are used on the
Companys snowmobiles and PWC. The Company currently is unable to predict
whether such legislation will be enacted and, if so, the ultimate impact on the
Company and its operations.
Employees
During fiscal 1996, the Company had peak employment of approximately 1,675
employees, including 210 salaried and 1,465 hourly and production personnel. Due
to the seasonal nature of sales and the Company's production, historically
approximately 60% of hourly personnel worked only during the spring through the
late fall production period. However, during the past three fiscal years, most
employees remained employed throughout the year to produce the Tigershark PWC
and 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.
Item 2. Properties
The Company owns its manufacturing facilities and executive offices in
Thief River Falls, Minnesota. The facilities consist of approximately 488,000
square feet of manufacturing, office and warehouse space on 49.5 acres,including
approximately 342,000 square feet devoted to manufacturing, approximately 75,000
square feet devoted to the distribution of snowmobile, PWC, and ATV parts,
garments and accessories and approximately 71,000 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. In addition, the Company also owns three separate parcels of
undeveloped land adjacent to its property totaling approximately 94.8 acres.
This property is used by the Company in some of its testing activities and
remains available for future expansion. The Company owns all the tooling used
in the manufacture of its products and the machinery located at its plant in
Thief River Falls, Minnesota.
During Fiscal 1992, the Company purchased industrial painting and reaction
injection molding (RIM) equipment. The equipment is being used by the Company
to produce hoods and hatch covers and other parts for the Company's Arctic Cat
snowmobiles and PWC. The equipment is utilized in a 37,000 square foot leased
facility in Madison, South Dakota.
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, PWC, ATVs and other products. Trademarks are
important to the Company's snowmobile, PWC, 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 3. Legal Proceedings
Accidents involving personal injury and property damage occur in the use of
snowmobiles, PWC, and ATV's. Claims have been made against the Company from
time to time. It is the Company's policy to defend vigorously against these
actions. The Company believes that the few cases in discovery are adequately
covered by 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 other 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 $5,000,000 in the aggregate, in addition to a $1,000,000
self-insured retention. The Company believes such insurance is adequate.
During portions of 1987 and 1988, in reaction to premium rates the Company
considered unreasonably high, the Company did not purchase product liability
insurance. However, the Company is not aware of any occurrences during this
period of self-insurance which might result in significant claims that would
have a materially adverse impact on its business or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 4. (A) Executive Officers of Registrant
Name Age Position
______ _____ __________
William G. Ness 58 Chairman of the Board of Directors
Christopher A. Twomey 48 President and Chief Executive Officer
Bryce D. Abrahamson 42 Vice President--Materials
Mark E. Blackwell 43 Vice President--Marketing
Timothy C. Delmore 42 Chief Financial Officer
and Secretary
Ronald G. Ray 47 Vice President--Manufacturing
Roger H. Skime 53 Vice President--Research & Development
Ole E. Tweet 49 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 co-owner and a Vice President of
Northern Woodwork (specialty furniture manufacturer), Thief River Falls,
Minnesota and a director of Northern State Bank.
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 also a Community
Board Member of Norwest Bank Minnesota West, N.A. Mr. Twomey is also a Director
of Lund International Holdings, Inc.
Mr. Abrahamson has been Vice President--Materials of the Company since
1988. He has been with the Company since its inception in 1983, serving as
Purchasing Agent prior to being named to his present post. Mr. Abrahamson has
been employed in the snowmobile industry for 22 years.
Mr. Blackwell has been Vice President--Marketing since May of 1992 and
has over 14 years of marketing experience in the recreational vehicle field.
Previously he served for five years as Marketing Director for American Suzuki
Motor Corporation. His responsibilities have included the motorcycle and marine
divisions.
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 public accounting experience, joined the Company in 1985 as
Controller.
Mr. Ray has been Vice President-Manufacturing since April of 1992 and
has over 26 years of manufacturing experience. He served previously for eight
years as Vice President of Manufacturing for Advance Machine Company of
Plymouth, Minnesota.
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 35 years.
Mr. Tweet, Vice President of New Product Development and General Manager
of the Marine Division, had been the Company's Vice President--Marketing since
its inception in 1983 and has been employed in the snowmobile industry for 31
years.
(This space intentionally left blank.)
PART II
Item 5. Market for Registrant's Common Stock 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
closing 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, 1996 March 31, 1995
Quarterly Prices High Low High Low
First Quarter $15.88 $10.98 $20.34 $16.17
Second Quarter $14.50 $11.00 $22.00 $17.17
Third Quarter $14.13 $11.00 $21.00 $16.75
Fourth Quarter $13.13 $ 9.50 $19.50 $14.50
As of June 19, 1996, the Company had approximately 797 stockholders of
record including the nominee of Depository Trust Company, which held 18,164,013
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.
On February 2, 1995, the Company increased the quarterly dividend to $0.06 per
share. All dividends have been adjusted for stock-splits.
(This space intentionally left blank.)
Item 6. Selected Financial Data
Years Ended March 31,
(in thousands, except per share amounts)
1996 1995 1994 1993 1992
____ ____ ____ ____ ____
Income Statement Data:
Net sales $404,996 $367,144 $268,057 $184,720 $147,685
Cost of goods sold 308,946 267,210 190,972 132,950 107,293
_______ _______ _______ _______ _______
Gross profit 96,050 99,934 77,085 51,770 40,392
Selling, general and
administrative expenses 72,473 50,939 36,906 26,196 22,219
______ ______ ______ ______ _______
Operating profit 23,577 48,995 40,179 25,574 18,173
Interest expense -- (17) (98) (184) (270)
Interest income 2,228 2,383 1,595 1,533 1,711
------ ------ ------ ------ ------
Earnings before income taxes 25,805 51,361 41,676 26,923 19,614
Income taxes 9,159 17,976 14,170 8,912 6,369
______ ______ ______ ______ ______
Net earnings $ 16,646 $ 33,385 $ 27,506 $ 18,011 $ 13,245
====== ====== ====== ====== ======
Net earnings per share $ 0.56 $ 1.13 $ 0.94 $ 0.62 $ 0.46
====== ====== ====== ====== ======
Cash dividends per share $ 0.24 $ 0.21 $ 0.15 $ 0.12 $ 0.03
====== ====== ====== ====== ======
Weighted average shares
outstanding 29,661 29,495 29,267 29,078 28,620
====== ====== ====== ====== ======
_______________________________________________________________________________
As of March 31, 1996 1995 1994 1993 1992
Balance Sheet Data (in thousands)
Cash & short-term inv. $ 44,002 $ 65,241 $ 59,923 $ 54,812 $ 59,593
Working capital 130,142 128,845 104,885 83,878 71,455
Total assets 207,996 183,996 154,980 122,149 103,873
Long-term debt -- -- -- 581 1,334
Shareholders' equity 156,193 147,067 118,203 94,301 79,414
_______________________________________________________________________________
QUARTERLY FINANCIAL DATA (unaudited)
(in thousands, except per share amounts)
Total First Second Third Fourth
Year Quarter Quarter Quarter Quarter
Net Sales ______ ______ ______ ______ ______
1996 $404,996 61,759 166,059 123,623 53,555
1995 367,144 56,007 149,204 112,844 49,089
1994 268,057 37,393 106,924 88,161 35,579
Gross Profit
1996 $ 96,050 11,806 43,295 31,792 9,157
1995 99,934 13,741 41,845 32,940 11,408
1994 77,085 9,997 28,984 27,837 10,267
Net Earnings (Loss)
1996 $ 16,646 (4,268) 17,888 6,015 (2,989)
1995 33,385 3,583 18,959 10,761 82
1994 27,506 2,596 14,014 9,598 1,298
Earnings (Loss) Per Share
1996 $ 0.56 (0.14) 0.60 0.20 (0.10)
1995 1.13 0.12 0.64 0.36 0.00
1994 0.94 0.09 0.48 0.33 0.04
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Fiscal 1996 was challenging for Arctco. The Company achieved record sales
however, earnings were impacted by factory-to-dealer incentives for the personal
watercraft (PWC) line, currency fluctuations with the Japanese yen, expenses
related to the change in Canadian distribution, and development costs for the
PWC and all-terrain vehicle (ATV) product lines. The Company achieved record
retail sales of Arctic Cat snowmobiles for the thirteenth consecutive year.
Arctic Cat and industry snowmobile inventories ended the year at manageable
levels. The Company entered the $1.2 billion ATV market during the fourth
quarter of fiscal 1996.
Financial Data
(in thousands, except per share data)
Years Ended March 31,
1996 1995 1994
Net Sales $404,996 $367,144 $268,057
Net Earnings $ 16,646 $ 33,385 $ 27,506
Net Earnings Per Share $0.56 $1.13 $0.94
Cash & Short-Term Investments $ 44,002 $ 65,241 $ 59,923
Sales by Product Line (In %)
Snowmobiles 66% 65% 66%
PWC 14% 18% 13%
ATVs 3% - -
Parts, Garments & Accessories 17% 17% 21%
Results of Operations
1996 vs. 1995
Net sales increased 10.3% in 1996 to $404,996,000 from $367,144,000 in 1995
due to a 6.5% increase in snowmobile unit volume, a 14.3% increase of parts,
garments and accessories sales, and $12,763,000 of ATV sales as the Company
entered the ATV market during the fourth quarter. PWC unit volume decreased
14.2% as shipments of certain new models were shifted to the first quarter of
fiscal 1997. The Company believes the increases in snowmobile and accessory
sales were driven by increased demand for the Company's products as well as by
growth in the North American snowmobile market.
Gross profit decreased 3.9% to $96,050,000 in 1996 from $99,934,000 in 1995.
Gross profit as a percent of net sales was 23.7% in 1996 compared to 27.2% in
1995. The decrease in the gross profit percentage is due principally to the
fluctuation in the exchange rates between the U.S. dollar and the Japanese yen,
as well as lower margins on PWC compared to last year. The Company shares
exchange rate fluctuations with Suzuki Motor Corporation, its engine supplier.
These fluctuations, which mainly affected the snowmobile and PWC product lines,
decreased gross profit by approximately $4,000,000 over fiscal 1995 (see
Inflation and Exchange Rates).
Selling, general and administrative expenses increased 42.3% to $72,473,000
in 1996 from $50,939,000 in 1995. The increase is principally attributable to
increased selling and administrative expenses related to the 10.3% increase in
net sales, factory-to-dealer incentives for the PWC line, and to a much
lesser extent, expenses related to the change in Canadian distribution and
increased marketing and development costs for the PWC and ATV product lines. As
a percent of net sales, selling, general and administrative expenses were 17.9%
in 1996 compared to 13.9% in 1995.
Operating profits decreased 51.9% to $23,577,000 in 1996 from $48,995,000 in
1995. As a percent of net sales, operating profits decreased to 5.8% in 1996
from 13.3% in 1995 (see gross profit and operating expense discussion).
Net earnings decreased 50.1% to $16,646,000 in 1996 from $33,385,000 in 1995.
Net earnings as a percent of net sales were 4.1% and 9.1% in 1996 and 1995,
respectively. Net earnings per share were $0.56 in 1996 compared to $1.13 in
1995.
1995 vs. 1994
Net sales increased 37.0% in 1995 to $367,144,000 from $268,057,000 in 1994
due to a 33.8% and a 67.1% increase in snowmobile and PWC unit volume,
respectively, and a 16.3% increase of parts, garments and accessories sales. The
Company believes its increases in snowmobile, PWC, and accessory sales were
driven by increased demand for the Company's products as well as by growth in
the North American snowmobile market and the U.S. PWC market.
Gross profit increased 29.6% to $99,934,000 in 1995 from $77,085,000 in 1994.
Gross profit as a percent of net sales was 27.2% in 1995 compared to 28.8% in
1994. The decrease in the gross profit percentage is due to increased sales
of PWC which yield lower margins than snowmobiles and the fluctuation in the
exchange rates between the U.S. dollar, Canadian dollar, and the Japanese yen.
The Company shares exchange rate fluctuations with its Canadian distributors and
with Suzuki Motor Corporation, its engine supplier. These fluctuations, which
mainly affected the snowmobile and PWC product lines, decreased gross profit by
approximately $5,290,000 over fiscal 1994 (see Inflation and Exchange Rates).
Selling, general and administrative expenses increased 38.0% to $50,939,000
in 1995 from $36,906,000 in 1994. The increase is attributable to increased
selling and administrative expenses related to increased sales. As a percent of
net sales, selling, general and administrative expenses remained relatively
consistent in 1995 at 13.9% compared to 13.8% in 1994.
Operating profits increased 21.9% to $48,995,000 in 1995 from $40,179,000 in
1994. As a percent of net sales, operating profits decreased to 13.3% in 1995
from 15.0% in 1994 (see gross profit discussion).
Net earnings increased 21.4% to $33,385,000 in 1995 from $27,506,000 in 1994.
Net earnings as a percent of net sales were 9.1% and 10.3% in 1995 and 1994,
respectively. Net earnings per share were $1.13 in 1995 compared to $0.94 in
1994.
Liquidity and Capital Resources
The seasonality of the Company's snowmobile production cycle and the lead
time between the commencement of production in March 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. During fiscal 1996, 1995, and
1994 there were no short-term bank borrowings.
Cash and Short-Term Investments
Cash and short-term investments were $44,002,000 at March 31, 1996 compared
to $65,241,000 at March 31, 1995. 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 production cycle begins. 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 $30,000,000 of documentary and stand-by letters of credit. The total
letters of credit issued at March 31, 1996 were $14,746,000, of which
$11,464,000 was issued to Suzuki Motor Corporation for engine purchases. During
the fourth quarter of fiscal 1996, the Company entered the ATV market. The
production of ATVs will utilize essentially the same production facilities and
processes currently utilized by the Company. The Company believes that cash
generated from operations will be sufficient to meet its working capital,
regular quarterly dividend, share repurchase program and capital expenditure
requirements for the foreseeable future. In 1996, the Company invested
$17,155,000 in capital expenditures.
The Company does not provide financing for the purchase of snowmobiles,
ATV's or PWC by its retail customers. The Company has agreements with certain
financial institutions to provide 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 floorplan companies within thirty
days of shipment and as part of its marketing program 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 sets limits upon the Company's potential
liability for annual repurchases, such aggregate potential liability being
approximately $9,400,000 at March 31, 1996. No material losses have been
incurred by the Company under these agreements, which are terminable by either
party upon 30 days notice.
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.
The relationship of the U.S. dollar to the Canadian dollar and Japanese yen
may have a significant impact on the Company's business. Two of the Company's
principal competitors are based in Japan and Canada. Also, the Company purchases
its snowmobile, ATV and PWC engines and related parts from Suzuki Motor
Corporation and sells a full line of products to Canadian dealers. All purchase
and sales prices are determined annually. The Company has agreements with
Suzuki Motor Corporation, that renew annually, to share the impact of
fluctuations in the exchange rate between the U.S. dollar and Japanese yen,
above and below a fixed range contained in the agreements for snowmobile and PWC
engines. The Company has in the past, in the case of the Japanese yen, and may
in the future enter into foreign exchange contracts for both the Japanese yen
and the Canadian dollar to minimize the impact of exchange rate fluctuations
(see gross profit discussion).
Forward looking statements in this Report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
There are certain important factors that could cause results to differ
materially from those anticipated by some of the statements made herein.
Investors are cautioned that all forward looking statements involve risks and
uncertainty. In addition to the factors discussed above, among the other
factors that could cause actual results to differ materially are the following:
product mix; competitive pressure on sales and pricing; increase in material or
production cost which cannot be recouped in product pricing; foreign currency
exchange rate fluctuations; product liability claims in excess of insured
amounts; environmental and product safety regulatory activity; effects of the
weather; and overall economic conditions and consumer confidence.
Item 8. Financial Statements and Supplementary Data
Financial Statements and Notes appear on pages F-1 through F-11.
Quarterly financial data appears in Item 6.
Item 9. Changes 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" in the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held August 8, 1996, 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 4(a) 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 Stockholders currently scheduled to be held August 8, 1996, 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
Stockholders currently scheduled to be held August 8, 1996, 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 Stockholders scheduled to be held on August 8, 1996, 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 Form 10-K:
Form 10-K
Page Reference
(i) Consolidated Balance Sheets F-1
as of March 31, 1996 and 1995
(ii) Consolidated Statements of Earnings F-2
for the three years ended March 31, 1996,
1995 and 1994
(iii) Consolidated Statements of Shareholders' F-3
Equity for the three years ended March 31,
1996, 1995 and 1994
(iv) Consolidated Statements of Cash Flows F-4
for the three years ended March 31, 1996,
1995 and 1994
(v) Notes to Consolidated Financial F-5 to
Statements F-11
(vi) Report of Independent Certified Public F-12
Accountants
2. Schedules filed as part of Form 10-K:
(i) Schedule II - Valuation and Qualifying Accounts F-13
(ii) Exhibit 27 - Financial Data Schedule F-14
3. Exhibits Method of Filing
3(a) Amended and Restated Articles of Incorporation (1)
of Company
3(b) Restated By-Laws of the Company (1)
4(a) Form of specimen Common Stock Certificate (1)
10(a) 1989 Stock Option Plan (1)
10(b) 1995 Stock Option Plan (1)
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) Conditional Credit Line for issuance of documentary (1)
and stand-by letter of credit dated as of August 30, 1993
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, 1996.
(c) Exhibits
Reference is made to Item 14(a) 3.
(d) Schedules
Reference is made to 14(a) 2.
--------------------------------------
(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.
(This space intentionally left blank.)
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, 1996.
ARCTCO, 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, 1996
___________________________ ___________________
William G. Ness
Chairman of the Board and Director
/s/Christopher A. Twomey June 28, 1996
___________________________ ____________________
Christopher A. Twomey
President, Chief Executive Officer
and Director
(Principle Executive Officer)
/s/Timothy C. Delmore June 28, 1996
___________________________ ____________________
Timothy C. Delmore
Chief Financial Officer
(Principle Financial and Accounting Officer)
/s/Robert J. Dondelinger June 28, 1996
___________________________ ____________________
Robert J. Dondelinger, Director
/s/William I. Hagen June 28, 1996
__________________________ ____________________
William I. Hagen, Director
/s/Takeshi Natori June 28, 1996
__________________________ ____________________
Takeshi Natori, Director
/s/Lowell T. Swenson June 28, 1996
__________________________ ____________________
Lowell Swenson, Director
/s/Gregg A. Ostrander June 28, 1996
__________________________ ____________________
Gregg A. Ostrander, Director
/s/Kenneth J. Roering June 28, 1996
__________________________ ____________________
Kenneth J. Roering, Director
Arctco, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31,
ASSETS 1996 1995
____ ____
CURRENT ASSETS
Cash and cash equivalents $ 9,032,000 $ 5,632,000
Short-term investments 34,970,000 59,609,000
Accounts receivable, less allowances 36,465,000 19,366,000
Inventories 86,618,000 69,926,000
Prepaid expenses 2,404,000 2,004,000
Income taxes receivable - 2,622,000
Deferred income taxes 8,920,000 4,759,000
___________ ___________
Total current assets 178,409,000 163,918,000
PROPERTY, PLANT AND EQUIPMENT - (at cost)
Machinery, equipment and tooling 55,118,000 39,911,000
Buildings and improvements 6,191,000 5,012,000
Land 192,000 192,000
__________ __________
61,501,000 45,115,000
Less accumulated depreciation 31,914,000 25,037,000
__________ __________
29,587,000 20,078,000
__________ __________
$207,996,000 $183,996,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 23,947,000 $ 15,990,000
Accrued expenses 24,320,000 19,083,000
__________ __________
Total current liabilities 48,267,000 35,073,000
DEFERRED INCOME TAXES 3,536,000 1,856,000
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00;
2,300,000 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, 22,055,971 in 1996;
22,070,413 in 1995 221,000 221,000
Class B common stock, par value $.01;
7,560,000 shares authorized, issued,
and outstanding 76,000 76,000
Additional paid-in capital 22,502,000 22,903,000
Retained earnings 133,394,000 123,867,000
___________ ___________
156,193,000 147,067,000
___________ ___________
$207,996,000 $183,996,000
============ ============
F-1
Arctco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended March 31,
1996 1995 1994
____ ____ ____
Net sales $404,996,000 $367,144,000 $268,057,000
Cost of goods sold 308,946,000 267,210,000 190,972,000
___________ ___________ ___________
Gross profit 96,050,000 99,934,000 77,085,000
Selling, general and
administrative expenses 72,473,000 50,939,000 36,906,000
___________ ___________ ___________
Operating profit 23,577,000 48,995,000 40,179,000
Other income (expense)
Interest income 2,228,000 2,383,000 1,595,000
Interest expense - (17,000) (98,000)
___________ ___________ ___________
2,228,000 2,366,000 1,497,000
___________ ___________ ___________
Earnings before income taxes 25,805,000 51,361,000 41,676,000
Income tax expense 9,159,000 17,976,000 14,170,000
___________ ___________ ___________
Net earnings $ 16,646,000 $ 33,385,000 $ 27,506,000
========== ========== ==========
Net earnings per share $.56 $1.13 $.94
=== ==== ===
Weighted average shares
outstanding 29,661,000 29,495,000 29,267,000
========== ========== ==========
F-2
Arctco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended March 31,
Class B Additional
Common Stock Common Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings Total
______ ______ ______ ______ __________ __________ _________
Balances at April 1, 1993 21,574,555 $216,000 7,560,000 $76,000 $20,639,000 $ 73,370,000 $ 94,301,000
Contribution to retirement
savings plan 4,896 - - - 74,000 - 74,000
Exercise of stock options 249,372 2,000 - - 1,156,000 - 1,158,000
Tax benefits derived from
stock option exercises - - - - 517,000 - 517,000
Common stock retired (58,437) - - - (865,000) - (865,000)
Cash dividends - - - - - (4,488,000) (4,488,000)
Net earnings - - - - - 27,506,000 27,506,000
__________ _______ _________ ______ __________ __________ ___________
Balances at March 31, 1994 21,770,386 218,000 7,560,000 76,000 21,521,000 96,388,000 118,203,000
Contribution to retirement
savings plan 4,197 - - - 77,000 - 77,000
Exercise of stock options 375,212 4,000 - - 1,947,000 - 1,951,000
Tax benefits derived from
stock option exercises - - - - 914,000 - 914,000
Common stock retired (79,382) (1,000) - - (1,556,000) - (1,557,000)
Cash dividends - - - - - (5,906,000) (5,906,000)
Net earnings - - - - - 33,385,000 33,385,000
__________ _______ _________ ______ __________ __________ ___________
Balances at March 31, 1995 22,070,413 221,000 7,560,000 76,000 22,903,000 123,867,000 147,067,000
Exercise of stock options 58,786 1,000 - - 302,000 - 303,000
Tax benefits derived from
stock option exercises - - - - 62,000 - 62,000
Common stock retired (73,228) (1,000) - - (765,000) - (766,000)
Cash dividends - - - - - (7,119,000) (7,119,000)
Net earnings - - - - - 16,646,000 16,646,000
__________ _______ _________ ______ __________ __________ ___________
Balances at March 31, 1996 22,055,971 $221,000 7,560,000 $76,000 $22,502,000 $133,394,000 $156,193,000
========== ======= ========= ======= ========== =========== ===========
F-3
Arctco, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31,
1996 1995 1994
Cash flows from operating activities
Net earnings $ 16,646,000 $ 33,385,000 $ 27,506,000
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation 7,646,000 5,448,000 4,584,000
Deferred income taxes (2,481,000) (127,000) (680,000)
Contribution to retirement
savings plan - 77,000 74,000
Changes in operating assets
and liabilities:
Trading securities 25,280,000 (12,603,000) -
Accounts receivable (17,099,000) (4,353,000) (6,057,000)
Inventories (16,692,000) (10,030,000) (19,014,000)
Prepaid expenses (400,000) (1,265,000) 260,000
Accounts payable 7,957,000 (3,308,000) 4,691,000
Accrued expenses 5,237,000 2,599,000 5,088,000
Income taxes 2,684,000 (1,481,000) (404,000)
__________ __________ __________
Net cash provided by
operating activities 28,778,000 8,342,000 16,048,000
Cash flows from investing activities
Additions to property, plant and
equipment (17,155,000) (10,664,000) (6,742,000)
Sales and maturities of
available-for-sale securities 2,292,000 2,669,000 -
Purchases of available-for-sale
securities (2,933,000) (4,032,000) -
Sales of short-term investments - net - - 823,000
__________ __________ _________
Net cash used in
investing activities (17,796,000) (12,027,000) (5,919,000)
Cash flows from financing activities
Dividends paid (7,119,000) (5,906,000) (4,488,000)
Proceeds from issuance of common stock 209,000 943,000 293,000
Common stock retired (672,000) - -
__________ __________ _________
Net cash used in
financing activities (7,582,000) (4,963,000) (4,195,000)
__________ __________ _________
Net increase (decrease) in cash
and equivalents 3,400,000 (8,648,000) 5,934,000
Cash and equivalents at beginning
of year 5,632,000 14,280,000 8,346,000
__________ __________ _________
Cash and equivalents at end of year $ 9,032,000 $ 5,632,000 $ 14,280,000
========== ========== ==========
Supplemental disclosure of cash
payments for income taxes $ 10,869,000 $ 19,584,000 $ 15,254,000
========== ========== ==========
Supplemental disclosure of non-cash financing activities:
During 1996, 1995 and 1994, common stock with a fair market value of $94,000,
$1,557,000 and $865,000 was canceled as settlement for the exercise of certain
stock options and associated payroll taxes.
Tax benefits derived from the exercise of stock options reduced income tax
obligations and increased additional paid-in capital in the amount of $62,000,
$914,000 and $517,000 during 1996, 1995 and 1994.
F-4
Arctco, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Arctco, Inc. and subsidiaries (the "Company") design, engineer, manufacture
and market snowmobiles and all-terrain vehicles (ATVs) under the Arctic Cat
brand name, and personal watercraft under the Tigershark brand name, as well
as related parts, garments and accessories, principally through its facilities
in Thief River Falls, Minnesota. Principal products, as a percentage of 1996
sales, are: snowmobiles - 66%, watercraft - 14%, ATVs - 3%, and parts,
garments and accessories - 17%. 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.
Principles of Consolidation:
The consolidated financial statements include the accounts of Arctco, Inc. and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Equivalents:
The Company considers all highly liquid temporary investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
totaled $12,582,000 and $10,250,000 at March 31, 1996 and 1995, are stated at
cost, which approximates market value, based upon quoted market prices, and
were principally invested in three issuers' and two issuers' put bonds in 1996
and 1995.
Short-Term Investments:
Short-term investments are stated at cost, which approximates market value,
based upon quoted market prices, and include trading securities with
unrealized gains and losses included in income and available-for-sale
securities with unrealized gains and losses reported as a separate component
of shareholders' equity.
Inventories:
Inventories are stated at the lower of cost or market and include materials,
labor and overhead costs. Cost is determined using the first-in, first-out
method.
Property, Plant and Equipment:
Depreciation is provided in amounts to relate the cost of depreciable assets
to operations over their estimated service lives principally on a straight-
line basis. Estimated service lives range from 15-25 years for buildings and
improvements and 3-7 years for machinery, equipment and tooling. 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.
Warranty costs on certain parts and components are reimbursed to the Company
by supplying vendors.
F-5
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 when products are shipped to dealers and
distributors.
Research and Development:
The Company expenses research and development costs as incurred. Research
and development expense was $9,317,000, $7,207,000 and $4,448,000 during 1996,
1995 and 1994.
Advertising:
The Company expenses advertising costs as incurred. Advertising expense was
$12,296,000, $8,903,000 and $6,417,000 during 1996, 1995 and 1994.
Net Earnings Per Share:
Net earnings per share is based upon the weighted average outstanding common
shares and common share equivalents, when dilutive.
Use of Estimates:
Preparation of the Company's consolidated financial statements requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual results
could differ from these estimates.
New Accounting Standards:
The Company is required to adopt two new accounting standards as of April 1,
1996. The first standard establishes guidance on when and how to measure
impairment of long-lived assets and how to value long-lived assets to be
disposed of. The second standard establishes accounting and reporting for
stock-based compensation plans. This standard permits the Company to continue
to use the intrinsic value method, while requiring additional disclosures
concerning its stock-based compensation plans. Management believes the
adoption of these new standards will not have a material effect on the
Company's financial statements.
Foreign Exchange Contracts:
The Company enters into foreign exchange forward contracts to hedge purchase
commitments denominated in Japanese yen. Gains and losses on the foreign
exchange contracts are deferred and included in the determination of the
related foreign currency transaction. At March 31, 1996, the Company had open
Japanese yen forward purchase contracts with notional amounts totaling
$14,485,000 U.S.dollars.
NOTE B - SHORT-TERM INVESTMENTS
Short-term investments consist primarily of a diversified portfolio of tax
exempt municipal bonds and municipal bond mutual funds and are classified as
follows at March 31:
1996 1995
____ ____
Trading securities $20,014,000 $45,294,000
Available-for-sale debt securities 14,956,000 14,315,000
__________ __________
$34,970,000 $59,609,000
========== ==========
F-6
The contractual maturities of available-for-sale debt securities at March 31,
1996, are due as follows: $769,000 within one year, $3,215,000 from one year
through five years, and $10,972,000 from five years through ten years. Gross
realized gains and losses on the sale of available-for-sale securities were
not material, utilizing the specific identification method.
NOTE C -INVENTORIES
Inventories consist of the following at March 31:
1996 1995
____ ____
Raw materials and sub-assemblies $39,027,000 $33,772,000
Finished goods 22,727,000 14,815,000
Parts, garments and accessories 24,864,000 21,339,000
__________ __________
$86,618,000 $69,926,000
========== ==========
NOTE D - ACCRUED EXPENSES
Accrued expenses consist of the following at March 31:
1996 1995
____ ____
Compensation $ 5,892,000 $ 7,822,000
Warranty 7,939,000 6,012,000
Self-insured retentions 3,185,000 2,504,000
Other 7,304,000 2,745,000
__________ __________
$24,320,000 $19,083,000
========== ==========
NOTE E - RETIREMENT SAVINGS PLAN
The Company's 401(k) retirement savings plan covers substantially all eligible
employees. Employees may contribute 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 contributions were $724,000,
$579,000 and $381,000 in 1996, 1995 and 1994.
NOTE F - RELATED PARTY TRANSACTIONS
The Company purchases engines and related parts, which are manufactured in
Japan, from Suzuki Motor Corporation (Suzuki) (see Note J). Such purchases
totaled $95,619,000, $77,005,000 and $54,491,000 in 1996, 1995 and 1994. The
purchase price of engines and related parts is determined annually. The
Company has an agreement with Suzuki, which renews annually, 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 for
snowmobile and watercraft engine purchases. Foreign currency exchange losses
under this agreement were not material during the periods presented.
F-7
As described above, and in Note J, the Company is dependent on Suzuki for the
near term supply 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 where
certain of the Company's directors are officers or significant shareholders.
In 1996, 1995 and 1994, these transactions aggregated $6,255,000, $4,961,000
and $3,960,000.
NOTE G - INCOME TAXES
Income tax expense consists of the following for the years ended March 31:
1996 1995 1994
____ ____ ____
Current -Federal $10,375,000 $16,227,000 $13,406,000
-State 1,265,000 1,876,000 1,444,000
Deferred (2,481,000) (127,000) (680,000)
__________ __________ __________
9,159,000 $17,976,000 $14,170,000
========== ========== ==========
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:
1996 1995
____ ____
Deferred income taxes - assets
Accrued warranty $2,977,000 $2,255,000
Inventory capitalization and reserves 2,317,000 1,405,000
Other 3,626,000 1,099,000
_________ _________
$8,920,000 $4,759,000
========= =========
Deferred income taxes - liabilities
Depreciation $2,057,000 $1,275,000
Other 1,479,000 581,000
_________ _________
$3,536,000 $1,856,000
========= =========
The following is a reconciliation of the Federal statutory income tax rate to
the effective tax rate for the years ended March 31:
1996 1995 1994
____ ____ ____
Statutory income tax rate 35.0% 35.0% 35.0%
State taxes 3.2 2.4 2.2
Tax exempt interest (2.9) (1.6) (1.3)
Foreign sales corporation (2.0) (1.0) (1.3)
Other 2.2 .2 (.6)
____ ____ ____
35.5% 35.0% 34.0%
==== ==== ====
F-8
NOTE H - COMMITMENTS AND CONTINGENCIES
Letters of Credit:
At March 31, 1996, the Company had an unsecured credit agreement with a bank
for the issuance of up to $30,000,000 of documentary and stand-by letters of
credit. The total letters of credit issued at March 31, 1996, were
$14,746,000, of which $11,464,000 were issued to Suzuki for engine purchases
(see Note F). The letters of credit expire through September 1996.
Dealer Financing:
Finance companies provide certain of the Company's dealers and distributors
with financing. The Company has agreements to repurchase certain repossessed
products sold to its dealers and reimburse the finance companies for losses up
to specified limits. At March 31, 1996, the Company was contingently liable
under these agreements for a maximum repurchase amount of approximately
$9,400,000. No material losses have been incurred under these agreements
during the periods presented.
The Company pays a specified portion of the floor plan interest payable to
finance companies for certain of its distributors and dealers who qualify
under various marketing programs. Total payments under these programs were
$7,416,000, $4,881,000 and $1,726,000 in 1996, 1995 and 1994.
Employment Agreements:
The Company has employment agreements with its executive officers which
provide, among other things, severance payments in the event of a change in
control of the Company or the executive is terminated without cause. The
agreements also contain non-compete restrictions and prohibit disclosure of
confidential information concerning the Company.
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 cash flow or
consolidated financial statements.
NOTE I - STOCK OPTION PLANS
During 1996, the Company's Board of Directors and shareholders approved the
1995 Stock Option Plan which provides options for the purchase of 1,800,000
shares of the Company's common stock.
At March 31, 1996, the Company had 1,693,052 shares of common stock reserved
for issue under its 1989 and 1995 stock option plans. These plans provide for
incentive stock options and other options to be granted to directors, officers
and other key employees at an exercise price which is equal to the fair market
value on the date of grant.
Transactions under the plans during each of the three years in the period
ended March 31, 1996 are summarized as follows:
F-9
Number of Average option
options price per share
_________ ________________
Outstanding at April 1, 1993 1,172,252 $ 5.31
Granted 239,646 10.75
Exercised (249,372) 4.65
__________ _______
Outstanding at March 31, 1994 1,162,526 6.57
Granted 241,471 16.64
Exercised (375,213) 5.20
__________ _______
Outstanding at March 31, 1995 1,028,784 9.44
Granted 255,000 11.25
Exercised (58,786) 5.15
__________ _______
Outstanding at March 31, 1996 1,224,998 $10.02
========= =======
Outstanding options totaling 475,831 were exercisable at March 31, 1996.
NOTE J - SHAREHOLDERS' EQUITY
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 outstanding common and Class B common shares;
the Company becomes a non-surviving party due to a merger, recapitalization,
or the Company sells substantially all of its assets; or due to the transfer
of Class B common stock by Suzuki 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 ownership 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 2,300,000 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.
F-10
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 Shareholder 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.
Stock Split:
In August 1994, the Company's Board of Directors declared a three-for-two
split of the Company's common stock and Class B common stock, which was
distributed in September 1994.
Share Repurchase Authorization:
During 1996, the Company's Board of Directors authorized the repurchase of up
to 1,500,000 shares of common stock. During 1996, the Company invested
$672,000 to repurchase and cancel 66,000 shares.
NOTE K - EXPORT SALES AND MAJOR CUSTOMER
Sales to foreign customers (located primarily in Canada) amounted to
$73,964,000, $74,136,000 and $57,717,000 in 1996, 1995 and 1994.
Substantially all sales to foreign customers are denominated in U.S. currency.
Prior to March 31, 1996, the Company marketed its products to Canadian dealers
through two distributors serving eastern and western Canada. Sales to one of
these distributors amounted to $29,437,000, $40,175,000 and $32,880,000 during
1996, 1995 and 1994. Effective April 1, 1996, the Company will begin
marketing all of its products directly to Canadian dealers.
NOTE L - RECLASSIFICATIONS
Certain 1995 and 1994 amounts have been reclassified to conform to the 1996
presentation.
F-11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Arctco, Inc.
We have audited the accompanying consolidated balance sheets of Arctco,
Inc. and subsidiaries as of March 31, 1996 and 1995, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended March 31, 1996. 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 generally accepted auditing
standards. 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 Arctco, Inc.
and subsidiaries as of March 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1996, in conformity with generally accepted accounting
principles.
We have also audited Schedule II of Arctco, Inc. and subsidiaries for each
of the three years in the period ended March 31, 1996. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
/s/Grant Thornton LLP
______________________
GRANT THORNTON LLP
Minneapolis, Minnesota
May 10, 1996
F-12
ARCTCO, INC. AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFING ACCOUNTS
THREE YEARS ENDED MARCH 31, 1996
Balance at Charged to Charged to
Beginning Costs and Other Accounts Deductions- Balance at end
Description of Period Expenses -Describe Describe of Period
___________ __________ ___________ ______________ ___________ ________________
Warranty Reserve
Year ended March 31, 1996 $6,012,000 $14,354,000 - $12,427,000 (a) $7,939,000
Year ended March 31, 1995 $5,518,000 $ 9,638,000 - $ 9,144,000 (a) $6,012,000
Year ended March 31, 1994 4,448,000 7,972,000 - 6,902,000 (a) 5,518,000
Self-insured Retentions:
Year ended March 31, 1996 2,504,000 3,777,000 - 3,096,000 (b) 3,185,000
Year ended March 31, 1995 2,449,000 2,432,000 - 2,377,000 (b) 2,504,000
Year ended March 31, 1994 1,377,000 2,672,000 - 1,600,000 (b) 2,449,000
Other:
Year ended March 31, 1996 1,608,000 - - - 3,037,000
Year ended March 31, 1995 1,683,000 - - - 1,608,000
Year ended March 31, 1994 1,658,000 - - - 1,683,000
(a) Warranty claims paid less vendor reimbursements.
(b) Health and workers' comp claims and expenses paid.
F-13
Exhibit 21
ARCTCO, INC.
Subsidiaries of the Company
Arctco FSC, Inc.
(a foreign sales corporation)
Organized under the laws of the
United States Virgin Islands
100% of common stock owned by parent
Arctco Sales, Inc.
organized under the laws
of the State of Minnesota
100% of common stock owned by parent
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated May 10, 1996, accompanying the consolidated
financial statements and schedule included in the Annual Report of Arctco, Inc.
on Form 10-K for the year ended March 31, 1996. We hereby consent to the
incorporation by reference of said report in the Registration Statements of
Arctco, Inc. on Form S-8 (File No. 33-37065, effective October 1, 1990, File No.
33-69916, effective October 4, 1993, and File No. 33-97244, effective September
22, 1995).
/s/Grant Thornton LLP
______________________
GRANT THORNTON LLP
Minneapolis, Minnesota
June 13, 1996
Exhibit 27
Arctco, Inc. and Subsidiaries
FINANCIAL DATA SCHEDULE
1996
This schedule contains summary financial information extracted from
Arctco, Inc. and subsidiaries consolidated financial statements and
is qualified in its entirety by reference to such financial statements.
[ARTICLE] 5
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] MAR-31-1996
[PERIOD-END] MAR-31-1996
[CASH] 9,032,000
[SECURITIES] 34,970,000
[RECEIVABLES] 36,965,000
[ALLOWANCES] (500,000)
[INVENTORY] 86,618,000
[CURRENT-ASSETS] 178,409,000
[PP&E] 61,501,000
[DEPRECIATION] 31,914,000
[TOTAL-ASSETS] 207,996,000
[CURRENT-LIABILITIES] 48,267,000
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 297,000
[OTHER-SE] 155,896,000
[TOTAL-LIABILITY-AND-EQUITY] 207,996,000
[SALES] 404,996,000
[TOTAL-REVENUES] 404,996,000
[CGS] 308,946,000
[TOTAL-COSTS] 308,946,000
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 215,000
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 25,805,000
[INCOME-TAX] 9,159,000
[INCOME-CONTINUING] 16,646,000
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 16,646,000
[EPS-PRIMARY] .56
[EPS-DILUTED] 0
F-14