UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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for the quarter ended September 30, 2004 |
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or |
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o |
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)
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Minnesota |
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41-1443470 |
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(State or
other jurisdiction |
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(I.R.S.
Employer |
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601 Brooks Avenue South, Thief River Falls, Minnesota |
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56701 |
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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 ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ý No o
At November 4, 2004, 13,664,539 shares of Common Stock and 6,717,000 shares of Class B Common Stock of the Registrant were outstanding.
Part I - FINANCIAL INFORMATION
ITEM I – FINANCIAL STATEMENTS
Arctic Cat Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
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September 30, |
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March 31, |
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ASSETS |
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CURRENT ASSETS |
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Cash and equivalents |
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$ |
30,437,000 |
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$ |
44,045,000 |
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Short-term investments |
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33,730,000 |
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62,395,000 |
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Accounts receivable, less allowances |
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76,177,000 |
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28,274,000 |
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Inventories |
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105,605,000 |
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61,127,000 |
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Prepaid expenses |
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1,976,000 |
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3,592,000 |
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Income taxes receivable |
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— |
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4,607,000 |
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Deferred income taxes |
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15,361,000 |
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12,020,000 |
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Total current assets |
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263,286,000 |
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216,060,000 |
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PROPERTY AND EQUIPMENT - at cost |
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Machinery, equipment and tooling |
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134,165,000 |
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125,584,000 |
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Land, buildings and improvements |
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22,368,000 |
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22,213,000 |
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156,533,000 |
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147,797,000 |
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Less accumulated depreciation |
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88,771,000 |
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78,295,000 |
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67,762,000 |
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69,502,000 |
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$ |
331,048,000 |
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$ |
285,562,000 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
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$ |
74,767,000 |
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$ |
48,148,000 |
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Accrued expenses |
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40,863,000 |
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34,900,000 |
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Income taxes payable |
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10,467,000 |
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— |
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Total current liabilities |
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126,097,000 |
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83,048,000 |
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DEFERRED INCOME TAXES |
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15,564,000 |
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16,561,000 |
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COMMITMENTS AND CONTINGENCIES |
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— |
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— |
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SHAREHOLDERS’ EQUITY |
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Preferred stock, par value $1.00; 2,050,000 shares authorized; none issued |
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— |
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— |
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Preferred stock - Series A Junior Participating, par value $1.00; 450,000 shares authorized; none issued |
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— |
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— |
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Common stock, par value $.01; 37,440,000 shares authorized; shares issued and outstanding, 13,806,798 at September 30, 2004; 14,285,882 at March 31, 2004 |
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138,000 |
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143,000 |
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Class B common stock, par value $.01; 7,560,000 shares authorized; issued, and outstanding, 6,717,000 at September 30, 2004; and at March 31, 2004 |
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67,000 |
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67,000 |
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Accumulated other comprehensive income (loss) |
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(1,215,000 |
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(221,000 |
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Retained earnings |
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190,397,000 |
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185,964,000 |
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189,387,000 |
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185,953,000 |
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$ |
331,048,000 |
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$ |
285,562,000 |
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The accompanying notes are an integral part of these condensed statements.
2
Arctic Cat Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
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Three Months |
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Six Months |
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2004 |
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2003 |
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2004 |
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2003 |
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Net sales |
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$ |
240,673,000 |
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$ |
237,650,000 |
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$ |
343,267,000 |
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$ |
314,839,000 |
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Cost of goods sold |
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188,061,000 |
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181,478,000 |
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271,699,000 |
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240,141,000 |
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Gross profit |
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52,612,000 |
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56,172,000 |
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71,568,000 |
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74,698,000 |
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Selling, general and administrative expenses |
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23,908,000 |
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24,616,000 |
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42,890,000 |
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43,241,000 |
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Operating profit |
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28,704,000 |
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31,556,000 |
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28,678,000 |
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31,457,000 |
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Other income |
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Interest income |
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194,000 |
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162,000 |
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403,000 |
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411,000 |
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Earnings before income taxes |
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28,898,000 |
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31,718,000 |
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29,081,000 |
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31,868,000 |
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Income tax expense |
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9,247,000 |
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10,149,000 |
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9,306,000 |
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10,197,000 |
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Net earnings |
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$ |
19,651,000 |
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$ |
21,569,000 |
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$ |
19,775,000 |
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$ |
21,671,000 |
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Net earnings per share |
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Basic |
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$ |
0.95 |
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$ |
0.99 |
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$ |
0.95 |
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$ |
0.99 |
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Diluted |
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$ |
0.94 |
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$ |
0.98 |
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$ |
0.94 |
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$ |
0.98 |
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Weighted average shares outstanding |
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Basic |
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20,660,000 |
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21,707,000 |
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20,766,000 |
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21,838,000 |
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Diluted |
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20,959,000 |
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21,999,000 |
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21,052,000 |
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22,125,000 |
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The accompanying notes are an integral part of these condensed statements.
3
Arctic Cat Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Six Months Ended September 30, |
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2004 |
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2003 |
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Cash flows from operating activities |
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Net earnings |
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$ |
19,775,000 |
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$ |
21,671,000 |
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Adjustments to reconcile net earnings |
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To net cash provided by operating activities |
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Depreciation |
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11,016,000 |
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9,486,000 |
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Deferred income taxes |
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(3,753,000 |
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(1,866,000 |
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Tax benefit from stock option exercises |
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606,000 |
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1,112,000 |
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Changes in operating assets and liabilities: |
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Trading securities |
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26,940,000 |
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25,107,000 |
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Accounts receivable |
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(47,903,000 |
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(46,621,000 |
) |
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Inventories |
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(44,478,000 |
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(36,506,000 |
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Prepaid expenses |
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1,616,000 |
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3,007,000 |
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Accounts payable |
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25,163,000 |
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21,768,000 |
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Accrued expenses |
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5,963,000 |
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2,540,000 |
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Income taxes |
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15,074,000 |
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13,950,000 |
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Net cash provided by operating activities |
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10,019,000 |
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13,648,000 |
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Cash flows from investing activities |
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Purchase of property and equipment |
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(9,276,000 |
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(11,248,000 |
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Sale and maturity of available-for-sale securities |
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1,602,000 |
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574,000 |
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Net cash used in investing activities |
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(7,674,000 |
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(10,674,000 |
) |
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Cash flows from financing activities |
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Proceeds from issuance of common stock |
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1,222,000 |
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4,031,000 |
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Dividends paid |
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(2,909,000 |
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(2,631,000 |
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Repurchase of common stock |
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(14,266,000 |
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(29,185,000 |
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Net cash used in financing activities |
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(15,953,000 |
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(27,785,000 |
) |
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Net decrease in cash and equivalents |
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(13,608,000 |
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(24,811,000 |
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Cash and equivalents at the beginning of period |
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44,045,000 |
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33,081,000 |
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Cash and equivalents at the end of period |
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$ |
30,437,000 |
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$ |
8,270,000 |
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Supplemental disclosure of cash payments for income taxes |
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$ |
185,000 |
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$ |
301,000 |
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The accompanying notes are an integral part of these condensed statements.
4
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 September 30, 2004 and, the results of operations for the three and six month periods ended September 30, 2004 and 2003 and cash flows for the six month periods ended September 30, 2004 and 2003. Results of operations for the interim periods are not necessarily indicative of results for the full year. The condensed consolidated balance sheet as of March 31, 2004 is derived from the audited balance sheet as of that date.
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–STOCK BASED COMPENSATION
The Company utilizes the intrinsic value method of accounting for its employee stock-based compensation plans.
The Company’s reported net earnings and basic and diluted net earnings per share for the three and six months ended September 30, 2004 and 2003, would have been as follows had the fair value method been used for valuing stock options granted to employees:
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Three months ended September 30, |
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2004 |
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2003 |
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Net earnings: |
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As reported |
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$ |
19,651,000 |
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$ |
21,569,000 |
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Additional compensation expense, net of tax |
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272,000 |
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331,000 |
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Proforma |
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$ |
19,379,000 |
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$ |
21,238,000 |
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Net earnings per share |
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As reported |
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Basic |
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$ |
0.95 |
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$ |
0.99 |
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Diluted |
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0.94 |
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0.98 |
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Proforma |
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Basic |
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$ |
0.94 |
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$ |
0.98 |
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Diluted |
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0.92 |
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0.97 |
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5
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Six months ended September 30, |
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2004 |
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2003 |
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Net earnings: |
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As reported |
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$ |
19,775,000 |
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$ |
21,671,000 |
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Additional compensation expense, net of tax |
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585,000 |
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585,000 |
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Proforma |
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$ |
19,190,000 |
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$ |
21,086,000 |
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Net earnings per share |
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As reported |
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Basic |
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$ |
0.95 |
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$ |
0.99 |
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Diluted |
|
0.94 |
|
0.98 |
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Proforma |
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Basic |
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$ |
0.92 |
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$ |
0.97 |
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Diluted |
|
0.91 |
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0.95 |
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NOTE C—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 256,000 and 316,000 shares of common stock with weighted average exercise prices of $27.69 and $21.03 were outstanding during the three months ended September 30, 2004 and 2003 and options to purchase 128,000 and 170,360 shares of common stock with weighted average exercise prices of $27.69 and $20.94 were outstanding during the six months ended September 30, 2004 and 2003 all of which were excluded from the computation of common share equivalents because they were anti-dilutive.
Weighted average shares outstanding consist of the following:
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Three Months |
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Six Months |
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2004 |
|
2003 |
|
2004 |
|
2003 |
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Weighted average number of common shares outstanding |
|
20,660,000 |
|
21,707,000 |
|
20,766,000 |
|
21,838,000 |
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|
|
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|
|
|
|
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Dilutive effect of option plan |
|
299,000 |
|
292,000 |
|
286,000 |
|
287,000 |
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Common and potential common shares outstanding - diluted |
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20,959,000 |
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21,999,000 |
|
21,052,000 |
|
22,125,000 |
|
6
NOTE D—SHORT-TERM INVESTMENTS
Short-term investments consist of the following:
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September 30, |
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March 31, |
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Trading securities |
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$ |
28,342,000 |
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$ |
55,282,000 |
|
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Available-for-sale debt securities |
|
5,388,000 |
|
7,113,000 |
|
||
|
|
|
|
|
|
|
||
|
|
|
$ |
33,730,000 |
|
$ |
62,395,000 |
|
NOTE E—INVENTORIES
Inventories consist of the following:
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September 30, |
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March 31, |
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|
|
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Raw materials and sub-assemblies |
|
$ |
28,054,000 |
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$ |
16,942,000 |
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Finished goods |
|
45,115,000 |
|
14,719,000 |
|
||
|
Parts, garments and accessories |
|
32,436,000 |
|
29,466,000 |
|
||
|
|
|
|
|
|
|
||
|
|
|
$ |
105,605,000 |
|
$ |
61,127,000 |
|
NOTE F—ACCRUED EXPENSES
Accrued expenses consist of the following:
|
|
|
September 30, |
|
March 31, |
|
||
|
|
|
|
|
|
|
||
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Marketing |
|
$ |
11,903,000 |
|
$ |
8,566,000 |
|
|
Compensation |
|
7,008,000 |
|
9,206,000 |
|
||
|
Warranties |
|
14,317,000 |
|
10,331,000 |
|
||
|
Insurance |
|
5,966,000 |
|
5,061,000 |
|
||
|
Other |
|
1,669,000 |
|
1,736,000 |
|
||
|
|
|
|
|
|
|
||
|
|
|
$ |
40,863,000 |
|
$ |
34,900,000 |
|
NOTE G-PRODUCT WARRANTIES
The Company generally provides a limited warranty to the original owner of snowmobiles for twelve months from the date of consumer registration and for six months on ATVs. The Company provides for estimated warranty costs at the time of sale based on historical rates and trends and makes subsequent adjustments to its estimate as actual claims become known or the amounts are determinable. The following represents changes in accrued warranty for the six month periods ended September 30:
|
|
|
2004 |
|
2003 |
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|
|
|
|
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Balance at beginning of period |
|
$ |
10,331,000 |
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$ |
12,205,000 |
|
|
Warranty provision |
|
7,225,000 |
|
6,714,000 |
|
||
|
Warranty claim payments |
|
(3,239,000 |
) |
(4,976,000 |
) |
||
|
Balance at end of period |
|
$ |
14,317,000 |
|
$ |
13,943,000 |
|
7
NOTE H—Shareholders’ Equity
Dividend Declaration
On October 21, 2004, the Company announced that it’s Board of Directors had declared a regular quarterly cash dividend of $0.07 per share, payable on December 1, 2004 to shareholders of record on November 11, 2004.
Share Repurchase
During the six months ended September 30, 2004 and 2003, the Company invested $14,266,000 and $29,185,000, respectively, to repurchase and cancel 586,000 and 1,419,000 shares, respectively, pursuant to the Board of Directors’ authorizations. In June 2004, the Company’s Board of Director’s approved an additional $20 million repurchase program. At September 30, 2004, authorization to repurchase up to $16,375,000, or approximately 631,000 shares, remain outstanding. Included in the first half 2003 repurchases are 843,000 shares from Suzuki Motor Corporation, repurchased for $18,259,000, or $21.66 per share.
Additional Paid-in-Capital
During the six months ended September 30, 2004 and 2003, additional paid-in-capital increases of $1,827,000 and $5,140,000, respectively from the exercise of stock options were offset by share repurchases.
Accumulated Other Comprehensive Income
The components and changes in accumulated other comprehensive (loss), net of taxes, during the following periods were as follows:
|
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|
Six months ended |
|
||||
|
|
|
September 30, 2004 |
|
September 30, 2003 |
|
||
|
Total Accumulated Other Comprehensive (Loss) |
|
|
|
|
|
||
|
Balance at beginning of period |
|
$ |
(221,000 |
) |
$ |
(336,000 |
) |
|
Unrealized loss on securities available-for-sale, net of tax |
|
(77,000 |
) |
(65,000 |
) |
||
|
Unrealized loss on derivative instruments, net of tax |
|
(917,000 |
) |
(941,000 |
) |
||
|
|
|
|
|
|
|
||
|
Balance at end of period |
|
$ |
(1,215,000 |
) |
$ |
(1,342,000 |
) |
Other Comprehensive Income
Other comprehensive income was as follows:
|
|
|
Six months ended |
|
||||
|
|
|
September 30, 2004 |
|
September 30, 2003 |
|
||
|
Net earnings |
|
$ |
19,775,000 |
|
$ |
21,671,000 |
|
|
Unrealized loss on securities available-for-sale, net of tax |
|
(77,000 |
) |
(65,000 |
) |
||
|
Unrealized loss on derivative instruments, net of tax |
|
(917,000 |
) |
(941,000 |
) |
||
|
Total Other Comprehensive Income |
|
$ |
18,781,000 |
|
$ |
20,665,000 |
|
8
Note I—COMMITMENTS AND CONTINGENCIES
Dealer Financing
Finance companies provide certain of the Company’s dealers and distributors with floor plan financing. The Company has agreements with these finance companies to repurchase certain repossessed products sold to its dealers. At September 30, 2004 the Company’s contingent maximum repurchase obligation was approximately $30,500,000. The Company’s financial exposure under these agreements is limited to the difference between the amount paid to the finance companies for repurchases and the amount received upon the resale of the repossessed product. Losses incurred under these agreements during the periods presented have not been material.
Litigation
The Company is subject to legal proceedings and claims which arise in the ordinary course of business. Accidents involving personal injury and property damage occur in the use of snowmobiles and ATVs. Claims have been made against the Company from time to time. It is the Company’s policy to vigorously defend against these actions. The Company believes that the cases in discovery are adequately covered by reserves and product liability insurance. The Company is not involved in any legal proceedings which it believes will have the potential for a materially adverse impact on the Company’s business or financial condition, results of operations or cash flows.
Item 2.
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 United States and Canada, and through distributors representing dealers in Europe, the Middle East, Asia, and other international markets. The Arctic Cat brand name has existed for more than 40 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 AND SIX MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2003.
Net sales for the second quarter of fiscal 2005 increased 1.3% to $240,673,000 from $237,650,000 for the second quarter of fiscal 2004. ATV sales increased 9.8% to $100,558,000 for the second quarter of 2005 from $91,554,000 for the same quarter in fiscal 2004. Snowmobile sales decreased 4.8% to $111,980,000 for the second quarter of 2005 from $117,667,000 for the same quarter in fiscal 2004. Parts, garments and accessory sales decreased 1.1% to $28,135,000 for the second quarter of 2005 from $28,434,000 in the same quarter in fiscal 2004. ATV unit volume increased 4.8% and snowmobile unit volume decreased 11.6% for the second quarter of fiscal 2005 compared to the same quarter last year. Net sales for the first six months of fiscal 2005 increased 9.0% to $343,267,000 from $314,839,000 for the first six months of fiscal 2004. Year-to-date ATV sales increased 13.6% to $139,730,000 from $123,046,000 compared to the first six months of fiscal 2004, snowmobiles sales increased 6.7% to $162,678,000 from $152,428,000 compared to the first six months of fiscal 2004, and parts, garments and accessory sales increased 3.8% to $40,859,000 from $39,365,000 compared to the first six months of fiscal 2004. Year-to-date ATV unit volume increased 10.5% compared to the same period last year,
9
while snowmobile unit volume decreased by 1.0%. For fiscal 2005, the Company expects snowmobile sales to be flat to down 4% but expects this decline to be offset by increased sales of ATVs and parts, garments, and accessories resulting in a modest increase in net sales for fiscal 2005.
Gross profit for the second quarter of fiscal 2005 decreased 6.3% to $52,612,000 from $56,172,000 for the same quarter in fiscal 2004. The quarterly gross profit percentage for the second quarter in fiscal 2005 was 21.9%, compared to 23.6% for the second quarter in fiscal 2004. The year-to-date gross profit percentage was 20.8% compared to 23.7% for the same period last year. Both the quarterly and year-to-date decreases in gross profit percentages were primarily due to increased ATV sales in the sales mix and a stronger yen which increased engine costs.
Operating expenses for the second quarter of fiscal 2005 decreased 2.9% to $23,908,000 from $24,616,000 for the second quarter of last year. As a percent of sales, operating expenses were 9.9% for the second quarter of fiscal 2005 versus 10.4% for the same quarter last year. Year-to-date operating expenses for the period ended September 30, 2004 were $42,890,000 compared to $43,241,000 for the same period last year. As a percent of sales, operating expenses were 12.5% for the first six months of fiscal 2005 compared to 13.7% for the first six months of fiscal 2004. Both the quarterly and year-to-date decreases in operating expenses resulted primarily from lower Canadian currency exchange losses compared to the same periods a year ago.
Other income for the second quarter of fiscal 2005 increased 19.8% to $194,000 from $162,000 for the second quarter of last year due to higher average cash balance during the quarter compared to the second quarter of fiscal 2004. The year-to-date other income decreased 1.9% to $403,000 from $411,000. The year-to-date decrease resulted from lower interest income earned on investments due to lower average interest rates.
Net earnings for the second quarter of fiscal 2005 decreased 8.9% to $19,651,000 from $21,569,000 for the same quarter last year. Diluted earnings per share were $0.94 and $0.98 for the second quarters of fiscal 2005 and 2004. Year-to-date net earnings decreased 8.7% to $19,775,000 from $21,671,000 for the same period last year. Year-to-date diluted net earnings per share for the first six months of fiscal 2005 were $0.94 compared to $0.98 per share for the same period last year.
Liquidity and Capital Resources
The seasonality of the Company’s snowmobile production cycle and the lead time between the commencement of snowmobile and ATV production in the early spring and commencement of shipments late in the first quarter 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 September 30, 2004, the Company paid $14,266,000 to repurchase its common shares compared to $29,185,000 for the same quarter of the prior year. Cash and short-term investments were $64,167,000 and $40,698,000 at September 30, 2004 and 2003, respectively. 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 on a short and long-term basis.
10
Line of Credit
The Company has an unsecured credit agreement with a bank 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.
Contractual Obligations
The following table summarizes the Company’s significant future contractual obligations at September 30, 2004 (in millions):
|
|
|
Payment Due by Period |
|
||||||||
|
Contractual Obligations |
|
Total |
|
Less than |
|
1-3 Years |
|
More than |
|
||
|
|
|||||||||||
|
Operating Lease Obligations |
|
$ |
0.2 |
|
$ |
0.2 |
|
0 |
|
0 |
|
|
Purchase Obligations(1) |
|
$ |
136.0 |
|
$ |
136.0 |
|
0 |
|
0 |
|
|
Total Contractual Obligations |
|
$ |
136.2 |
|
$ |
136.2 |
|
0 |
|
0 |
|
(1) The Company has outstanding purchase obligations with suppliers and vendors at September 30, 2004 for raw materials and other supplies as part of the normal course of business.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements. This form 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 inflation, foreign currency exchange rates and interest rates. These market risks have not changed significantly since March 31, 2004. As of September 30, 2004 the Company has notional yen and Canadian denominated cash flow hedges of approximately $33 million (USD)and $38 million (USD), respectively, with a weighted average contract exchange rate of 109 and 1.33, respectively. The fair values of the YEN and Canadian dollar hedge contracts at September 30, 2004 represent an unrealized loss of $2,111,000. A ten percent fluctuation in the currency rates as of September 30, 2004 would have resulted in a change in the fair value of the YEN and Canadian dollar hedge contracts of approximately $3,000,000 and $4,000,000, respectively. However, since these contracts hedge foreign currency denominated transactions, any change in the fair value of the contracts would be offset by changes in the underlying value of the transaction being hedged.
11
Information regarding inflation, foreign currency exchange rates and interest rates, is discussed within “Management’s Discussion and Analysis – Inflation, Exchange Rate and interest rate” and footnote A to the Financial Statements in the 2004 Annual Report on Form 10-K. 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.
Item 4. Controls and Procedures
The Company’s management, including the Chief Executive Officer, have conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”)as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports it files or submits under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
There have been no changes in internal control over financial reporting that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
|
Period |
|
Total Number of |
|
Average Price |
|
Total number of |
|
Maximum Number |
|
|
|
July 1, 2004 – July 31, 2004 |
|
0 |
|
$ |
— |
|
0 |
|
846,658 |
|
|
August 1, 2004 – August 31, 2004 |
|
100,000 |
|
$ |
26.50 |
|
100,000 |
|
777,941 |
|
|
September 1, 2004 – September 30, 2004 |
|
150,000 |
|
$ |
26.30 |
|
150,000 |
|
631,015 |
|
The Company purchases Company common stock primarily to offset the dilution created by employee stock option programs and as an alternative in returning excess cash to shareholders.
The Company has a publicly announced stock repurchase stock purchase program which has been approved by the Board of Directors. The Board approved a $20 million repurchase program in August 2002. In June 2004, the Board of Directors approved an additional $20 million repurchase program. Pricing under these programs has been delegated to management. There is no expiration date for these programs.
The Company has executed the Company stock purchases in accordance with Rule 10b-18 of the Securities Exchange Act of 1934. There have been no other purchases of the Company’s common stock.
12
Item 6. Exhibits
|
Exhibit |
|
Description |
||
|
3 (a) |
|
Amended and Restated Articles of Incorporation of Company (3) |
|
|
|
|
|
|
|
|
|
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 Wells Fargo Bank Minnesota, N.A., dated September 17, 2001 (4) |
|
|
|
|
|
|
|
|
|
31.1 |
|
CEO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. (2) |
|
|
|
|
|
|
|
|
|
31.2 |
|
CFO Certification pursuant section 302 of the Sarbanes-Oxley Act Of 2002. (2) |
|
|
|
|
|
|
|
|
|
32.1 |
|
CEO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (2) |
|
|
|
|
|
|
|
|
|
32.2 |
|
CFO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (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-Q.
(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.
13
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: |
November 9, 2004 |
|
By /s/ Christopher A. Twomey |
|
|
|
Christopher A. Twomey |
|||
|
|
Chief Executive Officer |
|||
|
|
|
|||
|
|
|
|||
|
Date: |
November 9, 2004 |
|
By /s/ Timothy C. Delmore |
|
|
|
Timothy C. Delmore |
|||
|
|
Chief Financial Officer |
|||
14