Arctic Cat Reports Fiscal 2010 Second Quarter Results

MINNEAPOLIS, MN – October 29, 2009 – (Motor Sports Newswire) – Arctic Cat Inc. (NASDAQ: ACAT) today reported net earnings of $14.8 million, or $0.81 per diluted share, on net sales of $166.3 million for the second quarter ended September 30, 2009. Arctic Cat reported net earnings in the fiscal 2008 second quarter of $16.9 million, or $0.93 per diluted share, on net sales of $204.3 million.

For the six months ended September 30, 2009, Arctic Cat`s net earnings were $8.8 million, or $0.48 per diluted share, on net sales of $235.7 million. In the first six months of last year, the company reported net earnings of $10.0 million, or $0.55 per diluted share, on net sales of $298.2 million.

Commented Arctic Cat`s chairman and chief executive officer Christopher A. Twomey: “We continued to face difficult selling conditions during the second quarter, given the global economic environment. Despite this, we are pleased with the company`s continued progress on our goals to reduce the company`s cost structure and strengthen the balance sheet.”

Among the highlights of Arctic Cat`s 2010 second quarter financial results versus the same quarter last year:

  • Gross margins increased 410 basis points in the quarter and 230 basis points year to date;
  • Operating expenses declined 12 percent to $23.3 million from $26.6 million, and fell 17 percent year-to-date;
  • Operating profit rose 7 percent to $21.9 million from $20.5 million;
  • Inventories were reduced 23 percent to $133.6 million from $172.3 million;
  • Total cash and short-term investments at quarter end rose to $11.2 million from $3.7 million; and
  • The company had no short-term debt at quarter end compared to $14.8 million a year ago.

“Through strong inventory management, expense controls and a rescaled business, we continue to remain on track to deliver improved operating results this fiscal year on lower sales,” said Twomey.

Arctic Cat announced on October 20, 2009 that the company has entered into anagreement for GE Capital, Commercial Distribution Finance to become the exclusive provider of floorplan financing for Arctic Cat`s U.S. dealers. The new multi-year financing program will replace Arctic Cat`s current financing agreement with Textron Financial Corporation, which had previously announced its intent to exit the dealer floorplan business. The new financing program is expected to begin December 1, 2009.

“We are very pleased to partner with GE Capital, and we expect that this agreement will continue to provide our ATV and snowmobile dealers with innovative financing programs and superior service,” said Twomey.

Business Line Results
“Our continued focus on achieving our operating efficiency initiatives has enabled Arctic Cat to increase our gross margin percentage, despite lower demand for recreational vehicle products at this time,” said Twomey. “We expect that Arctic Cat will be well-positioned as a stronger, leaner company as our markets recover.”

Snowmobile sales totaled $85.7 million in the second quarter compared to $98.4 million in the prior-year quarter. Year to date, snowmobile sales were $103.7 million versus $119.8 million in the same period last year. Although Arctic Cat continues to anticipate lower worldwide snowmobile orders in fiscal 2010 as a result of the recession, the company expects to maintain or increase its North American market share by offering consumers leading-edge technologies, such as the new powered up 800cc engine that is being used in its models across all market segments.

All-terrain vehicle (ATV) sales totaled $51.7 million in the second quarter versus $71.6 million in the prior-year quarter. Year to date ATV sales were $83.9 million compared to $125.4 million in the first six months of fiscal 2009. With retail industry ATV sales continuing to decline during the recession, Arctic Cat has worked to reduce dealer inventories and, at the same time, increase market share.

Sales of parts, garments and accessories (PG&A) in the second quarter totaled $28.8 million versus $34.3 million in the prior-year quarter. Year to date, PG&A sales were $48.1 million compared to $52.9 million in the year-ago period.

Outlook
Arctic Cat is implementing operational efficiency initiatives aimed at returning the company to long-term profitability on lower anticipated sales volumes. The company`s fiscal 2010 outlook includes the following assumptions: the continuation of the weak global economic environment negatively impacting sales of recreational products; increasing gross margins up to 300 basis points through global low-cost sourcing, improved commodity pricing and greater efficiencies from lean manufacturing; achieving a 12 percent to 17 percent reduction in operating expenses; improving cash flow from operations; and ending the year with more cash on the balance sheet by lowering inventory.

Arctic Cat continues to estimate sales for its fiscal year ending March 31, 2010 in the range of $425 million to $460 million, based on achieving ATV sales of $188 million to $203 million, snowmobile sales in the range of $140 million to $152 million and PG&A sales of $97 million to $105 million. Arctic Cat has not provided fiscal 2010 earnings per share guidance, although the company expects improved per share results compared with fiscal 2009.

Commenting on the company`s outlook, Twomey said: “This is a challenging year for the recreational products industry. Near-term, we remain focused on conservatively managing our business to meet lower anticipated demand. We are continuing our efforts to improve the company`s operational performance. We also are taking appropriate actions to preserve cash and maintain dealer health, as well as developing select innovative products that position Arctic Cat to emerge as a stronger company once the economy recovers.”

Conference Call
A conference call is scheduled for 10:30 a.m. CT (11:30 a.m. ET) today. To listen to the live webcast or replay of this call via the Internet, go to the corporate portion of the company`s website at www.arcticcat.com. To listen to a telephone replay of the conference call, dial 800-406-7325 and enter conference call passcode 4175232. The telephone replay will be available through Thursday, November 5, 2009.

About Arctic Cat
Arctic Cat Inc. designs, engineers, manufactures and markets all-terrain vehicles (ATVs) and snowmobiles under the Arctic Cat brand name, as well as related parts, garments and accessories. Its common stock is traded on the Nasdaq Global Select Market under the ticker symbol “ACAT.” More information about Arctic Cat and its products is available at www.arcticcat.com.

Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements. The Company`s Annual Report, as well as the Report on Form 10-K, its Quarterly Report on Form 8-K and other filings with the Securities and Exchange Commission, the Company`s press releases and oral statements made with the approval of an authorized executive officer, contain forward-looking statements that reflect the Company`s current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. The words “aim,” “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that indicate future events and trends identify forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to: product mix and volume; competitive pressure on sales and pricing; cost and availability of financing for the Company, our dealers and our suppliers; increase in material or production cost which cannot be recouped in product pricing; changes in the sourcing of snowmobile 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. The Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

ARCTIC CAT INC.
Financial Highlights
(000s omitted, except per share amounts) (Unaudited)

                                         Three Months Ended                                 Six Months Ended
                                         September 30,                                      September 30,
                                         2009                      2008                   2009                      2008
 Net Sales
 Snowmobile & ATV Units                  $    137,466            $    170,025         $    187,554            $    245,216
 Parts, Garments & Accessories                28,834                  34,289               48,116                  52,975
 Total Net Sales                              166,300                 204,314              235,670                 298,191
 Cost of Goods Sold
 Snowmobile & ATV Units                       103,748                 135,180              154,090                 204,659
 Parts, Garments & Accessories                17,341                  22,012               28,821                  33,533
 Total Cost of Goods Sold                     121,089                 157,192              182,911                 238,192
 Gross Profit                                 45,211                  47,122               52,759                  59,999
 Operating Expenses
 Selling & Marketing                          9,619                   13,506               16,041                  22,390
 Research & Development                       3,028                   4,249                6,198                   8,929
 General & Administrative                     10,652                  8,847                17,286                  16,314
 Total Operating Expenses                     23,299                  26,602               39,525                  47,633
 Operating Profit                             21,912                  20,520               13,234                  12,366
 Other Income (Expense)
 Interest Income                              -                       27                   4                       99
 Interest Expense                             (175     )              (414     )           (247     )              (618     )
 Total Other Income (Expense)                 (175     )              (387     )           (243     )              (519     )
 Earnings Before Income Taxes                 21,737                  20,133               12,991                  11,847
 Income Taxes                                 6,957                   3,218                4,158                   1,895
 Net Earnings                            $    14,780             $    16,915          $    8,833              $    9,952
 Net Earnings Per Share
 Basic                                   $    0.81               $    0.94            $    0.49               $    0.55
 Diluted                                 $    0.81               $    0.93            $    0.48               $    0.55          

 Weighted Average Shares Outstanding:
 Basic                                        18,227                  18,078               18,212                  18,049
 Diluted                                      18,252                  18,091               18,225                  18,056        

                                          September 30,
 Selected Balance Sheet Data:             2009                       2008
 Cash and Short-term Investments          $    11,160               $    3,733
 Accounts Receivable, net                      68,286                    78,613
 Inventories                                   133,605                   172,320
 Total Assets                                  286,900                   343,755
 Short-term Bank Borrowings                    0                         14,810
 Total Current Liabilities                     103,799                   147,890
 Long-term Debt                                0                         0
 Shareholders' Equity                          177,426                   184,605  

                                    Three Months Ended                                                   Six Months Ended
                                    September 30,                                                        September 30,
 Product Line Data:                 2009                   2008                   Change           2009                   2008                   Change
 Snowmobiles                        $    85,739           $    98,379           -13   %         $    103,656          $    119,795          -13   %
 All-terrain Vehicles                    51,727                71,646           -28   %              83,898                125,421          -33   %
 Parts, Garments & Accessories           28,834                34,289           -16   %              48,116                52,975           -9    %
 Total Sales                        $    166,300          $    204,314          -19   %         $    235,670          $    298,191          -21   %

Arctic Cat Inc.
Timothy C. Delmore, 763-354-1800
Chief Financial Officer
or
Padilla Speer Beardsley Inc.
Shawn Brumbaugh, 612-455-1754

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