Arctic Cat Reports Fiscal 2010 Third-Quarter Results

Company Reports Net Earnings of $0.14 Per Diluted Share in Quarter Versus $0.15 Loss; Third-Quarter Operating Profit up by $4.5 Million; Continued to Improve Cost Structure and Gross Margin Percentage, and Strengthen Balance Sheet; Company Maintains Annual Revenue Guidance

Arctic Cat Inc. (NASDAQ:ACAT) today reported net earnings of $2.6 million, or $0.14 per diluted share, on net sales of $131.0 million for the third quarter ended December 31, 2009. Arctic Cat reported a net loss in the prior-year third quarter of $2.7 million, or $0.15 per diluted share, on net sales of $174.7 million.

In the first nine months, Arctic Cat reported net earnings of $11.4 million, or $0.63 per diluted share, compared to prior-year net earnings of $7.2 million, or $0.40 per diluted share. Arctic Cat's net sales in the first nine months of fiscal 2010 totaled $366.7 million versus $472.9 million in the same period last year.

Commented Arctic Cat's chairman and chief executive officer Christopher A. Twomey: "We are pleased with the company's further progress in delivering improved operating results during the third quarter and year to date, particularly given the continued difficult selling conditions in the power sports market. Our focus on lowering Arctic Cat's cost structure through lean manufacturing efficiencies, low-cost sourcing and expense controls led to higher gross margins and operating profits. In addition, our efforts to reduce inventories resulted in a much stronger balance sheet."

Among the highlights of Arctic Cat's 2010 third-quarter and year-to-date financial results versus the same period last year:

• Gross margins increased 550 basis points and 350 basis points year to date;
• Operating expenses declined 9 percent to $22.0 million from $24.2 million, and fell 14 percent year to date;
• Operating profit for the quarter jumped $4.5 million to $624,000 from a loss of $3.9 million; operating profit is up 63 percent year to date;
• Inventories were reduced 29 percent to $106.3 million from $150.4 million;
• Total cash and short-term investments at quarter end rose to $50.4 million up from $5.4 million; and
• The company had no short- or long-term debt at quarter end.

During the third quarter, Arctic Cat announced on October 20, 2009, that it entered into an agreement 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 replaces Arctic Cat's financing agreement with Textron Financial Corporation, which is exiting the dealer floorplan business.

Arctic Cat also announced on November 12, 2009, a new three-year, $60 million senior secured revolving credit facility. The facility is available for the company's ongoing working capital needs and general corporate purposes. Bank of America, N.A., structured and underwrote the new facility, which replaces an existing credit facility that was scheduled to expire in March 2010.

Business Line Results

"We are successfully rescaling Arctic Cat's business to achieve improved profitability in the current lower-demand environment for recreational products," said Twomey. "A key part of our strategy this fiscal year has been to reduce dealer inventories, in order to position the company for future growth when the retail power sports market recovers." Year to date, Arctic Cat's overall dealer inventories are down 19 percent.

Snowmobile sales totaled $58.7 million in the third quarter compared to $90.9 million in the prior-year quarter. Year-to-date Arctic Cat snowmobile sales were $162.3 million versus $210.7 million in the same period last year. While overall North American retail snowmobile sales for the industry are down year to date, Arctic Cat's retail sales have outperformed the industry and the company has gained market share. Arctic Cat has increased its North American market share by offering consumers leading-edge technologies, such as the new powered-up 800cc engine that is being introduced in its new models across all market segments.

All-terrain vehicle (ATV) sales totaled $48.2 million in the third quarter versus $57.8 million in the prior-year quarter. Year-to-date ATV sales were $132.1 million compared to $183.2 million in the first nine months of fiscal 2009. The economic slowdown over the past year has resulted in lower industry wide retail sales of ATVs, although Arctic Cat's retail ATV sales have outperformed the industry and the company has gained market share. During the current fiscal year, the company has launched seven new 2010 ATV models and is introducing power steering on select units in the fourth quarter.

Sales of parts, garments and accessories (PG&A) in the second quarter totaled $24.2 million versus $26.1 million in the prior-year quarter. Year-to-date PG&A sales were $72.3 million compared to $79.1 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. The company has not provided fiscal 2010 earnings per share guidance, although it expects improved per share results compared with fiscal 2009.

"We remain focused on achieving continued operational efficiencies and are on track to deliver improved operating results this fiscal year on anticipated lower sales," said Twomey.

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 4205606. The telephone replay will be available through Wednesday, February 3, 2010.

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)
			Â
				Three Months Ended							Nine Months Ended
				December 31,							December 31,
				2009			Â	2008			Â	2009			Â	2008
Net Sales
Snowmobile & ATV Units				$	106,879			$	148,616			$	294,433			$	393,832
Parts, Garments & Accessories				Â	24,161	Â		Â	26,083	Â		Â	72,277	Â		Â	79,058	Â
Total Net Sales					131,040				174,699				366,710				472,890
Cost of Goods Sold
Snowmobile & ATV Units					94,080				136,325				248,170				340,984
Parts Garments & Accessories				Â	14,379	Â		Â	18,007	Â		Â	43,200	Â		Â	51,540	Â
Cost of Goods Sold				Â	108,459	Â		Â	154,332	Â		Â	291,370	Â		Â	392,524	Â
Gross Profit					22,581				20,367				75,340				80,366
Operating Expenses
Selling & Marketing					8,941				12,728				24,982				35,118
Research & Development					2,979				4,206				9,177				13,135
General & Administrative				Â	10,037	Â		Â	7,284	Â		Â	27,323	Â		Â	23,598	Â
Total Operating Expenses				Â	21,957	Â		Â	24,218	Â		Â	61,482	Â		Â	71,851	Â
Operating Profit (Loss)					624				(3,851	)			13,858				8,515
Other Income (Expense)
Interest Income					--				17				4				116
Interest Expense				Â	(2	)		Â	(323	)		Â	(249	)		Â	(941	)
Total Other Income (Expense)				Â	(2	)		Â	(306	)		Â	(245	)		Â	(825	)
Earnings (Loss) Before Income Taxes					622				(4,157	)			13,613				7,690
Income Tax Expense (Benefit)				Â	(1,980	)		Â	(1,433	)		Â	2,178	Â		Â	462	Â
Net Earnings (Loss)				$	2,602	Â		Â	(2,724	)		Â	11,435	Â		Â	7,228	Â
Net Earnings (Loss) Per Share
Basic				$	0.14	Â		$	(0.15	)		$	0.63	Â		$	0.40	Â
Diluted				$	0.14	Â		$	(0.15	)		$	0.63	Â		$	0.40	Â
Weighted Average Shares
Outstanding:
Basic				Â	18,228	Â		Â	18,092	Â		Â	18,217	Â		Â	18,063	Â
Diluted				Â	18,297	Â		Â	18,092	Â		Â	18,249	Â		Â	18,068	Â

Â		Â	Â	Â	Â	Â	December 31,
Selected Balance Sheet Data:							2009		Â	Â	2008
Cash and Short-term Investments							$	50,356			$	5,431
Accounts Receivable, net								43,008				59,679
Inventories								106,264				150,397
Total Assets								267,077				298,048
Short-term Bank Borrowings								0				9,030
Total Current Liabilities								82,788				104,343
Long-term Debt								0				0
Shareholders' Equity								179,710				182,352

Â	Â	Three Months Ended					Â			Â	Nine Months Ended					Â
		December 31,					Â	Â		Â	December 31,
Product Line Data:		Â	2009	Â	Â	2008		Change			Â	2009	Â	Â	2008		Change
Snowmobiles		$	58,665		$	90,865		-35	%		$	162,321		$	210,660		-23	%
All-terrain Vehicles			48,214			57,751		-17	%			132,112			183,172		-28	%
Parts, Garments & Accessories		Â	24,161		Â	26,083		-7	%		Â	72,277		Â	79,058		-9	%
Total Sales		$	131,040		$	174,699		-25	%		$	366,710		$	472,890		-22	%

Contacts:

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