Table ofContents

 

 

 

**UNITED STATES**

**SECURITIESAND 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, 2009**                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                      |                                                                                                    |
| **or**                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                      |                                                                                                    |
| **o**                                                                                                                                                                                                                                                                                                                     | **Transition report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934** |
|                                                                                                                                                                                                                                                                                                                      |                                                                                                    |
| **For the Transition period  from                       to                       ** |

 

**Commission File Number: 0-18607**

 

**ARCTIC CAT INC.**

(Exact name of registrant as specified in its charter)

 

| **Minnesota**                     | ** ** | **41-1443470**      |
|-----------------------------------|------------|---------------------|
| (State or other jurisdiction      |       | (I.R.S. Employer    |
| of incorporation or organization) |       | Identification No.) |

 

**601 Brooks Avenue South**

**Thief River Falls, Minnesota 56701**

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code:**(218) 681-8558**

 

Securitiesregistered pursuant to Section 12(b) of the Act:**CommonStock, $.01 par value.**

 

** Preferred Stock Purchase Rights.**

 

Securitiesregistered pursuant to Section 12(g) of the Act:**None**

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act  Yes o  No x

 

Indicate by check mark if the registrantis not required to file reports pursuant to Section 13 or Section 15(d) ofthe Exchange Act  Yes o  No x

 

Indicateby check mark whether the registrant (1) has filed all reports required bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days  Yes x  No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12months (or for such shorter period that the registrant was required to submitand post such files).  Yes o  No o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§ 229.405 of this chapter) is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K  x

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer o |   | Accelerated filer x          |
|---------------------------|--------|------------------------------|
|                      |   |                         |
| Non-accelerated  filer o  |   | Smaller  reporting company o |

 

Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct)  Yes o  No x

 

Theaggregate market value of the voting and non-voting common equity held bynon-affiliates computed by reference to the price at which the common equitywas last sold, or the average bid and asked price of such common equity, as ofthe last business day of the Registrant’s most recently completed second fiscalquarter was approximately: $165,532,513.

 

At June 4,2009, the Registrant had 12,122,985 shares of Common Stock and 6,102,000 sharesof Class B Common Stock outstanding.

 

**Documents Incorporated by Reference:**

 

Portions of the Registrant’s Proxy Statement for itsAnnual Meeting of Shareholders currently scheduled to be held on August 6, 2009are incorporated by reference into Part III of this Annual Report onForm 10-K, to the extent described in such Part.

 

 

 

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# **ARCTICCAT INC.**

# **FORM 10-K**

# **TABLEOF CONTENTS**

# ** **

| **Description**   | ** ** | **Page Numbers**                                                                                               | ** ** |
|-------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|
| **PART I**   |       | ** **                                                                                                          | ** ** |   |   |
| ** **        |       |                                                                                                                |       |   |   |
| ****ITEM 1.****   |       | Business                                                                                                            |       | 3-8 |   |
| **ITEM 1A.**      | ** ** | Risk Factors                                                                                                        |       | 9-10 |   |
| **ITEM 1B.**      | ** ** | Unresolved Staff  Comments                                                                                          |       | 11 |   |
| ****ITEM 2.****   |       | Properties                                                                                                          |       | 11 |   |
| ****ITEM 3.****   |       | Legal Proceedings                                                                                                   |       | 11 |   |
| ****ITEM 4.****   |       | Submission of  Matters to a Vote of Security Holders                                                                |       | 11 |   |
| ** **        |       |                                                                                                                |       |   |   |
| **PART II**  |       |                                                                                                                |       |   |   |
| ** **        |       |                                                                                                                |       |   |   |
| ****ITEM 5.****   | ** ** | Market for Registrant’s  Common Equity, Related Stockholder Matters and Issuer Purchases of Equity  Securities |       | 12-13 |   |
| ****ITEM 6.****   |       | Selected Financial  Data                                                                                            |       | 14 |   |
|              |       | Quarterly Financial Data                                                                                            |       | 15 |   |
| ****ITEM 7.****   |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |       | 16-21 |   |
| ****ITEM 7A.****  |       | Quantitative  and Qualitative Disclosures About Market Risk                                                         |       | 22 |   |
| ****ITEM 8.****   |       | Financial  Statements and Supplementary Data                                                                        |       | 22 |   |
| ****ITEM 9.****   |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                               |       | 22 |   |
| ****ITEM 9A.****  |       | Controls and  Procedures                                                                                            |       | 22-23 |   |
| ****ITEM 9B.****  |       | Other Information                                                                                                   |       | 23 |   |
| ** **        |       |                                                                                                                |       |   |   |
| **PART III** |       |                                                                                                                |       |   |   |
| ** **        |       |                                                                                                                |       |   |   |
| ****ITEM 10.****  |       | Directors,  Executive Officers and Corporate Governance                                                             |       | 25 |   |
| ****ITEM 11.****  |       | Executive Compensation                                                                                              |       | 25 |   |
| ****ITEM 12.****  |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    |       | 25 |   |
| ****ITEM 13.****  |       | Certain  Relationships and Related Transactions and Director Independence                                           |       | 25 |   |
| ****ITEM 14.****  | ** ** | Principal  Accountant Fees and Services                                                                             |       | 25 |   |
| ** **        | ** ** |                                                                                                                |       |   |   |
| **PART IV**  |       |                                                                                                                |       |   |   |
| ** **        |       |                                                                                                                |       |   |   |
| ****ITEM 15.****  | ** ** | Exhibits and  Financial Statement Schedules                                                                         |       | 26-27 |   |
| ** **        |       | Signatures                                                                                                          |       | 28 |   |
| ** **        |       | Consolidated  Balance Sheets                                                                                        |       | 29 |   |
| ** **        |       | Consolidated Statements of Operations                                                                               |       | 30 |   |
| ** **        |       | Consolidated Statements of Shareholders’ Equity                                                                |       | 31 |   |
| ** **        |       | Consolidated Statements of Cash Flows                                                                               |       | 32-33 |   |
| ** **        |       | Notes to Consolidated Financial Statements                                                                          |       | 33-42 |   |
| ** **        |       | Report of Independent Registered Public Accounting  Firm                                                            |       | 43 |   |
| ** **        |       | Exhibit Index                                                                                                  |       | 44-48 |   |

 

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# **PART I**

# ** **

# **ITEM1. BUSINESS**

# ** **

Arctic Cat Inc., aMinnesota corporation, (the “Company” or “Arctic Cat”), is based in Thief RiverFalls, Minnesota. The Company operates in a single industry segment anddesigns, engineers, manufactures and markets snowmobiles and all-terrainvehicles (ATVs) under the Arctic Catâ brand name, as well as related parts, garmentsand accessories. The Company markets its products through a network ofindependent dealers located throughout the United States, Canada, and Europeand through distributors representing dealers in Europe, the Middle East, Asiaand other international markets. The Arctic Cat brand name has existed for morethan 45 years and is among the most widely recognized and respected names inthe snowmobile industry. The Company trades on the NASDAQ Global Select Marketunder the symbol ACAT.

 

## **Industry Background**

## ** **

**Snowmobiles–******The snowmobile, developed in the 1950s,was originally intended to be used as a utility vehicle, but today theoverwhelming majority of the industry’s sales are for recreational use. Betweenthe late 1950s and early 1970s, the industry expanded dramatically reaching apeak of over 100 manufacturers and a high of nearly 495,000 units sold toretail customers in North America in 1971. Today the number of major industryparticipants has decreased to four, Arctic Cat, Bombardier RecreationalProducts (BRP), Polaris and Yamaha. The Company believes there are currentlymore significant barriers to entry into the snowmobile market than existed inthe 1970s. These barriers include increased brand loyalty, long-standing dealerand distributor networks and relationships, limited engine sources, cost offour stroke engine development, manufacturing and engineering expertise andhigher initial start-up costs. Industry-wide snowmobile sales to retailcustomers in North America were approximately 111,000 units for the 2009 modelyear.

 

**All-TerrainVehicles (ATVs) –**The ATV industry evolved from the three-wheel model that was developedin the early 1970s to the four-wheel models that are sold today. The mostpopular ATV use is general recreation, followed by hunting/fishing, farm/ranchuse, hauling/towing, transportation, and commercial uses. From 1970 to 1986,the number of ATVs retailed in the United States continued to grow untilreaching an initial peak of 535,000 units in 1986. From 1987 to 1991, thenumber of ATVs sold declined to a low of approximately 147,000 units. Industrywide sales were 454,000 units in the United States and 81,000 units in Canadain calendar 2008. Major competitors in the industry include Honda, Yamaha,Kawasaki, BRP, Polaris and Suzuki.

 

## **Products**

## ** **

**Snowmobiles–** TheCompany produces a full line of snowmobiles, consisting of 51 models, marketedunder the Arctic Cat brand name, and designed to satisfy various market niches.The 2009 Arctic Cat models carry suggested U.S. retail prices ranging from$6,499 to $14,299 excluding a youth model which is sold at a suggested U.S.retail price of $2,299. Arctic Cat snowmobiles are sold in the United States,Canada, Scandinavia, Russia and other international markets.

 

TheCompany’s 2009 year snowmobile models are categorized as Performance, Mountain,Crossover, Touring and Utility. The Company markets: Performance Arctic Catmodels under the names F series, Z1 and Z1 Turbo, Mountain models under thename M series; Crossover models under the name Crossfire and CFR; Touringmodels under the name T series; and Utility models under the name Bearcat. Inaddition, to encourage family involvement in snowmobiling, the Company offers ayouth snowmobile marketed under the Sno Pro120 name.

 

TheCompany believes the Arctic Cat brand name enjoys a premier image amongsnowmobile enthusiasts and that its snowmobiles have a long-standing reputationfor quality, performance, fuel management, style, comfort, ride and handling.Arctic Cat snowmobiles offer a wide range of standard and optional featureswhich enhance their operation, riding comfort and performance. Such featuresinclude hydraulic disc brakes, remote starters, heated seats and a technologicallyadvanced front and rear suspension. Arctic Cat is the industry leader in fuelmanagement technology offering an electronic fuel injection (EFI) system onmost of its snowmobiles. The Company was the first in the snowmobile industryto utilize four stroke engines to reduce emissions. The Company subsequentlyintroduced a snowmobile with a turbo charged four-stroke inter-cooled engine,and for the 2007 model year, the first four-stroke engine designed specificallyfor a snowmobile.  For the 2009 model year,the Company introduced a 177 horsepower turbo charged fuel injected four strokeengine, the most powerful production snowmobile engine in history.

 

ArcticCat focuses on new product development in order to grow its market share andintroduces at least one new model every year. These new models are consistentlythe Company’s best sellers in their respective category. In the 2009 modelyear, over 90 percent of the Company’s snowmobile sales were from models ormodel variations not available three years earlier. Some recent examples of thesuccess of Arctic Cat’s new products include the following:*Supertrax Magazine*voted the 2009 Z1Turbo the best new snowmobile,*Sledhead 24-7 Television*votedthe 2009 Z1 Turbo the best four stroke trail sled, *Affinity Powersports Media*voted the 2009 Z1 Turbo Best of Class, *AmericanSnowmobiler* voted the 2009 M8 Sno Pro the mountain sled of the year,*American Snowmobiler* voted the 2008 TZ1LXR the best touring sled for 2008, and *Sno X Magazine*voted the 2008 TZ1 LXR the best touring sled ever.  Racers riding Arctic Cat snowmobiles won

 

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numerous events andchampionship points titles in the 2009 model year in all major disciplines ofracing including snocross, cross-country, drag, and hillclimb.

 

Forthe last three fiscal years ended 2009, 2008 and 2007 snowmobiles accounted for37%, 26% and 32%, respectively, of the Company’s revenues.

 

**All-TerrainVehicles (ATVs) –** In December 1995, the Company introduced its first ATV. Sincethat time the Arctic Cat line has grown to 19 models. Features like fullyindependent front and rear suspensions, hydraulic disc brakes, hi-low rangetransmission, long travel suspension with high ground clearance, MRPSpeedracks, automatic transmissions, selectable 2WD/4WD shaft drive, lockingdifferentials, newly introduced electronic fuel injection and a large fueltank, all make Arctic Cat ATVs consumer friendly. The Company has special tworider models that provide a proper alternative for customers that want to ridedouble. The 2009 Arctic Cat ATV models carry suggested U.S. retail pricesranging from $3,699 to $12,499, excluding youth models which are sold atsuggested U.S. retail prices ranging from $1,799 to $3,199.

 

TheCompany introduced its new Prowler Utility Terrain Vehicle (UTV) into theutility ATV vehicle segment in 2006. The Prowler is configured with a varietyof different engines manufactured by the Company, a rear cargo box, dual bucketseats as well as Arctic Cat’s renowned long travel, suspension and ridecharacteristics. In fiscal year 2009 the UTV line consisted of four models withretail prices of $9,499 to $13,999.

 

In2007 Arctic Cat introduced the industry’s first diesel ATV, capable of usingbiodiesel fuels and in 2008 the Company introduced the Thundercat 1000, the ATVwith the largest displacement engine in the industry.

 

ArcticCat has continued to expand into international markets by focusing on newproduct development, adding new distributors, entering new territories, anddeveloping new markets. In July 2005, the Company acquired a 100% interestin a European company that markets ATVs which utilize the Company’s base ATVmodels. The Company completed this acquisition to further expand its ATV modelofferings for on-road use and strengthen its European presence.

 

ArcticCat believes its ATVs are recognized for their power, durability, utility,suspension, style and are well received within the market. In 2005, *ATV Illustrated* voted the Prowler the best new UTV for sportand utility purposes. In 2006, *All Terrain VehicleMagazine* awarded the Arctic Cat 250 the best entry level ATV and theArctic Cat TRV as the best value. *Farm Industry News*awarded the Arctic Cat 400 4X4 best ground clearance in class.  In 2007, ATV Magazine crowned the Arctic CatProwler XT the best trail recreational side-by-side. In 2008, *ATV Magazine*nominated the Thundercat as ATV of the Year and*All Terrain Vehicle Magazine* voted theProwler XTX 700 as Best UTV in the Industry. Also in 2008, *AffinityPowersports Media* voted the Thundercat “Best in Class”.  In 2009, *All Terrain VehicleMagazine* voted Prowler 550 Best In Class, which is the thirdconsecutive year the Prowler was voted best UTV.  Racers driving the Arctic Cat Prowler UTV’sswept first and second place in the 2008 Baja 1000 with the XTZ1000 and theXTX700.  This was the first time a UTVhad won this grueling terrain race.

 

For the last three fiscal years ended2009, 2008, and 2007 ATVs accounted for 44%, 56%, and 55%, respectively, of theCompany’s revenues.

 

**Parts,Garments and Accessories –**The Company is the exclusive provider of genuineArctic Cat snowmobile and ATV parts, garments and accessories. Included arereplacement parts and accessory items to upgrade Arctic Cat snowmobiles such aselectric start and reverse kits, luggage racks and bags, backrests, machinecovers, windshields, and colored accessories. Other items include maintenancesupplies such as oil and fuel additives, track studs and carbide runners.Arctic Cat ATV parts and accessories include winch kits, snow plow kits, MRPSpeedrack accessories, portable lights, utility bags and maintenance supplies.

 

TheCompany offers snowmobile garments for adults and children under the “Arcticwear”label. Suits, jackets, pants and accessory garments are offered in a widevariety of styles and sizes combining fashion with functional utility designedfor the demands of snowmobiling and other winter activities. The Arcticwearline of clothing also includes pull-overs, riding gloves, hats, helmets, boots,gear bags, sweatshirts, T-shirts, and caps. The colors and designs of many ofthese items are coordinated with specific Arctic Cat snowmobile models.

 

TheCompany offers ATV garments under the “Arcticwear ATV Gear” label. This line ofclothing is geared toward function and comfort and includes suits, jackets,gloves, helmets, gear bags, sweatshirts, T-shirts, and caps.

 

For the last three fiscal years ended2009, 2008 and 2007 parts, garments and accessories accounted for 19%, 18% and13%, respectively, of the Company’s revenues.

 

## **Manufacturing and Engineering**

## ** **

Arctic Catsnowmobiles and most ATVs are manufactured at the Company’s facilities in ThiefRiver Falls, Minnesota. The Company’s European subsidiary has performed aportion of the manufacturing of the road ready ATVs for the European market. ATaiwanese company manufactures 50cc to 366cc ATVs for Arctic Cat. The Companyalso has a facility in Bucyrus, Ohio which houses its parts, garments andaccessories distribution operations. The Company has strategically identifiedspecific core manufacturing competencies for vertical integration and haschosen outside vendors to provide other parts. The Company has developedrelationships with selected high quality vendors in order 

 

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to obtain accessto particular capabilities and technologies outside the scope of the Company’sexpertise. The Company designs component parts often in cooperation with itsvendors, contracts with them for the development of tooling, and then entersinto agreements with these vendors to purchase component parts manufacturedutilizing the tooling. In its vertically integrated operations, the Companymanufactures foam seats, seat covers and machines, welds and paints othercomponents. The Company completes the total assembly of most of its products atits facilities in Thief River Falls. Manufacturing operations include roboticsas well as digital and computer-automated equipment to speed production, reducecosts and improve the quality, fit and finish of every product. The Company believesthat most raw materials used in its manufacturing process and most componentparts, with the exception of engines are available from multiple alternativevendors on relatively short notice at competitive prices.

 

SuzukiMotor Corporation (“Suzuki”) has manufactured snowmobile engines, and throughfiscal 2008 certain ATV engines for the Company pursuant to supply agreementswhich are automatically renewed annually unless terminated.  During late fiscal 2005, the Company began manufacturingcertain of its own designed ATV engines as part of a strategic first step in anew engine program.  The Company believesthat having the capability to design and manufacture its own ATV engines willenable Arctic Cat to offer customers more choices, provide excellent value,lower Japanese yen currency exposure and enhance its long-term competitiveposition.  In 2007, the Companytransitioned its engine manufacturing from the Thief River Falls facility toits new facility in St. Cloud, Minnesota. Beginning in fiscal 2009, substantially all of the Company’s ATV’s useengines that are produced from the Company’s engine facility or purchasedseparately or as part of the 50cc to 366cc units the Company receives from aTaiwanese supplier.

 

TheCompany and Suzuki have enjoyed an excellent relationship since the Company’sinception.  Suzuki purchasedapproximately 31% of the Company’s then outstanding capital stock in July 1988,prior to the Company’s initial public offering in July of 1990, and iscurrently the Company’s largest shareholder with approximately 34% of theCompany’s outstanding capital stock.  IfSuzuki were ever to cease supplying snowmobile engines to the Company, such aninterruption could materially and adversely affect production and results ofoperations.  While notice of terminationof the supply agreement may be given annually, effective termination of supplywould take at least one model year and the Company believes it could take up totwo model years for the Company or a new engine supplier to be in a position tomanufacture the Company’s specially designed snowmobile engines.  As a consequence, the Company regularlyevaluates alternative snowmobile engine supply sources.

 

Sincethe Company began snowmobile production, it has followed a build-to-orderpolicy to control inventory levels. Under this policy, the Company onlymanufactures a number of snowmobiles equivalent to the orders received from itsdealers and distributors, plus a number of uncommitted machines used for dealerand market development, in-house testing and miscellaneous promotionalpurposes.

 

Mostsales of snowmobiles to retail customers begin in the early fall and continueduring the winter. Orders by dealers and distributors for each year’sproduction are placed in the spring following dealer and distributor meetings.Snowmobiles are built commencing in the spring and continuing through lateautumn or early winter.

 

Retailsales of ATVs occur throughout the year with seasonal highs occurring in thespring and fall. The Company builds and purchases ATVs throughout the year tocoincide with expected dealer and consumer demand.

 

The Company is committedto an ongoing engineering program dedicated to innovation and to continuedimprovements in the quality and performance of its products as well as newproduct introduction.  The Companycurrently employs 144 individuals in the design and development of new andexisting products, with an additional 21 individuals directly involved in thetesting of snowmobiles and ATVs in normal and extraordinary conditions.  In addition, snowmobiles and ATVs are testedin conditions and locations similar to those in which they are used. TheCompany uses computer-aided design and manufacturing systems to shorten thetime between initial concept and final production. For fiscal years ended 2009,2008, and 2007, the Company spent approximately $18,404,000, $18,343,000, and$20,262,000, respectively, on engineering, research and development. Inaddition, utilizing their particular expertise, the Company’s vendors regularlytest and apply new technologies to the design and production of componentparts.

 

## **Sales and Marketing**

## ** **

The Company’sproducts are currently sold through an extensive network of independent dealerslocated throughout the United States, Canada, and Europe and through distributorsrepresenting dealers in Europe, the Middle East, Asia and other internationalmarkets. To promote new dealerships and to service its existing dealer network,the Company also employs sales representatives throughout the United States andCanada.

 

TheCompany’s dealers enter into a three year contract and are required to maintainstatus as an authorized dealer in order to continue selling the Company’sproducts. To obtain and maintain such status, dealers are expected to order asufficient number of snowmobiles and/or ATVs to service their market areaadequately. In addition, the dealers must perform service on these units andmaintain satisfactory service performance levels, and their mechanics areexpected to complete special training provided by the Company. Dealers are alsoexpected to carry adequate levels of inventory of 

 

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genuine Arctic Cat parts and accessories.As is typical in the industry, most of the Company’s dealers also sell somecombination of motorcycles, marine products, lawn and garden products and otherrelated products.

 

TheCompany utilizes distributors outside the United States and Canada to takeadvantage of their knowledge and experience in their respective markets and toincrease market penetration of its products. Canadian sales are made inCanadian dollars, nearly all of which are financed through certain Canadianfinancial institutions. Most sales to distributors outside North America aremade in U.S. dollars and are supported to some extent by letters of credit.

 

TheCompany’s sales and marketing efforts are comprised of dealer and consumerpromotions, direct advertising and cooperative advertising programs with itsdealers. Each year, the Company and its distributors conduct dealer shows inorder to introduce the upcoming year’s models and to promote dealer orders.Marketing activities are designed to promote directly to consumers. Productsare advertised by the Company in consumer magazines and through other media. Inaddition, the Company engages in extensive dealer cooperative advertising, on alocal and national level, whereby the Company and its dealers share advertisingcosts. Each season the Company produces promotional films, product brochures,point of purchase displays, leaflets, posters and banners, and otherpromotional items for use by dealers. The Company also participates in keyregional consumer shows and rallies with dealers and sponsors independentracers who participate in snowmobile races throughout the world. In order forits dealers and distributors to remain price competitive and to reduce retailinventories, the Company will from time to time make available to them rebateprograms, discounts, or other incentives. In order to build brand loyalty theCompany publishes and mails, during the year, magazines called *Pride* (snowmobile) and *Ride* (ATV) toregistered owners of its products.

 

TheCompany places strong emphasis on identifying and addressing the specific needsof its customers by periodically conducting dealer and consumer focus groupmeetings and surveys.

 

TheCompany warrants its snowmobiles and ATVs under a limited warranty againstdefects in materials and workmanship for a period generally ranging from sixmonths to one year from the date of retail sale or for a period of 90 days fromthe date of commercial or rental use. Repairs or replacements under warrantyare administered through the Company’s dealers and distributors.

 

## **Competition**

## ** **

The snowmobile andATV markets are highly competitive, based on a number of factors, includingperformance, ride, suspension, innovation, technology, styling, fit and finish,brand loyalty, reliability, durability, price and distribution. The Companybelieves Arctic Cat snowmobiles and ATVs are highly regarded by consumers inall of these competitive categories. Certain of the Company’s competitors aremore diversified and have financial and marketing resources which are substantiallygreater than those of the Company.

 

## **Regulation**

## ** **

Bothfederal and state authorities have vigorous environmental control requirementsrelating to air, water and noise pollution that affect the manufacturingoperations of the Company. The Company endeavors to insure that its facilitiescomply with all applicable environmental regulations and standards.

 

Certainmaterials used in snowmobile and ATV manufacturing that are toxic, flammable,corrosive or reactive are classified by the federal and state governments as “hazardousmaterials.” Control of these substances is regulated by the EnvironmentalProtection Agency (EPA) and various state pollution control agencies, whichrequire reports and inspection of facilities to monitor compliance. The Company’smanufacturing facilities are subject to the regulations promulgated by, and maybe inspected by, the Occupational Safety and Health Administration.

 

The Consumer Product Safety Commission (“CPSC”) hasfederal oversight over product safety issues related to snowmobiles and ATVsand from time to time promulgates rules related to safety.  For example, in August 2006, the CPSCissued a Notice of Proposed Rulemaking to establish mandatory standards forATVs.  The proposed rule mainlywould require all ATV manufacturers to comply with certain safety standardswhich were voluntary, were complied with by the Company and have since become amandatory rule under the Consumer Product Safety Improvement Act (“Act”)passed by Congress in August 2008. The CPSC has not issued a final rule in this matter.  Various states have also promulgated safetyregulations regarding the use of snowmobiles and ATVs, none of which have had amaterially more burdensome impact on the Company than CPSC regulations.

 

The Act also includes a provision that requires allmanufacturers and distributors who import into or distribute certain productsin the United States to comply with provisions which limit the amount of leadpaint and lead content that can exist in snowmobiles and ATVs sold in theUnited States designed and intended primarily for children twelve years of ageand younger and requires strict testing to determine relevant lead levels.  The CPSC has issued a stay delayingenforcement of the lead content provisions until May 2011.  The Company does not believe theserestrictions have had or will have a material adverse effect on the Company ornegatively impact its business to any greater degree than those of itscompetitors who sell children’s products in the United States.

 

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TheEPA adopted regulations affecting snowmobiles and ATVs for model years 2006 andbeyond. The Company believes that it is and will be in compliance with theseregulations. The Company supports balanced and appropriate programs thateducate the customer on the safe use of its products and protect theenvironment.

 

TheCompany is a member of the International Snowmobile Manufacturers Association(ISMA), a trade association formed to promote safety in the manufacture and useof snowmobiles, among other things. The ISMA is currently made up of ArcticCat, BRP, Yamaha, and Polaris. The ISMA members are also members of the SnowmobileSafety and Certification Committee (SSCC), which promulgated voluntary safetystandards for snowmobiles. The SSCC standards, which require testing andevaluation by an independent testing laboratory of each model category producedby participating snowmobile manufacturers, have been adopted by the CanadianMinistry of Transport. Following the development of the SSCC standards, theU.S. Consumer Products Safety Commission denied a petition to develop amandatory federal safety standard for snowmobiles in light of the high degreeof adherence to the SSCC standards in the United States. Since the Company’sinception, all of its models have complied with the SSCC standards.

 

TheCompany is a member of the Specialty Vehicle Institute of America (SVIA), a tradeassociation organized to foster and promote the safe and responsible use ofATVs manufactured and/or distributed throughout the United States. The Companyis also a member of the Canadian Off-Highway Vehicle Distributors Council(COHV), as well as the All-Terrain Vehicle Association Europe (ATVEA).

 

## **Effects of Weather**

## ** **

While from time totime lack of snowfall in a particular region may adversely affect snowmobileretail sales within that region, the Company works to mitigate this effect bytaking snowmobile orders in the spring for the following winter season. In thepast, weather conditions have materially affected snowmobile sales and there isno assurance that weather conditions will not materially affect the Company’sfuture sales of snowmobiles, ATV’s and parts, garments and accessories.

 

## **Employees**

## ** **

At March 31,2009, the Company had 1,475 employees including 285 salaried and 1,190 hourlyand production personnel. The Company’s employees are not represented by aunion or subject to a collective bargaining agreement. The Company has neverexperienced a strike or work stoppage and considers its relations with itsemployees to be excellent.

 

## **Intellectual**Property

## ** **

The Company makesan effort to patent significant innovations that it considers patentable andowns numerous patents for its snowmobiles, ATVs and other products. Trademarksare also important to the Company’s snowmobile, ATVs and related parts,garments and accessories business activities. The Company has a program oftrademark enforcement to eliminate the unauthorized use of its patents andtrademarks, thereby strengthening their value. The Company believes that its “ArcticCat” registered trademark is its most significant trademark. Additionally, theCompany has numerous registered trademarks, trade names and logos, both in theUnited States and internationally.

 

## **Financial Information about Geographic Areas**

## ** **

Financial information regarding domesticand geographic areas is included in Note K, Segment Reporting, of the Notes toConsolidated Financial Statements of this Annual Report on Form 10-K

 

## **Available Information**

## ** **

The Company issubject to the reporting requirements of the Securities Exchange Act of 1934and its rules and regulations (the “1934 Act”). The 1934 Act requires theCompany to file reports, proxy statements and other information with theSecurities and Exchange Commission (the “SEC”). Copies of these reports, proxystatements and other information can be read and copied at: SEC PublicReference Room, 100 F Street, N.E., Washington D.C. 20549. Information on theoperation of the Public Reference Room may be obtained by calling the SECat 1-800-SEC-0330. The SEC maintains a website that contains reports, proxystatements, and other information regarding issuers that file electronicallywith the SEC. These materials may be obtained electronically by accessing theSEC’s home page at http://www.sec.gov.

 

TheCompany has a website at www.arcticcat.com, the contents of which are not partof or incorporated by reference into this Annual Report on Form 10-K. TheCompany makes its annual reports on Form 10-K, quarterly reports on Form 10-Qand current reports on Form 8-K and amendments to those reports, availableon its website, free of charge, as soon as reasonably practicable after suchreport has been filed with or furnished to, the SEC. The Company’s Code ofConduct, as well as any waivers from and amendments to the Code of Conduct, arealso posted on the Company’s website.

 

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# **EXECUTIVE OFFICERS OFREGISTRANT**

# ** **

| **Name**              | ** ** | **Age** | ** ** | **Position**                                                    |
|-----------------------|------------|---------|------------|-----------------------------------------------------------------|
| Christopher A. Twomey |       | 61      |       | Chairman of the Board  of Directors and Chief Executive Officer |
| Claude J. Jordan      |       | 52      |       | President and Chief  Operating Officer                          |
| Timothy C. Delmore    |       | 55      |       | Chief Financial Officer  and Corporate Secretary                |
| Terry J. Blount       |       | 66      |       | Vice President – Human  Resources                          |
| Ronald G. Ray         |       | 60      |       | Vice President –  Operations                               |
| Roger H. Skime        |       | 66      |       | Vice President –  Research & Development          |
| Mary Ellen Walker     |       | 54      |       | General Manager, Parts,  Garments and Accessories               |

** **

**Mr. Twomey** has been Chairman of the Company since2003, President and Chief Executive Officer of the Company since 1986 and adirector since 1987. Mr. Twomey also currently serves as a director of TheToro Company.

 

**Mr. Jordan**has been President and Chief Operating Officer since August 2008.  Prior to joining the Company, Mr. Jordanworked for The Home Depot in Atlanta, Georgia for five years, most recently servingas a Vice President of The Home Depot, with responsibility for running the THDAt-Home Services, Inc. business. Previously, Mr. Jordan held various management positions at GeneralElectric Company.

 

**Mr. Delmore** has been Chief Financial Officer of theCompany since 1986 and has been Corporate Secretary of the Company since 1989. Mr. Delmore,a CPA with seven years of prior public accounting experience, joined theCompany in 1985 as Controller.

 

**Mr. Blount** has been Vice President – HumanResources since 1996. Mr. Blount has over 30 years of Human Resourceexperience in the manufacturing field. Prior to joining the Company, Mr. Blountworked as Vice President-Human Resources for a Minnesota-based company.

 

**Mr. Ray** has been Vice President – Operations since2004; prior to that he served as the Company’s Vice President – Manufacturingsince 1992 and has over 30 years of manufacturing experience. Before joiningthe Company he served eight years as Vice President of Manufacturing for aMinnesota-based company.

 

**Mr. Skime** has been Vice President – Research andDevelopment of the Company since its inception in 1983 and has been employed inthe snowmobile industry for over 40 years.

 

**Ms. Walker**hasbeen General Manager, Parts, Garments and Accessories since November 2007.Prior to joining the Company, Ms. Walker had been with a Minnesota-basedcompany, 3M for 26 years, most recently serving as General Manager of BuildingSafety Solutions.

 

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**ITEM 1A. RISK FACTORS**

 

The following aresignificant factors known to the Company that could adversely affect theCompany’s business, financial condition, or operating results, as well asadversely affect the value of an investment in the Company’s common stock.These risks could cause Arctic Cat’s actual results to differ materially fromits historical experience and from results predicted by forward-lookingstatements. All forward-looking statements made by Arctic Cat are qualified bythe risks described below. There may be additional risks that are not presentlymaterial or known. You should carefully consider each of the following risksand all other information set forth in this Annual Report on Form 10-K.

 

**General Economic Conditions andCertain Other External Factors**

 

Companies within thesnowmobile and ATV industry are subject to volatility in operating results dueto external factors such as general economic conditions and political changes.Specific factors affecting the industry include:

 

·                  Overall consumer confidence and the levelof discretionary consumer spending;

·                  Interest rates, related higher dealerfloorplan costs

·                  Sales incentives and promotional costs

·                  Adverse impact on margins of increases inraw material and transportation costs which companies are unable to pass on todealers without negatively affecting sales; and

·                  Fluctuation in foreign currency exchangerates.

 

The economic recessioncurrently being experienced has negatively impacted our sales and we maycontinue to suffer lower sales levels until the end or near the end of therecession.

 

**The Company’s products aresubject to extensive federal and state safety, environmental and othergovernment regulation that may require the Company to incur expenses or modifyproduct offerings in order to maintain compliance with the actions ofregulators.**

 

The Company’s productsare subject to extensive laws and regulations relating to safety, environmentaland other regulations promulgated by the U.S. and Canadian federal governmentsand individual states and provinces as well as international regulatoryauthorities. Although the Company believes that its snowmobiles, and ATVs havealways complied with applicable vehicle safety and emissions standards andrelated regulations, there can be no assurance that future regulations will notrequire additional safety standards or emission reductions that would requireadditional expenses and/or modification of product offerings in order tomaintain such compliance. Although the Company is unable to predict theultimate impact of adopted or proposed regulations on its business andoperating results, the Company believes that its business would be no moreadversely affected than those of its competitors by the adoption of any pendinglaws or regulations.

 

**A significant adversedetermination in any material product liability claim against the Company couldadversely affect its operating results or financial condition.**

 

Accidents involvingpersonal 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’spolicy to vigorously defend against these actions. The Company presentlymaintains product liability insurance on a “per occurrence” basis (withcoverage being provided in respect of accidents which occurred during thepolicy year, regardless of when the related claim is made) in the amount of$10,000,000 in the aggregate, with a $10,000,000 self-insured retention. WhileArctic Cat does not believe the outcome of any pending product liabilitylitigation will have a material adverse effect on its operations, no assurancecan be given that material product liability claims against Arctic Cat will notbe made in the future. Adverse determination of material product liabilityclaims made against Arctic Cat could adversely affect its operating results orfinancial condition.

 

**Significant repair and/orreplacement with respect to product warranty claims or product recalls couldhave a material adverse impact on the results of operations.**

 

The Company provides alimited warranty for a period of six months for its ATVs and one year for itssnowmobiles. The Company may provide longer warranties in certain geographicalmarkets as determined by local regulations and market conditions. Although theCompany employs quality control procedures, sometimes a product is distributedwhich needs repair or replacement. The Company’s standard warranties requirethe Company or its dealers to repair or replace defective products during suchwarranty periods at no cost to the consumer. Historically, product recalls havebeen administered through the Company’s dealers and distributors and have nothad a material effect on the Company’s business. See Note A of Notes toConsolidated Financial Statements in this Annual Report on Form 10-K.

 

**Changing weather conditions mayreduce demand for certain Arctic Cat products and negatively impact net sales.**

 

Lack of snowfall in anyyear in any particular region of the United States or Canada may adverselyaffect snowmobile retail sales and related parts, garments and accessoriessales in that region. There is no assurance that weather conditions will notmaterially affect the Company’s future sales of snowmobiles, ATVs, and parts,garments and accessories.

 

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**The Company faces intensecompetition in all product lines, from competitors that have greater financialand marketing resources. Failure to compete effectively against competitorswould negatively impact the Company’s business and operating results.**

 

The snowmobile and ATVmarkets in the United States and Canada are highly competitive. Competition insuch markets is based upon a number of factors, including performance, ride,suspension, innovation, technology, styling, fit and finish, brand loyalty,reliability, durability, price and distribution. At the dealer level,competition is based on a number of factors including sales and marketingsupport programs (such as sales incentives and cooperative advertising). TheCompany’s competitors are more diversified and have financial and marketingresources which are substantially greater than those of the Company. Inaddition, the Company’s products compete with many other recreational productsfor the discretionary spending of consumers and to a lesser extent, with othervehicles designed for utility applications. If the Company is not able toeffectively compete in this environment, its business and operating resultswill be negatively impacted.

 

**Termination or interruption ofsupply arrangements could have a material adverse effect on the Company’s businessor results of operations.**

 

Suzuki has manufacturedsnowmobile engines and through fiscal 2008 certain ATV engines for the Companypursuant to supply agreements which are automatically renewed annually unlessterminated.  During late fiscal 2005, theCompany began manufacturing certain of its own designed ATV engines as part ofa strategic first step in a new engine program. The Company believes that having the capability to design andmanufacture its own ATV engines will enable Arctic Cat to offer customers morechoices, provide excellent value, lower Japanese yen currency exposure andenhance its long-term competitive position. In 2007, the Company transitioned its engine manufacturing from theThief River Falls facility to its new facility in St. Cloud, Minnesota.  Beginning in fiscal 2009, substantially allthe Company’s ATV’s will use engines that are produced from the Company’sengine facility or purchased separately or as part of the 50cc to 366cc unitsthe Company receives from a Taiwanese supplier. The Company and Suzuki have enjoyed an excellent relationship since theCompany’s inception.  Suzuki purchasedapproximately 31% of the Company’s then outstanding capital stock in July 1988,prior to the Company’s initial public offering in July of 1990, and iscurrently the Company’s largest shareholder with approximately 34% of theCompany’s outstanding capital stock.  IfSuzuki were ever to cease supplying snowmobile engines to the Company, such aninterruption could materially and adversely affect production and results ofoperations.  While notice of terminationof the supply agreement may be given annually, effective termination of supplywould take at least one model year and the Company believes it could take up totwo model years for the Company or a new engine supplier to be in a position tomanufacture the Company’s specially designed snowmobile engines.  As a consequence, the Company regularlyevaluates alternative snowmobile engine supply sources.  While the Company anticipates no significantdifficulties in obtaining substitute supply arrangements for other rawmaterials or components for which it relies upon limited sources of supply,there can be no assurance that alternate supply arrangements will be made onsatisfactory terms.

 

**Interruption of dealer floorplan financing inNorth America could have a material impact on the Company’s businessoperations.**

 

TheCompany has agreements with Textron Financial Corporation (TFC) to providesnowmobile and ATV floor plan financing for the Company’s North Americandealers. These agreements improve the Company’s liquidity by financing dealerpurchases of products without requiring substantial use of the Company’sworking capital. The Company is paid by the floorplan companies shortly aftershipment and as part of its marketing programs the Company pays the floor planfinancing of its dealers for certain set time periods depending on the size ofa dealer’s order.  The Company’sagreements with TFC to floorplan its U.S. dealers terminates January 20,2010 and its Canadian agreement terminates April 30, 2012.  On December 22, 2008, Textron announcedplans to exit the non-captive dealer floorplan business.  While the Company anticipates securinganother dealer floorplan source for its dealers there can be no assurance thatan alternative source will be secured before the termination of its agreementswith TFC or that the costs and other terms of such new financing source willnot be significantly less favorable to the Company than has historically beenavailable.

 

**Termination, interruption or nonrenewal of bankcredit agreements could have a material adverse affect on the Company’sbusiness or results of operations.**

 

Theseasonality of the Company’s snowmobile production cycle and the lead timebetween the commencement of snowmobile and ATV production in the spring andcommencement of shipments late in the first quarter resulting in significantfluctuations in the Company’s working capital requirements during eachyear.  Historically, the Company hasfinanced its working capital requirements out of available cash balances at thebeginning and end of the production cycle and with short-term bank borrowingsduring the middle of this cycle.  Whilethe Company expects to maintain adequate working capital financing from itslender, given the turmoil in the economy and banking sector, there can be noassurance that working capital financing arrangements will remain available orthat the costs and other terms of new financing arrangements will not besignificantly less favorable to the Company than has historically beenavailable.

 

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**ITEM1B. UNRESOLVED STAFF COMMENTS**

 

None.

 

# **ITEM 2. PROPERTIES**

# ** **

The following sets forththe Company’s material property holdings as of March 31, 2009.

 
| ** **                    | ** ** | ** **                            | ** ** | **Owned or** | ** ** | ** ** | ** ** |
|-------------------------------|------------|---------------------------------------|------------|--------------|------------|------------|------------|
| **Location**                  | ** ** | **Facility Type / Use**               | ** ** | **Leased**   | ** ** | **Sq Ft.** | ** ** |
| Thief River Falls,  Minnesota |       | Manufacturing /  Corporate Office     |       | Owned        |       | 558,000    |       |
| Thief River Falls,  Minnesota |       | Warehouse                             |       | Leased       |       | 92,135     |       |
| Thief River Falls,  Minnesota |       | Warehouse                             |       | Leased       |       | 14,350     |       |
| Bucyrus, Ohio                 |       | Distribution Center                   |       | Owned        |       | 220,000    |       |
| Winnipeg, Manitoba            |       | Service Center                        |       | Leased       |       | 10,602     |       |
| Island Park, Idaho            |       | Test &  Development Facility |       | Owned        |       | 3,000      |       |
| St. Johann, Austria           |       | Manufacturing/Distribution            |       | Leased       |       | 47,391     |       |
| St. Cloud, Minnesota          |       | Manufacturing                         |       | Owned        |       | 60,800     |       |
| Plymouth,  Minnesota          |       | Corporate  Office                     |       | Leased       |       | 11,420     |       |

 

# **ITEM 3. LEGAL PROCEEDINGS**

# ** **

Accidents involvingpersonal 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’spolicy to vigorously defend against these actions. The Company is not involvedin any legal proceedings which it believes will have the potential for amaterially adverse impact on the Company’s business or financial condition.

 

Productliability insurance is presently maintained by the Company on a “per occurrence”basis (with coverage being provided in respect of accidents which occurredduring the policy year, regardless of when the related claim is made) in theamount of $10,000,000 in the aggregate, with a $10,000,000 self-insuredretention. The Company believes such insurance is adequate.

 

# **ITEM 4. SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS**

 

No matters were submitted to the shareholders during the fourth quarterof fiscal 2009.

 

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# **PART II**

 

# **ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATEDSTOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

 

The Company’s commonstock is traded on The NASDAQ Global Select Market under the NASDAQ symbol “ACAT”.Quotations below represent the high and low sale prices as reported by NASDAQ.The Company’s stock began trading on NASDAQ on June 26, 1990.

 
| **Years ended March 31,** | ** ** | **2009** | ** ** | **2008**   | ** ** |
|--------------------------------|------------|----------|------------|------------|------------|
| **Quarterly Prices**           | ** ** | **High** | ** ** | **Low**    | ** ** | **High** | ** ** | **Low** | ** ** |
| **First Quarter**              | ** ** | **$**    | **8.72**   | ** ** | **$**      | **6.42** |   | $ | 20.77 |   | $ | 17.69 |   |
| **Second Quarter**             | ** ** | **$**    | **12.20**  | ** ** | **$**      | **6.30** |   | $ | 20.77 |   | $ | 15.50 |   |
| **Third Quarter**              | ** ** | **$**    | **9.50**   | ** ** | **$**      | **4.18** |   | $ | 17.95 |   | $ | 10.54 |   |
| **Fourth Quarter**             | ** ** | **$**    | **5.55**   | ** ** | **$**      | **2.40** |   | $ | 12.44 |   | $ | 6.81 |   |

 

Asof June 4, 2009, the Company had approximately 381 stockholders of record,including the nominee of Depository Trust Company which held 12,122,985 sharesof common stock.

 

**Cash Dividends Paid**

 

Cashdividends are declared quarterly and have been paid through the third quarterof fiscal year 2009 since 1995. In response to the continuing economicrecession and to conserve cash, the Company suspended quarterly cash dividendson its common stock effective January 29, 2009.

 
| **Quarter**    | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| First Quarter  | ** ** | **$**    | **0.07**   |     | $          | 0.07 |   |
| Second Quarter | ** ** | **$**    | **0.07**   |     | $          | 0.07 |   |
| Third Quarter  | ** ** | **$**    | **0.07**   |     | $          | 0.07 |   |
| Fourth Quarter | ** ** | **$**    | **0.00**   |     | $          | 0.07 |   |
| Total          | ** ** | **$**    | **0.21**   |     | $          | 0.28 |   |

 

**Company Purchases of Company Equity Securities**

 

The following table presents the total number ofshares repurchased during the fourth quarter of fiscal 2009 by fiscal month,the average price paid per share, the number of shares that were purchased aspart of a publicly announced repurchase plan, and the approximate dollar valueof shares that may yet be purchased pursuant to the Company’s stock repurchaseprogram as of the end of fiscal 2009:

 
| **Period**                                           | ** ** | **Total Number of   Shares Purchased** | ** ** | **Average Price  Paid per Share** | ** ** | **Total Number of   Shares Purchased  as Part of Publicly  Announced Plans  or Programs(1)** | ** ** | **Maximum Number  of Shares that May  Yet be Purchased  Under the Plans  or Programs** | ** ** |
|------------------------------------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| January 1,  2009 – January 31, 2009   |       | 0                                      |       | $                                 | —     |                                                                                              | 0          |                                                                                   | 2,331,002  | (2) |
| February 1,  2009 – February 29, 2009 |       | 0                                      |       | $                                 | —     |                                                                                              | 0          |                                                                                   | 2,890,173  | (2) |
| March 1,  2009 – March 31, 2009       |       | 0                                      |       | $                                 | —     |                                                                                              | 0          |                                                                                   | 2,610,966  | (2) |
| Total                                                |       | 0                                      |       | $                                 | —     |                                                                                              | 0          |                                                                                   | 2,610,966  | (2) |

 

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(1)                                 The Company has in the past maintainedpublicly announced stock repurchase programs which have been approved by theBoard of Directors. On January 4, 2008, the Company announced that theBoard of Directors approved a $10 million stock repurchase program. Pricingunder this program has been delegated to management. There is no expirationdate for this program.

(2)                                 Number of shares purchasable at closingprice of the Company’s common stock on the last trading day of the month.

 

The Company hashistorically purchased its common stock primarily to offset the dilution createdby employee stock option programs and because the Board of Directors believedinvestment in the Company’s common stock was an excellent use of its excesscash.

 

Stock purchases have beenexecuted in accordance with Rule 10b-18 of the Securities Exchange Act of1934. There have been no other purchases of the Company’s common stock.

 

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**Performance Graph**

 

In accordance with the rules of the SEC, thefollowing performance graph compares the performance of the Company’s commonstock on The NASDAQ Stock Market to the Standard & Poor’s 500 Index,of which the Company is a component, and to the Recreational Vehicles Indexprepared by Hemscott, Inc., of which the Company is also a component.  The graph compares on an annual basis thecumulative total shareholder return on $100 invested on March 31, 2004,and assumes reinvestment of all dividends and has been adjusted to reflectstock splits. The performance graph is not necessarily indicative of futureinvestment performance.

 

 
| ** **             | ** ** | **Fiscal Year Ending** | ** ** |
|------------------------|------------|------------------------|------------|
| ** **             | ** ** | **3/31/2004**          | ** ** | **3/31/2005** | ** ** | **3/31/2006** | ** ** | **3/31/2007** | ** ** | **3/31/2008** | ** ** | **3/31/2009** | ** ** |
| Arctic  Cat Inc.       |       | $                      | 100.00     |   | $ | 107.83 |   | $ | 97.15 |   | $ | 79.92 |   | $ | 30.51 |   | $ | 16.46 |   |
| Recreational  Vehicles |       | 100.00                 |       | 111.01 |   | 106.36 |   | 111.19 |   | 75.01 |   | 31.16 |   |
| S&P  Composite     |       | 100.00                 |       | 106.69 |   | 133.31 |   | 133.31 |   | 126.54 |   | 78.34 |   |
|                        |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Item 6.        SELECTED FINANCIAL DATA**

 
| **(In thousands, except per share amounts)  Years ended March 31,** | ** ** | **2009**    | ** **  | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------------------------------|------------|-------------|-------------|----------|------------|----------|------------|----------|------------|----------|------------|
| **OPERATING  STATEMENT DATA:**                                           | ** ** | ** **  |        |     |       |     |       |     |       |     |       |
| **Net  sales**                                                           | ** ** | ** **  |        |     |       |     |       |     |       |     |       |
| **Snowmobile &  ATV units**                                     | ** ** | **$**       | **454,589** |     | $          | 512,170  |       | $        | 678,522    |     | $          | 632,986 |   | $ | 593,488 |   |
| **Parts,  garments, & accessories**                             | ** ** | **109,024** |        | 109,398  |       | 103,909  |       | 99,808   |       | 95,657   |       |
| **Total  net sales**                                                     | ** ** | **563,613** |        |     | 621,568    |     |       | 782,431  |       |     | 732,794    |   |   | 689,145 |   |
| **Cost of  goods sold**                                                  | ** ** | ** **  |        |     |       |     |       |     |       |     |       |
| **Snowmobile &  ATV units**                                     | ** ** | **411,776** |        | 447,633  |       | 578,533  |       | 536,467  |       | 496,144  |       |
| **Parts,  garments, & accessories**                             | ** ** | **68,665**  |        | 68,395   |       | 66,951   |       | 64,599   |       | 61,586   |       |
| **Total  cost of goods sold**                                            | ** ** | **480,441** |        | 516,028  |       | 645,484  |       | 601,066  |       | 557,730  |       |
| **Gross  profit**                                                        | ** ** | **83,172**  |        | 105,540  |       | 136,947  |       | 131,728  |       | 131,415  |       |
| **Operating  expenses**                                                  | ** ** | ** **  |        |     |       |     |       |     |       |     |       |
| **Selling &  marketing**                                        |       | 43,971      |        | 47,634   |       | 54,108   |       | 53,673   |       | 51,638   |       |
| **Research &  development**                                     |       | 18,404      |        | 18,343   |       | 20,262   |       | 19,323   |       | 19,708   |       |
| **General &  administrative**                                   |       | 33,904      |        | 48,276   |       | 30,644   |       | 25,997   |       | 20,034   |       |
| **Goodwill  impairment charge**                                          |       | 1,750       |        | —   |       | —   |       | —   |       | —   |       |
| **Total  operating expenses**                                            |       | 98,029      |        | 114,253  |       | 105,014  |       | 98,993   |       | 91,380   |       |
| **Operating  profit (loss)**                                             | ** ** | **(14,857** | **)**       | (8,713   | )          | 31,933   |       | 32,735   |       | 40,035   |       |
| **Interest  income**                                                     | ** ** | **117**     |        | 632      |       | 1,139    |       | 1,556    |       | 1,213    |       |
| **Interest  expense**                                                    | ** ** | **(1,015**  | **)**       | (1,066   | )          | (1,026   | )          | (105     | )          | —   |       |
| **Earnings  (loss) before income taxes**                                 | ** ** | **(15,755** | **)**       | (9,147   | )          | 32,046   |       | 34,186   |       | 41,248   |       |
| **Income  tax expense (benefit)**                                        | ** ** | **(6,247**  | **)**       | (5,888   | )          | 9,976    |       | 10,440   |       | 12,949   |       |
| **Net  earnings (loss)**                                                 | ** ** | **$**       | **(9,508**  | **)**    | $          | (3,259   | )          | $        | 22,070     |     | $          | 23,746 |   | $ | 28,299 |   |
| **Net  earnings (loss) per share**                                       | ** ** | ** **  |        |     |       |     |       |     |       |     |       |
| **Basic**                                                                |       | $           | (0.53       | )        | $          | (0.18    | )          | $        | 1.16       |     | $          | 1.21 |   | $ | 1.38 |   |
| **Diluted**                                                              |       | $           | (0.53       | )        | $          | (0.18    | )          | $        | 1.15       |     | $          | 1.20 |   | $ | 1.36 |   |
| **Cash  dividends per share**                                            | ** ** | **$**       | **0.21**    |     | $          | 0.28     |       | $        | 0.28       |     | $          | 0.28 |   | $ | 0.28 |   |
| **Weighted  average shares outstanding**                                 | ** ** | ** **  |        |     |       |     |       |     |       |     |       |
| **Basic**                                                                | ** ** | **18,070**  |        | 18,137   |       | 19,030   |       | 19,642   |       | 20,516   |       |
| **Diluted**                                                              | ** ** | **18,070**  |        | 18,137   |       | 19,128   |       | 19,828   |       | 20,794   |       |

 
| **As of  March 31,**                | ** ** | **2009**    | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------|------------|-------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| **BALANCE  SHEET DATA** (In  thousands): | ** ** | ** **  |       |     |       |     |       |     |       |     |       |
| **Cash  and short-term investments**     | ** ** | **$**       | **11,413** |     | $          | 35,063   |       | $        | 75,277     |     | $          | 69,893 |   | $ | 88,394 |   |
| **Working  capital**                     | ** ** | **109,524** |       | 113,274  |       | 110,382  |       | 108,348  |       | 123,069  |       |
| **Total  assets**                        | ** ** | **251,165** |       | 305,898  |       | 326,204  |       | 311,236  |       | 291,733  |       |
| **Long-term  debt**                      | ** ** | **—**  |       | —   |       | —   |       | —   |       | —   |       |
| **Shareholders’  equity**           | ** ** | **164,848** |       | 180,862  |       | 192,221  |       | 189,365  |       | 185,510  |       |
|                                          |            |             |            |          |            |          |            |          |            |          |            |  |  |  |  |  |

 

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# **QUARTERLY FINANCIAL DATA**(unaudited)

 
| **(In  thousands, except per share amounts)** | ** ** | **Total  Year** | ** **  | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** **  | **Fourth  Quarter** | ** ** |
|-----------------------------------------------|------------|-----------------|-------------|--------------------|------------|---------------------|------------|--------------------|-------------|---------------------|------------|
| **Net  Sales**                                |       |            |        |               |       |                |       |               |        |                |       |
| **2009**                                      | ** ** | **$**           | **563,613** | ** **         | **$**      | **93,877**          | ** ** | **$**              | **204,314** | ** **          | **$**      | **174,699** | ** ** | **$** | **90,723** | ** ** |
| 2008                                          |       | 621,568         |        | 87,862             |       | 205,210             |       | 159,595            |        | 168,901             |       |
| 2007                                          |       | 782,431         |        | 96,418             |       | 285,325             |       | 228,114            |        | 172,574             |       |
| **Gross  Profit**                             |       |            |        |               |       |                |       |               |        |                |       |
| **2009**                                      | ** ** | **$**           | **83,172**  | ** **         | **$**      | **12,877**          | ** ** | **$**              | **47,122**  | ** **          | **$**      | **20,367** | ** ** | **$** | **2,806** | ** ** |
| 2008                                          |       | 105,540         |        | 11,710             |       | 53,002              |       | 16,880             |        | 23,948              |       |
| 2007                                          |       | 136,947         |        | 15,193             |       | 58,439              |       | 38,517             |        | 24,798              |       |
| **Net  Earnings (Loss)**                      |       |            |        |               |       |                |       |               |        |                |       |
| **2009**                                      | ** ** | **$**           | **(9,508**  | **)**              | **$**      | **(6,963**          | **)**      | **$**              | **16,915**  | ** **          | **$**      | **(2,724** | **)** | **$** | **(16,736** | **)** |
| 2008                                          |       | (3,259          | )           | (7,155             | )          | 13,944              |       | (10,472            | )           | 424                 |       |
| 2007                                          |       | 22,070          |        | (4,532             | )          | 19,976              |       | 8,181              |        | (1,555              | )          |
| **Net  Earnings (Loss) Per Share**            |       |            |        |               |       |                |       |               |        |                |       |
| **2009  Basic**                               | ** ** | **$**           | **(0.53**   | **)**              | **$**      | **(0.39**           | **)**      | **$**              | **0.94**    | ** **          | **$**      | **(0.15** | **)** | **$** | **(0.93** | **)** |
| **Diluted**                                   | ** ** | **(0.53**       | **)**       | **(0.39**          | **)**      | **0.93**            | ** ** | **(0.15**          | **)**       | **(0.93**           | **)**      |
| 2008 Basic                                    |       | (0.18           | )           | (0.39              | )          | 0.77                |       | (0.58              | )           | 0.02                |       |
| Diluted                                       |       | (0.18           | )           | (0.39              | )          | 0.76                |       | (0.58              | )           | 0.02                |       |
| 2007 Basic                                    |       | 1.16            |        | (0.23              | )          | 1.04                |       | 0.43               |        | (0.08               | )          |
| Diluted                                       |       | 1.15            |        | (0.23              | )          | 1.03                |       | 0.43               |        | (0.08               | )          |

 

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# **ITEM 7.**                   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

# ** **

## **Executive LevelOverview**

## ** **

Fiscal 2009 net sales decreased 9% to $563.6 million from $621.6million in fiscal 2008. The fiscal 2009 net loss was $9.5 million or$0.53 per diluted share compared to a net loss of $3.3 million or $0.18per diluted share in fiscal 2008. The Company’s fiscal 2009 results included anon-cash goodwill impairment charge of $1.75 million, or a $0.10 loss perdiluted share, in accordance with Statement of Financial Accounting Standards(SFAS) No. 142.  The non-cashgoodwill impairment charge has no impact on Arctic Cat’s cash flow orliquidity.  The decrease in net sales andnet earnings was mainly due to decreased sales of ATVs caused bychallenging retail market conditions for ATV sales partially offset byincreased snowmobile sales.  Contributingto the snowmobile sales growth were innovative new products, lower North Americandealer inventories and increased international sales.  The Company ended the fiscal year with $11million in cash and short-term investments.

 

The retail sales climate for all our products remaineddifficult in 2009 due to the severe contraction of the U.S. economy which beganin the last half of 2008 and continued throughout 2009.  Dramatically lower consumer spending as wellas historically low consumer confidence and rising unemployment all contributedto industrywide weak retail demand.

 

North American industrywide retail sales ofsnowmobiles decreased 11% for the full year compared to the prior model year.Industrywide sales in the United States were down nearly 20% while snowmobileretail sales in Canada actually increased slightly. By comparison, Arctic Cat’sNorth American retail sales outperformed the industry and the Company gained apoint of market share.  While the U.S.snowmobile retail sales decrease was significant, snowmobiles stilloutperformed all other recreational vehicle products during the snowmobileselling season. This reflects the positive impact that normal snowfall has onsnowmobile retail sales.

 

Wholesale snowmobile unit shipments to North Americandealers were up 6.5% in 2009.  Thismodest increase along with the 30% reduction in dealer inventories, which theCompany accomplished in 2008 allowed North American dealer inventory to shrinkanother 13% at the end of 2009.  Thesereductions are a part of the Company’s plan to better match dealer inventorieswith retail demand to protect and improve the strength of the Company’s dealernetwork.

 

Snowmobile sales to international distributors aremade in U.S. dollars.  As a result of aweakening of the currencies in the countries where we sell snowmobiles,particularly Russia, the Company expects to experience lower sales volumes forthe upcoming year.  In addition, becauseof the ongoing weakness in the economy, as well as anemic consumer spending,low consumer confidence and high unemployment, North American dealer orderswill also be down this year.  Overall,the Company expects snowmobile sales to be down 25 to 30% compared to 2009.

 

North American ATV retail sales continued a four-yeardecline and ended the 2008 calendar year down more than 25%.  However, Arctic Cat’s ATV retail salesoutperformed the market slightly as a result of significantly higher sales inCanada.

 

In response to the rapid and severe economic downturnwhich occurred during the second half of fiscal 2009, the Company decided tosignificantly lower ATV production in the fiscal fourth quarter to better matchretail demand and further shrink dealer inventory.  Importantly, despite lower retail sales infiscal 2009, the Company succeeded in reducing dealer inventories by 19%compared to the prior year.

 

In view of the current North American economicenvironment, the Company does not expect ATV retail sales to improve over lastyear, although the Company may see a slight uptick in the ATV market by the endof fiscal 2010 if the economy begins to rebound.   As a result, the Company expects ATV salesto be down 18% to 24% compared to 2009.

 

ATV sales decreased 29%in fiscal 2009 to $247.3 million from $350.3 million in fiscal 2008. ATV netsales first surpassed snowmobile net sales in fiscal 2004 and are the Company’slargest product line, comprising 44% of net sales in fiscal 2009. Snowmobilesales increased 28% in fiscal 2009 to $207.3 million from $161.9 million infiscal 2008, primarily due to the planned reduction last fiscal year insnowmobile production to align dealer inventory with retail demand which theCompany did in 2008. Snowmobiles comprised 37% of the Company’s net sales infiscal 2009. Parts, garments and accessories sales decreased slightly in fiscal2009 to $109.0 million from $109.4 million in fiscal 2008.  Parts,garments and accessories sales were 19% of the Company’s net sales in fiscal2009. The following discussions should be read in conjunction with theconsolidated financial statements and notes thereto included elsewhere in this AnnualReport on Form 10-K.

 

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## **Results ofOperations**

 

**Product Line Sales** for the Year Ended March 31

 
| **($ in  thousands)**              | ** ** | **2009** | ** ** | **Percent  of  Total  Sales** | ** ** | **2008** | ** ** | **Percent  of  Total  Sales** | ** ** | **Percent  Change  2009 vs  2008** | ** ** | **2007** | ** ** | **Percent  of  Total  Sales** | ** ** | **Percent  Change  2008 vs  2007** | ** ** |
|-----------------------------------------|------------|----------|------------|-------------------------------|------------|----------|------------|-------------------------------|------------|------------------------------------|------------|----------|------------|-------------------------------|------------|------------------------------------|------------|
| ATV                                     |       | $        | 247,309    |                          | 44         | %        | $          | 350,296                       |       | 56                                 | %          | -29      | %          | $                             | 431,548    |                               | 55         | % | -19 | % |
| Snowmobile                              |       | 207,280  |       | 37                            | %          | 161,874  |       | 26                            | %          | 28                                 | %          | 246,974  |       | 32                            | %          | -34                                | %          |
| Parts,  garments & accessories |       | 109,024  |       | 19                            | %          | 109,398  |       | 18                            | %          | 0                                  | %          | 103,909  |       | 13                            | %          | 5                                  | %          |
| Net Sales                               |       | $        | 563,613    |                          | 100        | %        | $          | 621,568                       |       | 100                                | %          | -9       | %          | $                             | 782,431    |                               | 100        | % | -21 | % |

 

**Product Line Sales -** During fiscal 2009 net salesdecreased 9% to $563.6 million from $621.6 million in fiscal 2008. ATV unitvolume decreased 35%, snowmobile unit volume increased 18% and parts, garmentsand accessories sales decreased $374,000. ATV unit volume decreased primarily due to declining industry wide ATVretail sales and a planned reduction in ATV production. Snowmobile unit volumeincreased 18% mainly due to innovative new products, lower North Americandealer inventories and increased international sales.   Parts, garments and accessories sales in2009 were essentially flat due challenging macroeconomic conditions.  During fiscal 2008, net sales decreased 21%to $621.6 million from $782.4 million in fiscal 2007.  ATV unit volume decreased 25%, snowmobileunit volume decreased 37% and dollar sales of parts, garments and accessoriesincreased $5% or $5.5 million.  TheCompany believes the continued decrease in ATV net sales was due to decliningindustry wide retail demand. Snowmobile unit volume decreased because of lowerdealer orders related to higher dealer inventory caused by less than normalsnowfalls during the prior winter season in certain key regions in NorthAmerica.  Parts, garments and accessoriessales increases in 2008 were primarily due to increases ATV accessory sales,partially offset by lower snowmobile garment sales.

 

**Cost of Goods Sold** for the Year Ended March 31

 
| **($ in thousands)**               | ** ** | **2009** | ** **    | **Percent of  Total Sales** | ** ** | **2008** | ** ** | **Percent of  Total Sales** | ** ** | **Percent  Change  2009 vs. 2008** | ** ** | **2007** | ** ** | **Percent of  Total Sales** | ** **    | **Percent Change  2008 vs. 2007** | ** ** |
|-----------------------------------------|------------|----------|---------------|-----------------------------|------------|----------|------------|-----------------------------|------------|------------------------------------|------------|----------|------------|-----------------------------|---------------|-----------------------------------|------------|
| Snowmobiles &  ATV units       |       | $        |  411,776 |                        | 73.1       | %        | $          |  447,633               |       | 72.0                               | %          | -8.0     | %          | $                           |  578,533 |                              | 73.9       | % | -22.7 | % |
| Parts,  garments & accessories |       | 68,665   |          | 12.2                        | %          | 68,395   |       | 11.0                        | %          | 0.4                                | %          | 66,951   |       | 8.6                         | %             | 2.2                               | %          |
| Total Cost of  Goods Sold               |       | $        |  480,441 |                        | 85.2       | %        | $          |  516,028               |       | 83.0                               | %          | -6.9     | %          | $                           |  645,484 |                              | 82.5       | % | -20.1 | % |

 

**Cost of Goods Sold -** During fiscal 2009 cost of sales decreased 6.9% to$480.4 million from $516.0 million for fiscal 2008.  Fiscal 2009 snowmobile and ATV unit cost ofsales decreased 8% to $411.8 million from $447.6 million in line with decreasesin unit sales in fiscal 2009 compared to fiscal 2008.  The fiscal 2009 cost of sales for parts,garments and accessories were essentially flat at $68.7 million compared to$68.4 million for fiscal 2008 in line with flat sales. Fiscal 2008 cost ofsales decreased 20.1% to $516.0 million from $645.5 million for fiscal 2007.Fiscal 2008 snowmobile and ATV unit cost of sales decreased 22.7% to $447.6million from $578.5 million in line with the decrease in unit sales in fiscal2008 compared to fiscal 2007.  The fiscal2008 cost of sales for parts, garments and accessories increased 2.2% to $68.4million from $67.0 million for fiscal 2007 in line with the sales increase ofparts, garments and accessories, for fiscal 2008 compared to fiscal 2007.

 

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Gross Profit for the Year Ended March 31,

 
| **($ in thousands)** | ** ** | **2009** | ** ** | **2008** | ** ** | **Change  2009 vs 2008** | ** ** | **2007** | ** ** | **Change 2008   vs 2007** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|--------------------------|------------|----------|------------|---------------------------|------------|
| Gross Profit  Dollars     |       | $        | 83,172     |     | $          | 105,540                  |       | -21      | %          | $                         | 136,947    |   | -23 | % |
| Percentage of  Sales      |       | 14.8     | %          | 17.0     | %          | -2                       | %          | 17.5     | %          | -0.5                      | %          |
|                           |            |          |            |          |            |                          |            |          |            |                           |            |  |  |  |

 

**Gross Profit -** Gross profit decreased 21% to $83.2million in 2009 from $105.5 million in 2008. The gross profit percentage forfiscal 2009 decreased to 14.8% versus 17.0% in 2008. The decrease in the 2009gross profit percentage was primarily due to a weaker Canadian dollar exchangerate, lower ATV volumes and offset by lower sales incentives for both ATV’s andsnowmobiles.  Gross profit decreased 23%to $105.5 million in 2008 from $136.9 million in 2007. The gross profitpercentage decreased to 17.0% versus 17.5% in 2007. The decrease in the 2008gross profit percentage was mainly due to higher Canadian sales incentives tohelp compensate for the stronger Canadian dollar as well as lower sales volumeswithin the snowmobile and ATV product lines due to efforts to reduce dealerinventory and weaker consumer demand.

 

Operating Expenses forthe Year Ended March 31,

 
| **($ in thousands)**          | ** ** | **2009** | ** ** | **2008** | ** ** | **Change 2009  vs 2008** | ** ** | **2007** | ** ** | **Change 2008  vs 2007** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|--------------------------|------------|----------|------------|--------------------------|------------|
| Selling and  Marketing             |       | $        | 43,971     |     | $          | 47,634                   |       | -8       | %          | $                        | 54,108     |   | -12 | % |
| Research &  Development   |       | 18,404   |       | 18,343   |       | 0                        | %          | 20,262   |       | -9                       | %          |
| General &  Administrative |       | 33,904   |       | 48,276   |       | -30                      | %          | 30,644   |       | 58                       | %          |
| Goodwill  Impairment Charge        |       | 1,750    |       | —   |       | —                   |       | —   |       | —                   |       |
| Total Operating  Expenses          |       | $        | 98,029     |     | $          | 114,253                  |       | 14       | %          | $                        | 105,014    |   | 9 | % |
| Percentage of  Sales               |       | 17.4     | %          | 18.4     | %          |                     |       | 13.4     | %          |                     |       |

 

**OperatingExpenses** - Selling and Marketingexpenses decreased 8% to $44.0 million in 2009 from $ 47.6 million in 2008,primarily due to lower advertising expenses. Selling and Marketing expenses decreased 12% to $47.6 million in 2008from $54.1 million in 2007 due primarily to lower advertising expenses.  Research and Development expenses wereessentially flat at $18.4 million in 2009 compared to $ 18.3 million in2008.  Research and development expensesdecreased 9% to $18.3 million in 2008 from $20.3 million in 2007 due primarilyto lower compensation and development expenses. General and Administrative expenses decreased 30% to $33.9 million in2009 from $48.3 million in 2008 due primarily to decreased Canadian hedge costsand to a lesser extent decreased product liability and litigation expense.  General and Administrative expenses increased58% to $ 48.3 million in 2008 from $30.6 million in 2007 due primarilyincreased Canadian hedge costs and to a lesser extent increased productliability and litigation expense and to increased operating costs of theEuropean subsidiary.  During the fourthquarter of fiscal 2009 the company recorded a $1.75 million non-cash goodwillimpairment charge in accordance with Statement of Financial AccountingStandards (SFAS) No. 142.  Thegoodwill impairment charge was attributed to changes in future estimated cashflows as compared to the carrying value.

 

**OtherIncome / Expense -**Interest incomedecreased 81.5% to $117,000 in fiscal 2009 from $632,000 in fiscal 2008.Interest expense decreased 4.8% to $1.0 million in fiscal 2009 from $1.1million in fiscal 2008. Interest income was primarily affected by the lowercash levels at the beginning of the fiscal year compared to last year, as wellas lower cash balances during the third and fourth quarters of fiscal 2009, dueprimarily to higher working capital needs. Interest expense was comparable to the prior year as a result of similarborrowing levels in 2009 compared to 2008. Interest income decreased to $632,000 in fiscal 2008 from $1.1 millionin fiscal 2007. Interest expense increased to $1.1 million in fiscal 2008 from$1.0 million in fiscal 2007. Interest income was primarily affected by thelower cash levels at the beginning of the fiscal year compared to the previousyear. Interest expense was comparable to prior year as a result of similarborrowing levels in 2008 compared to 2007.

 

## **Net Earnings(Loss) -** The fiscal 2009 net loss was $9.5 million or $0.53 perdiluted share versus a net loss of $3.3 million or $0.18 per diluted share forfiscal 2008. Net earnings (loss) as a percent of net sales were (1.7%) and(0.5%) in 2009 and 2008, respectively. The decrease in the net loss isattributable primarily to decreased ATV sales. The fiscal 2008 net loss of $3.3 million or $0.18 per diluted share wasdown from net earnings of $22.1 million or $1.15 per diluted share for fiscal2007.   The decrease in net earnings isattributable to decreased sales and increased operating expenses. Net earningsas a percent of net sales were (0.5%) and 2.8% in 2008 and 2007, respectively.

 

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## **CriticalAccounting Policies**

## ** **

The preparation of the consolidated financialstatements in accordance with accounting principles generally accepted in theUnited States requires management to make certain estimates and assumptionsthat affect the amount of reported assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the consolidated financialstatements and revenues and expenses during the periods reported. Actualresults may differ from those estimates. The Company reviewed the developmentand selection of the critical accounting policies and believes the followingare the most critical accounting policies that could have an effect on the Company’sreported results. These critical accounting policies and estimates have beenreviewed with the Audit Committee of the Board of Directors.

 

**Revenue Recognition**

 

The Company recognizes revenue and provides forestimated marketing and sales incentive costs when products are shipped todealers and distributors pursuant to their order, the price is fixed andcollection is reasonably assured. The Company has agreements with financecompanies to repurchase products repossessed up to certain limits. The Company’sfinancial exposure to repurchase products is limited to the difference betweenthe amount paid to the finance company and the resale value of the repossessedproducts. Historically, the Company has not incurred material losses as aresult of repurchases nor has it provided a financial reserve for repurchases.Adverse changes in retail sales could cause this situation to change.

 

**Marketing and Sales Incentive Costs**

 

The Company provides for various marketing and salesincentive costs which are offered to its dealers and consumers at the later ofwhen the revenue is recognized or when the marketing and sales incentiveprogram is approved and communicated. Examples of these costs include: dealerand consumer rebates, dealer floorplan financing assistance and other incentiveand promotion programs. Adverse market conditions resulting in lower thanexpected retail sales or the matching of competitor programs could causeaccrued marketing and incentive costs to materially increase if the Companyauthorizes and communicates new programs to its dealers. The Company estimatesmarketing and sales incentive costs based on expected usage and historicalexperience. The related marketing and sales incentive costs accrual as of March 31,2009 and 2008 was $6.2 million and $9.6 million, respectively, and included inaccrued marketing in the Company’s balance sheet. The decrease in this accrualwas a result of current announced and communicated marketing and salesincentive programs and retail market conditions.  Historically, marketing and sales incentiveprogram expenses have been within our expectations.  To the extent current experience differs withprevious estimates the accrued liability for marketing and sales incentives isadjusted accordingly.

 

**Product Warranties**

 

The Company generally provides a limited warranty tothe owner of snowmobiles for 12 months from the date of consumer registrationand for 6 months on ATVs. The Company provides for estimated warranty costs atthe time of sale based on historical rates and trends and makes subsequentadjustments to their estimate as actual claims become known or the amounts aredeterminable. Adverse changes in actual warranty costs compared to the Company’sinitial estimates could cause accrued warranty costs to materially change. Theaccrued warranty costs as of March 31, 2009 and 2008 was $15.7 million and$16.5 million, respectively. Historically, actual warranty costs have been within our expectations.

 

**Inventories**

 

Ourinventories are recorded at the lower of cost or market, with cost based on afirst-in, first-out basis.  Weperiodically assess inventories for obsolescence and potential excess.  This assessment is based primarily onassumptions and estimates regarding future production demands, anticipatedchanges in technology or design, historical and expected future salespatterns.  Our inventories consist ofmaterials and products that are subject to changes in our planned production offuture snowmobile and ATV products and competitive market conditions which maycause lower of cost or market adjustments to our finished goods inventory.  If market conditions or future demand areless favorable than our current expectations, additional inventory write downsor reserves may be required, which could have an adverse effect on our reportedresults in the period the adjustments are made. Inventory items that are identified as obsolete or excess are fullyreserved on our balance sheet and are generally scrapped.  Historically, inventory obsolescence andpotential excess costs adjustments have been within our expectations.

 

**ProductLiability and Litigation**

 

TheCompany is subject to product liability claims and other litigation in thenormal course of business. The Company insures for product liability claimsalthough it retains a modest self insured retention accrual within the balancesheet caption Insurance. The estimated costs resulting from any losses overinsured amounts are charged to operating expenses when it is probable a losshas been incurred and the amount of the loss is reasonably determinable.

 

The Company utilizes historicaltrends and other analysis to assist in determining the appropriate loss.Adverse changes in the final determination of product liability or other claimsmade against the Company could have a material impact on the Company’sfinancial condition.  Historically,actual product liability and litigation costs have been within ourexpectations.

 

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## **Stock-BasedCompensation**

## ** **

The Company recognizes stock based compensation basedon certain assumption inputs within the Black-Scholes Model. These assumptioninputs are used to determine an estimated fair value of stock based paymentawards on the date of grant and require subjective judgment. The Companyaccounts for stock based payment awards in accordance with Statement ofFinancial Accounting Standard No. 123(R), *Share BasedPayments*(SFAS 123(R)). Because employee stock options havecharacteristics significantly different from those of traded options, andbecause changes in the input assumptions can materially affect the fair valueestimate, the existing models may not provide a reliable single measure of thefair value of the employee stock options. Management assesses the assumptionsand methodologies used to calculate estimated fair value of stock-basedcompensation on a regular basis. Circumstances may change and additional datamay become available over time, which could result in changes to theseassumptions and methodologies and thereby materially impact our fair valuedetermination. If factors change and the Company employs different assumptionsin the application of SFAS 123(R) the amount of compensation expenseassociated with SFAS 123(R) may differ significantly from what wasrecorded in the current period.

 

## **Liquidity andCapital Resources**

## ** **

The seasonality of theCompany’s snowmobile production cycle and the lead time between thecommencement of snowmobile and ATV production in the early spring andcommencement of shipments late in the first quarter have resulted insignificant fluctuations in the Company’s working capital requirements duringthe year.   The following tablerepresents revenue and ending inventories by each of the quarters in the yearsended March 31, 2009 and 2008.

 
| ** **  | ** ** | **First**  | ** ** | **Second** | ** ** | **Third**  | ** ** | **Fourth** | ** ** | **Total**  | ** ** |
|-------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **2009**    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ATV         |       | $          | 53,774     |       | $          | 71,646     |       | $          | 57,752     |       | $          | 64,137 |   | $ | 247,309 |   |
| Snowmobile  |       | 21,416     |       | 98,379     |       | 90,865     |       | (3,380     | )          | 207,280    |       |
| PG&A    |       | 18,687     |       | 34,289     |       | 26,082     |       | 29,966     |       | 109,024    |       |
| Total Sales |       | $          | 93,877     |       | $          | 204,314    |       | $          | 174,699    |       | $          | 90,723 |   | $ | 563,613 |   |
| ** **  |       |       |       |       |       |       |       |       |       |       |       |
| Inventories |       | $          | 156,152    |       | $          | 172,320    |       | $          | 150,397    |       | $          | 120,804 |   |   |   |
| ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **2008**    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ATV         |       | $          | 59,716     |       | $          | 77,547     |       | $          | 70,109     |       | $          | 142,924 |   | $ | 350,296 |   |
| Snowmobile  |       | 11,888     |       | 97,034     |       | 60,016     |       | (7,064     | )          | 161,874    |       |
| PG&A    |       | 16,258     |       | 30,629     |       | 29,470     |       | 33,041     |       | 109,398    |       |
| Total Sales |       | $          | 87,862     |       | $          | 205,210    |       | $          | 159,595    |       | $          | 168,901 |   | $ | 621,568 |   |
|        |       |       |       |       |       |       |       |       |       |       |       |
| Inventories |       | $          | 149,533    |       | $          | 175,799    |       | $          | 162,332    |       | $          | 126,981 |   |   |   |

 

As a result of the Company’s significant reduction inproduction due to weaker than expected wholesale and retail demand for ATVunits, the Company’s finished goods inventory balance decreased as of March 31,2009 compared with March 31, 2008. Fiscal year end 2009 ATV unit inventory are all considered saleable andare expected to sell at a gross profit in the subsequent fiscal year althoughcontinued or further declines in the ATV retail environment may requireadditional marketing and sales incentive campaigns that could negatively impactour gross margins.  Historically, theCompany has financed its working capital requirements out of available cashbalances at the beginning and end of the production cycle and with short-termbank borrowings during the middle of the cycle. The Company believes currentavailable cash and cash generated from operations together with working capitalfinancing through its available line of credit, as it is expected to beamended, will provide sufficient funds to finance the Company on a short andlong-term basis.  However, given theturmoil in the economy and banking sector, there can be no assurance thatadequate working capital financing arrangements will remain available or thatthe costs and other terms of such new financing arrangements will not besignificantly less favorable to the Company than has historically beenavailable.

 

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## **Cash andShort-Term Investments**

## ** **

Cash and short-term investments decreased to$11,413,000 at March 31, 2009 from $35,063,000 at March 31, 2008because of the fiscal 2009 net loss and decreased accounts payable. The Company’scash balances traditionally peak early in the fourth quarter and then decreaseas working capital requirements increase when the Company’s snowmobile andspring ATV production cycles begin. The Company’s investment objectives arefirst, safety of principal and second, rate of return.

 

## **FinancingArrangements and Cash Flows**

## ** **

The Company operated in fiscal 2009 under a$75,000,000 secured bank credit agreement for the documentary and stand-byletters of credit and for working capital purposes. Total working capitalborrowings under the credit agreement were limited to $60,000,000 in November andDecember and $40,000,000 during the last three months of the fiscal yearin line with the Company’s bank line needs. This line of credit was extended in the amount of $30,000,000 to June 30,2009, at which time, the Company believes the line of credit will be renewed atacceptable terms and conditions.  Thetotal letters of credit issued at March 31, 2009 were $8,370,000, of which$7,339,000 was issued to Suzuki for engine and service parts purchases.  This line of credit was extended in theamount of $30,000,000 to June 30, 2009 and currently the Company isnegotiating an extension for the remainder of the fiscal year at acceptableborrowing limits.

 

The Company hasagreements with Textron Financial Corporation (TFC) to provide snowmobile andATV floor plan financing for the Company’s North American dealers. Theseagreements improve the Company’s liquidity by financing dealer purchases ofproducts without requiring substantial use of the Company’s working capital.The Company is paid by the floorplan companies shortly after shipment and aspart of its marketing programs the Company pays the floorplan financing of itsdealers for certain set time periods depending on the size of a dealer’sorder.  The Company’s agreements with TFCto floorplan its U.S. dealers terminates January 20, 2010 and its Canadianagreement terminates April 30, 2012. On December 22, 2008, Textron announced plans to exit thenon-captive dealer floorplan business. While the Company anticipates securing another dealer floorplan sourcefor its dealers at acceptable terms and conditions before the termination ofits agreements with TFC, there can be no assurance that an alternative sourcewill be secured before termination of its agreements with TFC or that the costsand other terms of such new financing source will not be significantly lessfavorable to the Company than has historically been available.

 

The financing agreementsrequire repurchase of repossessed new and unused units and set limits upon theCompany’s potential liability for annual repurchases. The aggregate potentialliability was approximately $38,509,000 at March 31, 2009. The Company hasincurred no material losses under these agreements. The Company believescurrent available cash and cash generated from operations provide sufficientfunding in the event there is a requirement to perform under this guarantee andrepurchase agreement.

 

In 2009, the Companyinvested $14,226,000 in capital expenditures. The Company expects that capitalexpenditures will increase to approximately $15,000,000 in fiscal 2010. Since1996, the Company has repurchased over 11 million shares of common stock. Thereis approximately $10,000,000 remaining on the January 2008 repurchaseauthorization. The Company believes that cash generated from operations andavailable cash will be sufficient to meet its working capital, and capitalexpenditure requirements on a short and long-term basis.

 

## **ContractualObligations**

## ** **

The following table summarizes the Company’s significant futurecontractual obligations at March 31, 2009 (in millions):

 
| ** **                     | ** ** | **Payment Due by Period** | ** ** |
|--------------------------------|------------|---------------------------|------------|
| ** **                     | ** ** | ** **                | ** ** | **Less  than** | ** ** | **More  than** | ** ** |
| **Contractual Obligations**    | ** ** | **Total**                 | ** ** | **1 Year** | ** ** | **1-3 years** | ** ** | **3-5 Years** | ** ** | **5 years** | ** ** |
| ** **                     | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating Lease  Obligations   |       | $                         |  1.0  |   | $ |  0.1 |   | $ |  0.5 |   | $ |  0.4 |   | — |   |
|                           |       |                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchase  Obligations(1)       |       | 64.0                      |       | 64.0 |   | — |   | — |   | — |   |
| Total  Contractual Obligations |       | $                         | 65.0       |   | $ | 64.1 |   | $ |  0.5 |   | $ |  0.4 |   | — |   |

 

----

(1)    The Company hasoutstanding purchase obligations with suppliers and vendors   at March 31, 2009 for raw materials andother supplies as part of the normal course of business.

 

## **Forward-LookingStatements**

## ** **

The Private Securities Litigation Reform Act of 1995provides a safe harbor for certain forward-looking statements. This AnnualReport on Form 10-K, as well as the Company’s annual report toshareholders and future filings with the Securities and Exchange Commission,the Company’s press releases and oral statements made with the approval of anauthorized executive officer, contain forward-looking statements that reflectthe Company’s current views with respect to future events and financialperformance. These forward-looking statements are subject to certain risks anduncertainties that could cause actual results to differ materially fromhistorical results or those anticipated. The words “aim,” “believe,” “expect,” “anticipate,”“intend,” “estimate” and other expressions that indicate future events andtrends identify forward-looking statements. Actual future results and trendsmay differ materially from historical results or those anticipated depending ona variety of factors, including, but not limited to the risk factors describedin Item 1A of this annual report. The Company does not undertake any obligationto publicly update or revise any forward-looking statement, whether as a resultof new information, future events or otherwise.

 

21

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# **ITEM 7A.**          QUANTITATIVE ANDQUALITATIVE  DISCLOSURES ABOUT MARKETRISK

# ** **

**Inflation,Foreign Exchange Rates and Interest Rates**

 

Inflation historically, has not significantly impactedon the Company’s business. The Company generally has been able to offset theimpact of increasing costs through a combination of productivity gains andproduct sales price increases.

 

During fiscal 2009,approximately 10% of the Company’s cost of sales was purchased from Japaneseyen denominated suppliers. The majority of these purchases were made fromSuzuki, who supplies engines for the Company’s snowmobiles and ATVs. TheCompany has an agreement with Suzuki for snowmobile engine purchases to sharethe impact of fluctuations in the exchange rate between the U.S. dollar and theJapanese yen above and below a fixed range contained in the agreement. Thisagreement renews annually. During fiscal 2009, the exchange rate fluctuationbetween the U.S. dollar and the Japanese yen had a modest negative impact onthe Company’s operating results.

 

Sales to Canadiandealers are made in Canadian dollars with the U.S. dollar serving as thefunctional currency. During fiscal 2009, sales to Canadian dealers comprised32.0% of total net sales. During fiscal 2009, the exchange rate fluctuationbetween the U.S. dollar and the Canadian dollar had a modest negative impact onoperating profits. During 2009, the Company did not utilize cash flow hedges tomitigate the variability in Canadian exchange rate changes relating to Canadiandollar fund transfers to the United States. At March 31, 2009 there wereno Canadian dollar forward exchange contracts outstanding.

 

Sales to Europeanon-road ATV dealers and distributors are made in Euros with the Euro serving asthe functional currency. During fiscal 2009, sales to European on-road ATVdealers comprised 5.6% of total net sales. During fiscal 2009, the exchangerate fluctuation between the U.S. dollar and the Euro had no significant impacton operating profits. During 2009, the Company did not utilize any hedges to mitigatethe variability in the Euro exchange rate and at March 31, 2009, therewere no foreign exchange contracts outstanding for the Euro.

 

Interest rate marketrisk is managed for cash and short-term investments by investing in adiversified frequently maturing portfolio consisting of municipal bonds andmoney market funds that experience minimal volatility. The carrying amount ofavailable-for-sale debt securities approximate related fair value and theassociated market risk is not deemed to be significant.

 

The Company is a partyto a secured bank line of credit arrangement under which it currently mayborrow an aggregate of up to $30 million through June 30, 2009.  An extended credit agreement is currentlybeing negotiated and the Company expects to have a satisfactory creditagreement in place for the remainder of the fiscal year.  The total letters of credit issued at March 31,2009 were $8,370,000 of which $7,339,000 was issued to Suzuki Motor Corporationfor engine and service parts purchases. Interest is charged at variable ratesbased on either LIBOR or prime. Because the interest rate risk related to theline of credit is not deemed to be significant, the Company does not activelymanage this exposure.

 

# **ITEM 8.**                   FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

# ** **

Financial Statements, Notes, and Report of IndependentRegistered Public Accounting Firm appear on pages 29 through 43. Quarterlyfinancial data appears in Item 6.

 

# **ITEM 9.**                   CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

# ** **

None.

 

# **ITEM 9A.   CONTROLS AND PROCEDURES**

# ** **

The Company’s management, including the ChiefExecutive Officer and Chief Financial Officer, has conducted an evaluation ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures pursuant to Rule 13a-15 under the 1934 Act as of March 31,2009. Based on that evaluation, the Company’s Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures are effective in ensuring that information required to be disclosedby the Company in the reports it files or submits under the 1934 Act isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.

 

There have been nosignificant changes in internal controls over financial reporting during thefiscal quarter ended March 31, 2009 that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

22

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# **Table of Contents**

 

**MANAGEMENT’S REPORT OF INTERNAL CONTROL OVERFINANCIAL REPORTING**

 

The management of Arctic Cat is responsible for establishing andmaintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) underthe Securities and Exchange Act of 1934. The Company’s internal control systemwas designed to provide reasonable assurance to the Company’s management andBoard of Directors regarding the preparation and fair presentation of publishedfinancial statements.

 

All internal controlsystems, no matter how well designed, have inherent limitations. Therefore,even those systems determined to be effective can provide only reasonableassurance with respect to financial statement preparation and presentation.

 

The Company’s managementassessed the effectiveness of the Company’s internal control over financialreporting as of March 31, 2009. In making this assessment, it used thecriteria set forth by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO) in *Internal Control —Integrated Framework*. Based on the assessment management believesthat, as of March 31, 2009, the Company’s internal control over financialreporting is effective based on those criteria.

 

The Company’s independentregistered public accounting firm has issued an audit report on theeffectiveness of the Company’s internal control over financial reporting. Thisreport appears on the following page.

 

**ITEM 9B**.**OTHER INFORMATION**

 

None.

 

23

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# **REPORT OF INDEPENDENTREGISTERED**

# **PUBLIC ACCOUNTING FIRM**

 

Board of Directors andShareholders of Arctic Cat Inc.

 

We have audited Arctic Cat Inc. and subsidiaries internalcontrol over financial reporting as of March 31, 2009, based on thecriteria established in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effectiveinternal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting.  Our responsibility is to express an opinionon the effectiveness of the Company’s internal control over financial reportingbased on our audit.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects.  Our audit includedobtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, testing and evaluating thedesign and operating effectiveness of internal control based on the assessedrisk, and performing such other procedures as we considered necessary in thecircumstances.  We believe that our auditprovides a reasonable basis for our opinion.

 

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.  A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

In our opinion, Arctic Cat Inc. and subsidiariesmaintained, in all material respects, effective internal control over financialreporting as of March 31, 2009, based on criteria established *in Internal Control-Integrated Framework issued by COSO.*

 

We also have audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theconsolidated balance sheets of Arctic Cat Inc. and subsidiaries as of March 31,2009 and March 31, 2008, and the related consolidated statements ofoperations, shareholders’ equity, and cash flows for each of the three years inthe period ended March 31, 2009 and our report dated June 12, 2009expressed an unqualified opinion on those consolidated financial statements.

 

 
| /s/ GRANT  THORNTON LLP |   |
|-------------------------|--------|
|                    |   |
|                    |   |
| Minneapolis,  Minnesota |   |
| June 12,  2009     |   |

 

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# **PART III**

 

# **ITEM10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

 

The informationincluded under the heading “Election of Director,” “Election of Director –Board Committees,” “ Election of Director – Code of Conduct” and “BeneficialOwnership of Capital Stock-Section 16(a) Beneficial OwnershipReporting Compliance” in the Company’s definitive Proxy Statement for theAnnual Meeting of Shareholders to be held August 6, 2009, is incorporatedherein by reference.

 

Pursuantto instruction 3 to Item 401(b) of Regulation S-K, information as toexecutive officers of the Company is set forth in Item 4A of this Annual Reporton Form 10-K.

 

OurBoard of Directors has adopted a code of ethics known as the “Arctic Cat Inc.Code of Business Conduct,” which applies to the Chief Executive Officer, ChiefFinancial Officer, Controller and persons performing similar functions, as wellas our other officers, directors, employees, consultants, agents andrepresentatives.  The Company believesthat the Arctic Cat Inc. Code of Business Conduct not only documents our historicgood business practices, but sets forth guidelines for ensuring that all ourpersonnel act with the highest standards of integrity.  The Arctic Cat Inc. Code of Business Conductis available on the Company’s Web site at www.arcticcat.com.  A copy of the Arctic Cat Inc. Code ofBusiness Conduct may be obtained, without charge, upon written request to:Arctic Cat Inc. P.O. Box 810, 601 Brooks Ave South, Thief River Falls, MN56707

 

Theinformation provided under the caption “Board Committees” in the ProxyStatement for the Annual Meeting of Shareholders to be held on August 6,2009, is incorporated herein by reference. There have been no material changes to the procedures by whichshareholders may recommend director nominees to the Board of Directors.

 

# **ITEM11. EXECUTIVE COMPENSATION**

 

The informationincluded under the heading “Executive Compensation and Other Information” inthe Company’s definitive Proxy Statement for the Annual Meeting of Shareholdersto be held August 6, 2009, is incorporated herein by reference.

 

# **ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

The informationincluded under the heading “Beneficial Ownership of Capital Stock” and “BeneficialOwnership of Capital Stock – Equity Compensation Plan Information” in the Company’sdefinitive Proxy Statement for the Annual Meeting of Shareholders to be held August 6,2009, is incorporated herein by reference.

 

# **ITEM 13. CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

Information withrespect to certain relationships and related transactions, appearing under theheading “Executive Compensation and Other Information-Certain Transactions”  and “Election of Director – DirectorIndependence” in the Company’s definitive Proxy Statement for the AnnualMeeting of Shareholders to be held on August 6, 2009, is incorporatedherein by reference.

 

# **ITEM 14.**PRINCIPAL ACCOUNTANT FEESAND  SERVICES

 

The informationrequired by this item is incorporated by reference to the information set forthunder the heading “Proposal 2. Ratification and Appointment of IndependentRegistered Public Accounting Firm” in the Company’s definitive Proxy Statementfor the Annual Meeting of Shareholders to be held August 6, 2009.

 

25

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**PART IV**

 

# **ITEM15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

 

## **(a) Documents filed as part of report**

 

## **1. Financial Statements.**

 

Thefollowing consolidated financial statements of the Company and its subsidiariesare filed as part of this Annual Report on Form 10-K:

 
| ** ** | ** **                                                                                                          | **Form 10-K** |
|------------|---------------------------------------------------------------------------------------------------------------------|--------------------|
| ** ** | ** **                                                                                                          | **Reference Page** |
| ** ** | ** **                                                                                                          | ** **         |
| **(i)**    | Consolidated  Balance Sheets as of March 31, 2009 and 2008                                                     | 25                 |
|       |                                                                                                                |               |
| **(ii)**   | Consolidated  Statements of Operations for the three years ended March 31, 2009, 2008  and 2007                | 26                 |
|       |                                                                                                                |               |
| **(iii)**  | Consolidated  Statements of Shareholders’ Equity for the three years ended March 31,  2009, 2008 and 2007 | 27                 |
|       |                                                                                                                |               |
| **(iv)**   | Consolidated  Statements of Cash Flows for the three years ended March 31, 2009, 2008  and 2007                | 28                 |
|       |                                                                                                                |               |
| **(v)**    | Notes to  Consolidated Financial Statements                                                                         | 29-37              |
|       |                                                                                                                |               |
| **(vi)**   | Report of  Independent Registered Public Accounting Firm                                                            | 38                 |

 

## **2. Schedules filed as part of this Annual Report on Form 10-K.**

 

The informationrequired to be disclosed within Schedule II – Valuation and Qualifying Accountsis provided within the Consolidated Financial Statements of the Company, filedas part of this Annual Report on Form 10-K.

 

## **3. Exhibits**

 
| ** ** | ** **                                                                                                                                                                                                                                                                                                                                                    | **Method of Filing** |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------|
| **3(a)**   | Amended and  Restated Articles of Incorporation of the Company                                                                                                                                                                                                                                                                                                | (3)                  |
|       |                                                                                                                                                                                                                                                                                                                                                          |                 |
| **3(b)**   | Restated By-Laws  of the Company                                                                                                                                                                                                                                                                                                                              | (1)(10)              |
|       |                                                                                                                                                                                                                                                                                                                                                          |                 |
| **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)                  |
|       |                                                                                                                                                                                                                                                                                                                                                          |                 |
| **10(a)**  | Purchase/Supply  Agreement dated as of****March 1**,**1985 between Suzuki Motor Co.,****Ltd.  and the Company, and related Agreement on Implementation of Warranty  Provision                                                                                                                                                                            | (1)                  |
|       |                                                                                                                                                                                                                                                                                                                                                          |                 |
| **10(b)**  | Form of  Employment Agreement between the Company and each of its executive officers                                                                                                                                                                                                                                                                     | (1)                  |
|       |                                                                                                                                                                                                                                                                                                                                                          |                 |
| **10(c)**  | Floorplan  Repurchase Agreement dated July 13, 1984, between the Company and ITT  Commercial Finance Corp.                                                                                                                                                                                                                                               | (1)                  |
|       |                                                                                                                                                                                                                                                                                                                                                          |                 |
| **10(d)**  | Floorplan  Repurchase Agreement dated as of June 15, 1988, between the Company and  ITT Commercial Finance, a division of ITT Industries of Canada, Ltd.                                                                                                                                                                                                 | (1)                  |
|       |                                                                                                                                                                                                                                                                                                                                                          |                 |
| **10(e)**  | Credit Agreement  dated August 29, 2008 between the Company and Wells Fargo Bank, N.A. as  amended by First Amendment to Credit Agreement dated March 31, 2009 and  Second Amendment to Credit Agreement dated June 1, 2009                                                                                                                    | (11)                 |
|       |                                                                                                                                                                                                                                                                                                                                                          |                 |
| **10(f)**  | 2002 Stock Plan                                                                                                                                                                                                                                                                                                                                               | (5)                  |
|       |                                                                                                                                                                                                                                                                                                                                                          |                 |
| **10(g)**  | Form of  Incentive Stock Option Agreement for 2002 Stock Plan                                                                                                                                                                                                                                                                                            | (7)                  |
|       |                                                                                                                                                                                                                                                                                                                                                          |                 |
| **10(h)**  | Form of  Non-Qualified Stock Option Agreement for 2002 Stock Plan                                                                                                                                                                                                                                                                                        | (7)                  |
|       |                                                                                                                                                                                                                                                                                                                                                          |                 |
| **10(i)**  | Form of  Director Non-Qualified Stock Option Agreement for 2002 Stock Plan                                                                                                                                                                                                                                                                               | (7)                  |
| ** ** |                                                                                                                                                                                                                                                                                                                                                          |                 |
| **10(j)**  | Program  Agreement, dated as of January 20, 2003, by and between Arctic Cat Sales  Inc. and Textron Financial Corporation (Confidential treatment pursuant to 17  CFR Sections 200.80(b) and 240.246-2 has been granted for certain  portions of this exhibit. Such portions have been omitted herein and have been  filed separately with the SEC) | (6)                  |

 

26

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| ** ** | ** **                                                                                                                              | **Method of Filing** |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------|----------------------|
| **10(k)**  | Repurchase  Agreement, dated as of January 20, 2003, By****and****between Arctic Cat Sales Inc. and Textron Financial  Corporation | (6)                  |
|       |                                                                                                                                    |                 |
| **10(l)**  | 2007 Omnibus  Stock and Incentive Plan                                                                                                  | (8)                  |
|       |                                                                                                                                    |                 |
| **10(m)**  | Form of  Incentive Stock Option Agreement for 2007 Omnibus Stock and Incentive Plan                                                | (8)                  |
|       |                                                                                                                                    |                 |
| **10(n)**  | Form of  Non-Qualified Stock Option Agreement for 2007 Omnibus Stock and Incentive  Plan                                           | (8)                  |
|       |                                                                                                                                    |                 |
| **10(0)**  | Form of  Director Stock Option Agreement for 2007 Omnibus Stock and incentive Plan                                                 | (9)                  |
|       |                                                                                                                                    |                 |
| **10(p)**  | Form of  Restricted Stock Agreement for 2007 Omnibus Stock and Incentive Plan                                                      | (9)                  |
|       |                                                                                                                                    |                 |
| **10(q)**  | Form of  Stock-Settled Appreciation Rights Agreement for 2007 Omnibus Stock and  Incentive Plan                                    | (9)                  |
|       |                                                                                                                                    |                 |
| **21**     | Subsidiaries of  the Registrant                                                                                                         | (2)                  |
|       |                                                                                                                                    |                 |
| **23**     | Consent of  Independent Registered Public Accounting Firm                                                                               | (2)                  |
|       |                                                                                                                                    |                 |
| **31.1**   | Section 302  Certification of Chief Executive Officer                                                                              | (2)                  |
|       |                                                                                                                                    |                 |
| **31.2**   | Section 302  Certification of Chief Financial Officer                                                                              | (2)                  |
|       |                                                                                                                                    |                 |
| **32.1**   | Certification of  Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002                               | (2)                  |
|       |                                                                                                                                    |                 |
| **32.2**   | Certification of  Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002                               | (2)                  |

 

## **(b) Exhibits**

 

Reference is madeto Item 15(a) 3.

 

**(c) Schedules**

 

Reference is made to Item 15(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                                                                                                                    |
|   |                                                                                                                                               |
| (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    |
|   |                                                                                                                                               |
| (5)    | Incorporated by reference to Exhibit 99.1 to the Company’s  Registration on Form S-8 filed with the SEC on September 6, 2002   |
|   |                                                                                                                                               |
| (6)    | Incorporated herein by reference to the Company’s Quarterly Report on  Form 10-Q for the quarter ended December 31, 2003            |
|   |                                                                                                                                               |
| (7)    | Incorporated  herein by reference to the Company’s Annual Report on Form 10-K for the  fiscal year ended March 31, 2005             |
|   |                                                                                                                                               |
| (8)    | Incorporated herein by reference to the Company’s Current Report of  Form 8-K filed August 14, 2007                                      |
|   |                                                                                                                                               |
| (9)    | Incorporated herein by reference to the Company’s Current Report of  Form 8-K filed April 7, 2008                                        |
|   |                                                                                                                                               |
| (10)   | Incorporated by reference to the Company’s Current Report on Form 8-K  filed December 19, 2007                                           |
|   |                                                                                                                                               |
| (11)   | Incorporated by reference to the Company’s Current reports on For 8-K  filed September 4, 2008, April 2, 2009 and June 4, 2009 |

 

27

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**SIGNATURE**

 

Pursuant to therequirements of Section 13 or 15 (d) of the Securities Exchange Actof 1934, the Registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized, on the 14th day of June, 2009.

 
| **ARCTIC CAT INC.**                                             |
|-----------------------------------------------------------------|
|                                                            |
|                                                            | /s/CHRISTOPHER A. TWOMEY |   |
| Christopher A. Twomey                                           |
| Chairman of the Board of Directors and Chief  Executive Officer |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Registrant and in thecapacities and on the date indicated.

 
| **Signature** | ** **                                                   | **Date** |
|---------------|--------------------------------------------------------------|----------|
|          |                                                         |     |
| /s/           | CHRISTOPHER A.  TWOMEY                                       |     | June 14,  2009 |
|          | Christopher A.  Twomey                                       |     |   |
|          | Chairman of the  Board of Directors, Chief Executive Officer |     |   |
|          | (Principal  Executive Officer)                               |     |   |
|          |                                                         |     |   |
| /s/           | TIMOTHY C.  DELMORE                                          |     | June 14,  2009 |
|          | Timothy C.  Delmore                                          |     |   |
|          | Chief Financial  Officer                                     |     |   |
|          | (Principal  Financial and Accounting Officer)                |     |   |
|          |                                                         |     |   |
| /s/           | ROBERT J.  DONDELINGER                                       |     | June 14,  2009 |
|          | Robert J.  Dondelinger, Director                             |     |   |
|          |                                                         |     |   |
|          |                                                         |     | June 14,  2009 |
|          | Masayoshi Ito,  Director                                     |     |   |
|          |                                                         |     |   |
| /s/           | SUSAN LESTER                                                 |     | June 14,  2009 |
|          | Susan Lester,  Director                                      |     |   |
|          |                                                         |     |   |
| /s/           | WILLIAM G. NESS                                              |     | June 14,  2009 |
|          | William G. Ness,  Director                                   |     |   |
|          |                                                         |     |   |
| /s/           | GREGG A.  OSTRANDER                                          |     | June 14,  2009 |
|          | Gregg A.  Ostrander, Director                                |     |   |
|          |                                                         |     |   |
| /s/           | KENNETH J.  ROERING                                          |     | June 14,  2009 |
|          | Kenneth Roering,  Lead Director                              |     |   |

 

28

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**Consolidated Balance Sheets**

 
| **Arctic Cat Inc. March 31,**                                                                                                      | ** ** | **2009**        | ** **      | **2008**        | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|-----------------|-----------------|------------|
| ** **                                                                                                                              |       |            |            |            |       |
| **ASSETS**                                                                                                                              |       |            |            |            |       |
| **Current  Assets**                                                                                                                     |       |            |            |            |       |
| **Cash  and equivalents**                                                                                                               | ** ** | **$**           | **11,244,000**  | ** **      | **$**      | **10,057,000** | ** ** |
| **Short  term investments**                                                                                                             | ** ** | **169,000**     | ** **      | **25,006,000**  | ** ** |
| **Accounts  receivable, less allowances**                                                                                               | ** ** | **38,231,000**  | ** **      | **39,666,000**  | ** ** |
| **Inventories**                                                                                                                         | ** ** | **120,804,000** | ** **      | **126,981,000** | ** ** |
| **Income  taxes receivable**                                                                                                            | ** ** | **352,000**     | ** **      | **9,546,000**   | ** ** |
| **Prepaid  expenses**                                                                                                                   | ** ** | **4,572,000**   | ** **      | **3,196,000**   | ** ** |
| **Deferred  income taxes**                                                                                                              | ** ** | **14,224,000**  | ** **      | **12,690,000**  | ** ** |
| **Total  current assets**                                                                                                               | ** ** | **189,596,000** | ** **      | **227,142,000** | ** ** |
| **Property  and equipment –At Cost**                                                                                               | ** ** | ** **      | ** **      | ** **      | ** ** |
| **Machinery,  equipment and tooling**                                                                                                   | ** ** | **180,304,000** | ** **      | **182,936,000** | ** ** |
| **Land,  building and improvements**                                                                                                    | ** ** | **28,877,000**  | ** **      | **27,857,000**  | ** ** |
| ** **                                                                                                                              | ** ** | **209,181,000** | ** **      | **210,793,000** | ** ** |
| **Less  accumulated depreciation**                                                                                                      | ** ** | **149,684,000** | ** **      | **136,310,000** | ** ** |
| ** **                                                                                                                              | ** ** | **59,497,000**  | ** **      | **74,483,000**  | ** ** |
| **Other  Assets**                                                                                                                       | ** ** | ** **      | ** **      | ** **      | ** ** |
| **Goodwill,  intangibles and other assets**                                                                                             | ** ** | **2,072,000**   | ** **      | **4,273,000**   | ** ** |
| ** **                                                                                                                              | ** ** | **$**           | **251,165,000** | ** **      | **$**      | **305,898,000** | ** ** |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                          | ** ** | ** **      | ** **      | ** **      | ** ** |
| **Current  Liabilities**                                                                                                                | ** ** | ** **      | ** **      | ** **      | ** ** |
| **Accounts  payable**                                                                                                                   | ** ** | **$**           | **44,451,000**  | ** **      | **$**      | **74,576,000** | ** ** |
| **Accrued  expenses**                                                                                                                   | ** ** | **35,621,000**  | ** **      | **39,292,000**  | ** ** |
| **Total  current liabilities**                                                                                                          | ** ** | **80,072,000**  | ** **      | **113,868,000** | ** ** |
| **Deferred  Incomes Taxes**                                                                                                             | ** ** | **6,245,000**   | ** **      | **11,168,000**  | ** ** |
| **Commitments  and Contingencies**                                                                                                      | ** ** | **—**      | ** **      | **—**      | ** ** |
| **Shareholders’  Equity**                                                                                                          | ** ** | ** **      | ** **      | ** **      | ** ** |
| **Preferred  stock, par value $1.00; 2,050,000 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, 11,987,485 in 2009; 11,833,485 in 2008** | ** ** | **120,000**     | ** **      | **118,000**     | ** ** |
| **Class B  common stock, par value $.01; 7,560,000 shares authorized, Shares issued, and  outstanding 6,102,000 in 2009 and 2008** | ** ** | **61,000**      | ** **      | **61,000**      | ** ** |
| **Additional  paid-in-capital**                                                                                                         | ** ** | **2,568,000**   | ** **      | **—**      | ** ** |
| **Accumulated  other comprehensive income (loss)**                                                                                      | ** ** | **(512,000**    | **)**           | **4,768,000**   | ** ** |
| **Retained  earnings**                                                                                                                  | ** ** | **162,611,000** | ** **      | **175,915,000** | ** ** |
| **Total  shareholders’ equity**                                                                                                    | ** ** | **164,848,000** | ** **      | **180,862,000** | ** ** |
| ** **                                                                                                                              | ** ** | **$**           | **251,165,000** | ** **      | **$**      | **305,898,000** | ** ** |

 

Theaccompanying notes are an integral part of these statements.

 

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**ConsolidatedStatements of Operations**

 
| **Arctic Cat Inc.Years ended  March 31,** | ** ** | **2009**    | ** **  | **2008**        | ** ** | **2007**        | ** ** |
|------------------------------------------------|------------|-------------|-------------|-----------------|------------|-----------------|------------|
| **Net  sales**                                 |       |        |        |            |       |            |       |
| **Snowmobile &  ATV units**           |       | $           | 454,589,000 | ** **      | **$**      | **512,170,000** | ** ** | **$** | **678,522,000** | ** ** |
| **Parts,  garments, & accessories**   |       | 109,024,000 | ** **  | **109,398,000** | ** ** | **103,909,000** | ** ** |
| **Total  net sales**                           |       | 563,613,000 | ** **  | **621,568,000** | ** ** | **782,431,000** | ** ** |
| **Cost  of goods sold**                        |       |        | ** **  | ** **      | ** ** | ** **      | ** ** |
| **Snowmobile &  ATV units**           |       | 411,776,000 | ** **  | **447,633,000** | ** ** | **578,533,000** | ** ** |
| **Parts,  garments, & accessories**   |       | 68,665,000  | ** **  | **68,395,000**  | ** ** | **66,951,000**  | ** ** |
| **Total  cost of goods sold**                  |       | 480,441,000 | ** **  | **516,028,000** | ** ** | **645,484,000** | ** ** |
| **Gross  profit**                              |       | 83,172,000  | ** **  | **105,540,000** | ** ** | **136,947,000** | ** ** |
| **Operating  expenses**                        |       |        |        |            |       |            |       |
| **Selling &  marketing**              |       | 43,971,000  | ** **  | **47,634,000**  | ** ** | **54,108,000**  | ** ** |
| **Research &  development**           |       | 18,404,000  | ** **  | **18,343,000**  | ** ** | **20,262,000**  | ** ** |
| **General &  administrative**         |       | 33,904,000  | ** **  | **48,276,000**  | ** ** | **30,644,000**  | ** ** |
| **Goodwill  impairment charge**                |       | 1,750,000   | ** **  | **—**      | ** ** | **—**      | ** ** |
| **Total  operating expenses**                  |       | 98,029,000  | ** **  | **114,253,000** | ** ** | **105,014,000** | ** ** |
| **Operating  profit (loss)**                   |       | (14,857,000 | )           | **(8,713,000**  | **)**      | **31,933,000**  | ** ** |
| **Other  income (expense)**                    |       |        |        |            |       |            |       |
| **Interest  income**                           |       | 117,000     |        | 632,000         |       | 1,139,000       |       |
| **Interest expense**                           |       | (1,015,000  | )           | (1,066,000      | )          | (1,026,000      | )          |
| **Total other income (expense)**               |       | (898,000    | )           | (434,000        | )          | 113,000         |       |
| **Earnings (loss) before incomes taxes**       |       | (15,755,000 | )           | (9,147,000      | )          | 32,046,000      |       |
| **Income tax expense (benefit)**               |       | (6,247,000  | )           | **(5,888,000**  | **)**      | **9,976,000**   | ** ** |
| **Net earnings (loss)**                        |       | $           | (9,508,000  | )               | **$**      | **(3,259,000**  | **)**      | **$** | **22,070,000** | ** ** |
| **Net earnings (loss) per share**              |       |        |        |            |       |            |       |
| **Basic**                                      |       | $           | (0.53       | )               | **$**      | **(0.18**       | **)**      | **$** | **1.16** | ** ** |
| **Diluted**                                    |       | $           | (0.53       | )               | **$**      | **(0.18**       | **)**      | **$** | **1.15** | ** ** |
| **Weighted average share outstanding**         |       |        |        |            |       |            |       |
| **Basic**                                      |       | 18,070,000  |        | 18,137,000      |       | 19,030,000      |       |
| **Diluted**                                    |       | 18,070,000  |        | 18,137,000      |       | 19,128,000      |       |

 

Theaccompanying notes are an integral part of these statements.

 

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**ConsolidatedStatement of Shareholders’ Equity**

 
| ** **                                                        | ** ** | ** **       | ** ** | ** **       | ** **  | ** **       | ** **    | ** **        | ** ** | ** **     | ** ** | **Accumulated**   | ** **    | ** **      | ** ** | ** **      | ** ** |
|-------------------------------------------------------------------|------------|------------------|------------|------------------|-------------|------------------|---------------|-------------------|------------|----------------|------------|-------------------|---------------|-----------------|------------|-----------------|------------|
| ** **                                                        | ** ** | ** **       | ** ** | ** **       | ** **  | **Class B** | ** **    | **Additional**    | ** ** | **Other**      | ** ** | ** **        | ** **    | ** **      | ** ** |
| **Arctic Cat Inc.**                                               | ** ** | **Common Stock** | ** ** | **Common Stock** | ** **  | **Paid-in**      | ** **    | **Comprehensive** | ** ** | **Retained**   | ** ** | ** **        | ** **    |
| **Years ended March 31,**                                    | ** ** | **Shares**       | ** ** | **Amount**       | ** **  | **Shares**       | ** **    | **Amount**        | ** ** | **Capital**    | ** ** | **Income (loss)** | ** **    | **Earnings**    | ** ** | **Total**       | ** ** |
| Balances at March 31, 2006                                   |       | 12,708,365       |       | $                | 127,000     |             | 6,717,000     |              | $          | 67,000         |       | $                 | 1,010,000     |            | $          | (440,000        | )          | $ | 188,601,000 |   | $ | 189,365,000 |   |
| Exercise of stock options                                         |       | 70,817           |       | 1,000            | ** **  | **—**       | ** **    | **—**        |       | 1,074,000      | ** ** | **—**        | ** **    | **—**      |       | 1,075,000       |       |
| Tax benefits from stock option exercises                          |       | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        |       | 89,000         | ** ** | **—**        | ** **    | **—**      |       | 89,000          |       |
| Repurchase of common stock                                        |       | (519,759         | )          | (5,000           | )           | (615,000         | )             | (6,000            | )          | (4,343000      | )          | **—**        |          | (15,419,000     | )          | (19,773,000     | )          |
| **Stock based compensation expense**                              | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **2,170,000**  | ** ** | **—**        | ** **    | **—**      | ** ** | **2,170,000**   |       |
| Other comprehensive income:                                       |       |             |       |             |        |             |          |              |       |           |       |              |          |            |       |            |       |
| Net earnings                                                      | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **—**     | ** ** | **—**        |          | 22,070,000      |       | 22,070,000      |       |
| Unrealized loss on securities available-for-sale, net  of tax     |       | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **—**     |       | (12,000           | )             | **—**      |       | (12,000         | )          |
| **Unrealized gain on derivative  instruments, net of tax**        | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **—**     | ** ** | **1,016,000**     | ** **    | **—**      | ** ** | **1,016,000**   | ** ** |
| Foreign currency adjustment                                       | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **—**     | ** ** | **1,553,000**     | ** **    | **—**      | ** ** | **1,553,000**   |       |
| Total other comprehensive income                                  |       |             |       |             |        |             |          |              |       |           |       |              |          |            |       | 24,627,000      |       |
| Dividends ($.28 per share)                                        | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **—**     | ** ** | **—**        |          | (5,332,000      | )          | (5,332,000      | )          |
| **Balances at March 31, 2007**                               | ** ** | **12,259,423**   | ** ** | **123,000**      | ** **  | **6,102,000**    | ** **    | **61,000**        | ** ** | **—**     | ** ** | **2,117,000**     | ** **    | **189,920,000** | ** ** | **192,221,000** |       |
| **Exercise of stock options**                                     | ** ** | **197,862**      | ** ** | **2,000**        | ** **  | **—**       | ** **    | **—**        | ** ** | **2,535,000**  | ** ** | **—**        | ** **    | **—**      | ** ** | **2,537,000**   |       |
| **Tax benefits from stock option  exercises**                     | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **475,000**    | ** ** | **—**        | ** **    | **—**      | ** ** | **475,000**     | ** ** |
| **Repurchase of common stock**                                    | ** ** | **(623,800**     | **)**      | **(7,000**       | **)**       | **—**       | ** **    | **—**        | ** ** | **(5,073,000** | **)**      | **—**        | ** **    | **(5,683,000**  | **)**      | **(10,763,000** | **)**      |
| **Stock based compensation expense**                              | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **2,063,000**  | ** ** | **—**        | ** **    | **—**      | ** ** | **2,063,000**   |       |
| **Other comprehensive loss:**                                     |       |             |       |             |        |             |          |              |       |           |       |              |          |            |       |            |       |
| **Net loss**                                                      | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **—**     | ** ** | **—**        | ** **    | **(3,259,000**  | **)**      | **(3,259,000**  | **)**      |
| **Unrealized loss on securities  available-for-sale, net of tax** | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **—**     | ** ** | **(2,000**        | **)**         | **—**      | ** ** | **(2,000**      | **)**      |
| **Unrealized loss on derivative instruments,  net of tax**        | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **—**     | ** ** | **(436,000**      | **)**         | **—**      | ** ** | **(436,000**    | **)**      |
| Foreign currency adjustment                                       | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **—**     | ** ** | **3,089,000**     | ** **    | **—**      | ** ** | **3,089,000**   |       |
| **Total other comprehensive loss**                                | ** ** |             |       |             |        |             |          |              |       |           |       |              |          |            |       | **(608,000**    | **)**      |
| **Dividends ($.28 per share)**                                    | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **—**     | ** ** | **—**        | ** **    | **(5,063,000**  | **)**      | **(5,063,000**  | **)**      |
| Balances at March 31, 2008                                   |       | 11,833,485       |       | 118,000          |        | 6,102,000        |          | 61,000            |       | —         |       | 4,768,000         |          | 175,915,000     |       | 180,862,000     |       |
| Restricted stock awards                                           |       | 163,500          |       | 2,000            |        |             |          |              |       | (2,000         | )          |              |          |            |       | —          |       |
| **Restricted stock forfeited**                                    | ** ** | **(9,500**       | **)**      | **—**       | ** **  | **—**       | ** **    | —            |       | **—**     | ** ** | —            |          | —          |       | **—**      |       |
| **Stock based compensation expense**                              | ** ** | —           | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **2,570,000**  | ** ** | —            |          | **—**      |       | 2,570,000       |       |
| Other comprehensive loss:                                         |       |             |       |             |        |             |          |              |       |           |       |              |          |            |       |            |       |
| Net loss                                                          | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **—**     | ** ** | **—**        |          | (9,508,000      | )          | (9,508,000      | )          |
| Unrealized loss on derivative instruments, net of tax             |       | —           |       | —           |        | —           |          | —            |       | —         |       | (133,000          | )             | —          |       | (133,000        | )          |
| Foreign currency adjustment                                       | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **—**     | ** ** | **(5,147,000**    | **)**         | **—**      | ** ** | **(5,147,000**  | **)**      |
| Total other comprehensive loss                                    |       |             |       |             |        |             |          |              |       |           |       |              |          |            |       | (14,788,000     | )          |
| Dividends ($.21 per share)                                        | ** ** | **—**       | ** ** | **—**       | ** **  | **—**       | ** **    | **—**        | ** ** | **—**     | ** ** | —            |          | **(3,796,000**  | **)**      | (3,796,000      | )          |
| **Balances at March 31,  2009**                              | ** ** | **11,987,485**   | ** ** | **$**            | **120,000** | ** **       | **6,102,000** | ** **        | **$**      | **61,000**     | ** ** | **$**             | **2,568,000** | ** **      | **$**      | **(512,000**    | **)**      | **$** | **162,611,000** | ** ** | **$** | **164,848,000** |   |

 

Theaccompanying notes are an integral part of these statements.

 

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**ConsolidatedStatements of Cash Flows**

 
| **Arctic Cat Inc.  Years ended March 31,**                                                      | ** ** | **2009**         | ** **     | **2008**         | ** **     | **2007**         | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------|----------------|------------------|----------------|------------------|------------|
| **Cash  flows from operating activities**                                                                 |       |             |           |             |           |             |       |
| **Net  earnings (loss)**                                                                                  | ** ** | **$**            | **(9,508,000** | **)**            | **$**          | **(3,259,000**   | **)**      | **$** | ** 22,070,000** | ** ** |
| **Adjustments  to reconcile net earnings (loss) to net cash provided by (used in) operating  activities** | ** ** | ** **       | ** **     |             |           |             |       |
| **Depreciation  and amortization**                                                                        | ** ** | **28,981,000**   | ** **     | **29,737,000**   | ** **     | **26,269,000**   | ** ** |
| **Loss on the disposal of assets**                                                                        | ** ** | **252,000**      | ** **     | 49,000           |           | 366,000          |       |
| **Impairment of goodwill**                                                                                | ** ** | **1,750,000**    | ** **     | —           |           | —           |       |
| **Deferred  income taxes**                                                                                | ** ** | **(6,379,000**   | **)**          | **1,809,000**    | ** **     | **(6,322,000**   | **)**      |
| **Stock based compensation expense**                                                                      | ** ** | **2,571,000**    | ** **     | 2,063,000        |           | 2,170,000        |       |
| **Changes  in operating assets and liabilities**                                                          | ** ** | ** **       | ** **     |             |           |             |       |
| **Trading  securities**                                                                                   | ** ** | **24,837,000**   | ** **     | **13,701,000**   | ** **     | **(11,262,000**  | **)**      |
| **Accounts  receivable, less allowances**                                                                 | ** ** | **(437,000**     | **)**          | **1,663,000**    | ** **     | **3,543,000**    | ** ** |
| **Inventories**                                                                                           | ** ** | **2,798,000**    | ** **     | **(25,770,000**  | **)**          | **(4,974,000**   | **)**      |
| **Prepaid expenses**                                                                                      | ** ** | **(1,247,000**   | **)**          | **343,000**      | ** **     | **2,000,000**    | ** ** |
| **Accounts payable**                                                                                      | ** ** | **(29,615,000**  | **)**          | **8,461,000**    | ** **     | **(5,844,000**   | **)**      |
| **Accrued expenses**                                                                                      | ** ** | **(3,392,000**   | **)**          | **(14,474,000**  | **)**          | **9,640,000**    | ** ** |
| **Income taxes**                                                                                          | ** ** | **8,980,000**    | ** **     | **(17,791,000**  | **)**          | **7,230,000**    | ** ** |
| **Net  cash provided by (used in) operating activities**                                                  | ** ** | **19,591,000**   | ** **     | **(3,468,000**   | **)**          | **44,886,000**   | ** ** |
| **Cash  flows from investing activities**                                                                 | ** ** | ** **       | ** **     | ** **       | ** **     | ** **       | ** ** |
| **Purchase  of property and equipment**                                                                   | ** ** | **(14,226,000**  | **)**          | **(15,466,000**  | **)**          | **(25,729,000**  | **)**      |
| **Proceeds from the sale of assets**                                                                      | ** ** | **—**       | ** **     | 773,000          | ** **     | **—**       | ** ** |
| **Purchase of other assets**                                                                              | ** ** | **—**       | ** **     | **—**       |           | (682,000         | )          |
| **Sale  and maturity of available-for-sale securities**                                                   | ** ** | **—**       | ** **     | **350,000**      |           | 2,001,000        |       |
| **Net  cash used in investing activities**                                                                | ** ** | **(14,226,000**  | **)**          | **(14,343,000**  | **)**          | **(24,410,000**  | **)**      |
| **Cash  flows from financing activities**                                                                 | ** ** | ** **       | ** **     | ** **       | ** **     | ** **       | ** ** |
| **Checks  written in excess of bank balance**                                                             | ** ** | **—**       | ** **     | **5,347,000**    | ** **     | **—**       | ** ** |
| **Proceeds  from short-term borrowings**                                                                  | ** ** | **227,230,000**  | ** **     | **201,875,000**  | ** **     | **120,776,000**  | ** ** |
| **Payments  on short-term borrowings**                                                                    | ** ** | **(227,230,000** | **)**          | **(201,875,000** | **)**          | **(120,776,000** | **)**      |
| **Proceeds  from issuance of common stock**                                                               | ** ** | **—**       | ** **     | **2,537,000**    | ** **     | **1,075,000**    | ** ** |
| **Tax  benefit from stock option exercises**                                                              | ** ** | **—**       | ** **     | **475,000**      | ** **     | **89,000**       | ** ** |
| **Repurchase  of common stock**                                                                           | ** ** | **—**       | ** **     | **(10,763,000**  | **)**          | **(19,773,000**  | **)**      |
| **Dividends  paid**                                                                                       | ** ** | **(3,796,000**   | **)**          | **(5,063,000**   | **)**          | **(5,332,000**   | **)**      |
| **Net  cash used in financing activities**                                                                | ** ** | **(3,796,000**   | **)**          | **(7,467,000**   | **)**          | **(23,941,000**  | **)**      |
| **Effect of exchange rate changes on cash and cash  equivalents**                                         | ** ** | **(382,000**     | **)**          | (882,000         | )              | (393,000         | )          |
| **Net  increase (decrease) in cash and equivalents**                                                      | ** ** | **1,187,000**    | ** **     | **(26,160,000**  | **)**          | **(3,858,000**   | **)**      |
| **Cash  and equivalents at beginning of year**                                                            | ** ** | **10,057,000**   | ** **     | **36,217,000**   | ** **     | **40,075,000**   | ** ** |
| **Cash  and equivalents at end of year**                                                                  | ** ** | **11,244,000**   | ** **     | **$**            | **10,057,000** | ** **       | **$**      | ** 36,217,000** | ** ** |
| **Supplemental  disclosure of cash payments for:**                                                        | ** ** | ** **       | ** **     | ** **       | ** **     | ** **       | ** ** |
| **Income  taxes**                                                                                         | ** ** | **$**            | **409,000**    | ** **       | **$**          | **9,628,000**    | ** ** | **$** | **8,983,000** | ** ** |
| **Interest**                                                                                              | ** ** | **$**            | **987,000**    | ** **       | $              | 1,066,000        |       | $ | 1,026,000 |   |

 

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Supplementaldisclosure of non-cash investing and financing activities:

 

Asof March 31, 2009 and 2008, the unrealized gain on derivative instruments,net of tax was $0 and $133,000.

 

Theaccompanying notes are an integral part of these statements.

 

**Notes to Consolidated FinancialStatements**

**Arctic Cat Inc**.March 31, 2009, 2008 and 2007

 

**A  SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

 

Arctic Cat Inc.(the “Company”) operates in a single industry segment and designs, engineers,manufactures and markets snowmobiles and all-terrain vehicles (ATVs) under theArctic Cat® brand name, and related parts, garments andaccessories principally through its facilities in Thief River Falls, Minnesota.The Company’s products are sold through a network of independent dealerslocated throughout the United States, Canada, and Europe and throughdistributors in Europe, the Middle East, Asia and other international markets.

 

## **Use of Estimates**

 

Preparation of theCompany’s consolidated financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect reported amounts ofassets and liabilities, related revenues and expenses and disclosure aboutcontingent assets and liabilities at the date of the financial statements.Actual results could differ from the estimates used by management.

 

## **Principles of Consolidation**

 

The consolidatedfinancial statements include the accounts of Arctic Cat Inc. and itswholly-owned subsidiaries. All significant intercompany accounts andtransactions have been eliminated in consolidation.

 

**Cash and Equivalents**

 

The Companyconsiders highly liquid temporary investments with an original maturity ofthree months or less when purchased or variable rate demand notes with putoptions exercisable in three months or less to be cash equivalents. Cash andequivalents consist primarily of commercial paper and put bonds. As of March 31,2009 and 2008, the Company had approximately $5,173,000 and $10,000,000 of cashlocated in foreign banks primarily in Europe and Canada. The Company’s cashmanagement policy provides for bank disbursement accounts to be reimbursed on adaily basis. Checks issued but not presented to the banks for payment areincluded in cash and equivalents as a reduction of other cash balances. Checkswritten in excess of bank balance at March 31, 2009 and 2008 in the amountof $0 and $5,347,000 were classified as accounts payables.

 

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## **Fair Values of Financial Instruments**

 

Except wherenoted, the carrying value of current financial assets and liabilitiesapproximates their fair value, due to their short-term nature.

 

## **Short-Term Investments**

 

Short-terminvestments are reported at fair value and include trading securities, withunrealized gains and losses included in net earnings, and available-for-salesecurities, with unrealized gains and losses reported as a separate componentof shareholders’ equity. The Company utilizes the specific identificationmethod in accounting for its short-term investments.

 

## **Accounts Receivable**

 

The Company’saccounts receivable balance consists of amounts due from its dealers andcertain finance companies. The Company extends credit to its dealers based onan evaluation of the dealers’ financial condition. The Company’s collectionexposure relating to accounts receivable amounts due from certain dealerfinance companies is limited due to the financial strength of the financecompanies and provisions of its existing agreements. Accounts receivable ispresented net of an allowance for estimated uncollectible amounts due from itsdealers. The Company estimates the uncollectible amounts considering numerousfactors, mainly historical trends as well as current available information. TheCompany’s allowance for uncollectible accounts was $1,443,000, $952,000 and$815,000 at March 31, 2009, 2008 and 2007. The activity within theallowance for uncollectible accounts for the three years ending March 31,2009 was not significant.  Accountsreceivable amounts written off have been within management’s expectations.

 

## **Inventories**

 

Inventories arestated at the lower of cost or market, with cost determined using the first-in,first-out method.

 

## **Derivative Instruments and Hedging Activities**

 

The Company entersinto forward exchange contracts to hedge the variability in foreign exchangerates related to purchase commitments denominated in Japanese yen for ATVengines and transfers of Canadian dollar funds to the United States of America.The contracts are designated as, and meet the criteria for, cash flow hedges.The Company does not enter into forward contracts for the purpose of trading.Gains and losses on forward contracts are recorded in accumulated othercomprehensive income (loss), net of tax, and subsequently reclassified within12 months into cost of goods sold upon the sale of ATV units or into operatingexpense upon completing transfers of Canadian dollar funds.

 

There were no open Canadian dollarforward exchange contracts at March 31, 2009.  As of March 31, 2008, the Company hadopen Canadian dollar forward exchange contracts maturing April 2008, withnotional amounts totaling $30,599,000 and fair value assets and liabilities,netted in accounts receivable of $211,000 at March 31, 2008. The relatedamount reported within other comprehensive income (loss), net of tax was$133,000. There were no open Japanese yen forward exchange contracts at March 31,2009 and 2008.

 

## **Property and Equipment**

 

Depreciation isprovided in amounts sufficient to relate the cost of depreciable assets tooperations over their estimated service lives, using the units of productionmethod for tooling and the straight-line method for all other property andequipment. Repairs and maintenance cost that are considered not to extend theuseful life of the property and equipment are expensed as incurred. Tooling isamortized over the life of the product, generally three years. Estimatedservice lives range from 15 – 20 years for buildings and improvements and 5 – 7years for machinery and equipment. Accelerated and straight-line methods areused for income tax reporting.

 

## **Impairment of Long-Lived Assets**

 

The Company evaluates thecarrying value of long-lived assets for impairment when events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable.  If impairment indicatorsare present and the estimated future undiscounted cash flows are less than thecarrying value of the assets, the carrying value is reduced to the estimatedfair value as measured by the associated discounted cash flows.  Due to lower sales and a net loss for twelvemonths ended March 31, 2009 and the current economic environment, theCompany performed a SFAS 144 impairment test. Based on the undiscounted cash flows analysis, the Company determinedthe carrying value of long-lived assets was not impaired.

 

## **Goodwill and Intangibles**

 

In accordance with SFAS No. 142,*Goodwill and Other Intangible Assets*,the Company tests goodwill and intangibles assets with indefinite lives forimpairment on an annual basis or upon the occurrence of events that mayindicate possible impairment.  Goodwillimpairment testing under SFAS No. 142 is a two-step process.  First it requires a comparison of thecarrying value of net assets to the fair value of the related operations thathave goodwill assigned to them.  TheCompany estimates the fair values of the related operations using discountedcash flows.  If the fair value isdetermined to be less than the carrying value, a potential impairment isindicated and SFAS No. 142 prescribes the approach for determining theimpairment amount, if any.  SFAS No. 142requires that goodwill be tested as of the same date every year.  The Company’s annual testing date is the lastday of its fourth fiscal quarter.  Inconjunction with the Company’s fiscal 2009 annual goodwill impairment 

 

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testing, lower commonstock market price and financial results, the Company determined goodwill wasimpaired by $1,750,000.  The non-cashgoodwill impairment charge was recognized in the fourth quarter of fiscal 2009.

 

The Company performed theanalysis as of March 31, 2008 which indicated that no goodwill impairmentexisted.

 

Thechanges in the carrying amount of goodwill and other intangibles included ingoodwill, intangibles and other assets for the year ended March 31, 2009and 2008 are as follows:

 
| ** **                 | ** ** | **2009**   | ** ** | **2008** | ** ** |
|----------------------------|------------|------------|------------|----------|------------|
| Balance at April 1,   |       | $          | 3,109,000  |     | $          | 3,324,000 |   |
| Current year amortization  |       | (215,000   | )          | (215,000 | )          |
| Goodwill impairment charge |       | (1,750,000 | )          | —   |       |
| Balance at March 31,  |       | $          | 1,144,000  |     | $          | 3,109,000 |   |

 

As required by SFAS No. 142,intangibles with finite lives will continue to be amortized. Included in otherintangible assets are customer relationships, a homologation license, and anon-compete agreement. Intangible assets before accumulated amortization were$1,950,000 at March 31, 2009 and 2008. Accumulated amortization was$806,000 and $591,000 at March 31, 2009 and 2008. Amortization expense isexpected to be approximately $215,000 in fiscal 2010, $147,000 in fiscal 2011,$94,000 in fiscal 2012, and $83,000 in fiscal 2013 and 2014. The net value ofother intangible assets is included as a component of goodwill and otherintangibles in the accompanying consolidated balance sheets.

 

## **Product Warranties**

 

The Company generallyprovides a limited warranty to the owner of snowmobiles for twelve months fromthe date of consumer registration and for six months on ATVs. The Companyprovides for estimated warranty costs at the time of sale based on historicalrates and trends and makes subsequent adjustments to its estimate as actualclaims become known or the amounts are determinable. The following representschanges in the Company’s accrued warranty liability for the fiscal years ended March 31,

 
| ** **                | ** ** | **2009**       | ** **     | **2008**   | ** ** | **2007**   | ** ** |
|---------------------------|------------|----------------|----------------|------------|------------|------------|------------|
| Balance at April 1,  | ** ** | **$**          | **16,494,000** |       | $          | 17,974,000 |       | $ | 14,203,000 |   |
| Warranty Provision        | ** ** | **11,500,000** |           | 12,282,000 |       | 17,374,000 |       |
| Warranty Claim Payments   | ** ** | **12,292,000** |           | 13,762,000 |       | 13,603,000 |       |
| Balance at March 31, | ** ** | **$**          | **15,702,000** |       | $          | 16,494,000 |       | $ | 17,974,000 |   |

 

## **Insurance**

 

The Company isself-insured for employee medical, workers’ compensation, and product liabilityclaims. Specific stop loss coverages are provided for catastrophic claims.Losses and claims are charged to operations when it is probable a loss has beenincurred and the amount can be reasonably estimated.

 

## **Revenue Recognition**

## ** **

The Companyrecognizes revenue and provides for estimated marketing and sales incentivecosts when products are shipped to dealers and distributors pursuant to theirorder, the price is fixed and collection is reasonably assured.  Shipping and handling costs are recorded as acomponent of costs of goods sold at the time product is shipped.

 

## **Marketing and Sales Incentive Costs**

 

At the timeproduct revenue is recognized the Company provides for various marketing andsales incentive costs which are offered to its dealers and consumers. Examplesof these costs, which are recognized as a reduction of revenue when theproducts are sold, include: dealer and consumer rebates, dealer floor planfinancing assistance and other incentive and promotion programs. Generally, theCompany records costs related to these marketing programs at the later of whenthe revenue is recognized or when the sales incentive or marketing program isapproved and communicated for products previously shipped. Sales incentivesthat involve a free product or service delivered to the consumer are recordedas a component of cost of goods sold. The Company estimates the costs of thesevarious incentive and marketing programs at the time of sale or subsequentlywhen programs are approved and communicated based on historical experience. Tothe extent current experience differs with previous estimates the accruedliability for marketing and sales incentives is adjusted accordingly.

 

## **Dealer Holdback**

 

## **TheCompany records a dealer holdback program liability at the time certainproducts are shipped to its dealers. If the products subject to the holdbackprogram are sold within the program time period, the Company refunds a portionof the original sale price, referred to as dealer holdback, to the dealer. TheCompany’s dealer holdback program liability, included within the accountspayable, as of March 31, 2009, 2008 and 2007 was $14,310,000, $17,493,000,and $19,998,000. The increases and decreases from March 31, 2007 to 2009were principally related to the period of coverage under the program and thetiming of payments.**

 

## **Research and Development**

 

Research anddevelopment costs are expensed as incurred and are reported as a component ofselling, general and administrative expenses. Research and development expensewas $18,404,000, $18,343,000 and $20,262,000 during 2009, 2008 and 2007.

 

## **Advertising**

 

The Company expenses advertising costs as incurred, except forcooperative advertising obligations arising related to the sale of the Company’sproducts to its dealers. The estimated cost of cooperative advertising, whichthe dealer is required to support, is recorded as 

 

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marketing expenseat the time the product is sold. Cooperative advertising was $3,836,000,$5,004,000, and $6,841,000, in 2009, 2008 and 2007. Total advertising expense,including cooperative advertising, was $21,974,000, $24,072,000, and$23,671,000, in 2009, 2008 and 2007.

 

## **Stock Based Compensation**

 

AtMarch 31, 2009, the Company had stock based compensation plans, allpreviously approved by the shareholders. Stock options granted under theseplans generally vest ratably over one to three years of service, have acontractual life of five to ten years and provide for accelerated vesting ifthere is a change in control, as defined in the plans. At March 31, 2009,the Company had approximately 734,286 shares available for future grant underits stock option plans.

 

OnApril 1, 2006, the Company adopted SFAS No. 123(R), Share BasedPayments (SFAS 123(R)), which requires the fair value of all share basedpayment transactions, including stock options, be recognized in the incomestatement as an operating expense, based on their fair value over the requisiteservice period. The Company has elected the modified prospective transitionmethod in applying SFAS 123(R). Accordingly, periods prior to adoption have notbeen restated. Under this transition method, the Company applies the provisionsof SFAS 123(R) to new awards modified, repurchased, or cancelled after April 1,2006. Additionally, the Company recognizes compensation cost for the portion ofawards for which the requisite service has not been rendered (unvested awards)that are outstanding as of April 1, 2006, as the remaining service isrendered. The compensation cost recorded for these awards will be based ontheir grant-date fair value as calculated for the pro forma disclosuresrequired by SFAS 123(R). At March 31, 2009, the Company had $1,755,000 ofunrecognized compensation costs related to non-vested stock options that areexpected to be recognized over a weighted average period of approximately twoyears.

 

Forthe fiscal years ended March 31, 2009, 2008 and 2007, the Company recordedcompensation expense of $2,570,000, $2,063,000 and $2,170,000 related to theadoption of SFAS 123(R), which has been included in selling, general andadministrative expenses. The Company’s total stock based compensation relatedexpense reduced both basic and diluted earnings per share by $0.09, $0.07 and$0.08 for the fiscal years ended March 31, 2009, 2008 and 2007.

 

Priorto adopting SFAS 123(R), the Company accounted for these plans under therecognition and measurement principles of APB Opinion No. 25, Accountingfor Stock Issued to Employees, and related Interpretations. No stock basedemployee compensation cost was reflected in net earnings, as all options grantedunder those plans had an exercise price equal to the market value of theunderlying common stock on the date of the grant.

 

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Additionally,prior to adopting SFAS 123(R), the Company presented all tax benefits resultingfrom the exercise of stock options as operating cash flows in the consolidatedStatement of Cash Flows. SFAS 123(R) requires that cash flows from theexercise of stock options resulting from tax benefits in excess of recognizedcumulative compensation cost (excess tax benefits) be classified as financingcash flow. For the fiscal years ended March 31, 2009, 2008 and 2007, thetotal income tax benefit from the exercise of stock options classified asfinancing cash flows was $0, $475,000 and $89,000.

 

The fair value of eachstock option award was estimated on the date of grant using the Black-Scholesoptions pricing model. The following assumptions were used to estimate the fairvalue of options:

 
| ** **                    | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Assumptions:**              |       |     |       |     |       |     |       |
| **Dividend yield**            | ** ** | **2.5**  | **%**      | 1.3      | %          | 1.3      | %          |
| **Average term**              |       | 5 years  |       | 5 years  |       | 5 years  |       |
| **Volatility**                | ** ** | **32**   | **%**      | 30       | %          | 30       | %          |
| **Risk-free  rate of return** | ** ** | **3.3**  | **%**      | 5.0      | %          | 5.0      | %          |

 

The weighted average fair value ofoptions granted during each of the following years ended March 31:

 
| ** **                         | ** ** | **2009** | ** ** | **2008** | ** ** | **20007** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
| **Fair  value of options granted** | ** ** | **$**    | **3.04**   |     | $          | 5.54      |       | $ | 5.70 |   |
|                                    |            |          |            |          |            |           |            |  |  |  |

 

See Note J for additional disclosuresregarding stock option plans.

 

## **Net Earnings Per Share**

 

The Company’sdiluted weighted average shares outstanding include common shares and commonshare equivalents relating to stock options, when dilutive. Options to purchase2,287,203, 1,362,617, and 942,500, shares of common stock with weighted averageexercise prices of $17.42, $20.57, and $22.37 were outstanding during 2009,2008 and 2007, but were excluded from the computation of common shareequivalents because they were anti-dilutive.

 

Weighted average shares outstandingconsist of the following for the years ended March 31,

 
| ** **                                           | ** ** | **2009**       | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|------------------------------------------------------|------------|----------------|------------|------------|------------|------------|------------|
| Weighted average numberof common shares  outstanding | ** ** | **18,070,000** |       | 18,137,000 |       | 19,030,000 |       |
| Dilutive effect of option  plan                      | ** ** | **—**     |       | —     |       | 98,000     |       |
| Common and potential shares  outstanding-diluted     | ** ** | **18,070,000** |       | 18,137,000 |       | 19,128,000 |       |

 

## **Foreign Currency Translation**

 

The Company’ssales and marketing activities with Canadian dealers are denominated inCanadian currency with the U.S. dollar serving as the functional currency. TheCompany’s sales and marketing activities with European on-road ATV dealers anddistributors are denominated in the Euro with the Euro serving as thefunctional currency. Assets and liabilities denominated in Canadian currencyand the Euro are translated using the exchange rates in effect at the balancesheet date. Revenues and expenses are translated at the average foreignexchange rates in effect for the period. Exchange gains and losses relating tothe Canadian currency and Euro currency are reflected in the results ofoperations and as a component of other comprehensive income.

 

## **Comprehensive Income (Loss)**

 

Comprehensiveincome (loss) represents net earnings (loss) adjusted for the unrealized gainor loss on derivative instruments, debt securities classified asavailable-for-sale and foreign currency translation adjustments and is shown inthe consolidated financial statements of stockholders’ equity.

 

## **Accounting Policy and Disclosure Changes**

 

In February 2007, the FinancialAccounting Standards Board (FASB) issued SFAS No. 159, *The Fair Value Option for Financial Assets and Financial Liabilities*(SFAS No. 159). SFAS No. 159 permits entities to measure mostfinancial instruments at fair value if desired. It may be applied on a contractby contract basis and is irrevocable once applied to those contracts. TheStandard may be applied at the time of adoption for existing eligible items, orat initial recognition of eligible items. After election of this option,changes in fair value are reported in earnings. The items measured at fairvalue must be shown separately on the balance sheet. The effective date is thebeginning of fiscal year 2009.  Theadoption of SFAS No. 159 did not have a material impact on our financialcondition or results of operations, and no adjustment was made to beginningretained earnings for the cumulative effect of adoption.

 

In March 2008, the FASB issued SFAS No. 161,*Disclosures about Derivative Instruments andHedging Activities* (SFAS No. 161”), which will requireincreased disclosures about an entity’s strategies and objectives for usingderivative instruments; the location and amounts of derivative instruments inan entity’s financial statements; how derivative instruments and related hedgeditems are accounted for under SFAS No. 133, Accounting for DerivativeInstruments and Hedging Activities; and how derivative instruments and relatedhedged items affect its financial position, financial performance, and cashflows. Certain disclosures will also be required with respect to derivativefeatures that are credit-risk related. SFAS No. 161 was effective for theCompany beginning January 1, 2009 on a prospective basis. The adoption ofSFAS No. 161 did not have a material impact on its consolidated results ofoperations or financial condition.

 

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In September 2006, the U.S.Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 108(SAB 108), *Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements*.SAB 108 eliminates the diversity of practice regarding how public companiesquantify financial statement misstatements. It establishes an approach thatrequires quantification of financial statement misstatements based on theeffects of the misstatements on each of the company’s financial statements andrelated financial statement disclosures. SAB 108 must be applied to annualfinancial statements for their first fiscal year ending after November 15,2006. The adoption of SAB 108 did not have a material impact on our financialcondition or results of operations.

 

In September 2006,FASB issued SFAS No. 157, *Fair Value Measurement*(SFAS 157). This standard clarifies the principle that fair value should bebased on the assumptions that market participants would use when pricing anasset or liability. Additionally, it establishes a fair value hierarchy thatprioritizes the information used to develop those assumptions. SFAS 157 iseffective for financial statements issued for the fiscal years beginning after November 15,2007. We have not yet determined the impact that the implementation of SFAS 157will have on our results of operations or financial condition.

 

In July 2006, the FASB issuedInterpretation No. 48, “Accounting for Uncertainty in Income Taxes (FIN48), which clarifies the accounting for uncertainty in income taxes recognizedin a company’s financial statements in accordance with FASB Statement No. 109,*Accounting for Income Taxes*. FIN 48describes when an uncertain tax item should be recorded in the financialstatements and for how much, provides guidance on recording interest andpenalties and accounting and reporting for income taxes in interim periods. FIN48 was adopted by the Company as of April 1, 2007. The adoption of FIN 48did not have a material impact on the Company’s financial position or resultsof operations.

 

**Reclassification**

 

Certain 2008 and 2007 amounts have been reclassifiedto conform with the 2009 fiscal statement presentation.  The reclassification had no effect onpreviously reported operating results.

 

**B  SHORT-TERM INVESTMENTS**

 

Trading securities consists of $169,000,and $25,006,000 invested in various money market funds at March 31, 2009and 2008, respectively, while the remainder of trading securities consistsprimarily of “A” rated or higher municipal bond investments. At March 31,2009 and 2008, no available-for-sale debt securities were being held.

 

**C  INVENTORIES**

 

Inventories consistof the following at March 31:

 
| ** **                           | ** ** | **2009** | ** **      | **2008**   | ** **     |
|--------------------------------------|------------|----------|-----------------|------------|----------------|
| **Raw materials and sub-assemblies** | ** ** | **$**    | **29,421,000**  | ** ** | **$**          | **30,264,000** | ** ** |
| **Finished goods**                   | ** ** | **$**    | **59,048,000**  | ** ** | **67,731,000** | ** ** |
| **Parts, garments and accessories**  | ** ** | **$**    | **32,335,000**  | ** ** | **28,986,000** | ** ** |
| ** **                           | ** ** | **$**    | **120,804,000** |       | **$**          | **126,981,000** |   |

 

**D  ACCRUED EXPENSES**

 

Accrued expensesconsist of the following at March 31:

 
| ** **       | ** ** | **2009** | ** **     | **2008**   | ** **     |
|------------------|------------|----------|----------------|------------|----------------|
| **Marketing**    | ** ** | **$**    | **6,171,000**  | ** ** | **$**          | **9,555,000** | ** ** |
| **Compensation** | ** ** | **$**    | **4,191,000**  | ** ** | **4,344,000**  | ** ** |
| **Warranties**   | ** ** | **$**    | **15,702,000** | ** ** | **16,494,000** | ** ** |
| **Insurance**    | ** ** | **$**    | **7,084,000**  | ** ** | **6,765,000**  | ** ** |
| **Other**        | ** ** | **$**    | **2,473,000**  | ** ** | **2,134,000**  | ** ** |
| ** **       | ** ** | **$**    | **35,621,000** |       | **$**          | **39,292,000** |   |

 

**E  FINANCING**

 

The Companyoperated in fiscal 2009 under a $75,000,000 secured bank agreement for thedocumentary and stand-by letters of credit and for working capitalpurposes.  Total working capital borrowingsunder the agreement were limited to $60,000,000 in November and December and$40,000,000 during the last three months of the fiscal year.  Borrowings under the line of credit bearinterest at one of the following rates selected by the Company.  The floating rate which is the sum of 0.75%and the greater of the bank’s base rate or the federal funds rate plus 0.50% orthe LIBOR rate set by the administrative agent for the line of credit.  As of March 31, 2009 the effective ratewas 5.75%.  All borrowings arecollateralized by accounts receivable and inventories.  No borrowings from the line of credit wereoutstanding at March 31, 2009 and 2008. The outstanding letters of credit balances were $8,370,000 and$7,367,000 at March 31, 2009 and 2008, respectively and borrowings underthe line are subject to certain covenants and restrictions on indebtedness,financial guarantees, business combinations and other related items.  The Company was in compliance with the creditagreement as of March 31, 2009.  Theissued letters of credit outstanding, as of March 31, 2009 and 2008,included $7,339,000 and $5,746,000, respectively, issued to Suzuki MotorCorporation (Suzuki) for 

 

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engine and serviceparts purchases (see Note G). Outstanding letters of credit will be repaid overthe following six months in accordance with the credit agreement and any suchrenewal.

 

**F  RETIREMENT SAVINGS PLAN**

 

The Company’s 401(k) retirementsavings plan covers substantially all eligible employees. Employees maycontribute up to 50% of their compensation with the Company matching 100% ofthe employee contributions, up to a maximum of 3% of the employee’scompensation. The Company match was suspended as of April 1, 2009.  The Company can elect to make additionalcontributions at its discretion. Total Company matching contributions were$1,269,000, $1,451,000 and $1,513,000 and in 2009, 2008 and 2007. There were nodiscretionary contributions made during 2009, 2008 and 2007.

 

**G  RELATED PARTY TRANSACTIONS**

 

The Companypurchases engines and service parts from Suzuki, owner of the Company’s Class Bcommon stock. Such purchases totaled $46,047,000, $73,689,000, and $113,975,000in 2009, 2008 and 2007. The purchase price of the engines and service parts isdetermined annually. The Company has an agreement with Suzuki for snowmobileengine purchases to share the impact of fluctuations in the exchange rate betweenthe U.S. dollar and the Japanese yen above and below a fixed range contained inthe agreement. This agreement renews annually. The Company is dependent onSuzuki for the near term supply of most of its engines and related serviceparts. An interruption of this supply could have a material adverse effect onthe Company’s operations. Certain raw materials and services are purchased fromvendors in which certain of the Company’s directors are officers or significantshareholders. In 2009, 2008 and 2007, these transactions aggregated $1,328,000,$148,000, and $127,000.

 

**H  INCOME TAXES**

 

Income tax expense(benefit) consists of the following for the years ended March 31:

 
| ** **   | ** ** | **2009**       | ** **     | **2008**  | ** ** | **2007**   | ** ** |
|--------------|------------|----------------|----------------|-----------|------------|------------|------------|
| **Current**  | ** ** | ** **     |           |      |       |       |       |
| **Federal**  | ** ** | **$**          | **11,000**     |      | $          | (6,950,000 | )          | $ | 15,025,000 |   |
| **State**    | ** ** | **40,000**     |           | (446,000  | )          | 1,826,000  |       |
| **Foreign**  | ** ** | **81,000**     |           | (301,000  | )          | (553,000   | )          |
| **Deferred** | ** ** | **(6,379,000** | **)**          | 1,809,000 |       | (6,322,000 | )          |
| ** **   | ** ** | **$**          | **(6,247,000** | **)**     | $          | (5,888,000 | )          | $ | 9,976,000 |   |

 

The following is a reconciliation of theFederal statutory income tax rate to the effective tax rate for the years endedMarch 31:

 
| ** **                      | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------|------------|------------|------------|----------|------------|----------|------------|
| **Statutory income tax rate**   | ** ** | **(35.0**  | **)%**     | (35.0    | )%         | 35.0     | %          |
| **State taxes**                 | ** ** | **(2.8**   | **)**      | (2.4     | )          | 2.7      |       |
| **Tax exempt interest**         | ** ** | **—** |       | (0.6     | )          | (0.4     | )          |
| **Research tax credit**         | ** ** | **(3.7**   | **)**      | (12.4    | )          | (1.6     | )          |
| **Foreign sales corporation**   | ** ** | **(3.2**   | **)**      | (4.6     | )          | (3.5     | )          |
| **FIN 48 reserves**             | ** ** | **(1.6**   | **)**      | (3.8     | )          | —   |       |
| **Goodwill impairment charge**  | ** ** | **4.0**    |       | —   |       | —   |       |
| **Other permanent differences** | ** ** | **2.6**    |       | (5.6     | )          | (1.1     | )          |
| ** **                      | ** ** | **(39.7**  | **)%**     | (64.4    | )%         | 31.1     | %          |

 

The cumulative temporary differencesbetween the tax bases of assets and liabilities and their carrying amounts forfinancial reporting purposes under the liability methods are as follows at March 31:

 
| ** **                                     | ** ** | **2009**       | ** **     | **2008**   | ** ** |
|------------------------------------------------|------------|----------------|----------------|------------|------------|
| **Current deferred income tax  assets**        | ** ** | ** **     |           |       |       |
| **Accrued expenses**                           | ** ** | **$**          | **6,798,000**  |       | $          | 5,972,000 |   |
| **Accrued warranty**                           | ** ** | **5,635,000**  |           | 5,888,000  |       |
| **Inventory related items**                    | ** ** | **2,172,000**  |           | 2,117,000  |       |
| **Other**                                      | ** ** | **1,808,000**  |           | 352,000    |       |
| **Current deferred income tax  liability**     | ** ** | ** **     |           |       |       |
| **Prepaid expenses**                           | ** ** | **(1,580,000** | **)**          | (1,116,000 | )          |
| **Other**                                      | ** ** | **(609,000**   | **)**          | (523,000   | )          |
| **Net current deferred tax asset**             | ** ** | **$**          | **14,224,000** |       | $          | 12,690,000 |   |
| **Non-current deferred income tax  liability** | ** ** | ** **     |           |       |       |
| **Property and equipment**                     | ** ** | **$**          | **6,245,000**  |       | $          | 11,168,000 |   |
| **Non-current deferred tax  liability**        | ** ** | **$**          | **6,245,000**  |       | $          | 11,168,000 |   |

 

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As required byFASB Interpretation 48, Accounting for Uncertainty in Income Taxes, the Companyrecognizes the financial statement benefit of a tax position only afterdetermining that the relevant tax authority would more likely than not sustainthe position following an audit.  For tax positions meeting themore-likely-than-not threshold, the amount recognized in the financialstatements is the largest benefit that has a greater than 50 percent likelihoodof being realized upon ultimate settlement with the relevant taxauthority.  The Company had liabilities recorded related to unrecognizedtax benefits totaling $4,159,000, and $4,164,000 at March 31, 2009 and2008. At March 31, 2007 the liability was classified as income taxespayable. The March 31, 2009 and 2008 liability was classified as an offsetto income taxes receivable in the accompanying condensed consolidated balancesheets in accordance with FIN 48. The Company recognizes potential interest andpenalties related to income tax positions as a component of the provision forincome taxes on the consolidated statements of operations. The Company hadreserves related to potential interest and penalties of $855,000, and $718,000and recorded as a component of the liability at March 31, 2009 and 2008.The entire amount of the liability at March 31, 2009, if recognized, wouldaffect the Company’s effective tax rate. The Company currently anticipatesapproximately $800,000 of unrecognized tax benefits will be recognized duringthe next twelve months. With few exceptions, the Company is no longer subjectto federal, state, or foreign income tax examinations for years prior to 2005.A reconciliation of the beginning and ending amount of unrecognized taxbenefits is as follows:

 
| ** **                                       | ** ** | **2009**  | ** ** | **2008** | ** ** |
|--------------------------------------------------|------------|-----------|------------|----------|------------|
| Balance  at April 1                         |       | 4,164,000 |       | $        | 4,510,000  |   |
| Increases  related to prior year tax positions   |       | 210,000   |       | 317,000  |       |
| Decreases  related to prior year tax positions   |       | (460,000  | )          | (182,000 | )          |
| Increases  related to current year tax positions |       | 245,000   |       | 359,000  |       |
| Settlements                                      |       | —    |       | (840,000 | )          |
| Balance  at March 31                        |       | $         | 4,159,000  |     | $          | 4,164,000 |   |
|                                                  |            |           |            |          |            |  |  |

 

The company issubject to income taxes in the U.S. federal jurisdiction, and various statejurisdictions, as well as foreign taxes in Austria. Tax regulations within eachjurisdiction are subject to the interpretation of the relevant tax laws andregulations and require significant judgment to apply.

 

**I  COMMITMENTS AND CONTINGENCIES**

 

## **Dealer Financing**

 

Finance companiesprovide certain of the Company’s dealers with floor plan financing. The Companyhas agreements with these finance companies to repurchase certain repossessedproducts sold to its dealers. At March 31, 2009, the Company wascontingently liable under these agreements for a maximum repurchase amount ofapproximately $38,509,000.  The Company’sfinancial exposure under these agreements is limited to the difference betweenthe amount paid to the finance companies for repurchases and the amountreceived upon the resale of the repossessed product. Losses incurred underthese agreements during the periods presented have not been material.

 

## **Litigation**

 

The Company issubject to legal proceedings and claims which arise in the ordinary course ofbusiness. Accidents involving personal injury and property damage occur in theuse of snowmobiles and ATVs. Claims have been made against the Company fromtime to time. It is the Company’s policy to vigorously defend against theseactions. The Company is not involved in any legal proceedings which it believeswill have the potential for a materially adverse impact on the Company’sbusiness or financial condition, results of operations or cash flows.

 

## **Leases**

 

The Company leasesbuildings and equipment under non-cancelable operating leases. Total rentexpense under all lease agreements was $1,406,000, $924,000 and $1,404,000 forfiscal 2009, 2008, and 2007. Future minimum payments, exclusive of other costsrequired under non-cancelable operating leases at March 31, 2009 areapproximately $165,000 in each of the fiscal years 2010 through 2016.

 

**J  SHAREHOLDERS’ EQUITY**

 

## **Stock Option Plans**

 

The Company hasstock option plans that provide for incentive and non-qualified stock optionsto be granted to directors, officers and other key employees. The stock optionsgranted generally have a five to ten year life, vest over a period of one tothree years, and have an exercise price equal to the fair market value of thestock on the date of grant. At March 31, 2009, the Company had 734,286shares of common stock available for grant under the plans.

 

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Transactions under the plans during each of the three years in theperiod ended March 31, are summarized as follows:

 
| ** **                              | ** ** | **Number of********Shares under********option** | ** ** | **Weighted  average exercise  price** | ** ** |
|-----------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------|------------|
| Outstanding at March 31, 2006      |       | 1,568,349                                       |       | 19.30                                 |       |
| Granted                                 |       | 306,000                                         |       | 17.81                                 |       |
| Cancelled                               |       | (137,500                                        | )          | 22.70                                 |       |
| Exercised                               |       | (70,817                                         | )          | 15.18                                 |       |
| Outstanding at March 31, 2007      |       | 1,666,032                                       |       | 18.92                                 |       |
| Granted                                 |       | 408,620                                         |       | 17.43                                 |       |
| Cancelled                               |       | (14,655                                         | )          | 18.31                                 |       |
| Exercised                               |       | (197,862                                        | )          | 12.82                                 |       |
| Outstanding at March 31, 2008      |       | 1,862,135                                       |       | 19.25                                 |       |
| Granted                                 |       | 603,094                                         |       | $                                     | 9.30       |   |
| Cancelled                               |       | —                                          |       | —                                |       |
| Exercised                               |       | —                                          |       | —                                |       |
| **Outstanding at March 31,  2009** | ** ** | **2,465,229**                                   | ** ** | **$**                                 | **16.82**  | ** ** |

 

**Optionsexercisable at March 31 are as follows:**

 
| ** ** | ** ** | **Number  of**   | ** ** | **Weighted**        | ** ** |
|------------|------------|------------------|------------|---------------------|------------|
| ** ** | ** ** | **shares under** | ** ** | **average**         | ** ** |
| ** ** | ** ** | **option**       | ** ** | **exercise  price** | ** ** |
| 2007       |       | 1,155,038        |       | $                   | 18.26      |   |
| 2008       |       | 1,225,342        |       | $                   | 19.82      |   |
| **2009**   | ** ** | **1,580,302**    | ** ** | **$**               | **19.19**  | ** ** |

 

The following tables summarize information concerning currentlyoutstanding and exercisable stock options at March 31, 2008:

 

**OptionsOutstanding**
| **Range of  Exercise Prices**  | ** ** | **Number  Outstanding** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|--------------------------------|------------|-------------------------|------------|----------------------------------------------------|------------|----------------------------------------|------------|
| $ 6.11  -  7.53 |       | 97,197                  |       | 3.96 years                                         |       | $                                      |  7.44 |   |
| 9.38  -  13.37       |       | 657,754                 |       | 8.03 years                                         |       | 10.00                                  |       |
| 15.33  -  21.96      |       | 1,471,278               |       | 5.94 years                                         |       | 18.73                                  |       |
| 25.45  -  28.00      |       | 239,000                 |       | 4.93 years                                         |       | 27.59                                  |       |
|                           |       | 2,465,229               |       | 6.32 years                                         |       | $                                      | 16.82      |   |

 

**OptionsExercisable**

 
| ** **                            | ** ** | ** **      | ** ** | **Weighted** | ** ** |
|---------------------------------------|------------|-----------------|------------|--------------|------------|
| ** **                            | ** ** | ** **      | ** ** | **Average**  | ** ** |
| **Range of**                     | ** ** | **Number**      | ** ** | **Exercise** | ** ** |
| **Exercise Prices**              | ** ** | **Exercisable** | ** ** | **Price**    | ** ** |
| $ 6.11  –   7.53  |       | 5,907           |       | $            | 6.11       |   |
| $ 9.38  –   13.37 |       | 191,421         |       | 10.51        |       |
| 15.33  –  21.96        |       | 1,143,974       |       | 18.96        |       |
| 25.45  –   28.00       |       | 239,000         |       | 27.59        |       |
|                                  |       | 1,580,302       |       | $            | 19.19      |   |

 

## **Class BCommon Stock**

## ** **

Suzuki owns alloutstanding shares of the Company’s Class B common stock. At the option ofSuzuki, the Class B common stock is convertible into an equal number ofshares of the Company’s common stock. The Class B shareholder is entitledto elect one member of the Company’s Board of Directors but cannot vote for theelection of other directors of the Company. The Class B shareholder canvote on all other matters submitted to the common shareholders. The Class Bcommon stock participates equally with the common stock in all dividends andother distributions duly declared by the Company’s Board of Directors. The Class Bcommon 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 Bcommon shares; the Company becomes a non-surviving party due to a merger orrecapitalization; the Company sells substantially all of its assets; or Suzukitransfers its Class B common stock to any person.

 

In addition, the Companyhas a Stock Purchase Agreement with Suzuki that prohibits the purchase ofadditional shares of the Company’s common stock unless, following suchpurchase, Suzuki’s ownership is less than or equal to 32% of the aggregateoutstanding shares of common and Class B common stock. The Company has thefirst right of refusal to purchase any shares Suzuki intends to sell. Suzukihas agreed not to compete in the manufacture of snowmobiles or related parts solong as it supplies engines to the Company or owns at least 10% of theaggregate common and Class B common shares outstanding.

 

## **Preferred Stock**

## ** **

The Company’s Board ofDirectors is authorized to issue 2,050,000 shares of $1.00 par value preferredstock in one or more series. The board can determine voting, conversion,dividend and redemption rights and other preferences of each series. No shareshave been issued.

 

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## **Shareholders’Rights Plan**

## ** **

In connection with theadoption of a Shareholders’ Rights Plan, the Company created a Series BJunior Participating preferred stock. Under terms of the Company’s ShareholderRights Plan, upon the occurrence of certain events, registered holders ofcommon stock and Class B common stock are entitled to purchase one-hundredthof a share of Series B Junior Participating preferred stock at a statedprice, or to purchase either the Company’s common shares or common shares of anacquiring entity at half their market value. The Rights related to this planexpire September 17, 2011.

 

## **Share RepurchaseAuthorization**

## ** **

The Company invested $0,$10,763,000, and $19,773,000 during 2009, 2008 and 2007 to repurchase andcancel 0, 623,800, and 1,134,800 shares of common stock, pursuant to Board ofDirectors’ authorizations. Included in the 2007 repurchases are 615,000 sharesof Class B stock from Suzuki, repurchased for $10,781,000 or $17.53 pershare.  At March 31, 2009,authorization to repurchase $10,000,000 or approximately 2,611,000, sharesremain outstanding.

 

# **K  SEGMENT REPORTING**

# ** **

Sales to foreigncustomers, located primarily in Canada and Europe, amounted to $271,318,000,$248,601,000 and $228,008,000 in 2009, 2008 and 2007. The Company hasidentifiable long-lived assets of approximately $2,540,000 and 2,751,000located in Canada and Europe at March 31, 2009 and 2008.

 

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**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

Board of Directors andShareholders of Arctic Cat Inc.

 

   We have audited the accompanyingconsolidated balance sheets of Arctic Cat Inc. and subsidiaries as of March 31,2009 and 2008, and the related consolidated statements of operations,shareholders’ equity and cash flows for each of the three years in the periodended March 31, 2009.  Theseconsolidated financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits.

 

   We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whether theconsolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the consolidated financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

   In our opinion, the consolidated financialstatements referred to above present fairly, in all material respects, theconsolidated financial position of Arctic Cat Inc. and subsidiaries as of March 31,2009 and 2008 and the consolidated results of their operations and theirconsolidated cash flows for each of the three years in the period ended March 31,2009 in conformity with accounting principles generally accepted in the UnitedStates of America.

 

   As discussed in Note A to the consolidatedfinancial statements, the Company adopted Financial Accounting Standards BoardInterpretation No. 48; *Accounting for Uncertaintyin Income Taxes*, effective April 1, 2007.

 

   We also have audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), ofArctic Cat Inc.’s internal control over financial reporting as of March 31,2009, based on criteria established in *Internal Control —Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO), and our report dated June 12,2009 expressed an unqualified opinion on the effectiveness of Arctic Cat Inc.and subsidiaries internal control over financial reporting.

 

 

/s/ GRANT THORNTON LLP

 

 

Minneapolis, Minnesota

June 12, 2009

 

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**Arctic Cat Inc. Exhibit Index**

 
| **EXHIBIT NUMBER** | ** **                                                                                                                                                                                                                                                                                                                                                       | **METHOD  OF FILING** |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|
| **3(a)**           | Amended and Restated  Articles of Incorporation Of the Company                                                                                                                                                                                                                                                                                                   |                  | (3) |
| **3(b)**           | Restated By-Laws of the  Company                                                                                                                                                                                                                                                                                                                                 |                  | (1)(10) |
| **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) |
| **10(a)**          | Purchase/Supply  Agreement dated as of****March 1**,**1985 between Suzuki Motor Co.,****Ltd.  And the Company, and related Agreement on Implementation of Warranty  Provision                                                                                                                                                                               |                  | (1) |
| **10(b)**          | Form of Employment  Agreement between the Company and each of its executive officers                                                                                                                                                                                                                                                                        |                  | (1) |
| **10(c)**          | Floorplan Repurchase  Agreement dated July 13, 1984, between the Company and ITT Commercial  Finance Corp.                                                                                                                                                                                                                                                  |                  | (1) |
| **10(d)**          | Floorplan Repurchase  Agreement dated as of June 15, 1988, between the Company and ITT  Commercial Finance, a division of ITT Industries of Canada, Ltd.                                                                                                                                                                                                    |                  | (1) |
| **10(e)**          | Credit Agreement dated  August 29, 2009 between The Company and  Wells Fargo Bank N.A. as amended by First Amendment to Credit Agreement dated  March 31, 2009 and Second Amendment to Credit Agreement dated  June 1, 2009                                                                                                                       |                  | (11) |
| **10(f)**          | 2002 Stock Plan                                                                                                                                                                                                                                                                                                                                                  |                  | (5) |
| **10(g)**          | Form of Incentive  Stock Option Agreement for 2002 Stock Plan                                                                                                                                                                                                                                                                                               |                  | (7) |
| **10(h)**          | Form of  Non-Qualified Stock Option Agreement for 2002 Stock Plan                                                                                                                                                                                                                                                                                           |                  | (7) |
| **10(i)**          | Form of Director  Non-Qualified Stock Option Agreement for 2002 Stock Plan                                                                                                                                                                                                                                                                                  |                  | (7) |
| **10(j)**          | Program Agreement,  dated as of January 20, 2003, by and****between  Arctic Cat Sales Inc. and Textron Financial Corporation (Confidential  treatment pursuant to 17 CFR Sections 200.80(b) and 240.246-2 has been  granted for certain portions of this exhibit. Such portions have been omitted  herein and have been filed separately with the SEC) |                  | (6) |
| **10(k)**          | Repurchase Agreement,  dated as of January 20, 2003, By****and****between Arctic Cat Sales Inc. and Textron Financial  Corporation                                                                                                                                                                                                                          |                  | (6) |
| **10(l)**          | 2007 Omnibus  Stock and Incentive Plan                                                                                                                                                                                                                                                                                                                           |                  | (8) |
| **10(m)**          | Form of Incentive  Stock Option Agreement for 2007 Omnibus Stock and Incentive Plan                                                                                                                                                                                                                                                                         |                  | (8) |
| **10(n)**          | Form of  Non-Qualified Stock Option Agreement for 2007 Omnibus Stock and Incentive  Plan                                                                                                                                                                                                                                                                    |                  | (8) |
| **10(0)**          | Form of Director  Stock Option Agreement for 2007 Omnibus Stock and incentive Plan                                                                                                                                                                                                                                                                          |                  | (9) |
| **10(p)**          | Form of Restricted  Stock Agreement for 2007 Omnibus Stock and Incentive Plan                                                                                                                                                                                                                                                                               |                  | (9) |
| **10(q)**          | Form of  Stock-Settled Appreciation Rights Agreement for 2007 Omnibus Stock and  Incentive Plan                                                                                                                                                                                                                                                             |                  | (9) |
| **21**             | Subsidiaries of the  Registrant                                                                                                                                                                                                                                                                                                                                  |                  | (2) |
| **23**             | Consent of Independent  Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                        |                  | (2) |
| **31.1**           | Section 302  Certification of Chief Executive Officer                                                                                                                                                                                                                                                                                                       |                  | (2) |
| **31.2**           | Section 302  Certification of Chief Financial Officer                                                                                                                                                                                                                                                                                                       |                  | (2) |
| **32.1**           | Certification of Chief  Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002                                                                                                                                                                                                                                                        |                  | (2) |
| **32.2**           | Certification of  Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002                                                                                                                                                                                                                                                        |                  | (2) |

 

----

(1)   Incorporated herein by reference to the Company’s Form S-1Registration Statement (File Number 33-34984).

(2)   Filed with this Form 10-K.

(3)   Incorporated herein by reference to the Company’s Annual Report onForm 10-K for the fiscal year ended March 31, 1997.

(4)   Incorporated by reference to Exhibit 1 to the Company’sRegistration on Form 8-A filed with the SEC on September 20, 2001.

(5)   Incorporated by reference to Exhibit 99.1 to the Company’sRegistration on Form S-8 filed with the SEC on September 6, 2002.

(6)   Incorporated herein by reference to the Company’s Quarterly Reporton Form 10-Q for the quarter ended December 31, 2003.

(7)   Incorporated herein by reference to the Company’s Annual Report onForm 10-K for the fiscal year ended March 31, 2005.

(8)   Incorporated herein by reference to the Company’s Current Reportof Form 8-K filed August 14, 2007.

(9)   Incorporated herein by reference to the Company’s Current Reportof Form 8-K filed April 7, 2008.

(10) Incorporated by reference to the Company’s Current Report on Form 8-Kfiled December 19, 2007.

(11) Incorporated by reference to the Company’sCurrent Reports on Form 8-K filed September 4, 2008, April 3, 2009 and June4, 2009.

 

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