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Arctic Cat Reports Fiscal 2015 Second Quarter Results

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Arctic Cat Inc. (NASDAQ:ACAT) today reported net earnings of $15.4 million, or $1.18 per diluted share, on higher net sales of $262.5 million for the fiscal 2015 second quarter ended September 30, 2014. As previously announced, the company recorded a non-recurring charge of approximately $5.4 million pretax for ATV warranty expense that reduced 2015 second quarter earnings by $0.26 per diluted share. Excluding this charge, the company’s adjusted second-quarter earnings were $1.44 per diluted share. In the prior-year quarter, Arctic Cat reported net earnings of $23.4 million, or $1.70 per diluted share, on net sales of $238.5 million.

Commented Christopher Twomey, Arctic Cat’s chairman and chief executive officer: “Solid sales increases in the second quarter were led by double-digit gains in our snowmobile product line, as well as parts, garments and accessories. We also saw continued strong sales of our Wildcat side-by-side models and excitement around new Wildcat models introduced to our line-up late in the second quarter. Gross margins, however, were impacted by the significant volume of OEM partner snowmobile models that shipped in the quarter. Looking ahead, we remain focused on maintaining a robust pipeline of innovative new products and improving the company’s long-term operating efficiency.”

Second-Quarter Operating Review
Arctic Cat’s fiscal 2015 second-quarter net sales rose approximately 10 percent to $262.5 million, due to higher snowmobile sales to its OEM partner and Arctic Cat’s dealers, strong WildcatTM sales and double-digit sales gains in the parts, garments and accessories (PG&A) business.

Gross profit margin in the 2015 second quarter was 21.0 percent, or 23.0 percent as adjusted excluding the non-recurring warranty expense, compared to 25.9 percent in the prior-year quarter. The gross profit margin decline stemmed primarily from the timing of OEM sales, ATV warranty expense and the unfavorable Canadian currency exchange, as approximately 30 percent of Arctic Cat’s annual sales are to Canada.

Operating profit in the 2015 second quarter was $24.1 million compared to $36.3 million in the same quarter last year, chiefly due to lower gross margins, primarily as a result of the non-recurring warranty expense, and increased general and administrative expenses. The company continued to invest in research and development to ensure a strong pipeline of new products and technologies.

Arctic Cat ended the 2015 second quarter with cash and short-term investments totaling $24.0 million, and no long-term debt. During the quarter, Arctic Cat’s board of directors authorized a new share repurchase program for up to $25 million of common stock.

For the six months ended September 30, 2014, Arctic Cat’s net earnings were $19.0 million, or $1.45 per diluted share, compared to $28.8 million, or $2.10 per diluted share, in the prior-year period. Arctic Cat’s adjusted earnings totaled $1.79 per diluted share, excluding an executive severance charge of $0.08 per diluted share and a warranty expense charge of $0.26 per diluted share recorded in the fiscal 2015 first half. Year to date, the company’s net sales increased 13 percent to $406.1 million versus net sales of $359.3 million in the year-ago first six months.

Business Line Results
ATVs/Side-by-Sides – Sales of Arctic Cat’s all-terrain vehicles (ATVs) and side-by-sides totaled $69.6 million, down 4 percent compared to prior-year sales of $72.7 million. During the quarter, the company unveiled 15 new 2015 models of all-terrain vehicles (ATVs) and recreational off-highway vehicles (ROVs) at its annual ATVROV dealer meeting in mid-September.

Expanding its high-performance line of side-by-sides, Arctic Cat introduced three Wildcat Sport models on a new 60-inch wide chassis. The new chassis’ width offers consumers a mid-sized option between the original Wildcat and the recently introduced Wildcat Trail model, with its narrower 50-inch stance. In addition, Arctic Cat debuted the Wildcat Trail Limited EPS, which is an upscale version of the Wildcat Trail with its 50-inch wide chassis, and the Prowler XT side-by-side recreation model.

In addition, new 2015 model year ATVs unveiled included the all-new XR line designed for the sport utility segment and the TRV(R) 1000 XT EPS, with its two-person seating for the touring category.

Snowmobiles - Snowmobile sales in the fiscal 2015 second quarter rose to $157.8 million, up from $135.4 million in the prior-year quarter. The increased snowmobile sales were largely due to Arctic Cat’s expanded OEM partnership. Following strong retail sales and market share gains in fiscal 2014, Arctic Cat anticipates higher snowmobile sales to its dealers in the current fiscal year.

Parts, Garments & Accessories – Sales of parts, garments and accessories (PG&A) in the fiscal 2015 second quarter grew 15 percent to $35.1 million, up from $30.4 million in the prior-year quarter. The increase was driven by sales of newly developed accessories for Arctic Cat’s expanding line of Wildcat models, as well as snowmobile parts, garments and accessories.

Fiscal 2015 Full-Year Outlook
Commented Twomey: “Fiscal 2015 remains a challenging year. We are working to further reduce dealer inventory levels by lowering the company’s previously planned core ATV sales to North America dealers in the current fiscal year. Similarly, we now expect lower international sales, including sales to Russia. As a result of these factors, combined with charges recorded in the first half, we are adjusting the company’s outlook for fiscal 2015 full-year sales and earnings. Going forward, we remain focused on positioning the company for improved long-term financial performance.”

For the fiscal year ending March 31, 2015, Arctic Cat now estimates fiscal 2015 full-year sales in the range of $745 to $755 million and net earnings of $1.55 to $1.65 per diluted share. Arctic Cat’s revised outlook includes an executive severance charge of $0.08 per diluted share recorded in the first quarter, warranty expense charge of $0.26 per diluted share recorded in the second quarter, and the anticipated unfavorable Canadian currency impact up to $0.79 per diluted share for the fiscal 2015 full year. Excluding first-half charges, the company anticipates fiscal 2015 earnings in the range of $1.89 to $1.99 per diluted share, as adjusted. The new earnings guidance excludes any new CEO and CFO transition costs that could be incurred in the 2015 second half. Previously, Arctic Cat anticipated net earnings of $2.25 to $2.35 per diluted share on net sales in the range of $775 million to $786 million.

Conference Call
A conference call is scheduled for 10:30 a.m. CT (11:30 a.m. ET) today. To listen to the live call, dial 888-572-7033. The webcast may be accessed through the investor relations section of www.arcticcat.com/corporate. In addition, a telephone replay will be available through October 30, 2014, by dialing 888-203-1112, passcode 7907877.

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

Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements. The Company’s Annual Report, as well as the Report on Form 10-K, its Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission, the Company’s press releases and oral statements made with the approval of an authorized executive officer, contain forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. The words “aim,” “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that indicate future events and trends identify forward-looking statements including statements related to our fiscal 2015 outlook, business strategy, expected product introductions and demand. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to: product mix and volume; competitive pressure on sales, pricing and sales incentives; increase in material or production cost which cannot be recouped in product pricing; unexpected delays in the introduction of new products; changes in the sourcing of engines; interruption of dealer floorplan financing; warranty expenses and product recalls; foreign currency exchange rate fluctuations; product liability claims and other legal proceedings in excess of reserves or insured amounts; environmental and product safety regulatory activity; effects of the weather; general economic conditions and political changes; interest rate changes; consumer demand and confidence; and those set forth in the Company’s Annual Report on Form 10-K for the year ended March 31, 2014, under heading “Item 1A. Risk Factors.” The Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

ARCTIC CAT INC.
Financial Highlights

(000s omitted, except per share amounts)

(Unaudited)

Three Months Ended Six Months Ended
September 30, September 30,
2014 2013 2014 2013
Net Sales
Snowmobile & ATV Units $ 227,382 $ 208,076 $ 347,360 $ 306,990
Parts, Garments & Accessories 35,097 30,449 58,758 52,303
Total Net Sales 262,479 238,525 406,118 359,293
Cost of Goods Sold
Snowmobile & ATV Units 185,064 157,748 282,765 235,656
Parts, Garments & Accessories 22,334 19,103 37,471 32,803
Total Cost of Goods Sold 207,398 176,851 320,236 268,459
Gross Profit 55,081 61,674 85,882 90,834
Operating Expenses
Selling & Marketing 12,074 12,116 19,055 19,110
Research & Development 6,621 6,286 11,967 11,568
General & Administrative 12,325 7,019 25,229 15,430
Total Operating Expenses 31,020 25,421 56,251 46,108
Operating Profit 24,061 36,253 29,631 44,726
Other Income (Expense)
Interest Income 6 7 10 16
Interest Expense (209 ) (37 ) (249 ) (40 )
Total Other Expense (203 ) (30 ) (239 ) (24 )
Earnings Before Income Taxes 23,858 36,223 29,392 44,702
Income Taxes 8,469 12,858 10,434 15,869
Net Earnings $ 15,389 $ 23,365 $ 18,958 $ 28,833
Net Earnings Per Share
Basic $ 1.19 $ 1.75 $ 1.47 $ 2.17
Diluted $ 1.18 $ 1.70 $ 1.45 $ 2.10
Weighted Average Shares Outstanding:
Basic 12,922 13,379 12,909 13,297
Diluted 13,074 13,726 13,078 13,718
September 30,

Selected Balance Sheet Data:

2014 2013
Cash and Short-term Investments $ 24,022 $ 40,074
Accounts Receivable, net 106,039 105,071
Inventories 170,084 171,174
Total Assets 379,446 381,789
Short-term Bank Borrowings 0 0
Total Current Liabilities 170,143 175,361
Long-term Debt 0 0
Shareholders’ Equity 200,224 201,857
Three Months Ended Six Months Ended
September 30, September 30,

Product Line Data:

2014 2013 Change 2014 2013 Change
Snowmobiles $ 157,791 $ 135,425 17 % $ 213,943 $ 157,999 35 %
All-Terrain Vehicles 69,591 72,651 -4 % 133,417 148,991 -10 %
Parts, Garments & Accessories 35,097 30,449 15 % 58,758 52,303 12 %
Total Sales $ 262,479 $ 238,525 10 % $ 406,118 $ 359,293 13 %

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