UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended December 31, 2005

Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

Commission File Number: 0-18607

ARCTIC CAT INC.

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer ý Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No ý

At February 6, 2006, 12,648,939 shares of Common Stock and 6,717,000 shares of Class B Common Stock of the Registrant were outstanding.

Part I - FINANCIAL INFORMATION

ITEM I – FINANCIAL STATEMENTS

Arctic Cat Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	December 31,			March 31,
	2005			2005
ASSETS
CURRENT ASSETS
Cash and equivalents	$	48,300,000		$	20,765,000
Short-term investments	15,417,000			67,629,000
Accounts receivable, less allowances	47,141,000			46,472,000
Inventories	103,266,000			67,989,000
Prepaid expenses	1,235,000			3,578,000
Deferred income taxes	13,796,000			9,428,000

Total current assets	229,155,000			215,861,000

PROPERTY AND EQUIPMENT - at cost
Machinery, equipment and tooling	165,379,000			150,221,000
Land, buildings and improvements	23,312,000			22,883,000

	188,691,000			173,104,000
Less accumulated depreciation	106,686,000			97,232,000

	82,005,000			75,872,000
OTHER ASSETS
Goodwill and other intangibles	3,593,000			—

Total Other Assets	3,593,000			—

	$	314,753,000		$	291,733,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	54,751,000		$	53,202,000
Accrued expenses	46,459,000			36,181,000
Income taxes payable	10,824,000			3,409,000

Total current liabilities	112,034,000			92,792,000

DEFERRED INCOME TAXES	13,745,000			13,431,000
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, 12,655,198 at December 31, 2005; 13,378,698 at March 31, 2005	127,000			134,000
Class B common stock, par value $.01; 7,560,000 shares authorized; issued, and outstanding, 6,717,000 at December 31, 2005; and at March 31, 2005	67,000			67,000
Additional Paid in Capital	12,000			—
Accumulated other comprehensive income (loss)	(1,783,000		)	60,000
Retained earnings	190,551,000			185,249,000

	188,974,000			185,510,000

	$	314,753,000		$	291,733,000

The accompanying notes are an integral part of these condensed statements.

Arctic Cat Inc.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(unaudited)

	Three Months				Nine Months
	Ended December 31,				Ended December 31,
	2005		2004		2005		2004

Net sales	$	195,301,000	$	188,855,000	$	579,495,000	$	532,122,000

Cost of goods sold	159,229,000		151,006,000		466,061,000		422,705,000

Gross profit	36,072,000		37,849,000		113,434,000		109,417,000

Selling, general and administrative expenses	29,754,000		29,712,000		78,512,000		72,602,000

Operating Profit	6,318,000		8,137,000		34,922,000		36,815,000

Other income Interest income	553,000		380,000		869,000		783,000

Earnings before income taxes	6,871,000		8,517,000		35,791,000		37,598,000

Income tax expense	2,198,000		2,725,000		11,453,000		12,031,000

Net earnings	$	4,673,000	$	5,792,000	$	24,338,000	$	25,567,000
Net earnings per share
Basic	$	0.24	$	0.28	$	1.23	$	1.24
Diluted	$	0.24	$	0.28	$	1.22	$	1.22

Weighted average shares outstanding
Basic	19,378,000		20,413,000		19,722,000		20,649,000
Diluted	19,520,000		20,679,000		19,893,000		20,928,000

The accompanying notes are an integral part of these condensed statements.

Arctic Cat Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended December 31,
	2005			2004
Cash flows from operating activities
Net earnings	$	24,338,000		$	25,567,000
Adjustments to reconcile net earnings
To net cash provided by operating activities
Depreciation	17,680,000			15,887,000
Deferred income taxes	(2,992,000		)	(3,792,000		)
Tax benefit from stock option exercises	3,000			606,000
Other	(34,000		)	—
Changes in operating assets and liabilities, net of effects from acquired net assets:
Trading securities	51,653,000			32,446,000
Accounts receivable	3,275,000			(13,062,000		)
Inventories	(28,711,000		)	(29,846,000		)
Prepaid expenses	2,413,000			1,790,000
Accounts payable	(11,507,000		)	(3,025,000		)
Accrued expenses	9,518,000			10,069,000
Income taxes	7,209,000			12,415,000

Net cash provided by operating activities	72,845,000			49,055,000

Cash flows from investing activities
Purchase of property and equipment	(23,314,000		)	(16,476,000		)
Net assets acquired, net of cash acquired	(3,464,000		)	—
Sale and maturity of available-for-sale securities	502,000			2,902,000

Net cash used in investing activities	(26,276,000		)	(13,574,000		)

Cash flows from financing activities
Proceeds from issuance of common stock	36,000			1,234,000
Dividends paid	(4,139,000		)	(4,336,000		)
Repurchase of common stock	(14,931,000		)	(19,054,000		)

Net cash used in financing activities	(19,034,000		)	(22,156,000		)

Net increase in cash and equivalents	27,535,000			13,325,000

Cash and equivalents at the beginning of period	20,765,000			44,045,000

Cash and equivalents at the end of period	$	48,300,000		$	57,370,000

Supplemental disclosure of cash payments for income taxes	$	7,395,000		$	5,535,000

The accompanying notes are an integral part of these condensed statements.

Arctic Cat Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE A-BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Arctic Cat Inc. (the “Company”) have been prepared in accordance with Regulation S-X pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading.

In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of December 31, 2005 and the results of operations for the three and nine month periods ended December 31, 2005 and 2004 and cash flows for the nine month periods ended December 31, 2005 and 2004. Results of operations for the interim periods are not necessarily indicative of results for the full year. The condensed consolidated balance sheet as of March 31, 2005 is derived from the audited balance sheet as of that date.

Preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from those estimates.

Certain 2004 amounts have been reclassified to conform with the 2005 financial statement presentation. The reclassification had no effect on previously reported operating results.

NOTE B-STOCK BASED COMPENSATION

The Company utilizes the intrinsic value method of accounting for its employee stock-based compensation plans.

The Company’s reported net earnings and basic and diluted net earnings per share for the three and nine months ended December 31, 2005 and 2004, would have been as follows had the fair value method been used for valuing stock options granted to employees:

	Three months ended December 31,
	2005		2004
Net earnings:
As reported	$	4,673,000	$	5,792,000
Additional compensation expense, net of tax	360,000		246,000
Proforma	$	4,313,000	$	5,546,000
Net earnings per share
As reported
Basic	$	0.24	$	0.28
Diluted	0.24		0.28
Proforma
Basic	$	0.22	$	0.27
Diluted	0.22		0.27

	Nine months ended December 31,
	2005		2004
Net earnings:
As reported	$	24,338,000	$	25,567,000
Additional compensation expense, net of tax	1,262,000		831,000
Proforma	$	23,076,000	$	24,736,000
Net earnings per share
As reported
Basic	$	1.23	$	1.24
Diluted	1.22		1.22
Proforma
Basic	$	1.17	$	1.20
Diluted	1.16		1.18

NOTE C-NET EARNINGS PER SHARE

The Company’s basic net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares. The Company’s diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and common share equivalents relating to stock options, when dilutive. Options to purchase 870,500 and 263,000 shares of common stock with weighted average exercise prices of $23.40 and $27.64 were outstanding during the three months ended December 31, 2005 and 2004, and options to purchase 670,667 and 173,500 shares of common stock with weighted average exercise prices of $23.98 and $27.66 were outstanding during the nine months ended December 31, 2005 and 2004 all of which were excluded from the computation of common share equivalents because they were anti-dilutive.

Weighted average shares outstanding consist of the following:

	Three Months Ended		Nine Months Ended
	December 31,		December 31,
	2005	2004	2005	2004

Number of common shares outstanding	19,378,000	20,413,000	19,722,000	20,649,000

Dilutive effect of option plan	142,000	266,000	171,000	279,000

Common and potential common shares outstanding - diluted	19,520,000	20,679,000	19,893,000	20,928,000

NOTE D-SHORT-TERM INVESTMENTS

Short-term investments consist of the following:

	December 31,		March 31,
	2005		2005

Trading securities	$	12,780,000	$	64,433,000
Available-for-sale debt securities	2,637,000		3,196,000

	$	15,417,000	$	67,629,000

NOTE E-INVENTORIES

Inventories consist of the following:

	December 31,		March 31,
	2005		2005

Raw materials and sub-assemblies	$	27,004,000	$	17,155,000
Finished goods	45,431,000		24,149,000
Parts, garments and accessories	30,831,000		26,685,000

	$	103,266,000	$	67,989,000

NOTE F-ACCRUED EXPENSES

Accrued expenses consist of the following:

	December 31,		March 31,
	2005		2005

Marketing	$	14,004,000	$	7,567,000
Compensation	7,813,000		9,288,000
Warranties	18,047,000		12,053,000
Insurance	3,966,000		5,315,000
Other	2,629,000		1,958,000

	$	46,459,000	$	36,181,000

NOTE G-PRODUCT WARRANTIES

The Company generally provides a limited warranty to the original owner of snowmobiles for twelve months from the date of consumer registration and for six months on ATVs. The Company provides for estimated warranty costs at the time of sale based on historical rates and trends and makes subsequent adjustments to its estimate as actual claims become known or the amounts are determinable. The following represents changes in accrued warranty for the nine month periods ended December 31:

	2005			2004

Balance at beginning of period	$	12,053,000		$	10,331,000
Warranty provision	12,048,000			11,036,000
Warranty claim payments	(6,054,000		)	(6,305,000		)
Balance at end of period	$	18,047,000		$	15,062,000

NOTE H–SHAREHOLDERS’ EQUITY

Dividend Declaration

On January 24, 2006, the Company announced that it’s Board of Directors had declared a regular quarterly cash dividend of $0.07 per share, payable on or about March 1, 2006 to shareholders of record on February 14, 2006.

Share Repurchase

During the nine months ended December 31, 2005 and 2004, the Company invested $14,931,000 and $19,017,000, respectively, to repurchase and cancel 726,500 and 774,000 shares, respectively, pursuant to the Board of Directors’ authorizations. In May 2005, the Company’s Board of Director’s approved an additional $20 million repurchase program. At December 31, 2005, authorization to repurchase up to $10,538,000, or approximately 525,000 shares, remain outstanding.

Additional Paid-in-Capital

During the nine months ended December 31, 2005 and 2004 additional paid-in-capital increases of $39,000 and $1,839,000 respectively from the exercise of stock options were offset by share repurchases of $27,000 and $1,839,000.

Accumulated Other Comprehensive Income (Loss)

The components and changes in accumulated other comprehensive income(loss), net of taxes, during the following periods were as follows:

	Nine months ended December 31,
	2005			2004
Total Accumulated Other Comprehensive
Income (Loss)
Balance at beginning of period	$	60,000		$	(221,000	)
Unrealized loss on securities available-for-sale, net of tax	(36,000		)	(109,000		)
Unrealized income (loss) on derivative instruments, net of tax	(1,773,000		)	967,000
Foreign currency translation adjustment	(34,000		)	—

Balance at end of period	$	(1,783,000	)	$	637,000

Other Comprehensive Income

Other comprehensive income was as follows:

	Nine months ended December 31,
	2005			2004
Net earnings	$	24,338,000		$	25,567,000
Unrealized loss on securities available-for-sale, net of tax	(36,000		)	(109,000		)
Unrealized income (loss) on derivative instruments, net of tax	(1,773,000		)	967,000
Foreign currency translation adjustment	(34,000		)	—

Total Other Comprehensive Income	$	22,495,000		$	26,425,000

Note I–COMMITMENTS AND CONTINGENCIES

Dealer Financing

Finance companies provide certain of the Company’s dealers and distributors with floor plan financing. The Company has agreements with these finance companies to repurchase certain repossessed products sold to its dealers. At December 31, 2005 the Company’s contingent maximum repurchase obligation was approximately $36,989,000. The Company’s financial exposure under these agreements is limited to the difference between the amount paid to the finance companies for repurchases and the amount received upon the resale of the repossessed product. Losses incurred under these agreements during the periods presented have not been material.

Litigation

The Company is subject to legal proceedings and claims which arise in the ordinary course of business. Accidents involving personal injury and property damage occur in the use of snowmobiles and ATVs. Claims have been made against the Company from time to time. It is the Company’s policy to vigorously defend against these actions. The Company believes that the cases in discovery are adequately covered by reserves and product liability insurance. The Company is not involved in any legal proceedings which it believes will have the potential for a materially adverse impact on the Company’s business or financial condition, results of operations or cash flows.

Note J-ACQUISITION

In July 2005, the Company acquired a 100% interest in a European company that designs, engineers, manufactures and markets ATVs which utilize the Company’s components. The Company completed this acquisition to further expand its ATV model offerings and strengthen its European presence. The Company invested $3,464,000, net of cash acquired, to acquire a 100% interest resulting in an excess purchase price over the estimated fair value of net assets excluding other intangibles of approximately $3,700,000. The Company is in the process of completing its final evaluation of the purchase price allocation at this time.

The preliminary allocation of the acquisition costs is as follows (in thousands):

Cash	$	2,102
Accounts receivable	3,948
Inventories	6,566
Other	462
Goodwill and Other Intangibles	3,700
Total Assets acquired	16,778

Total liabilities assumed	11,212

Net assets acquired	$	5,566

Note K–NEW PRONOUNCEMENTS

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. SFAS 123(revised 2004) (SFAS 123(R)), Share Based Payment. This statement requires the compensation cost relating to share-based payment transactions to be recognized in a company’s financial statements. That cost will be measured based on the fair value of the equity or liability instruments on the date they are issued. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. The Company will be required to adopt SFAS 123(R) as of its first interim reporting period that begins after March 31, 2006 or the first quarter of fiscal year 2007. The Company has not completed its evaluation of SFAS 123(R) but expects the adoption of this new standard will have a significant impact due to the Company’s use of options as employee incentives.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs” (“SFAS 151”). The provisions of this statement become effective for the Company in fiscal 2007. SFAS 151 amends the existing guidance on the recognition of inventory costs to clarify the accounting for abnormal amounts of idle expense, freight, handling costs, and wasted material (spoilage). Existing rules indicate that under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. SFAS 151 requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal”. In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The adoption of this Statement is not expected to have a material impact on the valuation of inventory or operating results.

On October 22, 2004, Congress passed the American Jobs Creation Act of 2004 (the Act). The Act provides a deduction for income from qualified domestic production activities, which will be phased in from 2005 through 2010, as well as other tax implications. The domestic production deduction will be accounted for as a special deduction and as such, will have no effect on deferred tax assets and liabilities existing at the date of enactment. It is not currently possible to predict what impact this Act will have on future earnings until final implementation guidance is issued.

In May 2005, the FASB issued SFAS No. 154, “Account Changes and Error Corrections.” This new standard replaces APB Opinion 20, Accounting Changes, and FASB No. 3, Reporting Accounting Changes in Interim Financial Statements. Among other changes, SFAS No. 154 requires that a voluntary change in accounting principle to be applied retrospectively with all prior period financial statements presented on a new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (1) a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a “restatement.” The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The Company believes the adoption of the provisions of SFAS No. 154 will not have a material impact on the consolidated financial statements.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Arctic Cat Inc. (the “Company”) designs, engineers, manufactures and markets snowmobiles and all-terrain vehicles (ATVs) under the Arctic Cat brand name, as well as related parts, garments and accessories principally through its facilities in Thief River Falls, Minnesota. The Company markets its products through a network of independent dealers located throughout the United States, Canada, and Europe and through distributors representing dealers in Europe, the Middle East, Asia, and other international markets. The Arctic Cat brand name has existed for more than 40 years and is among the most widely recognized and respected names in the snowmobile industry. The Company trades on the NASDAQ National Market under the symbol “ACAT”.

Results of Operations

THREE AND NINE MONTHS ENDED DECEMBER 31, 2005 COMPARED TO THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2004.

Net sales for the third quarter of fiscal 2006 increased 3.4% to $195,301,000 from $188,855,000 for the third quarter of fiscal 2005. ATV sales increased 7.9% to $90,806,000 for the third quarter of 2006 from $84,139,000 for the same quarter in fiscal 2005. Snowmobile sales decreased 5.5% to $74,519,000 for the third quarter of 2006 from

$78,891,000 for the same quarter in fiscal 2005. Parts, garments and accessory sales increased 16.1% to $29,976,000 for the third quarter of 2006 from $25,825,000 in the same quarter in fiscal 2005. ATV unit volume increased 5.6% and snowmobile unit volume decreased 19.5% for the third quarter of fiscal 2006 compared to the same quarter last year. Net sales for the first nine months of fiscal 2006 increased 8.9% to $579,495,000 from $532,122,000 for the first nine months of fiscal 2005. Year-to-date ATV sales increased 19.7% to $268,075,000 from $223,869,000 compared to the first nine months of fiscal 2005, snowmobile sales decreased 1.5% to $237,973,000 from $241,569,000 compared to the first nine months of fiscal 2005, and parts, garments and accessory sales increased 10.1% to $73,447,000 from $66,684,000 compared to the first nine months of fiscal 2005. Year-to-date ATV unit volume increased 13.3% compared to the same period last year, while snowmobile unit volume decreased by 7.3%. For fiscal 2006, the Company expects snowmobile sales to be down but expects this decline to be offset by increased sales of ATVs and parts, garments, and accessories resulting in a modest increase in net sales for fiscal 2006.

Gross profit for the third quarter of fiscal 2006 decreased 4.7% to $36,073,000 from $37,849,000 for the same quarter in fiscal 2005. The quarterly gross profit percentage for the third quarter in fiscal 2006 was 18.5%, compared to 20.0% for the third quarter in fiscal 2005. The year-to-date gross profit percentage was 19.6% compared to 20.6% for the same period last year. Both the quarterly and year-to-date decrease in gross profit percentage was primarily due to increased ATV sales in the sales mix, higher material costs and a stronger yen which increased engine costs.

Operating expenses for the third quarter of fiscal 2006 increased 0.1% to $29,754,000 from $29,712,000 for the third quarter of last year. As a percent of sales, operating expenses were 15.2% for the third quarter of fiscal 2006 versus 15.7% for the same quarter last year. Year-to-date operating expense for the period ended December 31, 2005 were $78,512,000 compared to $72,602,000 for the same period last year. As a percent of sales, operating expenses were 13.5% for the first nine months of fiscal 2006 compared to 13.6% for the first nine months of fiscal 2005. Both the quarterly and year-to-date increases in operating expenses resulted primarily from increased sales and marketing expenses related to higher sales and higher Canadian currency exchange losses compared to the same periods a year ago.

Other income for the third quarter of fiscal 2006 increased 45.5% to $553,000 from $380,000 for the third quarter of last year. The year-to-date other income increased 11.0% to $869,000 from $783,000. The quarter and year-to-date increases resulted from increased yields on investments and interest income received with income tax refunds.

Net earnings for the third quarter of fiscal 2006 decreased 19.3% to $4,673,000 from $5,792,000 for the same quarter last year. Diluted earnings per share were $0.24 and $0.28 for the third quarters of fiscal 2006 and 2005. Year-to-date net earnings decreased 4.8% to $24,338,000 from $25,567,000 for the same period last year. Year-to-date diluted net earnings per share for the first nine months of fiscal 2006 were $1.22 compared to $1.22 per share for the same period last year.

Liquidity and Capital Resources

The seasonality of the Company’s snowmobile production cycle and the lead time between the commencement of snowmobile and ATV production in the early spring and commencement of shipments late in the first quarter have resulted in significant fluctuations in the Company’s working capital requirements during the year. Historically, the Company has financed its working capital requirements out of available cash balances at the beginning and end of the production cycle and with short-term bank borrowings during the middle of the cycle. The Company’s cash balances traditionally peak early in the fourth quarter and then decrease as working capital requirements increase when the Company’s snowmobile and spring ATV production cycles begin. During the nine months ended December 31, 2005, the Company paid $14,931,000 to repurchase its common shares compared to $19,054,000 for the same nine month period of the prior year. Cash and short-term investments were $63,717,000 and $84,244,000 at December 31, 2005 and 2004, respectively. The Company’s investment objectives are first, safety of principal and second, rate of return.

The Company believes that the cash generated from operations and available cash will be sufficient to meet its working capital, regular quarterly dividend, share repurchase program, and capital expenditure requirements on a short and long-term basis.

Line of Credit

The Company has an unsecured credit agreement with a bank for the issuance of up to $60,000,000 of documentary and stand-by letters of credit and for working capital and in addition has a $15,000,000 seasonal credit agreement for the Company’s peak production period.

NEW PRONOUNCEMENTS

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. SFAS 123(revised 2004) (SFAS 123 (R)), Share Based Payment. This statement requires the compensation cost relating to share-based payment transactions to be recognized in a company’s financial statements. That cost will be measured based on the fair value of the equity or liability instruments on the date they are issued. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. The Company will be required to adopt SFAS 123(R) as of its first interim reporting period that begins after March 31, 2006 or the first quarter of fiscal year 2007. The Company has not completed its evaluation of SFAS 123(R) but expects the adoption of this new standard will have a significant impact due to the Company’s use of options as employee incentives.

15, 2005. The Company believes the adoption of the provisions of SFAS No. 154 will not have a material impact on the consolidated financial statements.

Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements. This form 10-Q contains forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. The words “aim,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” and other expressions that indicate future events and trends identify forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to: product mix and volume; competitive pressure on sales and pricing; increase in material or production cost which cannot be recouped in product pricing; changes in the sourcing of engines from Suzuki; warranty expenses; foreign currency exchange rate fluctuations; product liability claims and other legal proceedings in excess of insured amounts; environmental and product safety regulatory activity; effects of the weather; overall economic conditions and consumer demand and confidence. 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is subject to certain market risk relating to changes in inflation, foreign currency exchange rates and interest rates. These market risks have not changed significantly since March 31, 2005. As of December 31, 2005 the Company has notional Japanese yen and Canadian dollar denominated cash flow hedges of approximately $18 million (USD) and $26 million (USD),respectively, with a weighted average contract exchange rate of 110 and 1.24 respectively. The fair values of the Japanese yen and Canadian dollar hedge contracts at December 31, 2005 represent an unrealized loss of $2,810,000. A ten percent fluctuation in the currency rates as of December 31, 2005 would have resulted in a change in the fair value of the Japanese yen and Canadian dollar hedge contracts of approximately $1,800,000 and $2,600,000, respectively. However, since these contracts hedge foreign currency denominated transactions, any change in the fair value of the contracts would be offset by changes in the underlying value of the transaction being hedged.

Information regarding inflation, foreign currency exchange rates and interest rates, is discussed within “Management’s Discussion and Analysis – Inflation, Exchange Rate and interest rate” and footnote A to the Financial Statements in the 2005 Annual Report on Form 10-K. Interest rate market risk is managed for cash and short-term investments by investing in a diversified frequently maturing portfolio consisting of municipal bonds and money market funds that experience minimal volatility and is not deemed to be significant.

Item 4. Controls and Procedures

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”)as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports it files or submits under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There have been no changes in internal control over financial reporting that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
October 1, 2005 – October 31, 2005	140,000	$	20.23	140,000	562,608
November 1, 2005 – November 30, 2005	0	$	—	0	502,271
December 1, 2005 – December 31, 2005	0	$	—	0	525,306

The Company purchases Company common stock to offset the dilution created by employee stock option programs and because the Board of Directors believes investment in the Company’s common stock is an excellent use of its excess cash.

The Company has a publicly announced stock purchase program which has been approved by the Board of Directors. On June 24, 2004, the Company announced that its Board of Directors had approved a $20 million repurchase program. On May 12, 2005, the Company announced that its Board of Directors had approved an additional $20 million repurchase program. Pricing under these programs has been delegated to management. There is no expiration date for these programs.

The Company has executed the Company stock purchases in accordance with Rule 10b-18 of the Securities Exchange Act of 1934. There have been no other purchases of the Company’s common stock.

Item 6. Exhibits

Exhibit
Number	Description
3 (a)	Amended and Restated Articles of Incorporation of Company	(3)

3 (b)	Restated By-Laws of the Company	(1)

4 (a)	Form of Specimen Common Stock Certificate	(1)

4 (b)	Rights Agreement by and between the Company and Wells Fargo Bank Minnesota, N.A., dated September 17, 2001	(4)

31.1	CEO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.	(2)

31.2	CFO Certification pursuant section 302 of the Sarbanes-Oxley Act Of 2002.	(2)

32.1	CEO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.	(2)

32.2	CFO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.	(2)

(1)		Incorporated herein by reference to the Company’s Form S-1 Registration Statement (File Number 33-34984).
(2)		Filed with this Form 10-Q.
(3)		Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
(4)		Incorporated by reference to Exhibit 1 to the Company’s Registration on Form 8-A filed with the SEC on September 20, 2001.

					ARCTIC CAT INC.


Date:	February 9, 2006	By	s/Christopher A. Twomey
				Christopher A. Twomey
				Chief Executive Officer

Date:	February 9, 2006	By	s/Timothy C. Delmore
				Timothy C. Delmore
				Chief Financial Officer