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Executives

Shawn Brumbaugh – Director, Investor Relations & Corporate Communications

Claude J. Jordan – President and Chief Executive Officer

Timothy C. Delmore – Chief Financial Officer and Secretary

Analysts

Lisa M. Brozewicz – KeyBanc Capital Markets

Craig R. Kennison – Robert W. Baird & Co., Inc.

Joseph D. Hovorka – Raymond James & Associates

Rommel T. Dionisio – Wedbush Securities, Inc.

Mark Eric Smith – Feltl & Co.

Phil Anderson – Longbow Research

Jake Crandlemire – Ramsey Asset Management

Arctic Cat Inc. (ACAT) F3Q12 Earnings Call January 26, 2012 12:00 PM ET

Operator

Good day ladies and gentlemen, thank you for standing by. Welcome to the Arctic Cat Fiscal 2012 Third Quarter Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Thursday, January 26, 2012.

I’d now like to turn the conference over to Shawn Brumbaugh. Please go ahead.

Shawn Brumbaugh

Thank you, and thank you for joining us this morning. I’m Shawn Brumbaugh with Padilla Speer Beardsley. Before the market opened this morning, Arctic Cat released results for the fiscal 2012 third quarter ended December 31, 2011.

Participating in our call today to discuss the company’s performance and outlook will be President and Chief Executive Officer, Claude Jordan; and Chief Financial Officer, Tim Delmore. Following their remarks, we’ll have time for any questions.

Before we begin, please note that some of the comments made today will be forward-looking statements regarding the company’s expectations, future performance. Such statements are subject to risks and uncertainties, and actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today’s news release and in the company’s filings with the Securities and Exchange Commission. We encourage you to review these documents for a description of risk factors that may affect results.

Now, I’ll turn the call over to Arctic Cat’s CEO, Claude Jordan. Claude?

Claude J. Jordan

Thanks, Shawn. Good morning, everyone, and thanks for joining us today. This morning I’ll cover the individual performance of our three businesses; as well as the progress we have made in operations as we continue to focus on sales, profitability and strengthening our balance sheet. Following my comments, Tim Delmore, our CFO will review our financial performance.

Overall, we’re pleased with our performance for the quarter, especially our double-digit sales and earnings growth. As we mentioned at the beginning of the year, we set out to grow sales in all product categories, improve gross margins, increase earnings per share, and reduce dealer inventory. Through the third quarter, we remain on track to accomplish each of these.

In regards to the individual businesses, snowmobile sales were up 61% for the quarter, primarily driven by increased volume and to a lesser degree pricing and product mix. We continue to focus on matching wholesale to retail to ensure dealers have the right product during the high retail seasons and to drive dealer inventory lower. With this focus, we were successful in lowering the North American dealer inventory by 10%, when compared to the same time last year. The lower dealer inventory will position us Snowmobile business well as we look forward to next year.

Regarding the industry retail sales for the year, sales are up in the mid single-digits when compared to the prior year. However, Arctic Cat continued to see strong growth in retail sales up more than 15%, driven by the 23 all new ProCross, ProClone snowmobile models we launched this year. Although, we believe industry retail sales will slow slightly over the next three months. We continue to believe our retail sales will outperform the industry and we will continue to take market share.

With the ATV business, sales increased 12% for the quarter, driven primarily by international in North American side-by-side sales. Additionally, we continue to focus on matching our wholesale sales to retail sales to lower our dealer inventory. For the year, our dealers have retailed 38% more units than we have shipped, which has allowed us to lower our North American dealer inventory by 22%.

To assist our dealers in managing their inventory, we have now shifted from taking orders three times per year to a monthly ordering system. This new ordering system will allow the dealers to better respond to market conditions and ensure they have the right quantity and mix of products to meet the needs of their customers.

Industry retail ATV sales for North America had another difficult quarter as sales decreased by 7%. During the third quarter, our core ATV retail business also decreased. However, we continue to see year-over-year retail growth in our Prowler side-by-side business. In addition to our year-over-year Prowler side-by-side growth, we also started to ship our Araneae side-by-side the Wildcat and have already started to see retail sales.

As we previously stated, our plan was to ship the limited number of Wildcat in the third quarter with the objective of increasing shipments during the fourth quarter. Sales of our parts, garment, and accessory business continued to perform well and were up 7% for the quarter. The increased sales were driven by the Snowmobile and ATV accessories, as well as ATV parts.

During the quarter, we also launched the e-commerce website for our Canadian customers, which when combined with our Prowler launch for the U.S. market gives our North American customers the ability to purchase their parts, garments, and accessories online.

And regard to operational performance, our focus continues to be on improving gross margin, controlling operating expenses, and strengthening our balance sheet. In the area of gross margins, our goal at the beginning of the year was to increase gross margins by 20 to 60 basis points.

During the third quarter, we improved our gross margins by 154 basis points, primarily due to increased volumes of snowmobiles and ATVs, but also due to improved selling prices, product mix, and lower sales incentives. Year-to-date, our gross margins have improved 30 basis points, and we continue to expect year-over-year improvement to gross margins of 20 to 60 basis points for the year.

In regards to operating expenses, we stated at the beginning of the year, our goal was to hold operating expenses flat as a percent of sales. With this in mind, we have continued to focus throughout the business on all aspects of expense control. At the same time, we have continued to invest in product development, which has resulted in launching various new models for both the Snowmobile and ATV business.

Through the third quarter, we were successful in decreasing operating expenses as a percent of sales. Based on our plan for the remainder of the year, we believe that we will be successful in decreasing operating expenses for the full year.

The final area of focus has been working to strengthen our balance sheet. During the third quarter, our year-over-year inventory grew to support our sales growth. However, we were successful in improving our inventory turns. As we look forward, we will continue to remain focused on having the right amount of inventory on hand to support the growth needs of the business, while at the same time continuing to focus on improving inventory turns.

In regard to cash, we ended the quarter with $76 million of cash and short-term investments. This amount is down from the prior year by $31 million. However, the entire decrease was due to the Arctic Cat share repurchase from Suzuki of $79 million that we announced last month.

Being able to purchase the 6.1 million shares of Arctic Cat stock using cash on our balance sheet and ending the quarter with $76 million in cash and short-term investments leads the business well positioned to continue to meet the working capital needs of the business, as well as potential investments going forward, while at the same time creating significant shareholder value. Going forward, we will continue to focus on our cash position and expect to end the year with more than $60 million of cash on our balance sheet and no debt.

At this time, I would like to turn the call over to Tim, who will review the third quarter financials.

Timothy C. Delmore

Thanks, Claude. Good morning, everybody. I’d also like to welcome you to the conference call. Today, I’ll focus on reviewing highlights of our third quarter financial performance and our revised and upgraded guidance for full-year and fiscal 2012.

Net sales for the third quarter increased to 36% to $207 million from a $152 million for the same quarter last year. Snowmobile sales increased 61% to $125.2 million and ATV sales increased 12% to $54.4 million from $48.6 million.

Parts, garments and accessory sales increased 7% to $27.4 million from $25.6 million for the same quarter last year. Sales increased across all product lines with particularly strong snowmobile sales driven by the introduction of our extensive new 2012 snowmobile lineup. Gross profits for the quarter increased 46% to $47.8 million from $32.7 million. The gross profit percentage for the quarter increased 154 basis points to 23.1% from 21.5% for the third quarter last year, primarily due to volumes, prices, increased prices, which are product mix and lower sales incentives.

Selling, general and administrative expenses increased 5% to $21.6 million from $20.5 million for the same quarter last year, primarily due to higher R&D advertising and marketing expenses, which were offset to a certain extent by lower general and admin expenses resulting from a favorable of Canadian currency hedge benefits. Selling, general and administrative expenses as a percent of sales declined to 10.4%, compared to 13.5% the same quarter last year.

Our interest income was 23,000 versus 28,000 for the same quarter a year ago and interest expense was unchanged to 1,000 for both quarters. Net earnings for the quarter increased to 83% to $17 million from $9.3 million and third quarter diluted earnings per share increased 84% to $0.92 from $0.50.

Next, I’d like to review Arctic Cat’s financial performance for the first nine months of fiscal ’12. Year-to-date, net sales increased 24% to $486.8 million from $391.2 million the same period a year ago. Net earnings increased 60% to $36.1 million from $22.6 million, while diluted earnings per share increased 59% to $1.94 from $1.22.

On a year-to-date basis, snowmobile sales increased 38% to $257.3 million from $186.5 million. ATV sales increased 14% to $151.1 million from $133 million, and parts, garments and accessory sales increased 9% to $79, $78.4 million from $71.7 million the same period last year. Again, these sales increases came from all product lines.

Our year-to-date gross profits increased 25.9% to $119.2 million from $94.7 million and our year-to-date gross profit percentage was 24.5%, compared to 24.2%. Our year-to-date gross profit percentage for the nine-month period increased 27 basis points and again, we still do expect to improve year-over-year by 20 to 60 basis points in gross margin percentage.

Year-to-date, selling, general and administrative expenses increased 2.6% to $63.7 million from $62 million again primarily due to higher R&D, advertising and marketing expenses. And selling, general and administrative expenses as a percent of sales declined to 13.1%, compared to 15.9% for the first nine months of last year.

The company reported a tax provision of 35% for both the quarter and year-to-date, compared to 24% for the prior year quarter, and 31% year-to-date last year. The prior year’s rates included some certain tax benefits.

Looking at our balance sheet as of December 31, we ended the quarter with $76.3 million of cash and lower short-term borrowings compared to $107.1 million of cash and lower short term borrowings as of December 31 last year.

As Claude mentioned, we used $79.3 million in cash near the end of the third quarter to purchase all of Suzuki Motor Corporation’s 6.1 million shares of our common – our Class B common stock. The stock buyback was funded entirely with existing cash and required no debt. This transaction reduced our outstanding shares from 18.4 million to 12.3 million, and increased non-Suzuki shareholders’ common stock ownership by 33%.

Looking at accounts receivable, they increased 4% during quarter end to $52.2 million mainly due to increased sales and higher floor plan receivables due to timing of shipments. Inventory increased to $87.9 million from $77.2 million as we are supporting our increased sales levels. Our year-to-date capital expenditures totaled $10.8 million and depreciation was $10.2 million.

Based on our results year-to-date and expected fourth quarter performance, we are raising our full-year 2012 sales and earnings guidance. We now estimate sales in the range of $568 million to $575 million, based on snowmobile sales ending the year up 37%. It remind you a very few snowmobile shipments occur in the fourth quarter and we normally have negative sales resulting from sales incentives.

Regarding ATVs, we expect ATV sales to increase 19% to 22% for the full year, driven by Q4 shipments of our new Wildcat sport side-by-side, and we expect PG&A sales to end the year up 3% to 5%. We now anticipate that full year fiscal 2012 earnings will be in the range of a $1.60 to a $1.70 per diluted share.

Our 2012 outlook includes the following assumptions. As I mentioned gross margins to increase 20 to 60 basis points, operating expenses to be lower as a percent of sales, our tax rate to be 35%, our weighted average diluted share count for full year fiscal 2012 expected to be 17.3 million shares and 25% or one quarter of the benefit of the repurchase of our 6.1 million shares from Suzuki has built into this estimate.

If the Suzuki share repurchase transaction would have occurred at the beginning of fiscal 2012. Instead of at the end of the our third quarter, our EPS guidance would have been over $2 per share, versus our $1.60 to $1.70 per share guidance and this is because of the benefit of the full year reduction in weighted average shares outstanding.

A remainder for your financial models, our fourth quarter is traditionally a loss quarter for the quarter, therefore, earnings per share is reported using basic shares outstanding only and not fully diluted. Based on our revised full year guidance, and using an estimated 12.4 million basic shares outstanding, this would result in a fourth quarter loss of $0.54 to $0.68 per basic share outstanding.

While we are expecting an improved debt loss in dollars this fourth quarter, the reported EPS loss is expected to be greater than the negative $0.52 we reported in Q4 of last year, because of the lower share count this Q4 in the denominator of the EPS calculation. Regarding cash, we continue to expect we will end the year with an excess of $60 million of cash on the balance sheet.

I'd like to thank you for your attention. And now operator, we’d like to open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from the line of Lisa Brozewicz with KeyBanc. Please go ahead.

Lisa M. Brozewicz – KeyBanc Capital Markets

Thanks for taking my question guys, and congratulations on a great quarter. My first question is, how does snowfall sales trends throughout the quarter, and how they so far in January, if you can get some color on that?

Claude J. Jordan

In term, I assume you’re talking about retail sales now.

Lisa M. Brozewicz – KeyBanc Capital Markets

Yeah.

Claude J. Jordan

Yeah, in terms of retail sales and obviously the numbers we have would be for North America. Due to the number of preseason sales, this year [we’re] asking some of our competitors, I think you saw the industry, started off the year very, very strong. We did have a slight dip in December. And so, what we’re seeing now is retail sales for the entire industry in the mid single-digits.

Lisa M. Brozewicz – KeyBanc Capital Markets

Okay. Okay, great. And then, can you give any color on retail sales so far in January?

Claude J. Jordan

Yeah, really the month of January just started. I get it where, probably I guess 26 days into it. We don’t have industry data. We only have our data in terms of retail sales.

Lisa M. Brozewicz – KeyBanc Capital Markets

Okay, great. And then last question how have the orders for the Wildcat trended so far according to your expectations. And just any color that you can give us on early success with that product line?

Claude J. Jordan

Yeah, we started off obviously expecting the Wildcat to have some significant level of orders. And when we built our guidance for the year, we factored those in, when we went out on top orders, we were not, we are not upset with the number of orders we took. They were very much in line with our high expectation.

So, as we see here today, we have shipped 200. What we did in the first 225 units, we’ve built, we actually put a serial number on them, numbered one through 225, we progress plate into the Wildcat and we gave, the people that bought them obviously the certificates saying they have one in the first 225. And so those, we’re just starting to see those retail. We probably shipped, I will say, 2% to 3% of the orders we’ve received, and we continued to take orders everyday on the Wildcat.

So I think you will see in Q4, we’ll start February, March, April, we’ll start shipping a significant number more of Wildcat.

Lisa M. Brozewicz – KeyBanc Capital Markets

Okay, great. Thank you.

Operator

Thank you. The next question is from the line of Craig Kennison with Robert W. Baird. Please go ahead.

Craig R. Kennison – Robert W. Baird & Co., Inc.

Good morning. Just a follow-up on the last question, could you remind us how many dealers you have that are eligible to purchase the Wildcat?

Claude J. Jordan

We didn’t really give specifics in terms of the number of dealers. Obviously all of our dealers today have the ability to sign up and go ahead and retail the Wildcat product. Some (inaudible) in markets that is probably not as attractive, so not all of our side-by-side dealers are going to go ahead and sign up for it.

There are certain markets, Western Canada, the Western U.S., the Southern market that the Wildcat type product is a very exciting product and certainly we have a significant number of our side-by-side dealers that did sign up for it. And obviously going forward, we have even more dealers that want to carry the product line.

Craig R. Kennison – Robert W. Baird & Co., Inc.

Do you mind reminding us just how many dealers you have on the snow and on the side-by-side?

Claude J. Jordan

On the ATV side-by-side part of our business, we have over 800 dealers, and on the snow portion of our business, between 500 and 600 dealers.

Craig R. Kennison – Robert W. Baird & Co., Inc.

That’s helpful. Thank you. And then shifting gears to the snow business, do you mind us remaining investors how the snowmobile order cycle really works? There is obviously concern that the lack of snow has caused, maybe a disappointment in retail that ultimately could show up. But maybe talk about how that would influence the P&L and what the timing of that impact would be?

Claude J. Jordan

Yeah, in terms of the order cycle, we typically have a dealer show. Snowmobile dealer show in late February, early March, and we’ll take orders at the same time, we’re not only taking orders from our dealers, but we’re also talking – we’re doing preseason sales that are going straight to the customers as well. And so longer time, if you have a significant number of new products like we had this year with the 23 new models, you’re seeing a lot of preseason sales and so you’ll see, obviously, those are the first ones to get retail, they account towards market share, and so September, October, November, and even December for that matter are usually high retail months because of a preseason sales.

Now, where we have seen it so far, obviously, a lot of the snowmobiles were already purchased. We’re seeing light snow in some areas, one thing we constantly remind people, certainly Minnesota hasn’t received the great deal snow. But we do sell on a worldwide basis. If you look at Russia, St. Petersburg, Moscow, they’ve received good snow this year. Scandinavia, Finland, Norway, Sweden, Alaska, Western Canada, have all received very good snow. Yellowstone, they’re riding, Michigan, they’re riding, Quebec, they’re riding. So obviously, we’d like to have snow, heavy snow in every market that we sell in, that usually doesn’t happen, and this is no exception this year.

So short-term, I think it has more of an impact on PG&A and if we sell our PG&A numbers. For the quarter, we were at single digits, 7% growth and I think we feel it more on the parts there that we do on the unit side.

Craig R. Kennison – Robert W. Baird & Co., Inc.

That’s helpful and then it doesn’t turned out, maybe snow won’t be as fair as some people fear. But taking that hypothetical further, if you find that you will have a little bit too much inventory in snow at the end of the season, you may choose to offer promotions to move that inventory. When does that flow through the income statement if you were to hypothetically offer that sort of discount?

Claude J. Jordan

Well, I think what you’ll see is typically you don’t wait through the end of the snow year. You look at each individual market and you’ll see how things are performing, and you might adjust your rebates and your programs during the fourth quarter. Obviously, we look at the overall business, and we make decisions on what we think, we have to do and we have made decisions regarding our current guidance that we think will enable us to move number of deals that we need to move.

Craig R. Kennison – Robert W. Baird & Co., Inc.

It’s so helpful. Thank you so much.

Operator

Thank you. The next question is from the line of Joe Hovorka with Raymond James. Please go ahead.

Joseph D. Hovorka – Raymond James & Associates

Thanks guys, couple of questions. First your guidance for $60 million of cash on the balance sheet by year-end. You’re obviously above that right now. And then typically your fourth quarter is I know it’s free cash the quarter despite the earnings loss. Is that, am I correct in assuming that $60 million is just closely conservative or are you expecting cash balance to decline from here to the end of March?

Timothy C. Delmore

I wouldn’t term it grossly conservative, it maybe a little conservative.

Joseph D. Hovorka – Raymond James & Associates

Okay, but you would expect and where is $76 million now, $16 million above your target, would it go down from there or your – would cash flow still be positive for the fourth quarter?

Timothy C. Delmore

It does depend on the final inventory and payable, accounts payable numbers to sell. That’s the other variable that isn’t necessarily an income statement issue and more of a balance sheet type issue.

Joseph D. Hovorka – Raymond James & Associates

Cash, right, right, okay. And then back on the Wildcat, so you said you shipped about 200 units so far and that is 2% to 3% of the orders that you’ve received. So am I doing that math right, were somewhere around 7 and 10,000 years ordered at this point?

Timothy C. Delmore

Yeah, we are not going to give out specifics. We are in a low single-digit in terms of the number that we’ve shipped. That said, we take orders on the Wildcat, we continue to take orders even today.

Joseph D. Hovorka – Raymond James & Associates

Right.

Timothy C. Delmore

And so that order amount is constantly changing. So it’s hard to give an exact amount. I know everybody wants a sort of work backwards, and I think we’ve factored that into the guidance what we plan on shipping. The one thing I would say is we took a lot more orders than we will ship in the Q4. And so, we’ll be shipping some of the initial orders beyond Q4. And so, whether it’s 2%, 3%, 5%, it’s in the low single-digits.

Joseph D. Hovorka – Raymond James & Associates

Okay. And that is the orders would be for the trimester or is it for six months, how – what is that order period that you are kind of referring to?

Claude J. Jordan

Really it's just the initial order, it’s the initial orders that we took, plus we also did a, I’ll call it, a presale where we went out and actually took pay – customers’ payments, down payments and those guys are guaranteed to get their Wildcats in front of the line of everybody else.

Joseph D. Hovorka – Raymond James & Associates

Right.

Claude J. Jordan

And then as we've shipped a couple of hundreds out to the dealers, the dealers have started taking more orders as they've had these on the floor now. And so that’s why I’m saying, the number keeps changing there. But that would be, I would say the initial order plus new orders since people started receiving their Wildcat.

Joseph D. Hovorka – Raymond James & Associates

Right. And the, when I look at the, so the MSRP is what 16%, 16.5% somewhere around there, how much is roughly where is the dealer margin on that?

Claude J. Jordan

Dealer margins are roughly around 15%.

Joseph D. Hovorka – Raymond James & Associates

Okay. Okay. And then on your snowmobiles, how much retail is typically left at this point, like 70%, 75% done in retail for a given year, and…

Claude J. Jordan

I think that’s – yeah, the best way to look at is the biggest month for snowmobile retail sales is the month of December, and then the next biggest months are November and January. And literally, it’s almost it keeps dropping each individual month. So by the time you get through December, you are definitely two-thirds of the way through your retail sales, and then January, February, and March are the last three. There is few retail sales by the time March comes along. Unless there is significant programs and people waiting to the end of the year to go ahead and buy.

Joseph D. Hovorka – Raymond James & Associates

Okay, and then the, I heard the industry up mid single-digits, but did you give what Arctic Cat’s retail was?

Claude J. Jordan

I did, I'd say we were up about 15%.

Joseph D. Hovorka – Raymond James & Associates

Okay. And did you get the retail for ATV side-by-side for Arctic Cat?

Claude J. Jordan

Hey, what I said there was, I believe that the industry was down, hang on Joe, let me just try and find my notes here, make sure I give you the right number, I don’t want to. Yeah, I think it decreased by 7%, the industry was down by 7% and I’d say we were down as well but our Prowler sales were actually count on a positive basis.

Joseph D. Hovorka – Raymond James & Associates

So Prowler was up?

Claude J. Jordan

Prowler sales were up, yes correct. Both for the quarter and for year-to-date.

Joseph D. Hovorka – Raymond James & Associates

Okay.

Claude J. Jordan

And that’s without taking Wildcat into consideration.

Joseph D. Hovorka – Raymond James & Associates

Right, okay, great. That’s all I have.

Claude J. Jordan

In terms of, just a little bit more color there. One of the things we’ve continued to talk about over the last couple of years in terms of taking that dealer inventory down. The challenge you that presents as you continue to currents and non-currents. What you’re taking down are the non-currents and so, you have less and less inventory out there with those programs on those non-currents. It is hard and harder to go ahead and gain market share. So on a current basis, if you look at ATV currents, our ATV currents were up about strong. Our non-currents are the ones that we are, because we have less inventory out there. Those are the ones we are struggling in terms of positive [counting] on.

Joseph D. Hovorka – Raymond James & Associates

But that’s if you want from your standpoint or dealer standpoint, because it – that does decline there too, right?

Claude J. Jordan

Absolutely, absolutely. It’s a much better model for us, much better model for our dealers. That’s it. Make your money on your currents.

Joseph D. Hovorka – Raymond James & Associates

So how much of a benefit that we got in fiscal ’12 so far from a lower promotional environment on the gross margins side for Arctic Cat?

Claude J. Jordan

Hang on one second.

Timothy C. Delmore

One second here Joe.

Joseph D. Hovorka – Raymond James & Associates

Okay.

Timothy C. Delmore

We’ve gotten some, but as I look at it, I mean all the items I talked about, higher volumes, cost reductions and so forth, all of them contributed richer mix. So again I’d be hesitant to point out sales incentives as a big driver there.

Joseph D. Hovorka – Raymond James & Associates

Okay.

Claude J. Jordan

There is no doubt that obviously volume on snowmobiles and ATVs have been the number one contributor.

Joseph D. Hovorka – Raymond James & Associates

Sure, sure. Okay, great. That’s all I had.

Claude J. Jordan

Thanks, Joe.

Operator

Thank you. The next question is from the line of Rommel Dionisio with Wedbush Securities. Please go ahead

Rommel T. Dionisio – Wedbush Securities, Inc.

Yeah, thanks. Just in response to something you said earlier, you said that preseason sales in snowmobiles or Arctic Cat some of the competitors were particularly strong. Was there an unusual reason why that was the case? I mean, I know that you guys launched a very expensive albeit that model lineup, but why would that be your competitors as well?

Claude J. Jordan

Yeah, actually some of our competitors, although they didn’t launch 70%, I mean what we did this year was obviously fairly strong, but the competitors, players, [ERP] did launch some significantly new products this year as well. And they’ve continued to do that over the last couple of years. So they’ve also experienced preseason sales and then timing comes into play. Sometimes they will be able to ship certain models earlier as opposed to just based on their production build schedules.

Rommel T. Dionisio – Wedbush Securities, Inc.

Okay. That was actually my only question (inaudible) were answered. Thanks and congratulations on a good quarter.

Claude J. Jordan

All right. Thanks.

Timothy C. Delmore

Thanks.

Operator

Thank you. The next question is from the line of Mark Smith with Feltl. Please go ahead.

Mark Eric Smith – Feltl & Co.

Hi, guys, Tim, can you clarify your guidance statement, did you give us this morning said into your expectations for the year on just ATV?

Claude J. Jordan

Yes. ATV we expect to be up 19% to 22%

Mark Eric Smith – Feltl & Co.

Okay, perfect. Thank you. And then can you guys talk about how big of the impact currency could have this next year?

Claude J. Jordan

Well, the Canadian dollar is the – our major currency exposure along with the Yen, we have a Yen sharing arrangement with Suzuki. So we monitor the Canadian dollar, it’s currently it’s at about the level it just right now that it was up during the year. So kind of stays at these levels so not a necessarily material impact on it.

Mark Eric Smith – Feltl & Co.

Maybe did you say that you’re hedged a little bit on the Canadian dollar here in Q3?

Claude J. Jordan

We traditionally hedge our financial plan on the Canadian dollar and we did this year also.

Mark Eric Smith – Feltl & Co.

Perfect. Thank you.

Operator

Thank you. The next question is from the line Phil Anderson with Longbow Research. Please go ahead.

Phil Anderson – Longbow Research

Yes. You mentioned and you said previously that the snowmobile line was about 70% due this year. Just wondering how that compares to recent past years in terms of how much of that lineup you're refreshing in a typical year?

Claude J. Jordan

Typically what you see on this snowmobile side because of the size of the industry and the costs for the tool and you come out with a new lineup like that. You might see a lineup goes for three, four, and sometimes five years before somebody comes out with a new product lineup like that that extends a change. It does not mean that you won’t come out with a couple of new products every year. But when you see that kind of thing it’s typically a three or four year.

Phil Anderson – Longbow Research

Okay. And going back to the Canadian currency for a second, did I hear you say that, that was a positive factor in the general administrative costs this quarter?

Timothy C. Delmore

Yeah, we’ve recorded Canadian currency hedges, the benefits from them as the cash flow hedges and run them through the general, administrative expense so that that positive comp there you see in general, admin of $6.6 million versus $7.8 million for Q3 last year, most of it’s driven by that Canadian currency benefit.

Phil Anderson – Longbow Research

So those costs would have been closer to flat had it not been for the currency effect?

Timothy C. Delmore

Yes.

Phil Anderson – Longbow Research

Okay. And then finally just a housekeeping question, what were accounts payable during – at the end of the quarter?

Timothy C. Delmore

Accounts payable is not listed on the sheet, but will be in the queue, roughly $59.6 million.

Phil Anderson – Longbow Research

Okay, great. That’s all I got. Congratulations on a great quarter guys.

Claude J. Jordan

Thanks.

Operator

Thank you. (Operator Instructions) The next question is from the line of Jake Crandlemire with Ramsey Asset Management. Please go ahead.

Jake Crandlemire – Ramsey Asset Management

Hi, guys. Thanks for taking my question. Clearly the Wildcat has been pretty strong out of the gate and had a strong release. What’s a reasonable timeline to think about potential product line extensions for the Wildcat in the future?

Claude J. Jordan

I think anytime you look at, the Wildcat was a completely brand new chassis, and we had to tweak the engine to get additional horsepower on it, and anytime you touch an engine or a chassis, you’re talking about three years in terms of development. If you’re modifying it in terms of, whether you’re making it shorter, longer, regardless, you do have the base chassis to work from. So obviously you cut down the amount of time it takes to revise that and obviously do the tooling and so forth. So you’re no longer looking at a three-year window, you’re probably looking at a one to two.

Having said that, three years ago when we started working on the Wildcat, we don’t do things in a vacuum, we don’t do things one-off. We have a product plan that we look five years out and we are constantly working on it. So, the Wildcat, there are certainly things that we are excited about and certainly parts of that that we may roll into other products and even expand that product line.

Jake Crandlemire – Ramsey Asset Management

Great, thanks.

Operator

Thank you. The next question is a follow-up from the line of Mark Smith with Feltl. Please go ahead.

Mark Eric Smith – Feltl & Co.

Hi, guys. I’m just running through a few numbers and want to make sure that I am looking at everything right here. ATV guidance up 19% to 22% for the year in fiscal ‘12 that would imply hit to the bottom line that it will be up 34% or so fourth quarter just to get to kind of the bottom end of that, is that correct?

Timothy C. Delmore

That sounds right. I’m not looking at that exact number, but that sounds in the ballpark.

Mark Eric Smith – Feltl & Co.

Okay. And I guess as we move through on the 20 to 60 bps improvement on gross margin, trying to keep that number that low and still come up to hit your earnings guidance. Is that, that 20 to 60, is there a chance that especially with some of, with ATV being so strong, you know that, that gross margin number could come in better than that 20 to 60 bps?

Timothy C. Delmore

I think that’s a pretty solid guidance. And I think the challenge for you, for your model is based on the revenue we've given you and the, we've given you a gross margin guidance, to factor in the operating expense, that number and then remind everybody the tax number is a bit higher this year. So I think you have all those ingredients, I think you come up with a new range.

Mark Eric Smith – Feltl & Co.

Okay, sounds great. Thank you.

Operator

Thank you. (Operator Instructions) And I am showing no further questions. I will turn it back over to Mr. Jordan for any closing remarks.

Claude J. Jordan

We appreciate everyone joining us today. As a recap, we continue to be excited about fiscal year 2012, especially the launch of the 23 all new snowmobiles and the all new Wildcat sport side-by-side vehicle. We believe these new products combined with the continued focus on product development and operational excellence, will lead to another solid year for Arctic Cat. We appreciate your time today and look forward to updating you again in May. Thanks a lot.

Operator

Ladies and gentlemen, this does conclude the conference call. If you would like to listen to a replay of today’s conference, please dial 1800-406-7325 or 303-590-3030 and entering the access code of 4509174. Thank you for your participation. You may now disconnect.

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