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Q2 2009 Arctic Cat Inc. Earnings Conference Call - Final.

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OPERATOR: Good morning, ladies and gentlemen. Thank you so much for standing by. Welcome to the Arctic Cat fiscal second-quarter 2009 conference call. During the day's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions).

As a reminder, this conference is being recorded today on Thursday, October 23rd, 2008. I will now turn the conference over to Ms. Shawn Brumbaugh. Please go ahead.

SHAWN BRUMBAUGH, IR, PADILLA SPEER BEARDSLEY: Thank you for joining us this morning. I am Shawn Brumbaugh with Padilla Speer Beardsley. Leading our call today will be Chris Twomey, Chairman and Chief Executive Officer of Arctic Cat, along with Tim Delmore, Arctic Cat's Chief Financial Officer. Also joining us this morning is Claude Jordan, President and Chief Operating Officer.

Before the market opened this morning, Arctic Cat released results for its fiscal 2009 second quarter and six months ended September 30, 2008. Chris will review the Company's performance, and then Tim will take you through the financials. After that, we want time for any questions.

Some of the comments made today will be forward-looking statements regarding the Company's expectations of 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 our results.

Now, I will turn the call over to Arctic Cat's CEO, Chris Twomey.

CHRIS TWOMEY, CHAIRMAN, CEO, ARCTIC CAT INC.: Thanks everyone, for joining us this morning.

I would like to welcome Claude Jordan to his first Arctic Cat earnings conference call. Claude joined Arctic Cat as President and COO about six weeks ago. He spent the time getting his arms around all aspects of our business, and has already become a valuable leader for our team.

For this call, Claude Jordan will be available to answer questions during the Q&A session. In the future, he will be a regular participant in our conference calls.

We are pleased that both our sales and earnings were above our expectations for the quarter. Tim Delmore will review the reasons for this when he talks you through the numbers.

I want to caution everyone not to view this as a sustainable increase for the full year.

Sales of snowmobiles were up 1% for the quarter compared to last year, and 10% year-to-date. This year-to-date increase represents a more normalized shipping pattern following last year's planned snowmobiles sales decrease to dealers in order to bring their inventories in line with customer demand.

Today, even with the 10% year-to-date increase in sales, North American dealer inventories are down more than 22% compared to last year. Lower dealer inventories, coupled with the 70% increase we saw in spring guarantee orders from customers position our dealers to do well, even in the tough economic environment we find ourselves.

During the quarter we unveiled three new 3009 model limited production snowmobiles, the Sno Pro 600, M8 HCR, and the Z1 Turbo Sno Pro. The Z1 Turbo is the world's fastest production snowmobile, and it exceeds the 2012 EPA emissions standards.

These new models are part of our ongoing strategy to take share with existing innovative products highly valued by our customers. We unveiled these models at the Hay Days Grass Drags, an annual Minnesota snowmobile event, which acts as the unofficial kickoff for the snowmobile selling season. It appears that this year's crowd was bigger than last year's, really attesting to the enthusiasm of the snowmobile customer.

The snowmobile riding season hasn't begun anywhere in North America yet; however, we have seen some snow in the western mountains and a couple of spots in the Midwest, even today, as well as parts of Canada. All of which gets snowmobilers excited about their sport and the season. All we need to drive this business is snow.

As we saw last year, snow trumped the slowing economy and declining consumer confidence during the snowmobile selling season. And US snowmobiles sales did not decline, while sales of all other recreational products did. Because of the pent-up demand created over the last ten or so years, I think retail sales will again do well this year when it snows.

Retail sales of ATVs in North America continued to struggle while the entire industry -- for the entire industry, and the industry has now experienced a unit sales decline in each of the last 27 months. Arctic Cat...

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