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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

for the fiscal year ended March 31, 2012

or

For the Transition period from             to            

Commission File Number: 0-18607

ARCTIC CAT INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:

(763) 354-1800

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter was approximately: $170,602,275.

At May 24, 2012, the registrant had 13,072,214 shares of Common Stock outstanding.

Documents Incorporated by Reference:

Portions of the registrant’s Proxy Statement for its Annual Meeting of Shareholders currently scheduled to be held on August 8, 2012 are incorporated by reference into Part III of this Form 10-K, to the extent described in such Part.

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ARCTIC CAT INC.

FORM 10-K

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PART I

ITEM 1. BUSINESS

Arctic Cat Inc. is a Minnesota corporation, (the “Company” or “Arctic Cat,” or “we,” “our” or “us”), with principal executive offices in Plymouth, Minnesota. We operate in a single industry segment and design, engineer, manufacture and market snowmobiles and all-terrain vehicles (“ATVs”) under the Arctic Cat^® brand name, as well as related parts, garments and accessories (“PG&A”). We market our products through a network of independent dealers located throughout the United States, Canada, and Europe and through distributors representing dealers in Europe, Russia, South America, the Middle East, Asia and other international markets. The Arctic Cat brand name has existed for more than 50 years and is among the most widely recognized and respected names in the snowmobile industry. We were incorporated in 1982. Our common stock trades on the NASDAQ Global Select Market under the symbol ACAT.

Industry Background

Snowmobiles—The snowmobile, developed in the 1950s, was originally intended to be used as a utility vehicle, but today the overwhelming majority of the industry’s sales are for recreational use. Between the late 1950s and early 1970s, the industry expanded dramatically, reaching a peak of over 100 manufacturers and a high of nearly 495,000 units sold to retail customers in North America in 1971. Today the number of major industry participants has decreased to four: Arctic Cat, Bombardier Recreational Products Inc. (“BRP”), Polaris Industries Inc. (“Polaris”) and Yamaha Motor Co., Ltd. (“Yamaha”). We believe there are currently more significant barriers to entry into the snowmobile market than existed in the 1970s. These barriers include increased brand loyalty, long-standing dealer and distributor networks and relationships, emission regulations, four-stroke engine development costs, manufacturing and engineering expertise and higher initial start-up costs. Industry-wide snowmobile sales to retail customers in North America were approximately 89,000 units for the 2012 model year.

ATVs—The ATV industry evolved from the three-wheel model that was developed in the early 1970s to the four-wheel models that are sold today. The most popular ATV use is general recreation, followed by farming/ranching, hunting/fishing, hauling/towing, transportation, and commercial use. From 1970 to 1986, the number of ATVs sold in the United States continued to grow until reaching an initial peak of 535,000 units in 1986. From 1987 to 1991, the number of ATVs sold declined to a low of approximately 147,000 units. From 1991 to 2004, sales of ATVs grew to 814,000 units; however, ATV sales have declined each year since, primarily driven by overall weak economic conditions and the shift to side-by-side vehicles. Industry-wide sales were 222,000 units in the United States and 50,000 units in Canada in calendar 2011. In addition to the U.S. and Canada, ATVs are also sold in numerous international markets including Europe, Russia, Australia, Middle East and Latin America. Major competitors in the industry include Yamaha, BRP, Polaris, Honda Motor Co., Ltd. (“Honda”), Kawasaki Motors Corp. (“Kawasaki”) and Suzuki Motor Corporation (“Suzuki”). In addition to these companies, multiple other companies, including numerous Chinese and Taiwanese manufacturers, sell ATVs.

Side-by-Side Recreational Off-highway Vehicles (“ROVs”)—ROVs are multiple passenger off road all terrain vehicles and, like ATVs, are used for general recreation, farming/ranching, hunting/fishing, hauling/towing, transportation, commercial and military use. We estimate that Fiscal 2012 North American industry side-by-side vehicle retail sales were 268,000 units. The main competitors for our side-by-side vehicles are Yamaha, BRP, Polaris, Kawasaki, Deere & Company (“Deere”) and Kubota Tractor Corporation (“Kubota”).

Products

Snowmobiles—We produce a full line of snowmobiles, consisting of 42 models, marketed under the Arctic Cat brand name, and designed to satisfy all market segments. The 2012 Arctic Cat models carry suggested U.S.

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retail prices ranging from $7,199 to $14,999, excluding a youth model which is sold at a suggested U.S. retail price of $2,649. Arctic Cat snowmobiles are sold in the United States, Canada, Scandinavia, Russia and other international markets.

Our 2012 model year snowmobiles are categorized as Performance, Crossover, Mountain, Touring and Utility. We market: Performance models under the names F and Sno Pro; Crossover models under the name XF; Mountain models under the name M and HCR; Touring models under the name T; and Utility models under the name Bearcat. In addition, to encourage family involvement in snowmobiling, we offer a youth snowmobile marketed under the Sno Pro 120 name.

In the more than 50 years of Arctic Cat snowmobiles, the basic framework of the snowmobile has stayed the same: two skis, an engine and drive system and a suspended chassis that supports the rider. Yet there has been a progression in performance, comfort, durability and capability achieved through a half century of innovative engineering and development.

Snowmobiles have advanced from 12-mph rear-engine farm implements to turbo-charged 4-stroke performance machines with advanced bump-soaking suspensions, electric heated seats, 150-mile fuel ranges and the ability to climb tall mountains.

In the sport of snowmobiling, where the customer demands continuous improvement in the vehicle’s ride, quality and performance, companies must progress through innovation. We believe we have a team of talented, driven-to-win people whose passion for snowmobiles is matched by their desire to improve, a major reason why Arctic Cat has delivered a stunning array of innovative, pioneering technology and products during the last half-century.

Awards—In the 2012 model year, more than 80% of our snowmobile sales were from models or model variations not available three years earlier. Some recent examples of the success of our new products include the following: SnowGoer voted the 2012 F 1100 Turbo Snowmobile of the Year and the 2012 XF 1100 Turbo won Sledhead 24-7 Television’s coveted Sled of the Year award. Arctic Cat snowmobile racers won numerous events and championship points titles in the 2012 model year in all major disciplines of racing including snocross, cross-country, oval, and hillclimb.

For the last three fiscal years ended 2012, 2011 and 2010 snowmobiles accounted for 43%, 39% and 36%, respectively, of our net sales.

ATVs—In December 1995, we introduced our first ATV. Since that time, our line has grown to 31 models. Features like fully independent front and rear suspensions, hydraulic disc brakes, hi-low range transmission, long travel suspension with high ground clearance, Speed Point accessory system, automatic transmissions, selectable 2WD/4WD shaft drive, locking differentials, EFI, a large fuel tank, and electronic power steering, all make our ATVs consumer friendly. We also have special two rider models that provide a proper alternative for customers that want to ride double on an ATV. In 2007, we introduced the industry’s first diesel ATV, capable of using biodiesel fuels and in 2008 we introduced the Thundercat 1000, the ATV with the largest displacement engine in the industry. We launched our new value line-up of ATVs in 2011 which included the 350 4X4 automatic with a MSRP of $5,499 and the 425 EFI 4X4 automatic with a MSRP of $5,999. In addition, we also launched the XC450i, a crossover model for consumers seeking 4-wheel drive capabilities in a sport ATV. The 2012 Arctic Cat ATV models carry suggested U.S. retail prices ranging from $4,099 to $14,299, excluding youth models which are sold at suggested U.S. retail prices ranging from $2,699 to $3,499.

Side-by-Side Recreational Off-highway Vehicles (“ROVs”)—We introduced our new Prowler Utility side-by-side vehicle into the utility segment in 2006. The Prowler is configured with a variety of different engines that range in size from 550cc to 1000cc that are manufactured by us, and also includes a rear cargo box, dual bucket seats as well as our renowned long travel suspension and ride characteristics. In 2011, we launched

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our first heavy duty utility side-by-side vehicle, the Prowler HDX, with an extended chassis, extra-large cargo box, bench seating and electronic power steering standard. In fiscal 2012 we introduced the all-new Wildcat 1000i sport model ROV. This model is aimed at a rapidly growing segment of the ROV market where consumers are seeking a side-by-side designed vehicle that offers comfort & handling in rough off-highway terrain. We refer to these vehicles as both side-by-sides and ROV’s, which consists of five models with retail prices between $10,999 and $16,599. Side-by-side/ROV sales are presented as ATV sales for financial reporting purposes.

International ATV Markets—We have continued to expand into international markets by focusing on new product development, adding new distributors, entering new territories, and developing new markets. In July 2005, we acquired a 100% interest in a European company to strengthen our European presence and further expand our ATV model offerings for on-road use, the most prevalent use in Europe.

Awards—We believe our ATVs and ROVs are recognized for their power, durability, utility, suspension and style. In 2010 and 2011 DirtTrax Magazine named the Arctic Cat 450 4x4 Best-In-Class. DirtTrax Television named the XC450 4x4 Best Crossover for 2011. ATV Action in May 2011 recognized the Arctic Cat 350 4x4 for “Big 4x4 Performance in a Mid-Size Package at a Small Price.”

For the last three fiscal years ended 2012, 2011, and 2010, ATVs accounted for 39%, 39%, and 42%, respectively, of our net sales.

Parts, Garments and Accessories—We are the exclusive provider of genuine Arctic Cat Snowmobile, ATV and ROV parts, garments and accessories. Replacement parts for all of our current and noncurrent models of Snowmobiles, ATVs and ROVs are an important part of our product mix along with maintenance supplies such as oil and fuel additives. We also sell a broad array of accessories such as bumpers, cabs, luggage racks, lights, snow plows, backrests, windshields, wheels, track systems and winch kits that consumers buy to increase their comfort factor, shorten their task or personalize their ride. We recently launched a new line of accessories specifically created for the new Wildcat ROV. During fiscal 2013, we plan to add more new accessory options for this exciting new vehicle. In addition to genuine Arctic Cat parts and accessories, we sell market leading brands in various categories such as Fox Float shocks, Speedpoint attachments and BCA Float Avalanche Airbags.

We offer a full range of snowmobile garments for adults and children under the “Arcticwear” brand. Jackets, coats, pants and casual sportswear items are produced and sold in a wide variety of styles and sizes combining fashion with function. The Arcticwear line of clothing encompasses wearables designed to keep the rider warm and dry during the most demanding snowmobile conditions (insulated outerwear, hats, mittens, helmets, boots) and comfortable relaxing after the ride (sweatshirts, T-shirts, casual wear). The snowmobile garment line includes multiple options with varying levels of performance (insulation warmth, waterproofing, breathability) – to answer consumers’ needs across a broad range of weather conditions.

Three years ago we introduced a second line of insulated outerwear under the “Drift Racing” brand to compete against the Aftermarket outerwear manufacturers selling into the snowmobile market. The “Drift Racing” line of outerwear provides riders of multiple brands of snowmobiles a high performing, fashionable outerwear option. Over the last two years we have expanded our Drift Racing line (insulated jackets similar to those worn by the snowmobile racers), have added more general outerwear options to the Arcticwear line (down filled parkas) and expanded our sportswear wearables sold under the “Arcticwear” brand.

For ATV and ROV riders, we manufacture and sell garments under the “Arcticwear ATV Gear” label. This line of clothing is geared toward function and comfort and includes suits, jackets, gloves, helmets, gear bags, sweatshirts, T-shirts, and hats. The trend to “wear what you ride” continues to be much stronger with snowmobile consumers than with ATV and ROV consumers. We continue to successfully expand our ATV and ROV clothing lines with more performance geared clothing to provide more rider comfort.

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For the last three fiscal years ended 2012, 2011 and 2010 parts, garments and accessories accounted for 18%, 22% and 22%, respectively, of our revenues.

Manufacturing, Engineering and Research and Development

Arctic Cat snowmobiles, ROVs and most ATVs are manufactured at our facilities in Thief River Falls, Minnesota. A Taiwanese company manufactures our 90cc to 425cc ATVs, as well as our XC450i ATV, according to our specifications, and we have strategically identified specific core manufacturing competencies for vertical integration and have chosen outside suppliers to provide other parts. We have developed relationships with selected high quality suppliers in order to obtain access to particular capabilities and technologies outside the scope of our expertise. We often design component parts in cooperation with our suppliers, contract with them for the development of tooling, and then enter into agreements with these suppliers to purchase component parts manufactured utilizing the tooling. In our vertically integrated operations, we manufacture foam seats and machine, weld, and paint other components and then complete the total assembly of most of our products at our facilities in Thief River Falls. Manufacturing operations include robotics as well as digital and computer automated equipment to speed production, reduce costs and improve the quality, fit and finish of every product.

During late fiscal 2005, we began manufacturing certain of our own designed ATV engines as part of a strategic first step in a new engine program. We believe that having the capability to design and manufacture our own ATV engines enables us to offer customers more choices, provide excellent value, lower Japanese yen currency exposure and enhance our long-term competitive position. In 2007, we transitioned our engine manufacturing from the Thief River Falls facility to our facility in St. Cloud, Minnesota.

Suzuki has manufactured snowmobile engines for us pursuant to supply agreements which have been automatically renewed annually unless terminated. On June 4, 2010 we signed an agreement under which we will discontinue the purchase of snowmobile engines from Suzuki after December 31, 2013 (our 2014 model year). Suzuki will continue to provide replacement parts for engines through December 2020. Suzuki has been a good long-term supplier of snowmobile engines. However, this new agreement will allow us to gain more control of our products and enhance our ability to meet regulatory and performance requirements. We will expand our snowmobile engine design capabilities and work with a variety of suppliers for various engine component parts, as well as better utilize the current engine manufacturing capacity at our St. Cloud facility.

Since we began snowmobile production, we have followed a build-to-order policy to control inventory levels. Under this policy, we only manufacture a number of snowmobiles equivalent to the orders received from our dealers and distributors, plus a number of uncommitted units used for dealer and market development, in-house testing and miscellaneous promotional purposes.

Most sales of snowmobiles to retail customers begin in the early fall and continue during the winter. Orders by dealers and distributors for each year’s production are placed in the spring following dealer and distributor meetings. Snowmobiles are built commencing in late spring and continuing through late autumn.

Retail sales of ATVs and ROVs occur throughout the year with seasonal highs occurring in the spring and fall. We build and purchase ATVs and build ROVs throughout the year to coincide with dealer and consumer demand.

We are committed to an ongoing engineering and research and development program dedicated to innovation and to continued improvements in the quality and performance of our products as well as new product introduction. We currently employ 139 individuals in the design and development of new and existing products, with an additional 24 individuals directly involved in the testing of snowmobiles, ATVs and ROVs in normal and extraordinary conditions. In addition, these units are tested in conditions and locations similar to those in which they are used. We use computer aided design and manufacturing systems to shorten the time between initial concept and final production. For the fiscal years ended 2012, 2011 and 2010, we spent approximately

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$17,862,000, $15,029,000 and $12,926,000, respectively, on engineering, research and development. In addition, utilizing their particular expertise, our suppliers regularly test and apply new technologies to the design and production of component parts.

Sales and Marketing

Our products are currently sold through an extensive network of independent dealers located throughout the United States, Canada, and Europe and through distributors representing dealers in Europe, South America, the Middle East, Asia and other international markets. To promote new dealerships and to service our existing North American dealer network, we also employ district sales managers throughout the United States and Canada.

Our dealers enter into a three year contract and are required to maintain status as an authorized dealer in order to continue selling our products. To obtain and maintain such status, dealers are expected to order a sufficient number of snowmobiles, and/or ATVs and ROVs to adequately service their market area. In addition, the dealers must perform service on these units and maintain satisfactory service performance levels, and their mechanics are expected to complete special training provided by us. Dealers are also expected to carry adequate levels of inventory of genuine Arctic Cat parts, garments and accessories. As is typical in the industry, most of our dealers also sell some combination of motorcycles, marine products, lawn and garden products and other related products.

We utilize distributors in some countries outside the United States and Canada to take advantage of their knowledge and experience in their respective markets and to increase market penetration of our products. Canadian sales are made in Canadian dollars, nearly all of which are financed through a Canadian financial institution. Most sales to distributors outside North America are made in U.S. dollars and are supported to some extent by letters of credit.

Our sales and marketing efforts are comprised of dealer and consumer promotions, direct advertising and cooperative advertising programs with our dealers. We and many of our distributors usually conduct dealer shows annually in order to introduce the upcoming year’s models and to promote dealer orders. Marketing activities are designed to promote directly to consumers. Products are advertised and promoted by us in consumer magazines, online and through other media. In addition, we engage in extensive dealer cooperative advertising, on a local and national level, whereby we and our dealers share advertising costs. Each season we produce product brochures, point of purchase displays, leaflets, posters and banners, and other promotional items for use by our dealers. We also participate in key regional consumer shows and rallies with dealers and sponsor independent racers who participate in snowmobile races throughout the world. In order for our dealers and distributors to remain price competitive and to reduce retail inventories, we will from time to time make available to them rebate programs, discounts, or other incentives. In order to build brand loyalty we publish online magazines called Pride (snowmobile) and Ride (ATV and ROV).

We place strong emphasis on identifying and addressing the specific needs of our customers by periodically conducting dealer and consumer surveys and focus group meetings.

We warrant our snowmobiles and ATVs and ROVs under a limited warranty against defects in materials and workmanship for a period generally ranging from six months to one year from the date of retail sale or for a period of 90 days from the date of commercial or rental use. Repairs or replacements under warranty are administered through our dealers and distributors.

Competition

The snowmobile, ATV and ROV markets are highly competitive, based on a number of factors, including performance, ride, suspension, innovation, technology, styling, fit and finish, brand loyalty, reliability, durability, price and distribution. We believe Arctic Cat snowmobiles, ATVs and ROVs are highly regarded by consumers

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in all of these competitive categories. Certain of our competitors are more diversified and have financial and marketing resources which are substantially greater than ours. For a list of snowmobile and ATV competitors, please see “Industry Background” above.

Regulation

Both federal and state authorities have vigorous environmental control requirements relating to air, water and noise pollution that affect our manufacturing operations. We endeavor to insure that our facilities comply with all applicable environmental regulations and standards.

Certain materials used in snowmobile, ATV and ROV manufacturing that are toxic, flammable, corrosive or reactive are classified by federal and state governments as “hazardous materials.” Control of these substances is regulated by the Environmental Protection Agency (EPA) and various state pollution control agencies, which require reports and inspection of facilities to monitor compliance. Our manufacturing facilities are subject to the regulations promulgated by, and may be inspected by, the Occupational Safety and Health Administration.

The Consumer Product Safety Commission (“CPSC”) has federal oversight over product safety issues related to snowmobiles, ATVs and ROVs and from time to time promulgates rules related to safety. For example, in August 2006, the CPSC issued a Notice of Proposed Rulemaking to establish mandatory safety standards for ATVs. In October 2009, the CPSC issued an Advance Notice of Proposed Rulemaking to establish mandatory safety standards for ROVs. The CPSC has not issued final rules in either of these matters. Under the Consumer Product Safety Improvement Act passed by Congress in August 2008, the prior ATV voluntary standard and certain other safety requirements became a mandatory CPSC standard, all of which we have been and are in compliance with. Various states have also promulgated safety regulations regarding snowmobiles, ATVs and ROVs, none of which have had a materially more burdensome impact on us than CPSC regulations.

The EPA adopted regulations affecting snowmobiles and ATVs for model years 2006 and beyond. We believe that we are and will continue to be in compliance with these regulations. We support balanced and appropriate programs that educate the customer on the safe use of our products and protect the environment.

When we sell our products outside the United States our products are also subject to international laws and regulations related to emissions and safety matters. Europe currently regulates ATV emissions and our products meet such requirements. The European Commission proposed new regulations in 2010 that could apply to certain of the Company’s ATVs and ROVs as early as 2013. These future EU regulations have not been finalized.

We are a member of the International Snowmobile Manufacturers Association (“ISMA”), a trade association formed to promote safety in the manufacture and use of snowmobiles, among other things. The ISMA is currently made up of Arctic Cat, BRP, Yamaha, and Polaris. The ISMA members are also members of the Snowmobile Safety and Certification Committee (“SSCC”), which promulgates voluntary safety standards for snowmobiles. The SSCC standards, which require testing and evaluation by an independent testing laboratory of each model category produced by participating snowmobile manufacturers, have been adopted by the Canadian Ministry of Transport. Following the development of the SSCC standards, the CPSC denied a petition to develop a mandatory federal safety standard for snowmobiles in light of the high degree of adherence to the SSCC standards in the United States. Since our inception, all of our models have complied with the SSCC standards.

We are a member of the Specialty Vehicle Institute of America (“SVIA”), a trade association organized to foster and promote the safe and responsible use of ATVs manufactured and/or distributed throughout the United States and which promulgates voluntary safety standards for ATVs. We are also a member of the Canadian Off-Highway Vehicle Distributors Council (“COHV”), as well as the All-Terrain Vehicle Association Europe (“ATVEA”).

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Effects of Weather

While from time to time lack of snowfall in a particular region may adversely affect snowmobile retail sales within that region, we work to mitigate this effect by taking snowmobile orders in the spring for the following winter season. In the past, weather conditions have materially affected snowmobile sales and weather conditions may materially affect our future sales of snowmobiles, ATVs, ROVs and parts, garments and accessories.

Employees

At March 31, 2012, we had 1,369 employees, including 321 salaried and 1,048 hourly and production personnel. Our employees are not represented by a union or subject to a collective bargaining agreement. We have never experienced a strike or work stoppage and consider our relations with our employees to be excellent.

Intellectual Property

We make an effort to patent significant innovations that we consider patentable and we own numerous patents for our snowmobiles, ATVs, ROVs and other products. Trademarks are also important to our snowmobile, ATV and related parts, garments and accessories business activities. We believe that our “Arctic Cat” registered trademark is our most significant trademark. Additionally, we have numerous registered trademarks, trade names and logos, both in the United States and internationally.

Financial Information about Geographic Areas

Financial information regarding domestic and geographic areas is included in Note K, Segment Reporting, of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

Available Information

We are subject to the reporting requirements of the Securities Exchange Act of 1934 and its rules and regulations (the “1934 Act”). The 1934 Act requires us to file periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Copies of these reports, proxy statements and other information can be read and copied at the SEC Public Reference Room, 100 F Street, N.E., Washington D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a Web site that contains reports, proxy statements, and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s Web site at http://www.sec.gov.

We maintain a Web site at www.arcticcat.com, the contents of which are not part of or incorporated by reference into this Annual Report on Form 10-K. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (and amendments to those reports) available on our Web site, free of charge, as soon as reasonably practicable after such reports have been filed with or furnished to the SEC. Our Code of Conduct, as well as any waivers from and amendments to the Code of Conduct, are also posted on our Web site.

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EXECUTIVE OFFICERS OF REGISTRANT

Mr. Twomey has been our Chairman since 2003 and a director since 1987. Mr. Twomey was our President and Chief Executive Officer from 1986 to December 31, 2010. Mr. Twomey served as an executive officer Chairman until March 31, 2012, and currently serves as a non-executive officer, non-employee Chairman. Mr. Twomey also serves as a director of The Toro Company.

Mr. Jordan has been our Chief Executive Officer and President since January 1, 2011 and was our President and Chief Operating Officer from August 2008 to December 31, 2010. Mr. Jordan has been a director of the Company since August 2010. Prior to joining us, Mr. Jordan worked for The Home Depot, Inc. in Atlanta, Georgia from 2003 to 2008, most recently serving as a Vice President, with responsibility for running the THD At-Home Services, Inc. business. Previously, Mr. Jordan held various management positions at General Electric Company.

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

Mr. Crocker has been our Vice President—General Manager, All-terrain Vehicles since March 2012. Prior to joining us, Mr. Crocker worked for Ecolab from 2002 to 2011, serving as Senior Vice President of Ecolab’s Hospitality, Healthcare and Commercial markets businesses. Prior to that he served as Ecolab’s Senior Vice President and General Manager for Latin America and as a division Vice President of Marketing. Before joining Ecolab, he worked in sales and operating roles for Next Generation Network, Nabisco and Pepsi.

Mr. Darling has been our Vice President—General Manager, Snowmobile since January 2011. Prior to that, he was our North American Sales Director since July 2008 and National Sales Manager (Canada) since October 2004. He started with us in May 2000 as District Sales Manager.

Mr. Fisher has been our Vice President—Operations since May 2010. Prior to joining us, Mr. Fisher worked for Ingersoll Rand from 2005 to 2010, where he served as business leader of the Trane Residential Division operations for five years. Before joining Ingersoll Rand, Mr. Fisher was employed by Maytag Corporation for approximately 21 years, most recently as Vice President of Southwest Operations for Maytag’s Hoover Vacuum Division.

Mr. Nee has been our Vice President—Human Resources since August 2010. Prior to joining us, Mr. Nee worked for Express Scripts from September 2008 to April 2010, where he served as Vice President—Human Resources, Operations. Before joining Express Scripts, Mr. Nee was employed as Senior Vice President at Fiskars Brands, Inc. from October 2004 to September 2008. Prior to that, Mr. Nee spent 12 years with Newell Rubbermaid in senior human resources assignments.

Mr. Skime has been our Vice President—Snowmobile Research and Development since our inception in 1983 and has been employed in the snowmobile industry for nearly 50 years.

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Ms. Walker has been our Vice President—General Manager, Parts, Garments and Accessories since November 2007. Prior to joining us, Ms. Walker worked for 3M for 26 years, most recently serving as General Manager of Building Safety Solutions, a position that had global responsibility for business units containing window film and fire protection products.

The following are significant factors known to us that could adversely affect our business, financial condition, or operating results, as well as adversely affect the value of an investment in our common stock. These risks could cause our actual results to differ materially from our historical experience and from results predicted by forward-looking statements. All forward-looking statements made by us are qualified by the risks described below. There may be additional risks that are not presently material or known. You should carefully consider each of the following risks and all other information set forth in this Annual Report on Form 10-K.

General economic conditions and other external factors may adversely affect our industry and results of operations.

Companies within the snowmobile, ATV and ROV industries are subject to volatility in operating results due to external factors such as general economic conditions, including high unemployment and economic recession. Specific factors affecting the industry include:

Our products are subject to extensive federal and state safety, environmental and other government regulations that may require us to incur expenses or modify product offerings in order to maintain compliance with the actions of regulators.

Our products are subject to extensive laws and regulations relating to safety, environmental and other regulations promulgated by the U.S. and Canadian federal governments and individual states and provinces as well as international regulatory authorities. Although we believe that our snowmobiles, ATVs and ROVs have always complied with applicable vehicle safety and emissions standards and related regulations, future regulations may require additional safety standards or emission reductions that would require additional expenses and/or modification of product offerings in order to maintain such compliance. We are unable to predict the ultimate impact of adopted or proposed regulations on our business and operating results.

A significant adverse determination in any material product liability or intellectual property claim against us could adversely affect our operating results or financial condition.

We are subject to legal proceedings and claims which arise in the ordinary course of business. Accidents involving personal injury and property damage may occur in the use of snowmobiles, ATVs and ROVs and claims have been made against us from time to time relating to these accidents. In addition, our products, and the products of our competitors, incorporate significant amounts of intellectual property developed by us and others and, from time to time, parties assert claims against us relating to their intellectual property. It is our policy to vigorously defend against these product liability and intellectual property claims. We have recorded a reserve based on our estimated range of potential exposures to the legal proceedings and claims of which we are aware. Should any judgment or settlement occur that exceeds our estimate, or a new claim arises, we may need to adjust our overall reserve and, depending on the amount, such adjustment could be material and adversely affect our operating results or financial condition.

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Significant repair and/or replacement with respect to product warranty claims or product recalls could have a material adverse impact on our results of operations.

We provide a limited warranty for a period of six months for our ATVs and ROVs and one year for our snowmobiles. We may provide longer warranties in certain geographical markets as determined by local regulations and market conditions. Although we employ quality control procedures, sometimes a product is distributed which requires repair or replacement. Our standard warranties require us through our dealers to repair or replace defective products during such warranty periods at no cost to the consumer. Historically, product recalls have been administered through our dealers and distributors and have not had a material effect on our business. See Note A of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

Changing weather conditions may reduce demand for certain of our products and negatively impact net sales.

Lack of snowfall in any year in particular regions of North America and Northern Europe may adversely affect snowmobile retail sales and related parts, garments and accessories sales in that region. Weather conditions may materially affect our future sales of snowmobiles, ATVs, ROVs and parts, garments and accessories.

We face intense competition in all product lines, from competitors that have greater financial and marketing resources. Failure to compete effectively against competitors would negatively impact our business and operating results.

The snowmobile, ATV and ROV markets in the United States and Canada are highly competitive. Competition 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 marketing support programs (such as sales incentives and cooperative advertising). Many of our competitors are more diversified and have financial and marketing resources which are substantially greater than ours. In addition, our products compete with other recreational products for the discretionary spending of consumers. If we are not able to effectively compete in this environment, our business and operating results will be negatively impacted.

Termination or interruption of engine and other supply arrangements could have a material adverse effect on our business or results of operations.

Suzuki has manufactured snowmobile engines (and through fiscal 2008, certain ATV engines) for us pursuant to supply agreements which have been automatically renewed annually. During late fiscal 2005, we began manufacturing certain of our own designed ATV engines as part of a strategic first step in a new engine program. We believe that having the capability to design and manufacture our own ATV engines enables us to offer customers more choices, provide excellent value, reduce Japanese yen currency exposure and enhance our long-term competitive position. In 2007, we transitioned our engine manufacturing from the Thief River Falls, Minnesota facility to our new facility in St. Cloud, Minnesota. Beginning in fiscal 2009, substantially all of our ATVs use engines that are produced from our engine facility or purchased separately or as part of the 90cc to 450cc units we receive from a Taiwanese supplier.

On June 4, 2010, we signed an agreement under which we will discontinue the purchase of snowmobile engines from Suzuki after December 31, 2013 (2014 model year). Suzuki will continue to provide replacement parts for engines through December 2020. While Suzuki has been a good long-term supplier of snowmobile engines, this new agreement will allow us to gain more control of our products, offer customers more choices, provide excellent value, reduce Japanese yen currency exposure and enhance our ability to meet regulatory and performance requirements. We are expanding our snowmobile engine design capabilities, working with a variety of vendors for various engine components, and implementing equipment/processes to better utilize our current engine manufacturing capacity.

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While we anticipate no significant difficulties in obtaining substitute supply arrangements for other raw materials or components for which we rely upon limited sources of supply however, alternate supply arrangements may not be available with satisfactory terms.

Interruption of dealer floorplan financing could have a material impact on our business operations.

We have agreements with GE Commercial Distribution Finance in the United States and TCF Commercial Finance Canada in Canada to provide snowmobile, ATV and ROV floorplan financing for our North American dealers. These agreements improve our liquidity by financing dealer purchases of products without requiring substantial use of our working capital. We are paid by the floorplan companies shortly after shipment and as part of our marketing programs we pay the floorplan financing of our dealers for certain set time periods depending on the size of a dealer’s order. While we expect to continue with our current multi-year dealer floorplan arrangements, these arrangements may not remain available or the costs and other terms of new financing arrangements may be significantly less favorable to us than have historically been available.

Termination, interruption or nonrenewal of bank credit agreements could have a material adverse effect on our business or results of operations.

The seasonality of our snowmobile, ATV and ROV production cycles generates significant fluctuations in our working capital requirements during each year. Historically, we have financed our 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 this cycle. While we expect to continue with our current multi-year working capital financing agreement from our lender, working capital financing arrangements may not remain available or the costs and other terms of new financing arrangements may be significantly less favorable to us than have historically been available. In addition, our current bank credit agreement contains covenants which we might be unable to meet in some future period requiring the need for waivers or replacement financing.

Our transition to a new dealer ordering process could affect our sales and profitability during the transition period.

Over the last year we began to transition our North American Dealers to a new ATV and ROV ordering process called the Retail Product Management (RPM) process. This process allows dealers to order more frequently resulting in the need to carry less inventory throughout the dealer base. This transition could negatively impact sales during the transition to align inventory levels with the new process. Therefore our results may fluctuate more during this time of transition compared to similar periods in prior years.

None.

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ITEM 2. PROPERTIES

The following sets forth our material property holdings as of March 31, 2012.

The Company believes that the Company’s material property holdings are suitable for the Company’s current operations and purposes.

ITEM 3. LEGAL PROCEEDINGS

Accidents involving personal injury and property damage occur in the use of recreational products. Claims have been made against us from time to time relating to these accidents, and from time to time, parties assert claims relating to their intellectual property. It is our policy to vigorously defend against these actions. We are not involved in any legal proceedings which we believe will have the potential for a materially adverse impact on our business or financial condition, results of operations or cash flows. We have recorded a reserve based on our estimated range of potential exposures based on the legal proceedings and claims that we are aware of. Should any settlement occur that exceeds our estimate or a new claim arise, we may need to adjust the overall reserve and, depending on the amount, such adjustment could be material.

We presently maintain product liability insurance on a “per occurrence” basis (with coverage being provided in respect of accidents which occurred during the policy 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. We believe such insurance is adequate.

ITEM 4. MINE SAFETY DISCLOSURES

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock 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. Our stock began trading on NASDAQ on June 26, 1990.

As of May 24, 2012, we had approximately 309 stockholders of record, including the nominee of Depository Trust Company which held 12,595,857 shares of common stock.

Cash Dividends Paid

Cash dividends were declared and paid quarterly from 1995 through the third quarter of fiscal year 2009. In response to the economic recession and to conserve cash, we suspended quarterly cash dividends in the fourth quarter of fiscal 2009. We continually consider our cash position and projected cash needs in regards to our current dividend policy.

Company Purchases of Company Equity Securities

The following table presents the total number of shares repurchased during the fourth quarter of fiscal 2012 by fiscal month, the average price paid per share, the number of shares that were purchased as part of a publicly announced repurchase plan, and the approximate dollar value of shares that may yet be purchased pursuant to our stock repurchase program as of the end of fiscal 2012:

We have historically purchased our common stock primarily to offset the dilution created by employee stock option plans and because the Board of Directors believed investment in our common stock was a good use of our excess cash.

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Performance Graph

In accordance with the rules of the SEC, the following performance graph compares the performance of our common stock on The NASDAQ Stock Market to the Standard & Poor’s 500 Index, and to the Recreational Vehicles Index prepared by Hemscott, Inc., of which we are a component. The graph compares on an annual basis the cumulative total shareholder return on $100 invested on March 31, 2007, assumes reinvestment of all dividends and has been adjusted to reflect stock splits. The performance graph is not necessarily indicative of future investment performance.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Arctic Cat Inc., the S&P 500 Index

and Hemscott—Recreational Vehicles Index

Assumes $100 invested on 3/31/07 in stock or index

Assumes Dividend Reinvested

Fiscal year ended March 31,

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ITEM 6. SELECTED FINANCIAL DATA

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QUARTERLY FINANCIAL DATA (unaudited)

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Executive Level Overview

We continued our improvement in net sales and profitability in fiscal 2012. Fiscal 2012 net sales increased 26.0% to $585.3 million from $464.7 million in fiscal 2011. Fiscal 2012 net earnings increased 130% to $29.9 million or $1.72 per diluted share compared to net earnings of $13.0 million or $0.70 per diluted share in fiscal 2011. The increase in net sales was due to increased net sales for all product lines. During the fiscal year, gross margins improved 47 basis points, operating expenses as a percent of sales decreased to 14.5%, and operating profits increased 153% to $45.9 million from $18.1 million.

We experienced poor snow conditions in parts of North America during the fourth quarter, which impacted North American retail sales for the snowmobile industry and resulted in overall industry retail sales decreasing by 4% for the year. However, with the 23 new snowmobile models we launched during the year, we were able to increase our year-over-year North American retail sales slightly. We also experienced strong sales in our international markets. An area that was negatively impacted due to the snow conditions was our North American dealer inventory, where we did see a 4% increase in year-over-year inventory, as retail sales were not as strong as expected in the fourth quarter. The entire increase in inventory was in the U.S. market, as our Canadian dealers did see a year-over-year decrease in their inventory. As we look forward to next year, we believe snowmobile industry retail sales will grow between 0% and 2% and with the expected increase in industry retail sales and the launch of five new snowmobile models that were introduced at our dealer show in March 2012, combined with the 23 new models we launched in fiscal 2012, we would expect to gain additional market share during fiscal 2013.

Regarding our ATV business, reducing dealer inventory was again a key focus during the year and we were successful in reducing our North American dealer inventory of ATVs and ROVs by 22%. As we look ahead to fiscal year 2013, we will not be looking to further reduce our dealer inventory. ATV industry retail sales for North America decreased again in fiscal 2012 as retail sales decreased by 8%. However, the industry did see positive growth in the fourth quarter as industry sales increased 7% for the first time since prior to the recession. For the fourth quarter, our retail sales grew faster than the market and we gained market share. Our ROV business, excluding the Wildcat, continued to perform well and achieved double-digit year-over-year growth for both the quarter and for the year. The key driver in the side-by-side growth was the HDX heavy-duty utility vehicle, which was launched in fiscal year 2011. The highlight of the year for the ATV business was the December launch of the Wildcat. The Wildcat has an industry-leading 18 inches of rear travel suspension, electronic power steering, exoskeleton chassis, LED lights front and rear and a 1,000 cc engine. As we look forward to fiscal year 2013, we believe the ATV industry retail sales will start to rebound but will decrease slightly between 0% and 5%, while ROV sales will continue to show positive growth.

Reviewing fiscal 2012 net sales: Snowmobile sales increased 38% in fiscal 2012 to $250.4 million from $182.0 million in fiscal 2011, primarily due to increased U.S. and international snowmobile shipments. Snowmobiles comprised 43% of our net sales in fiscal 2012. ATV sales increased 25% in fiscal 2012 to $226.9 million from $181.1 million in fiscal 2011. ATV net sales comprised 39% of our net sales in fiscal 2012. Parts, garments and accessories sales increased 6% in fiscal 2012 to $107.9 million from $101.6 million in fiscal 2011, primarily due to increased snowmobile related parts, garments and accessories. Parts, garments and accessories sales were 18% of our net sales in fiscal 2012.

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Near the end of third quarter, on December 22, 2011, we repurchased all of Suzuki Motor Corporation’s 6.1 million share ownership of Arctic Cat Class B common stock. The $79.3 million stock buyback was funded entirely with existing cash. As previously announced, Suzuki will continue to supply snowmobile engines to us through the 2014 model year, as well as engine parts to service engines for seven years after that. We will move snowmobile engine manufacturing to our St. Cloud, Minnesota facility, where we have manufactured ATV engines since 2007.

Results of Operations

Product Line Sales for the Fiscal Year Ended March 31,

Product Line Sales. During fiscal 2012, net sales increased 26.0% to $585.3 million from $464.7 million in fiscal 2011. Snowmobile unit volume increased 27.5%, ATV unit volume increased 16.2%, and parts, garments and accessories sales increased $6.3 million. The increase in net sales is mainly due to increased sales of snowmobiles, Wildcat ROVs, and international ATVs. In addition increased sales of ATV parts, Wildcat ROV and snowmobile accessories and garments contributed to the sales increase. During fiscal 2011, net sales increased 3.1% to $464.7 million from $450.7 million in fiscal 2010. Snowmobile unit volume increased 14.9%, ATV unit volume increased 0.3%, and parts, garments and accessories sales increased $1.8 million. The increase in net sales is mainly due to U.S. and international sales increases on snowmobiles and related parts, garments and accessories.

Cost of Goods Sold for the Fiscal Year Ended March 31,

Cost of Goods Sold. During fiscal 2012 cost of sales increased 25.2% to $454.6 million from $363.1 million for fiscal 2011. Fiscal 2012 snowmobile and ATV unit cost of sales increased 28.3% to $388.5 million from $302.8 million due primarily to increased sales. The unit cost of sales as a percentage of sales improved to 81.4% from 83.4% primarily due to increased unit volume, pricing and product mix. The fiscal 2012 cost of sales for parts, garments and accessories increased to $66.1 million from $60.4 million for fiscal 2011 due primarily to increased sales. Fiscal 2011 cost of sales decreased 1.2% to $363.1 million from $367.5 million for fiscal 2010. Fiscal 2011 snowmobile and ATV unit cost of sales decreased 2.1% to $302.8 million from $309.2 million due primarily to ongoing efforts to reduce the cost of our products and distribution costs. The fiscal 2011 cost of sales for parts, garments and accessories increased to $60.4 million from $58.3 million for fiscal 2010 due primarily to increased sales.

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Gross Profit for the Fiscal Year Ended March 31,

Gross Profit. Gross profit increased 28.7% to $130.6 million in fiscal 2012 from $101.5 million in fiscal 2011. The gross profit percentage for fiscal 2012 increased to 22.3% versus 21.8% in fiscal 2011. The 47 basis point increase in the fiscal 2012 gross profit percentage was primarily due to increased unit volume, pricing and product mix. Gross profit increased 22.0% to $101.5 million in fiscal 2011 from $83.2 million in fiscal 2010. The gross profit percentage for fiscal 2011 increased to 21.8% versus 18.5% in fiscal 2010. The increase in the fiscal 2011 gross profit percentage was primarily due to product cost reductions, price increases and a favorable Canadian dollar exchange rate.

Operating Expenses for the Fiscal Year Ended March 31,

Operating Expenses. Selling and Marketing expenses increased 9.0% to $36.5 million in fiscal 2012 from $33.5 million in fiscal 2011, primarily due to increased snowmobile and ATV selling and marketing expenses. Selling and Marketing expenses decreased 1.1% to $33.5 million in fiscal 2011 from $33.9 million in fiscal 2010, primarily due to lower ATV marketing expenses. Research and Development expenses increased 18.9% to $17.9 million in fiscal 2012 compared to $15.0 million in fiscal 2011, due primarily to higher compensation and development expenses. Research and Development expenses increased 16.3% to $15.0 million in fiscal 2011 compared to $12.9 million in fiscal 2010, due primarily to higher compensation and development expenses. General and Administrative expenses decreased 12.9% to $30.3 million in fiscal 2012 from $34.8 million in fiscal 2011, due primarily to increased Canadian hedge benefits offset by higher compensation costs. General and Administrative expenses decreased 0.7% to $34.8 million in fiscal 2011 from $35.0 million in fiscal 2010, due primarily to decreased Canadian hedge costs offset by higher compensation costs.

Other Income/Expense. Interest income decreased to $86,000 in fiscal 2012 from $107,000 in fiscal 2011. Interest expense decreased to $8,000 in fiscal 2012 from $11,000 in fiscal 2011. Interest income was primarily affected by the lower cash levels at the end of the 2012 fiscal year compared to last year due to the $79.3 million repurchase of our stock from Suzuki in December 2011. Interest expense is lower due to lower borrowing levels primarily driven by our improved cash levels. Interest income increased from $12,000 in fiscal 2010 to $107,000 in fiscal 2011. Interest expense decreased from $250,000 in fiscal 2010 to $11,000 in fiscal 2011. Interest income was primarily affected by the lower cash levels at the beginning of the 2011 fiscal year compared to the prior year as well as lower interest rates during fiscal 2011. Interest expense was lower due to lower borrowing levels primarily driven by reduced inventory levels and our improved cash levels.

Net Earnings. Fiscal 2012 net earnings were $29.9 million, or $1.72 per diluted share, versus net earnings of $13.0 million, or $0.70 per diluted share, for fiscal 2011. Net earnings as a percentage of net sales were 5.1% and 2.8% in fiscal 2012 and 2011, respectively. The increased earnings are attributable to improved gross margin and continued efforts to control operating expenses. Fiscal 2011 net earnings were $13.0 million, or $0.70 per

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diluted share, compared to net earnings of $1.9 million, or $0.10 per share, for fiscal 2010. Net earnings as a percentage of net sales were 2.8% and 0.4% in fiscal 2011 and 2010, respectively. The increased earnings are attributable to improved gross margin and continued efforts to control operating expenses.

Inflation

Inflation historically has not significantly impacted our business. We generally have been able to offset the impact of increasing costs through a combination of productivity gains and product price increases.

Critical Accounting Policies

The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates. We reviewed the development and selection of the critical accounting policies and believe the following are the most critical accounting policies that could have an effect on our reported results. These critical accounting policies and estimates have been reviewed with the Audit Committee of the Board of Directors.

Revenue Recognition

We recognize revenue and provide for estimated marketing and sales incentive costs when products are shipped to dealers and distributors pursuant to their order, the price is fixed and collection is reasonably assured. We have agreements with finance companies to repurchase products repossessed up to certain limits. Our financial exposure to repurchase products is limited to the difference between the amount paid to the finance company and the resale value of the repossessed products. Historically, we have not incurred material losses as a result of repurchases nor have we provided a financial reserve for repurchases. Adverse changes in retail sales could cause this situation to change.

Marketing and Sales Incentive Costs

We provide for various marketing and sales incentive costs which are offered to our dealers and consumers at the later of when the revenue is recognized or when the marketing and sales incentive program is approved and communicated. Examples of these costs include: dealer and consumer rebates, dealer floorplan financing assistance and other incentive and promotion programs. Adverse market conditions resulting in lower than expected retail sales or the matching of competitor programs could cause accrued marketing and incentive costs to materially increase if we authorize and communicate new programs to our dealers. We estimate marketing and sales incentive costs based on expected usage and historical experience. The accrual for marketing and sales incentive costs at March 31, 2012 and 2011 was $11.0 million and $9.4 million, respectively, and is included in accrued expenses in our balance sheet. The increase in this accrual was a result of current announced and communicated marketing and sales incentive programs and retail market conditions. Historically, marketing and sales incentive program expenses have been within our expectations. To the extent current experience differs with previous estimates the accrued liability for marketing and sales incentives is adjusted accordingly.

Product Warranties

We generally provide a limited warranty to the owner of snowmobiles for 12 months from the date of consumer registration and for six months on ATVs. We provide for estimated warranty costs at the time of sale based on historical rates and trends and make subsequent adjustments to this estimate as actual claims become known or the amounts are determinable. Adverse changes in actual warranty costs compared to our initial estimates could cause accrued warranty costs to materially change. The accrual for warranty costs was

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$18.5 million and $14.1 million at March 31, 2012 and 2011, respectively. Historically, actual warranty costs have been within our expectations.

Inventories

Our inventories are recorded at the lower of cost or market, with cost based on a first-in, first-out basis. We periodically assess inventories for obsolescence and potential excess. This assessment is based primarily on assumptions and estimates regarding future production demands, anticipated changes in technology or design, historical and expected future sales patterns. Our inventories consist of materials and products that are subject to changes in our planned production of future snowmobile and ATV products and competitive market conditions which may cause lower of cost or market adjustments to our finished goods inventory. If market conditions or future demand are less favorable than our current expectations, additional inventory write downs or reserves may be required, which could have an adverse effect on our reported results in the period the adjustments are made. Inventory items that are identified as obsolete or excess are fully reserved on our balance sheet and are generally scrapped. Historically, inventory obsolescence and potential excess costs adjustments have been within our expectations.

Product Liability and Litigation

We are subject to product liability claims and other litigation in the normal course of business. We maintain insurance for product liability claims although we retain a self-insured retention accrual within the balance sheet caption “Insurance” within accrued expenses. The estimated costs resulting from any losses not covered by insurance are charged to operating expenses when it is probable a loss has been incurred and the amount of the loss is reasonably determinable.

We utilize historical trends and other analysis to assist in determining the appropriate loss estimate. Adverse changes in the final determination of product liability or other claims made against us could have a material impact on our financial condition. Historically, actual product liability and litigation costs have been within our expectations.

Stock-Based Compensation

We recognize stock-based compensation based on certain assumption inputs within the Black-Scholes Model. These assumption inputs are used to determine an estimated fair value of stock-based payment awards on the date of grant and require subjective judgment. We assess the assumptions and methodologies used to calculate estimated fair value of stock-based compensation on a regular basis. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies and thereby materially impact our fair value determination. If factors change and we employ different assumptions, the amount of compensation expense may differ significantly from what was recorded in the current period.

Liquidity and Capital Resources

The seasonality of our snowmobile and ATV production cycles generates significant fluctuations in our working capital requirements during the year. The following table represents net sales and ending inventories by each quarter in the fiscal years ended March 31, 2012 and 2011.

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As a result of increased fourth quarter net sales and fiscal 2013 first quarter production, our finished goods inventory balance increased as of March 31, 2012 compared with March 31, 2011. Historically, we have financed our 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. We believe current available cash and cash generated from operations together with working capital financing through our available line of credit will provide sufficient funds to finance operations on a short and long-term basis. However, there can be no assurance that adequate working capital financing arrangements will remain available or that the costs and other terms of such new financing arrangements will not be significantly less favorable to us than has historically been available.

Cash and Short-Term Investments

Cash and short-term investments decreased to $62,597,000 at March 31, 2012 from $125,113,000 at March 31, 2011 mainly due to the $79.3 million repurchase of all of Suzuki’s 6.1 million ownership of Arctic Cat Class B common stock during the third quarter. Our cash balances traditionally peak early in the fourth quarter and then decrease as working capital requirements increase when our snowmobile and spring ATV production cycles begin. Our investment objectives are first, safety of principal and second, rate of return.

Financing Arrangements and Cash Flows

We have operated since November 2009 under a $60,000,000 secured bank credit agreement for the documentary and stand-by letters of credit and for working capital purposes. We may borrow up to $60,000,000 during June through November and up to $45,000,000 during all other months of the fiscal year. The total letters of credit issued at March 31, 2012 were $14,228,000 of which $11,279,000 was issued to Suzuki for engine and service parts purchases.

We have agreements with GE Commercial Distribution Finance in the United States and TCF Commercial Finance Canada in Canada to provide snowmobile, ATV and ROV floorplan financing for our dealers. These agreements improve our liquidity by financing dealer purchases of products without requiring substantial use of our working capital. We are paid by the floorplan company’s shortly after shipment and as part of our marketing programs, we pay the floorplan financing of our dealers for certain set time periods depending on the size of a dealer’s order.

The financing agreements require repurchase of repossessed new and unused units and set limits upon our potential liability for annual repurchases. The aggregate potential liability was approximately $74,050,000 at March 31, 2012. We have incurred no material losses under these agreements. We believe current available cash and cash generated from operations provide sufficient funding in the event there is a requirement to perform under these guarantee and repurchase agreements. The financing agreements also have loss sharing provisions should any dealer default whereby the Company shares certain losses with the floorplan finance companies. The potential liability to the Company under these provisions is approximately $6.7 million at March 31, 2012.

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In fiscal 2012, we invested $14,993,000 in capital expenditures. We expect that capital expenditures will increase to approximately $19,000,000 in fiscal 2013. Since 1996, we have repurchased over 17,000,000 shares of our common stock. There is approximately $5,672,000 remaining on the January 2008 share repurchase authorization. We believe that cash generated from operations and available cash will be sufficient to meet our working capital and capital expenditure requirements on a short and long-term basis.

Contractual Obligations

The following table summarizes our significant future contractual obligations at March 31, 2012 (in millions):