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Polaris Reports Record Second Quarter 2013 Results; EPS Increased 15% To $1.13 With Sales Growth Of 12%

Polaris Industries Inc. (NYSE: PII) today reported record second quarter net income of $80.0 million, or $1.13 per diluted share, for the quarter ended June 30, 2013, up 15 percent from the prior year’s second quarter net income of $69.8 million, or $0.98 per diluted share. Sales for the second quarter 2013 totaled a record $844.8 million, an increase of 12 percent over last year’s second quarter sales of $755.4 million.

Scott Wine, Polaris’ Chairman and Chief Executive Officer, stated, “We are pleased with the strength of our brands and the performance of our team, as they overcame unusually wet weather conditions across North America and sluggish international consumer demand to once again deliver record results. Retail sales to consumers in North America rose 11 percent in the second quarter, accelerating from softer first quarter results and sequentially reducing dealer inventory ahead of perhaps the most eagerly anticipated new product launch in the Company’s history. We also gained market share in our Off-Road Vehicle business, despite increasing competitive pressure. In addition, we expanded gross margin by 120 basis points, driven in large part by increased selling prices and continued product cost reduction efforts.”

Wine continued, “The second half of 2013 will be a momentous time for Polaris. In the coming weeks we will introduce some of the most exciting products in our history, which we expect will accelerate retail growth for the remainder of the year and beyond. The much anticipated re-launch of Indian Motorcycles has finally arrived, just a few short years after we purchased the brand in 2011. The motorcycles are gorgeous, the distribution channel is developing nicely and on August 3 rd at the motorcycle rally in Sturgis, South Dakota, we will officially bring choice, in the form of the oldest American motorcycle company, back to the motorcycle riding community. While we are extremely enthusiastic about our future in motorcycles, we are equally excited to unveil some of the most innovative Off-Road Vehicles the Company has ever developed at our upcoming Dealer Meeting next week. Given continued share gains, and the actual performance of the Company in the second quarter, we are again confident in raising our earnings expectations for the full year 2013.”

2013 Business Outlook

For the full year 2013, the Company is increasing its earnings guidance and now expects earnings to be in the range of $5.20 to $5.30 per diluted share, an increase of 18 to 20 percent over full year 2012 earnings of $4.40 per diluted share. Full year 2013 sales are expected to grow in the range of 13 percent to 15 percent from 2012. We currently anticipate the overall economic environment around the world to remain relatively unchanged from the first half of 2013.

Second Quarter Performance Summary (in thousands except per share data)

Three Months ended June 30,

Six Months ended June 30,

Product line sales






Off-Road Vehicles $ 619,223 $ 581,143 7 % $ 1,160,495 $ 1,085,710 7 %
Snowmobiles 8,461 8,873 -5 % 23,175 13,520 71 %
Motorcycles 49,872 53,122 -6 % 101,669 108,011 -6 %
Small Vehicles 33,714 11,615 190 % 44,773 21,382 109 %
Parts, Garments & Accessories  








Total Sales $

$ 755,446


$ 1,590,709 $ 1,429,196


Gross profit $ 252,338 $ 216,749


$ 468,986 $ 411,712


Gross profit as a % of sales 29.9 % 28.7 % +120 bpts 29.5 % 28.8 % +70 bpts
Operating expenses $ 138,286 $ 114,530


$ 263,039 $ 225,129


Operating expenses as a % of sales 16.4 % 15.2 % +120 bpts 16.5 % 15.8 % +70 bpts
Operating Income   125,554   110,434


$ 227,523 $ 201,981


Operating Income as a % of sales 14.9 % 14.6 % +30 bpts 14.3 % 14.1 % +20 bpts
Net Income $ 80,004 $ 69,823

% $ 155,468 $ 129,901 +20 %
Net income as a % of sales 9.5 % 9.2 % +30 bpts 9.8 % 9.1 % +70 bpts
Diluted Net Income per share $ 1.13 $ 0.98 +15 % $ 2.20   $ 1.83 +20 %

Off-Road Vehicle (“ORV”) sales increased 7 percent from the second quarter 2012 to $619.2 million. This increase reflects continued North American market share gains for both ATVs and side-by-side vehicles. Polaris North American ORV unit retail sales were up low double digits percent from the second quarter last year, with consumer purchases of side-by-side vehicles climbing double digits percent and ATV retail sales up mid-single digits percent. The Company estimates the North American industry ORV retail sales increased mid-single-digits percent from the second quarter of 2012. North American ORV dealer inventories were up mid-teens percent from the second quarter of 2012 primarily to support new ORV product segments, but down sequentially from the 2013 first quarter, as anticipated.

Snowmobile sales totaled $8.5 million for the 2013 second quarter compared to $8.9 million for the second quarter of 2012. Second quarter snowmobile sales are routinely low for the Company as it is the off-season for snowmobile retail sales and shipments.

Sales for the Motorcycles division, which includes both Victory and Indian motorcycle sales, decreased six percent to $49.9 million in the 2013 second quarter compared to same period last year. The decline in the 2013 second quarter sales is due to the timing of shipments under the current order taking process called retail flow management (“RFM”) which is closely tied to retail sales compared to the second quarter last year wherein shipments were made based on annual dealer orders and timing of production. North American industry heavyweight cruiser and touring motorcycle retail sales increased low single digits percent during the 2013 second quarter as compared to the prior year’s second quarter. Over the same period, Victory North American consumer unit retail sales also increased in the low single digits percent range. North American Victory dealer inventory increased over 2012 levels due to increased segment stocking as part the RFM order taking process and an increase in the dealer count, as expected.

Sales of the Small Vehicles division, which is comprised of our GEM and Goupil electric vehicles as well as Aixam, which the Company acquired in the second quarter of 2013, increased 190 percent compared to the second quarter 2012 to $33.7 million. While the Aixam Mega acquisition contributed a substantial portion of Small Vehicles’ 2013 second quarter sales growth, both the GEM and Goupil brands experienced an increase in sales during the quarter compared to the same period last year.

Parts, Garments, and Accessories (“PG&A”) sales increased 33 percent during the second quarter 2013 compared to the same period last year to $133.5 million. In addition to continued double digits percent sales growth in all product lines and product categories during the quarter, the 2013 second quarter sales increase includes the additional PG&A related sales from the recent acquisitions of Klim and Aixam. Sales of PG&A to customers outside of North America also increased 33 percent during the 2013 second quarter compared to the same period last year.

International sales totaled $135.5 million for the 2013 second quarter, which represents a 22 percent increase over the same period in 2012. The increase in the second quarter sales included the recent acquisition of Aixam Mega, which accounted for essentially all of the increase. While PG&A sales were strong, wholegood ORV and motorcycle sales remained weak outside North America during the 2013 second quarter, due to continued sluggish economic and industry conditions primarily in Europe and Australia. However, the Company continued to gain market share during the 2013 second quarter in both ORV and motorcycles.

Gross profit was 29.9 percent of sales for the second quarter of 2013, an increase of 120 basis points from the 2012 second quarter. Gross profit dollars increased 16 percent to $252.3 million for the second quarter of 2013, compared to $216.7 million for the second quarter of 2012. The increase in gross profit dollars and percentage of sales was primarily due to continued product cost reduction efforts, higher selling prices and higher PG&A sales, offset somewhat by higher promotional costs and increased warranty costs.

Operating expenses for the second quarter 2013 increased 21 percent to $138.3 million or 16.4 percent of sales compared to $114.5 million or 15.2 percent of sales for the second quarter of 2012. Operating expenses in absolute dollars and as a percentage of sales for the second quarter of 2013 increased primarily due to higher sales and marketing costs partially related to the upcoming Indian Motorcycles re-launch, increased general and administrative expenses which include additional expenses related to the recent Aixam acquisition and continued infrastructure investments being made to support growth initiatives.

Income from financial services increased 40 percent to $11.5 million during second quarter 2013 compared to $8.2 million in the second quarter of 2012, primarily a consequence of increased profitability generated from the retail credit portfolios with Sheffield, GE and Capital One and higher income from the dealer inventory financing through Polaris Acceptance.

Equity in income (loss) of affiliates was $0.6 million of loss for the second quarter 2013, which represents the Company’s portion of the start-up costs related to the Polaris/Eicher joint venture in India established in 2012.

Non-operating other (income) expense was $1.2 million of income in the second quarter of 2013, compared to $0.2 million expense in the second quarter of 2012. The change is the result of foreign currency exchange rate movements and the resulting effects on foreign currency transactions related to the Company’s foreign subsidiaries.

Financial Position and Cash Flow

Net cash provided by operating activities increased 32 percent to $103.5 million for the year-to-date period ended June 30, 2013 compared to $78.4 million for the first half of 2012. The increase in net cash provided by operating activities for the 2013 period was largely due to increased net income, partially offset by a higher investment in working capital, primarily due to higher factory inventory compared to the same period in 2012. Total debt at the end of the second quarter was $107.6 million. The Company’s debt-to-total capital ratio was 12 percent at June 30, 2013, compared to 16 percent at the same period in 2012. Cash and cash equivalents were $217.7 million at June 30, 2013 compared to $289.3 million for the same period in 2012.

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