Polaris Inc. (PII) Q3 2012 Earnings Report, Transcript and Summary

Good morning. My name is Michele, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Polaris Third Quarter Earnings Results Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Richard Edwards, Director of Investor Relations. Please go ahead sir.

Thank you, Michele. Good morning and thank you for joining us for our 2012 third quarter earnings conference call. A slide presentation is accessible at our website at www. polaris.com/irhome, which has additional information for this morning’s call. The speakers today are Scott Wine, our Chief Executive Officer, Bennett Morgan, our President and Chief Operating Officer and Mike Malone, our Chief Financial Officer. As before during the call today, we will be discussing certain topics, including product demand and shipments, sales and margin trends, income and profitability levels, and other matters including more specific guidance on our expectations for the balance of 2012, and some qualitative comments for 2013 which should be considered forward-looking for the purposes of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projections in the forward-looking statements. Now, I will turn it over to Scott Wine. Scott?

Thanks Richard. Good morning and thank you for joining us. It has now been four years since I led my first earnings call at Polaris. Then, like now, we had record results to report, but I clearly recall that morning on October of 2008 when we had the additional task of discussing our plans to navigate the pitfalls of appending recession. We made the best of that downturn and are now a significantly larger, more profitable and more global company. But our current outlook for the US and world economy is not great, and an abundant range of opportunities and challenge face this Polaris team every day. As we review our third quarter results this morning there should be no doubt that we will continue to aggressively pursue our strategy. Sales for the third quarter climbed 21%, to a record $879.9 million, primarily driven by strong consumer and dealer demand for our expansive and innovative line up of off-road vehicles and motorcycles. The healthy demand also propelled higher PG&A sales helping to offset a slower 3% sales increase in our international business. As anticipated our EMEA business saw a notable slowdown in demand during the quarter resulting in flat year-over-year revenue. While our Asia-Pacific/Latin America business delivered another solid double digit growth quarter. Our military small vehicle and Bobcat National Account adjacencies each contributed marginally to growth in the quarter but the best days are still in the future for these strategically important investments. Third quarter net income rose 39% to $94.3 million, representing net income margin of 10.7% and yielding record earnings per share of $1.33 or 40% improvement over the prior year period. After a challenging second quarter for gross profit margin expansion, we were pleased with the 120 basis point improvement the team drove in the quarter.…

Thanks Scott. Third quarter business performance remained excellent. North American retail sales increased over 10%, our 10th consecutive quarter of double digit retail growth. We gained market share in every business and we further extended our industry leading aggregate market share position in North American power sports. We are not resting on our walls. During the third quarter we successfully launched our Retail Flow Management our RFM System to our Victory dealer network. This innovative new lean pole program allows dealers to order daily instead of annually, creates segment stocking profiles for each dealer and is designed to ensure customer order fulfillment in 18 days or less. We expect that this will significantly reduce forecast errors, unproductive inventory and retail stock outs while accelerating retail sales and ultimately improving customer satisfaction. Early execution and dealer reaction to the RFM System has been very positive. We’ve also improved our industry leading ORV MVP program to a number of executional enhancements focused on delivering visibility, accuracy and responsiveness. Overall, North American dealer inventory rose 23% in the third quarter versus a year ago, but by nearly every metric we track the quality of our dealer inventory is excellent and improving. For example, dealer inventory productivity as a function of sales revenue generated has more than doubled since 2008, is up 50% versus September of 2010 and is 2% better than 2011. ORV inventory increased 18% as we delivered on our commitment to improve service levels and response times, the additional ORV unit inventory is in all the right places, and ORV dealer inventory days of supply rose only slightly. Side by side inventory has been thoughtfully increased versus 2011’s very low levels to support the increased retail sales velocity and additional stock to support four new incremental side by side market segments…

Thanks Bennett and good morning to everyone. We are pleased with the continued strength of our business which as Scott mentioned earlier is allowing us to raise our full year guidance for 2012. I’ll begin with a review of our revised guidance. We now expect total company sales to increase 19% to 20% for the full year of 2012 with individual businesses contributing as follows. Our off-road vehicles sales to dealers are expected to climb about 20%, up from our prior guidance with retail sales of side-by-side vehicles and ATVs continuing to outpace the overall market, both in North America and internationally. We expect to continue to gain ORV market share in the balance of 2012. On-road vehicle sales comprised of Victory and Indian brand motorcycles as well as the company’s GEM and Goupil small electric vehicles are expected to increase 60% to 65% in 2012 up from our previously issued guidance primarily due to the strong worldwide retail sales in our Victory business. Snowmobiles sales are now expected to be about flat with the strong results posted last year, a slight improvement from our prior guidance. All dealer and international distributor orders are in and we will wrap up shipping those orders in the fourth quarter. We expect PG&A sales to grow in the mid-teens percent range with growth coming from ORVs and our international division which is a slight increase from prior guidance. We now expect 2012 sales to customers outside of North America to increase about 10% over last year. This is a slight reduction from prior guidance as European economies remain very sluggish. Gross margins are now expected to expand in the range of 70 to 90 basis points from last year, a slight improvement over the guidance last quarter. I will provide more details on…

Thanks Mike. I will conclude our comments today with some preliminary thoughts on 2013. This could be an easier task if I could postpone the discussion until after November 6 since we are facing what appears to be one of the more consequential elections in our lifetime. Potential tax and regulatory changes will certainly impact Polaris and the economy we operate in. But we are prepared to deal effectively with whatever Washington throws our way. I referred earlier to how we successfully navigated the last downturn and while a 2013 recession is not our forecast, hope or preference, we will be ready if required to leverage our agility and speed to weather the storm, intensify our competitiveness and position the business for long-term growth. Irrespective of the economic outlook, we are keenly aware of and extensively prepared for a significant increase in competitive pressure especially in the side-by-side sector. We begin the battle from an NVO position of strength with unparalleled armada of Ranger and RZR products and a multiyear product pipeline of new side-by-side products that we believe will be unequalled in the industry. The additional end market work that our teams are executing with our dealers is equally exciting and impactful and gives us confidence that we can deliver another year of market share gains in off-road vehicles in 2013. We are about as certain of snowfall this coming season as I am about the outcome of the elections, but Mike Jonikas and his team have introduced an excellent line up of snowmobiles led by, as Bennett mentioned my personal favorite, the 2013 Pro Arm K sled of the year. That should enable us to chase retail sales and share gains as the season unfolds. As our Victory business continues to roll in the third year of their…

[Operator Instructions] Your first question comes from Tim Conder from Wells Fargo. Your line is open. Timothy Conder – Wells Fargo: Thank you gentlemen and congrats on the quarter. A couple of questions here. Bennett, you alluded to the outsourcing, that you are increasing the part of components that are outsourced. Could you talk about the impact to margin that’s having in this year and when do you expect that to normalize. Then also the sales and promotions and incentives on your balance sheet accrued it’s up about 31% year-over-year. You talked about, Mike, you talked about the higher sales incentives, can you give us a little bit more detail on what segments that you are seeing that in particular.

Sure. The first question, let me just tackle promo first. As we talked about, we are not seeing anything that’s shocking to us. We had our relatively weak snow season, so competitors are a little bit more aggressive out of the gates in the fall here to make sure that we retail the non-current sleds from last year and I think we are all just being prudent there. We have seen a little bit more ORV activity from both an ATV and a side by side perspective, you know, as Polaris continues to gain share with innovative product we think our competitors are trying to respond, and I think – again, it’s not something that’s shocking to us. I think we show that we win with new product but we always have some powder so that if the environment gets a little more competitive we are able to compete in that game. And I think we feel pretty good about our ability on both front. So, a little bit higher, we are just trying to be prudent, but again nothing that we are overly concerned about or really unexpected in this kind of choppy or economic environment. The next question was on outsourcing. Yeah, that’s a product of, you know, doubling the size of the business as rapidly as we have, when we came out of the recession we were able to in-source a fair amount of activity into our plans which was very helpful from a cost standpoint and also allowing ourselves to flex as we’ve grown very dramatically even with some of our capacity increases. We have had to make what I think strategic choices to outsource to our supply base and I think that will probably continue to happen modestly as we grow. It’s a modest impact on 2012 gross margin. That’s why I kind of highlighted it in the comment and I think as we go into 2013 it will continue to be a modest impact. Timothy Conder – Wells Fargo: Okay. And then gentlemen the other thing is regarding Latin America, your distribution, can you update us what you added growing there year-to-date and then the plans maybe looking through where you want that to be say by the end of ’13?

Yeah Tim, it’s Scott. We are – as we talked about, we are off to a slower start there as we worked through some challenging distribution arrangements. We are not prepared to talk about the number of new dealer add. I will tell you that Rodrigo, our leader down there has a very aggressive plan that they are executing and we certainly expect to go into 2013 with a broader distribution network that we will build out significantly through the year there. But really not a specific metric we are going to talk about. Timothy Conder – Wells Fargo: Okay, okay great. Thank you gentlemen.

Thanks Tim, next question.

Your next question comes from Scott Stember from Sidoti & Company. Your line is open. Scott Stember – Sidoti & Company: Could you guys talk about the timing of the rollout of the new Ranger XP 900 and when it goes to that set of retailing?

Yeah, Scott this is Bennett. We were really in position coming right out of the dealer show in Las Vegas and we began shipments essentially in mid to late August and we are starting to – we are attempting to try to fill the pipeline. The consumer response has been as I iterated in my remarks absolutely outstanding and we are retailing this – at almost an unprecedented rate. So there is product in the field, there is products starting to retail but I would still tell you that the impact is by – a full size Ranger, is a key model, that will be very, very modest in the third quarter and I think you will see obviously significantly more shipments in retail in the fourth quarter and quarters beyond. Scott Stember – Sidoti & Company: Yeah, and that was my next point was on a sequential basis your North American retail and off-road vehicle, one would expect that would probably increase somewhat, correct?

We would expect that that would be helpful to Ranger sales in the platform, and again the way we position this and the way we feel like this is we have created a whole new class of rec utility vehicles with the capabilities of this vehicle and at least again very early from dealer and consumer responses customers appear to agree with us. Scott Stember – Sidoti & Company: Okay, and just sticking on this model, the Ranger XP 900 and this new cab system, can you talk about from the PG&A side how the initial sales have been with regards to that and customer acceptance of that and the opportunity I guess in the fourth quarter heading out to next year?

Yeah it’s been awesome. We are arguably by side-by-side penetration standards we are seeing unprecedented levels for Ranger penetration and most of that success is being driven the cab. It’s been so successfully frankly that our PG&A guys are struggling to meet demand here in the short term because response has been so fantastic from dealers and consumers. So I think that will be a nice lift or accelerant for our PG&A volume as the Ranger XP continues to pick up momentum in retail and in wholesale as we go through the upcoming quarters. Scott Stember – Sidoti & Company: Okay and last question on the military, the governments are certainly holding off on spending right now, but could you talk about maybe some new products that are out there that you guys will be in a good position when the orders start coming back through again where you can start to accelerate that order bank?

Yeah, Scott we are – as we talked about I think I had it in my prepared remarks, I mean some of the technology investments around light armor we will have a press release going out for the AUSA, the big army conference that starts next week. Really excited about what we can do with light armor, really excited about our unmanned vehicle capabilities, the potential for the NPTs, I think you had a chance to ride them. Even from a kit perspective as we think about retrofitting some of the things, the vehicles that we have in Afghanistan and Iraq could be very exciting. So, on the vehicles side we are working closely with the special operations command, the Special Forces guys. They have helped us design what we think is one of the best vehicles across our commercially – I mean that we have ever built. We don’t know about the viability of that. Sometimes these decisions in defense market take time but while we are disappointed in the short term GSA orders and take-on demands we are really excited about what the team has in store for the future and we will aggressively work to try to get those products sold in. Scott Stember – Sidoti & Company: Great. That’s all I have, thank you.

Your next question comes from Gregory Badish from Kanian, Citi. Your line is open. Greg Badishkanian – Citigroup: Greg Badishkanian here. First, yeah, really nice quarter obviously and just kind of going back to Scott’s comments like in terms of the R&D investment. So, last few years have been great in terms of the level of innovation. So when would you expect all those investments to hit? Have they been hitting already and it’s going to be pretty consistent levels of innovation over the next few years? Was there any step up in terms of where you saw kind of a level of innovation really picking up and maybe your flat line after that?

You know Greg we have kind of been communicating and the reality is it’s not a hard, vast target for us but we have pretty consistently spent about 4% of our revenue on R&D and as Bennett just mentioned we doubled the size of the company and therefore we have doubled the size of R&D investment. A lot of that money has gone into motorcycles and specifically the Indian bikes and you haven’t seen that come out yet. We continue to spend a tremendous amount on our core offered vehicle business.

I think a key indicator of that Greg is this vitality index, and Bennett mentioned that over 80% now and it’s been gradually rising from 60s to 70s and now it’s 80s. So I think that’s evidence that we are seeing now the results of some of the investments that we have been making and as Scott said there is much more to come. Greg Badishkanian – Citigroup: Great, that’s very helpful. And then just kind of moving over to Europe obviously there is economic issues there. So are there any specific markets getting incrementally worse or better and any sort of big changes in the competitive landscape over the last few months or has it been pretty steady?

I just had the opportunity – actually I went over there with Matt and the team a couple of weeks ago for the [inaudible] show. As expected the situation in France has gotten a little bit worse throughout the year. Spain, I don’t know that it can get much worse but it’s been kind of bottoming along. Some of the other markets – and we kind of paint our EMEA business with one brush. But as I mentioned on my comments we are pleased with what's going on in Russia, some of the Scandinavian markets are really good and we do feel like that unless there is a – one of the risk country goes into a sovereign debt default we think we can post the growth in 2013. Greg Badishkanian – Citigroup: Great, thank you very much.

Your next question comes from Jaime Katz. Your line is open. Jaime Katz – Morningstar, Inc.: Nice quarter. So, the slide show shows that growth adjacency is topic, it’s really gone from about $200 million to $500 million up to $1 billion to $2 billion. But, it looks like the categories that were highlighted stayed pretty much the same quarter-over-quarter. Has there been any difference in kind of acquisition opportunities or has it just been from better current opportunities that you have that you guys have kind of raised that number?

No, actually Jaime what that is nothing more than calendarization, when we set that target out, it was a three to five year target. We’re now four years into it, so you almost have to go to the longer 10 year outlook that we had and that’s all we’ve seen. Certainly, as we put more resources and energy behind the acquisition opportunities, we see more, we have more in the funnel, but really that was just a change on the slide with nothing more than the four years have past since we started this. Jaime Katz – Morningstar, Inc.: Okay. And then, I know there has been some talk obviously before this about the sales incentives. Has there been more – has it actually been more promotional overseas or has it been more promotional here because of the competitive environment?

Usually what drives our promotional reserves would be much more North America and so that’s generally the biggest part of our business and has generally been the more promotional market, so that’s the big move. We have seen a little bit more promotion in Europe, I mean from a standpoint of a P&L impact, you know, very, very modest. So most of what you’re seeing there is really North American driven. Jaime Katz – Morningstar, Inc.: Okay. Lastly, snowmobiles seems to do really well in that Scandinavian and Russian markets is what you guys said. Has anything changed in the distribution channel there or have you had just better access this year or is anything different year-over-year that we need to think about?

Not really, a couple of factors. The Scandinavians and the Russians did get snow that’s obviously helpful. The North Americans didn’t, so I think that’s one noticeable change. We have a very strong distribution channel in Scandinavia. But frankly Russia is a wonderful growth market opportunity for snowmobiles and frankly even ORVs and the distribution and our brand continues to make really nice progress in Russia and I think that's a really important driver as well. Jaime Katz – Morningstar, Inc.: Okay, thank you guys.

Your next question comes from James Hardiman from Longbow Research. Your line is open. James Hardiman – Longbow Research: Hi good morning and congrats another good quarter. First question I had was on ORV guidance for the fourth quarter. If I am doing the math right, it looks like maybe low to mid teens growth for that segment in 4Q which is a little bit of a deceleration from 3Q. How should I think about that, is that – if we break that down between sort of how you thinking about market, how you’re thinking about your market share and how you’re thinking about sort of that inventory delta, what’s the best way to think about that?

Well, I think your math is showing – we’re guiding near about 20% for the year, right. James Hardiman – Longbow Research: Yes.

What is your math showing for what’s in Q4? James Hardiman – Longbow Research: Basically somewhere between 12% and 15% for ORVs in that range, you said 20% this year.

Yes, I don’t know what to comment. I think our guidance speaks for itself that’s a very strong double digit wholesale shipment and we expect the market share gains that we’ve been getting in the market for last number of quarters to continue in the fourth quarter.

Yes I think as you heard from my lengthily comments, I feel really good about where the inventory levels are. We feel really good about our market share momentum, we expect will continue to grow share and the power sports market is still growing and I think as we have in the fourth quarter, we feel pretty good about ORV momentum. So, I think and that’s been fairly consistent with Mike’s guidance most of the year. So I don’t think we should be sending red flags here. James Hardiman – Longbow Research: No, that wasn’t where I was getting, I am just curious obviously from an industry perspective things have slowed a bit this year, have we seen, have things bottomed at this point from industry perspective or should we expect another leg down here in the fourth quarter I guess is what I am getting at?

Well, from an industry standpoint, I mean again we went through four or five years where the industries didn’t grow at all and for really most of the last 12 months now, we’ve seen industry growth not just in side-by-sides but also in the balance of power sports, it was a tad slower than it had been year-to-date in the third quarter but still growing. So, again, we feel pretty good about it, the industry is growing we feel good and we’ll take the low single digit growth in the industry, that’s good. James Hardiman – Longbow Research: Okay, that’s fair. And then on the snowmobile side, I think previously you guys were guiding it to down mid singles and now that’s flat, obviously it’s a real early in the season, so what’s ultimately changed is that entirely a function of some of the international stuff that you guys were talking about. And then with the down 20% for the industry to-date, obviously the early part of the season is the most challenged given how you finished last year. Was that about what you expected for at this point in the year and then things get better or how should I think about that?

I think James the key thing that’s kind of moving us there really is two things. One, we did very well internationally. As season ended up with both Russian and Scandinavian orders, we have some international strength in snow and the Canadian dollars got a little bit of appreciation, but rest of the strength from the standpoint how our build went and how our orders came in, how are retailers doing, so far is essentially right within our expectations. James Hardiman – Longbow Research: So what’s the delta then versus the previous guidance?

It’s rounding, I mean down mid single digits about flat is rounding. A little bit of Canadian dollar and a little bit of better orders out of Europe. James Hardiman – Longbow Research: Okay, great. Thanks guys.

Your next question comes from Gerrick Johnson from BMO Capital Markets. Your line is open. Gerrick Johnson – BMO Capital Markets: Good morning. I was hoping you could talk about the side by side business and particular retail in the third quarter, utility versus recreation and how that performed in. Are you seeing any differences there from recent history?

No, not really Gerrick and I think both of those categories both grew nice strong double digits, we’ve been on – frankly a number of years and even the last 12 months, we’ve been on a really nice Razor run with all of the innovation and all the new segments created. Whereas as you would expect because it’s a little bit of a more older or more stabilized segment in [inaudible] Ranger sales just continue to grow very nicely versus the aggressive spike but we’re optimistic with the advent of the new 800EFI mid size Ranger and now this new Ranger XP900 that we might see some nice acceleration in Ranger retail of some pretty good numbers as we go forward. Gerrick Johnson – BMO Capital Markets: Okay, getting to the question I always ask, any impact from the any sort of deferral by the farm community for utility vehicles too later in the year when insurance checks come in or anything like that?

Yes Gerrick, I don’t know what to say really other than we’re just not hearing that. I know that you guys pick it up and I am not saying it’s not real and there aren’t people suffering, but I think that’s a product of our success. Sales are good for our dealers, sales are good for us and I think a lot of times you might pick that up from other areas where sales aren’t good in other competitive brands, and I don’t want to say it’s an excuse, it’s probably a reality but we’ve been able to motor through it, I am sure there is some impacts but we’re not doing it. Gerrick Johnson – BMO Capital Markets: Okay and lastly on snowmobiles, what’s different this year than prior years that led to earlier shipments, I mean the retail demand always starts pretty much at the same time of the year, so why this year we are shipping a little earlier?

The fundamental change that drove the accelerated build schedule is, we are obviously a little bit capacity constrained and we’ve made some adjustments to make sure that we could ship all the ORVs that we could and so we eliminated a second shift in snowmobiles that we traditional done right around the third quarter and kind of lengthen that build out and started a little earlier. So, that’s really what’s driving it is it’s about enabling ORV capacity and meeting retail demand there. Gerrick Johnson – BMO Capital Markets: All right, got you. Thank you very much.

Your next question comes from Craig Kennison from Robert W. Baird. Your line is open. Craig Kennison – Robert W. Baird: Good morning, thanks for taking my questions. I wanted to ask about Indian motorcycle and your distribution network. How many dealers have you signed up at the July dealer meetings and what’s your overall target in terms of the number of North American dealers?

We are not disclosing the progress towards our dealer growth there. I mean obviously there was – we were extremely pleased with the turnout in Vegas in the end of follow on interest from dealers. We’ve put a very strong team together to pursue establishment of dealerships in each of the key MSAs, as I talked about – we’re taking a more – we learned a lot of lessons from the Victory early days and we’re very, very focused on hitting the top 100 MSAs to start with and that’s where we’ll spend a great deal of our time ensuring we have the proper distribution. I would not expect us in the first year to have anything close to the 400 dealers we have in Victory that’s not our strategy. We’re going to take this slow and thoughtful and have strong profitable dealers in each of the markets, and Craig I’d love to give you more details but really what Steve and the team are working on there is not something we’re ready report on a number basis right now. Craig Kennison – Robert W. Baird: Thanks and then with respect to your parts and accessories business, it’s been a good business but it has declined as a percentage of sales in recent quarters. I am just looking at this tremendous fleet of side-by-side and other units you have out there and to what extent will that fleet drive incremental PG&A sales maybe down the road. Is there an attachment rate you can see related to the fleet you have outstanding?

Yes, Craig, this is Bennett. I think you’re right, that is certainly going to be helpful. The way you should think about our PG&A business is you’ve got generally as we show you the mix, 45% of our business roughly is a parts business that’s really run on life of ownership and installed base. And so what you’ll generally see is when we’re going through a rapid growth period like we have in the last couple of years on whole goods, often PG&A might lag a little bit. When we go into tougher periods PG&A generally outperforms. I would tell you our teams have done a great job over the last decade frankly of increasing dollars per unit penetration and install rates, and again what you’re seeing now with side-by-side that they have a much higher penetration rate per unit and with the level of innovation like you’re seeing on the new Ranger XP900, we’re very bullish about additional opportunity and growth that we’re going to see out of PG&A going forward with what exactly you alluded to. Craig Kennison – Robert W. Baird: Great, thanks.

Your next question comes from Eric Hollowaty from Stephens, Inc. Your line is open. Eric Hollowaty – Stephens, Inc.: Nice job on the quarter. Just following up quickly on the PG&A, you talked at your Investor Day about the substantial opportunity that you see in adding generators to the product assortment and I am just wondering if you could update us on where you are with that?

Yes, I think that’s a long-term opportunity but we made kind of what I would call a soft launch to our dealers in Vegas where we are talking with coming 2013 with an introductory line of generators, that’s still the plan and we’re on track to do that in 2013. I don’t think it’s going to be gigantic number that you should expect us going to drive even the PG&A P&L in the short term. It’s a business that we see some nice long-term opportunity and it’s clearly a nice adjacency and we’re excited about getting into it but it’s not going to be the big numbers early. Eric Hollowaty – Stephens, Inc.: Okay, great. Thanks.

Next question comes from Jimmy Baker from B. Riley & Company. Your line is open. Mr. Baker your line is open. Jimmy Baker – B. Riley & Company: Good morning, great quarter. So as you ended third line in Monterrey, I would think that that would provide some upside to your prior expectations there in terms of savings. Have you elected not to raise those expectations out of conservatism or had you kind of always baked in a third line going into your prior forecast?

Jimmy, we’ve always thought that we would maximize the capability of our Monterrey facility. Certainly it’s going to give us a little bit higher output, I mean we’ve been really encouraged by what the team has done there. But we never committed that we would pass on additional savings in that facility, and at this point, we’re just extremely pleased with the output both in terms of volume and quality we’re getting from Monterrey, and we expect that to be helpful for us. But maybe down the road we’ll talk about a higher number but we’re nowhere near ready to commit to that at this point. Jimmy Baker – B. Riley & Company: Okay, and then in terms of expanding into Europe with a manufacturing or assembling facility, is the timing of that primarily a function of you finding the right location, the right asset and kind of ironing out all the planning on your end or are you waiting to see something there in terms of end market demand or other opportunities that would take the timing of that move?

No, you hit it right – hit the nail right on the head. We are probably late to vest, the volumes that we have currently make this a very quick return on our investment as we’ve talked about. So it’s just a matter of Suresh and their teams finding the right location and going through the process. I mean it is a very significant focus for those guys right now and I think as soon as we – as you know we do things thoughtfully, we work hard as hell but we don’t take these kind of decisions lightly. So teams work hard as fast as they can, we’ll announce as soon as we know. Jimmy Baker – B. Riley & Company: Okay, great. Last question from me. Ending the quarter with a pretty sizable cash balance here, I guess I don’t know, I am somewhat surprised you weren’t a little bit more aggressive or opportunistic with the buyback in the quarter. Are you evaluating some more sizable M&A targets or how should we think about capital allocation and the cash balance going forward?

There is really no changes there, I mean as I mentioned earlier, I think it was Jamie’s question, we have a long list of acquisition candidates, we feel really good about those will fall in place when they fall in place. As Mike all three of us talked about there is a healthy demand on the balance sheet next year as we try to meet this capacity constrains that we’ve got, whether its adding something in Europe or getting ready for the Indian launch, I mean there is a lot of capital demands on our business as well. So, we actually prefer not to have 400 and some million cash on hand but I am not at all concerned that that’s going to stay there very long. Jimmy Baker – B. Riley & Company: Okay, thanks. Great quarter.

And as far as the buybacks go, we’ve really kind of come to terms with we’re going to buy enough shares to keep the share count flat and I think you can do pretty much count on that, maybe buy a little bit more, maybe buy a little bit less depending on what’s going on but generally speaking expected we’ll maintain flat share account through our buyback strategy. Jimmy Baker – B. Riley & Company: All right, got it Scott. Fair enough, thanks a lot.

Your next question comes from Joe Hovorka from Raymond James Company. Your line is open.

Thanks guys. A couple of questions here, first the days inventory in ORVs is up versus last year, are you comfortable with that now, do you think that the days inventory needs to go up more so you don’t have as many stock out still or when do we get the equilibrium there?

Yeah I almost. I want to try to be a little more careful how I answer that Joe just because a lot of times when we have said we were neat optimum levels people tend to draw that at a physical level and frankly there is a lot of variables that affect inventory. Size, segments and a number of factors. We feel pretty good about the quality of our inventory right now. These are up a little bit. Frankly they were too low when side-by-side last year. There is still, if you talk in your surveys you may still pick up a spot or two where we are still a little tight in a few products and a few regions but that’s gotten much better and our stock outs are better. The other factor that’s driving is we continue to innovate and we continue to frankly find new customer segments to appeal to and market to and the dealers need to stock those products and they are driving incremental retail force. So that’s the other factor that – frankly he has been a pretty significant driver of the side-by-side inventory increase. So I think that’s a long answer. I would tell you, we feel pretty good about where we are structured. I don’t think you are going to see big changes of the inventory going down and side by sides and I don’t think you are going to see it rise dramatically unless we had a lot more segments or we grow another 50%. I think we are feeling pretty good about where we are.

Right. But the growth of 50% would be growth in units, but not necessarily growth in the supply.

Yeah, correct. I think you should expect our velocity to be pretty close to where we are. Again I don’t – you put it in the note that its equilibrium, so I want to be careful with that. But yeah I think we are pretty close to where we want to be.

Okay. And then the disconnect between the 20% retail sales growth at Bobcat and the down wholesale shipments, what is driving that and then does that come back to more closely match to these numbers shortly?

Yeah I think there are a couple of factors honestly. I think they had generally underperformed at least Polaris side-by-side performance in those previous retail quarters, and as their dealers get a little bit better at this as you would expect, they are getting better at retail. So they are coming off weaker comps. But still frankly the law of relatively small numbers at least by our side-by-side business. I think the other thing you can assume that I am probably being kind when I say inventory is in balance. Their inventory is probably a tad light, which I think positions us well as we head into 2013.

So the implication would be you would be under shipping again going into 2013 on Bobcat.

I don’t think that that would be the case. Again remember we are a supplier to Bobcat. They make those supply calls and we are one step removed on that. But I would expect that you should see that retail and shipments should be in equilibrium or…

Actually probably not true because we are going to launch the new jointly developed product. So there will be a little bit of cancel next year, absolutely.

On that production for sure, yes.

Right, okay. And the Bobcat, they are not in your promo line, are they? So when you talk about promotion…

No.

So there you are with that, okay. And the – just a housekeeping question, the average sales price increase for ORV in the quarter, what was that?

The average – let me check that. I will get it along in the next…

Okay, that’s all I had.

Your next question comes again from James Hardiman from Longbow research. Your line is open. James Hardiman – Longbow Research: Hi, thanks for taking a follow up. A quick question for Bennett. I think you made a comment that the motorcycle industry deceleration here in the third quarter, I think you said something about competitive timing. What exactly were you getting at there? Was it just more that, again, you had a really nice weather early in the year and we are still hurting now from that going forward or was there something else to that?

What I meant there is obviously we don’t mention competitors generally by name in these calls. But we have a very big competitor just to our east that is a significant piece of the 1400 segment, and you guys cover them like a blanket and I think you guys have covered it. Again I don’t think they are seeing weakness and I don’t think we are seeing weakness. This has to do more with situation of supply within the dealership. So I think that’s really what drove the industry because they are such a significant part of the industry. James Hardiman – Longbow Research: Got it. And then just wanted to get your comment. Obviously you had this new competitive announcement here in the high end rec side-by-side, the new Maverick. Just wanted to get your comments that a vehicle. Obviously a lot of people are talking about that. Can you just give us an idea generally – I mean, that’s a pretty relatively small piece of your total ORVs or how should I think about even sizing that high end segment of the market?

I think it’s – I think that as you can see competitors enter that segment with our success in the high performance rec segment. It’s a very nice and it’s a very fast growing segment. Obviously when we see that kind of attraction and our kind of unbelievable success there, it’s going to bring competition and as we have said before, I know people get worked up about it. We view competition as a good thing and EOP is very good competitor and I am sure the Maverick, we haven’t had to be able to put it through its pieces but I am sure it’s going to be a high quality product. But frankly from what we have seen on our retail through the third quarter and when the other guys came with the product, it hasn’t slowed us down at all. And we feel really, really good about our product plan and I think you should look at that segment as being a material segment as we go forward, but from our stand point we feel fine. James Hardiman – Longbow Research: Got it thank you.

I am going to interject here Joe to answer your question about the ORB and ASP increase. It was about 2% in the third quarter and that makes it about 2% for the year to date period as well.

Okay. Your next question comes from Ed Aaron from RBC Capital Markets your line is open. Ed Aaron – RBC Capital Markets: Hi great most of my question have been answered, I just wanted to follow up on the earlier PG&A discussion I was a little bit surprised to see you got up to mid teams growth running a lot in present year to date and might may be your answer to this the same as your answer to the snowmobile guidance change being more of a rounding issue. But it would seem to imply a pretty big step up in the fourth quarter and I am wondering if that if that is really tied to your, expectations for XP 900 getting a pretty fast rupture in Q4.

No I think Ed it’s a more product of a – as you guys saw we had a slow start to the year, frankly that was primarily snow driven for both the snowmobile business and snow related accessories for ORV and as we move past that and the guys who innovated we have been picking up steam throughout the year and we expect that we will continue our momentum in the fourth quarter. I think that’s really what you are seeing. What we have got planed in there is kind of what we would called normal snow conditions. It’s always the variable whether you get the early snow and that can be a reasonable number for the fourth quarter PG&A sales but we feel pretty good at that business is accelerating right now. Ed Aaron – RBC Capital Markets: Just one other quick one. If I could the just on the subject of give your inventory returns you know you had a big improvements for couple of years. It’s kind of flattened out. You seem pretty happy with where things are. But I also heard you talk about wanting to reduce your lead times even further and getting closer to a built to order mile, but I am wondering why, you know, doing that making progress towards that next year might not cause you to perhaps under ship retail in 2013, am I thinking about that the right way.

I don’t think so.

Ed, our commitment to get to build the order in the next level of MBP what we are doing with Retail Floor Management as you know to do those right it takes a long time, and we have been working on MBP now for four five years. We are continuing to mature it. We are not going to get to a pulse system and shipping to demand next year in our business. We will get very close with motorcycles and that’s going to be kind of the model that we try to replicate from. But what we found is we had – we bought two high levels of inventory for some time we did a very consistent job of bringing that down. We realized as we did that and our demand increased rapidly that we were not able to fulfill our dealers, the stocking levels that they would like to have to maximize retail. As Bennett indicated we feel like we are making good progress with that, but there is really nothing more to the ability to drive a step function change again in dealer inventory for – I think several years from now we may talk differently about that, but as of now I think we are running this about the way we want to. Ed Aaron – RBC Capital Markets: Thank you.

Your final question comes from Mark Smith from Feltl and Company. Your line is open. Mark Smith – Feltl and Company: Good morning guys. Just a quick question on snowmobiles. How much of the timing impact it was really from Russia and Scandinavian snowmobile, it’s been up 20%.

Again as I stated a little bit before, that is an impact because we have very strong orders and obviously we have to get that product overseas, so we tend to mobilize that product earlier in the third quarter versus the fourth quarter. The second factor really is, last year we had prioritized the second shift based on the increases in snowmobiles which was taken away from ORV demand, and so we have gone away from the second shift in snowmobile. So we have the life in our snowmobile growth which had [inaudible] earlier and it’s really legitimate timing issue, really about how we are running our factories. Mark Smith – Feltl and Company: Okay, that makes sense. And then can you give us anything new on Eicher?

Yeah, I was just over there, I don’t know maybe two weeks ago, and was meeting with the Eicher guys and our teams. We are making really nice progress. It’s still very early in the joint venture. The product development is progressing very nicely. We are kind of in – I don’t want to say the final process of really selecting the plant location and trying to get that plant built, because that’s what this will require. Then we are actively hiring the leadership team right now. We’ve already filled the few slots and we’ve got a few more key slots to go, but we are going to be really busy on all three of those fronts, I would say over the next couple of quarters. And that’s really going to drive all of the focus between the partners and the new JV leadership team. Mark Smith – Feltl and Company: Okay, great, thanks.

Okay, thanks. That’s all the time we have this morning. We want to thank everyone for participating. Thank you for your support and interest and we look forward to seeing you next quarter. Thanks again. Good bye.

This concludes today's conference call. You may now disconnect.