Polaris Industries increases revenues and market share FY2010
Polaris Industries Press Release - Jan 27, 2011

Polaris Industries Inc., today reported record net income of $1.55 per diluted share for the fourth quarter of 2010, up 18 percent over the 2009 fourth quarter. Net income for the fourth quarter 2010 was a record $54.5 million, an increase of 24 percent over the same period in 2009. Record sales of $618.4 million for the fourth quarter 2010 increased 31 percent over 2009 fourth quarter sales of $471.8 million.

Full Year Results

For the full year ended December 31, 2010, Polaris reported record net income of $147.1 million, or a record $4.28 per diluted share, compared to $101.0 million, or $3.05 per diluted share for the year ended December 31, 2009. This represents a 40 percent increase on a ‘per diluted share basis’ and a 46 percent increase in net income. Sales for the full year 2010 totaled a record $1,991.1 million, an increase of 27 percent compared to sales of $1,565.9 million for the full year 2009.

"2010 was an exceptional year for Polaris. Not only did we deliver record sales and earnings, but the Polaris team made significant progress toward our long-term strategy and positioned the business for profitable growth in the future. We gained market share in all of our businesses and grew sales in every region of the world. Our persistent focus on margins paid dividends, as gross profit margins increased 150 basis points and net margins expanded by 90 basis points to 7.4 percent of sales. We also expanded our leadership position in the side-by-side industry, and grew sales and market share in our Victory motorcycles and snowmobile businesses," stated Scott Wine, Chief Executive Officer. "In addition to our record financial performance, we made several strategic investments in the business during 2010 that position us for future growth, including investments in China, Brazil and India, and a small powertrain acquisition in Europe. Lastly, our manufacturing realignment project, announced in mid-2010, is on track to begin production in our new Monterrey facility by mid-2011."

"Our efforts throughout 2010 have further positioned the Company for continued growth and profitability in 2011 and beyond. Importantly, dealer inventories for ORV and Victory continued to decline in 2010 and are at appropriate levels as we enter 2011. Additionally, we expanded the retail sales program called Max Velocity Program, or MVP, into the remaining 50 percent of our ORV dealers in North America during the second half of 2010. We expect MVP to continue to drive retail sales velocity and market share gains in 2011," Wine continued.

"Ending 2010 with $394 million in cash and only $200 million in total debt, we have both the financial strength and flexibility to continue to make organic and acquisitive investments to support our long-term growth initiatives. We expect the investments made over the past two years, supported by continued product innovation, ever-increasing speed to market, productive lean manufacturing initiatives, and low-cost purchasing capabilities to continue to deliver net margin expansion in 2011, resulting in another record year of sales and earnings for the Company."

2011 Business Outlook

Full year 2011 earnings are expected to be in the range of $4.65 to $4.85 per diluted share, which represents an increase of nine to 13 percent when compared to full year 2010 earnings. Net income for full year 2011 is expected to increase in the range of 14 to 20 percent over full year 2010. Sales for full year 2011 are expected to increase eight to 11 percent over full year 2010 sales, with sales increases projected in each product line and geographic region. The full year 2011 expectations include transition costs related to the manufacturing realignment in the range of $12.0 million to $14.0 million, with the majority of the costs impacting gross margins. Savings from the manufacturing realignment project are expected to begin in the second half of 2011 but will only partially offset project transition costs in 2011.  

Sales of On-road Vehicles, which primarily consists of Victory motorcycles, increased eight percent during the fourth quarter of 2010 when compared to the same period in 2009. Victory North American unit retail sales to consumers increased 15 percent during the 2010 fourth quarter when compared to a strong 2009 fourth quarter, resulting in continued market share gains and retail sales growth for the fifth consecutive quarter. The North American heavyweight cruiser and touring motorcycle industry remained weak during the 2010 fourth quarter. However, consumer demand remains strong for Victory's new touring models, the Cross Country(TM) and Cross Roads(TM) and the Company recently introduced the Victory High-Ball, a custom cruiser aimed at the younger rider looking for a classic factory custom motorcycle. North American dealer inventory of Victory motorcycles declined 30 percent in the 2010 fourth quarter compared to 2009 fourth quarter levels.

Parts, Garments, and Accessories ("PG&A") sales increased 12 percent during the fourth quarter 2010 compared to the same period last year primarily due to increased ORV, Victory motorcycle and international related PG&A sales.

Gross profit as a percentage of sales was 27.7 percent for the fourth quarter of 2010, an increase of 40 basis points from 27.3 percent for the fourth quarter of 2009. Gross profit dollars increased 33 percent to $171.5 million for the fourth quarter 2010 compared to $128.6 million for the fourth quarter of 2009. The increase in gross profit dollars and the 40 basis points increase in the gross profit margin percentage in the fourth quarter 2010 resulted primarily from higher volume, continued product cost reduction efforts and higher selling prices. These increases were partially offset by manufacturing realignment costs as well as higher commodity and sales promotion costs.  

Operating expenses for the fourth quarter 2010 increased 53 percent to $97.6 million, or 15.8 percent of sales, compared to $63.9 million, or 13.6 percent of sales, for the fourth quarter of 2009. Operating expenses in absolute dollars and as a percentage of sales for the fourth quarter 2010 increased primarily due to an increase in incentive compensation plan expenses of $19 million over the 2009 fourth quarter period driven by the higher profitability for 2010 and the recent higher stock price which reflects the Company's pay for performance compensation philosophy. In addition, incremental investments made in global market expansion and new product development initiatives contributed to the increase in operating expenses in the fourth quarter.

Income from financial services decreased 12 percent to $4.2 million during fourth quarter 2010 from $4.8 million in the fourth quarter of 2009. The decrease was primarily due to lower interest income earned by Polaris Acceptance as a result of the lower dealer inventory levels.

Interest expense decreased to $0.5 million for the fourth quarter 2010, from $0.9 million for the fourth quarter 2009, due to lower interest rates on the Company's credit facility during the 2010 fourth quarter as compared to the same period in 2009.

Non-operating other income was $0.7 million in the fourth quarter of 2010, as compared to $2.7 million of expense in the fourth quarter of 2009. The income is the result of foreign currency exchange rate movements and the resulting effects on foreign currency transactions related to the Company's foreign subsidiaries.

The Income tax provision for the fourth quarter 2010 was recorded at a rate of 30.4 percent of pretax income compared to 33.3 percent of pretax income for the fourth quarter 2009. The lower income tax provision rate in the fourth quarter 2010 is primarily due to the extension of the research and development credit by the U.S. Congress in the 2010 fourth quarter.  

Financial Position and Cash Flow

Net cash provided by operating activities increased 54 percent to $297.6 million for the year ended December 31, 2010 compared to $193.2 million for the full year 2009. The increase in net cash provided by operating activities for the full year 2010 was due to higher net income and lower investment in working capital, primarily resulting from higher accrued expenses, compared to the same period in 2009. Total debt was $200.0 million, of which $100.0 million was classified as current liabilities and $100.0 million was classified as long term liabilities at December 31, 2010. The Company's debt-to-total capital ratio was 35 percent at December 31, 2010, compared to 49 percent at the end of 2009. Cash and cash equivalents were $393.9 million at December 31, 2010 compared to $140.2 million for the prior period.

Manufacturing Realignment

The previously announced manufacturing realignment will consolidate manufacturing operations into existing operations in Roseau, Minnesota and Spirit Lake, Iowa and a new facility in Monterrey, Mexico. Construction is underway on the new facility in Monterrey and the building is expected to be completed in the first half of 2011. The Company expects to record pretax transition charges to its statement of income in the range of $24 million to $26 million and incur capital expenditures of approximately $35 million in total related to the implementation of the manufacturing realignment. The Company expects to realize pretax savings in excess of $30 million annually when the transition is completed. During 2010, $5.4 million of exit costs and $5.5 million of startup costs were incurred from the realignment, which are primarily reflected in cost of sales on the statement of income. In addition, capital expenditures of $8.6 million were incurred in 2010 related to the manufacturing realignment.

Polaris' Board of Directors Increases Dividend for 2011

On January 20, 2011, the Company announced that its Board of Directors approved a 13 percent increase in the regular quarterly cash dividend, representing the 16th consecutive year of increased dividends, effective with the 2011 first quarter dividend payment. The first quarter dividend of $0.45 per share will be payable on February 15, 2011 to shareholders of record at the close of business on February 1, 2011.

About Polaris

With annual 2010 sales of $1.991 billion, Polaris designs, engineers, manufactures and markets off-road vehicles (ORVs), including all-terrain vehicles (ATVs) and the Polaris RANGER(TM), snowmobiles and Victory motorcycles for recreational and utility use and has recently introduced a new on-road electric powered neighborhood vehicle.

Victory motorcycles, established in 1998 and representing the first all-new American-made motorcycle from a major company in nearly 60 years are making in-roads into the cruiser and touring motorcycle marketplace. Polaris also enhances the riding experience with a complete line of Pure Polaris apparel, accessories and parts, available at Polaris dealerships.

Click here for information about the complete line of Polaris products, apparel and vehicle accessories. 

Except for historical information contained herein, the matters set forth in this news release, including management's expectations regarding 2011 sales, shipments, net income, net income per share, manufacturing realignment transition costs and savings in logistical and production costs, are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Potential risks and uncertainties include such factors as the Company's ability to successfully implement its manufacturing operations realignment initiatives, product offerings, promotional activities and pricing strategies by competitors; warranty expenses; impact of changes in Polaris stock price on incentive compensation plan costs; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; commodity costs; uninsured product liability claims; uncertainty in the retail and wholesale credit markets; changes in tax policy and overall economic conditions, including inflation, consumer confidence and spending and relationships with dealers and suppliers. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission. The Company does not undertake any duty to any person to provide updates to its forward-looking statements.