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Polaris Industries, Inc. (NYSE:PII)

Q3 2007 Earnings Call

October 16, 2007 9:00 am ET

Executives

Richard Edwards - Director of IR

Tom Tiller - CEO

Bennett Morgan - President and COO

Mike Malone - CFO

Analysts

Hayley Wolff - Rochdale Securities

Greg Badishkanian - Citigroup

James Hardiman - FTN Midwest Securities

Ed Aaron - RBC Capital Markets

Kathryn Thompson - Avondale Partners

Bob Evans - Craig-Hallum Capital

Hakan Ipekci - Merrill Lynch

Joe Hovorka - Raymond James

Operator

Good morning. My name is Tanai and I will be your conference operator today. At this time I would like to welcome everyone to the Polaris 2007 Q3 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you Mr. Edwards, you may begin your conference.

Richard Edwards

Thank you, and good morning and thank you to all you joining us this morning for our Third Quarter 2007 Earnings Conference Call. Here at Polaris today, we have Tom Tiller, our Chief Executive Officer; Bennett Morgan, our President and Chief Operating Officer; and Mike Malone, our Chief Financial Officer.

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 future periods, which should be considered forward looking for the purposes of the Private Securities Reform Act of 1995.

Actual results could differ from those projected in any forward-looking statement, which by the nature involve risk and uncertainties. There are a number of important factors that could cause results to differ materially from those anticipated.

Additional information concerning a number of these factors can be found in Polaris's 2006 annual report and in the 2006 Form 10-K, which are on file with the SEC. Now I'll turn it over to Tom. Tom?

Tom Tiller

Thanks, Richard and good morning, everyone. Thank you for your interest in Polaris.

For the third quarter, earnings were $1.07 per share, up from $1.04 last year on an 11% increase in sales. This is a record sales quarter and the results modestly exceeded our expectations. Despite a sluggish economy, especially for consumer durables, our business continues to be good. In most of the themes that you will hear today, are consistent with what we talked about 90 days ago.

We are following the plan that we laid out at the beginning of the year; specifically, wining in the core, delivering operational excellent and targeting five important growth opportunities.

Our overall dealer inventory is much lower than a year ago, and our new products like the RANGER RZR and the Victory Vision are delivering what we had hoped. As a result we are again raising and narrowing, our earnings guidance for the full year to $3.05 to $3.10 per share. This represents a $0.10 increase in the lower end of the range, and a $0.05 increase at the upper end compared to 90 days ago.

And as we usually do during the third quarter call, we'll give you some early qualitative thoughts about 2008. With over view, let's turn to the individual business segment, starting with the All-Terrain Vehicle division.

The ATV division had a solid quarter in a sluggish, core ATV industry and a vibrant side-by-side market. ATV shipments for the quarter increased by 15%, driven by strong RANGER sales, and more normal levels of dealer inventory of core ATVs.

Dealer inventory of core North American ATVs measured in units are more than 25% lower than they were at this time last year. In terms of the industry on a year-to-date basis, the core ATV industry is down about 10% versus last year, while Polaris is down mid single-digit. So we've gained market share as a result of our effort to be more competitive.

We had our annual dealer meeting in Nashville during the quarter. The meeting went very well, and dealer orders exceeded our expectations. While dealers are concerned about the economy and the overall ATV industry, they came in to the meeting in a better frame of mind as a result of the inventory reduction which has occurred over the first half of this year.

The new model year '08 products and programs were very well received and the retail results since the meeting have been quite positive. Some of the highlights included, new true up touring model, some exciting new sport ATVs and a value prices SPORTSMAN 500.

As has been the case now, for quite sometime the side-by-side market continues to be strong. While we don't have quantitative industry data, we believe based on dealer reports that the overall market continues to grow double-digits, and the RANGER line of side-by-side vehicles continues to be even stronger at retail, and is certainly the bright spot for the company. Both the base RANGER business and the newer RZR sport model continue to be very strong. Retail sales continue to be much higher than a year ago.

(inaudible) inventory of RANGER is in great shape, and at the dealer meeting we introduced some exciting improvements to the base RANGER, along with an all new six passenger model called the RANGER Crew.

The RANGER RZR continues to be in very hot demand and despite core increases in production rate and a modest price increase, the RZR remains in an over-sold condition. Dealers continue to report very strong consumer interest in the new RZR and we expect to remain over sold through this year.

One question that we've consistently been asked since the introduction of RZR is what about cannibalization. In other words, are RZRs simply replacing another Polaris unit that the consumer would have purchased had the RZR not been available? Or are the sales truly incremental?

Well we have some early data from the customers who have actually purchased RZR. And it looks like about 80% of the sales are incremental and about 20% cannibalized either another RANGER or a Polaris full-size ATV. All ends, the RZR continues to be a home run. In fact, I would say that the RZR has probably been the most successful new product that Polaris has introduced in the past 10 years.

In terms of 2008, we expect good things from our ATV business. Certainly we expect the core North American industry to remain under pressure, but we have a number of positive factors helping us as we head in to next year.

First, Polaris's core ATV business is much healthier than it was a year ago. Dealer inventory is in much better shape, which will allow us to ship closer to what we retailed in 2008. Dealer attitudes, they are better than they were at this time last year.

We are wining the competitive battle, and the new products that we've just introduced are being accepted very well. Finally we have an even stronger RANGER and will see a full year of impact from the RZR. So we'll be strong in the expanding side-by-side market as well. We expect solid growth from ATV division in 2008.

Snowmobile; As we head in to the fall, the Snowmobile is off to a bit of a mix start. Consumer interests and attendance at Snowmobile shows has been pretty good this fall, and early season industry sales have been up slightly. But they represent a small percentage of the overall season sales.

The next 120 days, as they do every year, will be the critical time period for retail activity. Dealer inventory of snowmobiles, like ATVs, is much lower than it was at this time last year. And like it does every year, in Snowmobiles it comes down to weather and competition. It's simply too early to call the 2008 Snowmobile outlook at this point. We'll know more at the end of the fourth quarter, and we'll let you know then.

Victory Motorcycles; Victory Motorcycles are continuing to do well in what has become a challenging motorcycle market. Our overall expectations for Victory are a bit more cautious than they were 90 days ago. Shipments of Victory Motorcycles were down 17% for the quarter, but should be up in the low single-digits for the full year.

You may note that last year's third quarter provided a pretty tough comparison. Last year Victory had a 60% increase in shipments in the third quarter.

In terms of the motorcycle industry, year-to-date, the overall motorcycle industry is down about 6% in unit sales at retail. Victory continues to outperform the industry, and has been growing retail sales mid single-digits. But the deliveries of Victory Vision this fall, we expect the retail sale rate to accelerate further for the full year.

The dealer meeting went well for Victory. Dealers got their first chance to ride the Victory Vision, and the feedback and the orders for the new bike were very positive. But dealers are concerned about the slowdown of the overall cruiser market, including Harley Davidson. So we will be more cautious about the cruiser part of our Victory business, as we chase the touring segment growth for the Victory Vision.

We also introduced two new cruisers; a product called the Vegas Low designed for shorter riders and the value priced; Kingpin 8-Ball. Speaking of the Victory Vision, we began shipments late in the quarter and shipped the first handful of units to consumers, right on schedule.

Production for the first several months will be primarily dedicated to those consumers, who have placed deposits with dealers. The early reports back from the dealers and first cut consumers are very encouraging.

The long-term significance of the Victory Vision is that it opens up a very large, nearly $3 billion incremental touring segment of the motorcycle industry to Victory. In terms of 2008, we expect Victory to continue to grow retail sales well in excess of the overall market, driven by a [whole] year of the touring bike.

Cruiser shipments will likely be a little lower in 2007, as we monitor the overall market and competitive actions.

Parts, Garments and Accessories, the PG&A division, had an excellent third quarter with a 13% increase in sales. Our innovation in the PG&A category continues, as we've introduced more than 200 new items to the line at the dealer meeting.

Of particular interest, were new cab systems for the Side by Side product line, a comprehensive line of touring accessories and clothing for Victory Motorcycles, and new Plow Systems for ATVs and RANGERs. The largest contributor of the PG&A growth has been the RZR accessory demand, which like the base vehicle, has far exceeded our forecast. We've also seems substantial margin expansion in the PG&A business, which has been quite helpful.

International; the International ATV market is doing fairly well. Through the first half of the year, the European market was essentially flat with strength in the Northern European region and a somewhat weaker market in the South. Polaris is outperforming and its gaining market share, and distributor inventories have come down nicely. Currency movements have been helpful to our international business.

Finally, we opened our latest subsidiary in Germany during the quarter, and things appear to be off to an encouraging start in this large market for ATVs.

Military; we continue to pursue the military opportunity aggressively, and have had a number of wins lately, including winning the largest contract in our history, which was announced during the third quarter. The TACOM order, which was a competitive win, was for approximately $18 million. We've now received orders from approximately 20 military agencies or branches of militaries around the world.

We also announced the introduction of two new military vehicles during the quarter, the MV800 and the MVRS platform. The MV800, which is a militarized version of the Sportsman 800, features a new proprietary engine, which is compatible with military fuels. The MVRS is a derivative of the RANGER platform, and our first customers get another option for a high performance Polaris Defense product.

I'll shift gears now, and talk a little bit about the outlook for 2008. You know, 2007 was all about Polaris getting back on track. And I think we've done that, and I am pleased with the 2007 result so far. 2008 should be about profitable growth; a modest bounce back from ATVs following the 2007 inventory reduction, a full year of RZR and Victory Vision, and an even stronger introduction of new products than 2007 should be the primary positive factors. Uncertainty around the economy, especially the housing segment, high energy prices, and sluggish industries are the primary concerns.

In this environment, we will follow the same three-pronged strategy that we did in 2007, specifically winning in the core, delivering operational excellence, and focused growth opportunities.

In the core, you can expect us to continue to be aggressive in product development and to win the competitive battle, and to get our fair share of a tough market. And the growth opportunities continue to look as good today as they did a year ago, maybe even better in some areas.

We also will deliver the fuel to drive this growth through operational excellence, and to hear more about that, I'd like Bennett Morgan, our President and Chief Operating Officer, to briefly describe what we've been doing with operational excellence in 2007, and what you should expect to see as you go forward. Bennett?

Bennett Morgan

Thanks Tom, and good morning. For many years, Polaris has generated nice results through our efficient operations. With operational excellence, we intend to take our performance to a completely new level, with the objective of becoming the Toyota of the powersports business.

Operational excellence will not only fuel the success of our winning in the core and growth strategies, but can transform the competitive position of Polaris in the powersports industry overtime.

We'll accomplish this by focusing on, understanding, and meeting our end customer's needs, and then working those insights back into our operations by driving out the unnecessary waste in time, cost, material inactivity that adds absolutely no value to our end consumer.

To achieve this in powersports, it comes down to three simple principles for Polaris: quality, cost and speed. Our goals are aggressive and straightforward. In quality, we intend to improve consumer satisfaction by 50% by 2010; in cost, we intend to reduce system-wide cost by over 20% by 2010; and in speed we want to improve our speed to the end customer by 50% by 2010.

On the quality and cost principles, operational excellence is an evolution to a bigger and broader objective of what we've already been striving for, for years; industry-leading quality and 5% annual productivity improvements. Now with the key insight of the consumer as our compass, our focus has been broadened to the complete consumer experience and the total Polaris value chain, which includes our suppliers and dealer partners.

We will be able to generate tremendous leverage and value for our consumers, by focusing on waste opportunities that previously, we just didn’t spend enough time on. The consumer doesn't care where the waste or the problems are in the value chain, they simply don't want to pay for it or experience them. It's really that simple.

As we focus on reducing the non-value added waste across our value chain, we can become much faster in responding to and meeting our end customer needs. Overtime, as these broader insights and efficiencies are executed, we can become faster than anyone in the powersports industry in meeting customer needs. Our speed can become a transformational competitive advantage.

Now we've already begun to generate significant results through operational excellence in 2007. We've improved our quality by over 10%, we've reduced system wide cost by over 6%, and we've improved our speed to the consumer by over 15%.

The early improvements in our waste reductions have come from lower dealer inventories and days supply, purchasing lead time reductions, gross profit margin expansion, tooling and capital file efficiencies, new product development cycle time reductions, improved profitability for our value chain partners, and ultimately more satisfied end customers.

Now not all of these non-value added waste reductions have fallen to our bottom line yet in 2007, but overtime they should. And we expect additional improvements in 2008 in the areas I mentioned, and in some of the additional areas.

Let me give you a quick example to illustrate operation excellence at Polaris. With the new RANGER Crew that Tom mentioned, which is the industry's first six passenger side-by-side vehicle, which will be available later this quarter. Our product development cycle time was completed within just 12 months, and specifically incorporated customer insights and feedback.

We were able to get to market much quicker and much more cost effectively by high reuse of an existing platform, common engine architecture and an improved product development process.

Our investment levels and resources and capital were significantly more efficient, and built of the industry's highest quality chassis, which gives us confidence, our quality and customer satisfaction will be outstanding.

Currently, our dealer orders exceeds supply, which is okay. It will drive lower days supply and potentially improve dealer profitability. So, in a nutshell, with operational excellence principals we are faster to market, lower cost, and have world-class quality.

Delivering operational excellence will be a marathon, not a sprint at Polaris. It will improve our competitive and financial results for our consumers, our value chain partners, and for Polaris and our shareholders. And it will allow Polaris to not only better survive tough economic and market conditions, but ultimately to thrive and grow. Thanks, and now I will turn it back over to Tom.

Tom Tiller

Thanks, Bennet. So to wrap it up, we had a good third quarter and a tough [gain]. We are looking forward to closing the year strong, and expect 2008 to be another good year for Polaris.

Our core business is significantly healthier than it was a year ago. Our sales are growing again, growth margins are expanding, and market share is increasing in every business. So we're pleased with the progress that we've made thus far, and we remain committed to the long-term objectives that we outlined a year ago.

With that report, I will turn it over to our Chief Financial Officer, Mike Malone. Mike?

Mike Malone

Thanks and good morning to everyone. Before I begin, I want to highlight this third quarter's 11% increase in sales to $544 million, which not only represents our first quarterly increase in sales in eight quarters, but which also represents the highest quarterly dollar sales generated by the company for any quarter of any year in our 53-year history. We are very proud of that accomplishment, particularly in the current challenging macroeconomic environment.

And we accomplished this achievement in the quarter, while shipping fewer units to dealers in the third quarter of this year than the third quarter last year. So, obviously, our top line sales growth is benefiting from a favorable mix movement, with increased RANGER sales at higher price points and double-digit growth from PG&A, as well as favorable currency movements.

Let me give you more specifics on our third quarter results and our fourth quarter and full-year 2007 guidance. As Tom mentioned, the introduction of the new RANGER RZR has been a huge success for us. Given this success and the continued growth in the base RANGER business and our dealer's core ATV inventory at significantly lower levels, we are increasing our total year and total company sales guidance and now expect sales to grow in the range of 5% to 6% for the full year 2007.

Additionally, we are increasing and narrowing the earnings guidance range, and now expect earnings per diluted share from continuing operations for the full year 2007 to be between $3.05 and $3.10, an increase of 12% to 14% over the $2.72 during last year.

Current expectations for sales growth by product line for the full year 2007 have also been adjusted, and are as follows. ATV sales are now expected to be up in the range of 5% to 6% for the full year 2007, an increase from prior guidance. The increase in our expectations is driven primarily by the strength of our RANGER business.

We are maintaining our Snowmobile sales guidance for full year 2007. We continue to expect sales to increase in the low single-digit percentage range for the full year in Snowmobiles. As Tom mentioned, the motorcycle industry has declined through out 2007. Similar to what we talked about 90 days ago, this has continued to have some dampening impact on the Victory cruiser retail sales activity and the dealer inventory levels.

As a result of our tapping the brakes, our reported Victory sales to dealers were down 17% for the third quarter and down 2% on a year-to-date basis.

We remain very encouraged about the new 2008, luxury touring Victory Vision models, which began shipping to dealers late in the third quarter, and will accelerate during the fourth quarter. So we now expect our reported sales of Victory Motorcycles to increase in the low single-digit range for the full year 2007.

In the PG&A business, we are experiencing accelerating growth for parts and accessories for RANGERs, particularly RZR accessories, as our Side-by-Side business continues to grow.

Additionally, as Tom mentioned, we have been very focused on product innovation for all of our product lines within PG&A. Accordingly, our current expectations for PG&A sales growth is to increase in the mid single-digit percent range for the full year 2007, a modest increase from prior guidance.

Growth in the PG&A business is especially beneficial to the company's profitability, given that the gross margin on PG&A are significantly above the corporate average gross margins.

For the fourth quarter 2007, total company sales are expected to increase in the range of up 12% to up 15% from the fourth quarter a year ago, as growth in the RANGER Side-by-Side vehicle business, particularly the new RANGER, RZR continues to accelerate, and the core ATV dealer inventory correction is largely behind us.

Earnings from continuing operations for the fourth quarter '07 are expected to be in the range of $1.01 to $1.06 per diluted share, up 9% to 14% compared to the earnings of $0.93 per share in the fourth quarter of last year.

The gross profit margin percentage for the full year 2007 is expected to expand in the range of 80 to 100 basis points, compared to the full year last year gross margin percentage of 21.7%, unchanged from our previously issued guidance.

This increase is due to better sales mix with higher margin RANGER sales, improved PG &A margin rates, manufacturing efficiencies, floor plan cost resulting from our lower dealer inventory levels, and favorable net foreign currency fluctuations.

All these positive factors are offset somewhat by increases in sales promotions and incentives, more aggressive pricings in certain market segments to improve our core ATV competitive position, and higher warrantee cost.

As we have previously mentioned, operating expenses are expected to increase both in dollar terms and as a percentage of sales for the full year 2007 compared to last year. This is primarily due to the planned increased advertising expenses to support the launch of our new 2008 model year products, and anticipated higher, more normalized incentive compensation expenses as the company's financial performance improves during 2007.

As expected, these two factors were the primary drivers in the 29% increase in operating expenses, experienced during the third quarter of '07. I would expect this trend will continue in the fourth quarter as well, although operating expenses as a percentage of sales should decrease somewhat in the fourth quarter of '07 from last year, as a result of higher sales growth.

Our expectations for income from financial services for the full year 2007 is for the income to decline in the single-digit percent range compared to the full-year last year, which is unchanged from our previous guidance.

As I have mentioned in the previous calls, there are two reasons for the expected lower income this year. The first is that income from our Polaris Acceptance wholesale credit portfolio is expected to decrease for the full year, as dealers lower their inventory levels and the related interest payments to Polaris Acceptance.

The second reason is the change related to non-Polaris financing -- retail financing. As I discussed in the last conference call beginning in July 1, HSBC no longer offers revolving retail credit financing for non-Polaris product through our dealers. As a result, as was the case in the third quarter, the income from financial services expected to be generated in the fourth quarter of '07 will again be significantly lower than that generated in the fourth quarter, a year ago.

Remember, this is the fee-based business for Polaris; therefore, we are not at risk for any credit losses on any part of the retail portfolio. Also HSBC continues to provide revolving retail credit to consumers to finance the purchase of Polaris product through our dealers.

During the third quarter, we reached an agreement with GE to provide retail credit financing for non-Polaris products sold in our dealerships on an installment basis, to help dealers replace the loss of non-Polaris financing option from HSBC. This new arrangement with GE is beginning to grow as the dealers become more familiar with the program.

Dealers can earn similar or even better fee income from the GE Installment Program, as they were under the HSBC revolving non-Polaris financing program. However, for Polaris, the fee income from the new GE Installment Program is significantly less attractive than the expired HSBC program.

During the third quarter of '07, we financed through our retail credit programs, both HSBC and GE combined, about 38% of Polaris products sold to consumers in the United States, which is down slightly from about 40% last year. Approval rates have remained consistently above the 40% level. In fact, approval rates are actually a bit higher this year, as the GE installment loans become a bigger portion of the retail credit portfolio.

The volume of revolving and installment retail credit contracts written in the third quarter of '07 was about $182 million, which is a 14% decrease from last year due to the loss of HSBC non-Polaris products financing volume.

At September 30, '07, the wholesale portfolio related to floor plan financing for dealers in the United States was about $697 million, a decrease of 9% from what it was at the end last year's third quarter, reflecting the decline in the dollar amount of dealer inventories in the United States. Remember, this decline of 9% is in dollars. The units outstanding in the portfolio are actually down over 20% compared to last year, due to the significant mix change to the higher price RANGER and Victory inventory outstanding. Credit losses in this dealer portfolio remained very reasonable, averaging well less than 1% of the wholesale portfolio.

The income tax provision was recorded at a rate of 30.8% of pre-tax income for the third quarter 2007, compared to 28.4% in the third quarter a year ago. Generally, in the third quarter of each year, we chew up our tax provision to reflect the actual results of filing the prior year tax return. The higher income tax provision rate in the third quarter this year compared to the third quarter last year relates to a lower dollar value of favorable tax events recorded third year.

For the full year 2007, our current expectation is for the income tax provision rate to be in the range of 33.5% to 34% of pre-tax income, which is unchanged from our previous guidance. And as we have previously discussed, since we saw the majority of our ownership of the KTM shares earlier this year, we no longer get a net benefit from our ownership percentage of KTM's income in our income statement

Last year in the third quarter, we recorded income net of taxes of $2.7 million versus the 0 this year, or a difference of about $0.06 per share. As previously announced during the third quarter of '07, we paid $13 million to Goldman Sachs related to the purchase price adjustment that was contemplated under the share repurchase transaction entered into in December of last year.

Subsequent to Goldman's completion of the accelerated repurchase program in August, we began repurchasing Polaris stock under our historical open market buy-back program, and during the third quarter we repurchased and retired about 808,000 shares.

As a result of the combination of both the accelerated buyback and the open market repurchases, the diluted weighted average shares outstanding for the third quarter '07 was about 11% lower than the third quarter last year. At the end of the third quarter we have authorization from the Board to repurchase up to an additional 3.9 million shares of Polaris stock, and expect to continue our historical pattern of open market share repurchases going forward.

Full year 2007 capital expenditures are expected to increase this year, to be in the range of $60 million to $65 million, which is unchanged from the previously issued guidance. As we invest more heavily in the new product development tooling to drive innovation in our products, and capital projects to reduce our production cost and improve product margins, we continue to expect depreciation for the full year '07 to be in a range of $65 million to $70 million.

Accounts receivable at the end of the quarter are down 11% from a year ago to $70 million, but factory inventories still remain somewhat higher than we would like, that's $258 million, but are down sequentially from the second quarter of the this year by 4%.

As we have stated in prior calls, our objective has been to reduce dealer inventories first, which we have done, then focus on factory inventories. ATV factory inventory is in fact lower than last year at this time, but both our Snowmobile and Victory factory inventories are somewhat higher, some of which is due to timing of shipments to dealers.

We continue to expect factory inventories to come down, approaching the $200 million level by the year-end '07. Total debt levels at the end of the quarter were $200 million, representing the term loan utilized in December to complete our accelerated repurchase transaction.

Debt-to-total capital at the end of the quarter is 52% compared to 19% at this time last year, as a result of the significant impact of the additional debt on the numerator and the accelerated buyback on the denominator of the calculation.

We ended the quarter with cash of $87 million, and generated year-to-date 2007 operating cash flow from continuing operations of a $149 million, an increase of $57 million or 62% compared to year ago. EBITDA from continuing operations was a $168 million for the year-to-date 2007 period, which is about the same as a year ago.

So to recap, our full year 2007 guidance has been increased, and now expect our sales for the full year to increase in the range of 5% to 6% over 2006, with EPS from continuing operations growing to be in the range of $3.05 to $3.10 for the full year '07, an increase of 12% to 14% over last year.

Fourth quarter 2007 sales are expected to be up in the range of 12% to 15%, with earnings per share expected to be in the range of $1.01 to $1.06 per share, an increase of 9% to 14% over last year.

At this time, we would to take any questions that the analyst may have. Tanai would you please open up the line for questions?

Question-and-Answer Session

Operator

(Operator Instructions).

Tom Tiller

We are ready to begin Tanai.

Operator

Your first question comes from the line of Hayley Wolff.

Hayley Wolff - Rochdale Securities

Hello?

Tom Tiller

Yes. Go ahead.

Hayley Wolff - Rochdale Securities

Hi there, I have a few questions. First, can we have a little more detail on ATV inventories, wholesale versus retail shipment trends into the fourth quarter and '08? Are you at equilibrium, and if not, when do you expect to achieve equilibrium there?

Second, can you characterize the sales patterns on a month-to-month basis and into November, just to try and get a read on the consumer behavior throughout the quarter?

And lastly, the guidance that you, the long-term guidance of $4.25 in 2009, is that still a valid number, and if so, do you see a steady increase to get to that number or is there something that would lead to a step up in your rate of growth in '09 vis-à-vis '08? And that's it.

Tom Tiller

Okay, thank you. I think with regard to the wholesale and retail ATV trends, just in the interested time, I think we covered almost all of that in the prepared remarks in terms of what's going on for the industry, what's going on for us, what's going on our market share. I would say that the inventory is about balance.

You have individual dealers, individual models, and those kinds of things. But certainly the vast majority of the inventory reduction is behind us at this point. I think again, in my prepared remarks, we've talked about unit inventory of ATVs at dealership is down by -- in excess of 25%, compared to the same time last year. So, I would refer most of that to the prepared remarks rather than just repeating it in the interest of time.

Hayley Wolff - Rochdale Securities

So, you are [flowing] product in and at the same rate that it's going out now?

Tom Tiller

More or less, yeah. With regard to month-to-month guidance on retail trends, that's nothing that we provide, we simply don't do that. We would expect, for the full year that the industry will continue to be down, probably about 10%. And I would expect that we will continue to gain market share.

As I said in my prepared remarks that we are down year-to-date about 6%, I would say that, I would expect to end the full year materially in those same kinds of numbers. They may change a little bit, but no big change.

And again, as I said in prepared remarks, we are confirming our long-term goals. The $2.2 billion in sales by 2009, $150 million in net income, and $4.25 a share, and it will be a steady increase. There's no, we are not expecting any kind of one-time event or that kind of thing.

As we had talked about almost a year ago now, 2007 was about getting the company back on track, getting the inventories right, introducing some hot new products. That’s gone well. 2008-2009 is about profitable growth, and again in the prepared remarks, in each business we talked about some of the drivers there, so.

Hayley Wolff - Rochdale Securities

Well there have been some data points out there, with consumers slowing down dramatically in September. And I’m just trying to confirm whether or not, you saw any change in that?

Tom Tiller

We had an excellent quarter overall for retail, including an excellent September. We’re very, very pleased with September.

Hayley Wolff - Rochdale Securities

Thank you.

Tom Tiller

Next question?

Operator

Your next question comes from the line of Greg Badishkanian of Citigroup.

Greg Badishkanian - Citigroup

Great, and really nice quarter guys.

Bennett Morgan

Hey Greg.

Greg Badishkanian - Citigroup

Yeah, thanks. And just a few quick question here. I mean obviously the RZR did phenomenally well, 20% cannibalization, I mean that seems pretty low would you expected to say at that level and would that sort of come in below what you were, I am assuming that came in well below what you are expecting in terms of cannibalization?

Tom Tiller

It did Greg. You might recall back in January, there were people even back then asking what's the [incrementality] there, and I think the numbers we were estimating at that point were somewhere between 30% and 50% with our estimates being probably close to the higher ended to that range of 50% piece of that, and the dealers being somewhere around 30%.

We have, as I mention in the prepared remarks, actual data of 20% so far now. I would caution you it's early, and the people that have purchased the product so far tend be early adopters and that kind of thing. So I would not be surprised to see that increase some what, although I would be quite surprise if it went to 50% or a number up there. So, I think we’ll continue to monitor it and I would guess we’re in that 20% to 30% range, which is pretty encouraging

Greg Badishkanian - Citigroup

And to the extent that you can comment, how big do you think the opportunity is for the RZR over the next year or two? How big do you think it could become as a percentage of maybe your RANGER sales or market share, however you want to categorize it if you are even able to at this point?

Tom Tiller

Yeah we've been very pleased obviously with how RZR is gone. And I think everybody that's done dealer checks has reported on that, it's pretty hard to miss I think. But the other piece of the puzzle that's gone very well also is the base RANGER business. Both those parts of the business are doing very well, and are a substantial part of our, the third prong of our strategy that's growth, and we are talking about $500 million worth of growth by 2009, and both RANGER and RZRs will be a key part of that.

And while I can't give you a specific number about RZRs, what I would tell you is, we are on track for that right now. We are actually slightly ahead. If you took that $500 million and you divided it, say equally over the three years '07,'08,and '09, we are ahead of that pace, and a good bit of that being driven by RANGERs obviously. But the other growth initiatives they are important too; the Victory, the International and military, and this adjacent market segment that we've talked about. So, I feel good about the whole growth side of things, in a pretty tough economy, right?

Greg Badishkanian - Citigroup

Yeah. And from our conversations with dealers, they are very excited. Obviously they can't get enough of the RZR, so that's creating some scarcity value there. How do you look at that going forward versus achieving sales, versus keeping that sort of excitement and scarcity value which is helping the brand?

Tom Tiller

Yeah, that's a tricky balance. On one hand obviously we want to try to satisfy demand, capture demand, on the other hand, we are talking about a durable here. So, the last thing you want to do is, put in too much capacity. And then, once you get the channel flow and so forth, then you wind up over shooting significantly and then you wind up discounting the product and that sort of stuff.

So, we've been very careful in terms of trying to balance those two things. As I've mentioned, we've increased the production rate four times, we've increased the pricing a little bit, a few hundred dollars at retail, and I would expect that we will continue to be oversold, into the first quarter, beyond that we'll see. But I expect the product will remain very high.

There is nothing like it that's out there, and you got the channel [fill] issue this year. But the facts are, it's a really dominant product and the 80% of the customers that aren't -- the non-cannibalized sales if you will, those are coming from competitive brands, people that would consider alternative products. So that's all big share gains, and we love that.

So, we'll keep trying to balance those two things, and be very, very careful that we don't overshoot in terms of putting so much capacity in place that we wind up hurting ourselves next year.

Greg Badishkanian - Citigroup

Good strategy. Congrats again. Thanks.

Tom Tiller

Thank you.

Operator

Your next question comes from the line of James Hardiman of FTN Midwest Securities.

James Hardiman - FTN Midwest Securities

Good morning. A couple of questions for you guys, first on the tax rate. It looks like this year's tax rate was higher than last year, but it seems like both years and really the last three years, you've gotten a pretty big benefit. You talked about truing things up in the third quarter. So, I guess my question is should that be something we should expect every third quarter to get a decent size benefit from that true-up process. As I go forward to next year, is it the rate that I should sort of push forward in to my estimates for next year?

Mike Malone

Well, as I said we generally true-up. In the last few years it’s been positive in the third quarter. It obviously can go either way depending on how accurate we are on some of our year-end estimations of the tax provisions. So I would tell you we trued it up and it can go either way, kind of like currencies can go either way or anything else. So, I guess I suggest you look at our full year guidance on the tax rates and spread it by quarter anyway you want.

James Hardiman - FTN Midwest Securities

Okay, but your full year guidance for the tax is not changing. So, this is sort of the rate you expected at least a quarter ago, I am assuming?

Mike Malone

Correct.

James Hardiman - FTN Midwest Securities

Okay. In terms of the Victory dealerships, where do we stand today in terms of the total number? You talked about opening about a 100 this year. I am assuming that those plans have slowed down somewhat. Where we are stand today in terms of the total dealership?

Tom Tiller

No, we didn’t say we are going to open 100 Victory dealerships this year. We said we would expand a Victory dealership account, and we have. I don’t know that I have that number. Let me see if I can get that for you James, here on the call.

James Hardiman - FTN Midwest Securities

Okay.

Tom Tiller

And let me come back to you on that, okay. In terms of the additional rate of [growth] I think that's fair, that the expansion in the number of dealerships probably will slow down a little bit, as the cruiser market generally has slowed through the motorcycle market. So there does seem to be little less interest of dealers generally of picking up any motorcycle line, including Victory. Mike has been kind enough to put the actual number in front of me here, we got that.

At the end of the quarter we had 369 Victory dealers, and the year-end goal was 400. So, we are a bit short of that. I don’t know where we will wind up in the fourth quarter, in terms of some addition. So, I don’t know if we’ll wind up at 380 or some number like that, but…

James Hardiman - FTN Midwest Securities

Okay. I thought that the goal had been 450 at the beginning of the year.

Tom Tiller

2009.

James Hardiman - FTN Midwest Securities

The goal for 2009 is 450?

Tom Tiller

Right.

James Hardiman - FTN Midwest Securities

Okay. So I guess as it relates to that motorcycle business. I guess when I think about the long-term 2009 goals, which I assume that each of the sort of line-by-line goals are still the same or based on what you’ve seen in Victory. Are you scaling that back and then making that up somewhere else?

Tom Tiller

No, I think as I said, you know we feel pretty good about the overall growth objectives for the company, right? When we put out the $500 million worth of growth last year, there were a bunch of people with eyes about the size of a saucer, right? I mean, there is no way this company is going to grow sales by $500 million, including some of the people on this telephone call will call by the way.

And the individual pieces may move around a little bit. We may use a little more flour and a little less sugar to bake the cake, than what we thought a year ago. But as I said, we are more than a third of the way through that progress, through a pretty tough economy and all that. So, I feel pretty good. In terms of the long term future of Victory, I continue to be very, very bullish.

Think of what we have accomplished in motorcycles, right? Next year will be our 10th anniversary. We are the first company to successfully enter the market, we've got a fantastic product, we've done well in the cruiser side, and now we're going into the touring segment.

The market, well it is down 6% of the all-time high, and it had a record run for 15 or 16 years. So, it's a big market. It’s attractive. We've got good initial position. In over the next 10 years, we're going to continue to build out motorcycles, and motorcycles are going to be a big part of the success of Polaris and obviously of Victory.

So, we may have perturbations, one quarter to the next or year to the next on a particular model and a particular segment. But when you look at the demographic trends, people love to ride motorcycles, and get through the housing bubble or some of the other short-term things. And motorcycle business is going to be just fine. We are going to continue to focus on innovation, on improving the dealer network, on building that brand, and we should see long-term growth out of Victory.

James Hardiman - FTN Midwest Securities

Fair enough. And then, just one real quick question here, you talked in the release about the PG&A segment, how that was helped by the timing of the delivery of pre-seasoned snowmobile items. I am assuming that's not especially large and that we shouldn't be assuming that, that's going to -- a significant number is going to come out of the fourth quarter, can you quantify how much of a boost that was in the third quarter?

Tom Tiller

Actually, James, that was a little bit of the timing change between Q2 and Q3.

James Hardiman - FTN Midwest Securities

Okay.

Tom Tiller

If you go back to Q2, it was quite a bit lower than it has been historically, and I think we talked about timing a quarter ago, and it just moved between Q2 and Q3.

James Hardiman - FTN Midwest Securities

Okay, great. Thanks guys.

Tom Tiller

Thank you.

Operator

Your next question comes from the line of Ed Aaron of RBC Capital Markets.

Richard Edwards

Aaron, are you there?

Operator

Your next question comes from the line of Kathryn Thompson of Avondale Partners.

Kathryn Thompson - Avondale Partners

Hi, thanks. Just a couple of questions, first, how is the profitability profile of your military contracts versus your traditional ATV products or RANGER products?

Bennett Morgan

It's very attractive.

Kathryn Thompson - Avondale Partners

Would you say it's similar?

Bennett Morgan

No, I said it's very attractive.

Kathryn Thompson - Avondale Partners

Okay. But would you say that it's better than just your traditional -- for instance, RANGER products you would sell for the consumer?

Bennett Morgan

Yes, I would.

Kathryn Thompson - Avondale Partners

Also you had some nice improvements in the cash flow from operations, and something that you talked about a little bit last quarter. Do you have any free cash flow goals for '07 and '08 and if so, could you quantify those?

Tom Tiller

Well, we haven't quantified externally our goals for operating cash flow. Obviously, it will be a lot higher this year given that last year was unusually low. So, we've got a very low bar. We have been exceeding, as we go through out this year, we'll be an excess of $200 million and we have been suggesting that we'll continue to use that strong cash flow in a similar way that we have historically utilized cash flow which is to invest back into the business, paying attractive dividend, and continuing to repurchase shares aggressively.

Kathryn Thompson - Avondale Partners

I know this question was asked earlier. Basically, how big, do you think the RZR segment could be? Right now, do you expect that could it be anywhere, say, 5% or 10% of your total ATV segment sales? And I'm really just trying to get a sense of how big, how it could be on a percentage over the next 2 to 3 years?

Bennett Morgan

I'm sorry, Kathryn, were you asking RZR specifically or RANGER total?

Kathryn Thompson - Avondale Partners

RZR specifically?

Bennett Morgan

Okay. Let me see if I can give you something here. I think we've said that RANGERs, I think, originally it was 15% of the total ATV business. Now this is RANGER total, RANGER plus RZR. I think, we said it was 15%, and then I don't know what it was a year ago or something, we said it was 20%, and now looks like it might be an excess of 25%, the combined side-by-side market. When we take side-by-side that includes the base RANGER utility business and also the RZR recreational vehicle. And I would guess that I've to go back and look at numbers exactly, but probably there are more utility vehicles than there are RZRs. So the combined business is more than 25%. RZRs would be something less than half of that. That should give you at least some ball park.

Kathryn Thompson - Avondale Partners

And any other, you've given a lot of nice color on your Victory segment. But any other updates in terms of how your Victory Vision shipments are progressing, and how long it might take to fill the channel?

Bennett Morgan

Sure. I mean it's just barely started, I don't know how many units we shipped in the third quarter, a handful, two dozen. And we have those showing up in consumer's hands. I've actually talked that quite a few of the consumers that bought the Visions, and it's really fun. I call the guy up, bought the actually the first one down Alabama, and this was a couple of weeks ago.

And I talked to him for about half an hour and I didn’t think the guy was ever going to stop talking about how much he loved the motorcycle and all that. I think he has got 1500 miles on the motorcycle in the first couple of days which is just, it's unbelievable.

People love the motorcycle. They love everything, the styling, the performance, all the things that we hoped. Obviously, the first several months are pre-sold. So, when those bikes show up at the dealer ships, they are getting uncrated, unwrapped, and going right out to consumers. And many of these people have waited for quite some time since we introduced the bikes. So, that's great to see.

Obviously, we are monitoring, talking to those dealers and consumers. So far everything is going quite well, but it's very, very early. We'll keep filling that channel, first it goes for dealer demos, and also for these consumer deposit bikes. I would guess through the end of this year as the bikes are being delivered, I am sure that there are consumers that want to see the bike and ride the bike before they would make a decision on whether to purchase it. So, so far really, really good, but very early.

Kathryn Thompson - Avondale Partners

Thank you very much.

Bennett Morgan

Next question.

Operator

Your next question comes from the line of Bob Evans of Craig-Hallum Capital.

Bob Evans - Craig-Hallum Capital

Can you give us a little bit more -- or elaborate a little bit more on the RZR buyers? I know you touched on that Tom, earlier, but can you give us a little greater sense of what the 80%, what type of buyer is it?

Bennett Morgan

If somebody generally, Bob, that is in the market for a side-by-side vehicle that, had a RZR not been available, would have considered a competitive brand of side-by-side vehicles. As you know, that segment of the business, I think, we talked about in January at our analyst meeting. That segment of the business has been growing very, very fast.

The recreational side-by-side segment of the business, and as a last couple of years, products have come into that space and some of the people are coming off from ATVs, I think, part of the reason that the ATV market is down a little bit is because the growth of side-by-side. Those customers instead of buying an ATV are buying a side-by-side.

So, the 80% are looking at the side-by-side market, and had a RZR not been available, they would have purchased a Yamaha or Arctic Cat or some other brand of side-by-side. But nothing out there is close to matching the performance level of a RZR right now. And so, if they can get one, that's what customers certainly seem like they are hoping for.

Bob Evans - Craig-Hallum Capital

Okay. And would you be willing to quantify more on the, you said RANGER growth? Would you be willing to quantify kind of what that growth rate is?

Tom Tiller

It's a high Bob.

Bob Evans - Craig-Hallum Capital

That's the level of quantification?

Tom Tiller

Strong, strong double-digit, I guess, will be my quantification. Just for all the people on the call, because our prepared remarks ran a little long. Typically, we end it at 10:00 Central Time, 11:00 Eastern Time. We are going to go for about another 10 minutes. We do have a number of people lined up in the queue for questions. So, we'll end at about 10:10 Central Time, 11:10 Eastern time.

Bob Evans - Craig-Hallum Capital

Two more quick questions and I'll move on. The GE deal, the financing deal, I think, Mike you said it was lower profitability than the previous deal. Will we see some kind of make up between, kind of maybe, where you're this quarter and where you have been in the past, as a result of this deal or can you give us a credit color there?

Mike Malone

Well, I think, it’s going to start off pretty slow, it's really building up from next to nothing. On an installment basis it's a little bit different and the most for the dealers to sell on installment loan, than a revolving loan. So, our expectations frankly are relatively modest, as we get this thing going and ramping up.

I think my guidance for the fourth quarter speaks for itself, and we'll learn more through the fourth quarter. And I will try to give a little bit more specific guidance on that for 2008 on the next call.

Bob Evans - Craig-Hallum Capital

Okay. And final question, Tom, can you address you had given some color on 2008, can you give us some sense of level of operating leverage that might be attained, whether that's through on the SG&A side or gross margin side? I'm just looking for a little color there.

Tom Tiller

Yeah, not yet, Bob, as you know, we are a little later probably than many companies in the budgeting cycle simply because of the uncertainty around whether in the snowmobile business and so forth.

So, we're expected to be a good year, certainly, a year of profitable growth, the main drivers again will be the bounce back in core ATVs, because we won't be taken dealer inventory down, full years of Vision and RZR. And also some very, very strong new products in '08, similar perhaps or maybe even a little better than what we did in '07.

So, we're pretty cognizant of the housing market and the pressure on consumers, and we expect the industries continue to be tough, but we feel pretty good about where we are.

Bob Evans - Craig-Hallum Capital

Okay. And you think there's a product that can be as good as the RZR in '08?

Bennett Morgan

That's what I said.

Bob Evans - Craig-Hallum Capital

Okay, just checking, thank you.

Bennett Morgan

Next question.

Operator

Hakan Ipekci of Merrill Lynch.

Hakan Ipekci of Merrill Lynch

Questions you've given some goals in the operational excellence in this call, and I was wondering does that mean that with your 4.25 guidance is that going to be a margin expansion, will be a better or a more important contributor than you previously thought or does that mean there could be some upside to 4.25 numbers as you look in to '09.?

Bennett Morgan

Let's not get upside to the 4.25 number yet. What we said is $2.2 billion and 4.25, we are ways from 2009, I think my own sense from talking to investors and analysts and just watching what’s going on in the sector, is that there's a lot of people that are pretty down on recreational segment right now, both are probably about to speed up as I have seen them, [Bronzwick], Arctic Cat, Harley-Davidson, Polaris the stock market is at an all time high.

And we are just, we are not at an all time low, but pretty depressed valuations and we are optimistic about the future, where the first part of this three year plan has gone really almost exactly like we would have hoped with the exception of the RZR probably being a little stronger than when would have forecast, and so we continue to think that 4.25 and 2.2 billion are good numbers.

What the operational excellence really allows us to do is to win that competitive battle right. When we say we are going to fight hard, we are going to fight hard and that costs money. Right it costs money to advertise more, it costs money to develop all these great new products and that money is got to come from some place and what we have been able to do at this point is to deliver what we need to deliver at the bottom line because we've been pretty [darn] creative on the operational excellence stuff. So let's keep those goals where they are now. As we get closer, we'll fill even more and if things get better or things get worse, we'll let you know that. But right now, we feel pretty good about those.

Hakan Ipekci - Merrill Lynch

I see. And with respect to the availability of finance, it seems that the approval ratings have been steady or even climbing. Given what happened in the markets, I mean, was your sources indicating in terms of the availability of the finance in the overall market and kind of how does it go with what happened in August?

Mike Malone

We're satisfied with the credit availability for our customers from our credit providers, as I indicated in the prepared remarks. In the prepared remarks our approval rates are just fine, actually a little better. In August…

Bennett Morgan

I think, may be the question was through alternate providers if they don't finance through Polaris, local banks that kind of thing.

Mike Malone

Yeah, I think I guess I'm not too aware of what the criteria are for alternative lenders and if there has been any movement but sorry I don't know that I can answer that part of the question specifically.

Bennett Morgan

We haven't received, we don't have data on that, but in terms of feedbacks from dealers that kind of thing, that's not feedback that we've received. That qualified customers can get financing on a widespread basis or anything like that, that's not feedback we've received at this point anyway.

Hakan Ipekci - Merrill Lynch

Okay, great, thank you.

Mike Malone

Tanai, we've time for two more questions and then we got to end up.

Operator

Your next question comes from the line of Ed Aaron of RBC Capital Markets.

Ed Aaron - RBC Capital Markets

Thanks. Can you hear me?

Tom Tiller

Yes Ed.

Ed Aaron - RBC Capital Markets

Okay, couple of accounting questions. Could you Mike, on the warranty. Was that because of higher claims or were you just trying to increase your reserves a little bit? And then, also on the accounts receivable decline, I was a little bit surprised to see that given that your PG&A sales were pretty good and that you mentioned some improvement in your international businesses and I have one more question after that but?

Mike Malone

Okay. The warranty is do actually to increase in both the provisioning rate and the claims paid, that goes details for time purposes, we will see those details in the 10-Q filing but an increase in both. On the accounts receivable the decline, much of that relates to a change in structure that we made in Canada in the last year, where we have sold off our PG&A receivables to GE and therefore we got much lower receivables in this third quarter than we did last year in Canada. And that's the primary reason for the further declines in receivables.

Tom Tiller

And you had one other piece of the question?

Ed Aaron - RBC Capital Markets

Yeah, this is -- I'm pushing the topic. In the third quarter you had the, your year-end promotion which included that double down promotion, and I was just wondering, if you could comment may be on the consistency, within your dealer base during that promotion, because some dealers participated while some dealers didn't and, I'm just curious to know if you got much feedback from dealers one way or the other and coming out of that promotion?

Tom Tiller

I think, by and large the double down promotion was successful. Just in terms of you know, did we pull sales forward? Why do we promotions? All that sort of subject, for those that have followed the company for quite some time, it’s not unusual that we do promotions at the end of the model year, similar to what car companies do and others.

The purpose is to try to clear the channel as much as you can of prior model year product, as in this case the model year '08 come in. So, I don't know that you're necessarily pulling sales forward. You are really going after more that value-consciousness buyer, who really doesn't care quite so much about the latest performance in the machine. He is looking to a more deal-oriented.

In terms of the, if you go back to '04 with the factory authorized clearance, in '05 and '06, and we've done that playbook more or less the same, I think, each year so, not a big difference there. In terms of the consistency across the dealer network again, I wouldn't say in comparison to other promotions that we've run from time-to-time, big difference there.

I think that feedback that we've gotten from dealers generally, and certainly in comparison to competitive brands, they were very, very pleased with how the double down promotion went. Now, we have 1700 ATV dealers, so, you are going to see variation somewhat in there. But I think if you look broadly, our feedback was very positive, and quite consistent.

Ed Aaron - RBC Capital Markets

Thanks, nice quarter.

Tom Tiller

Thank you. We have time for one more question, Tanai.

Operator

Your next question comes from the line of Joe Hovorka of Raymond James.

Joe Hovorka - Raymond James

Thanks guys. Mike, a quick clarification you said something earlier. You said $200 million, was that free cash or operating cash flow for 2007?

Mike Malone

Operating cash flow from --

Tom Tiller

From continuing operations.

Joe Hovorka - Raymond James

Okay, free cash. Thanks. And then Tom, your comments in regards to the new products for next year being actually equal to or larger including with the RZR in '07. I'm assuming that's your existing product lines, not just new adjacent product that you are talking about?

Tom Tiller

Yeah, I guess I wouldn't say too awful much about the specifics of any product that we are going to introduce next year, Joe. I think it's just more directionally, if you looked at '07, coming off at pretty rough '06, there were a lot of people with concerns where Polaris was going to go, and we talked about this whole idea of winning in a core, delivering operational excellence in growth.

And, I think all three of them have gone pretty well. We've grown market share in every single product line so far. The operational excellence, Bennett updated you, but I'm pleased with how that's gone. And the growth we’re ahead a pace. So, we are going to keep that same basic formula working in 2008 in what's going to be a similar environment, a tough environment. And we are not out of good ideas yet, okay?

We have some pretty creative people in this company, and you are going to see us kind of turbo charge that effort, if you will, in 2008. In terms of the specific, markets and where they are going to come and all that sort of stuff, it's just way too early to talk about that. But we will follow that same basic game plan that we showed the world a year ago.

Mike Malone

Sure.

Joe Hovorka - Raymond James

Okay. Can you quantify, maybe your ASP growth in ATVs in the third quarter? I think you said units were down.

Tom Tiller

Yes. What I said was units were down for the whole company. And at this point in time I don’t have the number to share with you Joe.

Joe Hovorka - Raymond James

Okay.

Mike Malone

But obviously the majority had been mix-related, alright.

Joe Hovorka - Raymond James

Right, I was just trying to get a sense of units were down, 1% or 8% in ATVs, I guess. Is the ASP growth marginally more than the 15% revenue growth that you've put up or is it significantly big, as far as you're trying to get into the mix shift?

Tom Tiller

No comments.

Joe Hovorka - Raymond James

Can you refresh my memory on why D&A is down in ’07 versus ’06?

Tom Tiller

Not off the top of my head.

Joe Hovorka - Raymond James

I am not the only one that forgot why. And then finally, can you quantify, maybe the foreign currency impact in the quarter? Either on top line operating income, and probably you might want to talk about it?

Tom Tiller

Joe, we don’t quantify that. I said in my prepared remarks that it had a positive impact on our sales book. The European currencies and the Canadian currency moved in our favor, which helps our sales and our gross margins. However, the yen also impacts our gross margins a little bit, slightly negative, as well as the European currencies, we purchased a lot of our component costs in Euro currency. So that dilutes somewhat our gross margins. So net, it's favorable on sales, net favorable on gross margin and net favorable to bottom line.

Joe Hovorka - Raymond James

Okay, great. Thanks guys.

Tom Tiller

Okay. With that we are out of time. We want thank everybody for participating in the call this morning and we will speak with you next quarter. Thanks again. Good Bye.

Operator

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

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Source: Polaris Industries Q3 2007 Earnings Call Transcript
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