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Polaris Industries Inc. (NYSE:PII)

2012 Analyst and Investor Meeting Call

July 31, 2012 10:00 AM ET

Executives

Scott Wine – CEO

Bennett Morgan – President and COO

Michael Malone – VP-Finance and CFO

Richard Edwards – Director of IR

Matt Homan – VP, Europe, Middle East, Africa

Mike Dougherty – VP, Asia Pacific, Latin America

Suresh Krishna – VP, Global Operations & Integration

Steve Kemp – Chief Technical Officer

Scott Swenson – VP, Small Vehicles

Steve Eastman – VP, Parts, Garments & Accessories

Steve Menneto – VP, Motorcycles

Dave Longren – VP, ORV & ORV Engineering

Mike Jonikas – VP, Snowmobiles, Sales & Marketing

Richard Edwards

If we could get everybody to have a seat, we’re going to get started in a few minutes. Okay, let’s get going, so we can try and stay on schedule. First of all, I just want to thank everyone for coming to our Analyst Investor Meeting. We know it takes a little bit of time to travel, a couple of days and be away from the office, and it’s a kind of busy earnings season. So we certainly do appreciate you spending some time with us yesterday and today.

So today we’re – this morning here we’re going to have a number of presentations. You’ll get an opportunity to listen to some of the operating guys and then ask some questions after their presentations. I would ask that you kind of hold your questions until the end of each presentation, so let each of the presenters kind of get through their presentations and then we’ll have some time after each of the presenter’s presentations – for you an opportunity to ask some questions. So kind of write your questions down and hold them until the end of the presentation.

The restrooms, if anybody is looking for that, just across the hall, if you go out that back door and go across the hall you can find the restrooms. We’ll have a break time midway through that point in time. And then we should be ending up around noon today. We’ll have lunch come in this room. We’ll have some boxed lunches, so you’ll have about an hour, so a little over an hour. So you can either stay here, you can go back to your rooms if you want to change, if you’re going to the ride site you can change, if you want to do that, not necessary, but you can do that if you want to.

And then come back here and meet in this room, and then we’re going to walk over to our Indian Experience Truck. We’ve got our semi-truck that has some historical Indian information in it. So we’ll walk through that before we go to the demo site. And then we’ll get on the buses and go over to the demo site for those who are going over to ride some of the products later this afternoon.

The presentations are being webcasted this morning so just be aware of that. If any of you, if you have your cell phones, if you could just put them on vibrate that would be appreciated so we’re not hearing any of the ringing going on. And I think with that, I’ll just have to give you the disclaimer. This is you info, we’ll be talking about a lot of information that may be considered forward-looking. So it may change as things change, so just be aware of the normal disclosure rules.

I think with that we’ll start with our CEO, Scott Wine.

Scott Wine

Thanks, Richard. First of all, thank all of you for making the time to come out here to Vegas. I know for Hovorka this is a great place for him to come whenever he can, but appreciate everybody making the chance to come out.

I’m just going to go back, to put the day in perspective and give you an idea how it’s going to flow, Richard just took half of my time and I only had ten minutes. But that’s actually by design because if you look at the lineup here, this is really the best opportunity I think you have all year to not only listen to, but also ask questions to our entire executive staff and we went through a similar exercise. Now I can tell you we pulled out or edited quite a few of the slides but, we went through our long term strategy session with the board last week and these guys do really well on their feet and can answer and really engage you in a lot of questions. So please take advantage of that.

Let’s see. Quickly just looking at where we’re through the first half of the year, obviously a little better in most categories than we expected. Revenue up 25%. GDP was up point and a half the second quarter. So we’re continuing to outperform the softening revealed last night. We’re absolutely staying on the gas, not trying to give anything up. But really it’s still largely making growth happen rather than having too much wind at our back. The industry is beginning to show, are doing better than they have in quite some time and we’re trying to ride that wave to the extent we can.

The gross profit number being flat, obviously some headwinds there. Truthfully we expect to do better than that. That much currency hit in one short period of time was a little more than we could get after, but over the long term we’re still relentlessly focused on driving up margin expansion.

Net income, the percentage continues to move up. That’s been something we’ve been laser-focused on and we expect to see that continue to migrate north throughout the rest of the year. And obviously continuing to drive shareholder return has been good for us. As you can see where we were last year, continuing to make momentum.

Long term shareholder returns is really the key. We obviously understand that no matter what we do we can’t dictate how the market reacts, but we know if we continue to put up the fundamentals, over time we’ll be rewarded for it. And I think you can see in the five-year chart, we have been.

Don’t forget, we still pay a healthy dividend given where the stock price is, we’re right about, above or below 2% after that 64% increase we did this year. So we’re very committed to a disciplined capital allocation model. I will tell you that as we look forward, some of these tax increases and the dividends ultimately are taxed to 35% of the corporate level and 43% going out the door. We may rethink these healthy dividend increases, but we’re committed to rewarding our shareholders that way.

Return on Invested Capital. This is one where not only do we beat our peer group by a mile, but you can also see almost any company out there or industry, industrial average you’ll see we’re way ahead and as we continue to invest, don’t think we’re going to lose the discipline we’ve had to continue to drive these returns.

This is something you probably don’t see very often, but we at every single leadership team meeting we review these because my belief is that if we continue to put up good net income numbers and good top line growth number that can happen over the short term. But if we let these fundamentals start to drift south, we’re going to feel the pain. So we work very hard to make sure that we never let ourselves get our eyes off this. So best people, best team, you’ll see that today, you’ll see it as you talk to our people out in the display room, you’ll see it at the ride site today. Really it’s the people who that make up the difference at Polaris. We’ve added over 2000 employees over the last couple of years and as we’ve added we’ve actually gotten stronger.

Safety and ethics, these are two things, no matter what we do, the safety of our employees and the safety of our customers and the high ethical standards, especially as we get into new products and new countries where their laws and regulations and culture is a little bit different, we need to make sure that we maintain that high focus on safety and ethics.

Customer loyalty, for those of you that covered us a few years ago, we had a lot of, we tested our customer loyalty when we had some of the 800 engine problems with our snowmobiles. So we worked hard and got through that and we’re gaining share in snowmobiles and are doing quite well in that category.

Customer loyalty. That net promoter score that we continue to drive helps make the company sustainable growth platform. And growth’s important, margin expansion’s important. People ask a lot of times, how far can gross profit margins go? For me it really is driving that nut number more than gross profit numbers. But we’re a long, long way from what we can do with gross profit margins.

Project quality leadership, Longren mentioned it last night if you heard his comments. Not only did he have a lot of cool stuff, the scrambler and the 900 are just great, great products, but he mentioned that the product pipeline going forward is better than it was going back and that’s absolutely true. We’re committed to leadership in terms of both product and quality.

In operational excellence you’ll hear from Suresh today. You heard from Steve talk about Retail Flow Management. Great example. If you think about what the other guy, the other big guy in the motorcycle industry have done, major ERP implementation, major factory restructuring. We’re doing the same thing. We’re getting costs down, we’re getting lead times down, we’re improving quality and all we did is put a cost structural team together and gave them some resources and said go. I think you’re going to be really surprised at what Menneto and Suresh and the team do with our motorcycle business.

The strategy hasn’t changed. This is our fourth year of really driving this hard, and remember, this is in priority order and we’re absolutely committed to it. Rather than me walk through it, I’m actually going to step down, but just keep this slide in mind and as you’re listening to the various guys get up here and talk to you, you’ll see how every single element of this strategy is a key focus for the company. So with that Mr. Morgan, I think you’re up.

Bennett Morgan

You’re a well-oiled machine. All right, good morning everyone. What I want to try cover here within the next few minutes and stay on time for the guys really is just kind of frame up the strategy. And for those of you that saw last night, I obviously put some of what you saw on context. So as Scott mentioned we’ve had a really good first half. It hasn’t been perfect by any means but we’re very delighted where we’re on the top line and the bottom line. Our businesses are performing well. Retail spent 17%, pretty much consistently throughout the first half of the year and as we come up against tougher competition and tougher comparables we feel really, really good about that and as you saw the new product launch stuff that we unveiled last night we feel very, very good about our ability to sustain retail as we head into the second half of the year.

Our core businesses are all performing I think at a very high level. ORV has again continued to outperform. We’re getting great momentum in motorcycles and frankly Mother Nature wasn’t kind to the snowmobile business. But where we were able to end with retail being flat and orders really below expectations and inventory is a little higher, but overall in a manageable condition. Our snowmobile business is frankly much better than we anticipated as we went through the snow season. So we feel really good about where we’re in the core. Our PG&A Business which is our most profitable business at the margin level seems to be picking up momentum as we’re going through the year. We had a very good second quarter and the sales rate seems to be picking up almost each and every month. So that’s very encouraging. We’ve got some great new products.

International’s a little choppier than it’s been the last couple of years. It’s just been kind of climbing to the moon. It’s up 13% year-to-date but it’s tougher in Europe and we’re still up in Europe, but we can clearly see some pressure there and we’re monitoring that very, very closely. And then we’re seeing really nice growth at Asia-Pacific and Latin America is relatively small, but we think that’ll get going so we’re not too concerned about that.

The Monterrey plant which was a major, major initiative for us as you guys know over the last couple of years is really performing at a very high level. In many ways thank God we have Monterrey. We would have not been able to do all the growth that we’ve had without the Monterrey capacity situation that we’ve had and frankly we’re continuing to lean on that plant to deliver more and more product. They’re giving us great quality which is I think where a lot of people were very concerned when we brought on the Mexican Plant was could we do what we do up in the US? And frankly we’ve been able to do that and it’s paid so far. So we’re very, very pleased about that. It’s profitable and the things that we’re really grinding on Suresh and his team there is continue to drive the productivity level so that we get every ounce that we can out of that team.

And as you can see, acquisition and partnership activity is quite high based on the announcement we had last week with Eicher and I can assure you that’s not the only thing in the pipeline. So we feel really good about ’12 right now folks. I mean it should be another record year and we feel like we’re well positioned for the second half.

I wanted to just take one slide just to kind of frame up, things have changed a lot at Polaris. We’ve been evolving. We like to use the word transforming. I think that’s our new favorite word as somebody said. But lots and lots of change over the last couple of years. And from my perspective and maybe what like you guys get is the power sports market is growing again and that’s kind of flipped on us. We had about five years in a row where the power sports market was declining and frankly over the last 12 months the aggregate market has been up pretty much each and every month. So I think we got a legitimate trend line going here even with a tough snow season where there was no snow. So that’s very encouraging.

We’ve grown about $1.5 billion so we’ve doubled the size of the company here over the last couple of years. And frankly with all that success capacity is no longer free that we’re clearly going to be making more investments and managing capacity as we go forward. It’s absolutely necessary. Scott mentioned that we’ve added 2,200 new people over the last couple of years. So half of our team is new and you guys know that we pride ourselves on being a very strong, powerful culture. We’re bringing a lot of new perspectives, new capabilities into the organization. And then we’re leaning on that culture to make sure we can indoctrinate people into the Polaris way as we go through that.

We’ve become way more global. Almost 1,300 new people are frankly international folks. A lot of those folks are in Monterrey, but we’ve got new subsidiaries really across the globe in places like Brazil, India and China. We’ve got a headquarters in Europe. And so we’re becoming a much more global organization than we were maybe through the downturn and our appetite remains quite high. We’re aggressive folks and we continue to see lots of opportunity and we’re using our kind of unprecedented levels of success to invest back in ourselves and our future.

So here is one of our favorite charts for a while we took that off the thing but we brought it back because we’re so proud of it. We’ve had nine consecutive quarters of double digit retail growth and that’s a phenomenal number and it’s a real bell weather to say, how is our business going to continue to perform. And as we’ve gone through the list the first half of this year it’s been as solid as a rock. So we’re very, very encouraged with the retail trends.

A lot of you guy saw the show last night so I’m not going to belabor it, but significant product news. We pride ourselves on always outdoing the industry and frankly in totality almost, but the Ranger XP900 is going to be a huge product for us. The midsize 800, I know it’s still based under, is going to be very compelling. The Scrambler 850, everybody that’s ridden that product just raves about it. It’s really our first significant ATV launch in a long time. And obviously is what Steve has with boardwalk and the new RFM and all the branding stuff we’re doing. It’s a big year news and should be a real positive second half catalyst for us.

This chart really, what I wanted to talk a little bit about is we’ve doubled the size of the company and we’ve been able to make sure we leverage it at the bottom line, but we’re taking on unprecedented levels of success. We see lots and lots of opportunity on our core and in new business and we’re investing that back into R&D really to fuel our future growth. So one of the nice things about being consistently high performer right now is we’ve been able to stay on the gaps in engineering and again as Scott just mentioned our product pipeline is awesome.

We’re proud of what we introduced yesterday, but we got great stuff in the pipe and very excited about that driving future Polaris growth for many years to come. I’m not going to spend too much time on this chart, but just going back to the strategy, again as I mentioned earlier our core businesses are really, I would say very, very, anywhere from a very solid shape to outstanding shape right now as we head into the second half of the year and just kind of reiterating where we’re from a sales and guiding standpoint.

On the adjacency side again we continue to place these strategic bets across our portfolio and they continue to build and grow momentum. You saw the very moving military opening last night which was just fantastic. I think even more exciting is the business is growing and we’re seeing more and more opportunities. Our customer relationships are just frankly getting much deeper with special operations forces and a number of customers through the world. We’ve got a new military RZR that Dave or Rich will probably talk about a little bit later today which has been receiving some really early positive reads. And we acquired resilient technologies which is just a small company in the pneumatic tires and you can’t really see it too well but I think we showed that when we were in Monterrey and that is a really neat technology and again just one more example of how we’re taking technology along with customer penetration and really, I think really going to blow the top off the military business over the next few years.

Bobcat is alive and well. Maybe we’ve been talking about that one too long. That’s what Mike and Richard say now. We keep saying its coming, its coming. We’re really right on schedule. It takes time to build the product right and calendar year ‘13 frankly was the plan on the launch.

The partnership is working very well. Bobcat’s dealers inventories are in good shape. They are actually growing. That’s not their core business, so we continue to try to help teach them how to retail side-by-sides. But we’re very pleased where we’re and things are good and when we bring the core developed product out, that will be the next level on the Bobcat partnership as we go forward.

And then on our electric vehicle business, I think we’re really starting to see some traction. GEM orders were up 70%. We’re doing a really good job of adding distribution within our channel. I think we’ve added over 115 of them so far over the last 12 months. There was a lot of interest. Just before the show we were in a GEM prospect meeting. There were a lot of dealers in attendance and I think we’re going to continue to be able to add positive significant distribution to that business.

And the Goupil side, they are up 20%. We’ve got a new kind of series 5 hybrid product that we launched in France. It’s a little tougher because primarily our European business and so a lot of their customers are B to G kind of customers and so with the austerity issues and some of the economy issues there some of the customers have been a little bit slow. But so far they are continuing to grow and the integration of Goupil into Polaris has gone quite well. The productivity is way, way up in the plants and again this is a space that we see tremendous opportunity over the long term and we try to do it in the Polaris way. We’re jumping in with both feet, getting early cycles, learning and we’ll continue to innovate and grow that space. And when that market eventually pops sometime over the next few years, we think Polaris will be in the prime up position to take advantage of that. That really kind of what we’re thinking.

Now, from a global market leadership standpoint, again it’s a little choppier than it’s been. Certainly we’re battling in Europe. I’m very proud that we’re up here to date. I don’t think a lot of companies can say that in Europe. And the team still has plans and you’ll hear that from Matt as we go forward. And we’re seeing fantastic growth in Asia pacific particularly coming out of China and Australia.

We’re just really getting going in Brazil. We had to work through a little bit of a distribution issue and so we’re really just starting to set the dealers up and that market still looks very, very appealing to us. And I think you’ll see some nice successes from Mike as we go forward there. But we’re going to still see nice double digit growth from our global team and we’ll take that any day.

I’m going to just touch on Polaris/Eicher joint venture. We covered that last week, but we’re really excited about that. We signed that last week. It’s a $50 million investment between ourselves and Eicher Motors shared equally over the next three years. And basically we’ll be building a plant and developing a unique set of products for India and other emerging markets. That’s really kind of the plan. That product probably will not hit the marketplace till sometime in 2015.

For those of you that don’t know Eicher, I mean these guys are really a match made in Heaven for Polaris. I mean these guys are at $1.3 billion manufacturer. They are in the automotive supply business so they have a tremendous amount of manufacturing and LEAN capability. They are very good at cost which is important in that market place. They are the parent company of Royal Enfield which is the preeminent motorcycle brand in many ways in India. And they also are very experienced in joint ventures in vehicle businesses as they have a Volvo Eicher joint venture where they make commercial trucks which they are a leader in India.

So this is a really capable team. They think like us and frankly again we get together it’s almost like another group of guys from Polaris and so we’re really excited. When you take our product development capability and our ability with riding handling ability with distribution and a manufacturing knowhow and we really think that together we can really find something that’s going to be pretty special there as we go forward. And it’s right on strategy as you think about where we’re going from a standpoint of global adjacencies and frankly even our operations.

I want to spend just a couple of minutes on dealer inventory. That seems to be an area that maybe there is a little bit more questions. We’re up to 17% from 2011. Some of you may have been a little surprised by that. I would tell you that there is absolutely nothing to worry about there from the standpoint of the areas where we need to be. ATV’s are flat. Snowmobiles are up a little bit from the previous season which was an all-time record low. And frankly that’s really centered a little bit in the Northeast and North Central where there wasn’t snow. But it’s very, very manageable and then the areas where we’ve really taken increases are in the areas where we consciously chose in to invest in that. And that’s in motor cycles and Side-by-sides and what’s driving that is, the turns are moving just as fast or faster. It’s really that we’ve added so many new segments. We’ve added a lot of new dealers and we’ve also put some investments in to make sure that we can put our money where our mouth is so that we can support this kind of industry leading delivery commitments that we’ve made.

That’s really kind of what is driving the inventory increases. And I think you should expect inventory. It’s not going to get out of control and I think we’re looking at it from a DSO which we won’t tell you and a turn standpoint. But this is really almost exactly as we expected it to be and we feel very good about where we’re in dealer inventory.

Again if you talk to most of our dealers here, most of them would say I need more product, not less product. So this is, again if some of you were concerned that we’ve lost our way on this, we have not lost our way. We’re not going back to 2005, for those of you have been following us for a long time. This is a good deal for us.

I wanted to wrap just real quickly. As we have this broader agenda and our strategy as we start to go to new places throughout the globe and new spaces with these adjacencies, it really all comes back to what I think are four key kind of sustainable competitive advantages for Polaris. That, in everything we do, is either trying to improve those strengths or take advantage of those strengths, whether it’s in our core business or whether we go in to new spaces and new places throughout the world.

And it starts with being a really innovative culture. I mean we think of ourselves as innovation guys. We’ve done our selection. We do our processes. We do a number of really unique things around skunk works and different things to make sure we’re driving innovation all the time. When you are an innovation company, it’s not one thing, it’s about 20 things. And it’s deeply imbedded on our culture and we’re very proud of that and we hope never to lose that.

We’re also really good at applications engineering and that means we’ve got world class engineers that are basically taking applied technologies and solutions to meet the needs of our customers. And it doesn’t mean we’re necessarily developing a technology in a lab. We’re finding that technology and applying what we see to the solutions that our customers need solved. And that’s a very, very transferable skill, from outside power sports into new adjacencies, into new places in the world and we’re very excited about what we can do there.

And then we have our flexible manufacturing and when you think about that we can do amazing things. I tell people all the time that we don’t like to, but we can do low value better than anybody in the world. And there is a method of madness there. Nobody likes to do low volume but just like we did when we started the side-by-side business or the snowmobile business or maybe even the small vehicle business, lots of companies have to make tens of millions of dollars of debts because they’ve got build a new plant. It takes some years to get the manufacturing strategy lined up, they are making huge product plan bets.

And so what basically happens is they say it’s too big of an investment, I can’t get there... We find ways with our flexible manufacturing that we just basically paint well assemble and then have a world class design team. And with those four elements we control basically the key value add items of the product, and we’re able to go in there without being highly vertically intergraded and needing millions of millions of dollars in capital. And go in there and start getting the cycles of learning and getting the first mover advantage, starting to develop those relationships with the customers, iterating very, very quickly at a low cost.

And so as those markets move and evolve we’re in a preeminent position. And that’s served us very, very well over our history. And that’s essentially what we’re starting to do with some of these adjacencies. It’s one of the things that’s allowed us to go into new spaces and frankly also going to these new segments you even see in our core markets. A lot of these guys, they can’t bet on a new segment in side-by-sides because it doesn’t exist. And if it doesn’t exist it’s too big a bet for them. For us it’s not difficult at all. So that’s really kind of a method of the madness. And then last but not least, for us everything we do is about speed.

Again, we’re getting much, much bigger but we compete against giants on a daily basis. I like to say we slay giants on a daily basis and we do that because we’re unique and different. We can’t be like them. We have to be able to zig when they zag and that’s all about speed. And that’s in the speed in your product development process, it’s the speed in your decision making processes, it’s speed in responding to what’s going on in the market place. So what you see with MBP or RFM. Everything we do is about trying to make sure that we can move faster than the big guys we compete against. Because they are tremendous people and have tremendous resources and we don’t want to be as we said a sitting duck there. And so when you put those four things together, that’s really driving our success in our core business, but it’s also what we’re trying to leverage as we go into these new spaces. And we think that’s very, very transferable to a bunch of new markets and new places in the world. And that’s kind of a method of the madness as we go forward.

So with that, I will turn it over to the guys. Thanks. Do I need to take questions here?

Question-And-Answer Session

Richard Edwards

Any questions for Bennett?

Unidentified Analyst

This might be for (inaudible). Say it’s not like 2005 and there are some other comparisons to prior. So if we do have downturn in the industry, what difference this time from your perspective and may I know if it’s going to be partly important but…

Bennett Morgan

Well, we’ve totally changed almost 180 degrees what our go-to-market model is. I mean when we were in 2005, we were running what we would call a very unequated, almost annual ordering cycles with six months. We were basically a push model completely and we’re evolving completely to a pull model now. So basically everything is driven off of retail, our systems, our manufacturing processes and how the dealers order and they are ordering, in the Victory case they‘ll be ordering every day and in the ORV business is ordering two weeks. So we have the most responsive systems to our dealer customers and what’s going on in the marketplace. We have a couple of products in each segment in a dealership’s inventory. So basically if the signals changed to go faster or slower, we’re able to think up with that immediately versus some kind of six months or 12 months lag that allows us to be much, much more effective at responding to that.

And when you don’t have huge clots of inventory where there is 30 of Sportsman 500 H.O all sitting there and somebody’s got a problem and he’s got to blow them out, everybody is sitting with the right level of inventory, it drives much, much more effective marketplace for us. So it’s quite a bit different and again as you’ve probably heard us talk over the years, we’ve changed our entire manufacturing operations really to support that kind of go-to market model. So that’s the fundamental difference.

Richard Edwards

Laura?

Unidentified Analyst

(Question Inaudible)

Bennett Morgan

Well. Yeah. We have a very diverse dealer network. There is over 1600 of them and when you look at their profiles and maybe Mike can even speak to this when he gets up, they have a number of different capabilities depending on the individual. So there is a number of dealerships talking to your second question first that we see a very nice opportunity for them to take up the GEM product. They are in the right places, they have the right capabilities and we think GEM can be a nice play for them and for us. On the commercial side, it is a completely different customer. The product is fairly similar, but the way you go out and get the customer and the customer’s needs and what you need to provide from a solutions standpoint, from a manufacturer standpoint or from a distribution standpoint are quite different. And so we’re going to have to teach some of those. We’re probably going to have to go out and get some of those, some additional dealers that have true commercial capability because you have to go out and get those folks.

Richard Edwards

Okay. Thank you, Bennett. Bennett will be around so you can have an opportunity to ask him some questions a little bit later on. So up next is Mike Jonikas, Snowmobiles and Sales and Marketing.

Presentation

Mike Jonikas

I think the video is playing ahead. Can you just stop and get the feed up on my title slide? Okay. Hey, good morning. I see a lot of familiar faces. My role usually is to follow Bennett. He and I have been working together for 10 years. So my job is to give you confidence in snowmobiles in North America sales and marketing and make up the time that we went over, okay?

So let me start with snowmobiles. We’re in good shape on this business. It’s profitable, we’re optimistic and I’m going to start here out with a video that captures our passion and our confidence in this business, okay? Please.

(Video)

Our legacy business is healthy and we’re optimistic about our future and let me tell you why. The industry has been stable over the last couple of years. You see in ’10. ‘11 when we had snowfall, we posted double digit category growth. This past season it wasn’t too good in North America, particularly in the Midwest and in the New England area. It was actually reasonably good elsewhere and the category was stable year-over-year. So we feel good about those dynamics. In terms of where the growth is coming from, it’s in the mountains because they consistently get snow. And it was also in crossover, we drove that. We came out with a new product, we doubled our sales in that segment, we drove that growth.

In terms of power train it’s an ultimate. This category is about the enthusiasts, the repeat buyers. They want the best and they are going to buy the best and we compete effectively in that segment. Our outlook, we see nominal growth. If it snows, it can grow. I think you’ve got empirical evidence up in the left-hand corner. And the fundamental is because the registered consumer owner base is still sizeable at just under three million and it’s been stable.

So when it snows and we bring innovations, they want to buy. And you look at the other dynamics, the numbers of snowmobile clubs, the number of miles, the age of the owner, it’s all pretty stable. So that’s why we have optimism that when Mother Nature cooperates, we can sell.

This might surprise some of you if you are based in the Midwest or New England area of United States, but we posted retail growth of Polaris this past season in North America. It was up in the US Rockies, it was up in Canada. Obviously it was down on the Midwest and Northeast United States because there just wasn’t snow. And then Bennett didn’t mention it earlier but internationally, outside of North America, it was epic. Great snowfalls in Scandinavia, the economy is better in Russia and so we drove strong, strong growth there as well. The other thing we get paid to do is drive market share. We’ve been a definitive leader in driving share two years running and we had the largest market share gain this past season, two years in a row in the face of Arctic Cat completely revamping their entire line for the first time in six years, we still gained more share than anybody else in the category.

We’re at our highest level since the 03-04 season. We have a strong number two position. As I mentioned before, we revamped our switchback lineup and cross-over and doubled our sales. High quality innovation, we can drive growth. And we had the industry leading sell-through. We’ve made a commitment to all of our stakeholders that we’re going to run the railroad the right way and we’re the leanest. Now, it isn’t where we want to be. We’re up a little bit and I want to put this in perspective, year-over-year, ‘12 versus ‘11 on dealer inventory, flat in the US Rockies, flat in Canada. We sold out in Scandinavia, sold out. Down in Russia. Where we were up was in the Midwest through New England, United States. We took that into account when we went into market with our dealers and orders and we partnered with them so they have MY-13’s where we’ve put them in a position where they can win. We’re going to keep running it the right way.

All right, that was the past. Looking forward, our attitude is we’re staying pinned. This is a profitable business and we see opportunities for growth, and it starts with Terrain Dominating sleds, which is about quality and innovation. I’ll talk more about that. We’re going to transform how we go to market. We’re going to be more proactive in creating consumer demand. I will give you a tangible example from this upcoming season and we’re going to improve our margins. We’ve been doing that and we see opportunity going forward.

So, Terrain Dominating Sleds, on the left. Our quality is way, way better. We measure this rigorously with Net Promoter scores. It’s a tangible measure of consumer satisfaction. It’s dramatically improved. At the beginning of this, at the end of the last decade we were talking about fixing problems. Now we’re talking about driving to world class quality. It’s immensely different and if you talk to our riders, you talk to our dealers, they’re seeing the exact same thing. We combine high quality with product innovation. That’s why we have been driving market share growth.

MY-13 is a reminder. We launched that in March to dealers and the consumers, and it’s been great. Two pieces of big news was in all new mountain sled and the return of Indie arguably the strongest equity in the snowmobile business. We measure consumer traffic to our websites because that ultimately translates to purchase behavior just like we do in our own life. We go and research and it’s up really, really strong in performance which is where this sled lives and in mountain. So we’re optimistic that demand is there when we get snow. And frankly orders from the dealers in these segments crushed our expectations.

Transforming go to market. Here is what we did when we launched the new MY-13 RMK. Each day we put another piece of product news out on the web over a week. We partner with our dealers, with editors, with some of our terrain dominators. What we did is, in a ten-day period got 700,000 unique consumer visitors to the RMK website to hear about this new sled. Let me put this in perspective. In North America, the industry on an annual basis sells 25,000 mountain sleds and in ten days we had 700,000 consumers come to learn about the new RMK. They’re passionate, we know how to get to them. This thing was a grand slam, but we’ve got to do more of this going forward. That’s how we’re going to transform how we create demand.

Another aspect of transforming go to market is partnering more effectively with our dealers to get them ready retail. We’ve done this way better as a company over the last half a decade. You feel that when you’re at these meetings with our dealers and it’s really about getting their store ready, helping them drive traffic in their local market, educating them, training them on how to close more sales and we’re doing that better than ever

And then in terms of driving the profitability, I’m very proud of the progress we’ve had in recent years and what’s even cooler is we see more opportunity with mix with this enthusiast target. We have areas of strength where we have been able to take pricing and probably will be able to take pricing in the future with more innovation that’s in the pipeline. From a cost-down standpoint, value engineering and looking at it that way, we have cost reduction opportunities that we implemented this year and more going forward and there is still more quality improvement opportunities. So we’ve had great progress to date and we see more to come. So in summary, our legacy business is generating profitable sales growth. We have a clear and executable road map to keep this going and we keep growing market share.

So, I’d love to take any questions you have on snow mobiles before I go and cover the North American Sales Organization.

Question-and-Answer-Session

Richard Edwards

Any questions for Snow? Yeah.

Unidentified Analyst

(Question Inaudible)

Mike Jonikas

In North America, I wouldn’t call that favorable. In Scandinavia and Russia, I would. So the middle bar there, 10-11, I call that favorable snow.

Unidentified Analyst

So let’s say (inaudible).

Mike Jonikas

It’s probably up 2%, it’s a little bit better in the Midwest and northeast which it probably will be 4% to 5%. That’s what I expect globally, it’s about 4% to 5%er because the middle chart was epic snow. This past year was, eh and probably Mother Nature will even out. So we think 4% to 5%.

Richard Edwards

Any other questions?

Presentation

Mike Jonikas

All right, let me put my sales hat on. So my other job is to oversee the sales enterprise that works with our 1600 dealers across North America. And the story here is we’re on track to post a 3P in terms of really kicking butt on results three years in a row. And I’ll give you some color on this on four dimensions. And we have a clear road map to how to keep doing this. It’s essentially the same strategy I’ve been telling you about, we’re just simply accelerating our execution. We know what we need to get done and we’re just ramping it up.

So let me take you through some growth aspects. From retail, so we’re posting strong growth again here in the first half on top of two strong years. We’re on track to 3P to drive very strong retail growth year-over-year in North America. You’ve seen this chart before, but we’re on track to once again be the definitive market share leader and gross share again. So this isn’t against weak comparables, this is against strong comparables and we keep posting it. Here is the big deal, when you talk to our dealers and you do your surveys and you feel the different energy, the network brand value for Polaris is way, way better. This is a factual way of reading how a dealer views an opportunity with an OEM. This takes on an annual basis all the retail generated by a particular OEM just divided by the number of dealers. So it’s kind of average retail sales per dealer.

Two years ago we were number five. We’re now number two and we’re this close to Harley. So that energy you feel and that passion plea that Bennett made to them, we’re investing, you got to invest, this is how we earn the right to do that. And what it’s translating to is we’re the one’s that’s growing our dealer count over the last couple of years. With some financial failures there’s been dealers who’ve simply gone out of business. And the other people have not been able to offset that. We’ve offset that and grown because we’ve got the products, we’ve got the support, we’ve got the business model. So we’re growing retail, we’re growing share. Our network brand value is way stronger and we’re positioning ourselves not only for what we’re posting today, but where we’re going to go. So looking to that future is I said this strategy is really the same, is what I’ve been telling you the last couple of years, we’re just ramping it up.

We said we were going to be the leader in the Flow Business Model. You hear from other OEM’s talking about changing order frequency. We’re way past that. I’m going to go back to what I told you at the end of the last decade. We’re about maximizing retail, maximizing share, maximizing inventory returns. It creates value throughout the chain. And some of that is order frequency, which the other guys are starting to do, but we’re past that. We’re kicking ass in ORV and we’re going to keep going on this on Victory and I’ll give you a bit more on that. And our compositions are strong. We’re going to keep doing it.

So in terms of leading with the business model in ORV, the results have been fantastic. We told you we were going to lower the inventory levels. We told you we were going to accelerate retail. We told you we were going to grow on market share and we’ve done that. So where do we go from here? It starts with this market specific stocking profiles. What does that mean? In the old model we were out twice a year on ORV saying buy x quantity of units and the dealers filled in the mix by and large. Then with MBP we went in every two weeks and said for example in side-by-side, here is the nine segments across North America we need you to stock. What happened? Inventories went down and our assortment at retail improved and our retail went up. But we still get out of stocks because we need to take it to the next level of precision. So now we’re going to be going in with market specific at a dealer level, here’s you profile. That might mean 11 side-by-side segments in some market, it might mean 9 in others, down to a specific color.

As an example, last fall we missed out on some retail opportunity in Texas on premium multi-passenger ranger because they had that segment stocked, but they stocked with red and Texas in the fall you’ve got to have green, they are hunters. So we’re going to be down to that level of precision to improve our assortment and improve our ability to satisfy the market. They need greater ship date visibility. As we change the business model to react to retail, we haven’t been able to communicate with them as clearly, so here is where you get some frustration from the dealers. They love that we’re running this thing lean. They’re making way more money and it causes urgency for the consumers to buy because they know that they just can’t wait a couple more weeks. Am I going to get this side-by-side from Polaris or not? What we need to do is improve the visibility when the dealer knows it’s kind of comforting to get the deal closed and Longren’s team is working on that and we’re going to improve that.

So that’s on one side. The other side is the other guys; our competitors are starting to talk about maybe changing the frequency. We’ve been doing this retail thing for a couple of years. So now we have all the data on what works and what doesn’t. So we’re already in cycles of innovation on which tools to work with the dealers, which ones to abandon and we’re creating new ones. We’re actually launching with them here today.

So while others are talking frequency of orders, we’re working on the next generation of retail tools. That’s how we lead. We practice to victory. We told you we’re going to make a commitment to move this throughout our business model. We already started this process with our dealers back in June. We told them about this, it’s already been sold and they know about it. It starts tomorrow with the MY-13 shipments.

And here is how it works; it’s all about faster vehicle delivery. So like ORV we’re going to establish a market specific stocking profile for the motorcycle business. And what’s going to happen is this, when they retail, it triggers a reorder. So essentially we’re taking orders in the motorcycle business every day. What’s that going to do is improve our assortment at retail. So we took down inventory motorcycles but we were out of stocks. So we’re going to get better assortment of retail and it speeds up the signal from the market to operations to building another motorcycle.

And you heard from me on that last night. We’re going to get this thing in the next year to under 14 days delivery turnaround which will be unprecedented in the category. So we’re on the gas on this and we’re going to stay upfront.

In terms of count, our brand value is strong. We’re growing count. What it comes down to now is we’re laser focused on key markets where we still have opportunities to get ahead of the competition and that’s what we’re going to drive on.

So, questions for North American sales. Sir?

Question-And-Answer Session

Unidentified Analyst

(Question Inaudible)

Mike Jonikas

So the question is, last night we talked about well, higher expectations of our channels so why now? Because our brand value is where it is now, plain and simple. Second of all, it’d be great if they were to kick out the other OEMs. Just you know that is not going to happen because once they get them they are going to hang on to it like luggage. Our job is just to make sure that they get way smaller share of minor flow and we get way disproportionate. So it’s kind like the grocery store game. All the cereals are going to be on the aisle, it’s a question of who gets the biggest pie. That’s what we’re going for. That’s how we’re going to roll. But frankly from my initial bosom of this play call for last night, I think the dealer has got the message in a positive way and they are going to work with our DSMs and how do you do it in each individual dealer because there is not one playbook. There’s 1600 playbooks. That’s just what we’ve got to do. Yes sir.

Unidentified Analyst

A follow up to that. What percentage of the fixed income (Inaudible) dealers are single brand?

Mike Jonikas

So the question is, what percent is our network as only carrying one power sports brand? A third, but you’ve got to put that in perspective. Nobody is, there’s hardly anybody who is just carrying Polaris. The household penetration in the category is too small. So everybody is carrying something else, Husqvarna, John Deere, Lawn & Garden. So you are going to come in and we operate in a multi brand world where there is multiple power sports ones or other categories, number one. And number two, with what we have going on with innovation, stronger marketing and better business model, we’re actually driving our retail faster year-over-year in stores that carry multiple power sports lines because we’re taking their customer traffic because we’ve got a better product and we’re kicking butts. So actually it’s when you’ve got what we’ve got going on its taking advantage when the customer, there is more traffic for power sports coming into that store.

Unidentified Analyst

That’s part of that. I mean isn’t it harder to get a multi brand dealer to really…

Mike Jonikas

Focus on us? Yes. It won’t happen overnight, just like we didn’t get to this plow business model leadership overnight. We started this last decade. So it’s a vision we’re going to get to and I’ll lead an army that’s got to get out and do it every single day, every single sales call. And over the years coming, we’re going to hunt that down.

Unidentified Analyst

(Question Inaudible)

Mike Jonikas

Yeah. So the question is, how do I view the competition on this frequency of order? I’m not going to get into OEM specific. We respect our competitors. Some of them have, are still in pilot. Another has made a commitment that they are converting their entire business to higher frequency and they made that commitment in May. So they are kind of where we were in 2008 and 2009. So predictably because the dealers love this, they are getting, the competitors are getting pressure. So they’re really honestly focused on the frequency of ordering and trying to figure that out. That’s where they are at. I think the other part of your question is where is this going to go. We said this to you before; we have a pretty unique business model relative to theirs where you are going to meet in three or four hours all of our leaders and a lot of them, they are country management. Their commercial people are completely disconnected from the operations people and the only way this thing works is you’ve got to have it connected. So, even when they start to figure out frequency, they are not going to really get to the level that we can in most cases.

Unidentified Analyst

(Question Inaudible)

Mike Jonikas

Yeah. So the question is around business sophistication of the network. They’re independent business people and I would say, probably a third of them operate in the way you just talked about, on pretty rational decisions and trade-offs and ROI and the rest of the group we lead more with emotion and if we show them a way that’s been proven to work and do it in a persuasive way, they will follow. So one third will lead with us and the rest of the two thirds we have to persuade and move them along and show them how to do that. And if you’ve seen how, and you’ve been covering us a long time. You’ve seen how the current has changed with the network. When we’re going on now and having these conversations before it was this. Now it’s like, okay, should I? How do I do it? Can I do it?

Richard Edwards

We’ve got one more. Greg?

Unidentified Analyst

(Question Inaudible)

Mike Jonikas

Yes. So the question pertains to our motorcycle business where we have this opportunity to really change the game in terms of the quality of the dealer and the type of dealer. Frankly, that will come out in the wash over the next year or two as we launch Indian. But we have a very clear vision for the type of operator. You go down into the display room, the way that store is going to look and we’re already framing up which dealers make some sense and which ones may not. So we agree there is a very clear opportunity and that strategy will become more apparent over the next 12 to 15 months as we go to market.

Richard Edwards

All right, we’re out of time. All right, thanks Mike. Next up is Dave Longren, ORV.

Presentation

Dave Longren

Morning. As we go through this today, I’m going to go really quick through a number of the slides. I’ll hit the high points for you. Make sure you get the key message on it. I do want to make sure I have enough time. If you want to ask some questions about either last night or some of the material that we have enough time to be able to answer the questions that you’re really looking for.

So a quick snapshot of what kind of a business this is really all about. Okay the side-by-side business is clearly the number one business in category for us, lots of revenue and profitability. ATV is still a significant business and it’s back growing again. And it’s a substantial amount of profitability that it provides for us. And we still have the incremental growth that we’re driving over in the Bobcat in the defense business.

A little bit on our customer profiles. I hear this question a fair amount, who is this that’s buying this product? So I gave you a kind of a profile of the age, incomes and kind of a profile on it. Key things on the bottom point is Ranger customers mostly are work customers. They are looking for the utility and then they want to go play with it as well. RZR product is mostly about play and socialization. I want to go play with my friends, I want to go into the desert, I want two, three, four people with me. So that’s a different type of a customer. And the ATV is more of an individual, it’s built for work and play. I want to be able to work with it; I want to play with it. It’s kind of a midrange type of a product.

Overall industry trends, covered part of this last night. Side-by-side business is growing healthy. It’s still continuing to grow great this year around there and the AVT industry turned from on the down side to plus 6% this year. So it’s turned around and it’s in the positive and we’re seeing here probably exactly what we expected to happen on the side-by-side business.

Mike talked a little bit, so did Bennett about MVP. I’ll talk about a little bit more here on there. A couple of key points. We’re into our scenario right now. We’re able to ship to retail demand. So as you’re talking about Indians and that models are going forward with that being able to add their orderings, selling something, they are replenishing orders back in. It’s pretty close to the scenario we’re in right now. So in the spring month as they were retailing products, we were shipping products back in. So we were holding dealer inventories at exactly the level that they needed them to be. In the past we wouldn’t be able to handle that and our inventories would drop down, not able to replenish as they were selling and increasing retail.

One of the keys to that is we changed our forecasting models. Instead of looking rearward, last 12 months what happened in sales and planning ourselves from that, we’re now on a forward three looky. So we’re looking at what’s going to happen in the next three months, understanding where they are going, doing our forecasting models and then as Mike said, we’re doing our segments building and stocking based on that as well. So it’s a shift in our approach and strategy to be able to make sure we’ve got the right product in the right place.

We have shifted around and got our order and delivery at a much better position. We now give dates out at 90% of all the orders that we’re taking. And then we’ve also got ourselves to where we’ve cut our lead time on our products, so 50% reduction of lead times. So we’re faster to market, we’re dialed in. We’re now dialed in to the point that Mike made earlier is we changed our segment stockings to make sure we have the right product and the right segment for the customers. So they’re not ordering product that maybe will take them 180, 200 days to sell and that product gets someplace else where they need it in 20, 25 days to sell. So we’re shifting that around to give the inventory of the dealer in the optimum position.

Another thing to make note on is when we bring out whole new models, like last year we brought out the RZR 570 and the RZR XP4. Those are whole new categories we need to stock into the dealers. So they’re stocking inventory levels that they need that we’re bringing in and we’re managing that level of inventory as well as we’re managing the total inventory.

Overall market share, you’ve seen this. We’re driving the business. We’re being very successful here. We have over the twice the share of our next competitor and as we continue to drive this we’ll continue to drive that number up. This is one of the keys to our success. A lot of our competitors have one or two products that they try to compete in the segment with on us. We’ve got three to six models in almost given category that we’re out competing in right now. You heard me, if you heard me last night talk about value and premium segments, this is where this comes into play. So we can play value and premium and then the different ranges that consumers are looking at. So we’ve got the segments completely filled out, whether it’s in the RZR category, the Ranger category or in Sportsman. So we’ve filled the entire portfolio to be able to compete out with versus a single model.

And what does that do? We continue to drive shares. So if competitors keep coming at us and they take shots at us, we understand where they’re coming and we generally know where the markets are going. We’ve got an innovation machine running for us. We know the new segments. We typically have gotten into a mode about every six months we’re bringing a product out right now. So we know when the next cycle, where we need to come and when the next products commence and then we’re able to keep driving our markets up.

So overall our results, if we’re looking at ’12, we’re seeing ’12 as another great year here in the ORV business. Ranger and RZRs are both doing phenomenal right now for us. Sportsman is back growing and gaining share for us on there. And we’ll continue to continue to see continued growth in the military and in the Bobcat business. So what’s it all about? So it all starts out with product for us. Making sure we’ve got great innovative product. We’re out there hitting markets before our competitors can get there and actually focus on creating new segments. It’s not just about market share fight, it’s about how to make the pie bigger for everybody and then take the bigger slice of that pie at the same time. It’s about making sure we drive ourselves on the MBP and continue to be the best at being able that delivery model on there and then growing in the adjacencies and then making sure that we’re optimizing our margins, both through operational excellence and what we’re doing with our PG&A business. Our customers want integrated solutions and our job is to deliver those to them.

Well here is kind of our results so far year-to-date. They’re pretty nice numbers. So Sportsmans are up 10%, Ranger business is up 23% and the RZR business is up 31%. When I look at the RZR this is how again, a quick snapshot as we look at the customer, our positioning of our products and then there is the portfolio or the volume and premium that we compete in right now. And then at the bottom you can see kind of what’s our innovation cycle as we’ve been bringing in new products back into the marketplace.

So overall, we’ve got a 50% share in this category right now. So it’s not just about us having a big share. As I mentioned earlier, it’s also about how do we take that sports side-by-side market and make it bigger? So how do we get customers from the dirt bike segment to come into the side-by-side market? How do we convert ATV riders into side-by-side as well as grow our share at the same time? So that’s the whole strategy that we’re operating at.

In terms of performance, our RZRs continue to win, whether it’s out in the race circuits or the press. We do have the dominant product out there right now. We do have some competitors that have taken some runs at us. Last night if you were at the dealer revel last night showed a preview of what’s going to come in some competitor video. We’re going to go and kind of set the facts straight on some product out there. You’ll see that coming up here and about a month or so that will go fully public on it, but it’s pretty interesting.

Here is some of kind of the basic information as I look at some of our key competitors. When I look at some of the key vehicle characteristics there, RZR XP versus a couple of competitors and who’s kind of got an advantage position on it and mostly in almost every case the RZR XP is the dominant machine and hence why it’s winning out in the market, both in terms of retail and in the race circuits. And here is some data, if you’re going to go drag-race vehicles, instead of what speedometers say – because speedometers can read all kinds of different numbers – what the real data tells you on there and so both the RZRXP versus the Wildcat we’re substantially faster than the Wildcat. And so this is looking what’s the difference in distance between two vehicles if you’re going to drag-race them over a particular distance. So at 10 seconds, a RZR XP has got about a 65-foot lead over a Wildcat. So that’s about 6, 3 to 4 to 5 power lengths damage. So substantial leads.

So in terms of the news, last night we talked about the RZRs in the trail segment. This is a key segment for us that keeps driving us, whether you’ve got the industry’s patent in here, we’re the only guys that can compete hard in this category and we’re continuing to press on it. So we’ve got lots of new features that we added in to the 570, really key features that our consumers have been asking for on there. Then as we move into the big vehicle we got some improved suspension on the 800, but we raised the ground clearance up. We also substantially improved the handling characteristic of that vehicle. And then the RZR XP, we ended up taking exclusive rights to Walker Evans Shocks, best shocks guys in the industry. We now have exclusive rights to those shocks for all our vehicles.

For RZR category, here you can see kind of growth we’re seeing. We’re seeing phenomenal growth and we project that to continue to grow on there. As we go into the Ranger category, same value premium kind of a breakout we have going on, RZR XP in the middle. Right in here, that’s the new vehicle we brought back in on there and the premium right there for the 800 on there. So we really went into bracket on the Big Boy category as we’re bringing up some new products up there.

So the 800 Midsize, what’s this all about? There are two things. First consumers look at, do I want a full-size vehicle? Do I want a midsize vehicle and then from there they say, okay, what engines do I want? And they’ll look that way and they’ll go from a small engine to I want a lot of performance, I just don’t want a big vehicle and the other way that they’ll look at vehicles is, what size engine? I want a Big Boy vehicle. I want a big engine, then what platform do I want? So they look at it two ways. So what this is all about is giving them a high performance vehicle, lots of work capability into the smaller chassis. And it’s got a great price point at 10, 4 to be able to go after the value consumers there.

The Ranger XP 900, if you get out to the right retail sites you’ll really be able to understand all the changes that went into this vehicle. It’s not just a Ranger with a 900 engine in it. It’s a completely different vehicle. We’ve got everything that’s changed on it. It’s a phenomenal machine and you can see the different kind of pricing we have in the base vehicle going from 12, 9 all the way up to 15, 7 for the hunting version. And then on top of that we’ll put all our PG&A, the accessory kits on top it as well. So, a whole new class of vehicles really going for the ultimate refinement and ultimate performance.

So here is where we looked at kind of that breakout. How did this fit into the segment? So here’s where our base Ranger used to compete versus all of our competitors in the price ladder there. The Midsize comes down on the bottom end and competes now on the lower end of the market. And the Ranger XP 900 goes and fills in the upper end to be able to fill our share. So instead of having a 30% share, we’re trying to get ourselves up to that 50% share which is our target. So as we’re looking at Ranger, we’re seeing good growth coming out of Ranger and continue to grow for us. And as we look at Model Year ’12s, they’re closing out great and we’re into a great launch right now on Model Year ‘13s to start us going into the fall season here.

So here we’ve got the Scrambler XPs and the ATV. This is where we’re coming in and trying to lift this market back up. We’ve got the new vehicle on here. It’s a really high performance recreational thrill machine that they’ve been looking for. They’ve got also in the LD version with all the added features on there, a couple of different price points up at 11, 9. So pretty high performance machine, pretty high price on it and right now consumer and the dealer response has been phenomenal on this machine.

Sportsman you can see how we’ve been ultimately performing right now. We’ve grown nine share points in the last 3 years. So we’re continuing to drive. We will continue to drive this category up. And what’s we’ve done with the Scrambler will help us and as same as we’re going after all 500 segments in the core market and driving that up.

Our Bobcat business, this year as we’re looking at it, it’s probably going to be flat for us. Primary reason on that has to do with one of Bobcat’s big national accounts was acquired by one of their competitors, one of their national account competitors on it. They’re going through consolidation right now, as they’re working themselves through that and balancing their inventory back and out. It’s mostly a timing issue as they work through that part of their channel and then it will start to pick back up and as we look at Model Year ‘13 and ‘14 or calendar year ‘13 as the new quarter belt vehicles come in we’ll get lift back out of this.

Military business, as was said last night and earlier today is growing well. It’s in really nice shape. We’re dominant with the special operations forces. We’re doing phenomenal with them. We’ve got the unmanned vehicles going on. I don’t know how many people noticed last night that was an unmanned vehicle. That vehicle, just one, the unmanned vehicle rodeo testing with the army at the end of June. So that’s a phenomenal machine out there. We’re the industry lead there and we’ve just launched a bunch of new products from the M Razors, the MB850s. So we’re starting to sell those and then we’ll start to bring in the non-pneumatic tire into that category as well. So this is really all about making sure that we leverage our best in class vehicles in our basic core operating base, whether it’s Rangers, RZRs and ATVs and still enable to quickly certify the customer’s need on there.

Going back in where we’re the seeing opportunities where they have needs for products around there; highbred vehicles, extra very light type vehicle solutions and then working the capabilities to expand out into the new the markets, being able to bring exportable power out into the field. So, using our vehicle as a platform to deliver our capability somewhere else that they need it. And then we also have the angle where we’re strongly because of our success in the special operations and with the US Army, the foreign military seals are now coming into us as they’re following what the US military is doing with our small vehicle.

So here are some of the new vehicles that we’ve got going. This is a new vehicle category that’s being requested by Special Operations forces, the whole new category of a smaller vehicle for the military. It’s a larger vehicle than we have right now. It’s a whole customized armored vehicle for them. Here is the MB850 that we’ve just started delivering to the special operations forces, and this is the M RZR. That’s the newest one that special operations in the army started to buy from us.

So overall, what are we seeing? We’ve got significant growth still going on in side-by-side. It will continue to grow. It is a very good profitable business domestically and internationally. ATV business is back. It’s very profitable and it’s growing again and we’re in a strong position to grow more market share. We have a great plan to continue to expand our margins, both through operational excellence, product mix and as we’re working on our PG&A solutions for our consumers and then we’re going to continue to drive ourselves on expanding categories into the Bobcat and the military and continue to build those markets out. Bottom line, we’re well positioned for growth, we’re driving growth and we’re going to go out and continue to take market share out in the marketplace.

Questions?

Question-and-Answer Session

Unidentified Analyst

(Inaudible). Just talk a little bit about the (inaudible).

Dave Longren

Okay sure. So question goes back in back to the Ranger category, the big boy category. How and why? Ranger category is about 50%, the utility market is about 50% of the recreational or the side-by-side category. So you think RZRs and RZR is about split in terms of total volume that are out there, they’re pretty close to that right now. RZR isn’t quite as big as the utility vehicles yet. So the key for us is right now as we think of that portion of it we’ve got a large opportunity in both that entry level category to continue expand that out and that big boy category. So as we look at those we’ve got substantial growth in the value and in the premium categories. So it takes in basically, are trying to open up 30% kind of more market opportunity than we currently have been focused on. Yes?

Unidentified Analyst

(Question Inaudible)

Dave Longren

Quite a bit. The question is how does the new XP 900 differ from the Bobcat vehicle? They are quite a bit very different vehicles. I can’t go into all the details of where the co-developed vehicle is going. That’s more of a pure commercial work vehicle. So lower speeds, higher work opportunities, how it would be applied specifically to an industrial base, what they’d be looking for, for grounds maintenance and that type of work. Where the Ranger is a higher refined, higher performance vehicle, more power, more torque, able to handle more kind of the farmer’s needs, the multi-acre homeowner’s needs out there on it with a bunch of other kind of capabilities in terms of the refinement, for general the outdoors kind of a consumer.

Unidentified Analyst

(Question Inaudible)

Dave Longren

The timing, I won’t go exactly the dates when we’re going to launch. It will be within the next 12 months. It’s coming out. We’re in a category segment where we’re trying to bring products out in the six to eight months cycles right now. So if you looked at some of those charts I showed, it shows kind of the timings of stuff. We’re in that kind of cadence and so it will be very soon that a product like that will be coming. And in terms of the categories, the work category, as Bennett spoke last night, is an area we haven’t focused real hard on and as we look at it I think we have the 13th share in that segment right now and it is a growing segment. We just haven’t paid attention to it. So we’re going to swing attention into it with our current portfolios and in the new vehicles that are coming are going to be targeted at being able to grow that out.

Richard Edwards

James?

Unidentified Analyst

(Question Inaudible)

Dave Longren

Let me go back to say, it’s a growing segment right now. So the consumers have come back into the category. We’re seeing growth there. We’re seeing growth in terms of the performance category. So if we were looking at just the sport, kind of the old quads, the race quads, that market isn’t growing, but this one is growing. And this is in terms of size; let’s call it about 15% kind of a category for us right now. Been able to attack and have a pretty good opportunity on it. They’re about the only guys out there at all. There’s a little there. Yamaha used to play a little bit in it. They’ve gotten kind of hammered on it. Renegade is up there in a couple of categories. This is clearly a play for us to go right after Renegade.

So why are the metrics getting crushed? I think one, it’s been a lack of focus and when the markets turned down they went and redeployed their assets in capital to different markets on it. Now that the markets are coming back I think they’re back looking at us on it. The advantage that we have over them, Bennett mentioned this earlier, is our speed to market. We’re able to bring stuff back out and fill segments in probably half the time it’s taking them. So if they started looking okay, we got a market here that’s starting to coming back in ‘11, that’s three or four years for them to come back out again. And by the time that they’re coming out with what we’re doing, we’ve already got two more product generations that we’ve come back against them on.

Unidentified Analyst

(Question Inaudible)

Dave Longren

Yeah. And they’ve just redeployed, whether it’s in the motorcycles over in India or someplace else they redeployed assets and capital.

Richard Edwards

Yes, one more. Yes Ted.

Unidentified Analyst

(Question Inaudible)

Dave Longren

Forward three? Yes.

Unidentified Analyst

(Question Inaudible)

Dave Longren

Yeah, so the question is about our forward three forecasting models. Which spent a fair amount of time developing the models and then testing our forecasting, looking at it, simulating it, seeing what’s happening. It has to become very accurate first. We were able to do. We do it not only at the macro-market level, we do it at the regional levels; we do it at the district level and now we’re down at the individual dealer level. So we’re understanding where they are going to be, and what they need. So it is very accurate and what it’s allowing us to do is to try to get the right mix of products being built because we’re taking orders every two weeks for their demands, six weeks out. But we’re looking out beyond that. We’re trying to understand where they are going to be before they know they’re going to be there. So they’re focused here. We’re trying to anticipate their needs and make sure that we’re positioned as they tune in their orders we adjust our production to be able to support at the very end what they are looking for.

Richard Edwards

All right, thanks. We’ve got to move on. Next up is Steve Menneto, Victory and Indian Motorcycle.

Presentation

Steve Menneto

I’ll cover Victory first, then we’ll get into Indian. So looking at the industry, last night we told you, we took a little different approach and where we always were talking about cruisers and touring. We’re going cruisers and bagger touring. As we went a little bit deeper into the touring customers we understood there’s this whole segment in the market place, while the colors more aggressive bikes and so forth. And so we’ve been able to split that out. You could see baggers is really, they’ve been growing. Touring has been doing very well, Cruisers have been leveling off finally. We saw downturn here actually like ’08, ’09 and it is finally stabilizing and we’ll see some, I think it will hold for us for a while. But Victory is doing pretty well like I said 13% ahead of the overall industry growing share. From a share position Harley continues to grow shares and they’re clearly the dominant player. We’re doing very well, the metrics and triumphs and the Euros are struggling right now and the share position. They haven’t introduced that much new product here as Dave just said. Focus is kind of not totally left to marketplace, but they have been looking at trying to fill their lower CC lines and they have been running their upper CC lines at a little longer without much products news there.

We’ll take a look Victory. We’ll talk about the brand. We’ll go into the frequent products news and we’ll talk a little bit deeper in RFM so you get understanding of that and then international and dealers. So from brand perspective, you saw we’re heading on new partners. It’s really start to help us, particularly as we build more social media approach to our business and getting in with the one-on-one with our customers.

We’re going to take that same approach with our. If you walked around the display room last night, dealers are really loving the approach that we’re going to take. It’s fresh and bold. Really went over well and then also our apparel. They’ve been dying for our new apparel. The consumers like I said last night, they constantly approach me, when are we going to get new apparel. We heard Ian O’Reilly. He was the person who built the Triumph business. He was there 14 years, took their business from about $2 million in apparel to $16 million in apparel. So we’re excited about what we can do in motorcycle Apparel and he’ll be working on both fronts.

Our strategy for news has been more frequent product news and not using the dealer meeting for big products launches. We’re the small brand in our category, unlike our ORV partners who are dominating their category. So want to have frequent product launches so we can stay inside the endemic press, keep our dealers excited, our customers excited and so forth. So we’ve been adopting a strategy. You see every six months or so we come out with something new and not so, some of them are big platform changes, some of them are making sure we’re getting everything right with some of the accessories that we put on bikes, again some wild colors into our paint to attack that bagger segment.

So we’ve updated our cruisers and we’re going after the baggers pretty hard and you’ll see us do that over the next couple of years here. The board walk we launched, that was replacing the kingpin. We had to refresh that one yet. It just came out really, really nice. Dealers are receiving it very well. They’re excited about that and they’re adding that to their portfolio and as we stock up again up against the H-D Softtail Deluxe which is a category leader there. We do pretty well and have enough money left-over so that they can go and accessorize it. You see in a couple of board walks down stairs with the bags and the windshield and stuff. It’s really a key product for us to satisfy the customers. It’s really, really cool.

Let’s talk RFM. Our plan for RFM is both for Victory and Indian and you see our volumes. We expect our volumes to go pretty strong here out through the long range planning period. One of the areas that we’re seeing that’s a challenge that we’ve always had, in our previous production system we would be shutting down production right during April, May and June, transitioning to the next model year when our dealers are ramping up their retail it’s hitting seasonality. So as they’re desiring more products, we’re shutting off all these spickets and saying you got what you got, hope it goes well for you. This may probably less about 500, 600 Victories on the table where we could have really pushed retail harder, but we weren’t able to deliver the bikes. So as we move forward we want to be able to really get that in-sync and then we know that there’s more model mix complexity coming with both brands and we want to able to improve our lead times and respond to the market faster.

So we’re moving to this pull bay system. What it meant to us is we literally this is more of a snapshot. I’m not going to take you through every little chart. But it was we changed everything from how dealers stock their inventory and their profile, how they move from once a year ordering to every day ordering. Now think about it, the average volume of the dealer, they’re not going to be sitting there every single day ordering a bike, but as they sell a bike they have the opportunity to order it that day and we want to ship it to them as quick as possible. And so as we move through the ordering process we had to change our forecasting and our tracking processes and then we moved to a production wheel inside of spiral legs. So, moved from batch manufacturing where we just run all the board walks all at once. Now we’re building every bike every day. So as that wheel spins we can spit out more inventory of all the models makes. So we can supply the dealers in a quick manner so we’re not starving the markets when we were before. And that puts more pressure on us to make sure we’re flowing in materials and we have safety stocks who are running the whole gambit, from dealer orders, right down to how we’re handling our safety stocks and hedges and our inventory to be able to supply them, really transform everything we’ve been doing in motorcycle and this will also working for Indian as well.

So through this period, on average we’ve been going from over 100 days what it takes for us to respond to a dealer order, to we’ll get down to 30 to 45 days here in the next back half of the year. Then we’re going to move to about 18 days as we go through Q1 and Q2 and then by this time next year get down to 10 days. That’s our plan. We have a lot of work to execute. So right now the dealers are completing the profiles and then through this period you’re going to feel a fill. We’re going to have an inventory fill, if you think about it we have a couple of things going on. We have more dealers than we’ve had before. So we have the whole dealer bases. The number of dealers is climbing and in that dealer base we have a lot of stock outs right now. That’s where we left the sales on the table. So you are going to fill, number one we have to get up to all of our dealers that we have, then number two, fill the stock outs. And then we also want to carry some hedge to make sure that we have the lead time. We’re reducing lead times and we’re getting the system right during this transition. So kind of think the inventory is going to go up in the dealer bases because before when we started in ’09 we were trying to ramp down all the non-current stock down to about 3,000 units, 3500 units where we were.

Now, just your normal run rate will take you up t to the mid fives or so. So our normal run rate we’re going to expect to be a lot higher than what we’ve carried before because of the number of dealers. And that the dealers are fully stocked we should maximize sales and see a higher run rate with faster replenishments. So we’re excited about this one here. The dealers are just ecstatic. They think this what they need to keep growing their business. So it’s an exciting time to see this transformation for us and the dealers.

Internationally we continued to grow. The team is doing a phenomenal job, up 60%. You can see different markets that we’re getting into. Bringing France on, Germany is getting bigger. So it is just an exciting time. Australia is just crushing it for us and like I said the dealer accounts are growing in both North America and International. So it’s a good story at Victory and that’s again driving more brand recognition, more sales and also making our run rate on inventory come off a little higher. But what’s cool about that like I said last night it’s healthy inventory finally versus what we were dealing with in ’09 and ‘10.

Okay, Indian. So keeping it simple, brand, product distribution and making sure we’re getting the world class team going.

(Video)

That’s kind of where the brands sits. We’re going to make sure that we’re playing with our heritage part of it, but also talking to our customers about where we’re going to take it. If we get stuck into just where we’ve been, then it just becomes an old brand in a box, right? It’s nice that it’s back but it’s not, where are we taking the brand. That’s going to be important in our messages. So what you’ll feel from us is it will first come out when we re-launch it and establish the bikes and the brand and play up a heritage piece. But also we have a piece called the road ahead and the road ahead is going to be big for us. It’s to convince the customers and make sure they understand we’re not going get stuck in the box in 1953 and just fill the old, well newer but older style motorcycles. Think of a Camaro. That’s best way. That product has been phenomenal. Where they took a few styling cues from its history, but really modernized it and they have been doing pretty well. That’s kind of how we have our head wrapped around Indian in terms of our products.

We’re going to market. Actually we had this truck driven in last night for the prospect meeting we have. But we have a truck in the displayer room we’ll take you through later on today where we’re going to be able to educate the customers. If they walk up the left side of the truck and it’s all interactive, so it’s kind of bringing the heritage but new technology. It’s an interactive way to learn about Indian. So our expectations are by the time you walk up to the left side and you go through all of our touch screen TVs, you may walk out and say holy cow, I didn’t know that about Indian. But this is going to be the spearhead of how we’re going to go to market as grassroots.

So if you think about Spider, when they’re spending somewhere around $30 million a year to launch that product, they were trying to build a category as well as launch a product. We’re not going to be that crazy. In our category if you look at how we get to our customers it’s grassroots. So it’s not spending $30 million on TV and hopeful everybody is going to come on the dealership. It is going to all the different rallies, educating them on the brands, getting butts on seats, teaching about the bike, let them feel that new bike, the new engine that’s going to be there. So it’s going to be more pushing up grassroots that it is going to be this attack on to trying to build the category.

The category is there. We know who the category leader is. We’ve got to tell them two things, why we’re relevant and they should be confident in the quality of our bikes and that we’re going to be around for long time. That’s what we’re going to do in the grassroots marketing level. You saw the bike we introduced last night, just beautiful and just knocked out it out of the park with all the chrome and the paint and this will be going through the next summer and we will have some new model line ups coming out sometime late next summer and so forth. But this is going to be a big homerun for us in the new product for Model Year ‘13. As we bring on dealers we’re being very systematic on the way we’re doing this.

We have third party GIS Company that’s helping sell, putting dealers in very specific places so it’s a green field for us. It’s really exciting where you can get the dealer locations down where they should be. Make sure their top MSA focused so we’re getting them where the retail is, have our consistent brand image go from dealer to dealer. We want them to stress that and in fact we’re working with our international teams to make sure it’s not only North American consistent, but globally consistent and we’re also talking, we‘ll be talking about prospects here at the meeting. What are the investment levels and operational requirements? A lot different than what we’ve done with Victory. When we first started Victory we weren’t in that mode. We’ve learnt a lot from we were with Victor and we want to bring this to Indian.

So if it means we have to go slower on dealer ads because we get the right operators who have the right procedures and processes to build a great brand, we’re going that way. We think there’s a lot of interest. We’re getting, we’re feeling a lot of interest on dealerships and people who want to be dealerships, but we want make sure we select the right operators in the right locations that are going to execute the brand correctly, execute the experience correctly and be successful for the long haul. You saw our store downstairs. It’s about building a brand. We have specific areas where we have the media hub pushing our heritage.

We have to make sure there’s enough space around the motorcycle so people can really get engrossed by them, more of that premium feel. We know we have a place where we want to get intimate with our apparel and our accessories that someone buys the bikes. Always having the mind on extending that premium experience and then we have our hedge rest where we’re actually going to have a lot photos of local riders where we celebrate the riders. The riders want to belong to this on their level and that part of building ride groups and building interactions and dealerships are going to be key and a focal point in our store. So very, very premium environment.

Ready for questions?

Richard Edwards

Yeah. Eric?

Question-and-Answer Session

Unidentified Analyst

(Question Inaudible)

Steve Menneto

When we look at that, the first, the area where we can make a lot of money is the heavyweight segment. So as you get down to the lower CCs it becomes challenging for us to make the profit that we need. We continue to look that and look for opportunities to bring up compelling bikes to the marketplace. That’s the other thing, as you go down CCs you start getting into probably the little weaker. The Japanese are a little stronger, so you have to make sure that you have a pretty compelling story on that bike. And we’re continually working in that area and I think we’ll have some opportunities as we go forward in the future.

Richard Edwards

Yes.

Unidentified Analyst

(Question Inaudible)

Steve Menneto

Base number through ‘11 and ‘12 is going to be a heck of a lot more than what we’re doing today as though my job depends on it. Yeah, I think we’re going to be pretty aggressive in our growth in both Victory and Indian. So I think it will be okay.

Unidentified Analyst

(Question Inaudible)

Steve Menneto

I think we’re in a good place right now, but I think we’ll still be opportunistic. So I think you’ll see that climb, but not the dramatic rates. We’ve been adding a good chunk of dealers year after year here over the last three years as our story has gotten better. But I think we’ll make sure that we’re opportunistic as we go forward. So we don’t have this grand plan to go to 1600 dealers and match ORV volume. We think if we smartly add you may see us climb another 100, another 150, something like that. But over time not, globally.

Richard Edwards

Greg.

Unidentified Analyst

(Question Inaudible)

Steve Menneto

We do measure that. When we were in the non-current, heavily non-current our trading values were low. Our trading values are improving. So that’s always a key to growing a stronger brand and the dealers are more accepting on bringing those tradings in right now because they’re out of the non-current. So actually they’re looking for them and searching for them and that’s one of things that the dealers were continually talking to us last night about was it’s nice to see that we’re getting them back in. They’re getting our new Victories yet I have another chance to fill it out. So it’s getting better for us. It’s really cool.

Richard Edwards

Yes James.

Unidentified Analyst

(Question Inaudible)

Steve Menneto

Yeah. I think our plan is that the back half of the year that will continue and then the first quarter about 13, and then we’re expecting if we execute our play right, Q2 of next year we’ll start where retail equal ship. That’s where we want to be.

Richard Edwards

Okay, any other questions? All right, we’re going to take maybe a 10 minute break and then we’ll try to get started here to see if catch up a little bit of time here. Thanks.

(Break)

Richard Edwards

If we could have everybody start returning to their seats. We’ll get going here again. Thanks.

Okay, we’re going to get going here. So next up is Steve Eastman, PG&A. Steve has been with us a few months. He is our new PG&A Vice President. So he is going to kind of give you a little bit of look of what he things PG&A might look like over the next few years so, Steve?

Presentation

Steve Eastman

Thanks, good morning. And as Richard said all six months with Polaris so I’ve got it all figured out, happy to share all that with you. Just a quick update on or overview on PG&A in general, few things to make PG&A unique business for Polaris obviously from a SKU perspective it’s a very unique business in the sense that we support 50,000 SKU’s which is a mix of parts, accessories and apparel.

And the competitive landscape for us looks very different. We compete with a mix of very large aftermarket distributors in North America and across the globe as well, but we also compete with big box retailers and increasingly with online retailers as more and more consumers leverage online channels to shop for product both before and after they purchase their whole goods.

Top selling commodities. Usual cabs have characters but there is couple of things I’d call attention to here. One is if you heard yesterday, we’re doing some really cool things with cabs. And cabs is our largest commodity for PG&A. So I think this is important if you think about the growth of PG&A going forward, the level of innovation we’re driving into our top commodities is very, very important. And if you haven’t been to the presentation space that’s true as well for winches, plow kits and some of these other top commodities.

The other one I’d call attention to is electronics and lightings. Last time we were together with you that wasn’t on that top list. That’s one of our fastest growing commodity areas. There is a lot of excitement on the presentation for yesterday for lighting and the electronics in our side by side category in particular. And then on the Polaris advantages, strong list of items there but one that I am particularly focused on is this whole idea of Wholegoods integration and Dave Longren talked about it consistently in his presentation for ORV. This new cab solution is a good example of what you should expect to see more up going forward. More thoughtful upfront plan integration of our accessories with Wholegoods.

It’s a distinct competitive advantage. It’s something we think we can build on and if we do that well, we have a distinct competitive advantage over the aftermarket guys and we think that will result in higher dollar per unit for accessory sales with our Wholegoods purchases. And so look at the past 10 years, you can see the growth has been very consistent both in terms of revenue and profitability but that’s accelerated over the last four years and we have every reason to believe that that will continue this year.

And if you look at the far right of the chart, we’re growing across every business segment. We’ve cut the business in three different ways so you can look at it by geography, look at it across parts, accessories and apparel and then across our Wholegoods business units. In every case the business is growing. Snowmobile is the tougher segment for us and the next slide will highlight a little bit of that challenge for this year, but in general we’re feeling really good about the growth of the PG&A business across every segment of our business.

As we look forward, our growth objectives are just to continue to build on that. We expect to continue with low double-digit growth both in terms of our revenue and our operating income for the foreseeable future and the continued focus on backing that up with exceptionally strong operational discipline. The three pie charts across the bottom give you a look at how we’re performing on a year-to-date basis. Again we’re doing very well across every segment with the exception of snowmobile accessories which is simply a function of the very low snow quantity we saw this year and the impact that that had on parts and accessory business at the beginning of this year.

That being said, we expect to have another record performance for PG&A in 2012. The thing that’s driving that, new product introductions and innovation for Polaris accessories continues to be the driving force behind all of our growth. There is no question about it. We have to keep that pipeline full and the pipeline of innovation that we have keyed up for PG&A right now is better than we’ve seen in a long time. We’ve got a 25% increase in model year ‘13, accessory introduction plan for this year and a 75% increase in apparel.

You heard a lot about the apparel work that Steve Menneto and Ian O’Reilly (ph) are doing with Indian and Victory motorcycle. We’re doing that as well in the snowmobile categories and we expect the payroll and general merchandize to continue to be an important part of our growth story going forward. The focus on this innovation is to continue to drive quality, fit and ease of installation. We talked about that a lot with this RANGER Cab solution. For the dealers that ease of installation is a significant factor for them.

Their ability to setup these vehicles and to deconstruct the vehicle based on what the consumer is interested in is a significant factor for them in choosing a Polaris cab systems on our cabs and their dealerships. So again this PRO-FIT Cab system, this is really the poster child for the kind of innovation and integration you should expect from us going forward. This solution is by far the industry best cab solution in the marketplace. The sound quality is significantly improved, the ease of installation is better than anything out there and the fact that it’s modular with 16 SKU’s we can create 100 different unique combinations for our customers for their cab solutions.

If you haven’t had a chance to play with this, it’s a pretty incredible experience to see how easily this installs on the vehicle and I’ll give you an example with a video here that showcases how this compares to the John Deere Gator.

(Video)

Pretty cool. So as we talked about ongoing innovation in the PG&A business, we’re also looking at opportunities for adjacent spaces and adjacent businesses that we think can fuel incremental growth for Polaris. And generators is one example of that. It’s a category where 85% of consumers use generators for camping and hunting and fishing which fits our customer lifestyle segment extremely well. It’s a highly profitable business and we like the fact that it’s growing significantly both in North America and internationally. So we think this is going to be a tremendous opportunity as you hear about our international growth plans, generators will fit very well into those objectives.

We’re not sharing a lot of information here in terms of pricing and timing and so forth, but we expect that we’re going to be able to launch this within the next six months. This is a $1 billion – the inverter portion of the generator market is a $1 billion market today. It’s growing extremely well. Generators overall is a $5 billion business across the globe.

So marketing and merchandizing; this is another area where you’ve heard a lot of the presenters talk about reaching the consumer further upstream in their decision making process. This is important for us. Today 79% of consumers, this is Forrester data, spend half of their product research time online and if you benchmark that against 2010, that number is up 29 percentage points so we expect that behavior to continue to increase.

58% of shoppers begin their product research at a manufacturers website and 50% of those visitors have a very high intend to purchase. They are looking to purchase product within the next 30 days. So it’s important for us to have product content, information, videos and all of the different details behind our products available to our consumers and have that site experience integrated in a way that helps consumers when they are shopping for their vehicle look at how they can accessorize those vehicles as well. So one of the things that we launched yesterday is that our product catalog is now available as an application, you can download it today for your iPad or iPhone.

It’s a very interaction experience. It allows us to keep that catalog updated as we launch new products, as we add new information and new videos. The examples of the websites on the right are examples of how the websites will look here over the next 30 to 60 days as these websites come together. And then the example on the far right is an example of a display that we envision in the dealer environment where dealers can also put an iPad out in front of their customers, in front of vehicles that allow them to look at all the different accessory options available for their vehicle.

Marketing and merchandizing; we’ve been working with an outside group to help improve the way dealers execute PG&A in their showroom. And the effects have been pretty remarkable, where we have gone into a dealership and retrain those dealerships on merchandizing best practices and help them improve their merchandising execution. We’ve seen on average a 15% increase in dollars per unit in those dealerships for PG&A.

So this impact on improving the retail experience and helping to train the sales people to better support PG&A is an important part of our strategy going forward as well. And on the operational side, not a lot of news here other than again, we’re supporting 50,000 unique SKU’s, 950 suppliers worldwide out of one facility in Vermillion, South Dakota and we’re making some investments to improve our ability to manage the supply chain, improve our ability to deliver quick service to our dealers and one of those investments was the launch of Logility, a supply chain solution that was introduced in June of this year. We’re already seeing significant improvements in our fill rates for parts in particular and expect that to continue to drive improvements in our overall fill rate performance.

And then finally as I look forward with six months worth of perspective, some of the things that I am very focused on is that we will continue to focus on elevating the way we drive integration and innovation within the PG&A product with our Wholegoods groups. We’ll be looking for more ways to add signature of products, products that are only available from Polaris that can’t be easily copied, patentable, unique premium products. Increasing our commitment to apparel, general merchandise quality, selection and style, improving our online product content, shopping, tools and our mobile access to that content, improving our distribution capacity and service levels and then improving the clarity of our brand, our merchandising D&A and our dealer retailer merchandizing support, so building off of the success of the programs that we’ve had in place.

And then longer term, developing new adjacent product opportunities creating greater focus on international and other market specific products and improving our retail replenishment practices. Questions.

Richard Edwards

Any questions? Yes, go ahead.

Question-and-Answer Session

Unidentified Analyst

(Question Inaudible)

Steve Eastman

I think the opportunity is significant as we reengineer those vehicles over time. One of the key things about that particular vehicle is the frame itself and the way the frame was designed to accommodate those cab parts.

Unidentified Analyst

(Question Inaudible)

Steve Eastman

Right.

Richard Edwards

Yes, go ahead (ph).

Unidentified Analyst

(Question Inaudible)

Steve Eastman

So if I can play the question back here. Question is based on data that you heard that we see…

Unidentified Analyst

(Question Inaudible)

Steve Eastman

Pardon me.

Unidentified Analyst

(Question Inaudible)

Steve Eastman

15 times per year, our customers are visiting our dealers.

Unidentified Analyst

(Question Inaudible)

Steve Eastman

Yes, I think the…

Unidentified Analyst

(Question Inaudible)

Steve Eastman

I think the success of the retail merchandiser program, the work that we’re doing to improve some merchandising at the dealer level is a big part of that. So when consumers are in the dealership, they see the full complement of accessories that are available for our vehicles. Making the accessories easier for dealers to install is a big part of that as well. So again when they are in the dealership, they are looking at vehicles that are fully accessorized.

And then the accessibility to our content through digital versions of the catalogs helps them see what’s possible with their vehicles and the ability to access that in the dealer on their iPad, their mobile phones or hopefully iPad displays that are available on the dealership helps drive that as well.

Unidentified Analyst

(Question Inaudible)

Steve Eastman

I don’t have the detailed information. I don’t see anybody else in the room has that detailed information on what’s driving that repeat traffic. I suspect that the majority of that is service related.

Richard Edwards

Go ahead.

Unidentified Analyst

(Question Inaudible)

Steve Eastman

Your question is can we provide the dollar attachment rate for ORV in particular? I can speak to that. I don’t think we should share that actual dollar attachment rate but the growth is in the low double-digit range for ORV accessories or dollars per unit which is the way we measure it. So we measure the amount of dollars that we sell every time, we sell a Wholegoods unit, the growth of that is significant although as Dave Longren pointed out it has not been keeping pace with the average retail of the Wholegoods unit themselves and that’s the opportunity that we see as we drive better integration, more innovative products we expect that dollars per unit level to grow at a faster rate than what we’ve seen over the last few years.

Richard Edwards

Okay. Gerrick?

Unidentified Analyst

(Question Inaudible)

Steve Eastman

It’s a hell of a question.

Unidentified Analyst

Let’s see if I can take that one and drive it (ph).

Steve Eastman

All right. I’ll sidebar. I would convert that into a perspective on the overall business. The focus on innovation, the speed of innovation, all things that teams have talked about is really pretty remarkable and the way that our teams collaborate across the organization to make that innovation happen is part of what makes Polaris so unique. And that’s something that became harder and harder in a large multibillion dollar retailer. So our ability, our agility to drive that innovation is impressive. I think one of the opportunities for us is to continue to partner with our dealership that’s a big distinction between an environment like Target, where Target controls the retail execution across 1,800 retail locations.

For Polaris, that’s a different kind of challenges. We’re working with independent businessmen. So we have to go at that in a different ways to try to translate and reflect our brand the way we envision in the dealer environment, that’s the distinction between Target and Polaris. At the end of the day, we still have to make sure that our expression of our brand at retail reflects the attributes that we think are important for Polaris.

Richard Edwards

Yes.

Unidentified Analyst

(Question Inaudible)

Steve Eastman

We don’t see any resistance to accessorizing vehicles based on the price point. I think the law of large numbers are subset as we see increased average retail on the Wholegoods unit, the amount of lift that we have to see in PG&A is on a percentage basis is a harder number to sustain the same growth rates that we see in average retail. But I don’t see resistance. Somebody was buying a $15,000 machine and many cases may be more likely to plus up their vehicles with significant amount of accessories.

Unidentified Company Representative

(inaudible) we’ve been very successful in selling a lot of LE (ph) models both in ORVs and in motorcycles which are in some cases more accessorized. And in general I would say the trend is the more money the guys have the more willing they are to accessorize, would be the other. One other question just going back to the previous question was that is I think an interesting phenomenon as you are talking about per dollar sold is we’ve been dealing over the last several years almost with a shrinking install base on our biggest business which should traditionally been the parts business and when we talk about PG&A and with all of our growth and industry growth starting to return that install base is going to start growing again which is going to be a helpful trend for the PG&A business as we go forward.

And I think as Steve does – as he mentioned with what the innovation I think we see plenty of ways to turbo charge that. But it is a pretty normal trend when we grow very, very rapidly on a per unit sales, sometimes it trails a little bit in accessories for everybody to catch up because sometimes it’s a dealer thing where they are just so busy, they can’t effectively focus on selling every accessory out the door and they miss the opportunity.

Richard Edwards

Okay. Jimmy.

Unidentified Analyst

(Question Inaudible)

Steve Eastman

I don’t think we will evolve it to a full pull model. I think for us the challenge is to shift the center gravity a little bit. Today, we don’t get unlike Wholegoods where we get warranty registration information and other things with speed retail sales data back to us. We don’t have the advantage of getting that same data for the dealers today. So the importance of finding ways to share that data to drive a more efficient supply chain I think is significant for us and also that data also provides us insight that can help us help dealers drive sell-through potentially in a more surgical way. So if we have concentrations of challenges for instance related to snow in the Midwest or in the Northeast, we can see that in the data, we could see inventory building and go in and help drive retail sell-through at better promotions.

So I think we absolutely have to find ways to share that data. We’ve been leveraging some aggregate data today from ADP Lightspeed, the dealer management system that the majority of our dealers use to better understand the health of different commodities within the PG&A business and through that we’ve been able to drive more effective promotions, we’ve been able to manage our inventory more effectively in the aggregate, challenges to get that down to the individual dealer level.

And again it’s not – I don’t envision us going all the way from a push or more wholesale based model to a pull or traditional retail flow model, but I do think we can shift the center of gravity over time.

Richard Edwards

Okay. Yes, (inaudible) one more.

Unidentified Analyst

(Question Inaudible)

Steve Eastman

Does it have the highest opportunity margins?

Unidentified Analyst

(Question Inaudible)

Steve Eastman

Apparel is right in the mix with everything else. Parts tends to be our most profitable business, and the apparel business is a extremely accretive business opportunity for us, for Polaris in general.

Unidentified Analyst

(Question Inaudible)

Steve Eastman

I wouldn’t make any broad assumptions about who we’re targeting or what the focus is on apparel. I think apparel – everybody is aligned around the notion that apparel is an underdeveloped business opportunity. We think we can be exceptionally good at apparel. We’re not going to be an apparel company but we can be exceptionally good in technical apparel where it matters and the halo effect of being better at our branded apparel is pretty significant as well in terms of getting consumers aware of Polaris brand apparel and Victory brand and Indian brand apparel.

It’s absolutely important that we focus on women, the youth segment, our underdeveloped parts of our apparel business today. So we won’t be focusing exclusively on men, but in general you should expect that the selection, the availability of products, the quality and the styling, all four areas of our apparel business will be a focus for us going forward.

Richard Edwards

Okay. That’s all the time we have. I want to thank Steve.

Steve Eastman

Thank you.

Richard Edwards

Next up is Scott Swenson. He is going to talk a little bit about or a lot about I am assuming our small electric vehicle business.

Presentation

Scott Swenson

Very little about small vehicles, lot about this stuff. Just a little color is the guy that ran the PG&A business before Steve, he gave you a very politically correct answer, I mean he is basically fixing everything I screwed up for the last 10 years. So I guess it was probably too long for the time he had. As you noticed we’re a little competitive culture. So if you’re going to buy some shares of stock sometime today and you want to flip out and buy them during my presentation, it would be very helpful for my personal network.

And if you could just kind of keep your hands off to iPhones or BlackBerry during Homan’s and Dougherty’s presentations, that’d be even helpful for me. So I am going to cover small vehicles, tell you a little bit about the market, what our plans are, those kinds of things. If you get an opportunity, the GEM demo is right across the hallway, I mean it will be the best time that you have at the whole show. Here is how it works.

I have a snowmobile guy for a while for those of you that weren’t on the room, so I kind of like to go a little faster. If you floor the GEM and you hit some grass and you turn the steering wheel at the same time you can actually get the back end to come around a little bit. It’s a thrill. I mean I’ve done it. Why do we like this business? We like this business because it’s big, it’s about $4 billion. It’s very fragmented. There is no dominant players anywhere. 80% in North America, but it’s growing very rapidly in China and Europe, Brazil and India are emerging. You’ve heard about electric vehicles forever. You understand the growth drivers.

It’s always five years out. We think that five years is actually within the horizon right now, and what we do well at Polaris is very well with this industry. So that’s why we think we can be competitive in it. This gives you some idea of who the competitors are and what their vehicles look like. They tend to be fairly rudimentary compared to what we’re used to here at Polaris, much more value oriented, much more focused on reliability and durability and generally, lot less innovative than what you see from us. A product lifecycle in this industry is more in the eight year range as opposed to the three year range. So again big opportunity for us to differentiate.

Competitive landscape. So the big players here in this business right now are the big three golf cart manufacturers and roughly 70% of the vehicles sold across the industry are some kind of golf cart derivatives. So generally people are settling for solution that’s not ideal for their application, but because price value is so important to them, they are willing to do that. Just a little bit on the golf cart guys. There is a three of them, they control over 90% of the market. They don’t innovate very often.

There is some European competitors out there primarily for Goupil. For the most part, they are not competing in North America and they tend to be fairly premium priced. And then there is a lot of niche players out there, with nobody really emerging, covering little spaces but not covering broad, and again not a lot of innovation and very fragmented distribution.

So here is the strategy on a page. So basically what we’re seeing is we want to – like everything else we want to be the undisputed global leader through strategic M&A and disciplined execution. Our competitive advantages are going to be our product line. We’re going to cover the entire spectrum of light duty vehicles, people movers, utility type vehicles. Our applications engineering is going to be a huge advantage in this segment. It’s going to allow us to really do what other peoples don’t do and we already have some technologies and I am going to talk about, it’s going to be very appropriate to this.

We’re good at manufacturing as you know and then world class distribution. We got the B2C down, we’re pretty bad at B2B. So were learning quickly how to do B2B and that’s going to be essential for us to be good in this particular segment. We have another middle wager and the middle wager here is the next billion dollar business. I personally believe this is the next billion dollar business for us and it’s kind of hard when you’re sitting on $50 million of sales in your laps in the bed right now, but I do think this could be the next big business at Polaris, that’s the number one market share, quality leadership all those things that you’ve described from a Polaris division.

So what’s kind of the next level of this strategy? Well I am looking at you and its taking the individual pieces. So we bought Goupil, we’ve bought GEM. You’ve seen the investments in Brammo from lithium-ion battery technology. We have a product called REX which is a Range Extender which is a combination of electric vehicle and a gas vehicle that allows us to solve the number one problems for small electric vehicles which is range. We think that the off-road vehicles, Dave’s division provides some volume for us that we can capitalize on to hit the price points we need and then do acquisitions to go after this marketplace.

I talked a lot about how we win from a applications engineering standpoint, clearly price value is important. That’s the place where we’re not right now. We’re at the high end of the marketplace and we got to come down to where the most of the market is. Technology is going to help us and then we got to leverage the distribution. So GEM, quick overview on GEM. It’s the market leader in neighborhood electric vehicles. About 50,000 vehicles have been sold since they began in 1998. It’s a build-to-order business model, so it’s kind of like what Polaris is moving to kind of a quicker turns GEM has been that way so we’re kind of four to six weeks from when the dealer or consumer places the order. We’ll get it out to them.

We got six base models and about a 1,000 variations that can make in the factory. Our focus right now is adding dealers. We don’t have very good coverage out there, so we’re adding a 150 Polaris dealers to better service our customers and to get our brand out there in different markets. We’re growing the non-dealer channels just as aggressive way, National Accounts, GSA, International. The non-dealer accounts – when we’re mature, probably 60% to 70% of this business versus the dealers category that we’re more used to.

We’ve made a bunch of products improvements. You can see those if you go down to the display room. We’ve changed the branding. We’re accelerating P&A sales. So lot of changes in the business. Strategically the big thing we’re focused on is next generation products. How do you compete the other segments? How do you incorporate the technology and you’ll see a lot more from us next year. We’re about 12 months away from really putting the Polaris stamp on the product lines but I am really excited about what we’re doing there.

Mobile service, this is the only group that has a mobile service business, so we’re trying to figure out how we leverage that harder. Don’t know that we really have the answers to that and then aggressively grow retail. The other segment of this business is Goupil, European leader in ultra-light commercial electric and hybrid vehicles. About the same size as GEM. Sales are primarily in France right now. Some 11 vehicle options out, and two base vehicles. Much more of in-speedy (ph) type vehicle within France, parks and wrecks, government, military those type of things.

The core thing here is the multi-use accessories, the different things that you can do with the base platform, that’s what we really like about this particular company that’s what we’re trying to leverage. And then the culture of the team is very good. They are very much like us. They are innovative, they are entrepreneurial, they are all those type of things. So GEM and Goupil, off to a decent start. Still some work to do. We’re not changing the game at this point in time, but we’re learning at times and that’s what’s important for us in our evolution.

Let’s switch quickly to financial services. I still kept that hat even though I got rid of all the other hats. Partner status, Sheffield, Capital One who acquired HSBC a few months ago that was final on GE and then we have extended service contracts and insurance. Business is doing very well, I mean we’re growing profits again. It’s not quite back to its heyday of 2007 but what you’ll see is the retail side is now growing bigger than the wholesale side again and it’s a no risk deal. So it’s not like the next downturn we’re sitting on all kinds of losses and we’re going to take big write-offs.

We don’t have those type of agreements so we don’t have any risks here. Approval rates have been steady. You see us growing volume per year aggressively while maintaining penetration mainly due to the rest of the company growing in a nice mix advantage. And there is some nice deterioration in the customer coming through the door. We’re seeing some of those lower credit type customers come back, but for the most part, everybody would envy our customers that are coming in applying for credit. We got really good customers and that keeps some losses low and the partners happy.

Wholesale credit. Not a lot of change here. You’re pretty much familiar with this. We have the GE partnership, Polaris Acceptance that’s stable. The contract is in place through 2017. It’s a competitive advantage for us and our dealers. GE has been a great partner for a long time. Credit losses are well under 1% not a lot of risk here either and we have great availability of credit for our dealers. So as we’re turning stuff quicker that doesn’t become as much of a problem as it might have been a few years ago.

Also have an agreement with GE in Canada and then we’re working with them in a few other countries as well. And then a few subsidiaries we still go direct and we don’t have a third-party involved in it. Receivable balance is stabilized. It’s starting to grow a little bit again which is fine with us. That drives the income up and another solid business for us.

So there is the summary. $4 billion small vehicles, big market, fragmented, very excited about it. We can win here. Financial services, profitable, growing profitabilities without a lot of risk. That’s my story. What can I answer for you?

Question-and-Answer Session

Unidentified Analyst

(Question Inaudible)

Scott Swenson

Go ahead. You don’t want me answering your questions. So the question was the receivable balance or the capacities for the credit capacity?

Unidentified Analyst

(Question Inaudible)

Scott Swenson

And I am not following that you are…

Unidentified Analyst

(Question Inaudible)

Scott Swenson

The financing of the facility expansion and the dealerships? Yes, okay. GE can finance those kinds of equipment purchases and real estate purchases, that doesn’t flow through our joint venture. So those types of investments can be financed by the dealers through GE or other sources but they wouldn’t necessarily be funneled through this where we would get a benefit on.

Richard Edwards

And just for the record, I would answer that question a lot quicker than he did, you wouldn’t have to ask me three times. So the next one this says I am just going to take. We’re not going to waste time on that.

Unidentified Analyst

All right, great. (Question Inaudible)

Scott Swenson

We don’t need to add a lot of dealers. Our target right now is to add 150 dealers within – and at the beginning of the year, the target was to add a 150 dealers by about mid-year which we’re on pace to do. After we get those 150 in place, we’re going to take it breadth and evaluate and say do we have the right coverage, where else do we need to add them. I’d say 50 more after that, but we’re not looking at 500 or a 1,000 type of dealers. And I would say that at this point in time, we probably don’t have the ability to be quite as selective as Indian does. There isn’t quite as much brand cache with GEM as there is Indian.

Richard Edwards

Any more questions?

Unidentified Analyst

(Question Inaudible)

Scott Swenson

Forever. Less than one – we’ve never had essentially any losses on the wholesale side of the business.

Richard Edwards

Okay. Thanks, Scott.

Scott Swenson

Thank you.

Richard Edwards

Next up is Steve Kemp, our Chief Technology Officer.

Presentation

Steve Kemp

Well good morning. It’s always hard for anybody to follow-up Scott especially the engineering guys, so thanks Scott. I am going to talk about driving growth, talk about what we’re doing in engineering and R&D. The first thing we got to think about in driving growth in engineering is developing the most exciting products in the industry. And if you think about given that mission to the engineering staff, it’s a pretty compelling mission to give the engineering staff. One of the reasons we’re able to attract top talent and we have such passionate staff as again it’s pretty compelling mission statement.

The second is create brand loyalty and we measure that with net promoter score to give us feedback of what do the customers really love and what are they not loving so much and we use that feedback to go back on the next price to make them better. The last is delivering value that means number one delivering the right features but also at the right price that the customer can buy it and also deliver value for the company and our dealers.

So the right product. One of the things, we do deliver right product is a really good development plan, a long-term plan. So we’ve got platforms, we work with the businesses and not just think about this product but what are the platform of products and what are the variations we’re going to be able to do, to do new variations, to different customers, different segments. The more we can think it out, the hub and spoke of having a platform, and then take it to a new market, the faster we can be and more product we can deliver.

Our development processes are tailored to our unique product needs. We like really small focused product teams to think about the vehicle they really know the vehicle and then we matrix in subject matter experts in fuel systems or brakes or the kind of subsystems that help them but we like small focused vehicles to get really close to the customer to understand what they need.

High quality designs, we’ll talk about that in a little bit. And we want to continuously learn and improve. We’ve done very well but there is a lot better we can do and there is a lot of focus in engineering about learning from what we’ve done and then driving that knowledge after the next development teams. Thinking about product-wide – company-wide product planning. There is kind of two input streams, the first is the business planning, this is looking at the customer needs, looking at the problems, looking at customer research kind of coming down in, but we have a very strong second inputs to the product development process, the planning process which is our Skunk Work Teams going off and making vehicles that they are interested in.

Individual contributors coming up with ideas. We have a very strong process that individual contributors can bring up ideas for anything they are thinking about in a vehicle and we’ll take the time to go build many of those vehicles to understand what the value might be. And we get, new ideas from suppliers and also new technologies and both of those input streams meet in the middle and that’s how we do our product planning in the combination of those two input streams.

Sustainable advantages; Bennett talked about this quite a bit. Probably the only thing I will add here is in that middle part about applications engineering. One of our focus is understanding those customer needs. So first we want to solve them, but we all have to understand very deeply and I want to know what the customer are saying. What are their unspoken needs, what are their problems that we can go solve, get beyond what they are saying is the problem to what problems we can solve with new innovation.

The last one is speed and I’ll talk about that. So engineering speed-to-markets is again one of our sustainable competitive advantages. We do that. We’re the world class development team. Again we co-locate those product teams so they can move very, very quickly. And internally we develop a lot of processes that are combination of analytical work to model, the design, testing components in a lab and in fuel testing. And we’ve developed good models to how to do all the three of those very fast and efficiently for the products that we do.

LEAN engineering is a focus within engineering but the difference in LEAN engineering in a factory floor, engineering largely produces decisions. We make decisions, we document. We don’t get to build a product, we decide how the price is going to be configured. So LEAN for us is about speeding up those decision processes to get faster and reaching those decisions, and again continuous learning.

So we’re very proud about quality. This is an outcome that the whole Polaris team has focused on and we’re very proud of what we’ve done in the last few years. One of the first measures of quality is vehicle without a claim. This is a vehicle that a customer got, they had no warranty claims. So you can see overtime we’ve driven that number up. We’re not satisfied where it’s at, we’d like to be at 95%. We’ve grown it up from you can see a pretty bad number up to 93% but very good progress.

There is two outcomes to that. Number one, that drives – helps drive net promoter scores, customer satisfaction on the lower left. Not the only piece of that but if you don’t get the quality right, it’s hard to get net promoter score even if you get all the right features. So we’ve done really well increasing our net promoter score. On the right, you see it’s also the financial game that’s a reduction in warranty costs as a percent of revenue that we’ve been able to drive with this increase in quality and that reduction in cost we can rollback into product development as supposed to payment and warranty costs.

So again two strong benefits in driving our increased quality. If we look at product development investments, we’ve been able to drive the percent of R&D down over time but that’s a little deceiving, at the same time we’ve gone over 50% increase in R&D spending measured in tooling, in R&D expense and capital from 2006 to 2012 while reducing a percent of R&D because, number one, the revenue has come through and that you can also see that we’ve reduced the cost we have to spend on quality.

When we look at product development in – with the product development teams, we kind of look at three different segments and the bottom being current product, current customer. This is really not what I mean current product, this can be of the new product, lot of new features but it’s a product segment we’re in. It’s a customer we understand really well. So this is really what we do most of our work in that area. Most of the innovations comes in the area, we understand the customers, the segment we know and it’s a base of our product development roadmap.

But in the middle, we’ve got new products for existing customers. We understand the customer, we understand their needs. We’re providing a new product that they haven’t seen before. And if we have a lesser amount of investment there, that area but still pretty sizable. And the last area is new products, brand new products for brand new customers that we don’t know very well. Again that’s kind of the pinnacle of our product development and we’re really mindful of how much we do in each segments and we align that up with the product strategies any given year to make sure we know where we need to be working to drag growth.

I’ll talk a little bit about powertrains. Again we’re very proud of our powertrain progress we’ve had over the last few years. We’ve driven down the number of families in ORV strongly. Our cost per horsepower has come way down and our consumer warranty claims has come way, way down. And we are not satisfied with these numbers, we’re driving these further down. Right now Polaris designs, develops and manufactures 60% of the engines that go in our vehicles and that’s up from 30% just five years ago.

So again this powertrain is moving for us to be a competitive advantage with the new 900 engine in ORV and the 570 engine ORV, we’re turning powertrain to a competitive advantage for Polaris. So in summary, what we got to do is drive innovation for global customers. Our passionate staff creates a lot of that, drive to create innovations and we have to understand those new global customers in those new market segments and drive innovation for them. And we have a relentless focus on operational excellence. They are not separate.

We need the operational excellence to get the efficiencies to be able to do the projects we want to do for those customers and that needs speed to market, speed means lower costs, reduced total cost and again quality improvement that I talked about. And then last powertrain. Powertrain is more and more competitive advantage for us and is an definitely an ORV and we’re going to take that competitive advantage and move with the other product segments as well. Any questions?

Richard Edwards

Questions? Yes, go ahead.

Question-and-Answer Session

Unidentified Analyst

(Question Inaudible)

Steve Kemp

Yes, there is a challenge, I think I missed that actually there was a metric on that. We’ve had a gain of, what’s the number, yes, 40% increase in 2006 to 2012, yes. So we have a lot of new staff. Using that the knowledge networks and the knowledge capture is really important to us. As we get bigger and bigger, when we’re smaller that’s not as difficult a problem. As we get bigger and bigger be able to do the knowledge capture and transfer is very, very important to us. So when new people come in, they can go and learn the lessons of the last teams. We also make sure we don’t have teams with all new people who want to sprinkle in the experience teams. And in fact we have the small vehicle teams and we have experienced subject matter experts both to help them with the fuel systems. So you don’t have a new team that’s trying to do something like a fuel system that we don’t want to relearn the mistakes in the past.

We’re bringing those subject matter experts. We all see the thing called peer teams. This is a technical group of light minded people working on let’s say brakes from a lot of groups come together and they set standards for testing. They work with suppliers to make sure all those teams execute brakes and things like that very, very well.

Richard Edwards

Yes, go ahead.

Unidentified Analyst

(Question Inaudible)

Steve Kemp

Net promoter is a measure. If you look at your customers and you measure how many of them are promoter of your products, so you score over and promoter or you’re a detractor for your products and that is the how many more promoters do you have in detractor.

Unidentified Analyst

(Question Inaudible)

Steve Kemp

Survey based. Right, but if you look at the detail-wise, someone might be a promoter it’s because I love the product, it fits my needs. I thought the price was reasonable. I really enjoyed, I am using it. A detractor might say I bought it, it really wasn’t what I was looking for. I really don’t like this feature of it and we focus on what those statements are from those detractors.

Unidentified Analyst

(Question Inaudible)

Steve Kemp

Yes, one of the things of the measure is will this person recommend Polaris or this product to their friend. It’s kind of – that’s in the end what I mean. And if there is a reason that they are not, whether it’s the service experience, the buying experience whether it’s the features, we focus on that. We feedback into our product teams so they have that in front of them. And when engineers can see that, they can go after and solve it.

Unidentified Analyst

(Question Inaudible)

Steve Kemp

In electric powertrain which is part of our Powertrain Group, we’re focusing on controls. How we’re going to manage the batteries, working with Brammo as a partner, how we manage the batteries, how we get the life out of the batteries and how we get the performance out of our battery systems and how we control the motors in the batteries. Battery technology, we’re going to take the best that’s out there and we’re going to work with people in Brammo to help understand how to manage those batteries and then our application is how we fit it into vehicle to get the best life out of the batteries and the best performance.

Richard Edwards

(inaudible).

Unidentified Analyst

(Question Inaudible)

Steve Kemp

Yes, there is. Dave, you want to cover that one.

David Longren

Yes. (inaudible).

Richard Edwards

Any other questions?

Unidentified Analyst

(Question Inaudible)

Steve Kemp

Yes, certainly.

Unidentified Analyst

(Question Inaudible)

Steve Kemp

Yes. In the area of electric ranging side is a big problem and having a serial hybrid system that can give you Range Extender. It can create a lot of application so people get more comfortable with electric powertrain. Thanks Dave (ph).

Richard Edwards

Okay, thanks Steve. All right, next up is Suresh Krishna with operation, supply chain, Monterrey, et cetera.

Presentation

Suresh Krishna

Thanks Rich. Good morning everybody. I am going to talk about six things today to just reinforce the key message that operational excellence is a continuous journey for us. We don’t stop, we keep going and each year when we report improvement in results, we restart the start point for the next set of improvement initiatives.

We will cover a fair amount of material here in a fairly short order. So I am going to quickly go through and cover just the highlights. First and foremost, the North American realignment. This was one of the biggest initiatives we did and last year we started a brand new factory in Mexico, the first time outside of United States. And several of you had the opportunity to come see this factory a few months ago. We are very much on track to deliver on all the deliverables for that particular project whether it is the financials where we are on track receiving, on track for our cost and capital expenses or on the key metrics we call the volume that we wanted to push through the factory. We’re going to be doing over 60,000 units this year, up from 20,000 last year.

And the bottom right is really, really important for us to maintain quality in a brand new factory. Think about it Monterrey is just 15 months old and in the lifecycle of a factory, it’s a still a baby and a toddler. And you compare that with more mature factories, Rolls-Royce has got a 50 year history, Blake (ph) is 20 years old. Monterrey production and quality is keeping up pretty much with the two mature factories. That’s testament to the validation processes that we developed as part of this major manufacturing restructuring that we did and we move production from U.S. into Mexico for the first time. And that continues to be the hallmark of how we will do product transitions outside of our core factories and we’ve build new factories and we’re bringing production to different geographies, that’s pretty much how we will do it.

And finally for 2012, we’ve got continued investments. We are making investments in our security, as you know the security situation in Monterrey is not been very favorable for us. We continue to make investments to secure our people, product and property. And we are expanding production so that the Monterrey factory can take on more complexity, more platforms, more products and also big effort this year on sourcing, trying to localize sourcing in Monterrey so that we can derive the benefits of local suppliers, less transportation logistics cost, lower costs et cetera.

Big thing for us is capacity. You sat through this morning and you sat through yesterday’s presentation where we talked about the major growth that we’ve had in Polaris so far. That should beg the question what is happening with our capacity situation. And I will address it in two different ways. One is North America. We are – when we did Monterrey, it was primarily driven to reduce our costs but the benefit of that was we got additional capacity in our systems and that allowed us to chase the upside volume that we got from the businesses over the last two years.

Now this is not infinite. There will be a time when we will run out of whatever Monterrey can give us that extra capacity. We watch this very closely. Every quarter, we have a process outside of our normal sales and operation process, sales and operation signing process where we look at what we need to do production, plans, et cetera. Every quarter we look at total capacity, look at demand, look at mid to long-term, what’s going to happen to our volumes. And we make a very, very proactive decision on where to add production capacity.

When we look at things today and we look outside over the next three to five years, we believe we need additional capacity. Now there are different ways to go about it. Some companies would say, this is probably the time to invest in a new factory. In Polaris we are very, very frugal with capital. We want to be very, very sure that we’ve really, really, really need that capacity because a factory is a 10, 15, 20 year investment. We want to be very, very conscious about that particular investment. And what we are looking to do right now is find small investments that can give us capacity. The biggest benefit that we think we can get now is redirecting our LEAN efforts. We call it Polaris way. To redirect our LEAN efforts to drive more capacity.

So some of the things I’ve highlighted for you on the right hand side, gives us the opportunity to get about 25% to 30% and when you think about that, that’s almost equivalent from total new factory can give us. And we think over two to four year period, we can get that with a significantly less investment than what a new factory would need.

Now beyond that four year horizon, it might be possible that we might need another factory, but right now we think we can continue to apply what we do in Polaris very well which is being very frugal with capital and squeeze as much as we can out of additional capacity we can get through this particular approach. Now going international is a different story all together. We’ve talked about international growth and Mike Dougherty and Matt Homan will cover their plans for APLA and EMEA but when we go international, we think from an operation standpoint, there is tremendous opportunity for us to drive costs and improve our customer responsiveness by manufacturing products locally.

So you think about EMEA, we are at a point where we have the volumes to justify local production. Now there are various ways to get at it. We can go at it by getting an acquisition which the company might have additional capacity to make our products or we can do a Brownfield or a Greenfield. And each of these scenarios are being very closely evaluated right now. And we think we will be in a position to come up with a plan that we can share with you in the near future. We don’t have any commitments on our timeline right now.

We do believe that our business case is very, very strong for us to manufacture local in Europe. When I think about Asia, we will leverage our JVs. We will leverage some of the activities that Mike Dougherty will cover and how we will go-to-market in India, how we will go-to-market in China and all of these locations, we will leverage our JVs not just to make products for the local market which will be for the locally designed local markets but we’ll also make SKDs. We will produce our products which are primarily more high-end premium product in these markets. We’ll do them locally as SKDs. That will allow us to leverage the tax and duty benefits of manufacturing locally.

LEAN as I said is something that’s ingrained in Polaris and over the last four to five years has given us enormous benefits. And what you will hear today throughout my presentation is how we’ve continuing to leverage LEAN, not just in driving manufacturing productivity, this is primarily an example of how LEAN helps us in the manufacturing facilities but LEAN is beyond that, and I would cover that as well in a few slides later.

Acquisitions, we’ve talked throughout about how we want to grow inorganically as well as organic. Part of the benefits of being able to have a good process for acquisition integration is our ability to drive out inorganic growth. When we started doing acquisitions last year, lot of questions was raised about can Polaris actually take on other companies and integrate them into our businesses. What we’ve put together over the last 12 to 18 months is a framework which leverages what Polaris does very well. One is LEAN, which you all have seen some of the results. The other is PDP. Steve touched upon our development process which is core to our innovation.

And the third one is the learning we have from our North American realignment. If you put all of those three together, it helps us come up with what we call the Polaris Acquisition Framework. So we’re using the same ingredients, that has helped us to be very successful so far, and this is what is the core of the framework that we’ve developed that’s going to help us continue to integrate other companies that we’ve done.

I want to give you two quick examples of where PAF or Polaris Acquisition Framework has been used. Last year, we acquired two companies, GEM and Indian. And both of these situations over three to six month period, we were able to move the production from their manufacturing facilities into our Spirit Lake facility. We were able to shutdown those operations and we were able to integrate the supply chains that they have and then subsequently a lot of work has been going on in what we would call our development process, so when Scott Swenson talked about next generation of GEM, when Steve talked about product development, I would start to pick up the PDP elements from our acquisition frameworks standpoint and we are able to drive integration this way.

Matt Homan will cover a little more Goupil but this is another acquisition that we did in France and right now we are on track for driving manufacturing productivity, driving our BOM cost reduction. Again this is leveraging our PAF or Polaris Acquisition Framework. LEAN has been very, very active in Polaris. What’s different over the last, what I would say 18 months is that we are taking LEAN to the next level. We are using LEAN to drive business improvement, not just improvements in the factory.

You heard Steve Menneto talk about the retail flow management, that the element are entirely based on LEAN. So not only are we using now LEAN for our factories, we’re using it through the entire business process from dealer inventory, all the way back in the supply chain. So using the dealer stocking profile and then managing retail flow to create a pull signal, we then align our supply chain and manufacturing all the way back so that we have one flow, one system. And once we are able to do this with Victory, we will apply the same principle to drive additional improvement in our ORV business.

So really we see LEAN as a continuous journey and having learnt from manufacturing, we’re applying it to business process and from one business, we will apply it to the next. And as we acquire other companies, we will apply these same principles and make those businesses more efficient after we’ve acquired them.

A word on supply chain execution. We drive year-over-year cost reductions and the chart on the left shows you that we’ve done that fairly consistently, doing this from 2% to 4% for us year-over-year. We do churn our products fairly quickly, I think you’ve heard the world vitality index and as a result we get a very short window of time before which we’ve got to kick these costs out and then the product turns over and we got to start all over again.

So this is a very, very important aspect of the supply chain cost down and joint effort between the engineering and the supply chain team. The other one area of focus is supplier PPM drive, very deep relationships with our suppliers. There are lot of suppliers who’ve been with us for over 30, 40 years and that helps us really to drive these cost reduction initiatives, to drive quality initiatives. A couple of areas that we do very well, one of them is commodity management.

We have a dedicated commodity management team which tracks almost all the important commodities that we use. And we use various instruments, we use financial hedges, we use auctions, we use long-term agreements. And all of those together have helped us beat the market in all the key commodities that impact our product categories. Similarly on cost down efforts. The chart earlier that I showed you would tell you that we are pretty good at driving cost down in our BOM.

What we are doing now is really, what we call the next generation of cost down effort. We are using the learning that we have from BOM cost down and applying it through the entire company. So whether it is non-production related materials, logistics, all of those areas are going through the same rigorous process that we use for our material cost down and that we believe is our next generation opportunity, next level of opportunity because that’s pretty much another 20%, 25% of the spend that is outside of our BOM that we are able to manage.

Finally factory inventory, I know this is something that we have to get better at, and there is a lot of effort on making sure that we maintain the balance between serviceability and inventory. This chart shows you how we’ve done on our Wholegoods year-over-year from a days of supply standpoint. From a dollar standpoint, we know our inventory is up 25% year-over-year. We are very conscious about it and we are working towards it but this chart should give you confidence that we are very, very focused on driving inventory down and we’ve made improvements every year and we continue to make improvements this year as well.

In summary, as I said, each year we do a restart for all our efforts but we don’t lose focus of the fact that this is multiyear journey. And in the three to five years, our objective really was to create a world class LEAN enterprise and you see the results we’ve achieved in the last three years. And all I can assure you is at the end of each year we’ll do a reset and restart and we’ll go at it again. Open for questions.

Richard Edwards

Questions? Yes, Jimmy.

Question-and-Answer Session

Unidentified Analyst

(Question Inaudible)

Suresh Krishna

Yes. When we started Monterrey, we were very conscious not to upset anything in the supply base, so we were very cautious to make anybody move. And for the first year, we kept the same supply base from North America shifted down to Monterrey. Now we’ve had some success in attracting our current suppliers to move down. There is a handful of them who have decided that they will setup manufacturing very close to where we are and that process is in play right now. There is at least four different suppliers who are setting up operations there.

And we believe that this will go as a few people make the move, there will be a trickle and that will start to accelerate. We are conscious about alternate sourcing because it involves tooling, duplicating tooling et cetera. So we want to judicious about that. We are not shy from doing it. We have got a few sources locally. It’s a very, very active industrial base in Monterrey, both for automotive and other industrial setup. A lot of things we do in terms of stampings and fabrication work.

There are a lot of very capable suppliers there. So we are leveraging them as soon as we can justify the investments.

Unidentified Analyst

(Question Inaudible)

Suresh Krishna

Yes, we definitely have the ability to – our flexible manufacturing allows our use – lines to be used very flexibly between ATV and side by sides. We do think that primary growth in the future is still side by sides, so that’s what we will start making there but if we need to, we can always make ATVs so that’s not the immediate plan.

Richard Edwards

Any other?

Unidentified Analyst

(Question Inaudible)

Suresh Krishna

Hopefully it never happens and we also learn a lot from other people who’ve had tornadoes and cyclones and other headwind. For us the thing we would really do is move tooling to make it one of our other site. That would be our immediate contingency plan and that’s what we do in our annual risk process, that’s what we lay out fairly detail what would happen and what we would need to do in order to react to a catastrophic situation like that.

Unidentified Analyst

(Question Inaudible)

Suresh Krishna

I don’t have the exact number readily available in terms of percent content from, I mean total content out of Mexico right now is about 30%. I don’t have the exact split between local suppliers and how much of that is raw material et cetera, so we might see (ph) locally, we also have fabricators there.

Unidentified Analyst

(Question Inaudible)

Suresh Krishna

It does. We are not there yet in hitting that threshold for Brazil but we are close. I mean that’s why localizing more in Monterrey is more beneficial for us to ship into Latin America.

Richard Edwards

Okay.

Suresh Krishna

Thank you.

Richard Edwards

Thank you, Suresh. Next up, Mike Dougherty, Asia Pacific.

Presentation

Mike Dougherty

Thanks Richard. So APLA, Asia Pacific, Latin America. We have a few different facilities around the region. We got obviously the Monterrey manufacturing spot and we have five different subsidiaries, Australia, New Zealand and then the big countries, Brazil, India and China and recently we just established a joint venture with Eicher Motors, I’ll talk about that in India, so little bit spread out and growing.

So what’s different from about a year ago? The business, the base business in this part of the world is continues to grow, more than 20% a year. Australia which is the majority of the business right now remains strong. We’re still creating the ORV business in many of the BIC areas, but we are established. The business is doubling year-over-year. We’re profitable in China. We’ve started in a couple of other big markets in Brazil and India and we’re on our way.

So the India Eicher joint venture is a big new partnership for us with a lot of opportunity in the future and we’re one year stronger with the team and more experienced throughout the region. And generally in every market, a little bit more optimistic about the organic growth opportunities in each of the market. Our overall strategy is to be about a $1 billion business by 2018, focused on the main core competencies that Polaris has in North America and really focused on building our ORV business, creating that market and then entering the motorcycle market and establishing some joint ventures to get us into some completely new segment.

Overall, about half of the business, about $500 million we’re projecting to come from organic growth, tripling our ORV business, entering the Victory and Indian premium motorcycle business in places like China and India and Brazil and throughout the region, that’s really going to drive the organic growth. And then developing partnerships like we have with Eicher we expect is going to double our business on top of that. So pretty simple, but it takes a lot of work to do it. We’ve got some action items below that talks about what we’re going to do, we have to train the market, we have to create the business for off-road vehicles, it’s not really established right now. But we got a good team in place and a passionate crew that is out doing that.

And then really establishing the brand and building the brand both Victory and Indian for motorcycles in each of these markets and then targeting the right type of partner. The trends, things are growing. It’s an nascent market in many ways in lots of these places but even the Australia larger markets for us is growing at a nice rate right now both in our off-road vehicle business and also the premium heavy motorcycle business. Our plan is to be number one in ORVs in every market we compete and to be a strong number two with about a 10% market share in premium motorcycles in everywhere we compete.

We’re staying on offense in Asia Pacific, Latin America. We’ve had about a 30% combined annual growth rate over the years. We hope to continue with that in 2012. Most of the business has been Asia Pacific, Latin America as I talked about because of Australia but our BIC business, Brazil, India and China, we’re forecasting to double this particular year.

The results, first half of the year, we’re up about 20%. Our off-road vehicle business makes up the majority of our business but the motorcycles are actually substantially maybe a little bit large of a percentage because what we do in Australia, it’s a bigger percentage down there and we expect that to grow as well because it’s a large motorcycle area in Asia Pacific, Latin America. And as you can see our BIC sales year-to-date are double what they were.

Right now Australia, New Zealand is very strong, China continues to double, Brazil has started but we are seeing some weakness right now in Latin America primarily in Argentina where there is some import restrictions in a couple of other markets, so we’re trying to figure out ways that we can combat that and grow in other regions.

First half results, up 34%. We’d show a five year trend that’s about what it would be. Australia has just been on fire the last five years, really well managed business, strong position down there. We continue to gain share. We’re number two right now behind Honda in ATVs. Five years ago, we were smaller than Suzuki, so we’re continuing to gain share and grow our market share while also opening up our own dealerships for motorcycles. We have one now in Sydney, we had one in Melbourne for a while and now with Indian what’s going to give us a whole another platform to grow our premium market share position in Australia. So very strong business, very profitable well run. This is the base of APLA.

Polaris China, first year results or first half results, almost double the business. Most of the business is side by sides, that’s what we’re seeing most of the interest right now. We’re starting to sell some motorcycles. We have about 16 ORV dealers in place. We’ve just setup one new Victory dealer. We’re expect to expand that next year but this is again just a business that’s just starting but they are profitable and growing and there is lot of opportunity moving forward with these guys.

This is our new store. Arlen and Cory Ness helped launch this. It was a great event. We had left on – a number of motorcycles on – we exceeded our expectations right at the launch and for the last couple of months this was the end of May, when we opened this up. So you can see it’s a well attended event in a nice looking dealership. This is the only – again the only current dealership that we had in China but we want to expand on this. And Beijing is a critical market for really all of our power sports products, Beijing is probably the number one market for us.

India, first half results, we did really – we weren’t really active last year so the comparable relevant but we are growing. We’re seeing a little bit more of a mix between ATVs and side by sides. They like the little bit more of the lower CC products, the ride on type products different than China. We’re having about the same number of dealers 16 year-to-date throughout the region and we’re starting to get some more of the security forces but somewhat commercial applications and defense type applications in India which we think is going to be a very interesting segment for us and we have not launched yet Victory or Indian. We’re evaluating when we’re going to do that for the market of India. But we did established our joint venture with Eicher Motors.

So this was a pretty cool event. It was back in January of this year. This was kind of the launch of – official launch if you will to the consumers for Polaris. It’s at the Auto Show in Delhi. And we have to really kind of convince our show people what our products are like. We created a demo track in a very small area. We gave 5,000 demo rides in five days in a very small area but it was really exciting.

People were standing in line for two or three hours to get on to our products. They are interested to see what it is. No one else is doing this. There is nobody else on ORVs of any substantial impact in India. We’re the people creating the market and doing some sort of high impact marketing like this.

Polaris Eicher joint venture, I think I’ll click right now to show you the video that we put together about the signing that we did with Eicher Motors last week or two weeks ago.

(Video)

So a little bit more about who Eicher is. The business is about $1.3 billion revenue when you add up their few different business that they are in. They’ve been established about as long as Polaris has, 1959. Their primary business is commercial vehicles. They have a joint venture, a long standing very successful joint venture with Volvo and they do have Royal Enfield which is an iconic motorcycle in India and in some export markets. Polaris, I mean the strategy for us, it’s a 50/50 joint venture about up to $50 million investment over three years.

The plan is we create a new business. It’s going to be a new facility. We’re going to create a new product, the new distribution channel and really focused on this global emerging market opportunity. We both see some opportunity there. We both bring some key competitive capabilities to the marketplace and working together, where we think we can achieve a pretty nice business together.

The market position, you could see why you are doing this in India. Well second largest population, it’s the second fastest growing economy, second largest motorcycle market, over 10 million motorcycles are sold in India. It’s the number one market for three wheelers and it’s the number four market globally for four wheeler commercial vehicles. So sort of this small vehicle segment and two wheelers, four wheelers it’s a very significant market long-term and we’re working with Eicher. We think that we can develop something pretty substantial moving forward.

Polaris Brazil, first half like India. We didn’t really – weren’t really operational last year so the growth rate is very high but the overall business, we’re just on our off-road vehicles right now mostly side-by-sides, established a new dealer. We’re creating that operational market and recreational market with the focused on the side by sides that’s where we think that we can really make hay down there. Probably a little bit more so also in the agriculture and the electric vehicle segments than in some of other markets but we see Brazil as the great long-term opportunity and we’re often running there.

Here is some of the pictures, some of the shows that we’ve been at and some of them are our dealers. So for the rest of the year we want to continue to keep up the growth momentum in the region, plus 20%, continue to win in a largest market Australia both continue to grow the business and gain market share in off-road vehicles and motorcycles. Double the BIC sales, develop the recreational market, enter commercial and expand Victory in China, that’s what our plan is for the end of 2002 and really get this Eicher joint venture off to a successful start. Any questions?

Richard Edwards

Questions?

Question-and-Answer Session

Unidentified Analyst

(Question Inaudible)

Mike Dougherty

It doesn’t change at all. We have a Polaris India team that’s focused on building our business, primarily the off-road vehicle business that’s based in Delhi and we’re setting up those dealers. We’ll continue to run that program. This joint venture is a totally new segment, new people. We’ll hire that and it will be a different location. We’re going after a different market.

So if anything we’ll strengthen it, because we’ll put more resources into India about what we’re doing from a technology standpoint but there will be separate business.

Unidentified Analyst

(Question Inaudible)

Mike Dougherty

Probably both moving forward. There are large markets in both segments but we’re not going to get into exactly which product we’re coming out now but they got two wheelers and four wheelers and so do we, so we would expect to expand in the multiple segments in the future.

Unidentified Analyst

(Question Inaudible)

Mike Dougherty

Really important actually. In places like India and Brazil, it’s not uncommon to have say 100% import duty. And so there is ways to, I won’t say get around it but like there is Mexican content. So if you have a certain amount of Mexican content out of our Monterrey facility, we can get duty free into Brazil and some other Latin American markets but India, it has an 85% import duty, so doing SKD, knock-down assembly type things is important.

Setting up a full-fledged Monterrey type factory, that’s not necessary, we don’t have the volume to support that but some local assemblies, it will be important for long-term to bring the place down to make it more affordable for more people.

Richard Edwards

Okay, thanks Mike.

Mike Dougherty

Yes.

Richard Edwards

Next up is Matt Homan, Europe, Middle East and Africa.

Presentation

Matt Homan

Hi, good morning everybody. Home stretch for you. We’re going to talk about Europe, Middle East and Africa actually which is a region that our team handles. And I am going to give you a little overview of what that market is today because it might be a little bit different than maybe some of you are thinking, actually even inside of Polaris sometimes as I explained what we’re doing over there that people are surprised sometimes by how the business is broken up. So I’ll kind of cover that for you and then also give you a quick view of results as well as a look forward to kind of how we see the opportunity moving forward because there are some significant opportunities in this region.

So if you go to the first slide. This is I would ask you to think about this region is really in two parts, there is growth markets which is about 30% of the business that’s your far right column there, that’s grown over the last few years, that’s becoming a larger part of our business. Mostly we use distributors to handle that, that’s Russia, Middle East and Africa primarily, a little bit of Eastern Europe as well and then there is Western Europe right. You read in the newspapers all the time right now, how bad the economy is in Europe and all the fearful things in Spain and Italy and all that’s accurate. There is a lot of tough things happening in Europe, but even in our Western European business which is 70% of our business, only about 50% of that is the stuff you’re reading about in the newspaper.

So Scandinavia is a good chunk of that, the Northern part where the economy is actually very strong and about half of our business is in the Southern part of Europe, the Spain, the Italy, the France et cetera which were struggling more. So think about it as growth markets in Western Europe and then even our Western Europe business it kind of has two parts as far as to help them right now. I’ll kind of take you through that as we go through the results.

If you look at kind of this is maybe some information we haven’t shared with you before about what kind of products we’re selling where. And this actually is helpful I think when you think about our business and how we continue to perform quite well even in a difficult European economy. This will help explain it.

If you look at the Northern European markets, the Northern European markets are actually primarily utility markets. There is some recreation snowmobile is there but even the snowmobiles are being used a lot of times for utility and then the off-road vehicles, there is no trail systems, it’s illegal ride on your own private property. So in most cases, so it’s primarily a work utility market which is good, right. So when the economy is not as good, the work market typically can be a little bit stronger and of course the markets are better up there anyway.

Southern Europe has been primarily a recreation market. We got a good motorcycle market there, a good off-road market there. We’re expanding quite aggressively in the utility on that side as well adding utility dealers, doing more of Ranger and we’re able to offset some of the weakness we’re seeing in those markets with our utility business in the Southern part of Europe. If you look at growth markets, Russia. Russia has primarily been a recreation off-road market and what I call kind of a Quasi (ph) utility snowmobile market.

So the snowmobile market, you can imagine parts of Russia a massive country right, that you just can’t get to your property, you can’t even operate without snowmobile in the winter, which is why it’s such a good snowmobile market. So they are using it a little bit for recreation, but it’s primarily to get around, right. And that market has done very well, growing very strong for us and the market in general over the last couple of years.

Middle East is primarily a recreation market, mostly focused in the UAE right now, but there are opportunities beyond that which I’ll show you here in a second where we think we can expand beyond recreation in the utility and there is more new market opportunities as well. There is some good growth opportunities still in the Middle East. And if you look at Africa, it’s really right now a pretty small market, mostly the southern part of Africa. If we kind of talk five year horizon of our long range plan for this region, view the tail-end of that five years, we think this market is going to start emerging, and what we’re doing right now is we’re planting seeds.

We’re getting distributors setup. We are looking at new products that could aim at those markets in the future and we expect to take off more significantly kind of year three through five moving out. If you look at our business, the chart at the top kind of breaks out the business by product line. And the main point here I wanted to show you is our business is shifting away from ATVs, although it’s still about 50%, you can see in the bottom paragraph today, towards side by sides, motorcycles and even snowmobiles has become a larger part of our business over the last couple of years primarily driven by Russia.

So if you think about our business and how we continue to do pretty well in this region, this is a big part of it. The mix going to side-by-side, the mix going to motorcycles, it’s quite helpful for us. So we’re leveraging that and we’re of course going after those markets aggressively.

This is the growth markets. I wanted to paint a little bit of a picture for you on why we’re bullish on this market and why we think we can keep growing it. If you look at Russia, we’re strong and off-road vehicles right now. We’re actually weaker than we should be in snowmobiles. It’s primarily like I said a utility snowmobile market where a couple of competitors have been very, very low on pricing where they are likely not making very much money. We frankly have decided not to do that.

So we’re building plants. We’re doing well in that market there, but we could do more if we wanted to sacrifice some of our margin. We don’t think that’s the right play. We think the right play is to build a strategy or our planning horizon here to go after that market and get significant market share in that utility snowmobile market, and I’m confident we’re going to do that. So you look at Russia, Mike talks about China and India, those are natural growth opportunities. Russia is right there with those as far as an opportunity. This can be a huge business for us and we’re going to go after and go get that.

Middle East, as I mentioned before, primarily a recreation market, primarily UAE. So our focus right now is building a work distribution channel in the UAE and then expanding beyond UAE. Saudi Arabia is a natural next spot to go. These markets take time to crack. You have to have the right partnerships and we’re well on our way to doing that. So we see significant opportunities still in the Middle East.

And as I talked about Africa, it’s small today. We’re going after it. We’re doing well there but we expect that to kind of be the three to five year horizon growth for us.

This is the market. We don’t have data for all our growth markets. We have pretty good data for Western Europe. So this is Western European focused markets so where things are choppier right now. And if you look at it, it’s really the tale of two stories. 2009 to 2011 you can see the bar charts there. Markets are pretty damn good. ORV is up 8%, snowmobiles is up 8%, motorcycles is down just a squash but not too bad. But what’s really going on this year is these markets have gotten a lot weaker. I know Mike and Bennett and Scott talked to you guys about that on the call a week or so ago. These markets have gotten significantly weaker as the economies have gotten weaker in Western Europe.

Again the growth markets are doing much better. We just don’t have data to put in here on that. So if we did, things would look better but really the first half of the year, things are choppier. And frankly in our outlook, we’re expecting it to remain choppy for the foreseeable future.

This is a competitive outlook to give you a little flavor and I’ll just highlight this for you. You can certainly read it in more detail and let me know if you have questions. But the ORV side really it’s similar to North America on one hand in that we’ve got the same tough competitors, Honda, Yamaha, BRP. But we also have a whole another level of competitors in opera which are the Asian competitors which really don’t play much in North America. They do quite well in Europe specifically, Kymco, TGB, CF Motors, the Chinese player that’s come in. They do relatively well. They have pretty good value products and their products have gotten better. So we’ve had to compete with new Sportsman 400, new sportsman 500 et cetera and we’ve been able to continue gaining market share by playing that way. But it’s a different strategy and as we look to our planning horizon for the three to five years outlook, we’ve got to take that value side a little more seriously than the North American team does and we’re doing that.

Snowmobile, VRP is number one and has got two brands, the Lynx brand and the Ski-Doo brand. We’re number two. We lost some share in the last season on snowmobiles. A couple of primarily reasons for that, the biggest one being we ran out of products. And we’re not going to run out of products this year. We’re working extremely hard on that and I’ll talk to you about this in a little bit but as we look towards Model Year 2013 snowmobiles, we’re very, very optimistic. The orders were very, very strong and we expect that share to turn around here this year. I’m quite confident of that.

Motorcycle, Harley is the leader out there in North America. Their shares aren’t as high as they are in North America, but they’re still way high. BMW is a strong player. They’ve come on very strong the last couple of years into that cruiser market, and we’re performing really well. We’re gaining significant share. We’re adding dealers. We’re performing well. We’ve got a lot of momentum going on in Victory and with Menetto and the guys with Indian as that comes in we see a significant opportunity to grow our motorcycle business. We’re very excited and frankly people around Europe are excited about the Indian thing coming in as well.

Look at the first half results. Here is what our objectives were. We wanted to grow out. We knew the economies were going to be difficult and we planned for that in our budget process with the team. We’re up high single digits in the first half, that’s what we’re seeing it. And we got significant negative currencies going against us. We’ve got the markets weakening as I showed you. So we’re able to kind keep grinding out some growth by gaining market share and by going after those growth markets so we’re doing quite well.

We want to gain share. When the markets aren’t good, what have you got to do? You’ve got to gain share. We are doing that. We gained significant share in the first half on off road vehicles. We’ve gained significant shares in motorcycles. As I told you the season basically ended when 2012 started. So as we go into 2013 on snowmobiles we expect to gain shares as well. The growth out of Western Europe, we’ve done that. We’re up strong double digits outside that. A couple of the markets in particular are very strong and we’re going to have to move fast as we can.

Swenson talked a little bit about Goupil, I’ll give you a little more color on that but as he said we’re on track on Goupil. We’re excited about that business. It’s a really good team. Again they are focused on 65% in France right now. So obviously that’s a more challenging market, but as we move forward we see, we see the opportunities there. And another thing we needed to do is we needed to get ovation in place. I’ve been over there for about a year now and if you look at the opportunities, I’ll give you a little highlight on this. Mike won’t let me say too much, but when you look at where we can go with this business, there are significant opportunities. Our vision is in place. We’ve got that approved through our board and we’re moving forward against that. I’ll give you a little flavor there as we move forward.

As you look at the year, we expected coming around 350 million approximately, which is up nearly 10%. Again we got economic headwinds. We got significant currency impacts we’ve put into our forecast outlook on the Euro because it’s wobbly right now. Margins, we expect because of that mix shifting a little bit more towards lower price products and a little higher more towards snowmobiles which have been very strong. In currency we expect a little bit of margin erosion but nothing significant. And then market share we expect to keep gaining market share in the second half and there is no reason to believe that won’t happen.

Goupil, Scott talked about this, so I don’t think I’ll cover. So you let me know if you have questions. The main thing here is, these were the goals we set out for this business for year one, what we wanted to do. We wanted to grow the business faster than it was growing. We’re up about 20% in the first half of the year. We needed to get cost out. That team was focused on innovation. They weren’t focused on low cost manufacturing by any means. And you can over time get a lot more than 5% cost out of this business, significantly more than that but quickly getting cost out of a big vehicle like that is more difficult. So we set a goal to get 5% out or more in year one. We’re track for that. We also wanted to help the efficiency. These vehicles take a lot to build and we wanted to do that significantly faster and more efficiently than the team was doing it there and we’re well above our goals there. The team is doing an outstanding job of driving efficiency.

We went and launched the G5. So Swenson told you the G3 which is the skinny utility vehicle. We wanted to have a bigger vehicle that would have a more carrying capacity and have longer range. That will launch in widespread in the second half of the year. And we wanted to figure out how to work GEM and Goupil together and we’re on process of doing that. That one will take a little bit more time, but there are opportunities over the next couple of years to do some things there.

I’ll give you a quick highlight, Longren and the guys did a great job last night of launching all the new products. We talked about how they affect North America. The great news for our business is these products are significantly helpful for our business as well, more so this year frankly than in years past. A great example is the Scrambler 850. But Dave said it perfectly last night when he said about time. That’s exactly what everybody in Europe was saying. This is a product – this is a very strong segment in Europe, this kind of a recreation, sports utility segment and we don’t really play there. We have the Scrambler but it’s almost off the map, the 500 Scrambler. So having the 850 is going to be a significant incremental opportunity for us. There’s a lot of excitement for this one and I’m sure when we go to Argentina here in a couple of weeks, people will be placing a lot of orders for it.

Ranger; our strategy as I showed you is building on that side-by-side business, the utility business. We’ve been setting up Ranger centers which are commercial oriented Ranger businesses within our dealerships, primarily in Scandinavia and had a lot of success with that. The premium side will be helped a ton with this new Ranger that the guys launched last night.

Another small detail for you is, we have a lot of homologations things we have to do to make this European legal and make these tractor legal or street legal. And electronic throttle control is a simple technology change that makes our life a lot easier over in Europe as we look at emissions and we look at some regulatory things moving forward. That’s an important change for us. And then on the value side, the Ranger 400 has been one of our stronger products. So having a Ranger 800 to it, is income opportunity for us as well just like Dave outlined last night. We’re excited about that.

The RZR XP, this one isn’t a huge volume for us. This is really symbolic of we’re on top, we’re the leaders and we’re going to stay on top. That’s what this tells the UAE guys, this tells the Southern Europe guys and what’s obviously nice about this is the margin. The price is high and that’s helpful to our business as well. We don’t mind that.

Victory, this is really interesting. You look at our Victory momentum and we’re American motorcycle company. But what the teams in Europe want, they want American motorcycles, but they like a little European flair to them. And when we launched the Judge on the last year, that’s what we got and the press was wow, American cruiser, but it’s got a little bit of a European feel to it. It’s off a very strong start. We just kind of got going in the spring with it. Press has been very positive and this Boardwalk on the right we think is going to do the same thing. The kingpin actually performs better which, this replaces the kingpin. It’s done better in Europe than it’s done in North America. And so having a fresh new Kingpin with a new name here is going to be a nice opportunity for us as well. Again you can see the launches that the teams are doing are ripe for our markets as well, so not just North America launches.

This is the snow story. Excitement at our snow meetings this winter were very, very high. The orders were very strong and these are two reasons why. The Indian was number one incremental thing for the orders this year and of course the performance on RMKs as well. So I want as you look towards why we have a pretty nice outlook moving forward, this is it is a big chunk of why. It’s because we’re in a very, very good position on snowmobiles and we already know that.

Here is the vision. Again I can’t tell you a lot here, but here is want to think about. When you think about building this business, you’ve seen us build this business from a relatively small business to $350 million. We can keep doing that with building our existing business, by going Western Europe with product innovation et cetera. But we can go a lot faster than we’ve gone outside of Western Europe and the Gulf markets and we’re starting to do that. So we’re going to accelerate what we’re doing there from a distribution stand point and a product standpoint.

When you think about operation, Suresh hit I think a little bit before, a couple of presentations ago. Just to put it simple for you, you’ve got a giant Ranger made in North America, put on a boat, shipped across the ocean, paying import duties in Europe, then you sell it. That’s probably as you get scaled, not the great long term solution. So as you look at that simple idea example, there’s big opportunities for us to go after that and we’ve got the Swiss headquarters we set up last year. We’ll figure out ways to leverage that and that will pay off for the bottom-line as well.

Growing rapidly, you are going to see us over time here developing products for Europe for the market and so what we have done now essentially is taken a North American product and slightly modified it to make it work in Europe and that’s been good. But if we want to explore this business, we have develop products for this market and that what we’re going to be able to do in that operational move in the middle will help us do that. And then we’re looking at a significant amount of adjacent opportunities for acquisition and obviously as the news comes out on that one we’ll be willing to share that with you. But we’ll built that into our plans and I would expect to see something from this team over the next period of time. So as we go out, Swenson said $1 billion, you’ve got $50 million, we get $350 million. I think I know who you guys are betting on. We’re going to be a $1 billion first.

That’s what I’ve got. Any questions for me?

Question-and-Answer Session

Richard Edwards

Yeah, go ahead.

Unidentified Analyst

(Question Inaudible)

Matt Homan

Well, we sold the diesel products over there as well and they are significant products for us. I didn’t mention them simply because we have new diesel products this year. But for example the Ranger Diesel is – by far the largest market in the world for the Ranger Diesel is in Europe.

Unidentified Analyst

(Question Inaudible)

Matt Homan

Most of them are selling – almost all them are selling gasoline. There are some utility players, Deere and Kubota who have diesel products that they sell. We compete with those primarily in the UK is kind of where they’ve done well. So there are a few diesel players, competitors out there. But most are gas.

Unidentified Analyst

(Question Inaudible)

Matt Homan

Okay, great question. Let me try to tackle that one. The long term whole developed products for Europe, custom built from the ground up we’re a little ways from that. So I wouldn’t expect to see it any time soon. But the thing that sometimes we overlook is that there’s simple things that we don’t do right now because we do have the volume. We are more of a niche business that we could do it. Maybe the best way to explain it is the Ranger business in the US used to be 20% special editions, hunting editions, farming editions, sports editions, that kind of thing. It’s well above 50% now because we found out that people, you build it for that specific customer, guess what, it hits better you even sell more of them. We don’t do that in Europe. So that’s going to come more quickly where we build recreation oriented products for south. We build the more utility products for the North. That’s kind of stuff I would expect to see not that far off and that will help our business significantly. You had a third questions, I can’t remember what it was.

Unidentified Analyst

(Question Inaudible)

Matt Homan

Yeah. Great question. Typical what we’ve seen in Europe is four to five years after what you’ve seen in North America. It starts to follow in Europe and that’s what we’re seeing. And so I don’t know if the side by side market will ever become big as the ATV market in Europe like it has in North America because we don’t have the huge farms and the land and all the same things we have in North America. But I think it’s going to come and push that edge as far as it can. So the transition is happening I guess is what I’d tell you. But I wouldn’t necessarily expect to go as far as North America.

Richard Edwards

Yeah, Ted?

Unidentified Analyst

(Question Inaudible)

Matt Homan

Great question. Let me tag on that last one first. Amazingly we have very strong gross margins and as you at the future you could see pressure on that if we don‘t figure out ways to build things cheaper, which is what we’re aiming at and we’re going to do that. Competitive wise, Asia is building in Asia primarily. Most people are not building in Europe. One exception of that is VRP as a snowmobile facility in Finland where they build the Lynx brand in Finland and that’s a nice advantage for them. So again as you, part of it is scale and we’re the largest. So you put our off-road vehicles business together with our snowmobile business. We’ve got scale to be able to do something like that. Most of the other guys don’t, but the ones who do I would expect they’re looking at this as well.

Richard Edwards

Another question? All right, one more. Go ahead.

Unidentified Analyst

(Question Inaudible)

Matt Homan

I don’t think we’re prepared to make any sort of dates on that today but except for this, that’s correct, except for to say we’re looking at it aggressively and we’re going to continue to look at it and as soon as we get something we’ll let you know.

Richard Edwards

All right. Thanks, Matt.

Matt Homan

Thanks Edward.

Richard Edwards

Scott is coming up with some closing comments and then we’ll kind of open up for some general Q&A.

Presentation

Scott Wine

All right. I hope that you guys now have a little bit of understanding about why we’re so bullish on the future of the company because what I hope you got out of each of the presentations is one, we have great leaders in every aspect of the business. We have good plans for next month, this quarter, the second half and really the next two, three, four, five, perhaps 10 years down the down the road. We’ve got a product roadmap. We’ve got strategies that every single business unit is focused on executing. Part of our confidence is that each one of these leaders has a team below them equally as counted as they are. That deep in organization, Polaris is made up of great ridiculously competitive people and part of that competitiveness comes through as we execute the business model. I think as you listened to whether it’s Suresh on the upside or Longren and Menetto, there really are solid plans beneath this entire strategy. We don’t set goals as like a vision. We’re not setting these targets out there because we hope to maybe to get there. We set these objectives as just that. It’s our objective that we intend to hit.

We’ve been very fortunate. We’ve gone faster in some areas over the last three years than we had anticipated. We don’t expect to grow to the moon. We do expect we’re going to have implications and pressure from different markets that we’re going to fight through. Trust that we can fight through. The question was asked very early in the presentation about what happens, I think it was around dealer inventory. What happens if the markets slow down like they did in ’05? Remember in ’05 that was not a market reaction as much as it was a position we put ourselves in. A better analogy, look back in ’08, ’09 how these players came. We’re far, as Bennett mentioned, we’re far beyond where we were then with our implementation of MVP and how well we execute that. We actually for the board last week we went through and looked at how Polaris will deal with it if we have the exact same downturn that we had in 2008. So you the slide, retail was down 16, total revenues for Polaris was down 20 because we under shipped the channel to bring our dealer inventory down that period. We did that plus we modeled an additional flat year after that and we actually, I wouldn’t say that we liked the results, but it proved to us that as we pressure tested it we’ll be able to get through the next downturn in a very effective manner if and when it comes.

Overall, we are incredible bullish. As I sit here right now I think three things. It’s the marketing term they talk about three Ps. We have great People. I think you’ve got a sense for that this morning. We have phenomenal Product which if you go to the right site you’ll get that verified today. And equally important we have unbelievable Potential as a company to do everything we do a lot better. Whether it is power sports market share or whether it’s our growth in Europe or in Asia Pacific, Latin America, our adjacent market stuff, I mean Swenson really is building something. He calls it $50 million but I wouldn’t bet against him to be the one to win that race.

Having Eastman come in with that tremendous experience from target and applying it to this different business model. Great opportunities for that high margin business to grow. Jonikas comes up and looked at Snowmobiles which really understand how can we possibly have had retails sales growth last year in snowmobiles? We like to defy gravity a little bit. He didn’t talk about it much, you saw the video. The new RMK Pro is an unbelievable machine. I would encourage you if you have the chance to get Richard to take you out, take advantage of that.

So I’ll end it with just the thought that we’re very confident in our ability to continue to execute and stay at the top of the industry. With that I’ll open it up for questions and we’ll all be available.

Richard Edwards

Okay. Any questions that you want to ask anybody? Guys, this is the time.

Question-and-Answer Session

Unidentified Analyst

(Question Inaudible)

Scott Wine

So the question was half the people are new since 2010. We have a pretty simple – we don’t pretend to be rocket scientists. We’re just pretty fundamental guys. If we vet all of our growth opportunities, the returns on invested capital happened by accident. We just don’t go chasing growth opportunities. But one thing that we do, if we say we’re going to do something and here is what we say we’re going to do and we see an opportunity to go faster and make more money, we’re going to put resources behind it. So to the extent that we continue to find opportunities, we’re going to continue to add people. Doubling or 50% new is going to be tough, but you look at Dougherty does a couple of thing in Asia-Pacific and Latin America, Matt puts a plant in Europe. I mean you can see a lot of people joining the team in the years ahead.

Unidentified Analyst

(Question Inaudible)

Scott Wine

No. Our turn over – Jim do you happen to know the turnover number?

James Williams

(Inaudible)

Scott Wine

It’s really low. HR guy for you. This is how you mention. It’s really low. We have a remarkably low employee turnover for a couple of reasons. One, we just were named, it’s public now, one of the top 10 large public companies in Minnesota to work for. We still have a very aggressive employee stock ownership plant. In fact ESOP is the largest single shareholder of Polaris. What was that up, Mike? It’s a big number, that ESOP went up over the last year 3 years?

Michael Malone

(Inaudible)

Scott Wine

Well, it sounds pretty good. And then – so you’ve got a fun place to work as evidenced by the naming of the top 10 places to work. We have a great profit sharing program, a great long term ESOP program and I think the employees across the board believe that we’re actually going to do this and it’s fun to be a part of. So turnover is pretty low and we intend to keep it that way.

Richard Edwards.

Any – yeah.

Unidentified Analyst

(Question Inaudible)

Scott Wine

So the question around, do we have dealer satisfaction metrics? The one thing I can tell you, as Bennett often refers to it, the ’05 survey that we did, we were dead last and I’m almost certain any way you calculate it we’re number one right now. But Bennett could probably offer more color than that.

Bennett Morgan

(Inaudible) of dealership performance because it’s the overall product experience and I would tell you that we’re not going to disclose that stuff, but we are moving much more towards overall long term ownership experience as we mature. MPS has been great, but we want to get through the lifecycle of the measure to the lifecycle of the ownerships. And so we’re putting our dealers through the same kind of MPS metrics but it’s fairly new and it’s a little immature. So I’m not going to share numbers, but that’s exactly where we’re evolving.

Scott Wine

And a lot of what you heard this morning is about us trying to make this a more profitable better business for the year. Retail flow management in the motorcycle business, what Dave Longren has done over the course of the last year really did drive up the on time delivery of products out there. We’re working hard to improve it for our dealers, but I would encourage you to, and I know you do, but take the times tonight and today to talk to the dealers and take a pulse. I think you’ll find it’s pretty good. Anyone else?

Richard Edwards

Any other?

Scott Wine

Thank you all very much for your attendance out here. We really appreciate it. Enjoy the ride sites if you can get out there.

Richard Edwards

So I thank everybody. This ends the presentation section. What we’re going to do now is we’re going to have lunch. There should be some box lunches around on the outside in the hallway. For those of you that have to take off and go back, certainly appreciate you coming to our meetings and presentations. The ones that are going to be riding, come back to this room around 1:00. So come back in this area about 1:00 this afternoon and then we’ll go take a tour of the Indian experience truck and then we’ll head over to the ride site and do some riding. Thanks.

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