Polaris (PII) Q4 2002 earnings summary

Executive summary

• FY2002 sales rose 2% to $1.521B; net income increased 13% to $103.6M and diluted EPS rose 13% to $4.39.

• ATV and Victory motorcycle growth more than offset lower snowmobile, PWC, and PG&A sales; gross margin improved on efficiency, product mix, cost reductions, and lower warranty expense.

Financial highlights

• Gross profit rose 8% to $332.3M; operating income increased to $152.9M from $144.2M.

• Net income was $103.6M versus $91.4M; diluted EPS was $4.39 versus $3.88.

• Q4 sales were $431.5M, gross profit $97.7M, net income $35.0M, and diluted EPS $1.51, versus $419.8M, $93.5M, $31.7M, and $1.35 in Q4 2001.

• Operating expenses rose 9% to $194.0M, or 12.8% of sales versus 11.9%; R&D increased 28% to $45.6M as product development and dealer-channel investment accelerated.

• Interest expense declined 67% to $2.4M; the effective tax rate fell to 32.8% from 34.5%.

Outlook and guidance

• FY2003 capital expenditures, including tooling, were expected to range from $65M to $75M.

• Cash balances, operating cash flow, and available credit were expected to fund 2003 operations, regular dividends, share repurchases, and capital spending.

• Yen hedges were expected to have a modest positive impact on 2003 cost of sales; Canadian-dollar hedges were expected to have minimal impact on net income during hedged periods.