Polaris Inc. (PII) Q4 2012 Earnings Report, Transcript and Summary

Richard Edwards - Director of Investor Relations Scott W. Wine - Chief Executive Officer, Director and Member of Technology Committee Bennett J. Morgan - President and Chief Operating Officer Michael W. Malone - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance

James Hardiman - Longbow Research LLC Scott W. Hamann - KeyBanc Capital Markets Inc., Research Division Scott L. Stember - Sidoti & Company, LLC Jaime M. Katz - Morningstar Inc., Research Division Edward Aaron - RBC Capital Markets, LLC, Research Division Gerrick L. Johnson - BMO Capital Markets U.S. Jimmy Baker - B. Riley & Co., LLC, Research Division Rommel T. Dionisio - Wedbush Securities Inc., Research Division Timothy A. Conder - Wells Fargo Securities, LLC, Research Division Mark E. Smith - Feltl and Company, Inc., Research Division Michael A. Swartz - SunTrust Robinson Humphrey, Inc., Research Division Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division

Good morning, everyone. My name is Sarah, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Polaris Fourth Quarter Earnings Results Conference Call. [Operator Instructions] I would now like to turn the call over to our host, Mr. Richard Edwards. Sir, you may begin your conference.

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

Thanks, Richard. Good morning, and thank you for joining us. January's typically one of the busiest months of the year at Polaris, but our pace this month just seemed even more aggressive than the years past. I see it in every business unit, in each functional area, and the energy and excitement about the year ahead is encouraging. Certainly, part of our activity is devoted to preparing for the challenges and risks that we expect to face, but what is notably absent is any reflection of the tremendous growth performance the team delivered in 2012. We will take some time to review those results this morning, but trust that the rest of Polaris is hard at work to make 2013 another record year. From the introduction of the Jagged X RZR, our highest performing vehicle ever, and the announcement of the KLIM acquisition to strong double-digit retail growth, we drove hard through the final 3 months of 2012. With strong demand for our industry-leading ORV lineup and also for our On-Road and PG&A businesses, fourth quarter sales increased 15% to a record $900 million. Increased competitive activity kept us on top of our game and our 210 basis point improvement in gross profit margin in the quarter indicates we are continuing to win with innovation and execution, not overly costly discounts. Fourth quarter net income and earnings per share both increased 38% to $88.1 million and $1.24 per share, respectively. This strong end of the year performance was the capstone to a third straight record year for Polaris and bides important momentum to begin our quest for a fourth in 2014. Full year 2012 sales increased 21% to a record $3.2 billion, marking the first time Polaris has exceeded the $3 billion mark, just one year after passing the $2 billion milestone. On the back of industry-leading innovation, a few strategic acquisitions and tremendous execution by the employees of Polaris and our dealer network, we have now doubled our revenue in the past 3 years. Much more importantly, net income more than tripled over the same period, reflecting the benefits of our laser focus on net income margin. For 2012, net income increased 37% to $312.3 million, building record net margins of 9.7% and earnings per share of $4.40, up 38%. The quality of our earnings remain strong, as reflected by our operating cash flow of $416 million which was 133% of net income. Our consistent execution was, again, rewarded by the market, providing shareholders with a 53% annual return on top of the 46% return in 2011. Perhaps more significant than any number on this chart are the hundreds of millions of dollars that we have invested over the past several years to position the company for future growth. From Indian Motorcycles to our joint venture in India with Eicher, and from new RANGERs and RZRs to GEM and Goupil electric vehicles and, of course, also our recent X Game-winning snowmobiles, we are constantly seeking avenues for profitable growth. With strong momentum, a great team across the globe and aggressive, disciplined plans in place, we are, again, projecting double-digit sales and earnings growth at the upper range of our guidance. We remain very cautious of the debt-related economic and political risks in both the U.S. and Europe and are prepared more for downside pressure than economic tailwinds in the year ahead. We are planning for U.S. GDP to grow about 2% and Europe to come in flat to slightly down, but look for better results from the economies of Asia and Latin America. The overall North American power sports industry should grow but at a slower rate, so expect to primarily drive growth from share gains and global market expansion. Assessing what we know and anticipate, we project overall revenue of 7% to 10%. Net income and earnings per share are both projected to increase in the range of 10% to 15% over 2012, which would equate to a record earnings per share of $4.85 to $5.05. This guidance includes a modest amount of second half sales of Indian Motorcycles coupled with another full year of heavy investment in the business we are building around this iconic brand. We will also continue to invest in our international expansion, including the construction of a new manufacturing facility in Europe. As many of you know, we have been evaluating options to establish assembly capacity in Europe for the past several years. Our strategy calls for us to serve markets locally when volume justifies it, and as the European market share leader on Off-Road Vehicles, we now see an opportunity to better support our EMEA dealers and customers. After our very successful Monterrey factory start up, we are very confident that we can execute this plan to reduce logistics cost and increase capacity. Our final decision on location is imminent, and we expect to break ground in the first half of this year. The overall cost of this greenfield facility is expected to be approximately $50 million, which includes both capital investments and operating expenses. Of that, we have planned for $8 million to $10 million to hit the P&L in 2013. Polaris is now in a fifth year of executing a strategy that has served us well through both the last recession and the slow global recovery. Our team and our culture provide a foundation that enables Polaris to consistently outperform and I am thrilled with the energy, ingenuity and drive they bring to our business every day. We have made significant progress towards many of our goals, yet we still have quite a journey ahead of us to pursue our overall objective to be a highly profitable, more diversified global enterprise with over $5 billion in revenue. Achieving that goal requires us to be the best in Powersports Plus, which not only means extending our #1 market share position, but also increasing the size of the addressable market. From designing new and better products to building stronger brands, we are providing a broad and constantly growing range of customers with more reasons to buy Polaris. The project to double the size of our R&D facility in Wyoming, Minnesota is well underway, and while this physical expansion is important, our investments in talent, technology and process improvements play an even larger role in supercharging our industry-leading product pipeline. This is a fast-paced competitive industry and we will take nothing for granted as we pursue another year of powersports leadership. While our core business fuels most of our current profits, the prospects for long-term profitable growth are enhanced by our growth through adjacency initiatives. We are excited to have Justin Summers, the founder and CEO of KLIM, and his strong brand and business as part of Polaris. We like their growth potential even more than we like their riding gear. We are also confident on the direction of our small vehicle business as Matt Homan adds this growth platform to his EMEA leadership responsibility. GEM and Goupil are now fully integrated into Polaris and poised for growth in the years ahead. We are working aggressively to expand our presence in this $4 billion global market for small vehicles, and the more we see and learn, the better we feel about our opportunities to win. New products will also drive our adjacency growth in the year ahead as we debut exciting vehicles in both our military and commercial lines. Polaris must prove that we can drive profitable growth outside of powersports, and this year I expect us to do just that. Global market leadership is the mandate for both our core and adjacent businesses, and during the past 4 years, we've added over $150 million of new sales in the international markets and more than doubled the size of that team. We have growing businesses in Brazil, India and China, and the EMEA headquarters in Switzerland and we'll be building plants in Europe and India in the year ahead. We are excited about the potential for our joint venture with Eicher, both from the relationship and product development aspects of our partnership. Despite this progress, we remain far from, but firmly committed to, our goal of having 1/3 of our sales outside of North America by 2018. We do not expect a fast economic recovery in EMEA, but we do see an opportunity for long-term growth there and we'll invest accordingly. The developing economies will continue to outperform our Western markets, and we expect our Asia Pacific/Latin America enterprise to lead the growth of our International business in 2013. Our rapid growth could not be possible without the talent and dedication of our operations and supply chain team. As we expand our global footprint and strive to make significant improvements in quality, delivery, cost and inventory, we will further embrace the tools and principles of LEAN and work to ensure that operations is a competitive advantage. As we move operations closer to the customers we serve, while simultaneously making those plans and processes more efficient and productive, we are strengthening our foundation for growth and margin expansion. We focus relentlessly on executing our strategy with the clear recognition that strong financial performance is both the result of, and a major force behind, our ability to aggressively drive our strategic objectives. Due to our significant increases in revenue and profitability, we have been able to invest more money back into our businesses to create new opportunities for growth. History suggests some of these growth prospects will start with slightly lower margins which is why we are not currently projecting net income margins to substantially exceed 10%. We will, nonetheless, maintain our maniacal focus on profitable growth to generate the earnings required to continue to fuel our strategy. With that, I will turn it over to our Chief Operating Officer, Bennett Morgan, who'll provide additional insights into our operations and business unit performance.

Thanks, Scott, and good morning, everyone. Fourth quarter operational performance was excellent and Polaris remains on the gas. North American retail sales increased 13%, the 11th consecutive quarter of double-digit retail growth, and for the year we were up a robust 14%, identical to 2011's stellar retail growth rate. We built further on our #1 market share position in North American powersports and for the third consecutive year, we gained share in every business we competed in. Our operations and global supply teams continue to deliver production upside to meet increasing customer demand, and we have initiated new investments that will expand our global manufacturing footprint into Europe and India. As we projected on our third quarter call, North American dealer inventory finished 2012 up 25% versus a year ago, as we continue to better match product availability to retail demand. Our dealers and our internal metrics continues to confirm inventory levels and quality are in excellent shape, while our new capabilities in the retail flow management and MDP will enable us to reduce dealer stock while optimizing point-of-sale availability. ORV inventory was up 26% to support incremental side-by-side and ATV new market segments and our increased retail velocity. Motorcycle inventory was up 43% driven by new dealer adds and RFM implementation. RFM has already reduced order-to-delivery time by over 75% and reduced stock outs by 35%. In 2013, we anticipate Victory customer order fulfillment in less than 18 days. Snowmobile inventory was up 16% due to higher beginning-of-season inventory levels. So all in all, as we entered 2013, we feel good about our dealer inventory levels and, more importantly, our increased capabilities to meet dealer and consumer demand moving forward. For 2013, we do not expect dealer inventory levels to increase or decrease significantly. Moving onto business unit performance. Off-Road Vehicles. Our ORV business is rolling. Fourth quarter revenues increased by 22% driven by North American core ATV and side-by-side sales strength, which more than offset some weakness in international and military markets. For the full year, ORV, again, achieved record sales and grew by 22%. Polaris continues to build on our undisputed leadership in ORV market share and retail momentum remains very good. For the full year 2012, North American ATV industry retail sales increased slightly, the first increase in ATV industry sales in 8 years, although the industry did decline marginally in the fourth quarter. Despite the weaker industry, Polaris' fourth quarter and calendar year 2012 ATV retail sales had healthy growth of upper-single digits. On the strength of this performance, for the first time ever, we achieved #1 in North American ATV industry retail market share. It's simply a tremendous accomplishment by our team and our dealer network. Polaris' North American side-by-side retail was similarly outstanding, up over 20% in both the fourth quarter and for the full year 2012 in an industry we estimated to continue to grow about low-teens percent. Our new ORV Model Year '13 products, including the new RANGER 900 XP, the RANGER 800 EFI Midsize and the Scrambler 850 are all selling very briskly. And we've recently introduced the RZR 900 XP Jagged X Edition at our Camp RZR in Glamis, California, in front of tens of thousands of side-by-side enthusiasts. It's our most deluxe production RZR ever built. It has a new high output 94 horsepower 900 engine, custom bucket seats and factory-installed doors. Orders sold out in less than 24 hours and product has already begun shipping to dealers in January. For 2013, we expect the ORV industry to continue to grow, but at a slower rate to 2012, and Polaris to, again, outperform in both ATVs and side-by-sides and gain market share, as we continue to face high year-over-year sales growth comparables. Fourth quarter wholesale sales to Bobcat declined, with Bobcat retail reported down slightly. For the full year 2012, Bobcat total retail increased upper-single digits despite declines in its national account orders. Dealer inventory positions at Bobcat are lean and well-positioned for 2013. Both partners are working hard preparing for the arrival of our co-developed product, which will launch in the first half of 2013. This commercial-targeted vehicles should provide meaningful growth to both Bobcat and Polaris in 2013 and beyond. Military sales declined in the fourth quarter as the challenges and uncertainty of defense budgets caused customers to continue to behave cautiously and defer spending. For the full year 2012, Polaris' military revenue was approximately flat. This short-term sales disappointment notwithstanding, we continue to make meaningful progress in defense. Our new resilient tire and M9 high-performance, lightweight armor technologies will enable us to penetrate new product categories in 2013 and beyond, and we've secured a number of multiyear, multimillion dollar contracts with TACOM, the National Guard and Special Operations Command that will drive future revenue. We have quickly become the preferred platform of choice in the growing unmanned track and wheeled vehicle space and expect continued rapid growth in this strategic growth segment. Despite an ongoing tough external environment, we expect Polaris' defense sales to bounce back and grow significantly in 2013. Snowmobiles. As we communicated in the third quarter call, fourth quarter wholesale sales predictably declined 9% due to revised build timing. For the calendar year 2012, snowmobile revenue increased 1% comprising 9% of total company sales. Though North American snow conditions were unfavorable in the early season, they improved in mid-December and industry retail sales accelerated nicely. For the fourth quarter, the industry declined slightly while Polaris continued to grow share as our retail sales were flat. Season-to-date, the industry is down less than 5% with Polaris down even less. Our model year '13 products have been well received. We remain a clear #1 in the critical Mountain segment, with our industry-leading RMKs, and the return of an all new indie has been a boost to the flatlands. Dealer inventory is in decent shape and we are cautiously optimistic about the better snow conditions generating improved year-over-year first quarter retail before we finalize our 2013, '14 build plan in the spring. On-Road Vehicles and Victory Motorcycles. Polaris' On-Road revenue increased 36% with strength in Victory and nice contributions from both GEM and Goupil. For calendar year of 2012, On-Road revenue jumped up 64%. Victory gained market share again in the fourth quarter with retail sales up modestly in the North American 1400 CC heavyweight motorcycle industry that grew slightly in the fourth quarter and for the full year 2012. We built on our position as the #2 heavyweight OEM with 2012 Victory retail sales growing better than 10x the industry growth rate, resulting in share gains across all segments: cruisers, baggers and touring. The strength and breadth of the Victory dealer network continues to improve with the North American dealer network now over 450 strong and retail sales per store up nicely. To celebrate Victory's 15th anniversary, we recently introduced a new Limited Edition Cross Country Tour model loaded with chrome, billet wheels and tons of electronics, in Antares Red to match the inaugural 1999 V92C that rolled off the Spirit Lake line. Indian business performance remains right on our plan. In December, at the Long Beach International Motorcycle Show, we launched the 2013 Indian Chief Final Edition, the last model from the previous Kings Mountain Indian chief platform, and we began the launch sequence with a groundbreaking Polaris design Model Year '14 Indian motorcycles that will be revealed later this year. We teased our all-new Model Year '14 engine through a unique customer sound booth experience that pounds out the distinctive growl of the new power plant, and earlier this month, at the New York International Motorcycle Show, we introduced an all-new Indian rides app for Apple and Android users that replicates the engine sound with a twist of the wrist. And in March at Daytona Bike Week, we will officially unveiled the all-new Polaris built-from-the-ground-up Indian Motorcycle engine that will power the Model Year '14 Indians into the future. 2013 is the year of Indian, and we are thrilled to restore the first American motorcycle brand to its rightful place in the global motorcycle industry. For 2013, we expect the North American heavyweight industry to continue to grow low-single digits with both Victory and Indian driving significant Polaris retail and market share growth. Our small electric vehicle business, while still in its infancy and under 2% of company sales, our revenues increased over 50% in the fourth quarter. GEM had a solid fourth quarter with revenue up double-digits percent and dealer orders up even more significantly. This was GEM's best quarterly order performance since the fourth quarter of '09 when large government incentives contributed significantly to the upsurge. Goupil continues to battle a difficult European economy, but we have made nice progress on cost and operations, and with our new G5 hybrid product launching in 2013, Goupil is poised for growth. We continue to improve capability and get valuable cycles of learning in the strategically attractive electric vehicle market and we're looking forward to 2013 growth from both GEM and Goupil. Parts, Garments and Accessories. PG&A fourth quarter sales increased 17% driven by double-digit growth in all global regions and across all categories. ORV PG&A sales were particularly robust, up 24% on strong side-by-side related revenue and offsetting modest weakness in snowmobiles. The new side-by-side cab system and related accessories are driving big dollar per unit acceleration and sales penetration. For the full year 2012, we completed another record revenue year in our highest margin business with sales increasing 13%, with strength across each of our PG&A product categories. In the fourth quarter, we acquired KLIM, the market leader in the design, development and distribution of technical riding gear for snowmobiles, off-road and adventure touring motorcycles. With 2012 sales approaching $30 million and a 5-year compounded annual growth rate over 20%, KLIM will further accelerate our growth in our highly profitable PG&A business and turbocharge our apparel portfolio. The KLIM and Polaris brands will remain distinct, although KLIM's Rigby, Idaho facility will become Polaris' Center of Excellence for design and development in the future. For 2013, we expect PG&A sales to outperform overall Polaris company sales. International. International revenue increased 6% in the fourth quarter, driven by Asia Pacific at plus 18% and Latin America at plus 21%, and a small amount of growth from the EMEA. For the full year 2012, international sales rose 9%, with Asia Pacific and Latin America regions up 21%, and the EMEA region up 5%. Victory, PG&A and snowmobiles were the primary drivers of the fourth quarter and 2012 international growth, offsetting modest declines in ORVs. European markets remained weak with both ORVs and motorcycles down to low-double digits for the fourth quarter and for the full year 2012. Polaris continued to win the competitive battle in the fourth quarter for 2012, gaining almost 2 points of share and increasing our #1 position in ORVs. In motorcycles, we grew European retail over 20%, in a market that declined double digits, and we continue to expand our presence and share in Australia. The European snow market is growing, with season-to-date industry sales up mid-single digits and Polaris up almost 10%, and gaining market share. We are investing to win globally. Scott mentioned the new European facility we will soon begin building and our new Eicher joint venture in India is off and running. We are hiring a team, product development is on track and we will break ground on a new plant in 2013. Our key emerging market subsidiaries in Brazil, India and China grew over 50% in 2012 as we developed the powersports market and channels in these economies and Russia is very strong with sales up over 50%. For 2013, we expect international industry markets to improve moderately. We anticipate continued growth and expansion in the a Pacific/Latin America regions, but we believe ORV and motorcycle industries will remain down in Europe due to economic weakness. Operational excellence. LEAN operational excellence initiatives focused on quality costs and speed are delivering margin expansion as fourth quarter gross margins expanded 210 basis points. Higher volume, product cost reductions, pricing and manufacturing realignment savings also contributed, more than offsetting reserves for a more aggressive promotion environment and product mix effects. Further, commodity and currency pressures have stabilized. Our plans continue to hum. For the full year 2012, productivity improved 6%. And for 2013, we are investing the incremental $100 million in new and existing plants across the globe to enhance our foundation for long-term growth. Factory inventory is up 16%, primarily in support of higher retail demand. Inventory turns are flat year-over-year as we continue to invest in customer order fulfillment initiatives that are improving dealer and consumer order response. But with that said, factory inventory is an opportunity with our 2013 LEAN initiatives that we will attack with gusto. We can and we'll do better. And with that, I'll turn it over to Mike Malone, our Chief Financial Officer.

Thanks, Bennett, and good morning to everyone. As both Scott and Bennett mentioned, we're very pleased with our record 2012 results, as the execution of our long-term strategy continues to deliver outstanding results for the company. For the full year 2013, we expect to report another record year. However, we will need to overcome a continued weak European economy and uncertainty around policies that may be enacted by the U.S. government in the area of spending, taxes and the debt ceiling. Taking into consideration these impediments, our 2013 full year guidance is as follows. Total company sales are expected to increase 7% to 10% for the full year, with the individual businesses contributing as follows. Sales of Off-Road Vehicles are expected to increase in the high-single digits percent range with retail sales of side-by-side vehicles and ATVs continuing to outpace the overall market, both in North America and internationally. We expect to gain additional ORV market share in 2013, although at a more moderate rate than the last 3 years. We do expect our sales volumes of ORVs in the EMEA market to be down in 2013. At this time of the year, it's always difficult to predict the outcome of the snowmobile selling season, but with the current level of higher dealer inventories and below average snowfall, we currently expect our snowmobiles sales to be down in the single-digit percent range during calendar year 2013. As usual, we will know much more as the winter selling season winds down and we've begin taking dealer orders in March. On-Road Vehicles sales, comprised of Victory and Indian, as well as the company's small electric vehicles, GEM and Goupil, are expected to be up in the range of 25% to 35% in 2013. Victory is driving solid retail sales demand and additional market share gains in all markets, and Indian motorcycles will begin shipping all-new bikes in the second half of 2013, while we also expect double-digit percent growth from our small vehicles. We expect PG&A sales to increase about 20% with faster growth in Polaris-branded PG&A and the addition of the KLIM acquisition completed in December of 2012. We expect sales in 2013 to customers outside of North America to grow slightly over 2012 as the impact of Europe's weak economies on our EMEA business is offset by growth in our Asia Pacific/Latin American business. However, we expect to continue to gain market share in Europe, and we are making investments to make our European business even stronger when the economy rebounds. Operating expenses are expected to be about flat as a percentage of sales in 2013 compared to 2012, which includes an unprecedented investment in sales, marketing and distribution expenses related to the Indian relaunch and continued global investment in future growth opportunities. So we are not expecting to get any leverage from our sales growth in operating expenses in 2013. In addition, we expect to record a modest loss in calendar year 2013 related to our 50% share of the start-up cost of the Eicher joint venture in India. This loss will be recorded as a component of nonoperating expense on the income statement. The income tax provision rate for the full year 2013 is expected to be in the range of 33.5% to 34% of pretax income, a decrease from the 34.9% reported in 2012. The anticipated income tax provision rate is lower in 2013 due to the renewal of the federal research and development income tax credit. For Polaris, the full year benefit of the 2012 R&D credit will be recorded in the first quarter of 2013 since the renewal legislation was not passed until January. As Scott discussed, earnings per share for the full year 2013 are expected to be in the range of $4.85 to $5.05, up 10% to 15% compared to the full year 2012. During the fourth quarter, we repurchased approximately 835,000 of the company's shares, bringing the full year total repurchases to 1.6 million shares at a cost of $127 million. This leaves about 2 million shares as of year-end remaining on the existing share repurchase authorization. In the full year 2013, the number of diluted shares outstanding is expected to be approximately flat with 2012 as we, again, plan to target share repurchases that approximate the dilutive impact of shares issued under the employee plans during 2013. In the 2012 fourth quarter, the gross profit margin percentage increased by 210 basis points, as Bennett described, and grew 90 basis points for the full year 2012. The gross profit margin percentage for 2013 is expected to increase up to 40 basis points from 2012. We anticipate continued benefits from production volume increases, higher selling prices and product cost reductions as we have experienced over the past several years. Also, as projected, we should realize incremental savings from the Monterrey manufacturing realignment project in 2013, which will bring the total annual savings to about $30 million as we estimated in 2010 at the products -- project's inception. However, these incremental 2013 savings when compared with 2012, will be largely offset by the planned startup cost for the European manufacturing facility, which are expected to have an $8 million to $10 million income statement impact in 2013. For 2013, we expect commodity costs and currency rates to be about flat with 2012. But as you know, currencies and commodities can be very volatile, so we will continue to monitor those closely and utilize hedging strategies, where we can, to minimize our risk. As it has throughout 2012, given our significant market share gains, we expect the competitive sales promotions environment to remain heavy in 2013. Moving now to our balance sheet and liquidity profile. Net cash provided by operating activities was $416 million for the full year 2012, up 38% from last year, due primarily to the increase in net income and improved working capital. We expect cash flow provided by operating activities for the full year 2013 to increase modestly over 2012. At year end, our cash balance was $417 million, an increase of $92 million from 2011. We maintain $350 million of borrowing capacity under the unsecured revolving credit facility. We continue to have only $107 million of debt outstanding, which leaves us plenty of debt capacity to fund potential acquisitions. For the full year 2012, our investment in capital expenditures and new product development tooling totaled $103 million, an increase of 22% from last year, which includes capital to begin the expansion of our Wyoming/Minnesota R&D facility. For the full year 2013, we expect capital expenditures to double to about $200 million, an unprecedented level of investment by Polaris in production capacity and capability. These investments include the European manufacturing plant, the completion of the Wyoming R&D expansion, a new PG&A distribution warehouse and capacity expansions at each of our North American production facilities, as well as increased investments in tooling for all the new products under development for Model Year 2014 and beyond. Depreciation and amortization for 2012 was about $71 million. We expect depreciation for the full year 2013 to increase due to the increased capital spending levels. Our return on invested capital is at an industry-leading 44% for 2012 and is expected to decrease only slightly in 2013 with the additional capacity investments planned. Polaris acceptance receivables from dealers in the U.S. were $767 million at the end of December, an increase of 35% from a year ago. This increase reflects the mix change of higher value side-by-sides and motorcycles and the higher unit inventories at dealers to support consumer demand. The retail credit environment continues to remain stable with full year 2012 approval and penetration rates similar to last year. In conclusion, 2012 was another exciting and successful year for Polaris. There are likely to be challenges, both economically and from the increased competition, but we remain confident that we will deliver another record year in 2013. With that, I will now turn the call back over to Scott for further thoughts on 2013 and concluding comments.

To wrap up, I will offer some additional insight into how we see 2013, now that we have a perspective 4 weeks into it. Here in the United States, we have a more stable political scene than we did a year ago, but the potential economic risks of Washington's actions, or inactions, with respect to our national debt, taxes and regulatory policy is still a very big concern. As such, we expect muted GDP growth here and for Europe to be flat or perhaps even contract. In North America, we project the powersports market will, once again, outpace the economy but will grow less quickly than last year. We anticipate new entrants and better products in the side-by-side market, but believe our strong, growing stable RANGERs and RZRs will again win the competitive battle. I am extremely proud of the work the Victory team has done to accelerate the growth and profitability of their business and believe their 15th anniversary year could be an inflection point for long-term global growth for what is now our younger motorcycle brand. Indian Motorcycle is clearly the older brother or, more accurately, the great-great-grandfather to Victory with a birthday some 97 years earlier. We have learned a great deal building the Victory business, and we will apply that knowledge to ensure we give Indian the best possible introduction to the market later this year. I've ridden the bikes, seen the drawings and know the business plans, and feel confident that we will finally bring choice back to the market for great American motorcycles. Indian apparel and accessories will certainly be a growth driver for our PG&A business and, along with KLIM and many new product innovations, we expect to see strong growth of our highest profit margin business. We have invested quite a bit into our adjacency businesses, and I'm excited about their prospects in 2013. We will work to accelerate growth in small vehicles, military and our commercial businesses, as each have the benefit of reasonably low comparables and strong products and plans for the year ahead. We expect to gain market share in the EMEA again in 2013, but do not believe that will be enough to achieve top line growth. Economic expansion is expected to remain strong in our Asia Pacific and Latin America markets, although the rate of growth in China and India may slow slightly. Our teams in Brazil, India and China are continuing to build momentum. Along with support from our Australian business, we will lead our low single-digit overall international growth. Monterrey volume will increase, as will savings, which should reach our goal of more than $30 million annually by the end of 2013, and we are eager to begin building our factory in Europe and more excited, obviously, to complete the construction and begin to capture the savings in late 2014. Few initiatives possess the scope to benefit as many stakeholders as LEAN and we will accelerate those efforts across the business to further reduce cost, inventory and lead times in 2013. We have a balanced plan and fully expect to maintain momentum and drive profitable growth. I look forward to sharing our progress with you throughout the year. With that, I will turn it over to Sarah to open the line for questions.

[Operator Instructions] Your first question comes from James Hardiman of Longbow Research.

I guess a couple of questions on the ORV segment. I guess, let's start out with just the industry growth assumption, the assumption that's going to be slower in 2013 than 2012. Is that just generally being conservative or are there some specific events that happened in 2012 that may not ultimately be repeatable in 2013?

Well, from an industry standpoint, James, we were really pleased to see the ATV industry grow for the first time in 8 years. But while we believe it's stabilized, that's not an industry we're modeling yet for long-term growth as we go forward. And obviously, we've seen a tremendous amount of growth out of side-by-sides over the last several years and in the way we've been modeling that, again, is that it will continue to grow nicely but at a slightly decelerating rate. And then, obviously, you got the backdrop of a lot of uncertainty around the economy with the higher taxes from most of our customers. And so I think that's a balanced approach as we head into '13, the way we're looking at the industries.

Very helpful. And then just on the inventory front. I think the dealer inventory increases are pretty straightforward, in terms of both motorcycles and snowmobiles. I was hoping you could help us deconstruct maybe the 26% growth in ORVs at retail. You talked about that -- some of that being to support new products, new segments. I guess, if you were to strip that away, how much would still be remaining, if any? And was this more a function of exceedingly low inventories last year and sort of building up over those?

I think, James, you're right. You're really right on. It's really 3 factors. I mean, obviously, retail velocity is up significantly and so, by nature, we're going to need some higher inventory levels of support. We do have 5 new segments that we created over the last year, in both side-by-sides and ATVs, so a significant portion, more than half of that inventory increases is for essentially new retail segments. And so those are the 2 primary drivers.

And James, just remember throughout the year, we talked about the commitment we made to our dealers to improve availability of products. I mean, despite the progress we've made with MVP, we were not meeting our dealers' demand to have the right products for all of their customers. And so part of this increase was reacting to dealers' demand and fulfilling our commitment to make sure that they have products to win the competitive battle, and we think we made tremendous progress towards that in 2012.

Your next question comes from Scott Hamann from KeyBanc Capital.

Just on the Indian business, can you kind of give us an update as to where you are with some of the dealer openings? I think the launch timing is later summer, but then just kind of what's incorporated in guidance as we kind of move '13 into '14, if you can help us out a little bit with that?

This is probably going to be one of those nonanswers, Scott. We talked about this. Obviously -- and we've put a lot of energy and effort and money into the Indian business. We feel very good about where we are. The dealer development activity is really moving along exactly as planned. Our target is to have between 120 and 140 Indian dealers by the end of the year. Some of our best Victory dealers will fulfill that, but mostly these are going to be new distribution points, really focused on the top motorcycle MSAs in the country. We're not giving specific guidance. I think you can expect it. Sales in 2013 are not going to exceed $100 million so you got the range between 0 and 100 depending on when we actually get the bikes launched and how retail demand flows. But obviously, based on what we've seen by consumer reaction and interest in these products, and what I know about what the guys are doing with the bikes and then building our distribution, we feel very good about bringing choice back to the heavyweight motorcycle industry.

Okay. And then just on the European facility, I mean timing of the investment on the P&L this year, I mean, have you started to break ground there? And then, is that gross margin adverse impact this year and when can we expect the savings to really start to hit the P&L in '14?

Sure. Scott, this is Mike. We're expecting to break ground some time later in this first half, so you'll see the cost and the P&L kind of ramp up through the year. Nearly all of that will be in gross margin, so the $8 million to $10 million of cost that we've guided to this year will -- is embedded into the -- up to 40 basis points of gross margin during the year. The savings, we obviously won't get any savings until we start production. The startup production is currently planned for the second half of '14. We'll still have, obviously, startup costs in 2014 so, for your modeling, I don't know that I'd plan on a whole lot of net upside in '14, but as we start to ramp up production in '15 and beyond, we should start to get some savings and our projection is that, at maturity, that this European facility can generate over $20 million of incremental benefit.

Your next question comes from Scott Stember of Sidoti & Company. Scott L. Stember - Sidoti & Company, LLC: Talk about the competitive pricing environment that you guys alluded to, how it's picked up, maybe side-by-sides versus ATVs. With some of the new entrants into the market, how do you expect that will progress as 2013 goes on?

Scott, I think you got cut off on the beginning of your question. Can you just repeat that portion real quickly? Scott L. Stember - Sidoti & Company, LLC: Just talking about the competitive pricing environment. You alluded to the fact that it has picked up, maybe just talk about ATV versus side-by-side and how you would expect that to progress throughout 2013.

Yes, this is Bennett. I think from an ATV standpoint, what we're seeing is -- again, it's a competitive market. But for the most part, promotions are reasonably stable and, I think, we haven't seen a tremendous amount of innovation in new products, in ATVs, which again is not surprising to us. So I think as we go forward on that, we think that's status quo. In the side-by-side industry, obviously, that's the growth market. We're seeing a number of new entrants. We're seeing more escalated promotion, as people try to get their share of the pie. And as we go into '13, we expect that we will see more new product offerings, and we expect that the promotion environment will continue to remain competitive. As for pricing, again, with the -- you've seen how aggressive we've been on our product plan as we look to the future. I mean, we feel very confident about our product plans going forward in side-by-sides and so I think we're well positioned to compete with the competitive threats that come forward, but we do expect side-by-sides to become increasingly crowded and competitive in '13. Scott L. Stember - Sidoti & Company, LLC: Okay. And as far as the guidance for 2013, could you talk about the amount of contribution from the new product that you're developing with Bobcat?

No, we're not going to really be specific on how much that contribution is going to be.

I think on the charts, we indicated the sales increase from our Bobcat commercial business, again, without any numbers but relative increase. You said it, double-digit -- I'm sorry, forget that, that was small vehicle. So on a profitability, Scott, remember this is codeveloped vehicles, so on a margin perspective, the incremental commercial business won't add to our margins. It'll be a little bit dilutive as we distribute product through the Bobcat channel. Scott L. Stember - Sidoti & Company, LLC: Okay. But just trying to basically ascertain if we -- if you're expecting any contribution from it whatsoever or would you prefer not to comment on it?

Yes, I mean, again I can see we're being a little elusive for you here. But it -- but from what you've traditionally tracked in our Bobcat relationship, with this new product entrant along with what we'll be doing on the Polaris channel, this will be a meaningful increase and it will be a meaningful increase in profitability versus that small segment as we reported it. That's as specific as I want to get for you. But yes, we will positively feel the difference of the new product, in both the Polaris and the Bobcat channel, this year.

Yes. And Scott, this is a -- it's not just a 2013 play. I mean, this relationship with Bobcat and really the entry with a significantly better offering into the commercial segment is something that we expect will be beneficial in 2013 and really a great growth platform for us over the next several years.

Your next question comes from Jamie Katz of Morningstar.

I guess I have 2 questions. First, obviously last year was pretty difficult for snowmobiles and this year looks not so promising either. Is there some part of the technological advances that has made the replacement rate a little bit slower than in the past? And do we anticipate that to kind of be the case going forward or is it kind of more snow driven? And then I know, in the press release, you guys talked about countermeasures to take if economic conditions worsen. Does that include kind of financing incentives and pricing promotions, or is there something else we should we thinking about?

Jaime, it's Scott, I'll start and then I'll let Bennett finish up. On the snowmobile side, I mean, obviously, last year's snow, especially across the plant, was not very good at all. But we were extremely pleased with the way our team and our dealers executed and then, I think, we did reasonably well. The snow in the mountains this year is actually fairly decent and that -- remember, that's where we have most of our market share. And it's actually just the opposite of what you said. The technology advances that we're making with our sled is actually encouraging people to buy more frequently, so really it's a factor of snow. And as Bennett said in his prepared remarks, the relaunch of the indie product has done well for us in the flatlands and we feel good about snow business as a profitable contributor to the company this year and going forward. And obviously, the growth rate depends on snow and that's not been ideal. But because of our strong market share number, leading market share in the mountains, we tend to do reasonably well. The pricing stuff, Bennett, you want to cover that?

Yes. I think, Jamie, from a Polaris perspective, I mean, obviously the snow conditions haven't been ideal last year. We did get some snow in December and that was helpful. We're not alarmed where we are in snowmobiles as we sit here in late January. So we expected the way the first quarter is progressing, we're going to end up okay, maybe a little heavier than we'd like in a perfect world. Maybe we won't get a lot growth. Mike talked about being down single digits in snowmobiles. But we think our inventory levels and our dealers and our build, as we head into the spring, will be okay. And from a standpoint of promotions and so forth, I mean, if we continue to see less snow than we'd like, you might see promotions escalate some. But again that's modeled in our guidance. So I don't think you should expect any kind of hair-raising concerns from us in snowmobiles as we head through the rest of the season.

And I think more broadly, when we mention countermeasures, I mean, I think, if you followed us, we've figured out how to get through 2009 recession pretty well. We have numerous and big levers to pull rather quickly in terms of reacting to any downward pressure in the market. That was the comment I think about the countermeasures we referred to.

Your next question comes from Ed Aaron, RBC Capital Markets.

I wanted to ask about kind of your expectations for what the sales cadence is going to look like over the course of the year. I know you have tougher comps in the early part of the year than the latter part of the year in terms of retail growth and then some of the -- kind of the new products don't kick in, presumably, in full force towards the second half. So should we expect that your growth rates are going to look stronger in the back half versus the front half?

I don't think we're going to give any more detail on the quarterly splits in the quarterly guidance. I don't think there's anything other than what you already commented on our normal product releases, those kinds of things, that I don't think we'll comment any further.

I mean, obviously, as Mike said, we commented on Bobcat's is going to be coming out, that codeveloped product; second, later in the year, the Indian is going to be coming out later in the year, to the extent that they contribute, I mean, I think you would see it. But every year we have new product entrants coming later.

Okay. And then I guess back to kind of the promotional question. I mean, I think, in my perception is that your retail sales numbers are -- as strong as they are maybe been viewed with a little more skepticism than was previously the case because the cost of doing business in side-by-side is starting to go up. And I just was looking for like a little bit more clarity on how much of a change have you already seen in that? In the marketplace versus what your expectation is for future change that's still to come?

Yes, this is Bennett. You know, again, we -- certainly competitors are trying harder to get what they think would be their fair share and we've seen in side-by-side the promotion rate escalates some. But again, remember, we're dealing with a higher average selling price as well. And if you look at what we're able to do in our largest business, and you look at what we're doing to gross profit margins, again, it is a more aggressive environment. But I think from, at least the Polaris standpoint. We're not alarmed at all. This isn't a surprise to us and we're feeling very good that we're still seeing margin expansion in a lot of our largest business. I think we're trying to be appropriately mindful as we look forward of what competitors could do to us in '13 and try to make sure we're responsible from a P&L standpoint to make sure we're putting ourselves in a position that we respond to what they do. You know I'm not alarmed.

One more quick one, if I could. Mike, the balance sheet accrual for compensation expense was down a fair amount sequentially and that usually doesn't happen. Was there like a meaningful P&L benefit from lower compensation this quarter versus prior quarters?

Yes. If you recall, a year ago in the fourth quarter, we had a significant hit in the compensation -- incentive compensation area largely related to the stock price movement and the impact is about $6 million beneficial in the fourth quarter of this year compared to the fourth quarter of last year, most of which ends up in SG&A line.

And Ed, I'm going to give you a little more clarity on your earlier question about the quarterly sales splits. What I'll tell you is the first half would maybe lend more to the bottom end of our sales range, and the second half more to the top end of the sales range that we've issued.

Your next question comes from Gerrick Johnson.

I was just wondering how much the KLIM acquisition added to PG&A in the quarter? And then if you could just go over briefly the strategy behind that one, I know you're operating it as a standalone, but eventually will this be sort of exclusive to Polaris dealers, will it be an umbrella brand for all sorts of other products? What do you plan on doing with this over time?

I'll start with the strategy piece and let Mike talk about the financials. Clearly, we, as you know, we love our PG&A business, with tremendous profitability and we're increasingly, obviously -- Indian kind of got us started, we think, -- increasingly recognizing the power of really strong brands. And when we looked that our apparel business, we had everything but a strong brand. And with KLIM, we got an industry leader, we got a great team and we have an opportunity to really help them expand their distribution and help us make us a better apparel business. So I think this is exactly in our wheelhouse and we get great riding gear along with it.

And as far as the impact, we purchased the business in early December so it was very modest sales in PG&A for the month of December.

Okay. And Mike, one more for you. Your liability for sales promotions and incentives was up about 30% year-over-year. Can you talk about that a little bit?

Well, again our inventories are up in the dealer channel, so what's on the balance sheet represents the anticipated cost to move that inventory through to the consumer. So as our inventories are up in the channel, then our balance sheet needs to be up to reflect that. And then as we've indicated throughout the year, in our gross margin analysis that the promotional environment has been heavier in 2012 than earlier and so we're preparing through the P&L and to the extent it's in dealer inventory on the balance sheet for that heavier promotional environment.

Your next question comes from Jimmy Baker, B. Riley. Jimmy Baker - B. Riley & Co., LLC, Research Division: First, I just wanted to dive a little bit deeper into your gross margin expectation for '13. You note that product mix is going to be a headwind there again in '13 despite your expectation for PG&A outperformance. Is that simply a function of On-Road Vehicles sales picking up and maybe that dilutive shift within your ORV portfolio towards Bobcat? I'm just looking for any color there?

I think, Jimmy, you've got the primary drivers identified. The On-Road Vehicles sales growing 25% to 35% and that, obviously, being at lower margins have a big impact on the mix. PG&A is growing, as you say, so that's helpful. But also within PG&A, our best margin is in Parts, and Accessories are good margins and apparel, historically, have been lower margins. Our mix within PG&A is moving away from parts, more toward accessories and apparel. And so within the PG&A category, even though PG&A is going to grow 20%, it's not necessarily helpful to the overall mix. So those are the primary drivers. Jimmy Baker - B. Riley & Co., LLC, Research Division: That's helpful, Mike. And then in your balance sheet expectations, your cash balance will be down if acquisitions are completed. I'm just kind of running through the math and I'm trying to trying understand if that's because you're evaluating more sizable acquisitions or is it simply that before incorporating any acquisitions, because of the elevated CapEx, you'll be essentially breakeven from a cash perspective after you return your planned amount of capital to shareholders?

I think it's both. I think the answer is both. We -- as you point out, we do have more cash needs to grow our business with the CapEx at $200 million, and we are optimistic that we'll be able to execute some meaningful acquisitions to utilize our balance sheet.

Your next question comes from Rommel Dionisio of Wedbush Securities.

A couple of questions about the new European plant. First, obviously there's probably some underutilized facilities out there these days. Could you just walk through the buy versus build decision, why the decision is made to construct as opposed to just buy an existing facility and refurbish it? And also, two, and obviously that you're going to save money shipping vehicles across the Atlantic Ocean, but thinking about Monterrey, that was pretty much on track with the cost savings and all of that. [indiscernible] given the labor benefits as Mexico, but could you talk about some of the intangible factors that -- benefits of having Monterrey, you alluded to, in prior conference calls, superior product quality and some other -- the other cost savings. Some of the lessons you've learned that you can bring to a new European facility?

Rommel, good question. As I've mentioned in my remarks, we've been looking at this for quite some time and we spent that time -- with the first priority to find one of those used spaces and we quickly ruled out any available buildings in, what I'll call, Western Europe, but parts of Spain, Italy, France, where we really don't want to be because of labor issues. And then looked over in, what I'll refer to as Central Eastern Europe, where we have lower labor cost, great engineering capability, yet still close enough from a logistics standpoint to get the savings. We feel like we found a very good location there and when we weighed all of the costs, the shell of the building for us is really not the big cost. It's the tooling investment and the equipment that we put in. And it just made sense for us to go with a greenfield that specifically meets our needs. The other aspect is, we only have one ATV line in the world, and that's in our plant in Roseau, they do a phenomenal job. But as we, as Bennett alluded to, achieved a #1 market share position here in North America, we're very close to capacity there. So it made sense, we needed to add capacity somewhere and this was yet another reason to put it in Europe. The other benefit as we talked about with Monterrey as being closer to serving those customers in Latin America and the southern part of the United States, we'll now be closer to serve those customers in Europe. And we'll also be able to start designing more products specifically for those European customers. Obviously, in the U.K. they drive on the opposite side of the road and we'll be able to start putting more emphasis on exactly what those customers need, not adapting and adopting and emolugating [ph] products that we build here in the U.S. So lessons out of Monterrey, I think, we had learned to get the team in place early, really focusing on product quality and validation instead of volume shipments from the beginning, and we're really confident in our ability to execute this one over the next 18 to 24 months.

Your next question comes from Tim Conder of Wells Fargo Securities.

Just wanted to revisit the channel inventories, Bennett, if -- remember from the third quarter call, I think you alluded then that probably you kind of had things in balance because you said that the turns should be flattish. And can you maybe just bridge us from there to fourth quarter? And then again, Mike, you responded, I think, in one of your prior -- to one of the prior questions that you cranked up the accruals because of the channel inventories. Are you gentlemen implying that maybe it's slightly above where you would like it in North America? I guess, again, one collective question there. And then on Eicher, you indicated that you're going to be launching in calendar '14. If I recalled correctly, you previously, I think, when you did the JV, talked about '15. So is that going a little bit better than anticipated, your ramp up there?

All right. Tim, this is Bennett. I'll try to take a couple of those and these guys can clean up. On the Eicher one, just since I was the last one on top of mind, basically that plan is going exactly as we've kind of outlined it. We might have alluded to a maybe, a model year '15 type of product which maybe was -- is the confusion, and now we switched nomenclature to calendar year '14 but that one's right on track, off to a very good start. I wouldn't say we're ahead of plan. I wouldn't say we're behind plan. And we're feeling pretty good about, what we got going there. On the dealer inventory standpoint, from the third quarter call, I guess, in our view, and I don't think I necessarily, specifically, spoke to exactly where we would end the year. In my mind, we ended up right where I thought we were going to end up. I mean, you have a little bit of a seasonal build in the fourth quarter as you're shipping snowmobiles, and as you get into pretty strong seasonality, particularly, in ORV, and so, by nature, your inventories rise a little bit in the fourth quarter. But I would tell you, as you could tell from my remarks, I think we're feeling pretty darn good about where our dealer inventory position is. I know the number might look scary to you but again when you do your surveys and when we do our surveys and we look at our metrics, the quality of our inventory, the segment stock and our ability to take care of our customers is profoundly better than where it was 12 months ago and we're feeling quite secure where we are in dealer inventory positions. If there was one area we'd say we wish we were a little bit better on, we wish that our snowmobile inventory was modestly a little bit lower, but frankly, that's been coming down, frankly, as we expected through the season and we expect we should end up okay there as well.

Yes. And as it relates to the promotions, that's the one area that we did beef up a little bit, on the promotions, was in the snowmobile area, as the inventories are still a little bit higher than we like.

Okay. And then Mike, just a follow-up, a couple of housekeeping items. You mentioned that -- if you could just revisit your statement on the tax impact of the R&D catch-up in the first quarter? And then on Indian, do you anticipate some of these ramp ups start up costs to be -- to fall off in '14 and maybe give a little bit of tailwind as we look out a year from now?

Okay, on the taxes, Tim, just to refresh everybody on this, the R&D tax credit, the federal R&D tax credit was not allowed in 2012. So our tax provision rate is higher year-over-year primarily because of that. The legislation was passed in early January retroactive for 2012, so the actual '12 benefit of our R&D credit will show up in the first quarter of 2013, which will impact positively our provision rate in the first quarter.

Any magnitude there, Mike, you can quantify?

Yes, I figured you'd ask. What I would suggest you do is to go into the footnotes and look at our tax footnote from the prior years and it maps out what our R&D tax credit is worth over the last couple of years, and you can guess from that. You want to do the Indian?

No, I mean, as far as Indian relates to what's going to happen in '14, obviously -- and just to remind you, these are ground up bikes. We didn't borrow parts from Victory. I mean, we started over in both the engineering and product development spend, the manufacturing spend and the marketing spend are big startup expenses. And obviously, a lot of those happened last year and a lot of those are happening this year. Next year should see a turnaround from a cost to a benefit. And we're looking forward to that.

Your next question comes from Mark Smith from Feltl and Company.

First, can you talk a little bit about gross profit margins? You talked about mix kind of herding with on-road. Is there an opportunity with Indian, maybe not initially, but down the road, to improve those gross profit margins?

Certainly, Mark. Obviously, one of the reasons -- don't forget, we still love the Victory business and then there's the profitability improvements we see there, are encouraging. But when you add a great, iconic brand to what we know are going to be great bikes, that is a recipe for a much higher gross profit margin. And that's certainly something we expect to see from Indian probably '14 and beyond.

Great. And then second, just to revisit the KLIM acquisition quickly and kind of the opportunity there, I think, Bennett, you talked a little bit about Indian apparel and an opportunity is, is that something you guys can shift that kind of towards KLIM and that total apparel business? And second, is there an opportunity in side-by-side, and even more so on ATV, to convince people if you're going to spent close to $20,000 on a side-by-side and accessories that you may as well get a $300 coat while you're at it?

Yes. Well, clearly, we think this is going to turbocharge our apparel. I mean, these guys are awesome at what they do and their particular strength is, obviously, snowmobile apparel. They've done a nice job of -- in the recent years, really building out their kind of performance motorcycle and off-road apparel. Nobody's really done a great job, frankly, in off-road side-by-side apparel. We continue to have passion for that. We've not succeeded on a couple of previous tries over our career, but we do believe that with the power of our team, along with the KLIM capabilities, that's, that something that we can take crack at as we go down the road. I don't expect that to be huge numbers but, again, we're pretty excited strategically how this is going to improve both our sales and, frankly, our capability in apparel, long term.

Okay. Then lastly, just looking outside of Europe, any other markets that you see that you're nervous about, that you see weakness in? And then also on the upside, Russia, maybe any other places where there's maybe opportunity going forward?

As we commented on the call, Mark, we feel pretty good about the Asia Pacific, Latin American markets. We're building a powersports business in there and so it's not exactly a smooth upward trend. But from an end market perspective, we continue to expect those economies to do better than the U.S. and Europe.

Your next question comes from Michael Swartz of SunTrust.

I guess my question just concerns maybe the broader M&A environment. And understanding you have your hands full with the bunch of investments in 2013. I mean, has your thought process changed with regards to different product lines or geographies that you may be interested in?

Not really. I mean, we have learned and gotten smarter and very, very importantly, we've gotten more capable. I mean, our leadership team is stronger. I mean, we've added a couple of thousand employees. So we feel like we're well prepared to take on more, but we don't feel like we have a gun to our head at all to go to pull the trigger on anything. That being said, we see a lot of opportunities for global market expansion to help our small vehicle business. I mean, lots of our adjacency businesses offer us opportunities for growth. So I think we've been disciplined so far, but part of being disciplined is continuing to find more and better opportunities and, I think, what Mike alluded to as we go into '13, we see more and better opportunities.

We're going to take Joe and Craig and then we'll be done. Go ahead with Craig.

Your next question comes from Craig Kennison of Robert W Baird. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: I wanted to dig in to Bobcat quickly. What have you done, Bennett, to prepare the Polaris dealers to sell Bobcat? And then what are your plans internationally for that product line?

Craig, I'll try to answer that the best I can. We have not formally launched the vehicle, so I'm going to be somewhat elusive with you on this. But again, this is a -- again, what we've said is this is a commercially targeted product. And so one of the opportunities for Polaris, particularly, is to improve our share with that customer segment. That's not a customer that we've traditionally done as well as many of the other customer segments. So we see this as a big opportunity. We have a number of dealers in our broad dealer network that have quite a bit of capability on this, but we've never really provided them a product solution or a product family that really allows them to go after that with them. So we have a pretty comprehensive plan as we go to market as both from a marketing standpoint, as well as from a dealer development and a training standpoint to make sure that we do more than the traditional Polaris MO, which is roll out great product and let them go sell it. We're going to need to do more and we're prepared to do more, as we put that into parts of our channel. From a Bobcat standpoint, I mean, this is in their wheelhouse and we expect them to do quite well because it shapes up very well with the, frankly, the customers that they're targeting today. And I think internationally, I think you'll see us slow ramp with it. Frankly, it'll be -- you'll see it going to our developed channel over time. But I think that, frankly, the international benefit will be more material as we go forward in outer years, Craig.

And last question comes from of Joe Hovorka of Raymond James. Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division: Just a quick question on the capacity, just between Europe and the -- I think you said you were creating capacity at all existing plants as well. How much is capacity going up, first question?

A little bit. Well, obviously, Joe, we're -- we are... and I think Mike talked about it in his comments. I mean, our focus on continuing to maintain extremely high returns on invested capital, and in order to do that we have to make sure we're careful with our capital investment. What we're doing now, we're probably late to add this in Europe just given the opportunity to take cost out and better serve those customers. We're -- and we saw ourselves based on projected growth rates at limits for capacity in our off-road vehicle business in the next couple of years. So this is just really making sure we're getting ahead of the game, but it's not like we're adding more than 15% or 20% capacity.

It's a little complicated because, frankly, a number of our investments are in things that we have to outsource on componentry or capability, whether it's paint, it's injection, molding, it's additional line in a product line, it's hard to quantify that that's why you've heard us pausing. It's a material number. But again, we're not doubling the size of our capacity by any means.

We are, however, adding a great deal of capacity to our motorcycle business. Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division: Okay, and the -- so the spend, the ramp up from $100 million to $200 million, and I guess $50 million of which is Europe, but I take it all of Europe is done in '13, does the other capacity flow into '14 as well, or does it go to kind of $100 million, $200 million, $150 million or something like that, from a capital spend standpoint?

The answer is, and I'll let Mike try to clean that up, the answer is, is that it depends on the investment. Some of it is very much focused it '13. Some of it, like Europe, flows into '14. Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division: But the capacity additions at the existing plants aren't -- is not going to flow into '14? Or it is?

No, some will.

It's probably a high watermark. I would say the $200 million is a spike.

The high watermark for us.

Yes, it will come down.

Okay, that's all the time we have, guys. Appreciate everyone hanging on and participating this morning, and we look forward to talking to you again next quarter. Thanks and goodbye.

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