Polaris Inc. (PII) Q4 2014 Earnings Report, Transcript and Summary

Good morning. My name is Laurel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Polaris Fourth Quarter and Full Year Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I’ll now turn the call over to Richard Edwards, Head of Investor Relations. Please go ahead, sir.

Thank you, Laurel, and good morning and thank you for joining us for our 2014 fourth quarter and full year earnings conference call. A slide presentation is accessible at our Web site at www.polaris.com/irhome, which has additional information for this morning's call. Today, you will be hearing prepared comments from Scott Wine, our Chairman and Chief Executive Officer; Bennett Morgan, our President and Chief Operating Officer; and Mike Malone, our Chief Financial Officer. Also with us today and available for questions is Ken Pucel, our new Executive Vice President of Operations, Engineering, and Lean. As usual, I must remind you that during the call today, we will be discussing certain topics, including product demand and shipments, sales and margin trends, income and profitability levels and other matters, including more specific guidance on our expectations for 2015, 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'll turn it over to Scott Wine, our CEO. Scott?

Good morning, and thank you for joining us. The fourth quarter was quite busy across Polaris but I did manage to sneak away for the Army-Navy game in December. Navy struggled for much of that game but ultimately prevailed to extend their winning streak to 13. My son appropriately called it an ugly win but I assured him that we would definitely take it. Our 2014 results put Polaris resoundingly in the win column, but our internal scorecard will clearly show that it was also an ugly win. We’ll take it, we’ll learn from it and we’ll do better this year. The Polaris team finished the year strong and found a way to win in the fourth quarter delivering an 18% increase in sales to just under $1.3 billion with net income of $135 million, up 25%. Demand for our vast array of model year '15 products remain high throughout the quarter enabling us to extend our market share gain and positioning us well for 2015. As a testament to the innovative and competitive spirit of our talented off-road vehicles team, we continue to show strength in the face of increasing competition and challenging comparables. With our core powersports business units in Asia Pacific and Latin America growing, we overcame negative currency trends and slowdowns in Europe and Russia. However, in too many cases, growth was constrained by our inability to hit production targets, most notably for our new Indian Scout and Slingshot where dealers and consumers want and expect more from us. This is a key example of why we boost the horsepower of our executive leadership team by hiring Ken Pucel as our new Executive Vice President of Operations, Engineering, and Lean. And with his guidance, we are committed to being better in 2015. Our 19% sales in net income growth in 2014 demonstrates that we have plenty of momentum in our fifth straight year of record results. With sales of $4.5 billion and net income margin at 10.1%, we were able to deliver earnings per share of 23% to a record $6.65. Indian growth accelerated and our motorcycle business got bigger and broader in 2014, but the powerful and agile brands and vehicles and Dave Longren and side-by-side and ATV portfolio continued to be the juggernaut that drives Polaris. With solid growth from all our vehicle businesses and aggressive product and process innovation in our parts, garments and accessories unit, that business grew 21% over the prior year. Despite second half pressure in Europe, Middle East and Africa, which still delivered 12% full year growth, international sales were up 16% in 2014 with Asia Pacific up 33% and Latin America up 17%. Currency pressure drove gross profit margins down 23 basis points for the year and our growth investments remained high, but we still posted a 24% increase in operating income creating operating leverage and margin expansion our priorities across Polaris as we entered the new year. While our financial results were quite good, we also advanced and improved our strategic objectives. We have more than 7,800 employees who are committed to making Polaris a highly profitable, customer centric $8 billion global enterprise over the next five years. We hire, develop and stretch the best people and best team in the industry to make us better every day, and they bring new ideas to help Polaris drive the innovation and quality that fuels the passion of our customers and creates growth. As we saw in 2014, growth is a powerful tool to cover weakness whether in markets or in our own execution, but sustainable profitable growth will require that we build a lean enterprise that makes quality, delivery and cost a competitive advantage. As I look back at our strategic progress over the past year, I am both frustrated and encouraged by the fact that this was yet another year of heavy investment. While I am anxious to reap the incremental rewards, we are not yet ready to pass on the numerous, highly profitable, on-strategy opportunities that are teams make and find. We strengthened our foundation adding building, business units and operational capability and we created significant catalysts for growth and margin expansion. While our expansive model year '15 product news captured much of the attention in best in powersports, the transformation that Tim Larson is driving in our commercial execution along with enhanced brand positioning across our portfolio is making us more competitive in every category. We’ve made progress over the last years in driving consistent growth to adjacencies but I am extremely confident that Matt Homen and his new team will turbo-charge the growth of our adjacent market business and accelerate expansion in new products and markets. We are excited about the opportunity to better exploit Brammo’s lithium-ion power train technology and look for new DAGOR vehicle for our military business to provide the right combination of performance and values to spur the growth of Polaris defense. If you read the news, it might seem like the year to pause our global market leadership investments yet we are doing just the opposite. Suresh Krishna has his work cut out for him, navigated the currency slow growth and political challenges across the DMEA business, but as he ramps up production in Poland, we will look for opportunities to invest and strengthen that business for long-term profitability. Mike Dougherty also has a plant coming on line in India and with new vehicles and his strong team across Asia Pacific/Latin America, we see tremendous growth from these regions in the years ahead. A few things excite me more than the value we can bring to all stakeholders by creating a lean enterprise, but in 2014 we did not make nearly enough progress towards this goal. From the growth in our dealer and factory inventory to our failure to reduce rework and lack of margin expansion, we left too much on the table last year. Tim will provide a major boost to our global lean efforts, but it our ability to engage every leader, team and employee in eliminating ways and adding value to customers that will provide the step-function improvement in the year and years ahead. Delivering on our growth of profitability goals in 2015, we’ll push sales to $5 billion and net income to the $0.5 billion mark. We’ll count that as a win. I will now turn it over to our President and Chief Operating Officer, Bennett Morgan, who will provide additional insights into our operations and business unit performance.

Thanks, Scott. Good morning, everyone. Polaris retail sales in North America increased 13% in the fourth quarter and 12% for the full year helping us achieve the largest market share gain in the powersports industry and further extending our market share lead for the seventh consecutive year. The North American powersports industry grew 6% in the fourth quarter and is healthy rising about 5% overall for 2014. North American dealer inventory was up 16% versus 2013, primarily in support of the most extensive new product launch in Polaris’ history. ORVs are up high teens percent to support dealer stocking levels for premium and value segments for our new ATV RFM and new ACE segments. Snow is up high single digits percent and motorcycles increased entirely due to Indian and our new Slingshot, as Victory declined 12%. We see opportunity for improvement though in 2015. We must reduce both our lead times and our ship variability to dealers while improving dealer turn velocity as we create new segments in the marketplace. With improved production flow, a maturing RFM process and an emphasis on lean principals, we believe we can and will improve our lead times in dealer inventory velocity in 2015. Lean enterprise is a competitive advantage. While customer response to the wave of new product introductions I just discussed was exceptional, our execution in delivering those products was not up to our standards, most notably in motorcycles. Slingshot, Scout, Victory Magnum and 2-toned Indian models suffered delays from production in the second half many related to capacity constraints such as our new paint system in Spirit Lake coming on line more slowly than we anticipated as well as the inconsistent new product on time ship readiness. Fighting through these issues made 2014 an exhausting year for our operations team as facilities ran at nearly 100% utilization for most of the year. We completed many major capital investment projects and made significant changes within every plant in our network. Our new 600,000 square foot state-of-the-art lean manufacturing plant in Huntsville, Alabama will address future ORV capacity needs, give us supply flexibility and improve geographic accessibility to our customers. We will break ground next month and expect to be producing in the second quarter of 2016. In Q4, solid product cost reduction efforts and pricing improvements were not enough to overcome significant currency pressures and gross profit margins declined 43 basis points. Factory inventory remains an opportunity, up 35% with increases driven by PG&A, raw materials, mix and acquisitions. With Ken now on board to kick our lean transformation into high gear, we expect to address all of these opportunities during a more productive and improved 2015. Let’s move on to business unit performance, starting with off-road vehicles. Fourth quarter off-road vehicle revenue increased 19% with growth in all product lines particularly RZRs and defense. For calendar year 2014, ORV grew a very healthy 15%. Polaris ORV market share performance in 2014 was excellent. Polaris extended our market share lead in the North American ATV industry for the fourth straight year with retails up mid-single digits in an industry that only rose slightly. Q4 retail sales were stronger growing upper single digits for Polaris compared to mid-single digits for the industry. In side-by-sides, Polaris responded effectively to the variety of new products introduced by our competitors with fourth quarter and 2014 Polaris side-by-side retail up low double digits percent. In a North American industry, we estimate increase by upper single digits with the fourth quarter and about 10% for the year. ACE sales accelerated notably in the fourth quarter as our marketing and new 570 model began to impact the marketplace. We’ve added over 20 new model year '15 products to our ever-expanding armada and we’re not resting with four recent model year '15 introductions led by the new electronically fuel-injected RZR 170 and the new RZR 900S4, both of which have already begun to ship. We will continue to leverage our speed to market, quality and innovation leadership as competitive advantages again in 2015. Motorcycles. Polaris fourth quarter motorcycle sales only grew 50% coming in below our plan due to the aforementioned production shipment delays, which resulted in a number of consumer deposits and dealer orders being pushed out into 2015. Our Spirit Lake paint system is ramping quickly now but realistically, our capacity will trail demand at least for Slingshot and Scout beyond the first quarter. For the full year 2014, motorcycle sales which now include Slingshot increased 59%. Despite these constraints, both Victory and Indian motorcycles gained share in the fourth quarter. Victory North American retail was up mid-single digits and Indian was up about 10% as we annualized tough initial 2013 chief launch and deposit comparables. North American heavyweight motorcycle industry retail sales declined low-single digits in the fourth quarter but increased low-single digits for the calendar year. Indian was the fastest growing motorcycle brand and larger share gainer in 2014 with retail sales up over 250% while Victory retail declined single digits. Indian now has 118 retailing North American dealers and over 175 signed with aggressive plans to expand throughout 2015 and beyond. Slingshot; a revolutionary three-wheel motorcycle roadster began shipments in the fourth quarter to exceptional consumer and dealer response. Fourth quarter retail actually exceeded 1,000 units. However, the launch has not been without a few hurdles. Aside from the production delays previously noted, a few states and provinces have not yet approved licensor for Slingshot, accounting for about 15% of potential retail. We are working closely with these governments and expect to be retailing in most in 2015. In addition, we recently issued a Stop-ride, Stop-sale bulletin due to potentially faulty bearings on the steering racks. As our paramount interest will always be the safety and satisfaction of our consumers, we are responding to this issue with speed and diligence. The bulletin is out. All consumers have been notified. Parts are flowing to the dealers already. We’re scheduling the repairs and we expect to have all our consumers and dealers fully addressed within the next few weeks. Spirit Lake production rates at the factory are improving and we have over 330 active dealers and many more waiting to be activated. Slingshot promises to be a strong growth catalyst and we are confident that we have something very special on our hands. Snowmobiles. Fourth quarter snowmobile revenue grew 2% as strength in North America more than offset weak currencies and sales declines in Russia. For calendar year 2014, snowmobile sales increased 7%. Polaris continues to take market share with the fourth quarter North American retail sales growing low-double digits in an industry that was up high-single digits for the quarter and season-to-date. Season-to-date Polaris is the fastest growing snowmobile brand with retail up high teens percent, thanks to our broadest and best lineup in years highlighted by the new AXYS platform, which was named Snowmobile of the Year by SnowGoer and several other snow publications. Slow [ph] Q1 retail comparables, spottier snow conditions across the Snow Belt, volatile currencies and weaker international markets will be challenging but with only about 30% as season-to-date retail left and exciting and compelling product news again in model year '16, we are cautiously optimistic about our snow business prospects for 2015. Parts, garments and accessories. PG&A’s record performance continued in the fourth quarter with revenue for the quarter and full year 2014 up 21%, driven by strength in ORV, motorcycles and new contributions from Slingshot and Kolpin. We saw double-digit growth from all categories in 2014; parts, apparel and accessories. With over 400 new accessories launched in 2014, our dollar per unit of garment and accessories rose 11% and we will launch an additional 200 products in the next 90 days. Kolpin and KLIM are growing and performing to our expectations and we are excited about what our latest acquisition, Pro Armor, can do to drive growth and further penetrate the performance and custom side-by-side accessory market. Global adjacent markets. For full year 2014, adjacent markets on a reclassified basis were up 24% to 273 million. Defense had a record fourth quarter with sales up over 100% and for the full year 2014, revenue increased 55%. Our breakthrough DAGOR product began shipments with a growing backlog of key strategic customer orders, federal contract volume is at record levels and we are expanding sales for the first time into the big army. We have become the preferred solution for ultra-light tactical vehicles around the globe. Commercial. Sales increased by over 80% in the fourth quarter driven by initial Ariens-Gravely supply vehicle shipments, strong national accounts growth and notably improved BRUTUS and Bobcat retail performance. Small vehicle. Fourth quarter revenue declined 11% due to the weak French economy afflicting both Aixam and Goupil. For the full year 2014, sales increased 28% fueled by Aixam market share gains and increased sales from both our GEM and Goupil businesses. International. International sales declined 3% in the fourth quarter as weakness in snowmobiles and small vehicles more than offset growth from all other product lines. For 2014, international sales increased 16%. EMEA fourth quarter revenue declined 5% due to weak snowmobile shipments, a difficult French domestic vehicle market for Aixam and Goupil and Russian economic woes. Encouragingly, European ORV and motorcycle industries remain stable in the fourth quarter and for the full year 2014, motorcycles were actually up high-single digits while ORVs grew slightly. Polaris significantly outperformed in both markets with ORV and motorcycle retail sales up upper single digits and over 60%, respectively. The European snow industry is off to a poor start season-to-date with industry sales down upper teen percent, but Polaris is outperforming and gaining share with retail down upper single digits. Our Opole, Poland manufacturing plant is producing and shipping product on schedule and initial shipments to customers began earlier this month. Asia Pacific sales increased 7% in the fourth quarter and for full year 2014 grew by 33%, led by continued outstanding market performance in Australia for ORVs and motorcycles and strong contributions from China and India. Our EPPL joint venture with Eicher will launch our new vehicle in the second quarter of 2015. Latin American revenue momentum is accelerating driven primarily by Mexico and Brazil with fourth quarter revenue up 14%. For the full year, revenue increased 17%. With that, I’ll turn it over to our Chief Financial Officer, Mike Malone.

Thanks, Bennett, and good morning to everyone. Let me begin my remarks this morning by discussing our guidance for 2015. Total company sales are expected to increase 9% to 12%. For 2015, we are reclassifying our sales reporting to be consistent with how we now manage the business. As a result, our ORV commercial and defense businesses will now be combined with small vehicles under the umbrella of global adjacent markets. The following is our 2015 full year sales guidance by business. ORV is expected to grow mid-single digits, driven by industry-leading products offset by further implementation of RFM and slower international demand. Our initial view on snowmobile sales is down mid-single digit percent given the Canadian dollar weakness and the Russian uncertainty. Motorcycles are expected to increase 50% to 65%, which now includes Slingshot. Global adjacent markets are expected to increase 10% to 15%. PG&A sales are expected to be up the high teens percentage and the sales outside of North America are expected to grow low-single digits percent reflecting the Europeans own weakness. Moving down the P&L, gross margins are expected to be in the range of flat to up 20 basis points in 2015. I’ll give more detail on gross margins on my next slide. Operating expenses as a percent of sales are expected to be about flat with 2014. We expect our research and development costs to increase about 20% as we maintain our industry-leading Vitality Index to benefit our customers. Income from financial services is expected to grow modestly in 2015 after experiencing significant growth in '14 as RFM drives better turns and interest rates begin to rise later in the year. In regards to our Eicher joint venture, we expect to record a somewhat larger loss in 2015 related to our 50% share of the startup costs. While the JV is expected to begin production in the second quarter, initial profitability for this new business in India will be challenged as we move into full commercialization and build scale. This loss is being recorded as a component of non-operating expense on the income statement. The income tax provision rate for the full year 2015 is expected to be in the range of 34.5% to 35% of pre-tax income, somewhat lower than the 35.1% reported in 2014. For the 2015 year, we are again expecting the R&D credit to eventually be expended by the U.S. Congress but not until later in the year. Earnings per share for the full year are expected to be in the range of $7.22 to $7.42, a 9% to 12% increase compared to last year. During the fourth quarter, we repurchased and retired 524,000 shares for $78 million. For the full year 2015, we are contemplating additional share repurchases to offset the dilutive impact of stock compensation plans. We currently have 1.1 million shares remaining under the Board authorization. Moving to gross margins. In the fourth quarter, the gross profit margin percentage decreased by 43 basis points and for the full year declined 23 basis points in line with our most recent guidance. While our 2014 gross margins benefitted from product cost reductions and higher pricing, the speed and magnitude of the negative currency changes were too significant to overcome. For the 2015 full year, we anticipate gross margins to be in a range of flat to up 20 basis points from 2014. We expect gross margins to continue to benefit from higher selling prices, product cost reductions along with improved productivity in the factories after a challenging 2014. On a percentage basis, sales promotions are expected to be about flat with the prior year as they were throughout 2014. While the startup costs for the Poland plant are winding down, we will begin the construction of our new Alabama plant, which will have startup costs for 2015 and '16. With the recent depressed price of oil, diesel fuel cost are expected to be beneficial to gross margins in 2015 and we should see the prices of other commodities begin to moderate. Currencies have been and will continue to be a pressure point for gross margins. On this call one year ago, we were predicting at least a 70 basis point negative impact to our gross margins for 2014. In reality, the currency impact was well over 100 basis points negative for the full year 2014. And unfortunately the currency environment worsened for Polaris throughout the year, especially in the fourth quarter where we saw over 150 basis points of negative currency pressure to the gross margin percentage. While the most significant exposure for Polaris is the Canadian dollar, which on average moved 7% in 2014, other currencies had significant movements as well. Looking into 2015 and less than one month into the new year, the spot rates of currencies continue to move further into negative territory. For example, the Canadian dollar has depreciated over 10% further from the average of 2014 to the current spot rate of under $0.81 per dollar. Although extremely fluid, at this point in time, our best estimate of the currency movements on the full year 2015 is about a 2% decline in sales and about 100 basis point negative impact to gross margins, each of which is embedded in our sales and earnings guidance. The impact on the first quarter 2015 will likely be somewhat worse than this, driving our expectations for modest gross margin percentage erosion in the first quarter of 15% from 29.1% in the first quarter of last year. I’ll finish with just a few comments on our balance sheet and liquidity. We expect cash flow provided by operating activities for the full year to increase over 2014 at a higher percentage rate than sales, as factory inventory levels moderate. Capital expenditures for the full year 2015 are expected to be over $250 million, which includes a portion of the cost of our new ORV manufacturing plant in Alabama, as well as an increase in tooling investments for the new products under development for model year 2016 and beyond. We anticipate these higher investment levels will result in only a slight decline in our industry-leading return on invested capital ratio of 42% achieved in 2014. In closing, 2014 was challenging from a currency and capacity perspective but we fought through both obstacles to deliver another solid year. For 2015, we have a business plan that gives us confidence we can deliver another record year. With that, I’ll turn it back over to Scott for some final thoughts.

Thanks, Mike. As you have heard from us this morning and seen in the news and markets since the 1st of the year, we are not anticipating a leisurely ride through 2015. Currencies will have a real and large impact, but between our talented treasury and sourcing teams and a slowly increasing set of natural hedges, we will deal with them. We have analyzed the impact of a weaker agg economy and a likely slowdown in the oil producing states and our results and research suggest that the expected improvements in U.S. GDP and consumer sentiment will more than offset these headwinds. We see another year of good growth in powersports with the competitive side-by-side category continuing to lead the way. We expect RZRs and RANGERs to again gain market share on the back of product innovation and Polaris’ most engaged dealers and most passionate customers. I’m more bullish on Steve Menneto’s motorcycle business than ever before, partly because I agree with the editors and historians that believe the Indian Scout is the best bike ever built but also because our team is stronger, our dealer count is larger, our operational capability is ramping up to support Indian and Victory, and we also have plans for some interesting innovations with Brammos technology in bikes. Mike Jonikas’ corner of the market on my favorite products to ride and I believe consumers will find the same about Slingshot and our new AXYS snowmobile. We sell excitement and these vehicles lead the way. Matt Homen’s adjacent market business is another one I would not bet against in 2015. He has quickly built a team and infrastructure to achieve his dual mandate of driving profitable growth in our work and transportation product line and adding additional pillars that are synergistic, countercyclical or both. I will forever be a skeptic of the idea that the U.S. economy will be strong enough to pull the rest of the world along but I acknowledge that we may be the least bad in 2015. International markets are challenging but I feel very good about having Mike Dougherty and Suresh Krishna leading our Make Growth Happen charge in their respective regions. We will look for opportunities to put the strengthening dollar to use and 2015 could be a year where we move the needle on our percentage of sales outside of North America. Steve Eastman has doubled our PG&A business since he arrived three years ago and between the brands and businesses his team has added and the professional retail capability he is building, we expect that aggressive growth to continue in '15 and beyond. Our Huntsville plant will not be operational until early 2016 but it will bring a new level of lean to our global network that Ken will optimize along with our supply chain, engineering and research and development. We do not yet have industry-leading gross profit margins but I like our chances to get there with powerhouse executives like Bennett and Ken leading our expanses and growing the Polaris business. We are committed to putting up a solid win this year and with the difficult schedule, we will have to be on top of our game. Expect that from all of us at Polaris in 2015. With that, I’ll turn it over to Laurel to open the line for questions.

Thank you.

Laurel, before we get started, I just wanted to – everyone that’s on the Q&A, we need to limit your questions to two per caller so we can get through the list hopefully in the allotted time, so two questions per caller. So go ahead, Laurel.

Thank you. [Operator Instructions]. Your first question comes from the line of Trey Grooms with Stephens. Your line is open.

Hi, guys. This is Drew Lipke actually filling in for Trey. Congrats on a very strong quarter. Wanted to just ask a quick question on the – you alluded to diesel being a benefit in 2015 and you talked about other raw materials. Can you maybe elaborate a little bit more on your commodity basket? I think last year, 88% of your total COGS were purchased materials and services. Can you give us a little bit more breakdown there?

Sure. This is Mike. Generally speaking we in the past have talked about 20% or so of our cost of sales have been in commodity or diesel fuel type components. So we’ll monitor those as we know those can be volatile. Our expectation is that that – as we showed on the chart that those will be somewhat beneficial for us this year, but it’s really, really early in the year to be calling too much specifics on that.

Okay, all right. That’s helpful. And then can you also – you talked about the headwind from energy a little bit. Can you maybe elaborate a little bit on just not really your sales into energy companies but more to consumers and the energy field that could maybe be a headwind and maybe quantify that a little bit more?

Yes, as I said in my prepared remarks, we’ve looked at that and obviously we benefitted a little bit in states that – and I have had their big employment increases from the oil boom, but as we look at it, we are reasonably confident that whatever decrease we see in the states that see a decrease in oil that the overall rise in GDP and the benefit to consumers get from having more expendable dollars because of the lower price of gas will more than offset that. So, what we’ve got in our guidance is that they’ll be a slight impact but it will be more than offset by the benefits of the economy and lower gas prices.

Got it, okay. Thanks, guys.

Thank you. Next question.

Your next question comes from the line of Robin Farley with UBS. Please go ahead.

Great. Thanks. First, Slingshot and Indian, I know you’ve been very upfront about the supply constraint issues. Can you give us a sense of what backlog at the dealers is, kind of what is presold if we think about what retail sales could have been in the quarter if not for the supply constraint?

Yes, Robin, this is Bennett. I’ll try to give you some color. It would have been much better. We have, as I kind of alluded in my remarks, we have a significant amount of dealer order backlog. We’re clearly frustrated in our dealers right now. We’re disappointed with the performance and we have a number of consumer deposits, particularly in Slingshot and Scout but also even on some of the big bikes. So we’ll be catching up, I believe, on the big bikes fairly quickly through the first quarter but we’ll probably trail based on the exceptional demand from both consumers and dealers on Scout and Slingshot into the second quarter. And again, I think as you guys know our paramount concern is always making sure we provide industry-leading quality experience and so we’re just being very, very careful to make sure that everything that goes out of our plants is absolutely rock solid and that will continue to be the way we run the railroad.

Okay, great. Thanks. And just for the second question, ATVs in the fourth quarter moved on to the RFM system and is that – I guess with any new system there, transition issues initially. Is that kind of all ironed out and is there anything else that’s kind of not on that system yet where we could see other transitions this year?

Again, Robin, this is Bennett, again just so everybody is clear. We have moved our largest business to RFM but we’re only on ATVs on RFM. So side-by-sides are not on RFM yet. Frankly, we think the transition has gone pretty darn well. All the dealers are on profile and we’re executing that. We saw improvement in our performance though we know we will continue to get better through 2015. And as you may have done on your surveys or different people have heard, I mean there is a learning curve and adjustment as people get used to some of the – a little bit more extensive stocking profiles to make sure that we have stock of all key models of ATVs in market areas where they’re selling. And so I think that will be the biggest transition and us continuing to improve our process and getting faster and more predictable in shipments to our dealers, which is what it’s all about.

Robin, this is Scott, just to add to that. To your question, we are not yet fully implemented in things running smoothly there. It’s off to a good start but part of the process is as we ask dealers to stack a broader profile so that consumers can find basically every product that we know sells in the region, our responsibility is to get our lead times down so their overall inventory remains flat over time. So we’ve got some work to do. I think the team made good progress and we’re excited about the ability for our dealers to have better service and our customer has better choices throughout '15.

Okay. And side-by-side then will be transitioned over in '15?

2016.

Okay, great. Thank you.

Thanks, Robin. Next question.

Your next question comes from the line of Scott Stember with Sidoti & Company. Your line is open.

Good morning.

Hi, Scott.

You have a number of moving parts towards the end of the quarter with the motorcycles taking a little bit longer to get product out and with the stop sale on the Slingshot. Could you maybe just talk about how you look for the timing of each to be released in the first half of the year, and maybe just talk about how the impact would be notably on the first quarter, if you could?

Scott, Bennett and I will tag team this. The Slingshot didn’t have any impact – I mean we had some production delays but the stop sale recall didn’t have any impact on the fourth quarter. That happened in the first quarter. And what our team as Bennett alluded to, we have worked very aggressively to ensure that our customers have a safe riding experience and ultimately we get them riding back as quickly as possible. We do not anticipate a negative impact on our first quarter for Slingshot. With Scout, we are continuing to work to ramp up our ability and we do expect that there still will be backorders as we go into the second quarter and perhaps throughout some of the second quarter just because we got to make sure we get that right sustainably and we’re still working to get there.

Okay. That’s great. And last question on the commercial side, it seems that you’ve had a nice positive movement in the fourth quarter notably with BRUTUS and Bobcat. Can you talk about how much of that has maybe increased demand within the industry or just you guys from your efforts to retool the sales process there?

Scott, I think it’s more – we’re starting to pick up more share. I mean as we said, we made a miss when we came in how quick we were going to be the world’s greatest B2B company on the commercial side. There’s a long fuse on that, but we have seen a sequential acceleration on BRUTUS all the way throughout the year and we’re pleased. I would tell you while we’ve made tremendous progress, we still have work to do on the dealer network. We still have work to do on driving our share to higher levels and while we feel good about the progress, we got a lot more work to do.

Great. That’s all I have. Thanks so much for taking my questions.

Thanks, Scott.

Your next question comes from the line of Michael Swartz with SunTrust. Please go ahead.

Hi. Good morning, everyone. Just a real quick question on gross margin and maybe this is for Mike, and there’s a lot of moving pieces this year with currency and commodities and some of the startup costs and product mix, but maybe help us think about the cadence of gross margin as we go through the year? I think you said first quarter will be down year-over-year but should we see that kind of flat now by midyear and turn to a positive at the end of the year. Is that the best way to think about it?

We don’t really give quarterly guidance for the upcoming year, so what I wanted to try to hint to is that this currency impact has a significant impact in the first quarter when you look at the comps from the first quarter a year ago. And I just wanted to signal that that one in particular was going to be more painful quarter-over-quarter in the first quarter. The other movements in gross margins, I guess the only other one that I would point to is commodity costs. We have not yet seen a big decline in – other than diesel fuel, we haven’t really seen a big decline in some of our other commodities. We expect it’s going to come but we have a lag on the way we purchase and commit to those. So we expect that that’s going to come and our guidance is embedded in that, but it might not be as quick as right away in the first quarter.

Okay. And then just sticking with currency, could you maybe give us in terms of what you have embedded in guidance? I guess the spot rates you’re assuming for maybe the Canadian dollar and the euro and some of the other larger currencies.

Well, we put a new chart in the prepared materials to try to articulate the movement to be a little bit more visible with exactly what’s going on. What we put in there on the top of that page is kind of the current spot as of late last week for the major currencies in 2015. And what I would tell you is that we’ve got a business plan established and we’ve established our guidance predicated on our best view of what we think the currency is going to do during full year 2015 and that’s what’s in our guidance at the bottom of the page. So, I guess – I don’t know how to be more clear than that with our expectations.

Okay. That’s helpful. Thanks, guys.

Thank you.

Next question.

Your next question comes from the line of Joe Spak with RBC Capital Markets. Your line is open.

Thanks. Good morning, everyone. One more on gross margin, if I could. At the midpoint of your guidance, you’re basically implying 30% incremental gross margins and if you back out some of the FX sensitivities, it pushes it higher to sort of like 39%. I guess what I’m trying to figure out is how much of that really is a reversal of some of the production headwinds that you faced this year, so that we can sort of use that as a more sustainable rate going forward and how much of it is actually commodities? Can we quantify the commodity impact you’re baking in for '15?

No, Joe. We don’t quantify that. That’s why we put the arrows on the chart to give you sequentially what we expect the variations to be. So I really am not going to comment anymore further on details basis point impact of these things. It’s so early in the year, it’s very, very difficult for us to predict some of these things and so directionally we’re trying to tell you what’s helpful and what’s the pressure and overall, we think we can eke out a modest growth in our gross margins for the year.

But I think the more important impact to think about is not quarter-over-quarter. I mean it’s what the long-term opportunity for us to expand our gross profit margins and whether it’s the innovation on our product that allows the ability to price or whether it’s how we drive lean throughout our supply chain and our plants, it is a notable opportunity for us. But we’re not relying on huge commodity benefits this year. If they come, we’ll take it. It will be helpful, but the big play in margins this year is currency and I think the team’s got a good plan to overcome them. But I think it’s more important to think about the long-term opportunity to expand gross profit margins which is significant.

So then some of the production issues you faced in the back half of this year and it sounds like maybe some of those extend a little bit into the first half. But if we think about it on a year-over-year basis, is that still neutral or will that end up being a year-over-year benefit as some of the those cost reverse out?

So what’s on the chart is neutral because we’re not all the way satisfied yet.

Okay.

We would expect to improve as we go through the year. I expect that there will be a modest improvement for us as we go through the year. We got big plans for Ken, but we’re going to give him at least a month or two before he really starts changing the world for us.

Okay. And one quick housekeeping on your inventory. I know you said it was up on demand and I think the Poland plant. What about – and I guess we’ll get this on the K, but is there any color on finished goods inventory? Was that not up as much as overall inventory given some of the factors you mentioned?

Yes, that’s correct. If you look at – when you’re looking at detail on the K, if you look at our factory inventory increases over the last several quarters, it really has been far less of an issue of what I call North American finished goods inventory levels. It’s been the other stuff; raw materials, PG&A, acquisitions, international expansions, additional subsidiaries is really what’s been driving that increase. But again, we’re pretty clear. We know we can do better and we expect to do better as we head into '15.

Okay. Thanks a lot guys.

Thanks, Joe. Next question.

Your next question comes from the line of Scott Hamann with KeyBanc Capital Markets. Your line is open.

Yes, thanks. Good morning. Just a first question on your underlying assumptions for ORV retail demand in '15. I’m curious if anything has kind of changed. I know there’s a lot of moving pieces, but just some color around that? And then secondly, just the M&A environment seems like it might be coming more attractive to you. I know currency plays into that. Can you give us just an update on some areas of focus and where you see some opportunity in the near term? Thanks.

All right. I’ll take ORV side and I’ll probably turn that over to Scott on the M&A. From an ORV standpoint as we look to this year, there is a little bit of reclassification and some of our reported ORV stuff is that some of the defense and the commercial aspects move to the global adjacent markets reporting. But from an inherent standpoint in retail assumptions as we head into '15, we expect to continue to grow at very similar rates to what we saw in '14 with growth in all products. We expect to continue to gain share. We expect the ORV market to continue to be growing kind of low to mid-single digits. So, we feel good about where we are on ORVs.

As far as the M&A environment goes, it’s obvious that we have an opportunity to benefit from the strengthening dollar to offset some of the negative impact that we see on our current P&L. And there’s a lot of attractive opportunities out there. We are probably as aggressively as we’ve ever been at looking at M&A as we go into 2015, but expect us to continue to maintain patience and not overpay or do something that’s inconsistent with our strategy. But I would say that the environment is as good as it’s been in a long, long time from our ability to execute and add to our strategic and profitable growth through M&A.

Okay. Thanks, Scott. Next question.

Your next question comes from the line of James Hardiman with Longbow Securities. Your line is open.

Hi. Good morning. Thanks for taking my call. Maybe just a follow-up on Scott’s question there on ORVs. It sounds like you think the retail environment is going to be similar to what it was in '14 and yet is coming down pretty dramatically to mid-single digits. What’s the disconnect there? I would assume RFM was probably a positive to that. Why are we seeing decelerating ORV if retail is expected to --?

James, just a couple of quick things. I mean, again, as you saw maybe on our international guidance, the international markets are weaker particularly in Europe. Currencies will play an impact on that. And then I think as you kind of saw in Mike’s and my remarks, I mean again as we mature RFM and we move, we expect to spend our inventory faster, so I think inventory directionally is going to come down in our assumed guidance. So I think that’s the key drivers that you see on the guidance versus what we think is going on at retail.

Got it. And then second question here. Obviously, a lot of cost headwind for 2015. Maybe let’s spin that forward a year, how many of those issues you can roll off in 2016 once some of the plant investments are behind you? Obviously, we don’t know about the currency but hopefully the motorcycle business is becoming a little bit more profitable. Obviously, you just gave us 2015 guidance and I’m asking about 2016, but help us think about how many of these issues are short term versus sort of long-term headwinds?

James, as I mentioned earlier, I think the earnings power of the company over the next several years is significant. Obviously, part of it is as we progress in our lean journey, get better with our logistics and our factories and ultimately as we design product to have lower costs, the new plant in Huntsville is going to make our network stronger. Obviously, a year fast forward, Poland will be up and running. I mean so there’s a lot of things. I mean especially the profitability, motorcycles you go forward to '16 is well over $0.5 billion and as that profitability improves, ultimately it all looks pretty good. That means we have to execute and I know of like the ability of this team to do that. But certainly our expectation is gross profit margins have a couple of hundred basis point opportunity to improve.

Got it. Thanks, guys.

Your next question comes from the line of David MacGregor with Longbow Research. Please go ahead.

Good morning. Thanks for taking my question. I wanted to ask you a question on the financial services business and it turned out to be a stronger contributor than we’ve been expecting. You mentioned in the call about the retail credit. I guess the question is, what are the trends you’re seeing right now in average FICO scores as you’re financing? And will we see a lower 2015 average FICO score in the portfolio and if so, how is that contributing to revenue?

David, you were cutting out on us on the question but I think I got the gist of what you were asking about. On retail credit, we had a real solid year in 2014. Our metrics were stable year-over-year. I think there’s kind of a perception that credit is getting easy and cheap and free again like it was a number of years ago and we’re not seeing that, frankly. We’re seeing our approval rates and our penetration rates pretty stable year-over-year, which we think is good. You mentioned the FICO score, that’s relatively stable for us at well over 700, about 720-ish or so is our average approved FICO score. So I would say that that’s stable. We did see good volume growth in our retail credit business in '14 and looking forward into '15, we would expect that business to continue to be strong. We do anticipate a rising interest rate environment that could cause a little bit of wobbliness and make the credit a little bit more expensive for our customers, which will have some impact that we’ll have to play out as the year goes on.

Thank you for that. Second question, just with regard to the Indian and the dealership, what are you targeting for 2015 year end North American dealers?

More. Actually, we’ve put a lot of energy into building out the network profitably and the right way. I think we’ve indicated that there’s 175 signed up now. Our immediate goal is to get as many of those as possible signed up as we hit the riding season upcoming and that’s where we’re focused. Clearly, our goal would be to get as many of those 175 up and running. More than that, obviously the introduction of Scout has brought on a lot more interest for prospective dealers. But the thing we underestimated from the beginning is how many times because of our requirements, dealers were going to have to add on or get new stores and that whole process is just taking longer. But the interest and the opportunity for us to build out a very strong multi-100 dealer network over the next couple of years is still very positive.

Great. Thanks and congratulations on all the progress.

Thank you. Next question.

Your next question comes from the line of Jaime Katz with Morningstar. Your line is open.

Hi, guys. Thanks for taking my question. Most of my questions have been answered already but I’m curious you guys haven’t mentioned much about promotional cadence and maybe whether or not your peers have been less promotional than in the past?

Yes, this is Bennett, Jaime. The promotional environment, I think I would continue to characterize it as it’s relatively stable. It continues to be aggressive in side-by-side. I think everybody was very concerned when we saw the rash of new product offerings over the last several quarters from our competitors. I think we’ve done a very good job of fighting that off and growing share throughout '14. And then often as you do that, then you move to the next front of the competitive battle, which can often be around promotion. So we’re watching everything carefully as we go into '15. We’ve seen some of that movement already, but again I think that’s embedded in our plan and our guidance and we feel really good about our ability to continue to win that competitive battle as we go forward. So, I don’t think you should expect any major surprises on the promo front.

Okay. And then for the Alabama facility, I know there’s an investment number in here. Was there a tax incentive that went along with that that would be helpful to know?

Yes, there was a very large tax incentive. I think the number we put out --

I heard 80 or something.

Yes, but that was not specifically just a tax number. We did a very competitive analysis to make sure that we found the right location. And obviously the location and the employment environment was more important than the incentives, but I think the number we gave out was 80 but that includes the land that they gave us and it’s over a long period of time, so it’s not immediate. But Alabama was very aggressive and we’re really optimistic about the ability to work with the city of Huntsville and the state of Alabama to build a world-class plant there.

And then was there any – do you guys have any idea what sort of lower distribution costs that might drive or what that might save for you at this point or is it too early?

We know it but we’re not going to share it. But again I would tell you, Jamie, it is strategically located next to a critical customer base in the southeast. It will be ORV focused and it will be net modestly helpful to our distribution logistics costs.

Thanks, guys.

Thanks, Jaime. Next question.

Your next question comes from the line of Tim Conder with Wells Fargo Securities. Your line is open.

Thank you. Thank you gentlemen for the detailed guidance overall, but I do want to revisit currency given it’s such a large component to your gross margin commentary. Mike, you --

Tim, I’d be disappointed if you didn’t ask a currency question.

Well, I know you guys are trying to be as helpful as you can here, so let me ask, Mike, you said you have something baked into your plan but in response to a previous question, are you assuming in your current guidance that spot rates are stable for the year where they currently are? And then as part of that, where are you hedged in particular to Canadian dollar and euro on the percentages that you outlined at this point?

Sure. Yes, I think I’ll kind of say what I said on the previous call. I put on the chart the current spot rate just to kind of give a sense of the magnitude of the moves. We don’t necessarily adjust our guidance every day based on movement in the currency. Canadian dollar moved significantly last week when they adjusted interest rates and we’re just trying to deal with the uncertainty. So, I think our expectations in our guidance kind of speaks for that. As far as where we’re hedged, I put on the chart the percentages that we’re hedged. So you see Canadian dollar is only about 10% hedged for the year. We obviously would have preferred to have a little bit more hedged at the current rate environment, but what we do have is about $0.85, Tim --

Okay.

Which is down from our average rate last year in '14, which was around $0.90 on the Canadian dollar.

Okay. That definitely helps. And to wrap up my currency question, so you would say that your spot rate is different that’s baked into your annual guidance is different from what you have on the slide in the deck?

Yes, that’s right.

Okay. My second question, just a little bit broader. You guys have done a great job with the overall armada of products, finding niches, ACE is the most recent example. At some point though in North America in particular, is there a ceiling, a limit on the skews I guess that you can find in different niches and are we a year or two, six months whatever away from where that’s really going to be significantly more difficult?

Tim, Bennett and I will tag team this one. I don’t think it’s – you can’t look at the skew count in a stable environment, because don’t underestimate our effort and willingness and then ultimately ability to reduce the lead times on our products to spin the inventory faster in our dealers and ultimately give customers much more choice in the products that they want and get from us, whether it’s the type of power train they get, the color of the vehicle, we are driving to the ability over the long term to give them that opportunity. So I would not look at it that we’re going to slow down and stop innovating. The product plans that we go through that look out five years is pretty darn exciting.

And I just would add on to that, Tim, the North American side-by-side market is growing 10% and it’s been basically pretty close to double digits really consistently the last five years. We are not seeing that market slow down. We see growth frankly for the foreseeable future. We still see, as Scott alluded to, plenty of opportunities and niches and ways to innovate for our customers. I do think that you are right even though we’re going to spin it faster that we have to be sensitive about our skews, that there has to be viable velocity there for each of our dealers. But I think again, with us having the industry leadership position, we feel pretty good about what we’re doing for our dealers with high volume segments.

What we’re going to launch in India is really exciting in terms of what we can – don’t think about us as only a North American company. Part of our innovation and skew proliferation will be to help international customers and ultimately get us into all new markets. With the business that Matt Homen is leading in adjacent markets, we’re not limited to these working transportation vehicles that are currently in our portfolio. There’s a lot of other opportunities there. So don’t expect our innovation to slow down at all.

Okay, great. Thanks gentlemen.

Thanks. We’re at the 10 o’clock mark here, but we have a few more in the queue so we’re going to keep going here and see how many we can get through. So next question, Laurel.

Thank you. Your next question comes from the line of Greg Badishkanian with Citigroup. Your line is open.

Hi, guys. Your competitors in terms of their inventory levels at retail, how would you characterize those? Are they pretty reasonable or is there a bit of an overhang on their inventory levels?

Greg, this is Bennett. We don’t obviously get that specific data, so I would be speculating. I think just based on our observations and what we hear from the dealer channel, we have a few competitors that are probably what we would consider or characterize as elevated as they made some product bets that maybe haven’t reached the kind of market share that they would like. But again, I would characterize in general that the ORV inventory market is – I’m not concerned that we have crazy elevated inventory levels that are going to drive today in unhealthy metrics in ORVs.

Good to hear. Thank you.

Thanks, Greg. Next question.

Your next question comes from the line of Gerrick Johnson with BMO Capital Markets. Please go ahead.

Hi. Good morning. A portion of your retail inventory growth came from new dealers. Where are you getting the new dealers from? Is that all motorcycle or are you still seeing expansion on ORV? And are there pockets where you can continue to expand on ORV dealers?

Certainly, the primary increase would have been new dealers in Slingshot and motorcycles in 2014, but absolutely when you think about where Polaris is going towards an $8 billion enterprise, there are plenty of opportunities to grow and expand our network and channel to satisfy the increasing consumer demand in North America. And I think you should expect to see us grow that at a moderate controlled level over the next three or four years.

Okay. Thanks. And perhaps you can just reeducate us on how the mechanics of RFM differ from MVP?

Yes, the difference on RFM versus MVP, I think MVP was an earlier version of what RFM is. RFM in the motorcycle environment literally dealers take – place orders every day. They have a stocking profile and as they sell the units, they order a little every day. In the ORVs, as we’re transitioning the ATVs, they are ordering every two weeks and we flow it and ship it generally within right now about 25 days and over time we’ll move that down to 14 days. So it’s a much purer poll system and responds much more quickly even to the marketplace than what the initial version of MVP is.

Okay, great. Thanks, Bennett.

Next question.

Your next question comes from the line of Craig Kennison with Baird. Your line is open.

Good morning. All 17 of my currency questions have been asked, so maybe I’ll switch.

Come on, Craig.

A question on the regulatory environment. The CPSC is taking a harder look. What are the ramifications for Polaris?

Well, this is an ongoing discussion. That’s the nicest way I could characterize this. Over the last several years, we’ve spent a tremendous amount of time with the regulators and with the industry and we’re working with them. We have some disagreements on where we are in the process. You know that they’ve opened it up for rulemaking and that process I think will continue on through a good part of the year. We’re in the public comment period right now. When it’s all said and done, I expect the regulatory body and the industry will come to an agreement and it will be something that’s manageable I think for both sides. Probably both sides won’t be happy and I think it could impact products maybe model year '17 and beyond. So, we’ll continue to keep you posted on this but we’re spending a tremendous amount of time and resources on this, Craig, and I think this will be manageable for our shareholders and for our consumers, which is again our primary concern.

Thanks, Bennett. And then Scott, you invited your newest executive member, Ken Pucel on the line. Wondered if he had any comments on why he joined Polaris and what opportunity he sees and how we should measure his contribution to the firm?

All right, Craig, thanks for the question. I was sitting here quite quiet here. The long story short as Scott and I were talking over time and some of the opportunities that he sees as Polaris scales and grows are some of the things that I’ve been doing in the past. And so when I look across the engineering continuum and all the way through manufacturing operations, supply chain and all the way to the customer, I see a lot of good things that we’ve done, but I see a lot of opportunities. Some of the new product development launch, execution issues that I see, I’m going to get after right away. We’re going to work on concurrent engineering. We’re going to work on supplier development and we’re going to work on adopting best practices across ORV that we’ve demonstrated into other less mature engineering organizations. On the manufacturing side, we’re going to be driving a lot of the lean principals. We’d like to see compounding rates of improvement on our team metrics, which should start to result in better speed, predictability and cost performance. We should also see more value engineering that we can harness the value of if we bring designing engineering later in the process and support manufacturing. On the lean side, continue to build momentum, work on tools and results and keep it simple and drive real competitive advantage around speed and agility to our customers. So, those are the kinds of things that I think about. It’s been about six weeks. I’m on a steep learning curve and I’m enjoying it so far.

Craig, if I can just add to that. I mean if you think about what Ken just said, it’s about driving profitability and improving cash flow. And if he does that over time, we have an opportunity to take our industry-leading returns on invested capital and maintain an accelerated in the years ahead. So it’s a pretty exciting opportunity we have to take what is a pretty darn good operating company and make us great, and that’s the objective.

I’m glad I asked. Thank you.

Next question.

Your next question comes from the line of Rommel Dionisio with Wunderlich. Your line is open.

Thanks. Good morning. On the Indian, just obviously you’ve seen some really strong initial strength within the Scout launch and that’s your most value priced model. I wonder if you could just sort of characterize from a bigger picture, how does that make you guys think about the brand positioning and the price point positioning of Indian and for future product development as well? Thanks.

Rommel, that’s insightful to see the opportunity there, but we have been in the motorcycle business for 16, 17 years now and we’ve always thought that it made sense to have an entry level bike, whether it’s 1200 cc or maybe a little bit smaller. The fact of the matter, the economics didn’t work for us. And it wasn’t until we had the Indian brand with the opportunity to get more volume that we saw the opportunity to hit this lower price point and do that. And I tell you that being able to bring consumers into the fold earlier on lower priced smaller bikes is exciting for us across the portfolio. And I can’t think of a better place to start that with the Indian Scout.

Okay. And just a quick follow-up question. I know it’s just a couple weeks now, but since the stop ride order on the Slingshot, have you guys seen any sort of meaningful cancellations by the consumers or dealers in terms of orders?

Rommel, this is Bennett. It is early but I mean again we have responded I think really with unprecedented level of speed and communication to our consumers, every affected consumer and the channel and so far we have not seen really any impact on order cancellations from either dealers, which we don’t expect or frankly any consumers. I think over time, if we don’t resolve the issue quickly and put it behind us, there is a risk of that and that’s why you see us with such clear focus of putting this behind us over the next couple of weeks and moving forward.

Great. Thanks very much guys.

Thanks, Rommel. Next question.

Your next question comes from the line of Mark Smith with Feltl and Company. Your line is open.

Hi, guys. I just want to look at Eicher and the impact on the top line in 2015. Any other insight you can give us there. I assume it’s all in global adjacent markets. And then if you can discuss where you’re at on the dealer network?

Bennett, our Board member will take that question.

Okay. On the EPPL joint venture, the way that is it’s not at the consolidated level, so it really just sits – Mike can probably tell you exactly where, but it sits in other income essentially or other loss in this case this year as we kind of build that market out. I mean this is a really significant opportunity over the long term but the Indian market is huge and it’s a very competitive market, so margin structure is much lower than what you would see in our traditional things. And so scale is important. We’ll launch the vehicle this year and we expect to successfully make a mark on that. And then I think over time you’ll see that really start to impact our financial statement in a positive way but it will be in the other income line or the top line.

We’re a 50% joint venture partner, so we’re using the equity method of accounting.

Thank you.

All right. There was another --

Just the dealer network on Eicher and where you’re at today?

In the start it will – it’s 25, 30 dealers and then that will build that out over time. Again, just very similar to what we do in the U.S. We’ll build that out over moderate and the important thing is the successful, profitable, high quality dealerships for the Indian customer and that’s the path.

Thank you.

Okay. Thanks, Mark. Next question.

Your next question comes from the line of Joe Hovorka with Raymond James. Please go ahead.

Thanks, guys. I take it your disclosures now going to be this global adjacent business going forward. And if so, could you give the restated numbers for the RV segment for '14 by Q?

Joe, there will be an email that will be going out here in another half an hour that has that detail for '14.

Perfect. That’s great. And then can you just give the off-road vehicle ASP growth in the fourth quarter and whether or not you could grow ASPs in '15 with an FX headwind? That’s it.

I’m looking it up. Go ahead with the next question and then I’ll come back.

Laurel, let’s go to the next question and Joe we’ll come back before we end here with that answer for you.

Thank you.

Okay, this is the last question that we’ll take.

Your next question comes from the line of Jimmy Baker with B. Riley & Company. Please go ahead.

Hi. Good morning, guys. Thanks for squeezing me in. Just had a couple of questions on the dealer network. First, it looks like you may have lost over 30 Slingshot dealers since the third quarter call. Is that just a function of regulatory rejection in certain states or anything more concerning to you there? And then I think Bennett, you may have alluded to this in response to an earlier question but I thought one of the big positives in your outlook is that you’re looking for this level of wholesale revenue growth without any change in the Polaris acceptance balance. So are we thinking about this correctly that you’re essentially guiding to a reduction in same dealer inventory given the impact of retail financing and dealer adds on that receivable balance?

All right. Jimmy, let me take the first one on Slingshot and then maybe Mike and I will tag team on the PA number. The Slingshot dealer adds, do not be overworked up about that. What I was really trying to communicate in my remarks were the guys that were active and retailing. So in the four or five states or provinces where we are not cleared for licensor status, we have essentially in some of those cases signed dealers that are dying to retail for us but we’re not turning them on until we get clarity from the government body that they can do that. So, we have lost no dealers frankly of any kind of consequence and we have a really strong waiting line of a second wave of Slingshot dealers that are waiting to be activated for us to kind of catch up with our initial commitments to dealers and consumers that we will probably active as we go through 2015. So at least at this point, the Slingshot distribution story is very good and expect it to grow as we resolve some of those issues with some of the states and we bring on our second wave of dealers, which again are largely already ready to roll. In regards to the PA balance that we kind of got into, I’ll start and then maybe Mike can jump in. I think you are reading that or interpreting that correctly. Dealer inventory is going to moderate and even with our growth, we expect that the portfolio balance should stay relatively stable.

Yes, I agree with that. And the answer to Joe’s question on the ASP, it’s about 2% ASP increase in the fourth quarter. That’s on the historical basis as we looked at off-road vehicles for 2014. And year-to-date it’s about 4% for the full year.

Okay. That’s all the time we have. We appreciate everyone’s interest and listening to the call this morning. We look forward to talking to you after the first quarter results. So thanks again and we’ll see you next quarter. Bye.

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