Polaris 2008 Annual Report Download - page 40

For the full year 2008 gross profit dollars increased 13 percent to $445.7 million compared to 2007. Gross
profit, as a percentage of sales, improved 80 basis points to 22.9 percent compared to 22.1 percent for the full year
2007. The increase in the gross profit margin percentage for the full year 2008 was the result of favorable product
mix from higher sales of side-by-side vehicles, PG&A and international sales and higher selling prices, offset
somewhat by higher commodity and transportation costs during 2008 compared to 2007. Gross profit was
$393.0 million in 2007, representing a nine percent increase compared to $359.4 million gross profit in 2006.
The gross profit margin percentage was 22.1 percent in 2007, an increase of 40 basis points from 21.7 percent for the
full year 2006. The increase was due to a favorable product mix change as the Company sold more side-by-side
vehicles, which typically have higher margins, as well as favorable foreign currency fluctuations, offset somewhat
by increased promotional and warranty costs.
Operating expenses:
The following table reflects the Company’s operating expenses in dollars and as a percentage of sales for 2008,
2007 and 2006 periods:
($ in millions) 2008 2007
Change
2008 vs. 2007 2006
Change
2007 vs. 2006
For the Year Ended December 31,
Selling and marketing .............. $137.0 $123.9 11% $108.9 14%
Research and development ........... 77.5 73.6 5% 73.9 (0)%
General and administrative .......... 69.6 64.8 7% 55.6 17%
Total operating expenses .......... $284.1 $262.3 8% $238.4 10%
Percentage of sales ............. 14.6% 14.7% ⫺10 basis points 14.4% +30 basis points
Operating expenses for 2008 increased eight percent to $284.1 million or 14.6 percent of sales compared to
$262.3 million or 14.7 percent of sales for 2007. The increase in operating expenses was primarily due to higher
advertising, product launch costs and research and development expenses for several key new product introductions
in 2008. Additionally, general and administrative expenses increased in 2008 due to increased performance-based
incentive compensation expenses as the Company’s financial performance improved in 2008. Operating expenses
in 2007 increased ten percent to $262.3 million from $238.4 million in 2006. Expressed as a percentage of sales,
operating expenses increased to 14.7 percent in 2007 from 14.4 percent in 2006. Research and development
expenses for 2007 were approximately flat with 2006. Sales and marketing expenses increased 14 percent in 2007
primarily due to increased advertising costs. General and administrative expenses increased 17 percent in 2007
primarily due to more normalized performance-based incentive compensation expenses resulting from improved
financial performance during 2007 compared to 2006.
Income from financial services:
The following table reflects the Company’s income from financial services for the 2008, 2007 and 2006 year
end periods:
($ in millions) 2008 2007
Change
2008 vs. 2007 2006
Change
2007 vs. 2006
For the Year Ended December 31,
Equity in earnings of Polaris Acceptance ........... $ 4.6 $ 5.3 ⫺13% $15.9 ⫺67%
Income from Securitization Facility............... 8.6 8.7 ⫺1% 1.2 625%
Income from HSBC and GE Bank retail credit
agreements ............................... 5.7 28.2 ⫺80% 27.1 4%
Income from other financial services activities....... 2.3 3.1 ⫺26% 2.9 7%
Total income from financial services ............ $21.2 $45.3 ⫺53% $47.1 ⫺4%
Income from financial services decreased 53 percent to $21.2 million compared to $45.3 million in 2007. The
decrease was primarily due to the Company’s revolving retail credit provider, HSBC eliminating the volume-based
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