0000912057-95-006012.txt : 19950808 0000912057-95-006012.hdr.sgml : 19950808 ACCESSION NUMBER: 0000912057-95-006012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950807 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLARIS INDUSTRIES INC/MN CENTRAL INDEX KEY: 0000931015 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 411790959 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20503 FILM NUMBER: 95559350 BUSINESS ADDRESS: STREET 1: 1225 HIGHWAY 169 NORTH CITY: MINNEAPOLIS STATE: MN ZIP: 55441 BUSINESS PHONE: 6125420500 MAIL ADDRESS: STREET 1: 1225 HIGHWAY 169 NORTH STREET 2: 425 LEXINGTON AVE CITY: MINNESOTA STATE: MN ZIP: 55441 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 --------------------------------------------- OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------------- ----------------- Commission File Number 1-11411 ------------------------------------------------------ Polaris Industries Inc. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Minnesota 41- 1790959 -------------------------------------------------------------------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 1225 Highway 169 North, Minneapolis, MN 55441 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (612) 542-0500 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------------- --------- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of August 1, 1995, 18,216,258 shares of Common Stock of the issuer were outstanding. POLARIS INDUSTRIES INC. TABLE OF CONTENTS Part I. FINANCIAL INFORMATION Item 1 - Consolidated Financial Statements Consolidated Balance Sheets Pg. 3 Consolidated Statements of Operations Pg. 4 Consolidated Statements of Cash Flows Pg. 5 Consolidated Statement of Shareholders' Equity Pg. 6 Consolidated Notes to Financial Statements Pg. 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Pg. 9 Cash Dividends and Special Cash Distributions Pg. 10 Liquidity and Capital Resources Pg. 11 Inflation and Exchange Rates Pg. 11 Part II OTHER INFORMATION Pg. 13 Item 1 - Legal Proceedings Item 2 - Changes in Securities Item 3 - Defaults upon Senior Securities Item 4 - Submission of Matters to a Vote of Security Holders Item 5 - Other Information Item 6 - Exhibits and Reports on Form 8-K SIGNATURE PAGE Pg. 14 -2- POLARIS INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
June 30, 1995 December 31, ------------- ----------- ASSETS (Unaudited) 1994 ---- Current Assets: Cash and cash equivalent $ 18,130 $62,881 Trade receivables 27,834 29,700 Inventories 114,483 88,714 Prepaid expenses and other 3,474 5,194 Deferred tax assets 18,000 20,000 -------- ------- Total current assets 181,921 206,489 -------- ------- DEFERRED TAX ASSETS 42,000 45,000 -------- ------- Property and Equipment, at cost, net of accumulated depreciation of $50,907 in 1995 and $38,368 in 1994 62,529 53,661 Intangible Assets: -------- ------- Cost in excess of net assets of business acquired, net of accumulated amortization of $6,097 in 1995 and $5,722 in 1994 24,581 24,956 Other, net of accumulated amortization of $2,476 in 1995 and $2,421 in 1994 1,005 1,006 -------- ------- Total intangible assets 25,586 26,016 -------- ------- Total Assets $312,036 $331,166 -------- ------- -------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $63,813 $58,932 Distributions payable 37,708 12,736 Accrued expenses 77,880 74,634 Income taxes payable 12,692 15,155 -------- ------- Total current liabilities 192,093 161,457 -------- ------- Shareholders' Equity: Common stock 182 181 Additional paid in capital 109,241 103,935 Compensation payable in common stock 9,814 12,251 Retained earnings 706 53,342 -------- ------- Total shareholders' equity 119,943 169,709 -------- ------- Total Liabilities and Shareholders' Equity $312,036 $331,166 -------- ------- -------- -------
See Notes to Consolidated Financial Statements -3- POLARIS INDUSTRIES INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) UNAUDITED
Second Quarter For the Six Months Ended June 30, Ended June 30, -------------- -------------- 1995 1994 1995 1994 ---- ---- ---- ---- Sales $285,357 $180,884 $540,150 $326,355 Cost of Sales 227,323 146,632 435,401 264,245 -------- -------- -------- -------- Gross profit 58,034 34,252 104,749 62,110 Operating Expenses 37,741 22,616 64,839 40,636 -------- -------- -------- -------- Operating income 20,293 11,636 39,910 21,474 Nonoperating Expense (Income), net 76 (215) (1,179) (287) -------- -------- -------- -------- Income before income taxes 20,217 11,851 41,089 21,761 Provision for Income Taxes 7,682 1,309 15,614 2,653 -------- -------- -------- -------- Net Income $12,535 $10,542 $25,475 $19,108 -------- -------- -------- -------- -------- -------- -------- -------- Net Income Per Share $0.68 $1.38 -------- -------- -------- -------- Weighted Average Number of Common and Common Equivalent Shares Outstanding 18,527 18,407 18,527 18,407 -------- -------- -------- -------- -------- -------- -------- -------- Pro Forma Information (Note 6) ------------------------------ Income before income taxes $11,851 $21,761 Provision for income taxes 4,503 8,269 -------- -------- Net income $7,348 $13,492 -------- -------- -------- -------- Net income per share $0.40 $0.73 -------- -------- -------- --------
See Notes to Consolidated Financial Statements -4- POLARIS INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) UNAUDITED
For the Six Months Ended June 30, ------------------ 1995 1994 ---- ---- Cash Flows From Operating Activities Net Income $25,475 $19,108 Adjustments to reconcile net income to cash flow from operating activities Depreciation 12,539 9,053 Amortization 430 3,569 First Rights compensation 2,935 3,572 Deferred income taxes 5,000 - Changes in current operating items Trade receivables 1,866 (764) Inventories (25,769) (27,026) Accounts payable 4,881 20,850 Accrued expenses 3,246 (324) Income taxes payable (2,463) (235) Others, net 1,655 260 -------- -------- Net cash provided by (used in) operating activities 29,795 28,063 -------- -------- Cash Flows From Investing Activities Purchase of property and equipment (21,407) (13,679) -------- -------- Cash Flows From Financing Activities Cash distributions to partners (12,736) (24,587) Cash dividends to shareholders (40,403) - -------- -------- Net cash used in financing activities (53,139) (24,587) -------- -------- Decrease in cash and cash equivalents (44,751) (10,203) Cash and Cash Equivalents, Beginning 62,881 33,798 -------- -------- Cash and Cash Equivalents, Ending $18,130 $23,595 -------- -------- -------- --------
See Notes to Consolidated Financial Statements -5- POLARIS INDUSTRIES INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (IN THOUSANDS) UNAUDITED
Compensation Common Additional Payable in Retained Stock Paid-in Capital Stock Earnings Total ----- --------------- ----- -------- ----- Balance, December 31, 1994 $181 $103,935 $ 12,251 53,342 $169,709 First Rights conversion to common stock 1 5,306 (5,372) - (65) First Rights grants - - 2,935 - 2,935 Dividends declared - - - (78,111) (78,111) Net Income for the period - - - 25,475 25,475 ---- -------- ------ ------ ------ Balance, June 30, 1995 $182 $109,241 $9,814 $706 $119,943 ---- -------- ------ ------ ------ ---- -------- ------ ------ ------
See Notes to Consolidated Financial Statements -6- POLARIS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and, therefore, do not include all information and disclosures of results of operations, financial position and changes in cash flow in conformity with generally accepted accounting principles for complete financial statements. Accordingly, such statements should be read in conjunction with the previously filed Form 10-K. In the opinion of management, such statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. Due to the seasonality of the snowmobile, all terrain vehicle (ATV) and personal watercraft (PWC) business, and to certain changes in production and shipping cycles, results of such periods are not necessarily indicative of the results to be expected for the complete year. NOTE 2. INVENTORIES The major components of inventories are as follows (in thousands): JUNE 30,1995 DECEMBER 31, 1994 -------------- ------------------- Raw Materials $28,568 $32,717 Service Parts 37,959 29,067 Finished Goods 47,956 26,930 --------- ----------- $114,483 $88,714 ----------- ----------- ----------- ----------- NOTE 3. FINANCING AGREEMENT Effective May 8, 1995, the Company entered into an unsecured bank line of credit arrangement with maximum available borrowings of $125,000,000. Interest is charged at rates based on LIBOR or "prime" and the agreement expires March 31, 1998. NOTE 4. DIVIDEND PAYABLE On May 11, 1995, the Board of Directors of the Company declared a special cash distribution of $1.92 per share payable on July 5, 1995, to holders of record on June 9, 1995. This special cash distribution totals approximately $34,975,000. In addition, on May 11, 1995, the Board of -7- NOTE 4. DIVIDEND PAYABLE (cont'd) Directors of the Company declared a regular quarterly cash dividend of $0.15 per share payable on August 15, 1995, to holders of record on August 3, 1995. This regular cash dividend totals approximately $2,733,000. NOTE 5. COMMITMENTS AND CONTINGENCIES The Company has elected not to insure for product liability losses. The estimated costs resulting from any losses are charged to operating expenses when it is probable a loss has been incurred and the amount of the loss is determinable. The Company is a defendant in lawsuits and subject to claims arising in the normal course of business. While it is not feasible to determine the outcome of any of these cases, it is the opinion of management that their outcomes will not, in the aggregate, have a material adverse effect on the financial position or operations of the Company. In 1990, the Canadian income tax authorities proposed certain adjustments, principally relating to the original purchase price allocation to the Canadian subsidiary of the Company's predecessor and transfer pricing matters, for additional income taxes payable by the Canadian subsidiary for 1987 and 1988. The resolution of these proposed adjustments will also affect the Company's Canadian income tax expense for years subsequent to 1988. The Canadian income tax authorities have initiated an audit of the tax years 1989 through 1991. Management continues to vigorously contest certain of the proposed adjustments. Management does not believe that the outcome of this matter will have a materially adverse impact on the financial position or operations of the Company. NOTE 6. PRO FORMA INFORMATION Pro forma information for 1994 is presented to assist in comparing the continuing results of operations of the Company as if the Company were a taxable corporation throughout 1994. The pro forma provision for income taxes has been calculated at an effective tax rate of 38 percent. 8 Item 2 ------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion pertains to the results of operations and financial position of Polaris Industries Inc., a Minnesota corporation (the "Company"), for the quarters and six-month periods ended June 30, 1995 and 1994. Due to the seasonality of the snowmobile, all terrain vehicle (ATV) and personal watercraft (PWC) business, and to certain changes in production and shipping cycles, results of such periods are not necessarily indicative of the results to be expected for the complete year. RESULTS OF OPERATIONS Sales increased to $285.4 million in the second quarter of 1995, representing a 58 percent increase over the $180.9 million of sales for the same period in 1994. Total finished goods unit shipments for the 1995 period increased 45 percent over the same period in 1994. The increase in sales is attributable to a significant increase in sales of snowmobiles and PWC, due largely to continued strong demand and enhanced manufacturing capacity compared with the second quarter of 1994. Snowmobile unit sales volume in the second quarter of 1995 increased 142 percent over the comparable period in 1994 primarily because of the addition of the Spirit Lake, Iowa assembly plant that has enhanced overall production capacity, enabling the Company to manufacture and ship 1996 model snowmobiles earlier from the Roseau, Minnesota facility. ATV unit sales volume in the second quarter of 1995 was approximately the same as the comparable period in 1994. PWC unit sales volume in the second quarter of 1995 increased 40 percent over the comparable period in 1994, primarily because of the fast growth in the PWC market and the introduction of models aimed at both the family and sports rider market segments. All Polaris PWC are now being assembled at the Company's new manufacturing facility in Spirit Lake, Iowa. Sales of related parts, garments and accessories in the second quarter of 1995 increased 33 percent over the comparable period in 1994, as a result of increased sales volumes of the other product lines. Sales increased to $540.2 million for the year-to-date period ended June 30, 1995, representing a 66 percent increase over the $326.4 million of sales for the same period in 1994. Total finished goods unit shipments for the year-to- date 1995 period increased 62 percent over the same period in 1994. -9- Polaris Industries Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont'd) Gross profit of $58.0 million in the second quarter of 1995 represents a 69 percent increase over gross profit of $34.3 million for the same period in 1994. Gross profit of $104.7 million in the year-to-date period ended June 30, 1995 represents a 69 percent increase over gross profit of $62.1 million for the same period in 1994. The gross profit margin percentage increased to 20.3 percent for the second quarter of 1995 and to 19.4 percent for the year-to-date period ended June 30, 1995, from 18.9 percent for the second quarter and 19.0 percent for the year-to-date period in 1994. This increase in gross margin percentage is primarily a result of the change in product sales mix in 1995 since sales of snowmobiles generate higher gross margins than ATVs and PWC, offset by: (a) continued increases in raw material purchase prices for engines and certain other component parts because of the weakening of the U.S. dollar in relation to the Japanese yen; (b) an increase in warranty expenses as a result of the emphasis on technological innovation and introduction of new high-performance models; and (c) strengthening of the U.S. dollar in relation to the Canadian dollar which results in lower gross margins from the Company's Canadian subsidiary operation. Operating expenses in the second quarter of 1995 increased $15.1 million (67 percent) over the comparable period in 1994 primarily as a result of the sales volume increase, and as a percentage of sales, increased to 13.2 percent for the second quarter of 1995 compared to 12.5 percent for the same period in 1994. The percentage increase is due primarily to costs associated with a PWC dealer rebate promotion introduced in the second quarter of 1995 to help stimulate retail sales of one particular PWC model. Operating expenses in the year-to- date period ended June 30, 1995 increased $24.2 million (60 percent) over the comparable period in 1994, as a result of the sales volume increase, but as a percentage of sales, decreased to 12.0 percent for the year-to-date period of 1995 compared to 12.5 percent for the same period in 1994. The percentage decrease is due primarily to the Company's supporting an increasing level of sales without a corresponding increase in selling and administrative expenses. The increase in nonoperating income for the year-to-date period ended June 30, 1995 over the 1994 period is primarily attributable to investment income generated by higher cash and cash equivalent balances during the 1995 period compared to the same period in 1994. CASH DIVIDENDS AND SPECIAL CASH DISTRIBUTIONS On April 18, 1995, the Board of Directors declared a regular cash dividend of $0.15 per share payable on May 15, 1995, to holders of record on May 3, 1995. -10- Polaris Industries Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont'd) On May 11, 1995, the Board of Directors of the Company declared a special cash distribution of $1.92 per share payable on July 5, 1995, to holders of record on June 9, 1995, and a regular dividend of $0.15 per share payable on August 15, 1995, to holders of record on August 3, 1995. Management has recommended to the Board of Directors that it pay an initial cash dividend of $0.15 per share per quarter, and make an additional special cash distribution of $1.92 per share, payable during the fourth quarter of 1995. Management expects to incur indebtedness of up to $70 million in connection with the payment of the special cash distributions. The timing and amount of future dividends and distributions will be at the discretion of the Board of Directors and will depend, among other things, on continuing levels of performance and the financial strength of the Company. There can be no assurance that the recommended dividends or cash distributions for 1995 will be declared and paid. LIQUIDITY AND CAPITAL RESOURCES The seasonality of production and shipments causes working capital requirements to fluctuate during the year. At June 30, 1995, the Company had no short-term debt and had letters of credit outstanding of $10.3 million related to purchase obligations for raw materials. Effective May 8, 1995, the Company entered into an unsecured bank line of credit arrangement with maximum available borrowings of $125 million. Interest is charged at rates based on LIBOR or "prime" and the agreement expires March 31, 1998. Management believes that existing cash balances, cash flow to be generated from operating activities and available borrowing capacity under the line of credit arrangement will be sufficient to fund operations, regular dividends, special cash distributions and capital requirements for 1995. INFLATION AND EXCHANGE RATES The Company does not believe that inflation has had a material impact on the results of its operations. However, the changing relationships of the U.S. dollar to the Canadian dollar and Japanese yen have had a material impact from time to time. Over the past several years, weakening of the U.S. dollar in relation to the yen has resulted in higher raw material purchase prices. The material weakening of the U.S. dollar in relation to the yen during 1995 has had a material effect on the Company's -11- Polaris Industries Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations (cont'd) cost of goods sold during the second quarter of 1995. In 1994, approximately 28 percent of the Company's cost of sales was attributable to purchases from Japanese suppliers. The Company anticipates that in future periods the devaluation of the U.S. dollar in relation to the yen will continue to have a negative impact on cost of goods sold. However, management believes that such cost increases also affect its principal competitors in ATVs, and, to varying degrees, some of its snowmobile and PWC competitors. The Company operates in Canada through a wholly-owned subsidiary. Strengthening of the U.S. dollar in relation to the Canadian dollar has caused unfavorable foreign currency fluctuations from prior periods resulting in lower gross margin levels. In the past, the Company has been a party to, and in the future may enter into, foreign hedging contracts for both the Japanese yen and the Canadian dollar to minimize the impact of exchange rate fluctuations within each year. At June 30, 1995, the Company had certain open contracts to purchase Japanese yen and to sell Canadian dollars which mature throughout 1995. In February 1995, the Company entered into an agreement with Fuji Heavy Industries Ltd. to form Robin Manufacturing U.S.A., Inc. ("Robin"). Under the terms of the agreement, the Company has a 40 percent ownership interest in Robin, which will build engines in the United States for recreational and industrial products. Potential advantages to the Company of participation in such venture include reduced foreign exchange risk, lower shipping costs and less dependence on a single source for engines in the future. However, such benefits are not expected to be significant for some time. -12- POLARIS INDUSTRIES INC. PART II. OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS None. ITEM 2 - CHANGES IN SECURITIES None. ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5 - OTHER INFORMATION None. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 - K (a) EXHIBITS Exhibit No. 10 - Credit Agreement by and between Polaris Industries Inc., and First Bank National Association and Bank of America Illinois, and First Union National Bank of North Carolina, dated May 8, 1995, incorporated by reference to Exhibit 10 to the Company's Quarterly Report on 10-Q for the quarterly period ended March 31, 1995. Exhibit No. 11 - Computation of Per Share Earnings. Exhibit No. 27 - Financial Data Schedule. (b) REPORTS ON FORM 8 - K No reports on Form 8-K have been filed during the quarter for which this report was filed. -13- POLARIS INDUSTRIES INC. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. POLARIS INDUSTRIES INC. (Registrant) Date: August 7, 1995 /s/ W. Hall Wendel, Jr. ------------------------ W. Hall Wendel, Jr. Chairman of the Board and Chief Executive Officer Date: August 7, 1995 /s/ John H. Grunewald ---------------------- John H. Grunewald Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Chief Accounting Officer) -14- EX-11 2 EXHIBIT 11 EXHIBIT 11 POLARIS INDUSTRIES INC. COMPUTATION OF NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
QUARTER ENDED YEAR-TO-DATE ------------- ------------ June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994 ------------- ------------- ------------- ------------- (pro forma) (pro forma) Net Income for the Period $12,535 $7,348 $25,475 $13,492 ------- ------ ------- ------- ------- ------ ------- ------- Weighted Average Number of Outstanding: Common shares 18,211 18,111 18,163 18,065 Rights 316 296 364 342 --- --- --- --- --- --- --- --- Total common and common equivalent shares 18,527 18,407 18,527 18,407 ------- ------ ------- ------- ------- ------ ------- ------- Net Income Per Share $.68 $.40 $1.38 $0.73 ---- ---- ----- ----- ---- ---- ----- -----
EX-27 3 EXHIBIT 27
5 This schedule contains summary financial information extracted from the unaudited Consolidated Financial Statements of the Company for the period ended June 30,1995 and is qualified in it entirety by reference to such Financial Statement. 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 18,130 0 27,834 0 114,483 181,921 113,436 50,907 312,036 192,093 0 182 0 0 119,761 312,036 540,150 540,150 435,401 435,401 64,839 0 0 41,089 15,614 0 0 0 0 25,475 1.38 1.38