-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M5C2e5DFraXQy7bFr+2FQhVVnDyCLgKcDRyZSn2agKHncKZhcwa+NQte/MAu9/nB 1tWnmxxRlru8RpoGUs+fmQ== 0001047469-99-032228.txt : 19990817 0001047469-99-032228.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032228 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLARIS INDUSTRIES INC/MN CENTRAL INDEX KEY: 0000931015 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS TRANSPORTATION EQUIPMENT [3790] IRS NUMBER: 411790959 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11411 FILM NUMBER: 99690762 BUSINESS ADDRESS: STREET 1: 1225 HIGHWAY 169 N CITY: MINNEAPOLIS STATE: MN ZIP: 55441 BUSINESS PHONE: 6125420500 MAIL ADDRESS: STREET 1: 1225 HIGHWAY 169 N STREET 2: 425 LEXINGTON AVE CITY: MINNESOTA STATE: MN ZIP: 55441 10-Q 1 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, 1999 ____________________________ OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND 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 of (IRS Employer incorporation or organization Identification No.) 1225 HIGHWAY 169 NORTH, MINNEAPOLIS, MN 55441-5078 _______________________________________________________________________________ (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 6, 1999, 24,999,571 shares of Common Stock of the __________ issuer were outstanding. POLARIS INDUSTRIES INC. FORM 10-Q For Quarter Period Ended June 30, 1999 TABLE OF CONTENTS
PAGE ____ Part I FINANCIAL INFORMATION Item 1 - Consolidated Financial Statements Consolidated Balance Sheets................................................................3 Consolidated Statements of Operations......................................................4 Consolidated Statements of Cash Flows......................................................5 Consolidated Statements of Shareholders' Equity............................................6 Notes to Consolidated Financial Statements.................................................7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations.....................................................................11 Cash Dividends............................................................................13 Liquidity and Capital Resources...........................................................13 Year 2000.................................................................................13 Inflation and Exchange Rates..............................................................14 Part II OTHER INFORMATION.........................................................................16 Item 1 Legal Proceedings Item 2 Changes in Securities Item 3 Defaults upon Senior Securities Item 4 Exhibits and Reports on Form 8-K SIGNATURE PAGE..........................................................................................17
POLARIS INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS (In Thousands)
June 30, 1999 December 31, 1998 (Unaudited) - ------------------------------------------------------------------------------------------------------------ ASSETS Current Assets: Cash and Cash Equivalents $ 11,085 $ 1,466 Trade receivables 36,526 43,035 Inventories 164,311 107,436 Prepaid expenses and other 5,995 2,903 Deferred tax assets 30,000 29,000 -------- -------- Total current assets 247,917 183,840 Deferred Tax Assets 20,000 21,000 Property and Equipment, net 129,115 124,254 Investments in Affiliates 25,407 26,636 Intangible Assets, net 22,524 22,967 -------- -------- Total Assets $444,963 $378,697 ======== ======== LIABILITIES AND SHAREHOLDER'S EQUITY Current Liabilities: Accounts Payable $109,290 $ 77,258 Accrued expenses 97,607 120,695 Income taxes payable 22,776 7,011 -------- -------- Total Current Liabilities 229,673 204,964 Borrowings under credit agreement 61,100 20,500 -------- -------- Total Liabilities 290,773 225,464 -------- -------- Commitments and Contingencies (Notes 4, 6 and 7) Shareholder's Equity: Common Stock 250 253 Additional paid-in capital 36,800 48,622 Deferred compensation (4,796) (6,726) Compensation payable in common stock 3,510 6,844 Retained earnings 118,426 104,240 -------- -------- Total shareholder's equity 154,190 153,233 -------- -------- Total Liabilities and Shareholder's Equity $444,963 $378,697 ======== ========
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 1999 1998 1999 1998 -------- -------- -------- -------- Sales $324,308 $274,711 $562,077 $484,712 Cost of Sales 249,405 210,502 430,701 373,699 -------- -------- -------- -------- Gross Profit 74,903 64,209 131,376 111,013 Operating Expenses Selling and marketing 31,619 27,958 59,517 49,041 Research and development 8,233 6,829 15,566 13,272 General and administrative 11,631 8,305 20,562 15,958 -------- -------- -------- -------- Total operating expenses 51,483 43,092 95,645 78,271 -------- -------- -------- -------- Operating Income 23,420 21,117 35,731 32,742 Non-Operating Expense (Income) Interest Expense 1,551 820 2,374 1,299 Equity in income of affiliates (1,928) (1,607) (3,933) (3,156) Other expense (income), net 376 (727) (188) (1,096) -------- -------- -------- -------- Income before taxes 23,421 22,631 37,478 35,695 Provision for income taxes 8,315 8,147 13,305 12,850 -------- -------- -------- -------- Net income $ 15,106 $ 14,484 $ 24,173 $ 22,845 ======== ======== ======== ======== Basic and Diluted Net Income Per Share $ 0.60 $ 0.55 $ 0.96 $ 0.87 ======== ======== ======== ========
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, 1999 1998 --------- --------- Cash Flows From Operating Activities: Net Income $ 24,173 $ 22,845 Adjustments to reconcile net income to net cash Depreciation and amortization 18,514 17,555 Non-cash compensation 5,665 4,498 Equity in income of affiliates (3,933) (3,156) Deferred income taxes -- 4,000 Changes in current operating items Trade receivables 6,509 24,004 Inventories (56,875) (22,005) Accounts payable 32,032 34,504 Accrued expenses (23,088) (26,068) Income taxes payable 15,765 6,165 Others, net (2,266) 1,206 --------- --------- Net cash provided by operating activities 16,496 63,548 --------- --------- Cash Flows from Investing Activities: Purchase of property and equipment (22,932) (33,880) Investments in affiliates, net 5,162 3,508 --------- --------- Net cash used for investing activities (17,770) (30,372) --------- --------- Cash Flows From Financing Activities: Borrowings under credit agreement 264,625 143,900 Repayments under credit agreement (224,025) (148,300) Repurchase and retirement of common shares (19,720) (13,883) Cash dividends to shareholders (9,987) (9,376) --------- --------- Net cash provided by (used for) financing activities 10,893 (27,659) --------- --------- Increase (decrease) in cash and cash equivalents 9,619 5,517 Cash and Cash Equivalents, Beginning 1,466 1,233 --------- --------- Cash and Cash Equivalents, Ending $ 11,085 $ 6,750 ========= =========
See Notes to Consolidated Financial Statements 5 FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 POLARIS INDUSTRIES INC. CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (In Thousands) UNAUDITED
Additional Compensation Common Paid-In Deferred Payable in Retained Stock Capital Compensation Common Stock Earnings Total ----- ------- ------------ ------------ -------- ----- Balance, December 31, 1998 $253 $48,622 ($6,726) $6,844 $104,240 $153,233 Employee Stock Compensation 3 7,569 1,930 (3,048) 0 6,454 First Rights Conversion to Stock 0 323 0 (286) 0 37 Cash dividends declared 0 0 0 0 (9,987) (9,987) Repurchase and Retirement of common shares (6) (19,714) 0 0 0 (19,720) Net Income 0 0 0 0 24,173 24,173 - - - - ------ ------ Balance, June 30, 1999 $250 $36,800 $(4,796) $3,510 $118,426 $154,190 ==== ======= ======= ====== ======== ========
6 FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 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 Company's annual report on Form 10-K for the year ended December 31, 1998, previously filed with the Securities and Exchange Commission. 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), personal watercraft (PWC) and motorcycle 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, 1999 December 31, 1998 ------------- ----------------- Raw Materials $ 43,737 $ 32,235 Service Parts 44,157 41,085 Finished Goods 76,417 34,116 -------- -------- $164,311 $107,436 ======== ========
NOTE 3. FINANCING AGREEMENT Polaris has an unsecured bank line of credit arrangement with maximum available borrowings of $175.0 million until March 31, 2000 and up to $150.0 million thereafter until maturity. Interest is charged at rates based on LIBOR or "prime" (5.32% at June 30, 1999) and the agreement expires on March 31, 2002 at which time the balance is due. As of June 30, 1999, total borrowings under this credit arrangement were $61.1 million and have been classified as long-term in the accompanying consolidated balance sheets. 7 FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 NOTE 4. INVESTMENTS IN AFFILIATES In February 1996, a wholly-owned subsidiary of Polaris entered into a partnership agreement with Transamerica Distribution Finance ("TDF") to form Polaris Acceptance. In January 1997, Polaris increased its equity interest in Polaris Acceptance to 50 percent. Polaris Acceptance provides floor plan financing to dealer and distributor customers of Polaris, and provides other financial services such as retail credit, leasing and extended service contracts to dealers, distributors and retail customers of Polaris. Polaris has guaranteed 50 percent of the outstanding indebtedness of the Polaris Acceptance floor plan financing portfolio under a credit agreement between Polaris Acceptance and TDF. At June 30, 1999, Polaris' contingent liability with respect to the guarantee was approximately $150.0 million. Polaris is a partner with Fuji Heavy Industries Ltd. in Robin Manufacturing, U.S.A. ("Robin"). Polaris has a 40 percent ownership interest in Robin, which builds engines in the United States for recreational and industrial products. Investments in affiliates are accounted for under the equity method. Polaris' allocable share of the income of Polaris Acceptance and Robin has been included as a component of non-operating expense (income) in the accompanying consolidated statements of operations. NOTE 5. SHAREHOLDER'S EQUITY During the first six months of 1999, Polaris paid $19.7 million to repurchase and retire 599,500 shares of its common stock with cash on hand and borrowings under its line of credit. Polaris has 1,333,100 remaining shares available to repurchase under its current Board of Directors' authorization as of June 30, 1999. The Polaris Board of Directors declared a regular cash dividend of $0.20 per share payable to holders of record on May 3, 1999, which was paid on May 17, 1999. On July 22, 1999, the Polaris Board of Directors declared a regular cash dividend of $0.20 per share payable on or about August 16, 1999, to holders of record on August 2, 1999. Net income per share for the periods ended June 30, 1999 and 1998 was calculated based on the weighted average number of common and potential common shares outstanding. 8 FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 Basic earnings per share using SFAS No. 128 "Earnings per share" is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each year, including shares earned under the First Rights plan, the Director plan and the ESOP. Diluted earnings per share is computed under the treasury stock method and is calculated to reflect the dilutive effect of the Option Plan. A reconciliation of these amounts is as follows (in thousands, except per share data):
For Three Months For Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 ------- ------- ------- ------- Net Income available to common shareholders $15,106 $14,484 $24,173 $22,845 ======= ======= ======= ======= Weighted average number of common 24,796 25,932 24,896 25,966 shares outstanding First Rights 0 10 0 31 Director Plan 23 16 22 16 ESOP 170 170 170 170 ------- ------- ------- ------- Common shares outstanding - basic 24,989 26,128 25,088 26,183 ======= ======= ======= ======= Dilutive effect of Option Plan 379 78 208 63 ------- ------- ------- ------- Common and potential common shares Outstanding 25,368 26,206 25,296 26,246 ======= ======= ======= ======= Basic and diluted net income per share $ 0.60 $ 0.55 $ 0.96 $ 0.87 ======= ======= ======= =======
9 FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 NOTE 6. COMMITMENTS AND CONTINGENCIES Polaris is subject to product liability claims in the normal course of business and prior to June 1996 elected not to purchase insurance for product liability losses. Effective June 1996, Polaris purchased excess insurance coverage for catastrophic product liability claims for incidents occurring subsequent to the policy date that exceeds a self-insured retention. The estimated costs resulting from any losses are charged to expense when it is probable a loss has been incurred and the amount of the loss is reasonably determinable. Revenue Canada has assessed Polaris approximately $16.0 million in taxes, penalties and interest for the period January 1, 1992 through December 31, 1994 resulting from an income tax audit for that period. Revenue Canada has asserted that Polaris over charged its Canadian subsidiary for various goods and services during the audit period primarily through improper intercompany transfer pricing policies. Polaris disagrees with the assessment and is vigorously contesting it. Polaris is a defendant in lawsuits and subject to claims arising in the normal course of business. In the opinion of management, it is not probable that any legal proceedings pending against or involving Polaris will have a material adverse effect on Polaris' financial position or results of operations. NOTE 7. FOREIGN CURRENCY CONTRACTS Polaris' Canadian subsidiary uses the United States dollar as its functional currency. Canadian assets and liabilities are translated at the foreign exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average foreign exchange rate in effect. Translation and exchange gains and losses are reflected in the results of operations. Polaris enters into foreign exchange contracts to manage currency exposures of certain of its purchase commitments denominated in foreign currencies and transfers of funds from its Canadian subsidiary. Polaris does not use any financial contract for trading purposes. These contracts are accounted for as hedges, thus market value gains and losses are recognized at the time of purchase or transfer of funds, respectively. The criteria to determine if hedge accounting is appropriate are (1) the designation of a hedge to an underlying exposure, (2) whether or not overall risk is reduced and (3) if there is a correlation between the value of the foreign exchange contract and the underlying exposure. Gains and losses related to purchase commitments are recorded as adjustments to cost of sales while gains and losses related to transfers of funds are recorded as other expense (income) on the accompanying statement of operations. At June 30, 1999, Polaris had open Japanese yen foreign exchange contracts with notional amounts totaling $28.6 million United States dollars, and open Canadian dollar foreign exchange contracts with notional amounts totaling $65.5 million United States dollars which mature throughout the remainder of 1999. 10 FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS SFAS 133 The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133) in June 1998. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. Polaris will be required to adopt SFAS No. 133 no later than January 1, 2001. Polaris has not quantified the impacts of adopting SFAS No. 133 on the financial statements and has not determined the timing of adoption of SFAS No. 133. However, SFAS No. 133 could increase volatility in earnings and other comprehensive income. 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 ("Polaris" or the "Company") for the quarters and year to date periods ended June 30, 1999 and 1998. Due to the seasonality of the snowmobile, all terrain vehicle (ATV), personal watercraft (PWC), and motorcycle 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 were $324.3 million in the second quarter of 1999, representing an 18 percent increase from $274.7 million in sales for the same period in 1998. North American sales of ATVs and related Parts, Garments, and Accessories ("PG&A") of $187.8 million for the second quarter 1999 were 26 percent higher than $148.8 million for the comparable period in 1998. The increase is related to increased unit sales reflecting the continuing growth in the ATV industry. North American sales of snowmobiles and related PG&A of $94.8 million for the second quarter 1999 were six percent lower than $101.0 million for the comparable period in 1998. The decrease in the 1999 period is due to earlier than historically normal shipments of snowmobiles during the second quarter of 1998. 11 FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 North American sales of PWC and related PG&A of $13.8 million for the second quarter 1999 were 25 percent higher than $11.1 million for the comparable period in 1998. The increase is related to a return to a more normal shipping year in 1999. North American sales of Victory motorcycles and related PG&A of $14.1 million for the second quarter 1999 were significantly higher than $1.5 million for the comparable period in 1998. The 1998 period represents only PG&A sales as Victory motorcycle production and shipments did not begin until July 1998. International sales of snowmobiles, ATVs, PWC and related PG&A of $13.8 million for the second quarter 1999 were 12 percent higher than $12.3 million for the comparable period in 1998 primarily as a result of stronger ATV and PWC unit shipments. Sales increased to $562.1 million for the year-to-date period ended June 30, 1999, representing a 16 percent increase from $484.7 million sales for the same period in 1998. The sales increase was due to strong ATV demand and increasing shipments of Victory motorcycles. Gross profit of $74.9 million in the second quarter of 1999 represents a 17 percent increase from gross profit of $64.2 million for the same period in 1998. This increase in gross profit dollars resulted primarily from higher sales volume in the current year period. The gross profit margin percentage decreased to 23.1 percent for the second quarter of 1999 from 23.4 percent for the comparable 1998 period. This slight decrease in gross profit margin percentage is primarily due to changes in sales mix driven by the ramp up of production of Victory motorcycles and continued growth in ATVs each of which has lower margins than snowmobiles, the negative impact of Canadian dollar and Japanese yen exchange rates when compared to the prior year period and an ATV sales mix shift to lower priced, lower margin models, partially offset by manufacturing cost reductions and increased PG&A sales. Gross profit of $131.4 million in the year-to-date period ended June 30, 1999 represents an 18 percent increase from gross profit of $111.0 for the same period of 1998. This increase in gross profit dollars resulted primarily from higher sales volume in the current year period. The gross profit margin increased to 23.4 percent for the year-to-date period ended June 30, 1999 as compared to 22.9 percent for the year-to-date period in 1998. This slight increase is primarily due to manufacturing cost reductions and increased PG&A sales partially offset by increased production of Victory motorcycles and shifts in ATV sales mix. Operating expenses in the second quarter of 1999 increased 19 percent to $51.5 million from the comparable 1998 period and as a percentage of sales, increased to 15.9 percent for the second quarter of 1999 compared to 15.7 percent for the same period in 1998. Operating expenses in the year-to-date period ended June 30, 1999 increased 22 percent to $95.6 million from the comparable 1998 period and as a percentage of sales increased to 17.0 percent for the six months ended June 30, 1999 compared to 16.1 percent for the same period in 1998. The higher levels of operating expenses as a percentage of sales are related to a planned increase in expenses to build the infrastructure to support the Company's growth and brand recognition initiatives. 12 FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 CASH DIVIDENDS On April 23, 1999, the Polaris board of Directors declared a regular cash dividend of $0.20 per share payable to holders of record on May 3, 1999, which was paid on May 17, 1999. On July 22, 1999, the Polaris Board of Directors declared a regular cash dividend of $0.20 per share payable on or about August 16, 1999, to holders of record on August 2, 1999. LIQUIDITY AND CAPITAL RESOURCES The seasonality of production and shipments causes working capital requirements to fluctuate during the year. Polaris maintains an unsecured bank line of credit arrangement maturing on March 31, 2002 under which it may borrow up to $175.0 million. Interest is charged at rates based on LIBOR or "prime". At June 30, 1999, Polaris had borrowings under its bank line of credit arrangement of $61.1 million and cash and cash equivalents of $11.1 million. During the first six months of 1999, Polaris paid $19.7 million to repurchase and retire 599,500 shares of its common stock with cash on hand and borrowings under its line of credit arrangement. Polaris has 1,333,100 remaining shares available to repurchase under its current Board of Directors' authorization as of June 30, 1999. Management believes that existing cash balances and bank borrowings, 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, share repurchases, and capital requirements for 1999. At this time, management is not aware of any factors that would have a materially adverse impact in cash flow beyond 1999. YEAR 2000 During 1999, Polaris has continued with its company-wide program to prepare the company's computer systems for Year 2000 compliance. In order for a computer system to be year 2000 compliant, its time sensitive software must recognize a date using "00" as the year 2000 rather than the year 1900. Polaris' project is divided into two major areas: internal information systems and embedded manufacturing systems/third party suppliers. Polaris has implemented a plan to make its internal information systems Year 2000 compliant by mid-1999. As of June 30, 1999, all of the programming requirements for the Company's manufacturing systems were complete and 95% of the programming for the sales, distribution and finance systems had been completed. The systems are being tested when programming modifications are completed, with testing expected to continue throughout 1999. 13 FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 Polaris has completed inventories of equipment and machines with embedded systems that are used at each of the Company's facilities. Polaris is in the process of assessing whether the critical equipment will be Year 2000 compliant through simulations and testing of the equipment as well as Year 2000 compliance letters from vendors. Polaris has identified its critical suppliers and sent them questionnaires to address their Year 2000 plans and progress. As of June 30, 1999, Polaris has received responses from 98% of these suppliers and is in the process of tabulating the results. The cost of the Year 2000 initiatives (which are expensed as incurred) are not expected to be material to Polaris' financial position. The total cost is estimated to be approximately $1.5 million of which $1.3 million has been incurred to date. Polaris has begun a comprehensive analysis of the operational issues and costs that would most likely result from failure by the company or third parties to achieve Year 2000 compliance on a timely basis. The primary risk being delivery timing to customers in January 2000. Polaris believes it will have sufficient time to recover, although some delayed deliveries may result in cancellations of orders. Polaris is in the process of developing contingency plans to protect the business from Year 2000 related interruptions and anticipates their completion by the third quarter of 1999. The costs of the project and the date when Polaris believes it will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events. However, there can be no guarantee these estimates will be achieved and actual results could differ materially from those anticipated. INFLATION AND EXCHANGE RATES Polaris does not believe that inflation has had a material impact on the results of its recent operations. However, the changing relationships of the U.S. dollar to the Japanese yen and Canadian dollar have had a material impact from time to time. In 1998, purchases totaling 14 percent of Polaris' cost of sales were from yen-denominated suppliers. The weakening of the U.S. dollar in relation to the Japanese yen since mid 1998 has resulted in higher raw material purchase prices. Polaris' cost of sales in the second quarter and year-to-date periods ended June 30, 1999 was negatively impacted by the Japanese yen-U.S. dollar exchange rate fluctuation when compared to the same periods in 1998. In view of the foreign exchange hedging contracts currently in place, Polaris anticipates that the Japanese yen-U.S. dollar exchange rate will continue to have a negative impact on cost of sales during the remaining periods of 1999 when compared to the same periods in 1998. 14 FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 Polaris operates in Canada through a wholly owned subsidiary. Over the past several years, strengthening of the U.S. dollar in relationship to the Canadian dollar has resulted in lower gross margin levels on a comparable basis. The fluctuation of the Canadian dollar exchange rate negatively impacted the gross margin achieved in the second quarter and the year-to-date periods of 1999 and when compared to the same periods in 1998. In view of the foreign exchange hedging contracts currently in place, Polaris anticipates that the Canadian dollar-U.S. dollar exchange rate will continue to have a negative impact on cost of sales during the remaining periods of 1999 when compared to the same periods in 1998. In the past, Polaris has been a party to, and in the future may enter into, foreign exchange 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, 1999, Polaris had open Japanese yen and Canadian dollar foreign exchange hedging contracts, which mature throughout 1999. Certain matters discussed in this report are "forward-looking statements" intended to qualify for the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These "forward-looking statements" can generally be identified as such because the context of the statement will include words such as the Company or management "believes", "anticipates", "expects", "estimates" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking. Shareholders, potential investors and others are cautioned that all forward-looking statements involve risks and uncertainty that could cause results to differ materially from those anticipated by some of the statements made herein. In addition to the factors discussed above, among the other factors that could cause actual results to differ materially are the following: product offerings and pricing strategies by competitors; future conduct of litigation or audit processes; warranty expenses; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; uninsured product liability claims; and overall economic conditions, including inflation and consumer confidence and spending. 15 FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 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 The Company held its annual meeting of shareholders on May 20, 1999. Proxies for matters to be voted upon at the Annual Meeting were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934, as amended. The following matters were voted upon at the Annual Meeting: 1. To elect the following nominees as Class II Directors for a new term of three years and until their successors are duly elected and qualified:
Votes For Withheld Authority ---------- ------------------ Raymond J. Biggs 21,215,354 292,460 Beverly F. Dolan 21,213,879 293,935 Robert S. Moe 21,224,455 283,359
2. To elect the following nominees as Class I Directors for the remainder of the term of Class I directors expiring in 2001 and until their successors are duly elected and qualified:
Votes For Withheld Authority ---------- ------------------ Bruce A. Thomson 21,230,116 277,698 Thomas C. Tiller 21,206,064 301,750
The terms of the following Directors continued after the meeting: Andris A. Baltins, W. Hall Wendel, Jr., Gregory R. Palen, and Stephen G. Shank. ITEM 5 - EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS Exhibit 27 - Financial Data Schedule (b) REPORTS ON FORM 8-K None 16 FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 POLARIS INDUSTRIES INC. SIGNATURES Pursuant to the requirements of the Securities 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 6, 1999 /s/ Thomas C. Tiller ----------------------------------- Thomas C. Tiller President and Chief Executive Officer Date: August 6, 1999 /s/ Michael W. Malone ----------------------------------- Michael W. Malone Vice President, Finance, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Chief Accounting Officer) 17 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF POLARIS INDUSTRIES INC. AS OF JUNE 30, 1999, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, SHAREHOLDERS EQUITY AND CASH FLOWS FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 11,085 0 36,526 0 164,311 247,917 252,414 123,300 444,963 229,673 0 0 0 250 153,940 444,963 562,077 562,077 430,701 430,701 95,645 0 2,374 37,478 13,305 24,173 0 0 0 24,173 0.96 0.96
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