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Welcome to Polaris industries Inc. NYSE PII: $109.09 +1.24 +1.15% Volume: 86,092 August 21, 2018
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    Polaris Reports 2018 Second Quarter Results

    07/25/2018

    Q2 2018 Highlights

    Reported sales for the second quarter of 2018 increased 10% to $1,503 million; adjusted sales increased 11% to 1,505 million

    Reported net income was $1.43 per diluted share, up 47% over the prior year; adjusted net income for the same period was $1.77 per diluted share, up 45% over the prior year

    North American retail sales increased 6% for the quarter; ORV N.A. retail sales were up mid-single digits % with both side-by-side and ATV vehicles up mid-single digits percent. Gained market share in side-by-side's and ATVs during the quarter along with ongoing market share gains in Indian motorcycles

    Dealer inventory was up 6% year-over-year, excluding Snowmobiles, for the second quarter 2018; ORV dealer inventory was up high single digits % due to new product shipments; motorcycle dealer inventory was down low single digits %

    Increased full year 2018 sales guidance to up 11% to 12% taking into account improved volume expectations and the acquisition of Boat Holdings, LLC (Boat Holdings). Adjusting full year earnings per share expectations by raising the lower end of the Company's earnings per share range and now expect adjusted net income to be in the range of $6.48 to $6.58 per diluted share which includes the absorption of an estimated additional $40 million of tariff and related commodity cost increases anticipated in 2018 and the adjustment to exclude intangible amortization for all prior acquisitions.

    MINNEAPOLIS--(BUSINESS WIRE)-- Polaris Industries Inc. (NYSE: PII):

    This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20180725005189/en/

    (Downloadable PDF of this press release)

     
    Key Financial Data
    (in thousands, except per share data)              
    INCOME STATEMENT - Q2 June 30, 2018 Reported YOY % Chg. Adjusted* YOY % Chg.
    Sales $ 1,502,532 10 % $ 1,504,989 11 %
    Net income $ 92,540 49 % $ 114,614 47 %
    Diluted EPS $ 1.43 47 % $ 1.77 45 %
     
    BALANCE SHEET - Q2 June 30, 2018 Reported YOY % Chg.
    Cash and cash equivalents $ 181,753 43 %
    Inventories, net $ 925,243 13 %
    Total debt, capital lease obligations and notes payable $ 1,112,622 4 %
    Shareholders' equity $ 877,510 3 %
     
    CASH FLOW - YTD June 30, 2018 Reported YOY % Chg.
    Cash flow from operations $ 165,149 (37 %)
    Purchase of property & equipment $ 104,569 28 %
    Repurchase and retirement of common shares $ 192,367 193 %
    Cash dividends to shareholders $ 75,694 4 %
     
    Note: the results and guidance in this release, including the highlights above, include references to non-GAAP operating measures, which are identified by the word “adjusted” preceding the measure. *A reconciliation of GAAP / non-GAAP measures can be found at the end of this release.

    CEO Commentary

    "I am very pleased with the Polaris team and the strong execution they delivered across the business during the 2nd Quarter. With solid retail growth and market share gains in both our Off-Road Vehicle business and Indian Motorcycles, we are clearly reaping the benefits of our safety and quality investments, new product innovations and improved delivery performance. Consumer sentiment and dealer traffic improved throughout the Quarter, building momentum which will help offset the rising risk of tariffs in the 2nd half. During the Quarter we were excited to announce another expansion of the Polaris powersports portfolio with the acquisition of Boat Holdings, the largest manufacturer of pontoon boats in the U.S. Between organic growth and considered acquisitions, Polaris’ underlying performance has significantly improved, but much of our success is being masked by substantial cost escalation driven by tariffs and commodities. As we navigate through increasingly dynamic markets, our efforts to enhance product quality and innovation, boost productivity and become a more customer centric Company are paying off, and Polaris is well-positioned for further success.”

    -- Scott Wine, Chairman and Chief Executive Officer of Polaris Industries Inc.

     

    Second Quarter Performance Summary (Reported)

       
    (in thousands, except per share data) Three months ended June 30,
    2018     2017     Change
    Sales $ 1,502,532   $ 1,364,920   10 %
    Gross profit   385,176     350,386   10 %
    % of Sales 25.6 % 25.7 % -4 bpts
    Total operating expenses   284,063     270,347   5 %
    % of Sales 18.9 % 19.8 % -90 bpts
    Income from financial services   21,344     19,143   11 %
    % of Sales 1.4 % 1.4 % +2 bpts
    Operating income   122,457     99,182   23 %
    % of Sales 8.2 % 7.3 % +88 bpts
    Net income   92,540     62,041   49 %
    % of Sales 6.2 % 4.5 % +161 bpts
    Diluted net income per share $ 1.43   $ 0.97   47 %
     

    Polaris Industries Inc. (NYSE: PII) today reported second quarter 2018 sales of $1,503 million, up 10 percent from $1,365 million for the second quarter of 2017. Adjusted sales for the second quarter of 2018 were $1,505 million, up 11 percent from the prior year period. The Company reported second quarter 2018 net income of $93 million, or $1.43 per diluted share, compared with net income of $62 million, or $0.97 per diluted share, for the 2017 second quarter. Adjusted net income for the quarter ended June 30, 2018 was $115 million, or $1.77 per diluted share, up 45 percent compared to $78 million, or $1.22 per diluted share in the 2017 second quarter.

    Gross profit increased 10 percent to $385 million for the second quarter of 2018 from $350 million in the second quarter of 2017. Reported gross profit margin was 26 percent of sales for the second quarter of 2018 compared to 26 percent of sales for the second quarter of 2017. Gross profit for the second quarter of 2018 includes the negative impact of $5 million of Victory Motorcycles wind-down costs and realignment and restructuring costs. Excluding these items, second quarter 2018 adjusted gross profit was $390 million, or 26 percent of adjusted sales. For the second quarter of 2017 adjusted gross profit of $364 million, or 27 percent of adjusted sales, excludes the negative impact of $13 million in Victory Motorcycles® wind down costs and restructuring and realignment costs. Gross profit margins on an adjusted basis were down slightly due to unfavorable product mix, the impact of tariff, commodity and freight cost pressure during the quarter, offset by improvements in warranty expense, VIP savings and favorable exchange rates.

    Operating expenses increased five percent for the second quarter of 2018 to $284 million, or 19 percent of sales, from $270 million, or 20 percent of sales, in the same period in 2017. Operating expenses as a percentage of sales, improved as the Company realized efficiencies through its selling, marketing and general and administrative spend.

    Income from financial services was $21 million for the second quarter of 2018, up 11 percent compared with $19 million for the second quarter of 2017. The increase is attributable to improved retail penetration and higher income from Polaris Acceptance due to higher dealer inventory levels.

     

    Non-Operating Expenses (Reported)

       
    (in thousands) Three months ended June 30,
    2018     2017     Change
    Interest expense $ 9,216 $ 8,032 15 %
    Equity in loss of other affiliates $ 3,954 $ 1,336 196 %
    Other expense (income), net $ (3,561 ) $ (2,152 ) 65 %
    Provision for income taxes $ 20,308 $ 29,925
     

    Equity in loss of other affiliates was $4 million for the second quarter of 2018 compared to $1 million last year's second quarter resulting from losses associated with the wind-down of the Eicher-Polaris joint venture in India.

    Other expense (income), net, was $4 million of income for the second quarter of 2018, versus $2 million of income in the second quarter of 2017 resulting from foreign currency exchange rate movements and the corresponding effects on foreign currency transactions related to the Company’s foreign subsidiaries.

    The provision for income taxes for the second quarter of 2018 was $20 million, or 18.0 percent, of pretax income compared with $30 million, or 32.5 percent of pretax income for the second quarter of 2017. The decrease in the effective income tax rates is primarily due to the reduction in the federal statutory tax rate to 21 percent as a result of U.S. Tax Reform and an increase in excess tax benefits related to stock based compensation.

     

    Product Segment Highlights (Reported)

           
    (in thousands) Sales Gross Profit
    Q2 2018     Q2 2017     Change Q2 2018     Q2 2017     Change
    Off-Road Vehicles / Snowmobiles $ 990,841 $ 845,508 17 % $ 297,221 $ 266,150 12 %
    Motorcycles $ 171,412 $ 197,997 (13 )% $ 24,672 $ 21,116 17 %
    Global Adjacent Markets $ 113,418 $ 97,022 17 % $ 28,107 $ 21,216 32 %
    Aftermarket $ 226,861 $ 224,393 1 % $ 57,747 $ 59,918 (4 )%
     

    Off-Road Vehicle (“ORV”) and Snowmobile segment sales, including PG&A, totaled $991 million for the second quarter of 2018, up 17 percent over $846 million for the second quarter of 2017 driven by growth across most categories. PG&A sales for ORV and Snowmobiles combined, increased 13 percent in the 2018 second quarter compared to the second quarter last year. Gross profit increased 12 percent to $297 million, in the second quarter of 2018, compared to $266 million in the second quarter of 2017.

    ORV wholegoodsales for the second quarter of 2018 increased 18 percent primarily driven by strong RANGER, RZR, and ATV shipments. Polaris North American ORV retail sales increased in the mid-single digits percent range with side-by-side and ATV vehicles growing retail sales in the mid-single digit percent range. Side-by-Sides and ATVs again gained market share during the quarter in their respective categories. The North American ORV industry was flat compared to the second quarter last year. ORV dealer inventory was up high-single digits in the 2018 second quarter compared to the same period last year due to increased shipments of newly introduced products.

    Snowmobile wholegood sales in the second quarter of 2018 was $4 million compared to $7 million in the second quarter last year. Snowmobile sales in the Company’s second quarter are routinely low as it is the off-season for snowmobile retail sales and shipments.

    Motorcycle segment sales, including PG&A, totaled $171 million, a decrease of 13 percent compared to $198 million reported in the second quarter of 2017 due to a weak motorcycle industry and timing of shipments for Indian motorcycles year-over-year. Slingshot sales were also down due to the weak motorcycle industry. Gross profit for the second quarter of 2018 was $25 million compared to $21 million in the second quarter of 2017. Adjusted for the Victory wind down costs recorded in both the 2018 and 2017 second quarters, and restructuring and realignment costs, motorcycle gross profit was $25 million in the 2018 second quarter compared to $30 million for the 2017 second quarter.

    North American consumer retail demand for the Polaris motorcycle segment, including Indian Motorcycle and Slingshot, increased low-single digit percent during the 2018 second quarter. Indian Motorcycle retail sales increased mid-single digits percent. Slingshot's retail sales were down mid-single digits percent during the quarter. Motorcycle industry retail sales, 900cc and above, were down mid-single digit percent in the 2018 second quarter. Indian Motorcycle gained market share for the 2018 second quarter on a year-over-year basis, in spite of an overall weak N.A. industry motorcycle market in the second quarter. Motorcycle dealer inventory was down low-single digits percent in the 2018 second quarter compared to the same period last year due to moderated shipments in an overall weak motorcycle market.

    Global Adjacent Markets segment sales, including PG&A, increased 17 percent to $113 million in the 2018 second quarter compared to $97 million in the 2017 second quarter. Sales of Goupil and the Commercial, Government, Defense businesses drove most of the increase. Reported gross profit increased 32 percent to $28 million in the second quarter of 2018, compared to $21 million in the second quarter of 2017.

    Aftermarket segment sales increased one percent to $227 million in the 2018 second quarter compared to $224 million in the 2017 second quarter. TAP sales in the second quarter of 2018 were $210 million, which was up slightly compared to the second quarter of 2017. Growth at TAP's retail stores and online platforms were largely offset by lower accessory sales for the new Jeep Wrangler which was available for sale later than anticipated. Gross profit decreased to $58 million in the second quarter of 2018, compared to $60 million in the second quarter of 2017.

    Supplemental Data :

    Parts, Garments, and Accessories (“PG&A”) sales,excluding Aftermarket segment sales, increased eleven percent for the 2018 second quarter driven by growth across all segments, regions and product lines during the quarter.

    International sales to customers outside of North America, including PG&A, totaled $204 million for the second quarter of 2018, up 7 percent, from the same period in 2017. Foreign exchange movements represented four percent of the sales increase for the quarter. The remaining increase was driven by strong sales in the Company's EMEA business for ORV and motorcycles.

     

    Financial Position and Cash Flow

       
    (in thousands) Six Months ended June 30,
    2018     2017     Change
    Cash and cash equivalents $ 181,753 $ 127,378 43 %
    Net cash provided by operating activities $ 165,149 $ 263,043 (37 )%
    Repurchase and retirement of common shares $ 192,367 $ 65,662 193 %
    Cash dividends to shareholders $ 75,694 $ 72,612 4 %
    Total debt, capital lease obligations and notes payable $ 1,112,622 $ 1,067,797 4 %
    Debt to Total Capital Ratio 56 % 56 %
     

    Net cash provided by operating activities was $165 million for the six months ended June 30, 2018, compared to $263 million for the same period in 2017. The decrease in net cash provided by operating activities for the 2018 period was due to higher factory inventory related to the higher sales and the model year changeover. Total debt at June 30, 2018, including capital lease obligations and notes payable, was $1,113 million. The Company’s debt-to-total capital ratio was 56 percent at June 30, 2018 and 2017. Cash and cash equivalents were $182 million at June 30, 2018, up from $127 million for the same period in 2017.

    Share Buyback Activity: During the second quarter of 2018, the Company repurchased and retired 1,429,000 shares of its common stock for $177 million. Year-to-date through June 30, 2018, the Company has repurchased and retired 1,562,000 shares of its common stock for $192 million. As of June 30, 2018, the Company has authorization from its Board of Directors to repurchase up to an additional 4.9 million shares of Polaris common stock.

    2018 Business Outlook

    The Company is raising its full year sales guidance and now expects sales to be in the range of 11 percent to 12 percent over 2017 adjusted sales of $5,428 million and narrowing and adjusting its earnings guidance range for the full year 2018 to account for Boat Holdings income and elimination of intangible amortization of previously acquired companies to better reflect the true underlying performance of Polaris' core businesses. Adjusted net income is now expected to be in the range of $6.48 to $6.58 per diluted share, compared with adjusted net income of $5.10 per diluted share for 2017. The revised guidance takes into account approximately $40 million of escalating tariff and related commodity cost increases as the Company understands them today.

    Non-GAAP Financial Measures

    This press release and our related earnings call contain certain non-GAAP financial measures, consisting of “adjusted" sales, gross profit, income before taxes, net income and net income per diluted share as measures of our operating performance. Management believes these measures may be useful in performing meaningful comparisons of past and present operating results, to understand the performance of its ongoing operations and how management views the business. Reconciliations of adjusted non-GAAP measures to reported GAAP measures are included in the financial schedules contained in this press release. These measures, however, should not be construed as an alternative to any other measure of performance determined in accordance with GAAP.

    Investor Conference Call

    Second Quarter 2018 Earnings Conference Call and Webcast Presentation
    Today at 8:00 AM (CDT) Polaris Industries Inc. will host a conference call and webcast to discuss the 2018 second quarter results released this morning. The call will be hosted by Scott Wine, Chairman and CEO; and Mike Speetzen, Executive Vice President - Finance and CFO. A slide presentation and link to the webcast will be posted on the Polaris Investor Relations website at ir.polaris.com. To listen to the conference call by phone, dial 1-877-883-0383 in the U.S., or 1-412-902-6506 internationally. The Conference ID is 8402413. A replay of the conference call will be available by accessing the same link on our website.

    About Polaris

    Polaris Industries Inc. (NYSE: PII) is a global powersports leader that has been fueling the passion of riders, workers and outdoor enthusiasts for more than 60 years. With annual 2017 sales of $5.4 billion, Polaris’ innovative, high-quality product line-up includes the RANGER®, RZR® and Polaris GENERAL™ side-by-side off-road vehicles; the Sportsman® and Polaris ACE® all-terrain off-road vehicles; Indian Motorcycle® mid-size and heavyweight motorcycles; Slingshot® moto-roadsters; snowmobiles; and pontoon, deck and cruiser boats. Polaris enhances the riding experience with parts, garments and accessories, along with a growing aftermarket portfolio, including Transamerican Auto Parts. Polaris’ presence in adjacent markets globally includes military and commercial off-road vehicles, quadricycles, and electric vehicles. Proudly headquartered in Minnesota, Polaris serves more than 100 countries across the globe. Visit www.polaris.com for more information.

    Forward-looking Statements

    Except for historical information contained herein, the matters set forth in this news release, including management’s expectations regarding 2018 future sales, shipments, net income, and net income per share, operational initiatives and impact of tax reform, and tariffs and commodity costs, are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Potential risks and uncertainties include such factors as the Company’s ability to successfully implement its manufacturing operations expansion initiatives, product offerings, promotional activities and pricing strategies by competitors; economic conditions that impact consumer spending; acquisition integration costs; product recalls, warranty expenses; impact of changes in Polaris stock price on incentive compensation plan costs; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; commodity costs; freight and tariff costs; changes to international trade agreements; uninsured product liability claims; uncertainty in the retail and wholesale credit markets; performance of affiliate partners; changes in tax policy and overall economic conditions, including inflation, consumer confidence and spending and relationships with dealers and suppliers. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission. The Company does not undertake any duty to any person to provide updates to its forward-looking statements.

     
    CONSOLIDATED STATEMENTS OF INCOME
    (In Thousands, Except Per Share Data) (Unaudited)
           
    Three months ended June 30, Six months ended June 30,
    2018     2017 2018     2017
    Sales $ 1,502,532 $ 1,364,920 $ 2,800,005 $ 2,518,702
    Cost of sales   1,117,356     1,014,534     2,091,348     1,925,825
    Gross profit 385,176 350,386 708,657 592,877
    Operating expenses:
    Selling and marketing 122,859 118,531 240,566 232,844
    Research and development 68,330 60,753 133,560 112,758
    General and administrative   92,874     91,063     171,567     166,577
    Total operating expenses 284,063 270,347 545,693 512,179
    Income from financial services   21,344     19,143     42,769     39,573
    Operating income 122,457 99,182 205,733 120,271
    Non-operating expense:
    Interest expense 9,216 8,032 17,264 15,946
    Equity in loss of other affiliates 3,954 1,336 25,465 3,236
    Other expense (income), net   (3,561 )   (2,152 )   (23,536 )   9,456
    Income before income taxes 112,848 91,966 186,540 91,633
    Provision for income taxes   20,308     29,925     38,286     32,503
    Net income $ 92,540   $ 62,041   $ 148,254   $ 59,130
     
    Net income per share:
    Basic $ 1.46   $ 0.99   $ 2.34   $ 0.94
    Diluted $ 1.43   $ 0.97   $ 2.28   $ 0.92
    Weighted average shares outstanding:
    Basic 63,172 62,895 63,238 63,012
    Diluted 64,886 63,807 65,052 63,970
     

     
    CONSOLIDATED BALANCE SHEETS
    (In Thousands), (Unaudited)
           
    June 30, 2018 June 30, 2017
     
    Assets
    Current Assets:
    Cash and cash equivalents $ 181,753 $ 127,378
    Trade receivables, net 190,343 169,314
    Inventories, net 925,243 815,990
    Prepaid expenses and other 106,586 85,221
    Income taxes receivable   10,269   18,976
    Total current assets 1,414,194 1,216,879
    Property and equipment, net 762,268 736,866
    Investment in finance affiliate 92,954 86,552
    Deferred tax assets 115,399 192,167
    Goodwill and other intangible assets, net 765,050 786,935
    Other long-term assets   89,613   95,573
    Total assets $ 3,239,478 $ 3,114,972
    Liabilities and Shareholders’ Equity
    Current Liabilities:
    Current portion of debt, capital lease obligations and notes payable $ 40,120 $ 2,831
    Accounts payable 361,717 352,538
    Accrued expenses:
    Compensation 129,719 116,341
    Warranties 106,155 108,403
    Sales promotions and incentives 184,811 176,978
    Dealer holdback 125,016 116,804
    Other 161,659 164,486
    Income taxes payable   5,973   9,725
    Total current liabilities 1,115,170 1,048,106
    Long term income taxes payable 25,332 27,764
    Capital lease obligations 17,135 18,245
    Long-term debt 1,055,367 1,046,721
    Deferred tax liabilities 8,667 9,009
    Other long-term liabilities   127,529   100,625
    Total liabilities $ 2,349,200 $ 2,250,470
    Deferred compensation 12,768 10,725
    Shareholders’ equity:
    Total shareholders’ equity   877,510   853,777
    Total liabilities and shareholders’ equity $ 3,239,478 $ 3,114,972
     

     
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (In Thousands), (Unaudited)
       
    Six months ended June 30,
    2018     2017
    Operating Activities:
    Net income $ 148,254 $ 59,130
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization 98,584 91,124
    Noncash compensation 33,001 31,416
    Noncash income from financial services (14,626 ) (13,328 )
    Deferred income taxes (1,704 ) (4,083 )
    Impairment charges 20,249 18,760
    Other, net (8,262 ) 3,236
    Changes in operating assets and liabilities:
    Trade receivables 5,326 12,370
    Inventories (146,661 ) (59,421 )
    Accounts payable 45,835 75,576
    Accrued expenses (35,693 ) 6,406
    Income taxes payable/receivable 19,828 40,727
    Prepaid expenses and others, net   1,018     1,130  
    Net cash provided by operating activities 165,149 263,043
     
    Investing Activities:
    Purchase of property and equipment (104,569 ) (81,803 )
    Investment in finance affiliate, net 10,436 20,785
    Investment in other affiliates, net 7,366 (1,814 )
    Acquisition and disposal of businesses, net of cash acquired       1,645  
    Net cash used for investing activities (86,767 ) (61,187 )
     
    Financing Activities:
    Borrowings under debt arrangements / capital lease obligations 1,511,810 932,317
    Repayments under debt arrangements / capital lease obligations (1,310,863 ) (1,010,870 )
    Repurchase and retirement of common shares (192,367 ) (65,622 )
    Cash dividends to shareholders (75,694 ) (72,612 )
    Proceeds from stock issuances under employee plans   43,448     7,027  
    Net cash used for financing activities (23,666 ) (209,760 )
    Impact of currency exchange rates on cash balances   (6,370 )   6,951  
     
    Net increase (decrease) in cash, cash equivalents and restricted cash 48,346 (953 )
    Cash, cash equivalents and restricted cash at beginning of period   161,618     145,170  
    Cash, cash equivalents and restricted cash at end of period $ 209,964   $ 144,217  
     
    Cash, cash equivalents and restricted cash by category:
    Cash and cash equivalents $ 181,753 $ 127,378
    Other long-term assets   28,211     16,839  
    Total $ 209,964   $ 144,217  
     

     
    NON-GAAP RECONCILIATION OF RESULTS
    (In Thousands, Except Per Share Data), (Unaudited)
           
    Three months ended June 30, Six months ended June 30,
    2018     2017 2018     2017
    Sales $ 1,502,532 $ 1,364,920 $ 2,800,005 $ 2,518,702
    Victory wind down (1) 798 (6,157 ) 249 (1,053 )
    Restructuring & realignment (3)   1,659         2,129      
    Adjusted sales 1,504,989 1,358,763 2,802,383 2,517,649
     
     
    Gross profit 385,176 350,386 708,657 592,877
    Victory wind down (1) (874 ) 8,852 (822 ) 47,415
    Acquisition-related costs (2) 53 12,950
    Restructuring & realignment (3)   6,045     4,303     11,837     4,303  
    Adjusted gross profit 390,347 363,594 719,672 657,545
     
     
    Income (loss) before taxes 112,848 91,966 186,540 91,633
    Victory wind down (1) (426 ) 10,851 243 68,431
    Acquisition-related costs (2) 5,729 3,767 7,809 19,967
    Restructuring & realignment (3) 11,696 4,303 17,893 4,303
    EPPL impairment (5) 3,817 23,447
    Brammo (6) (13,478 )
    Intangible Amortization (7) 6,058 6,238 12,188 12,449
    Other expenses (4)   1,722         1,722      
    Adjusted income before taxes 141,444 117,125 236,364 196,783
     
     
    Net income 92,540 62,041 148,254 59,130
    Victory wind down (1) (325 ) 6,820 185 47,841
    Acquisition-related costs (2) 4,366 2,368 5,951 12,551
    Restructuring & realignment (3) 8,912 2,705 13,633 2,705
    EPPL impairment (5) 2,908 22,325
    Brammo (6) (13,113 )
    Intangible Amortization (7) 4,446 3,961 8,945 7,903
    Other expenses (4)   1,767         2,037      
    Adjusted net income (8) 114,614 77,895 188,217 130,130
     
     
    Diluted EPS $ 1.43 $ 0.97 $ 2.28 $ 0.92
    Victory wind down (1) (0.01 ) 0.11 0.75
    Acquisition-related costs (2) 0.07 0.04 0.09 0.20
    Restructuring & realignment (3) 0.14 0.04 0.21 0.04
    EPPL impairment (5) 0.04 0.34
    Brammo (6) (0.20 )
    Intangible Amortization (7) 0.07 0.06 0.14 0.12
    Other expenses (4)   0.03         0.03      
    Adjusted EPS (8) $ 1.77   $ 1.22   $ 2.89   $ 2.03  
     
    (1) Represents adjustments for the wind down of Victory Motorcycles, including wholegoods, accessories and apparel
     
    (2) Represents adjustments for integration and acquisition-related expenses and purchase accounting adjustments
     
    (3) Represents adjustments for corporate restructuring, network realignment costs, and supply chain transformation
     
    (4) Represents adjustments for the impacts of tax reform and non-recurring litigation expenses
     
    (5) Represents adjustments for the impairment of the Company's equity investment in Eicher-Polaris Private Limited (EPPL)
     
    (6) Represents a gain on the Company's investment in Brammo, Inc.
     
    (7) Represents amortization expense for acquisition-related intangible assets
     
    (8) The Company used its estimated statutory tax rate of 23.8% and 37.1% for the non-GAAP adjustments in 2018 and 2017, respectively, except for the non-deductible items and the tax reform related changes noted in Item 4
     

     
    NON-GAAP RECONCILIATION OF SEGMENT RESULTS
    (In Thousands), (Unaudited)
           
    Three months ended June 30, Six months ended June 30,
    2018     2017 2018     2017

    SEGMENT SALES

    ORV/Snow segment sales $ 990,841 $ 845,508 $ 1,823,405 $ 1,569,611
    Restructuring & realignment (3)   1,659         2,129      
    Adjusted ORV/Snow segment sales 992,500 845,508 1,825,534 1,569,611
     
    Motorcycles segment sales 171,412 197,997 302,969 318,286
    Victory wind down (1)   798     (6,157 )   249     (1,053 )
    Adjusted Motorcycles segment sales 172,210 191,840 303,218 317,233
     
    Global Adjacent Markets (GAM) segment sales 113,418 97,022 226,745 188,577
    No adjustment                
    Adjusted GAM segment sales 113,418 97,022 226,745 188,577
     
    Aftermarket segment sales 226,861 224,393 446,886 442,228
    No adjustment                
    Adjusted Aftermarket sales 226,861 224,393 446,886 442,228
     
    Total sales 1,502,532 1,364,920 2,800,005 2,518,702
    Total adjustments   2,457     (6,157 )   2,378     (1,053 )
    Adjusted total sales $ 1,504,989   $ 1,358,763   $ 2,802,383   $ 2,517,649  
     
     
    Three months ended June 30, Six months ended June 30,
    2018 2017 2018 2017

    SEGMENT GROSS PROFIT

    ORV/Snow segment gross profit $ 297,221 $ 266,150 $ 540,782 $ 479,109
    Restructuring & realignment (3)   1,659         2,129      
    Adjusted ORV/Snow segment gross profit 298,880 266,150 542,911 479,109
     
    Motorcycles segment gross profit 24,672 21,116 41,240 1,235
    Victory wind down (1) (874 ) 8,852 (822 ) 47,415
    Restructuring & realignment (3)   1,185         1,185      
    Adjusted Motorcycles segment gross profit 24,983 29,968 41,603 48,650
     
    Global Adjacent Markets (GAM) segment gross profit 28,107 21,216 59,365 49,314
    Restructuring & realignment (3)   (11 )   4,303     434     4,303  
    Adjusted GAM segment gross profit 28,096 25,519 59,799 53,617
     
    Aftermarket segment gross profit 57,747 59,918 116,199 101,482
    Acquisition-related costs (2)       53         12,950  
    Adjusted Aftermarket segment gross profit 57,747 59,971 116,199 114,432
     
    Corporate segment gross profit (22,571 ) (18,014 ) (48,929 ) (38,263 )
    Restructuring & realignment (3)   3,212         8,089      
    Adjusted Corporate segment gross profit (19,359 ) (18,014 ) (40,840 ) (38,263 )
     
    Total gross profit 385,176 350,386 708,657 592,877
    Total adjustments   5,171     13,208     11,015     64,668  
    Adjusted total gross profit $ 390,347   $ 363,594   $ 719,672   $ 657,545  
     
    (1) Represents adjustments for the wind down of Victory Motorcycles, including wholegoods, accessories and apparel
     
    (2) Represents adjustments for integration expenses and purchase accounting adjustments
     
    (3) Represents adjustments for corporate restructuring, network realignment costs, and supply chain transformation
     

    NON-GAAP ADJUSTMENTS

    2018 Second Quarter Results & Full Year Guidance

    Wind Down of Victory Motorcycles
    In 2017, Polaris announced its intention to wind down its Victory Motorcycles operations. The decision is expected to improve the long-term profitability of Polaris and its global motorcycle business, while materially improving the Company’s competitive position in the industry. The Company will record costs, anticipated to be in the range of $80 million to $85 million through 2018, associated with supporting Victory dealers in selling their remaining inventory, the disposal of factory inventory, tooling, and other physical assets, and the cancellation of various supplier arrangements. In 2017, the Company recorded pretax costs of $77 million. In the first and second quarter of 2018 these costs were immaterial. These costs are excluded from Polaris’ 2018 sales and earnings guidance on a non-GAAP basis.

    Restructuring, Realignment and Supply Chain Transformation
    Polaris announced in 2017 that it was making changes to its network to consolidate production and distribution of like products and better leverage plant capacity and embarked on a multi-phase supply chain transformation initiative to continue to leverage its supply chain as a strategic asset. Year-to-date ending June 30, 2018, the Company has recorded costs totaling $18 million related to the manufacturing and distribution network realignment and the supply chain transformation projects. In addition, the Company has recorded TAP and Boat Holdings integration and acquisition related costs of $8 million for the year-to-date period ending June 30, 2018. The costs for these projects are excluded from Polaris’ 2018 sales and earnings guidance on a non-GAAP basis.

    Eicher-Polaris Joint Venture Impairment in India
    Regulatory changes have negatively impacted the likelihood of success of the joint venture, and as a result, in late-February 2018, the Board of Directors of the joint venture approved the wind-down of the joint venture. Year-to-date ended June 30, 2018, Polaris has recorded charges totaling $23 million, including the impairment of the Company's equity investment in the Eicher-Polaris joint venture in India and wind down costs.

    Intangible amortization related to acquisitions
    As a result of the Boat Holdings acquisition, Polaris' amortization of intangible assets is expected to increase by approximately $25 million to $30 million on an annual basis. Given the significant increase in non-cash amortization associated with this acquisition along with intangible amortization from prior acquisitions, the Company will be moving to an adjusted net income metric, excluding intangible amortization from all acquisitions including prior year acquisitions of approximately $24 million for full year 2018. The Company believes this treatment will provide additional transparency into the true, ongoing earnings performance of its business.

    2018 Adjusted Guidance
    2018 guidance excludes the pre-tax effect of acquisition integration costs of approximately $25 million to $30 million, supply chain transformation and network realignment costs of approximately $20 million to $25 million and the remaining impacts associated with the Victory wind down which is estimated to be approximately $5 million. Additionally, 2018 guidance excludes the pre-tax gain of $13 million related to the Company's investment in Brammo and charges of $23 million, including the impairment of the Company's equity investment in the Eicher-Polaris joint venture in India and related wind down costs, recorded in the first half of 2018. Additional costs associated with the wind down of the joint venture, if any, are expected to be immaterial for the remainder of 2018. Intangible amortization related to all acquisitions has also been excluded. 2018 adjusted sales guidance excludes any Victory wholegood, accessories and apparel sales and corresponding promotional costs as the Company is in the process of exiting the brand. The Company has not provided reconciliations of guidance for adjusted diluted net income per share, in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. The Company is unable, without unreasonable efforts, to forecast certain items required to develop meaningful comparable GAAP financial measures. These items include costs associated with the Victory wind down and acquisition integration costs that are difficult to predict in advance in order to include in a GAAP estimate.

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    Polaris Industries Inc.
    Investor Contact:
    Richard Edwards, 763-513-3477
    or
    Media Contact:
    Jess Rogers, 763-513-3445

    Source: Polaris Industries Inc.