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    Polaris Reports 2019 Second Quarter Results

    07/23/2019

    Q2 2019 Highlights

    Reported and adjusted sales for the second quarter of 2019 increased 18% to $1,779 million

    Reported net income was $1.42 per diluted share, down 1% over the prior year; adjusted net income for the same period was $1.73 per diluted share, down 2% over the prior year

    North American Side-by-side retail sales increasedlow-single digits percent for the quarter compared to last year; Indian retail sales were down high-single digits percent, outperforming the industry and gaining share in an extremely challenging market

    Dealer inventory was up 1% year-over-year for the second quarter 2019, slightly below targeted inventory levels

    Polaris narrowed its full year 2019 earnings guidance by maintaining the upper end of the net income range and increasing the lower end of the range and now expects earnings to be in the $6.10 to $6.30 per diluted share range, which takes into account the China 301 list 3 tariff increasing from 10% to 25%. Full year 2019 adjusted sales growth guidance was also narrowed to up 12% to 13% over the prior year.

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

    Key Financial Data

     

    (in thousands, except per share data)

     

     

     

     

     

     

     

     

    INCOME STATEMENT - Q2 June 30, 2019

    Reported

     

    YOY % Chg.

     

     

    Adjusted*

     

    YOY % Chg.

    Sales

    $

    1,779,315

     

     

    18%

     

     

    $

    1,779,315

     

     

    18%

    Net income attributable to Polaris

    $

    88,263

     

     

    (5)%

     

     

    $

    107,480

     

     

    (6)%

    Diluted EPS

    $

    1.42

     

     

    (1)%

     

     

    $

    1.73

     

     

    (2)%

     

     

     

     

     

     

     

     

     

    BALANCE SHEET - Q2 June 30, 2019

    Reported

     

    YOY % Chg.

     

     

     

     

     

    Cash and cash equivalents

    $

    96,081

     

     

    (47)%

     

     

     

     

     

    Inventories, net

    $

    1,130,264

     

     

    22%

     

     

     

     

     

    Total debt, finance lease obligations and notes payable

    $

    1,898,068

     

     

    71%

     

     

     

     

     

    Shareholders' equity

    $

    951,909

     

     

    8%

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    CASH FLOW - YTD June 30, 2019

    Reported

     

    YOY % Chg.

     

     

     

     

     

    Net cash provided by operating activities

    $

    202,852

     

     

    23%

     

     

     

     

     

    Purchase of property & equipment

    $

    137,203

     

     

    31%

     

     

     

     

     

    Repurchase and retirement of common shares

    $

    6,537

     

     

    (97)%

     

     

     

     

     

    Cash dividends to shareholders

    $

    74,430

     

     

    (2)%

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    *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

    “Our second quarter results reflect the deft leadership and disciplined execution of our Polaris team. We worked diligently to overcome the impacts of tariffs, a very wet spring and an aggressive promotional environment, delivering financial results slightly favorable to expectations but trailing our long-term performance goals. The strength of our industry-leading brands and vehicles enabled us to gain share in Indian Motorcycles and drive growth in Side-by-Sides with RANGER and RZR, although our decision to assume price leadership did impact volume, specifically in our lower margin youth and value segments. We are encouraged by our market share gains and year-to-date growth in Boats, as well as the continued improvement at TAP, where retail store sales growth was up nicely. Our operational and dealer fundamentals are in good shape as we head into the critically important model year 2020 product introductions, and we anticipate improved retail performance during the second half of the year. We are excited to host our unrivaled dealer network at our 65th Anniversary dealer show later this month, and look forward to demonstrating how we will continue to be the global leader in Powersports with our unwavering commitment to be a customer-centric, highly efficient growth company.”

    -- 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,

     

    2019

     

    2018

     

    Change

    Sales

    $

    1,779,315

     

     

    $

    1,502,532

     

     

    18

    %

    Gross profit

    436,448

     

     

    385,176

     

     

    13

    %

    % of Sales

    24.5

    %

     

    25.6

    %

     

    -111 bpts

    Total operating expenses

    321,072

     

     

    284,063

     

     

    13

    %

    % of Sales

    18.0

    %

     

    18.9

    %

     

    -86 bpts

    Income from financial services

    19,746

     

     

    21,344

     

     

    (7

    )%

    % of Sales

    1.1

    %

     

    1.4

    %

     

    -31 bpts

    Operating income

    135,122

     

     

    122,457

     

     

    10

    %

    % of Sales

    7.6

    %

     

    8.2

    %

     

    -56 bpts

    Net income attributable to Polaris

    88,263

     

     

    92,540

     

     

    (5

    )%

    % of Sales

    5.0

    %

     

    6.2

    %

     

    -120 bpts

    Diluted net income per share

    $

    1.42

     

     

    $

    1.43

     

     

    (1

    )%

    Polaris Industries Inc. (NYSE: PII) (the "Company") today released second quarter 2019 results with sales of $1,779 million on a reported and adjusted basis, up 18 percent from reported and adjusted sales of $1,503 million and $1,505 million for the second quarter of 2018, respectively, including $182 million of Boat segment sales reported in the second quarter of 2019. The Company reported second quarter 2019 net income of $88 million, or 1.42 per diluted share, compared with net income of $93 million, or 1.43 per diluted share, for the 2018 second quarter. Adjusted net income for the quarter ended June 30, 2019 was $107 million, or $1.73 per diluted share compared to $115 million, or $1.77 per diluted share in the 2018 second quarter.

    Gross profit increased 13 percent to $436 million for the second quarter of 2019 from $385 million in the second quarter of 2018. Reported gross profit margin was 24.5 percent of sales for the second quarter of 2019 compared to 25.6 percent of sales for the second quarter of 2018. Gross profit for the second quarter of 2019 includes the negative impact of $7 million of restructuring and realignment costs. Excluding these costs, second quarter 2019 adjusted gross profit was $443 million, or 24.9 percent of adjusted sales. For the second quarter of 2018 adjusted gross profit of $390 million, or 25.9 percent of adjusted sales, excludes the negative impact of $6 million of restructuring and realignment costs. Gross profit margins on an adjusted basis were down 104 basis points reflecting tariff costs and the addition of Boats which has a lower gross profit margin, partially offset by increased productivity and higher average selling prices.

    Operating expenses increased 13 percent for the second quarter of 2019 to $321 million, or 18.0 percent of sales, from $284 million, or 18.9 percent of sales, in the same period in 2018. Operating expenses in dollars increased primarily due to the Boat Holdings acquisition completed during the third quarter of 2018 and investments in strategic projects. Operating expenses as a percentage of sales, improved as the Boat segment has a lower operating expense to sales ratio compared to the legacy Polaris business.

    Income from financial services was $20 million for the second quarter of 2019, down 7 percent compared with $21 million for the second quarter of 2018. The decrease is primarily attributable to lower retail sales and lower penetration rates during the quarter.

    Non-Operating Expenses (Reported)

    (in thousands)

    Three months ended June 30,

     

    2019

     

    2018

     

    Change

    Interest expense

    $

    20,620

     

     

    $

    9,216

     

     

    124

    %

    Equity in loss of other affiliates

    $

    455

     

     

    $

    3,954

     

     

    (88

    )%

    Other income, net

    $

    (271

    )

     

    $

    (3,561

    )

     

    (92

    )%

    Provision for income taxes

    $

    26,173

     

     

    $

    20,308

     

     

    29

    %

    Interest expense was $21 million for the second quarter of 2019 compared to $9 million for the same period last year, primarily due to increased debt levels to finance the Boats acquisition and higher interest rates.

    Equity in loss of other affiliates was $455 thousand for the second quarter of 2019 compared to $4 million for the same period last year. In the second quarter 2018, the Company recorded charges of approximately $4 million associated with the shut down of the Eicher-Polaris joint venture in India.

    Other income, net, was $271 thousand in the second quarter of 2019 compared to $4 million in the second quarter of 2018. Other income is the result of 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 2019 was $26 million, or 22.9 percent of pretax income, compared with $20 million, or 18.0 percent of pretax income for the second quarter of 2018. The increase in the effective income tax rate is primarily due to a decrease in excess tax benefits related to stock-based compensation.

    Product Segment Highlights (Reported)

     

    (in thousands)

    Sales

     

    Gross Profit

     

    Q2 2019

     

    Q2 2018

     

    Change

     

    Q2 2019

     

    Q2 2018

     

    Change

    Off-Road Vehicles / Snowmobiles

    $

    1,049,321

     

     

    $

    990,841

     

     

    6

    %

     

    $

    312,689

     

     

    $

    297,221

     

     

    5

    %

    Motorcycles

    $

    196,773

     

     

    $

    171,412

     

     

    15

    %

     

    $

    26,802

     

     

    $

    24,672

     

     

    9

    %

    Global Adjacent Markets

    $

    121,924

     

     

    $

    113,418

     

     

    7

    %

     

    $

    33,884

     

     

    $

    28,107

     

     

    21

    %

    Aftermarket

    $

    228,872

     

     

    $

    226,861

     

     

    1

    %

     

    $

    55,214

     

     

    $

    57,747

     

     

    (4

    )%

    Boats

    $

    182,425

     

     

    $

     

     

     

     

    $

    40,477

     

     

    $

     

     

     

    Off-Road Vehicles (“ORV”) and Snowmobiles segment sales, including PG&A, totaled $1,049 million for the second quarter of 2019, up six percent over $991 million for the second quarter of 2018 driven by increased average selling prices, particularly in side-by-side's, and growth in PG&A. PG&A sales for ORV and Snowmobiles combined increased 9 percent in the second quarter of 2019 compared to the second quarter last year. Gross profit increased five percent to $313 million in the second quarter of 2019, compared to $297 million in the second quarter of 2018. Gross profit percentage declined 20 basis points during the quarter as higher average selling prices and increased productivity were more than offset by higher promotions and tariff costs.

    ORV wholegoodsales for the second quarter of 2019 increased 4 percent primarily driven by increased average selling prices. Polaris North American ORV retail sales decreased low-single digits percent for the quarter with side-by-side vehicles up low-single digits percent and ATV vehicles down high-single digits percent. Shipment unit volume was down during the quarter, in-line with retail sales declines as the Company's retail flow management process (RFM) performed as designed. The North American ORV industry was up high-single digits percent compared to the second quarter last year partly driven by new competitive product not in the market a year ago.

    Snowmobile wholegood sales in the second quarter of 2019 were $16 million compared to $4 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.

    Motorcycles segment sales, including PG&A, totaled $197 million, up 15 percent compared to the second quarter of 2018, driven by strength in Indian sales, particularly the new FTR1200 motorcycle which began shipping globally in the second quarter, offset by declines in Slingshot sales. Gross profit for the second quarter of 2019 was $27 million compared to $25 million in the second quarter of 2018. The increase in gross profit was primarily the result of higher volume mostly offset by increased tariff costs.

    North American consumer retail sales for the Polaris Indian motorcycles decreased high-single digits percent during the second quarter of 2019 in a weak mid to heavy-weight two-wheel motorcycle industry that was down low double digits percent. Indian outperformed the market with modest market share gains in North American during the quarter driven by retail sales of our new mid-size bike, the race inspired FTR1200, which has experienced strong initial demand both in North America and Internationally. North American consumer retail sales for Polaris' motorcycle segment, including both Indian Motorcycles and Slingshot, decreased mid-teens percent during the second quarter of 2019, while the North American Motorcycle industry retail sales for mid to heavy-weight motorcycles including three-wheel vehicles, was down mid-single digits percent in the second quarter of 2019.

    Global Adjacent Markets segment sales, including PG&A, increased seven percent to $122 million in the 2019 second quarter compared to $113 million in the 2018 second quarter. Gross profit increased 21 percent to $34 million or 27.8 percent of sales in the second quarter of 2019, compared to $28 million or 24.8 percent of sales in the second quarter of 2018, due to increased volume and favorable product mix.

    Aftermarket segment sales of $229 million in the 2019 second quarter increased one percent compared to $227 million in the 2018 second quarter. TAP sales in the second quarter of 2019 were $210 million, which was flat compared to the second quarter of 2018. The Company's other aftermarket brands increased sales by 12 percent. Gross profit decreased to $55 million in the second quarter of 2019, compared to $58 million in the second quarter of 2018 due to higher tariff costs.

    Boats segment sales, which consist of the Boat Holdings acquisition which closed July 2, 2018, were $182 million in the 2019 second quarter. Gross profit was $40 million or 22.2 percent of sales in the second quarter of 2019.

    Supplemental Data:

    Parts, Garments, and Accessories (“PG&A”) sales increased 10 percent for the 2019 second quarter primarily driven by growth across the Company's segments.

    International sales to customers outside of North America, including PG&A, totaled $231 million for the second quarter of 2019, up 13 percent from the same period in 2018. The increase in sales is primarily attributable to growth in Indian Motorcycles and Global Adjacent Markets.

    Financial Position and Cash Flow

     

    (in thousands)

    Six months ended June 30,

     

    2019

     

    2018

     

    Change

    Cash and cash equivalents

    $

    96,081

     

     

    $

    181,753

     

     

    (47

    )%

    Net cash provided by operating activities

    $

    202,852

     

     

    $

    165,149

     

     

    23

    %

    Repurchase and retirement of common shares

    $

    6,537

     

     

    $

    192,367

     

     

    (97

    )%

    Cash dividends to shareholders

    $

    74,430

     

     

    $

    75,694

     

     

    (2

    )%

    Total debt, finance lease obligations and notes payable

    $

    1,898,068

     

     

    $

    1,112,622

     

     

    71

    %

    Debt to Total Capital Ratio

    67

    %

     

    56

    %

     

     

     

     

     

     

     

     

    Net cash provided by operating activities was $203 million for the six months ended June 30, 2019, compared to $165 million for the same period in 2018. Total debt at June 30, 2019, including finance lease obligations and notes payable, was $1,898 million. The Company’s debt-to-total capital ratio was 67 percent at June 30, 2019 compared to 56 percent at June 30, 2018. Cash and cash equivalents were $96 million at June 30, 2019, down from $182 million at June 30, 2018.

    2019 Business Outlook

    For the full year 2019, the Company is narrowing its earnings guidance range by increasing the lower end to $6.10 per diluted share and maintaining the upper end at $6.30 per diluted share, including the impact of the China 301 list 3 tariff rate increasing from 10 percent to 25 percent effective May 2019, and the benefit of the Company's tariff mitigation actions. The Company is also narrowing its full year 2019 sales guidance range and now expect sales to grow in the range of 12 percent to 13 percent compared to the prior year given only six months remain to year-end.

    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 reported GAAP measures to adjusted non-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.

    Second Quarter 2019 Earnings Conference Call and Webcast

    Today at 9:00 AM (CDT) Polaris Industries Inc. will host a conference call and webcast to discuss the 2019 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. The earnings 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 9324868. A replay of the conference call will be available by accessing the same link on our website.

    Polaris Industries Inc. to Host and Webcast Analyst & Investor Meeting

    Polaris Industries Inc. also announced today that the executive management team of Polaris will host an Analyst/Investor Meeting in Minneapolis, MN in conjunction with its 65th anniversary celebration and dealer meeting. The meeting will be held on Monday, July 29, 2019 from 7:30 AM to 10:30 AM central time. Management will be discussing its future strategy to drive growth and profitability, including a first look at several exciting new model year 2020 Polaris products. Presenters at the Analyst/Investor meeting will include Scott Wine, Chairman and CEO; Mike Speetzen, Executive Vice President - Finance and CFO; Ken Pucel, EVP Operations, Engineering and Lean along with other Polaris executive team members. The meeting agenda, slide presentation, and a link to the live audio webcast will be posted on the Polaris Investor Relations website at ir.polaris.com on the Events & Presentations page. A replay of the webcast will be available for one week following the event and will be accessible on the same website link. For more information about the Analyst/Investor Meeting, please contact Peggy James at 763-542-0502.

    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 2018 sales of $6.1 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 2019 future sales, shipments, net income, and net income per share, future cash flows and capital requirements, operational initiatives, tariffs, currency fluctuations, interest rates, 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; disruptions in manufacturing facilities; 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 policies and agreements; uninsured product liability claims; uncertainty in the retail and wholesale credit markets; performance of affiliate partners; changes in tax policy; relationships with dealers and suppliers; and the general overall economic and political environment. 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. The data source for retail sales figures included in this release is registration information provided by Polaris dealers in North America compiled by the Company or Company estimates and other industry data sources. The Company must rely on information that its dealers supply concerning retail sales, and other retail sales data sources related to Polaris and the powersports industry, and this information is subject to revision. Retail sales references to total Company retail sales includes only ORV, snowmobiles and motorcycles in North America unless otherwise noted.

    CONSOLIDATED STATEMENTS OF INCOME

    (In Thousands, Except Per Share Data) (Unaudited)

     

    Three months ended June 30,

     

    Six months ended June 30,

     

    2019

     

    2018

     

    2019

     

    2018

    Sales

    $

    1,779,315

     

     

    $

    1,502,532

     

     

    $

    3,275,005

     

     

    $

    2,800,005

     

    Cost of sales

    1,342,867

     

     

    1,117,356

     

     

    2,486,109

     

     

    2,091,348

     

    Gross profit

    436,448

     

     

    385,176

     

     

    788,896

     

     

    708,657

     

    Operating expenses:

     

     

     

     

     

     

     

    Selling and marketing

    140,603

     

     

    122,859

     

     

    269,862

     

     

    240,566

     

    Research and development

    76,379

     

     

    68,330

     

     

    143,499

     

     

    133,560

     

    General and administrative

    104,090

     

     

    92,874

     

     

    197,028

     

     

    171,567

     

    Total operating expenses

    321,072

     

     

    284,063

     

     

    610,389

     

     

    545,693

     

    Income from financial services

    19,746

     

     

    21,344

     

     

    38,551

     

     

    42,769

     

    Operating income

    135,122

     

     

    122,457

     

     

    217,058

     

     

    205,733

     

    Non-operating expense:

     

     

     

     

     

     

     

    Interest expense

    20,620

     

     

    9,216

     

     

    41,039

     

     

    17,264

     

    Equity in loss of other affiliates

    455

     

     

    3,954

     

     

    1,061

     

     

    25,465

     

    Other income, net

    (271

    )

     

    (3,561

    )

     

    (3,772

    )

     

    (23,536

    )

    Income before income taxes

    114,318

     

     

    112,848

     

     

    178,730

     

     

    186,540

     

    Provision for income taxes

    26,173

     

     

    20,308

     

     

    42,189

     

     

    38,286

     

    Net income

    88,145

     

     

    92,540

     

     

    136,541

     

     

    148,254

     

    Net loss attributable to noncontrolling interest

    118

     

     

     

     

    100

     

     

     

    Net income attributable to Polaris Industries Inc.

    $

    88,263

     

     

    $

    92,540

     

     

    $

    136,641

     

     

    $

    148,254

     

     

     

     

     

     

     

     

     

    Net income per share attributable to Polaris Industries Inc. common shareholders:

     

     

     

     

     

     

     

    Basic

    $

    1.44

     

     

    $

    1.46

     

     

    $

    2.23

     

     

    $

    2.34

     

    Diluted

    $

    1.42

     

     

    $

    1.43

     

     

    $

    2.20

     

     

    $

    2.28

     

    Weighted average shares outstanding:

     

     

     

     

     

     

     

    Basic

    61,419

     

     

    63,172

     

     

    61,352

     

     

    63,238

     

    Diluted

    62,164

     

     

    64,886

     

     

    62,096

     

     

    65,052

     

    CONSOLIDATED BALANCE SHEETS

    (In Thousands), (Unaudited)

     

    June 30, 2019

     

    June 30, 2018

     

     

     

     

    Assets

     

     

     

    Current Assets:

     

     

     

    Cash and cash equivalents

    $

    96,081

     

     

    $

    181,753

     

    Trade receivables, net

    224,501

     

     

    190,343

     

    Inventories, net

    1,130,264

     

     

    925,243

     

    Prepaid expenses and other

    112,921

     

     

    106,586

     

    Income taxes receivable

    7,037

     

     

    10,269

     

    Total current assets

    1,570,804

     

     

    1,414,194

     

    Property and equipment, net

    889,825

     

     

    762,268

     

    Investment in finance affiliate

    97,303

     

     

    92,954

     

    Deferred tax assets

    92,641

     

     

    115,399

     

    Goodwill and other intangible assets, net

    1,508,722

     

     

    765,050

     

    Operating lease assets

    108,013

     

     

     

    Other long-term assets

    96,904

     

     

    89,613

     

    Total assets

    $

    4,364,212

     

     

    $

    3,239,478

     

    Liabilities and Equity

     

     

     

    Current Liabilities:

     

     

     

    Current portion of debt, finance lease obligations and notes payable

    $

    66,505

     

     

    $

    40,120

     

    Accounts payable

    418,850

     

     

    361,717

     

    Accrued expenses:

     

     

     

    Compensation

    140,205

     

     

    129,719

     

    Warranties

    132,758

     

     

    106,155

     

    Sales promotions and incentives

    182,089

     

     

    184,811

     

    Dealer holdback

    138,726

     

     

    125,016

     

    Other

    212,067

     

     

    161,659

     

    Current operating lease liabilities

    35,084

     

     

     

    Income taxes payable

    6,094

     

     

    5,973

     

    Total current liabilities

    1,332,378

     

     

    1,115,170

     

    Long term income taxes payable

    28,380

     

     

    25,332

     

    Finance lease obligations

    15,780

     

     

    17,135

     

    Long-term debt

    1,815,783

     

     

    1,055,367

     

    Deferred tax liabilities

    5,357

     

     

    8,667

     

    Long-term operating lease liabilities

    75,479

     

     

     

    Other long-term liabilities

    128,360

     

     

    127,529

     

    Total liabilities

    $

    3,401,517

     

     

    $

    2,349,200

     

    Deferred compensation

    10,607

     

     

    12,768

     

    Equity:

     

     

     

    Total shareholders’ equity

    951,909

     

     

    877,510

     

    Noncontrolling interest

    179

     

     

     

    Total equity

    952,088

     

     

    877,510

     

    Total liabilities and equity

    $

    4,364,212

     

     

    $

    3,239,478

     

     

    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (In Thousands), (Unaudited)

     

    Six months ended June 30,

     

    2019

     

    2018

    Operating Activities:

     

     

     

    Net income

    $

    136,541

     

     

    $

    148,254

     

    Adjustments to reconcile net income to net cash used for operating activities:

     

     

     

    Depreciation and amortization

    111,946

     

     

    98,584

     

    Noncash compensation

    34,233

     

     

    33,001

     

    Noncash income from financial services

    (15,465

    )

     

    (14,626

    )

    Deferred income taxes

    (5,903

    )

     

    (1,704

    )

    Impairment charges

     

     

    20,249

     

    Other, net

    1,061

     

     

    (8,262

    )

    Changes in operating assets and liabilities:

     

     

     

    Trade receivables

    (26,941

    )

     

    5,326

     

    Inventories

    (159,090

    )

     

    (146,661

    )

    Accounts payable

    72,049

     

     

    45,835

     

    Accrued expenses

    18,950

     

     

    (35,693

    )

    Income taxes payable/receivable

    30,773

     

     

    19,828

     

    Prepaid expenses and others, net

    4,698

     

     

    1,018

     

    Net cash provided by operating activities

    202,852

     

     

    165,149

     

     

     

     

     

    Investing Activities:

     

     

     

    Purchase of property and equipment

    (137,203

    )

     

    (104,569

    )

    Investment in finance affiliate, net

    10,221

     

     

    10,436

     

    Investment in other affiliates, net

     

     

    7,366

     

    Acquisition of businesses, net of cash acquired

    (1,800

    )

     

     

    Net cash used for investing activities

    (128,782

    )

     

    (86,767

    )

     

     

     

     

    Financing Activities:

     

     

     

    Borrowings under debt arrangements / finance lease obligations

    1,788,696

     

     

    1,511,810

     

    Repayments under debt arrangements / finance lease obligations

    (1,853,507

    )

     

    (1,310,863

    )

    Repurchase and retirement of common shares

    (6,537

    )

     

    (192,367

    )

    Cash dividends to shareholders

    (74,430

    )

     

    (75,694

    )

    Proceeds from stock issuances under employee plans

    6,213

     

     

    43,448

     

    Net cash used for financing activities

    (139,565

    )

     

    (23,666

    )

    Impact of currency exchange rates on cash balances

    (112

    )

     

    (6,370

    )

     

     

     

     

    Net increase (decrease) in cash, cash equivalents and restricted cash

    (65,607

    )

     

    48,346

     

    Cash, cash equivalents and restricted cash at beginning of period

    193,126

     

     

    161,618

     

    Cash, cash equivalents and restricted cash at end of period

    $

    127,519

     

     

    $

    209,964

     

     

     

     

     

    The following presents the classification of cash, cash equivalents and restricted cash within the consolidated balance sheets:

     

     

     

     

    Cash and cash equivalents

    $

    96,081

     

     

    $

    181,753

     

    Other long-term assets

    31,438

     

     

    28,211

     

    Total

    $

    127,519

     

     

    $

    209,964

     

    NON-GAAP RECONCILIATION OF RESULTS

    (In Thousands, Except Per Share Data), (Unaudited)

     

    Three months ended June 30,

     

    Six months ended June 30,

     

    2019

     

    2018

     

    2019

     

    2018

    Sales

    $

    1,779,315

     

     

    $

    1,502,532

     

     

    $

    3,275,005

     

     

    $

    2,800,005

     

    Victory wind down (1)

     

     

    798

     

     

     

     

    249

     

    Restructuring & realignment (3)

     

     

    1,659

     

     

     

     

    2,129

     

    Adjusted sales

    1,779,315

     

     

    1,504,989

     

     

    3,275,005

     

     

    2,802,383

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Gross profit

    436,448

     

     

    385,176

     

     

    788,896

     

     

    708,657

     

    Victory wind down (1)

     

     

    (874

    )

     

     

     

    (822

    )

    Restructuring & realignment (3)

    6,592

     

     

    6,045

     

     

    13,283

     

     

    11,837

     

    Adjusted gross profit

    443,040

     

     

    390,347

     

     

    802,179

     

     

    719,672

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Income before taxes

    114,318

     

     

    112,848

     

     

    178,730

     

     

    186,540

     

    Victory wind down (1)

     

     

    (426

    )

     

     

     

    243

     

    Acquisition-related costs (2)

    2,351

     

     

    5,729

     

     

    3,481

     

     

    7,809

     

    Restructuring & realignment (3)

    6,592

     

     

    11,696

     

     

    13,283

     

     

    17,893

     

    EPPL impairment (5)

     

     

    3,817

     

     

     

     

    23,447

     

    Brammo (6)

     

     

     

     

     

     

    (13,478

    )

    Intangible amortization (7)

    10,250

     

     

    6,058

     

     

    20,497

     

     

    12,188

     

    Other expenses (4)

    6,151

     

     

    1,722

     

     

    12,510

     

     

    1,722

     

    Adjusted income before taxes

    139,662

     

     

    141,444

     

     

    228,501

     

     

    236,364

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Net income

    88,263

     

     

    92,540

     

     

    136,641

     

     

    148,254

     

    Victory wind down (1)

     

     

    (325

    )

     

     

     

    185

     

    Acquisition-related costs (2)

    1,792

     

     

    4,366

     

     

    2,653

     

     

    5,951

     

    Restructuring & realignment (3)

    5,022

     

     

    8,912

     

     

    10,121

     

     

    13,633

     

    EPPL impairment (5)

     

     

    2,908

     

     

     

     

    22,325

     

    Brammo (6)

     

     

     

     

     

     

    (13,113

    )

    Intangible amortization (7)

    7,717

     

     

    4,446

     

     

    15,430

     

     

    8,945

     

    Other expenses (4)

    4,686

     

     

    1,767

     

     

    9,532

     

     

    2,037

     

    Adjusted net income (8)

    107,480

     

     

    114,614

     

     

    174,377

     

     

    188,217

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Diluted EPS

    $

    1.42

     

     

    $

    1.43

     

     

    $

    2.20

     

     

    $

    2.28

     

    Victory wind down (1)

     

     

    (0.01

    )

     

     

     

     

    Acquisition-related costs (2)

    0.03

     

     

    0.07

     

     

    0.04

     

     

    0.09

     

    Restructuring & realignment (3)

    0.08

     

     

    0.14

     

     

    0.16

     

     

    0.21

     

    EPPL impairment (5)

     

     

    0.04

     

     

     

     

    0.34

     

    Brammo (6)

     

     

     

     

     

     

    (0.20

    )

    Intangible amortization (7)

    0.12

     

     

    0.07

     

     

    0.25

     

     

    0.14

     

    Other expenses (4)

    0.08

     

     

    0.03

     

     

    0.16

     

     

    0.03

     

    Adjusted EPS (8)

    $

    1.73

     

     

    $

    1.77

     

     

    $

    2.81

     

     

    $

    2.89

     

     

     

     

     

     

     

     

     

    (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 class action litigation-related expenses and the impacts of tax reform

    (5) Represents adjustments for the impairment of the Company's equity investment in Eicher-Polaris Private Limited (EPPL). This charge is included in Equity in loss of other affiliates (non-operating) on the Consolidated Statements of Income.

    (6) Represents a gain on the Company's investment in Brammo, Inc. This gain is included in Other income (non-operating) on the Consolidated Statements of Income.

    (7) Represents amortization expense for acquisition-related intangible assets

    (8) The Company used its estimated statutory tax rate of 23.8% for the non-GAAP adjustments in 2019 and 2018, 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,

    SEGMENT SALES

    2019

     

    2018

     

    2019

     

    2018

    ORV/Snow segment sales

    $

    1,049,321

     

     

    $

    990,841

     

     

    $

    1,916,768

     

     

    $

    1,823,405

     

    Restructuring & realignment (2)

     

     

    1,659

     

     

     

     

    2,129

     

    Adjusted ORV/Snow segment sales

    1,049,321

     

     

    992,500

     

     

    1,916,768

     

     

    1,825,534

     

     

     

     

     

     

     

     

     

    Motorcycles segment sales

    196,773

     

     

    171,412

     

     

    314,715

     

     

    302,969

     

    Victory wind down (1)

     

     

    798

     

     

     

     

    249

     

    Adjusted Motorcycles segment sales

    196,773

     

     

    172,210

     

     

    314,715

     

     

    303,218

     

     

     

     

     

     

     

     

     

    Global Adjacent Markets (GAM) segment sales

    121,924

     

     

    113,418

     

     

    226,880

     

     

    226,745

     

    No adjustment

     

     

     

     

     

     

     

    Adjusted GAM segment sales

    121,924

     

     

    113,418

     

     

    226,880

     

     

    226,745

     

     

     

     

     

     

     

     

     

    Aftermarket segment sales

    228,872

     

     

    226,861

     

     

    449,407

     

     

    446,886

     

    No adjustment

     

     

     

     

     

     

     

    Adjusted Aftermarket sales

    228,872

     

     

    226,861

     

     

    449,407

     

     

    446,886

     

     

     

     

     

     

     

     

     

    Boats segment sales

    182,425

     

     

     

     

    367,235

     

     

     

    No adjustment

     

     

     

     

     

     

     

    Adjusted Boats sales

    182,425

     

     

     

     

    367,235

     

     

     

     

     

     

     

     

     

     

     

    Total sales

    1,779,315

     

     

    1,502,532

     

     

    3,275,005

     

     

    2,800,005

     

    Total adjustments

     

     

    2,457

     

     

     

     

    2,378

     

    Adjusted total sales

    $

    1,779,315

     

     

    $

    1,504,989

     

     

    $

    3,275,005

     

     

    $

    2,802,383

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Three months ended June 30,

     

    Six months ended June 30,

    SEGMENT GROSS PROFIT

    2019

     

    2018

     

    2019

     

    2018

    ORV/Snow segment gross profit

    $

    312,689

     

     

    $

    297,221

     

     

    $

    564,924

     

     

    $

    540,782

     

    Restructuring & realignment (2)

     

     

    1,659

     

     

     

     

    2,129

     

    Adjusted ORV/Snow segment gross profit

    312,689

     

     

    298,880

     

     

    564,924

     

     

    542,911

     

     

     

     

     

     

     

     

     

    Motorcycles segment gross profit

    26,802

     

     

    24,672

     

     

    33,764

     

     

    41,240

     

    Victory wind down (1)

     

     

    (874

    )

     

     

     

    (822

    )

    Restructuring & realignment (2)

     

     

    1,185

     

     

     

     

    1,185

     

    Adjusted Motorcycles segment gross profit

    26,802

     

     

    24,983

     

     

    33,764

     

     

    41,603

     

     

     

     

     

     

     

     

     

    Global Adjacent Markets (GAM) segment gross profit

    33,884

     

     

    28,107

     

     

    63,713

     

     

    59,365

     

    Restructuring & realignment (2)

     

     

    (11

    )

     

     

     

    434

     

    Adjusted GAM segment gross profit

    33,884

     

     

    28,096

     

     

    63,713

     

     

    59,799

     

     

     

     

     

     

     

     

     

    Aftermarket segment gross profit

    55,214

     

     

    57,747

     

     

    111,689

     

     

    116,199

     

    No adjustment

     

     

     

     

     

     

     

    Adjusted Aftermarket segment gross profit

    55,214

     

     

    57,747

     

     

    111,689

     

     

    116,199

     

     

     

     

     

     

     

     

     

    Boats segment gross profit

    40,477

     

     

     

     

    76,641

     

     

     

    No adjustment

     

     

     

     

     

     

     

    Boats segment gross profit

    40,477

     

     

     

     

    76,641

     

     

     

     

     

     

     

     

     

     

     

    Corporate segment gross profit

    (32,618

    )

     

    (22,571

    )

     

    (61,835

    )

     

    (48,929

    )

    Restructuring & realignment (2)

    6,592

     

     

    3,212

     

     

    13,283

     

     

    8,089

     

    Adjusted Corporate segment gross profit

    (26,026

    )

     

    (19,359

    )

     

    (48,552

    )

     

    (40,840

    )

     

     

     

     

     

     

     

     

    Total gross profit

    436,448

     

     

    385,176

     

     

    788,896

     

     

    708,657

     

    Total adjustments

    6,592

     

     

    5,171

     

     

    13,283

     

     

    11,015

     

    Adjusted total gross profit

    $

    443,040

     

     

    $

    390,347

     

     

    $

    802,179

     

     

    $

    719,672

     

     

     

     

     

     

     

     

     

    (1) Represents adjustments for the wind down of Victory Motorcycles, including wholegoods, accessories and apparel

    (2) Represents adjustments for corporate restructuring, network realignment costs, and supply chain transformation

    NON-GAAP ADJUSTMENTS
    2019 Second Quarter Results & Full Year Guidance

    Restructuring, Realignment and Acquisition Related Costs
    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. Additionally, the Company has recorded acquisitions and integration related costs associated with the TAP and Boat Holdings acquisitions. For the second quarter of 2019, the Company has recorded combined costs totaling $9 million.

    Intangible amortization related to acquisitions
    As a result of the Boat Holdings acquisition, Polaris' amortization of intangible assets increased by approximately $20 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 has moved to an adjusted net income metric, excluding intangible amortization from all acquisitions. The Company believes this treatment will provide additional transparency into the true, ongoing earnings performance of its business. For the second quarter of 2019, Polaris excluded $10 million of intangible amortization related to acquisitions.

    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. For the full year ended December 31, 2018, Polaris has recorded charges totaling $27 million, including the impairment of the Company's equity investment in the Eicher-Polaris joint venture in India and wind down costs. No costs were recorded in 2019.

    2019 Adjusted Guidance
    2019 guidance excludes the pre-tax effect of acquisition integration costs of approximately $5 million to $10 million, supply chain transformation and network realignment costs of approximately $25 million to $30 million, and approximately $15 million to $20 million for class action litigation-related expenses. Intangible amortization of approximately $40 million related to all acquisitions has also been excluded. 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 restructuring and realignment costs and acquisition integration costs that are difficult to predict in advance in order to include in a GAAP estimate.

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    Investor Contact: Richard Edwards 763-513-3477

    Media Contact: Jess Rogers 763-513-3445

    Source: Polaris Industries Inc.