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    Polaris Fourth Quarter & Full Year 2019 Results

    01/28/2020

    Fourth Quarter & Full Year 2019 Highlights

    Fourth quarter reported and adjusted sales increased 7% to $1,736 million

    Fourth quarter reported net income was $1.58 per diluted share; adjusted net income for the same period was $1.83 per diluted share

    Full year reported and adjusted sales increased 12% to $6,783 million

    Full year 2019 reported net income was $5.20 per diluted share; adjusted net income for the same period was $6.32 per diluted share, exceeding the high-end of previously issued guidance

    North American retail sales increased 2% for the quarter compared to last year; ORV N.A. retail sales were up low-single digits percent, Indian motorcycles retail sales were up low-single digits percent

    Polaris announced full year 2020 sales and adjusted earnings guidance with full year sales growth in the range of 2% to 4% over the prior year and full year adjustedearnings in the range of $6.80 to $7.05 per diluted share.

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

     

    Key Financial Data

     

    (in thousands, except per share data)

     

     

     

     

     

     

     

     

    INCOME STATEMENT - Q4 December 31, 2019

    Reported

     

    YOY % Chg.

     

     

    Adjusted*

     

    YOY % Chg.

    Sales

    $

    1,735,866

     

     

    7%

     

     

    $

    1,735,866

     

     

    7%

    Net income attributable to Polaris

    $

    98,931

     

     

    8%

     

     

    $

    114,858

     

     

    1%

    Diluted EPS

    $

    1.58

     

     

    7%

     

     

    $

    1.83

     

     

    —%

     

     

     

     

     

     

     

     

     

    BALANCE SHEET - December 31, 2019

    Reported

     

    YOY % Chg.

     

     

     

     

     

    Cash and cash equivalents

    $

    157,064

     

     

    (3)%

     

     

     

     

     

    Inventories, net

    $

    1,121,111

     

     

    16%

     

     

     

     

     

    Total debt, finance lease obligations and notes payable

    $

    1,693,509

     

     

    (14)%

     

     

     

     

     

    Shareholders' equity

    $

    1,107,999

     

     

    28%

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    CASH FLOW - YTD December 31, 2019

    Reported

     

    YOY % Chg.

     

     

     

     

     

    Net cash provided by operating activities

    $

    655,036

     

     

    37%

     

     

     

     

     

    Purchase of property & equipment

    $

    251,374

     

     

    12%

     

     

     

     

     

    Repurchase and retirement of common shares

    $

    8,378

     

     

    (98)%

     

     

     

     

     

    Cash dividends to shareholders

    $

    149,101

     

     

    —%

     

     

     

     

     

    *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

    "We ended the year with positive fourth quarter retail momentum in both Off-Road Vehicles and Motorcycles, supporting strong full year, broad-based sales growth of 12 percent. While TAP grew modestly in the fourth quarter, non-TAP Parts, Garments and Accessories (PG&A) and aftermarket sales stole the show, eclipsing $1 billion for the first time in 2019. Our recent leadership changes were made to spur both tactical and strategic growth, and the 37 percent increase in Indian Motorcycle sales in the fourth quarter, driven largely by the Indian Challenger, demonstrates what is possible as Mike Dougherty takes over that important segment. Steve Menneto is aggressively moving to accelerate retail performance in Off-Road Vehicles and Snowmobiles, building off a strong year of financial performance in our largest business. In 2019, we delivered strong operational performance across Polaris, especially productivity and delivery, and we expect further gains to create value for customers and shareholders in the year ahead. Our commitment to being a customer-centric highly profitable growth company is unwavering, and I am extremely confident in this Polaris team to deliver on that promise."

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

    Fourth Quarter Performance Summary (Reported)

    (in thousands, except per share data)

    Three months ended December 31,

     

    2019

     

    2018

     

    Change

    Sales

    $

    1,735,866

     

     

    $

    1,627,120

     

     

    7

    %

    Gross profit

    423,344

     

     

    391,273

     

     

    8

    %

    % of Sales

    24.4

    %

     

    24.0

    %

     

    +34 bpts

    Total operating expenses

    307,693

     

     

    271,776

     

     

    13

    %

    % of Sales

    17.7

    %

    16.7

    %

    +102 bpts

    Income from financial services

    20,708

     

     

    23,313

     

     

    (11

    )%

    % of Sales

    1.2

    %

     

    1.4

    %

     

    -24 bpts

    Operating income

    136,359

     

     

    142,810

     

     

    (5

    )%

    % of Sales

    7.9

    %

     

    8.8

    %

     

    -92 bpts

    Net income attributable to Polaris

    98,931

     

     

    91,474

     

     

    8

    %

    % of Sales

    5.7

    %

     

    5.6

    %

     

    +8 bpts

    Diluted net income per share

    $

    1.58

     

     

    $

    1.47

     

     

    7

    %

     

    Polaris Inc. (NYSE: PII) (the "Company") today released fourth quarter 2019 results with sales of $1,736 million on a reported and adjusted basis, up seven percent from reported and adjusted sales of $1,627 million for the fourth quarter of 2018. The Company reported fourth quarter 2019 net income of $99 million, or 1.58 per diluted share, compared with net income of $91 million, or 1.47 per diluted share, for the 2018 fourth quarter. Adjusted net income for the quarter ended December 31, 2019 was $115 million, or $1.83 per diluted share compared to $113 million, or $1.83 per diluted share in the 2018 fourth quarter.

    Gross profit increased eight percent to $423 million for the fourth quarter of 2019 from $391 million in the fourth quarter of 2018. Reported gross profit margin was 24.4 percent of sales for the fourth quarter of 2019, up 34 basis points compared to 24.0 percent of sales for the fourth quarter of 2018. Adjusted gross profit for the fourth quarter 2019 was $428 million, or 24.7 percent of adjusted sales compared to the fourth quarter of 2018 adjusted gross profit of $394 million, or 24.2 percent of adjusted sales. Adjusted gross profit margins were up 42 basis points during the quarter. Adjusted gross profit for the fourth quarter of 2019 excludes the negative impact of $5 million of restructuring and realignment costs, and adjusted gross profit for the fourth quarter of 2018 excludes the negative impact of $3 million of restructuring and realignment costs.

    Operating expenses increased 13 percent for the fourth quarter of 2019 to $308 million, or 17.7 percent of sales, from $272 million, or 16.7 percent of sales, in the same period in 2018. Operating expenses in dollars and as a percent of sales increased primarily due to ongoing investment in research and development and strategic projects.

    Income from financial services was $21 million for the fourth quarter of 2019, down 11 percent compared with $23 million for the fourth quarter of 2018. The decrease was driven by lower retail credit income.

    Non-Operating Expenses (Reported)

     

    (in thousands)

    Three months ended December 31,

     

    2019

     

    2018

     

    Change

    Interest expense

    $

    16,817

     

     

    $

    19,880

     

     

    (15

    )%

    Equity in loss of other affiliates

    $

     

     

    $

    3,676

     

     

    NM

    Other income, net

    $

    (1,368

    )

     

    $

    (396

    )

     

    245

    %

    Provision for income taxes

    $

    21,955

     

     

    $

    28,176

     

     

    (22

    )%

     

     

     

     

     

     

    NM = Not meaningful

    Interest expense was $17 million for the fourth quarter of 2019 compared to $20 million for the same period last year due to lower debt levels.

    Equity in loss of other affiliates was $0 for the fourth quarter of 2019 compared to $4 million for the same period last year due to the write-down of certain investments during the fourth quarter of 2018.

    Other income, net, was $1 million in the fourth quarter of 2019 compared to $396 thousand in the fourth 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 fourth quarter of 2019 was $22 million, or 18.2 percent of pretax income, compared with $28 million, or 23.5 percent of pretax income for the fourth quarter of 2018. The decrease in the effective income tax rate is primarily due to favorable adjustments taken on the 2018 federal income tax return related to foreign tax credits, as well as, favorable adjustments related to the 2018 state research and development credit carryforwards.

     

    Product Segment Highlights (Reported)

    (in thousands)

    Sales

     

    Gross Profit (Loss)

     

    Q4 2019

     

    Q4 2018

     

    Change

     

    Q4 2019

     

    Q4 2018

     

    Change

    Off-Road Vehicles / Snowmobiles

    $

    1,139,890

     

     

    $

    1,060,458

     

     

    7

    %

     

    $

    315,424

     

     

    $

    282,495

     

     

    12

    %

    Motorcycles

    $

    119,481

     

     

    $

    87,361

     

     

    37

    %

     

    $

    (1,639

    )

     

    $

    2,228

     

     

    NM

    Global Adjacent Markets

    $

    120,372

     

     

    $

    121,648

     

     

    (1

    )%

     

    $

    35,088

     

     

    $

    33,063

     

     

    6

    %

    Aftermarket

    $

    221,083

     

     

    $

    212,318

     

     

    4

    %

     

    $

    49,229

     

     

    $

    52,074

     

     

    (5

    )%

    Boats

    $

    135,040

     

     

    $

    145,335

     

     

    (7

    )%

     

    $

    25,637

     

     

    $

    25,999

     

     

    (1

    )%

     

     

     

     

     

     

     

     

     

     

     

     

    NM = Not meaningful

     

     

     

     

     

     

     

     

     

     

     

    Off-Road Vehicles (“ORV”) and Snowmobiles segment sales, including PG&A, totaled $1,140 million for the fourth quarter of 2019, up seven percent over $1,060 million for the fourth quarter of 2018 driven by growth in side-by-side sales. PG&A sales for ORV and Snowmobiles combined increased seven percent in the fourth quarter of 2019 compared to the fourth quarter last year. Gross profit increased 12 percent to $315 million in the fourth quarter of 2019, compared to $282 million in the fourth quarter of 2018. Gross profit percentage increased 103 basis points during the 2019 fourth quarter due to favorable product mix.

    ORV wholegoodsales for the fourth quarter of 2019 increased 13 percent, primarily driven by positive mix. Polaris North American ORV retail sales were up low-single digits percent for the quarter with side-by-side vehicles up low-single digits percent and ATV vehicles up mid-single digits percent. The North American ORV industry was up mid-single digits percent compared to the fourth quarter last year.

    Snowmobile wholegood sales in the fourth quarter of 2019 were down 10 percent compared to the fourth quarter last year. Snowmobile sales growth was pressured by a challenging comparable in the prior year period, due to the timing of pre-season SnowCheck order shipments.

    Motorcycles segment sales, including PG&A, totaled $119 million, up 37 percent compared to the fourth quarter of 2018, led by strong sales of Indian Motorcycles. Slingshot reported a sales decline during the quarter. Gross profit for the fourth quarter of 2019 was negative $2 million compared to $2 million in the fourth quarter of 2018. The decrease in gross profit was primarily due to increased promotions and higher warranty costs.

    North American consumer retail sales for Polaris Indian motorcycles increased low-single digits percent during the fourth quarter of 2019 in a weak mid to heavy-weight two-wheel motorcycle industry that was down high-single digits percent. North American consumer retail sales for Polaris' motorcycle segment, including both Indian Motorcycles and Slingshot, decreased low-single digit percent during the fourth 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 fourth quarter of 2019.

    Global Adjacent Markets segment sales, including PG&A, decreased one percent to $120 million in the 2019 fourth quarter compared to $122 million in the 2018 fourth quarter primarily due to lower sales in the commercial, government and defense business. Gross profit increased six percent to $35 million or 29.1 percent of sales in the fourth quarter of 2019, compared to $33 million or 27.2 percent of sales in the fourth quarter of 2018, due to improved operational efficiency.

    Aftermarket segment sales of $221 million in the 2019 fourth quarter increased four percent compared to $212 million in the 2018 fourth quarter. Transamerican Auto Parts (TAP) sales of $185 million in the fourth quarter of 2019 increased one percent compared to $183 million in the fourth quarter of 2018. The Company's other aftermarket brands increased sales by 22 percent. Gross profit decreased to $49 million in the fourth quarter of 2019, compared to $52 million in the fourth quarter of 2018 due to higher tariff costs.

    Boats segment sales decreased seven percent to $135 million in the 2019 fourth quarter compared to $145 million in the 2018 fourth quarter primarily due to negative product mix and planned dealer inventory reductions. Gross profit decreased one percent to $26 million or 19.0 percent of sales in the fourth quarter of 2019, compared to $26 million or 17.9 percent of sales in the fourth quarter of 2018.

    Supplemental Data:

    Parts, Garments, and Accessories (“PG&A”) sales increased seven percent for the 2019 fourth quarter driven primarily by growth in ORV, snowmobiles and global adjacent markets.

    International sales to customers outside of North America, including PG&A, totaled $215 million for the fourth quarter of 2019, down one percent from the same period in 2018. The decrease was driven by negative currency rates.

     

    Financial Position and Cash Flow

    (in thousands)

    Twelve months ended December 31,

     

    2019

     

    2018

     

    Change

    Cash and cash equivalents

    $

    157,064

     

     

    $

    161,164

     

     

    (3

    )%

    Net cash provided by operating activities

    $

    655,036

     

     

    $

    477,112

     

     

    37

    %

    Repurchase and retirement of common shares

    $

    8,378

     

     

    $

    348,663

     

     

    (98

    )%

    Cash dividends to shareholders

    $

    149,101

     

     

    $

    149,032

     

     

    %

    Acquisition of businesses

    $

    1,800

     

     

    $

    759,801

     

     

    NM

    Total debt, finance lease obligations and notes payable

    $

    1,693,509

     

     

    $

    1,962,570

     

     

    (14

    )%

    Debt to Total Capital Ratio

    60

    %

     

    69

    %

     

     

     

     

     

     

     

     

    NM = Not meaningful

     

     

     

     

     

    Net cash provided by operating activities was $655 million for the twelve months ended December 31, 2019, compared to $477 million for the same period in 2018. Total debt at December 31, 2019, including finance lease obligations and notes payable, was $1,694 million. The Company’s debt-to-total capital ratio was 60 percent at December 31, 2019 compared to 69 percent at December 31, 2018. Cash and cash equivalents were $157 million at December 31, 2019, down from $161 million at December 31, 2018.

    2020 Business Outlook

    The Company announced its sales and adjusted earnings guidance for the full year 2020. Sales are expected to increase in the range of 2 percent to 4 percent over 2019 adjusted sales of $6,783 million and adjusted net income is expected to be in the range of $6.80 to $7.05 per diluted share for the full year 2020 compared to adjusted net income of $6.32 per diluted share for 2019. While the negative impact of tariffs remains a significant headwind on an annualized basis, the year-over-year impact is expected to be minimal to the Company’s 2020 full year earnings guidance.

    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.

    Earnings Conference Call and Webcast

    Today at 9:00 AM (CT) Polaris Inc. will host a conference call and webcast to discuss the 2019 fourth quarter results released this morning. The call will be hosted by Scott Wine, Chairman and CEO; and Mike Speetzen, Executive Vice President 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 1424755. A replay of the conference call will be available by accessing the same link on our website.

    About Polaris

    As the global leader in Powersports, Polaris Inc. (NYSE: PII) pioneers product breakthroughs and enriching experiences and services that have invited people to discover the joy of being outdoors since our founding in 1954. With annual 2019 sales of $6.8 billion, Polaris’ high-quality product line-up includes the Polaris RANGER®, RZR® and Polaris GENERAL™ side-by-side off-road vehicles; Sportsman® all-terrain off-road vehicles; Indian Motorcycle® mid-size and heavyweight motorcycles; Slingshot® moto-roadsters; snowmobiles; and deck, cruiser and pontoon boats, including industry-leading Bennington pontoons. 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 includes military and commercial off-road vehicles, quadricycles, and electric vehicles. Proudly headquartered in Minnesota, Polaris serves more than 100 countries across the globe. www.polaris.com

    Forward-looking Statements

    Except for historical information contained herein, the matters set forth in this news release, including management’s expectations regarding 2020 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 and supply chain 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 (tariff relief or ability to mitigate tariffs); 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.

    (summarized financial data follows)

     

    CONSOLIDATED STATEMENTS OF INCOME

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

     

    Three months ended December 31,

     

    Twelve months ended December 31,

     

    2019

     

    2018

     

    2019

     

    2018

    Sales

    $

    1,735,866

     

     

    $

    1,627,120

     

     

    $

    6,782,518

     

     

    $

    6,078,540

     

    Cost of sales

    1,312,522

     

     

    1,235,847

     

     

    5,133,736

     

     

    4,577,340

     

    Gross profit

    423,344

     

     

    391,273

     

     

    1,648,782

     

     

    1,501,200

     

    Operating expenses:

     

     

     

     

     

     

     

    Selling and marketing

    139,486

     

     

    122,278

     

     

    559,107

     

     

    491,773

     

    Research and development

    72,099

     

     

    61,941

     

     

    292,935

     

     

    259,682

     

    General and administrative

    96,108

     

     

    87,557

     

     

    393,930

     

     

    349,763

     

    Total operating expenses

    307,693

     

     

    271,776

     

     

    1,245,972

     

     

    1,101,218

     

    Income from financial services

    20,708

     

     

    23,313

     

     

    80,861

     

     

    87,430

     

    Operating income

    136,359

     

     

    142,810

     

     

    483,671

     

     

    487,412

     

    Non-operating expense:

     

     

     

     

     

     

     

    Interest expense

    16,817

     

     

    19,880

     

     

    77,589

     

     

    56,967

     

    Equity in loss of other affiliates

     

     

    3,676

     

     

    5,133

     

     

    29,252

     

    Other income, net

    (1,368

    )

     

    (396

    )

     

    (6,851

    )

     

    (28,056

    )

    Income before income taxes

    120,910

     

     

    119,650

     

     

    407,800

     

     

    429,249

     

    Provision for income taxes

    21,955

     

     

    28,176

     

     

    83,916

     

     

    93,992

     

    Net income

    98,955

     

     

    91,474

     

     

    323,884

     

     

    335,257

     

    Net (income) loss attributable to noncontrolling interest

    (24

    )

     

     

     

    76

     

     

     

    Net income attributable to Polaris Inc.

    $

    98,931

     

     

    $

    91,474

     

     

    $

    323,960

     

     

    $

    335,257

     

     

     

     

     

     

     

     

     

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

     

     

     

     

     

     

     

    Basic

    $

    1.61

     

     

    $

    1.49

     

     

    $

    5.27

     

     

    $

    5.36

     

    Diluted

    $

    1.58

     

     

    $

    1.47

     

     

    $

    5.20

     

     

    $

    5.24

     

    Weighted average shares outstanding:

     

     

     

     

     

     

     

    Basic

    61,564

     

     

    61,370

     

     

    61,437

     

     

    62,513

     

    Diluted

    62,714

     

     

    62,146

     

     

    62,292

     

     

    63,949

     

     

    CONSOLIDATED BALANCE SHEETS

    (In Thousands), (Unaudited)

     

    December 31,
    2019

     

    December 31,
    2018

     

     

     

     

    Assets

     

     

     

    Current Assets:

     

     

     

    Cash and cash equivalents

    $

    157,064

     

     

    $

    161,164

     

    Trade receivables, net

    190,430

     

     

    197,082

     

    Inventories, net

    1,121,111

     

     

    969,511

     

    Prepaid expenses and other

    125,908

     

     

    121,472

     

    Income taxes receivable

    32,447

     

     

    36,474

     

    Total current assets

    1,626,960

     

     

    1,485,703

     

    Property and equipment, net

    899,809

     

     

    843,122

     

    Investment in finance affiliate

    110,641

     

     

    92,059

     

    Deferred tax assets

    93,282

     

     

    87,474

     

    Goodwill and other intangible assets, net

    1,490,235

     

     

    1,517,594

     

    Operating lease assets

    110,153

     

     

     

    Other long-term assets

    99,449

     

     

    98,963

     

    Total assets

    $

    4,430,529

     

     

    $

    4,124,915

     

    Liabilities and Equity

     

     

     

    Current Liabilities:

     

     

     

    Current portion of debt, finance lease obligations and notes payable

    $

    166,695

     

     

    $

    66,543

     

    Accounts payable

    450,228

     

     

    346,294

     

    Accrued expenses:

     

     

     

    Compensation

    184,514

     

     

    167,857

     

    Warranties

    136,184

     

     

    121,824

     

    Sales promotions and incentives

    189,883

     

     

    167,621

     

    Dealer holdback

    145,823

     

     

    125,003

     

    Other

    213,892

     

     

    197,687

     

    Current operating lease liabilities

    34,904

     

     

     

    Income taxes payable

    5,867

     

     

    4,545

     

    Total current liabilities

    1,527,990

     

     

    1,197,374

     

    Long term income taxes payable

    28,092

     

     

    28,602

     

    Finance lease obligations

    14,814

     

     

    16,140

     

    Long-term debt

    1,512,000

     

     

    1,879,887

     

    Deferred tax liabilities

    3,952

     

     

    6,490

     

    Long-term operating lease liabilities

    77,926

     

     

     

    Other long-term liabilities

    143,955

     

     

    122,570

     

    Total liabilities

    $

    3,308,729

     

     

    $

    3,251,063

     

    Deferred compensation

    13,598

     

     

    6,837

     

    Equity:

     

     

     

    Total shareholders’ equity

    1,107,999

     

     

    866,736

     

    Noncontrolling interest

    203

     

     

    279

     

    Total equity

    1,108,202

     

     

    867,015

     

    Total liabilities and equity

    $

    4,430,529

     

     

    $

    4,124,915

     

     

    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (In Thousands), (Unaudited)

     

    Twelve months ended December 31,

     

    2019

     

    2018

    Operating Activities:

     

     

     

    Net income

    $

    323,884

     

     

    $

    335,257

     

    Adjustments to reconcile net income to net cash provided by operating activities:

     

     

     

    Depreciation and amortization

    234,513

     

     

    211,036

     

    Noncash compensation

    74,962

     

     

    63,966

     

    Noncash income from financial services

    (32,469

    )

     

    (30,130

    )

    Deferred income taxes

    (9,484

    )

     

    23,440

     

    Impairment charges

    3,558

     

     

    24,263

     

    Other, net

    1,575

     

     

    (8,489

    )

    Changes in operating assets and liabilities:

     

     

     

    Trade receivables

    6,812

     

     

    20,686

     

    Inventories

    (149,872

    )

     

    (149,701

    )

    Accounts payable

    103,766

     

     

    (984

    )

    Accrued expenses

    98,965

     

     

    7,170

     

    Income taxes payable/receivable

    4,860

     

     

    (4,490

    )

    Prepaid expenses and other, net

    (6,034

    )

     

    (14,912

    )

    Net cash provided by operating activities

    655,036

     

     

    477,112

     

     

     

     

     

    Investing Activities:

     

     

     

    Purchase of property and equipment

    (251,374

    )

     

    (225,414

    )

    Investment in finance affiliate, net

    13,887

     

     

    26,836

     

    Investment in other affiliates, net

     

     

    (1,113

    )

    Acquisition of businesses, net of cash acquired

    (1,800

    )

     

    (759,801

    )

    Net cash used for investing activities

    (239,287

    )

     

    (959,492

    )

     

     

     

     

    Financing Activities:

     

     

     

    Borrowings under debt arrangements / finance lease obligations

    3,368,853

     

     

    3,553,237

     

    Repayments under debt arrangements / finance lease obligations

    (3,638,864

    )

     

    (2,579,495

    )

    Repurchase and retirement of common shares

    (8,378

    )

     

    (348,663

    )

    Cash dividends to shareholders

    (149,101

    )

     

    (149,032

    )

    Proceeds from stock issuances under employee plans

    15,660

     

     

    47,371

     

    Net cash (used for) provided by financing activities

    (411,830

    )

     

    523,418

     

    Impact of currency exchange rates on cash balances

    (759

    )

     

    (9,530

    )

     

     

     

     

    Net increase in cash, cash equivalents and restricted cash

    3,160

     

     

    31,508

     

    Cash, cash equivalents and restricted cash at beginning of period

    193,126

     

     

    161,618

     

    Cash, cash equivalents and restricted cash at end of period

    $

    196,286

     

     

    $

    193,126

     

     

     

     

     

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

     

     

     

    Cash and cash equivalents

    $

    157,064

     

     

    $

    161,164

     

    Other long-term assets

    39,222

     

     

    31,962

     

    Total

    $

    196,286

     

     

    $

    193,126

     

     

    NON-GAAP RECONCILIATION OF RESULTS

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

     

    Three months ended December 31,

     

    Twelve months ended December 31,

     

    2019

     

    2018

     

    2019

     

    2018

    Sales

    $

    1,735,866

     

     

    $

    1,627,120

     

     

    $

    6,782,518

     

     

    $

    6,078,540

     

    Victory wind down (1)

     

     

    (490

    )

     

     

     

    823

     

    Restructuring & realignment (3)

     

     

    397

     

     

     

     

    3,177

     

    Adjusted sales

    1,735,866

     

     

    1,627,027

     

     

    6,782,518

     

     

    6,082,540

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Gross profit

    423,344

     

     

    391,273

     

     

    1,648,782

     

     

    1,501,200

     

    Victory wind down (1)

     

     

    (377

    )

     

     

     

    40

     

    Acquisition-related costs (2)

     

     

     

     

     

     

    3,130

     

    Restructuring & realignment (3)

    4,693

     

     

    3,410

     

     

    22,741

     

     

    19,375

     

    Adjusted gross profit

    428,037

     

     

    394,306

     

     

    1,671,523

     

     

    1,523,745

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Income before taxes

    120,910

     

     

    119,650

     

     

    407,800

     

     

    429,249

     

    Victory wind down (1)

     

     

    626

     

     

     

     

    2,383

     

    Acquisition-related costs (2)

    2,447

     

     

    5,939

     

     

    7,766

     

     

    22,737

     

    Restructuring & realignment (3)

    5,054

     

     

    3,448

     

     

    23,102

     

     

    26,012

     

    EPPL impairment (5)

     

     

    3,601

     

     

     

     

    27,048

     

    Brammo (6)

     

     

     

     

     

     

    (13,478

    )

    Intangible amortization (7)

    10,206

     

     

    10,341

     

     

    41,131

     

     

    32,932

     

    Other expenses (4)

    3,317

     

     

    2,529

     

     

    20,016

     

     

    7,539

     

    Adjusted income before taxes

    141,934

     

     

    146,134

     

     

    499,815

     

     

    534,422

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Net income attributable to PII

    98,931

     

     

    91,474

     

     

    323,960

     

     

    335,257

     

    Victory wind down (1)

     

     

    476

     

     

     

     

    1,815

     

    Acquisition-related costs (2)

    1,864

     

     

    4,528

     

     

    5,918

     

     

    17,327

     

    Restructuring & realignment (3)

    3,851

     

     

    2,627

     

     

    17,604

     

     

    19,819

     

    EPPL impairment (5)

     

     

    2,744

     

     

     

     

    25,069

     

    Brammo (6)

     

     

     

     

     

     

    (13,113

    )

    Intangible amortization (7)

    7,684

     

     

    7,729

     

     

    30,967

     

     

    24,437

     

    Other expenses (4)

    2,528

     

     

    3,850

     

     

    15,252

     

     

    8,960

     

    Adjusted net income attributable to PII (8)

    114,858

     

     

    113,428

     

     

    393,701

     

     

    419,571

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Diluted EPS attributable to PII

    $

    1.58

     

     

    $

    1.47

     

     

    $

    5.20

     

     

    $

    5.24

     

    Victory wind down (1)

     

     

    0.01

     

     

     

     

    0.03

     

    Acquisition-related costs (2)

    0.03

     

     

    0.07

     

     

    0.10

     

     

    0.27

     

    Restructuring & realignment (3)

    0.06

     

     

    0.05

     

     

    0.28

     

     

    0.31

     

    EPPL impairment (5)

     

     

    0.05

     

     

     

     

    0.39

     

    Brammo (6)

     

     

     

     

     

     

    (0.20

    )

    Intangible amortization (7)

    0.12

     

     

    0.12

     

     

    0.50

     

     

    0.38

     

    Other expenses (4)

    0.04

     

     

    0.06

     

     

    0.24

     

     

    0.14

     

    Adjusted EPS attributable to PII (8)

    $

    1.83

     

     

    $

    1.83

     

     

    $

    6.32

     

     

    $

    6.56

     

    (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 December 31,

     

    Twelve months ended December 31,

    SEGMENT SALES

    2019

     

    2018

     

    2019

     

    2018

    ORV/Snow segment sales

    $

    1,139,890

     

     

    $

    1,060,458

     

     

    $

    4,209,063

     

     

    $

    3,919,417

     

    Restructuring & realignment (3)

     

     

    397

     

     

     

     

    3,177

     

    Adjusted ORV/Snow segment sales

    1,139,890

     

     

    1,060,855

     

     

    4,209,063

     

     

    3,922,594

     

     

     

     

     

     

     

     

     

    Motorcycles segment sales

    119,481

     

     

    87,361

     

     

    584,096

     

     

    545,646

     

    Victory wind down (1)

     

     

    (490

    )

     

     

     

    823

     

    Adjusted Motorcycles segment sales

    119,481

     

     

    86,871

     

     

    584,096

     

     

    546,469

     

     

     

     

     

     

     

     

     

    Global Adjacent Markets (GAM) segment sales

    120,372

     

     

    121,648

     

     

    461,255

     

     

    444,644

     

    No adjustment

     

     

     

     

     

     

     

    Adjusted GAM segment sales

    120,372

     

     

    121,648

     

     

    461,255

     

     

    444,644

     

     

     

     

     

     

     

     

     

    Aftermarket segment sales

    221,083

     

     

    212,318

     

     

    906,751

     

     

    889,177

     

    No adjustment

     

     

     

     

     

     

     

    Adjusted Aftermarket sales

    221,083

     

     

    212,318

     

     

    906,751

     

     

    889,177

     

     

     

     

     

     

     

     

     

    Boats segment sales

    135,040

     

     

    145,335

     

     

    621,353

     

     

    279,656

     

    No adjustment

     

     

     

     

     

     

     

    Adjusted Boats sales

    135,040

     

     

    145,335

     

     

    621,353

     

     

    279,656

     

     

     

     

     

     

     

     

     

    Total sales

    1,735,866

     

     

    1,627,120

     

     

    6,782,518

     

     

    6,078,540

     

    Total adjustments

     

     

    (93

    )

     

     

     

    4,000

     

    Adjusted total sales

    $

    1,735,866

     

     

    $

    1,627,027

     

     

    $

    6,782,518

     

     

    $

    6,082,540

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Three months ended December 31,

     

    Twelve months ended December 31,

    SEGMENT GROSS PROFIT (LOSS)

    2019

     

    2018

     

    2019

     

    2018

    ORV/Snow segment gross profit

    $

    315,424

     

     

    $

    282,495

     

     

    $

    1,204,288

     

     

    $

    1,113,908

     

    Restructuring & realignment (3)

     

     

    397

     

     

     

     

    3,177

     

    Adjusted ORV/Snow segment gross profit

    315,424

     

     

    282,892

     

     

    1,204,288

     

     

    1,117,085

     

     

     

     

     

     

     

     

     

    Motorcycles segment gross profit

    (1,639

    )

     

    2,228

     

     

    44,065

     

     

    63,045

     

    Victory wind down (1)

     

     

    (377

    )

     

     

     

    40

     

    Restructuring & realignment (3)

    (469

    )

     

    45

     

     

    (469

    )

     

    1,220

     

    Adjusted Motorcycles segment gross profit

    (2,108

    )

     

    1,896

     

     

    43,596

     

     

    64,305

     

     

     

     

     

     

     

     

     

    Global Adjacent Markets (GAM) segment gross profit

    35,088

     

     

    33,063

     

     

    129,939

     

     

    116,583

     

    Restructuring & realignment (3)

     

     

    10

     

     

     

     

    490

     

    Adjusted GAM segment gross profit

    35,088

     

     

    33,073

     

     

    129,939

     

     

    117,073

     

     

     

     

     

     

     

     

     

    Aftermarket segment gross profit

    49,229

     

     

    52,074

     

     

    222,712

     

     

    234,365

     

    No adjustment

     

     

     

     

     

     

     

    Adjusted Aftermarket segment gross profit

    49,229

     

     

    52,074

     

     

    222,712

     

     

    234,365

     

     

     

     

     

     

     

     

     

    Boats segment gross profit

    25,637

     

     

    25,999

     

     

    124,613

     

     

    46,252

     

    Acquisition-related costs (2)

     

     

     

     

     

     

    3,130

     

    Boats segment gross profit

    25,637

     

     

    25,999

     

     

    124,613

     

     

    49,382

     

     

     

     

     

     

     

     

     

    Corporate segment gross profit

    (395

    )

     

    (4,586

    )

     

    (76,835

    )

     

    (72,953

    )

    Restructuring & realignment (3)

    5,162

     

     

    2,958

     

     

    23,210

     

     

    14,488

     

    Adjusted Corporate segment gross profit

    4,767

     

     

    (1,628

    )

     

    (53,625

    )

     

    (58,465

    )

     

     

     

     

     

     

     

     

    Total gross profit

    423,344

     

     

    391,273

     

     

    1,648,782

     

     

    1,501,200

     

    Total adjustments

    4,693

     

     

    3,033

     

     

    22,741

     

     

    22,545

     

    Adjusted total gross profit

    $

    428,037

     

     

    $

    394,306

     

     

    $

    1,671,523

     

     

    $

    1,523,745

     

     

     

     

     

     

     

     

     

    (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

     

    NON-GAAP ADJUSTMENTS
    Fourth Quarter & Full Year 2019 Results & 2020 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 fourth quarter of 2019, the Company has recorded combined costs totaling $8 million which was included as a NON-GAAP adjustment.

    Intangible amortization related to acquisitions

    As a result of the Boat Holdings acquisition, Polaris' amortization of intangible assets increased significantly 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 fourth quarter of 2019, Polaris included $10 million of intangible amortization related to acquisitions as a NON-GAAP adjustment.

    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 as a NON-GAAP adjustment. No costs were recorded in 2019.

    2020 Adjusted Guidance

    2020 guidance excludes the pre-tax effect of supply chain transformation, restructuring and network realignment costs of approximately $25 million to $30 million, and approximately $25 million to $30 million for class action litigation-related expenses. Intangible amortization of approximately $35 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.

    Investor Contact: Richard Edwards 763-513-3477

    Media Contact: Jess Rogers 763-513-3445

    Source: Polaris Industries Inc.