<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 10-Q
(Mark One)
--
| X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
--
ACT OF 1934
For the quarterly period ended June 30, 1994
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OR
--
| | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
-- EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-9653
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Polaris Industries Partners L.P.
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(Exact name of registrant as specified in its charter)
Delaware 11-2871657
-------------------------------- ------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1225 Highway 169 North, Minneapolis, MN 55441
- --------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(612) 542-0500
- -----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
Table of Contents
-----------------
Part I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1 - Financial Statements
Balance Sheets Pg. 3
Statements of Operations Pg. 4
Statements of Cash Flow Pg. 5
Statement of Changes in Partners' Capital Pg. 6
Notes to Financial Statements Pg. 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Results of Operations Pg. 11
Cash Distributions Pg. 12
Liquidity and Capital Resources Pg. 12
Part II. OTHER INFORMATION Pg. 13
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 3 - Defaults upon Senior Securities
Item 4 - Submission of Matters to a Vote
of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURE PAGE Pg. 14
</TABLE>
-2-
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POLARIS INDUSTRIES PARTNERS L.P.
Part I. FINANCIAL INFORMATION
- ------------------------------
Item 1 - Financial Statements
-----------------------------
POLARIS INDUSTRIES PARTNERS L.P.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C> <C>
6/30/94 12/31/93
-------- ---------
ASSETS:
Cash and Cash Equivalents $ 23,595 $ 33,798
Trade Receivables 22,104 21,340
Inventories 79,083 52,057
Prepaid Expenses and Other 2,234 2,553
-------- ---------
Total Current Assets 127,016 109,748
-------- ---------
Property and Equipment, net of Accumulated
Depreciation of $36,491 and $27,486 44,357 39,731
-------- ---------
Cost in Excess of Net Assets of Business
Acquired, net of Amortization of
$5,345 and $4,968 25,333 25,710
Dealer Network, net of Amortization
of $42,947 and $39,811 1,053 4,189
Other Intangible Assets, net of
Amortization of $2,367 and $2,311 1,114 1,170
-------- ---------
Total Intangible Assets 27,500 31,069
-------- ---------
TOTAL ASSETS $198,873 $ 180,548
-------- ---------
LIABILITIES AND PARTNERS' CAPITAL:
Note Payable to Bank $ 0 $ 0
Accounts Payable 56,972 36,122
Distributions Payable 12,736 11,851
Accrued Expenses 49,523 50,082
-------- ---------
Total Current Liabilities 119,231 98,055
-------- ---------
Partners' Capital:
General Partner (8,721) (7,397)
Limited Partners:
BACs 82,152 81,069
First Rights:
Assigned Capital Value 6,211 8,821
Deferred Compensation 0 0
-------- ---------
Total Partners' Capital 79,642 82,493
-------- ---------
TOTAL LIABILITIES AND CAPITAL $198,873 $ 180,548
-------- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-3-
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT DATA)
UNAUDITED
<TABLE>
<CAPTION>
2ND QTR YEAR TO 2ND QTR YEAR TO
ENDED DATE ENDED DATE
<S> <C> <C> <C> <C>
6/30/94 6/30/94 6/30/93 6/30/93
-------- -------- -------- --------
Sales $180,884 $326,355 $111,235 $218,350
Cost of Sales 143,890 258,101 82,846 164,213
-------- -------- -------- --------
GROSS PROFIT 36,994 68,254 28,389 54,137
Operating Expenses 25,358 46,780 20,496 38,801
-------- -------- -------- --------
OPERATING INCOME 11,636 21,474 7,893 15,336
Non operating Expense, net 1,094 2,366 1,351 2,656
-------- -------- -------- --------
NET INCOME $ 10,542 $ 19,108 $ 6,542 $ 12,680
======== ======== ======== ========
Allocation of Net Income to:
General Partner 2,192 3,974 1,361 2,637
Limited Partners $ 8,350 $ 15,134 $ 5,181 $ 10,043
======== ======== ======== ========
Net Income per Unit Data:
Net Income per Unit $ 0.51 $ 0.93 $ 0.32 $ 0.62
Weighted Average Number of BACs
and BAC equivalents 16,307 16,307 16,126 16,126
Cash Distributions Declared per Unit $ 0.63 $ 1.26 $ 0.625 $ 1.250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-4-
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
YEAR TO YEAR TO
DATE DATE
<S> <C> <C>
6/30/94 6/30/93
-------- --------
CASH FLOW FROM (USED IN) OPERATING ACTIVITIES:
Net income $ 19,108 $ 12,680
Adjustments to reconcile net income to cash flow
from operating activities:
Depreciation 9,053 6,364
Amortization 3,569 3,588
First Rights Compensation 3,572 3,170
-------- --------
35,302 25,802
Changes in current operating items -
Trade Receivables (764) 5,331
Inventories (27,026) (22,535)
Accounts payable 20,850 16,256
Others, net (299) (2,516)
-------- --------
Cash flow from (used in) operating activities 28,063 22,338
-------- --------
CASH FLOW FROM (USED FOR) INVESTING ACTIVITIES:
Purchase of property and equipment (13,679) (9,248)
Others 0 0
-------- --------
Cash flow from (used for) investing activities (13,679) (9,248)
CASH FLOW FROM (USED FOR) FINANCING ACTIVITIES:
Note payable to bank 0 0
Cash distributions to partners (24,587) (22,884)
-------- --------
Cash flow from (used for) financing activities (24,587) (22,884)
Increase (Decrease) in cash and cash equivalents (10,203) (9,794)
-------- --------
Cash and cash equivalents, beginning 33,798 19,094
-------- --------
Cash and cash equivalents, ending $ 23,595 $ 9,300
======== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-5-
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FROM JANUARY 1, 1994 TO JUNE 30, 1994
(IN THOUSANDS, EXCEPT UNIT DATA)
UNAUDITED
<TABLE>
<CAPTION>
LIMITED PARTNERS' INTEREST
------------------------------------------------------------------
FIRST RIGHTS TOTAL
--------------------
GENERAL LIMITED
PARTNERS' ASSIGNED DEFERRED PARTNERS'
INTEREST BACs CAP VALUE COMP. INTEREST TOTAL
---------- --------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 ($7,397) $ 81,069 $ 8,821 $0 $ 89,890 $ 82,493
First Rights conversion
to BACs - 6,122 (6,182) - (60) (60)
First Rights grants and
amortization - - 3,572 0 3,572 3,572
Net income for the period 3,974 15,134 - - 15,134 19,108
Cash distributions declared
at $1.26 per unit (5,298) (20,173) 0 0 (20,173) (25,471)
--------- -------- --------- -------- -------- --------
Balance, June 30, 1994 ($8,721) $ 82,152 $ 6,211 $0 $ 88,363 $ 79,642
========= ======== ========= ======== ========
Less General Partners' negative
account balance
(8,721)
--------
Amount available to the Limited
Partners' interests $ 79,642
========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-6-
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
---------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial statements and, therefore, do not include all information and
disclosures of results of operations, financial position and changes in
cash flow in conformity with generally accepted accounting principles for
complete financial statements. In the opinion of management, such
statements reflect all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented.
NOTE 2. Cash Distributions and Allocation of Profits and Losses
-------------------------------------------------------
Cash Distributions:
Cash distributions from operations are determined at the discretion of
EIP Associates L.P., a Delaware limited partnership (the "General
Partner"), and are effectively to be allocated first 98.01 percent to the
limited partners and 1.99 percent to the General Partner to the extent
required for limited partners to receive a cumulative 15 percent return
on their original split-adjusted $10 per unit investment. Thereafter,
all distributions are allocated 79.2 percent to the limited partners and
20.8 percent to the General Partner.
Allocation of profits and losses:
Polaris Industries Partners L.P., a Delaware limited partnership (the
"Partnership"), allocates income to the General and limited partners in
proportion to the cash distributions to them. Since the General Partner
has received a 20.8 percent share of the cash distributions for each
period presented, 20.8 percent of the income has been allocated to the
General Partner in each period. Management anticipates the limited
partners will continue to be allocated a 79.2 percent share of net income
for the remainder of 1994 because the General Partner will continue to
receive a 20.8 percent share of the planned distributions in 1994.
-7-
<PAGE>
Polaris Industries Partners L.P.
Notes to Financial Statements
Page 2 of 4
NOTE 2. Cash Distributions and Allocation of Profits and Losses
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(cont'd)
Net income per unit:
Net income per unit (which differs from taxable income) is calculated
based on the weighted average number of BACs and BAC equivalents
outstanding during each period. All periods presented have been
retroactively adjusted for a two-for-one BAC split which took place in
1993. Effective with the cash distribution declared on February 27,
1992, 850,000 Second Rights became BAC equivalents. BAC equivalents
represent the number of BACs issuable upon conversion of the First and
Second Rights. The 850,000 Second Rights were converted to an equivalent
number of BACs on January 6, 1994.
NOTE 3. Inventories
-----------
The major components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
------------- -----------------
<S> <C> <C>
Raw Materials $22,604 $21,571
Service Parts 30,914 23,379
Finished Goods 25,565 7,107
------- -------
$79,083 $52,057
======= =======
</TABLE>
NOTE 4. Financing Agreement
-------------------
Effective March 31, 1994, Polaris Industries L.P., a Delaware limited
partnership (the "Operating Partnership"), entered into an unsecured bank
line of credit arrangement to meet seasonal short-term financing needs
with a maximum available of $40,000,000. Interest is charged at the
prime interest rate, CD-based or LIBOR-based rates and the agreement
expires March 31, 1995. The Operating Partnership holds substantially
all net assets of the Partnership and has agreed to certain limitations
on distributions to the Partnership.
NOTE 5. Distribution Payable
--------------------
On May 23, 1994, the General Partner declared a regular quarterly
distribution of $0.63 per BAC to holders of record on June 15, 1994 and
payable on or about August 15, 1994. This distribution will total
approximately $12,736,000.
-8-
<PAGE>
Polaris Industries Partners L.P.
Notes to Financial Statements
Page 3 of 4
NOTE 6. Commitments and Contingencies
-----------------------------
The Partnership has elected not to insure for product liability losses.
The costs resulting from any losses are charged to operating expenses
when it is probable a loss has been incurred and the amount of the loss
is determinable.
The Partnership is a defendant in lawsuits and subject to claims arising
in the normal course of business. While it is not feasible to predict or
determine the outcome of any of these cases, it is the opinion of
management that their outcomes will not have a material adverse effect on
the financial position or operations of the Partnership.
In 1990, the Canadian income tax authorities proposed certain
adjustments, principally relating to the original purchase price
allocation to the Partnership's Canadian subsidiary and transfer pricing
matters, for additional income taxes payable by the Partnership's
Canadian subsidiary for 1987 and 1988. The resolution of these proposed
adjustments may also affect the Partnership's Canadian income tax expense
for years subsequent to 1988. The Partnership has been informed of
Revenue Canada's intent to initiate audits of the tax years 1989 through
1992. Management intends to vigorously contest a substantial amount of
the proposed adjustments, and the ultimate liability, if any, cannot be
reasonably estimated. Management does not believe that the outcome of
this matter will have a materially adverse impact on the financial
position or continuing operations of the Partnership.
NOTE 7. Litigation
----------
EIP Capital Corporation (the Managing General Partner), its president and
two of its directors are among the defendants in a lawsuit filed on March
5, 1993 by a minority shareholder of the Managing General Partner which
seeks the replacement of these two directors and monetary damages of
unspecified amounts from the defendants. The lawsuit charges that these
two directors appropriated control and money, and that certain of the
defendants breached their fiduciary duties to the plaintiff in connection
with the original limited partnership offering. The Managing General
Partner believes the allegations are without merit and intends to
vigorously contest them. Claims in the litigation involve only rights
among holders in interest in the Managing General Partner.
-9-
<PAGE>
Polaris Industries Partners L.P.
Notes to Financial Statements
Page 4 of 4
NOTE 8. Litigation (cont'd)
----------
No claims have been asserted in respect of the Class A Limited
Partnership Interests or the BACs. Accordingly, management believes the
litigation will not have any effect on the operations of the Operating
Partnership or distributions to BAC holders.
-10-
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
Item 2
------
POLARIS INDUSTRIES PARTNERS L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion pertains to the results of operations and financial
position of Polaris Industries Partners L.P., a Delaware limited partnership
(the "Company" or the "Partnership"), for the quarters and six-month periods
ended June 30, 1994 and 1993. Due to the seasonal nature of the snowmobile,
all-terrain vehicle (ATV), and personal watercraft (PWC) business, and to
certain changes in production and shipping cycles, results of such periods are
not necessarily indicative of the results to be expected for the complete year.
Results of Operations
- ---------------------
Historically, production and shipments during the second quarter of each year
have been devoted primarily to snowmobiles. However, with the introduction of
the PWC in 1992, together with the continued growth of the ATV product line,
snowmobiles comprised just 25% of all finished goods unit shipments during the
second quarter of 1994, as compared to 57% for the second quarter of 1993.
ATV unit sales volume increased 155% over the prior year second quarter, while
PWC unit sales volume increased 274%. To allow for this increased production of
ATVs and PWC, the start of snowmobile production was delayed in 1994 compared to
1993, causing the second quarter unit sales volume of snowmobiles to decrease by
29%. For the year-to-date period ended June 30, 1994, these increases in demand
resulted in an overall 42% increase in finished goods shipments compared to
1993.
These factors are the principal cause for the $69.6 million increase in sales
for the second quarter of 1994 to $180.9 million. This represents a 63%
increase in sales over the $111.2 million recorded in the second quarter of
1993. Sales for the year-to-date period ended June 30, 1994 of $326.4 million
represent a 49% increase over the prior year-to-date period.
The gross margin percentage decreased to 20.5% for the second quarter and 20.9%
for the year-to-date period ended June 30, 1994 compared to 25.5% and 24.8% for
the comparable periods in 1993. These decreases in gross margin percentages are
primarily a result of the following: (a) the change in product mix in the first
half of 1994 since sales of ATVs and PWC generate lower gross margins than
snowmobiles; and (b) continued increases in raw material purchase prices for
certain component parts because of the weakening of the U.S. dollar in relation
to the Japanese yen.
-11-
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations (cont'd)
Operating expenses increased $4.9 million during the second quarter and $8.0
million for the six-month period as a result of the sales volume increase, but
as a percentage of sales, decreased to 14.0% for the second quarter and 14.3%
for the six-month period ended June 30, 1994 compared to 18.4% and 17.8% for the
comparable periods of 1993. Non-operating expenses of $1.1 million for the
second quarter 1994 and $2.4 million for the year-to-date period are relatively
consistent with those of the prior year periods.
Management currently anticipates that total year 1994 unit production and sales
for each of snowmobiles, ATVs, and PWC will increase appreciably over 1993
levels. Management currently believes that its operating results for the full
year 1994 also will be appreciably better than those of 1993, although there can
be no assurance in this regard. Moreover, certain quarter-to-quarter results
may not be comparable because of anticipated differences in the product mix and
shipment dates.
Cash Distributions
- ------------------
On May 23, 1994 EIP Associates L.P., a Delaware limited partnership (the
"General Partner"), declared a regular quarterly distribution to BAC holders of
$0.63 per unit totaling $12.7 million. At June 30, 1994 the cumulative cash
distributions declared continue to exceed a 15% return on the original $10 per
unit investment as adjusted for the split. As provided for in the Partnership
Agreement, cash distributions have been, and will continue to be, allocated
79.2% to limited partners and 20.8% to the General Partner as long as such
distributions cumulatively exceed a 15% return on a quarterly basis.
Liquidity and Capital Resources
- -------------------------------
The seasonality of production and shipments causes working capital requirements
to fluctuate during the year. At June 30, 1994 the Operating Partnership had no
short-term debt and had utilized its bank line to the extent of letters of
credit outstanding of $7.1 million related to purchase obligations for raw
materials.
Effective March 31, 1994, the Operating Partnership entered into a $40 million
unsecured bank line of credit arrangement with interest charged at the prime
interest rate, CD-based or LIBOR-based rates, expiring March 31, 1995. The
Operating Partnership has agreed to certain limitations on distributions from
the Operating Partnership to the Partnership in certain circumstances.
Management believes that existing cash balances, cash flow to be generated from
operating activities and available borrowing capacity will be sufficient to fund
operations, regular quarterly distributions and capital requirements for the
balance of 1994. At this time, management is not aware of any factors that would
have a materially adverse impact on cash flows beyond 1994.
-12-
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
PART II. OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings
--------------------------
None.
Item 2 - Changes in Securities
------------------------------
None.
Item 3 - Defaults upon Senior Securities
----------------------------------------
None.
Item 4 - Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
None.
Item 5 - Other Information
--------------------------
None.
Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
--------
Exhibit No. 11 - Computation of Net Income Per Unit
(b) Reports on Form 8-K
-------------------
None.
-13-
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POLARIS INDUSTRIES PARTNERS L.P.
(Registrant)
By EIP ASSOCIATES L.P.,
General Partner
By EIP CAPITAL CORPORATION,
General Partner
Date: August 9, 1994 By: /s/Victor K. Atkins, Jr.
-------------------------
Victor K. Atkins, Jr.,
President (Chief Executive
Officer), Secretary,
Treasurer (Principal
Financial Officer and
Chief Accounting Officer)
-14-
<PAGE>
EXHIBIT 11
POLARIS INDUSTRIES PARTNERS L.P.
COMPUTATION OF NET INCOME PER UNIT
UNAUDITED
<TABLE>
<CAPTION>
QUARTER ENDED YEAR-TO DATE
------------------------ ------------------------
6/30/94 6/30/93 6/30/94 6/30/93
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total net income per period $10,542,000 $ 6,542,000 $19,108,000 $12,680,000
Allocated to:
General Partner 2,192,000 1,361,000 3,974,000 2,637,000
----------- ----------- ----------- -----------
Limited Partners $ 8,350,000 $ 5,181,000 $15,134,000 $10,043,000
=========== =========== =========== ===========
Average A-BACs 15,965,000 14,899,000 15,965,000 14,899,000
Average First Rights 342,000 377,000 342,000 377,000
Average Second Rights 0 850,000 0 850,000
----------- ----------- ----------- -----------
Total BACs and equivalents 16,307,000 16,126,000 16,307,000 16,126,000
========== ========== ========== ==========
Income per unit: $0.51 $0.32 $0.93 $0.62
===== ===== ===== =====
</TABLE>
