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 September 30, 1994
OR
__
|__| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-9653
Polaris Industries Partners L.P.
(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 required 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
Item 1 - Financial Statements
Balance Sheets Pg. 3
Statements of Operations Pg. 4
Statements of Cash Flows 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. 13
Part II. OTHER INFORMATION Pg. 15
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. 16
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POLARIS INDUSTRIES PARTNERS L.P.
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
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POLARIS INDUSTRIES PARTNERS L.P.
BALANCE SHEETS
(IN THOUSANDS)
<S> <C> <C>
(UNAUDITED)
9/30/94 12/31/93
ASSETS:
Cash and Cash Equivalents $ 53,733 $ 33,798
Trade Receivables 42,114 21,340
Inventories 78,645 52,057
Prepaid Expenses and Other 3,951 2,553
Total Current Assets 178,443 109,748
Property and Equipment, net of Accumulated
Depreciation of $37,970 and $27,486 45,703 39,731
Cost in Excess of Net Assets of Business
Acquired, net of Amortization of
$5,534 and $4,968 25,144 25,710
Dealer Network, net of Amortization
of $44,000 and $39,811 0 4,189
Other Intangible Assets, net of
Amortization of $2,394 and $2,311 1,087 1,170
Total Intangible Assets 26,231 31,069
TOTAL ASSETS $250,377 $180,548
LIABILITIES AND PARTNERS' CAPITAL:
Note Payable to Bank $ 0 $ 0
Accounts Payable 65,500 36,122
Distributions Payable 12,735 11,851
Accrued Expenses 71,164 50,082
Total Current Liabilities 149,399 98,055
Partners' Capital:
General Partner (4,817) (7,397)
Limited Partners:
BACs 97,016 81,069
First Rights:
Assigned Capital Value 8,779 8,821
Deferred Compensation 0 0
Total Partners' Capital 100,978 82,493
TOTAL LIABILITIES AND CAPITAL $250,377 $180,548
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
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<CAPTION>
POLARIS INDUSTRIES PARTNERS L.P.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT DATA)
UNAUDITED
<S> <C> <C> <C> <C>
3RD QTR YEAR TO 3RD QTR YEAR TO
ENDED DATE ENDED DATE
9/30/94 9/30/94 9/30/93 9/30/93
Sales $258,370 $584,725 $166,803 $385,153
Cost of Sales 184,992 443,093 118,207 282,420
GROSS PROFIT 73,378 141,632 48,596 102,733
Operating Expenses 39,006 85,786 27,066 65,867
OPERATING INCOME 34,372 55,846 21,530 36,866
Non-operating Expense
(Income), net (485) (772) 712 878
INCOME BEFORE INCOME TAXES 34,857 56,618 20,818 35,988
Income Taxes 3,354 6,007 2,056 4,546
NET INCOME $ 31,503 $ 50,611 $ 18,762 $ 31,442
Allocation of Net Income to:
General Partner $ 6,553 $ 10,527 $ 3,902 $ 6,540
Limited Partners 24,950 40,084 14,860 24,902
Net Income per Unit Data:
Net Income per Unit $1.53 $2.46 $0.92 $1.54
Weighted Average Number of BACs
and BAC equivalents 16,315 16,315 16,125 16,125
Cash Distributions Declared per Unit $0.63 $1.89 $0.63 $1.88
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
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<TABLE>
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POLARIS INDUSTRIES PARTNERS L.P.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
YEAR TO YEAR TO
DATE DATE
9/30/94 9/30/93
<S> <C> <C>
CASH FLOW FROM (USED IN) OPERATING ACTIVITIES:
Net income $50,611 $31,442
Adjustments to reconcile net income to
cash flow from operating activities:
Depreciation 14,572 9,034
Amortization 4,838 5,378
First Rights Compensation 6,140 5,029
76,161 50,883
Changes in current operating items -
Trade Receivables (20,774) (17,307)
Inventories (26,588) (21,986)
Accounts payable 29,378 20,289
Others, net 19,624 11,237
Cash flow from (used in) operating activities 77,801 43,116
CASH FLOW FROM (USED FOR) INVESTING ACTIVITIES:
Purchase of property and equipment (20,544) (13,055)
Cash flow from (used for) investing activities (20,544) (13,055)
CASH FLOW FROM (USED FOR) FINANCING ACTIVITIES:
Note payable to bank 0 0
Cash distributions to partners (37,322) (34,641)
Cash flow from (used for) financing activities (37,322) (34,641)
Increase (Decrease) in cash and cash equivalents 19,935 (4,580)
Cash and cash equivalents at beginning of period 33,798 19,094
Cash and cash equivalents at end of period $53,733 $14,514
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POLARIS INDUSTRIES PARTNERS L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FROM JANUARY 1, 1994 TO SEPTEMBER 30, 1994
(IN THOUSANDS, EXCEPT PER UNIT DATA)
UNAUDITED
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 6,140 0 6,140 6,140
Net income for the period 10,527 40,084 40,084 50,611
Cash distributions declared
at $1.89 per unit (7,947) (30,259) 0 0 (30,259) (38,206)
Balance, September 30, 1994 ($4,817) $97,016 $ 8,779 $0 $105,795 $100,978
Less General Partners' negative
account balance (4,817)
Amount available to the Limited
Partners' interests $100,978
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<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 from operations:
Cash distributions from operations are determined at the
discretion of EIP Associates L.P., a Delaware limited
partnership (the "General Partner"), and are allocated 79.2%
to the limited partners and 20.8% 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% share of the cash distributions for each
period presented, 20.8% 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%
share of net income for the remainder of 1994 because the
General Partner will continue to receive a 20.8% share of
planned distributions in 1994.
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. Effective
with the cash distributions 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.
<PAGE>
NOTE 3. Inventories
The major components of inventories are as follows (in
thousands):
September 30, 1994 December 31, 1993
Raw Materials $26,648 $21,571
Service Parts 28,319 23,379
Finished Goods 23,678 7,107
$78,645 $52,057
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 million. Interest is charged at the prime interest
rate, or C.D.-based or LIBOR-based rates, and the agreement
expires May 1, 1995. The Operating Partnership holds
substantially all net assets of the Partnership and has
agreed to certain limitations on distributions to Partners.
5. Distribution Payable
On August 25, 1994, the General Partner declared a regular
quarterly distribution of $0.63 per BAC to holders of record
on September 15, 1994 and payable on or about November 15,
1994. This distribution will total approximately
$12,735,000.
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 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.
7. Litigation
In August, 1994, EIP Capital Corporation (the "Managing
General Partner"), its president, and two of its directors
settled a lawsuit filed by a minority shareholder of the
Managing General Partner, with no resulting impact on the
Partnership's financial statements.
8. Conversion to Corporate Form
On September 30, 1994, the Partnership announced that it had
filed a preliminary Proxy Statement/Prospectus with the
Securities and Exchange Commission relating to its plans to
convert from its current limited partnership structure to a
taxable C Corporation structure. The conversion calls for
each BAC to be exchanged tax-free for one share of common
stock of the new corporation, Polaris Industries Inc. If the
conversion is effected, (i) Polaris Industries Inc. will,
directly and indirectly, own 100% of the Partnership and will
continue to conduct the business and operations of the
Operating Partnership, and (ii) BAC holders (including
affiliates of the General Partner) and holders of First
Rights previously granted will receive, in exchange for their
BACs and upon exercise of such First Rights, as the case may
be, 88.6% of the common stock of Polaris Industries Inc., and
affiliates of the General Partner will receive, in exchange
for their interest in the General Partner and its affiliates,
the remaining 11.4% of the common stock of Polaris Industries
Inc., after giving effect to the exercise of such First
Rights. The Proxy Statement/Prospectus details that senior
operating management of the Operating Partnership intends,
upon conversion, to recommend that Polaris Industries Inc.'s
board of directors pay a combination of regular dividends of
$0.60 per share per year, plus three special distributions of
$1.92 per share over each of the last three quarters of 1995
(to the extent not previously distributed by the Partnership
prior to the conversion). These anticipated dividends are
subject to certain legal and contractual requirements and the
financial requirements of the business. The Partnership's
proposed conversion to corporate form is subject to receipt
of appropriate tax opinions, receipt of regulatory approvals,
and the approval of BAC holders.
<PAGE>
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 nine-month periods ended
September 30, 1994 and 1993. Due to the seasonal nature of some
of the products, and to certain changes in production and
shipping cycles, results of such periods are not necessarily
indicative of the results to be expected for the complete year.
Results of Operations
Sales for the third quarter ended September 30, 1994 were $258.4
million, representing a 55% increase over the $166.8 million of
sales for the same period in 1993. Total finished goods
shipments for the third quarter 1994 have increased 44% over the
third quarter of 1993. Snowmobile unit sales volume increased
41% during the third quarter of 1994, while ATV unit sales volume
increased 49% over the prior year third quarter. Very little PWC
production and sales occur in the third quarter period.
Sales for the nine months ended September 30, 1994 increased to
$584.7 million, representing a 52% increase over the $385.2
million of sales for the same period in 1993. Total finished
goods shipments for the 1994 period have increased 43% over the
same period in 1993. The Partnership's increase in sales in the
1994 period is primarily attributable to the broadening of the
three product lines and the continued popularity of all Polaris
products. Additional factors include the growth of the worldwide
snowmobile market, the continuing favorable U.S. economy and an
aggressive pricing strategy.
Snowmobile unit sales volume increased 16% during the nine month
1994 period, primarily because of continued growth in sales of
the high performance, lightweight XLT model.
ATV unit sales volume increased 45% during the nine month 1994
period, primarily because of the continued growth in the utility
and sports-enthusiasts' markets and the addition of a dedicated
ATV production line with corresponding improvement in product
availability at the dealer level.
PWC unit sales volume increased 160% during the nine month 1994
period, primarily because of the fast growth in the PWC market
and due to the introduction of models aimed at both the family
and sports rider market segments.
<PAGE>
The average sales price per unit in the nine month 1994 period
increased over the comparable period in 1993 by 3% for
snowmobiles, 11% for ATVs and 3% for PWC, principally through the
introduction and sale of more high-performance models that have a
higher selling price than economy models.
The gross margin percentage decreased to 28.4% for the third
quarter and 24.2% for the nine month period ended September 30,
1994 compared to 29.1% and 26.7% for the comparable periods in
1993. These decreases in gross margin percentages are primarily
the result of the following: (a) the change in product mix
towards a greater percentage of sales from ATVs and PWC, which
generate lower gross margins than snowmobiles; (b) increases in
raw material cost of certain component parts because of the
weakening of the U.S. dollar in relation to the Japanese yen; and
(c) strengthening of the U.S. dollar in relation to the Canadian
dollar, which results in lower gross margins from the
Partnership's Canadian subsidiary operation.
Operating expenses increased over the comparable 1993 period by
$11.9 million during the third quarter and $19.9 million for the
nine-month period of 1994 as a result of the sales volume
increase, but as a percentage of sales, decreased to 15.1% for
the third quarter and 14.7% for the nine-month period ended
September 30, 1994, compared to 16.2% and 17.1% for the
comparable periods of 1993. These percentage decreases are due
primarily to the Partnership's ability to support an increasing
level of sales without a ratable increase in operating expenses,
principally personnel.
The change in non-operating expense (income) for the third
quarter and nine-month period of 1994 is primarily attributable
to investment income generated by higher cash and cash equivalent
balances during the 1994 period compared to the 1993 period.
Income tax expense increased over the comparable 1993 period by
$1.3 million during the third quarter and $1.5 million for the
nine-month period of 1994. These increases are attributable
primarily to additional reserves established related to the
Canadian income tax examination in process.
Cash Distributions
On August 25, 1994 the Partnership declared a regular quarterly
distribution to BAC holders of $0.63 per unit totaling $12.7
million. At September 30, 1994 the cumulative cash distributions
declared continued to exceed a 15% annual return on the original
$10 per unit investment as adjusted for the two-for-one split
effective August 18, 1993. As provided for in the Partnership
<PAGE>
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%
annual return.
The Partnership has no present intention of increasing cash
distributions even if its taxable income increases. As in prior
years, BAC holders will be required to report and pay tax on
their share of the Partnership's taxable income. In view of the
Partnership's recent strong performance, its taxable income
currently is expected to exceed, by a substantial amount, the
amount of cash distributions. Increases in taxable income are
likely to correspond to increases in book income of the
Partnership which, for the nine month period ended September 30,
1994 increased by over 50% compared to the same period in 1993.
The disparity between taxable income and cash distributions is
expected to increase for the foreseeable future, and will be
greater for those BAC holders that have held BACs for longer
periods of time and purchased their BACs at lower prices.
Liquidity and Capital Resources
The Partnership's primary sources of funds have been cash
provided by operating activities, a seasonal line of credit and a
dealer financing program provided by third parties. The
Partnership's primary uses of funds have been for distributions
to partners, capital investments and for new product development.
During the nine months ended September 30, 1994, the Partnership
generated net cash from operating activities of $77.8 million,
which was utilized to fund distributions of $37.3 million and
cash capital expenditures of $20.5 million. At September 30,
1994, cash and cash equivalents totaled $53.7 million, an
increase of $19.9 million from December 31, 1993. Working
capital totaled $29.0 million at September 30, 1994, an increase
of $17.3 million from December 31, 1993.
The seasonality of production and shipments causes working
capital requirements to fluctuate during the year. The Operating
Partnership has a $40 million unsecured bank line of credit
arrangement expiring May 1, 1995, with interest charged at the
prime interest rate, CD-based or LIBOR-based rates. In
connection with this arrangement, the Operating Partnership has
agreed to certain limitations on distributions from the Operating
Partnership to the Partnership in certain circumstances. At
September 30, 1994, the Operating Partnership had no short-term
debt under this line of credit and had utilized its bank line to
the extent of letters of credit outstanding of $17.5 million
related to purchase obligations for raw materials.
The proposed conversion of the Partnership to corporate form will
significantly impact future liquidity and capital resources, as a
result of (a) the proposed plan to make special distributions
aggregating approximately $104.9 million ($5.76 per share) to be
paid in three equal installments during each of the last three
quarters of 1995, (b) the proposed plan to pay regular quarterly
dividends of $0.15 per share, or approximately $10.9 million per
year, (c) the Partnership's incurrence of approximately $11
million in expenses in connection with the proposed conversion,
and (d) the successor Corporation's payment of corporate federal,
state and certain foreign income taxes on current earnings, which
taxes are estimated to be approximately 36% of pre-tax income.
It is anticipated that a total of approximately $70 million in
debt will be incurred in the third and fourth quarters of 1995 to
finance the special distributions. As a result, the successor
Corporation will be required to obtain financing in addition to
the Partnership's current bank line of credit. Management
believes that requisite financing can be obtained on acceptable
terms.
At this time, management is not aware of any other factors that
would have a materially adverse impact on cash flows beyond 1994.
<PAGE>
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
See the Company's current reports on Form 8-K dated as of
August 31, 1994 and October 14, 1994.
Item 2 - Changes in Securities
None.
Item 3 - Defaults upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
On September 30, 1994 the Partnership filed a preliminary
Proxy Statement/Prospectus with the Securities and Exchange
Commission relating to its plans to convert from its current
limited partnership structure to a taxable C corporation
structure.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of Net Income Per Unit.
(b) Reports on Form 8-K
The Partnership filed a current report on Form 8-K on
August 31, 1994, with respect to Item 5 (Other
Events) and Item 7(c) (Exhibits). The Partnership
also filed a current report on Form 8-K on October
14, 1994 with respect to Item 5 (Other Events) and
Item 7(c) (Exhibits).
<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: November 14, 1994 By: /s/Victor K. Atkins, Jr.
Victor K. Atkins, Jr.,
President (Chief Executive
Officer), Secretary,
Treasurer (Principal
Financial Officer and
Chief Accounting Officer)
<PAGE>
EXHIBIT 11
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POLARIS INDUSTRIES PARTNERS L.P.
COMPUTATION OF NET INCOME PER UNIT
UNAUDITED
QUARTER ENDED YEAR-TO-DATE
9/30/94 9/30/93 9/30/94 9/30/93
<S> <C> <C> <C> <C>
Total net income for period $31,503,000 $18,762,000 $50,611,000 $31,442,000
Allocated to:
General Partner $ 6,552,000 $ 3,902,000 $10,526,000 $ 6,540,000
Limited Partners $24,951,000 $14,860,000 $40,085,000 $24,902,000
Average A-BACs 16,010,000 14,898,000 15,965,000 14,898,000
Average First Rights 305,000 377,000 350,000 377,000
Average Second Rights 0 850,000 0 850,000
Total BACs and equivalents 16,315,000 16,125,000 16,315,000 16,125,000
Income per unit: $1.53 $0.92 $2.46 $1.54
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