<PAGE>
UNITED STATES
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 March 31, 1996
------------------------------------------------
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 1-11411
-------------------------------------------------------
Polaris Industries Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1790959
- --------------------------------------------------------------------------------
(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
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(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
------ -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 1, 1996, 27,532,073 shares of Common Stock of the issuer were
outstanding.
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POLARIS INDUSTRIES INC.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets Pg. 3
Consolidated Statements of Operations Pg. 4
Consolidated Statements of Cash Flows Pg. 5
Consolidated Statement of Shareholders' Equity Pg. 6
Notes to Consolidated Financial Statements Pg. 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Results of Operations Pg. 10
Cash Dividends Pg. 11
Liquidity and Capital Resources Pg. 11
Inflation and Exchange Rates Pg. 12
Part II OTHER INFORMATION Pg. 14
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. 15
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<PAGE>
POLARIS INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,205 $ 3,501
Trade receivables 30,853 40,402
Inventories 136,585 104,633
Prepaid expenses and other 4,116 6,735
Deferred tax assets 20,000 20,000
-------- --------
Total current assets 192,759 175,271
-------- --------
Deferred Tax Assets 33,000 35,000
Property and Equipment, at cost, net of accumulated
depreciation of $54,737 in 1996 and $47,867 in 1995 81,644 78,455
Investments in Affiliates 8,500 557
Intangible Assets,at cost, net of accumulated
amortization of $9,124 in 1996 and $9,006 in 1995 25,035 25,153
-------- --------
Total Assets $340,938 $314,436
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $76,752 $57,388
Accrued expenses 54,802 85,748
Income taxes payable 18,233 12,586
-------- --------
Total current liabilities 149,787 155,722
Borrowings under credit agreement 62,000 40,200
-------- --------
Total Liabilities 211,787 195,922
-------- --------
Shareholders' Equity:
Common stock 275 273
Additional paid-in capital 115,061 109,344
Compensation payable in common stock 7,145 11,418
Retained earnings (accumulated deficit) 6,670 (2,521)
-------- --------
Total shareholders' equity 129,151 118,514
-------- --------
Total Liabilities and Shareholders' Equity $340,938 $314,436
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
UNAUDITED
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Sales $278,041 $254,793
Cost of Sales 227,383 208,078
-------- --------
Gross profit 50,658 46,715
Operating Expenses
Selling and marketing 21,581 19,869
General and administrative 7,342 7,229
-------- --------
Total operating expenses 28,923 27,098
-------- --------
Operating Income 21,735 19,617
Nonoperating Expense (Income), net 287 (1,255)
-------- --------
Income before income taxes 21,448 20,872
Provision for Income Taxes 8,150 7,932
-------- --------
Net Income $ 13,298 $ 12,940
-------- --------
-------- --------
Net Income Per Share $ 0.48 $ 0.47
-------- --------
-------- --------
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding 27,982 27,784
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Thousands)
UNAUDITED
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $ 13,298 $ 12,940
Adjustments to reconcile net income to
cash flow from operating activities:
Depreciation 6,870 6,047
Amortization 118 215
First Rights compensation 1,496 1,614
Deferred income taxes 2,000 5,000
Changes in current operating items -
Trade receivables 9,549 3,695
Inventories (31,952) (16,651)
Accounts payable 19,364 9,142
Accrued expenses (30,946) (19,194)
Income taxes payable 5,647 (291)
Others, net 2,569 1,357
-------- --------
Net cash provided by
operating activities (1,987) 3,874
-------- --------
Cash Flows From Investing Activities:
Purchase of property and equipment (10,059) (11,624)
Investments in affiliates (7,943) (800)
-------- --------
Cash flow used for investing activities (18,002) (12,424)
Cash Flows From Financing Activities:
Borrowings under credit agreement, net 21,800 0
Cash distributions to partners 0 (12,736)
Cash dividends to shareholders (4,107) (2,717)
-------- --------
Cash flow provided by (used for) financing activities 17,693 (15,453)
-------- --------
Decrease in cash and cash equivalents (2,296) (24,003)
Cash and Cash Equivalents, Beginning 3,501 62,881
-------- --------
Cash and Cash Equivalents, Ending $ 1,205 $ 38,878
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In Thousands)
UNAUDITED
<TABLE>
<CAPTION>
Retained
Additional Compensation Earnings
Common Paid-In Payable in (Accumulated
Stock Capital Stock Deficit) Total
------ ---------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $273 $109,344 $11,418 ($2,521) $118,514
First Rights conversion to stock 2 5,717 (5,769) 0 (50)
First Rights grants - - 1,496 0 1,496
Cash dividends declared - - - (4,107) (4,107)
Net income - - - 13,298 13,298
---- -------- ------- ------- --------
Ending Balance, March 31, 1996 $275 $115,061 $ 7,145 $ 6,670 $129,151
---- -------- ------- ------- --------
---- -------- ------- ------- --------
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated 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.
Accordingly, such statements should be read in conjunction with the
previously filed Form 10-K. 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. Due to the seasonality 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.
Certain amounts previously reported in the 1995 consolidated financial
statements have been reclassified to conform to the 1996 presentation.
These reclassifications had no effect on previously reported net
income or shareholders' equity.
NOTE 2. INVENTORIES
The major components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Raw Materials $ 38,527 $ 26,526
Service Parts 38,265 39,952
Finished Goods 59,793 38,155
-------- --------
$136,585 $104,633
-------- --------
-------- --------
</TABLE>
NOTE 3. FINANCING AGREEMENT
The Company has an unsecured bank line of credit arrangement with
maximum available borrowings of $125,000,000. Interest is charged at
rates based on LIBOR or "prime" (5.84% at March 31, 1996) and the
agreement expires on March 31, 1998. As of March 31, 1996, total
borrowings under this credit agreement were $62,000,000 and have been
classified as long-term liabilities in the accompanying consolidated
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<PAGE>
balance sheets. Cumulative borrowings and repayments under the credit
agreement during the three months ended March 31, 1996, were
$103,900,000 and $82,100,000, respectively.
NOTE 4. INVESTMENTS IN AFFILIATES
The Company's investments in joint ventures are accounted for under
the equity method and consisted of the following carrying amounts (in
thousands):
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Polaris Acceptance $7,943 $ 0
Robin Manufacturing, U.S.A. 557 557
------ ----
$8,500 $557
------ ----
------ ----
</TABLE>
In February, 1996 a wholly-owned subsidiary of the Company entered
into a partnership agreement with Transamerica Commercial Finance
Corporation (TCFC) to form Polaris Acceptance. Polaris Acceptance
will provide floor plan financing and other financial services to
dealer and distributor customers of the Company. Under the
partnership agreement the Company's subsidiary has a 25 percent equity
interest in Polaris Acceptance and an option to increase its equity
interest to 50 percent effective January 1, 1997. The Company has
guaranteed 25 percent of the outstanding indebtedness of Polaris
Acceptance under a credit agreement between Polaris Acceptance and
TCFC. At March 31, 1996, the Company's contingent liability with
respect to the guarantee was approximately $55,000,000.
In February, 1995, the Company entered into an agreement with Fuji
Heavy Industries Ltd. to form Robin Manufacturing, U.S.A. ("Robin").
Under the agreement, Polaris has a 40 percent ownership position in
Robin, which builds engines in the United States for recreational and
industrial products.
Equity in the income of affiliates is not significant and has been
included as a component of nonoperating expense (income) in the
accompanying consolidated statements of operations.
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company has elected not to insure for product liability losses.
The estimated 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.
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<PAGE>
The Company is a defendant in lawsuits and subject to claims arising
in the normal course of business. It is the opinion of management
that their outcomes will not, in the aggregate, have a material
adverse effect on the financial position or operations of the Company.
NOTE 6. SUBSEQUENT EVENT
On April 15, 1996, the Board of Directors of the Company declared a
regular cash dividend of $0.15 per share payable on May 15, 1996, to
holders of record on May 1, 1996.
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<PAGE>
ITEM 2
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 Inc., a Minnesota corporation (the "Company"),
for the quarters ended March 31, 1996 and 1995. Due to the seasonality 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
Sales increased to $278.0 million in the first quarter of 1996, representing a
nine percent increase over $254.8 million in sales for the same period in 1995.
The increase in sales is attributable to a significant increase in sales of
parts, garments and accessories, as well as increases in sales of ATVs and PWC.
ATV unit sales volume in the first quarter of 1996 decreased seven percent from
the comparable period in 1995 while ATV sales increased five percent for the
same period. The average per unit sales price for ATVs increased by 12 percent
in the 1996 period as a result of the introduction of new, high performance
models with additional features that have a higher selling price than other
segments of the ATV product line.
PWC unit sales volume in the first quarter of 1996 increased two percent from
the comparable period in 1995 while PWC sales increased six percent for the same
period.
Sales of related parts, garments and accessories (PG & A) in the first quarter
of 1996 increased 36 percent over the comparable period in 1995. Sales of
snowmobile PG & A in the first quarter of 1996 increased 45 percent over the
comparable period in 1995 principally as a result of significant snowfalls and
an extended riding season in many parts of North America. ATV PG & A and PWC PG
& A in the first quarter of 1996 increased 32 percent and 28 percent,
respectively, over the comparable period in 1995 as a result of the increased
sales volume of those product lines.
Gross profit of $50.7 million in the 1996 period represents an eight percent
increase over gross profit of $46.7 million for the same period in 1995. Such
gross profit increase in the first quarter of 1996 was benefited by a) a change
in the sales mix which resulted in higher PG & A sales which generate higher
margins than sales of whole goods, offset by b) an increase in warranty expenses
as a result of the emphasis on technological innovation and introduction of new
high performance models. The gross profit margin percentage was relatively
constant at 18.2 percent for the first quarter of 1996 compared to 18.3 percent
for the same period in 1995.
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<PAGE>
Polaris Industries Inc.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations (cont'd)
Operating expenses in the 1996 period increased $1.8 million (7 percent) over
the 1995 period as a result of the sales volume increase, but as a percentage of
sales, decreased to 10.4 percent for the first quarter of 1996 compared to 10.6
percent for the same period in 1995. The percentage decrease is due primarily
to the Company's supporting an increasing level of sales without a corresponding
increase in general and administrative expenses.
The increase in nonoperating expense in the first quarter of 1996 of $1.5
million over the comparable period in 1995 is primarily a result of interest
expense incurred in 1996 from borrowings under the bank line of credit
arrangement used to fund the payment of special cash distributions totaling
$104.9 million during 1995. In addition, lower cash and cash equivalent
balances in 1996 generated lower investment income during the first quarter of
1996 compared to the same period in 1995.
CASH DIVIDENDS
On January 25, 1996, the Board of Directors of the Company declared a regular
dividend of $0.15 per share payable on February 15, 1996, to holders of record
on February 5, 1996.
On April 15, 1996, the Board of Directors declared a regular cash dividend of
$0.15 per share payable on May 15, 1996, to holders of record on May 1, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The seasonality of production and shipments causes working capital requirements
to fluctuate during the year. Effective May 8, 1995, the Company entered into
an unsecured bank line of credit arrangement with maximum available borrowings
of $125.0 million. Interest is charged at rates based on LIBOR or "prime" and
the agreement expires March 31, 1998. At March 31, 1996, the Company had
borrowings under its bank line of credit arrangement of $62.0 million and cash
and cash equivalents of $1.2 million, compared to $40.2 million in borrowings
and cash and cash equivalents of $3.5 million at December 31, 1995.
Management believes that existing cash balances and bank borrowings, cash flow
to be generated from operating activities and available borrowing capacity under
the line
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<PAGE>
Polaris Industries Inc.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations (cont'd)
of credit arrangement will be sufficient to fund operations, regular dividends
and capital requirements for 1996.
INFLATION AND EXCHANGE RATES
The Company does not believe that inflation has had a material impact on the
results of its operations. However, the changing relationships of the U.S.
dollar to the Japanese yen and Canadian dollar have had a material impact from
time to time.
Over the past several years, weakening of the U.S. dollar in relation to the yen
has resulted in higher raw material purchase prices. In 1995, approximately 27
percent of the Company's cost of sales was attributable to purchases from
Japanese suppliers. Management believes that such cost increases also affect
its principal competitors in ATVs, and, to varying degrees, some of its
snowmobile and PWC competitors. The recent strengthening of the U.S. dollar in
relation to the yen during the first quarter of 1996 has reversed this trend.
The Company's cost of goods sold in the first quarter of 1996 was not
significantly affected by the yen exchange rate fluctuation when compared to the
first quarter of 1995. In view of the foreign exchange hedging contracts
currently in place, the Company anticipates that it will, however, have a
positive impact on cost of goods sold during the remaining three quarters of
1996 when compared to the same periods in 1995.
The Company operates in Canada through a wholly-owned subsidiary. Over the past
several years, strengthening of the U.S. dollar in relation to the Canadian
dollar has resulted in lower gross margin levels on a comparable basis.
However, the fluctuation of the Canadian dollar exchange rate did not have a
significant impact on the gross margin levels achieved in the first quarter of
1996 compared to the same period in 1995.
In the past, the Company has been a party to, and in the future may enter into,
foreign exchange hedging contracts for both the Japanese yen and the Canadian
dollar to minimize the impact of exchange rate fluctuations within each year.
At March 31, 1996, the Company had open Japanese yen foreign exchange hedging
contracts which mature throughout 1996.
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are
cautioned that all forward-looking
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<PAGE>
Polaris Industries Inc.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations (cont'd)
statements involve risks and uncertainty. In addition to the factors discussed
above, among the other factors that could cause actual results to differ
materially are the following: product offerings and pricing strategies by
competitors; foreign currency exchange rate fluctuations; environmental and
product safety regulatory activity; effects of weather; uninsured product
liability claims; and overall economic conditions, including inflation and
consumer confidence.
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<PAGE>
POLARIS INDUSTRIES INC.
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. 10 - Credit Agreement by and between Polaris
Industries Inc., and First Bank National Association and Bank of
America Illinois, and First Union National Bank of North
Carolina, dated May 8, 1995, incorporated by reference to Exhibit
10 to the Company's Quarterly Report on 10-Q for the quarterly
period ended March 31, 1995.
Exhibit No. 11 - Computation of Per Share Earnings.
Exhibit No. 27 - Financial Data Schedule.
(b) REPORTS ON FORM 8 - K
No reports on Form 8-K have been filed during the quarter for
which this report was filed.
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<PAGE>
POLARIS INDUSTRIES INC.
SIGNATURES
Pursuant to the requirements of the Securities and 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 INC.
(Registrant)
Date: May 1, 1996 /S/ W. HALL WENDEL, JR.
-------------------------------
W. Hall Wendel, Jr.
Chairman of the Board
and Chief Executive Officer
Date: May 1, 1996 /S/ JOHN H. GRUNEWALD
-------------------------------
John H. Grunewald
Executive Vice President, Chief Financial
Officer and Secretary (Principal Financial
and Chief Accounting Officer)
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<PAGE>
EXHIBIT 11
POLARIS INDUSTRIES INC.
COMPUTATION OF NET INCOME PER SHARE
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Net Income for the Period $13,298 $12,940
------- -------
------- -------
Weighted Average Number of Outstanding:
Common Shares 27,428 27,238
Rights 536 546
Deferred Compensation Plan for Directors 4 0
Stock option plan 14 0
Total common and common
equivalent shares 27,982 27,784
------- -------
------- -------
Net Income Per Share $ 0.48 $ 0.47
------- -------
------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF POLARIS INDUSTRIES INC. AS OF MARCH 31, 1996, AND
RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, SHAREHOLDERS' EQUITY AND CASH
FLOWS FOR THE QUARTER ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,205
<SECURITIES> 0
<RECEIVABLES> 30,853
<ALLOWANCES> 0
<INVENTORY> 136,585
<CURRENT-ASSETS> 192,759
<PP&E> 136,381
<DEPRECIATION> 54,737
<TOTAL-ASSETS> 340,938
<CURRENT-LIABILITIES> 149,787
<BONDS> 62,000
0
0
<COMMON> 0
<OTHER-SE> 129,151
<TOTAL-LIABILITY-AND-EQUITY> 340,938
<SALES> 278,041
<TOTAL-REVENUES> 278,041
<CGS> 227,383
<TOTAL-COSTS> 227,383
<OTHER-EXPENSES> 28,923
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 287
<INCOME-PRETAX> 21,448
<INCOME-TAX> 8,150
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,298
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
