<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 SEPTEMBER 30, 1999
------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _______________________ to ____________________
Commission File Number 1-11411
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Polaris Industries Inc.
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(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-1790959
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(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
1225 Highway 169 North, Minneapolis, MN 55441-5078
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(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 November 8, 1999, 24,397,763 shares of Common Stock of the
issuer were outstanding.
<PAGE>
POLARIS INDUSTRIES INC.
FORM 10-Q
For Quarter Period Ended September 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Part I FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets................................................................3
Consolidated Statements of Operations......................................................4
Consolidated Statements of Cash Flows......................................................5
Consolidated Statements of Shareholders' Equity............................................6
Notes to Consolidated Financial Statements.................................................7
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations.....................................................................11
Cash Dividends............................................................................13
Liquidity and Capital Resources...........................................................13
Year 2000.................................................................................14
Inflation and Exchange Rates..............................................................15
Part II OTHER INFORMATION.........................................................................16
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults upon Senior Securities
Item 4 Exhibits and Reports on Form 8-K
SIGNATURE PAGE .........................................................................................17
</TABLE>
<PAGE>
POLARIS INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30,1999 December 31, 1998
(Unaudited)
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<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 3,170 $ 1,466
Trade receivables 68,778 43,035
Inventories 145,067 107,436
Prepaid expenses and other 6,169 2,903
Deferred tax assets 33,000 29,000
--------- ---------
Total current assets 256,184 183,840
Deferred Tax Assets 19,000 21,000
Property and Equipment, net 134,536 124,254
Investments in Affiliates 35,404 26,636
Intangible Assets, net 22,302 22,967
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Total Assets $ 467,426 $ 378,697
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts Payable $ 114,172 $ 77,258
Accrued expenses 122,165 120,695
Income taxes payable 25,278 7,011
--------- ---------
Total Current Liabilities 261,615 204,964
Borrowings under credit agreement 50,000 20,500
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Total Liabilities 311,615 225,464
--------- ---------
Commitments and Contingencies (Notes 4, 6 and 7)
Shareholder's Equity:
Common Stock 243 253
Additional paid-in capital 13,256 48,622
Deferred compensation (3,729) (6,726)
Compensation payable in common stock 5,295 6,844
Retained earnings 140,746 104,240
--------- ---------
Total shareholder's equity 155,811 153,233
--------- ---------
Total Liabilities and Shareholder's Equity $ 467,426 $ 378,697
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
UNAUDITED
<TABLE>
<CAPTION>
Third Quarter For the Nine Months
Ended September 30 Ended September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 388,883 $ 359,861 $ 950,960 $ 844,573
Cost of Sales 287,595 273,431 718,296 647,130
--------- --------- --------- ---------
Gross Profit 101,288 86,430 232,664 197,443
Operating Expenses
Selling and marketing 40,698 35,015 100,215 84,056
Research and development 7,149 7,200 22,715 20,472
General and administrative 11,487 7,761 32,049 23,719
--------- --------- --------- ---------
Total operating expenses 59,334 49,976 154,979 128,247
--------- --------- --------- ---------
Operating Income 41,954 36,454 77,685 69,196
Non-Operating Expense (Income)
Interest Expense 1,188 787 3,562 2,086
Equity in income of affiliates (2,447) (2,043) (6,380) (5,199)
Other expense (income), net 968 (1,212) 780 (2,308)
Provision for litigation loss --- 61,409 --- 61,409
--------- --------- --------- ---------
Income (loss) before taxes 42,245 (22,487) 79,723 13,208
Provision for income taxes 14,996 (7,983) 28,301 4,867
--------- --------- --------- ---------
Net income (loss) $ 27,249 ($ 14,504) $ 51,422 $ 8,341
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted Net Income (Loss) Per Share $ 1.10 ($ 0.56) $ 2.05 $ 0.32
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
UNAUDITED
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 51,422 $ 8,341
Adjustments to reconcile net income to net cash
Depreciation and amortization 29,587 27,336
Non-cash compensation 8,517 6,352
Equity in income of affiliates (6,380) (5,199)
Deferred income taxes (2,000) 1,000
Changes in current operating items
Trade receivables (25,743) (22,019)
Inventories (37,631) 11,818
Accounts payable 36,914 21,851
Litigation loss payable ---- 61,409
Accrued expenses 1,470 5,784
Income taxes payable 18,267 (11,242)
Others, net (1,919) 1,607
--------- --------
Net cash provided by operating activities 72,504 107,038
--------- --------
Cash Flows from Investing Activities:
Purchase of property and equipment (39,204) (45,344)
Investments in affiliates, net (2,641) (1,362)
--------- --------
Net cash used for investing activities (41,845) (46,706)
--------- --------
Cash Flows From Financing Activities:
Borrowings under credit agreement 381,350 261,500
Repayments under credit agreement (351,850) (270,900)
Repurchase and retirement of common shares (43,532) (23,673)
Cash dividends to shareholders (14,923) (14,005)
--------- --------
Net cash provided by (used for) financing activities (28,955) (47,078)
--------- --------
Increase in cash and cash equivalents 1,704 13,254
Cash and Cash Equivalents, Beginning 1,466 1,233
--------- --------
Cash and Cash Equivalents, Ending $ 3,170 $ 14,487
--------- --------
--------- --------
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(In Thousands)
UNAUDITED
<TABLE>
<CAPTION>
Additional Compensation
Common Paid-In Deferred Payable in Retained
Stock Capital Compensation Common Stock Earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ 253 $ 48,622 ($ 6,726) $ 6,844 $ 104,240 $ 153,233
Employee Stock Compensation 2 7,838 2,997 (1,263) 0 9,574
First Rights Conversion to Stock 0 323 0 (286) 0 37
Cash Dividends Declared 0 0 0 0 (14,923) (14,923)
Repurchase and Retirement of Common Shares (12) (43,527) 0 0 7 (43,532)
Net Income 0 0 0 0 51,422 51,422
------- -------- ----------- ------------ --------- ---------
Balance, September 30, 1999 $ 243 $ 13,256 $(3,729) $ 5,295 $ 140,746 $ 155,811
------- -------- ----------- ------------ --------- ---------
------- -------- ----------- ------------ --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
6
<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 Company's annual
report on Form 10-K for the year ended December 31, 1998, previously
filed with the Securities and Exchange Commission. 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), personal watercraft (PWC) and motorcycle
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.
NOTE 2. INVENTORIES
The major components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Raw Materials $ 47,757 $ 32,235
Service Parts 45,398 41,085
Finished Goods 51,912 34,116
-------- --------
$145,067 $107,436
-------- --------
-------- --------
</TABLE>
NOTE 3. FINANCING AGREEMENT
Polaris has an unsecured bank line of credit arrangement with maximum
available borrowings of $175.0 million until March 31, 2000 and up to
$150.0 million thereafter until maturity. Interest is charged at rates
based on LIBOR or "prime" (5.74% at September 30, 1999) and the
agreement expires on March 31, 2002 at which time the balance is due.
As of September 30, 1999, total borrowings under this credit
arrangement were $50.0 million and have been classified as long-term in
the accompanying consolidated balance sheets.
7
<PAGE>
NOTE 4. INVESTMENTS IN AFFILIATES
In February 1996, a wholly-owned subsidiary of Polaris entered into a
partnership agreement with Transamerica Distribution Finance ("TDF") to
form Polaris Acceptance. In January 1997, Polaris increased its equity
interest in Polaris Acceptance to 50 percent. Polaris Acceptance
provides floor plan financing to dealer and distributor customers of
Polaris, and provides other financial services such as retail credit,
leasing and extended service contracts to dealers, distributors and
retail customers of Polaris. Polaris has guaranteed 50 percent of the
outstanding indebtedness of the Polaris Acceptance floor plan financing
portfolio under a credit agreement between Polaris Acceptance and TDF.
At September 30, 1999, Polaris' contingent liability with respect to
the guarantee was approximately $182.0 million.
Polaris is a partner with Fuji Heavy Industries Ltd. in Robin
Manufacturing, U.S.A. ("Robin"). Polaris has a 40 percent ownership
interest in Robin, which builds engines in the United States for
recreational and industrial products.
Investments in affiliates are accounted for under the equity method.
Polaris' allocable share of the income of Polaris Acceptance and Robin
has been included as a component of non-operating expense (income) in
the accompanying consolidated statements of operations.
NOTE 5. SHAREHOLDER'S EQUITY
During the first nine months of 1999, Polaris paid $43.5 million to
repurchase and retire 1,253,500 shares of its common stock, with cash
on hand and borrowings under its line of credit. On October 21, 1999,
the Polaris Board of Directors approved a new share repurchase
authorization of 2,500,000 shares of the Company's outstanding common
stock. As of October 21, 1999, Polaris has 679,100 remaining shares
available to repurchase under its prior Board of Directors'
authorization and 2,500,000 shares under the new authorization.
The Polaris Board of Directors declared a regular cash dividend of
$0.20 per share payable to holders of record on August 2, 1999, which
was paid on August 16, 1999.
On October 21, 1999, the Polaris Board of Directors declared a regular
cash dividend of $0.20 per share payable on or about November 15, 1999,
to holders of record on November 1, 1999.
Net income per share for the periods ended September 30, 1999 and 1998
was calculated based on the weighted average number of common and
potential common shares outstanding.
8
<PAGE>
Basic earnings per share using SFAS No. 128 "Earnings per share" is
computed by dividing net income available to common shareholders by the
weighted average number of common shares outstanding during each year,
including shares earned under the First Rights plan, the Director plan
and the ESOP. Diluted earnings per share is computed under the treasury
stock method and is calculated to reflect the dilutive effect of the
Option Plan. A reconciliation of these amounts is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
For Three Months For Nine Months
Ended Sept. 30, Ended Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income available to common shareholders $ 27,249 $(14,504) $ 51,422 $ 8,341
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of common 24,400 25,614 24,730 25,848
shares outstanding
First Rights 0 10 0 24
Director Plan 24 17 23 17
ESOP 170 170 170 170
-------- -------- -------- --------
Common shares outstanding - basic 24,594 25,811 24,923 26,059
-------- -------- -------- --------
-------- -------- -------- --------
Dilutive effect of Option Plan 113 0 176 42
-------- -------- -------- --------
Common and potential common shares
Outstanding 24,707 25,811 25,099 26,101
-------- -------- -------- --------
-------- -------- -------- --------
Basic net income per share $ 1.11 $ (0.56) $ 2.06 $ 0.32
-------- -------- -------- --------
-------- -------- -------- --------
Diluted net income per share $ 1.10 $ (0.56) $ 2.05 $ 0.32
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
9
<PAGE>
NOTE 6. COMMITMENTS AND CONTINGENCIES
Polaris is subject to product liability claims in the normal course of
business and prior to June 1996 elected not to purchase insurance for
product liability losses. Effective June 1996, Polaris purchased excess
insurance coverage for catastrophic product liability claims for
incidents occurring subsequent to the policy date that exceeds a
self-insured retention. The estimated costs resulting from any losses
are charged to expense when it is probable a loss has been incurred and
the amount of the loss is reasonably determinable.
Revenue Canada has assessed Polaris approximately $16.0 million in
taxes, penalties and interest for the period January 1, 1992 through
December 31, 1994 resulting from an income tax audit for that period.
Revenue Canada has asserted that Polaris over charged its Canadian
subsidiary for various goods and services during the audit period
primarily through improper intercompany transfer pricing policies.
Polaris disagrees with the assessment and is vigorously contesting it.
Polaris is a defendant in lawsuits and subject to claims arising in the
normal course of business. In the opinion of management, it is not
probable that any legal proceedings pending against or involving
Polaris will have a material adverse effect on Polaris' financial
position or results of operations.
NOTE 7. FOREIGN CURRENCY CONTRACTS
Polaris' Canadian subsidiary uses the United States dollar as its
functional currency. Canadian assets and liabilities are translated at
the foreign exchange rates in effect at the balance sheet date.
Revenues and expenses are translated at the average foreign exchange
rate in effect. Translation and exchange gains and losses are reflected
in the results of operations.
Polaris enters into foreign exchange contracts to manage currency
exposures of certain of its purchase commitments denominated in foreign
currencies including the Japanese yen and transfers of funds from its
Canadian subsidiary. Polaris does not use any financial contract for
trading purposes. These contracts are accounted for as hedges, thus
market value gains and losses are recognized at the time of purchase or
transfer of funds, respectively. The criteria to determine if hedge
accounting is appropriate are (1) the designation of a hedge to an
underlying exposure, (2) whether or not overall risk is reduced and (3)
if there is a correlation between the value of the foreign exchange
contract and the underlying exposure. Gains and losses related to
purchase commitments are recorded as adjustments to cost of sales while
gains and losses related to transfers of funds are recorded as other
expense (income) on the accompanying statement of operations. At
September 30, 1999, Polaris had open Canadian dollar foreign exchange
contracts with notional amounts totaling $41.3 million United States
dollars which mature throughout the remainder of 1999 and first quarter
of 2000 and no open Japanese yen foreign exchange contracts.
10
<PAGE>
NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS
SFAS 133
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133) in June 1998. SFAS No. 133
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either
an asset or liability measured at its fair value. SFAS No. 133 requires
that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
Polaris will be required to adopt SFAS No. 133 no later than January 1,
2001. Polaris has not quantified the impacts of adopting SFAS No. 133
on the financial statements and has not determined the timing of
adoption of SFAS No. 133. However, SFAS No. 133 could increase
volatility in earnings and other comprehensive income.
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 ("Polaris" or the
"Company") for the quarters and year to date periods ended September 30, 1999
and 1998. Due to the seasonality of the snowmobile, all terrain vehicle (ATV),
personal watercraft (PWC), and motorcycle 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 were $388.9 million in the third quarter of 1999, representing an eight
percent increase from $359.9 million in sales for the same period in 1998.
North American sales of ATVs and related Parts, Garments, and Accessories
("PG&A") of $191.6 million for the third quarter 1999 were 21 percent higher
than $157.9 million for the comparable period in 1998. The increase is related
to increased unit sales reflecting the continuing growth in the ATV industry.
North American sales of snowmobiles and related PG&A of $165.7 million for the
third quarter 1999 were five percent lower than $175.3 million for the
comparable period in 1998. The decrease in the 1999 period is due to earlier
than historically normal shipments of snowmobiles during the third quarter of
1998.
11
<PAGE>
North American sales of PWC and related PG&A of $4.6 million for the third
quarter 1999 were 55 percent higher than $2.9 million for the comparable period
in 1998. The increase is primarily related to later than normal new model PWC
shipments in 1999.
North American sales of Victory motorcycles and related PG&A of $4.9 million for
the third quarter 1999 were 50 percent higher than $3.3 million for the
comparable period in 1998. The increase relates to a production increase from
third quarter 1998 when Victory motorcycles were initially shipped.
International sales of snowmobiles, ATVs, PWC and related PG&A of $22.1 million
for the third quarter 1999 were eight percent higher than $20.5 million for the
comparable period in 1998 primarily as a result of increased snowmobile and PWC
unit shipments.
Sales increased to $951.0 million for the year-to-date period ended September
30, 1999, representing a 13 percent increase from $844.6 million sales for the
same period in 1998. The sales increase was due to strong ATV demand and
increasing shipments of Victory motorcycles.
Gross profit of $101.3 million in the third quarter of 1999 represents a 17
percent increase from gross profit of $86.4 million for the same period in 1998.
This increase in gross profit dollars was a result of higher sales volume and an
increase in the gross profit margin percentage to 26.0 percent for the third
quarter of 1999 from 24.0 percent for the comparable 1998 period. The increase
in gross profit margin percentage was primarily due to manufacturing cost
reductions and efficiencies, and an increase in PG&A sales and margins. These
increases were partially offset by the continued sales growth of ATVs, which
have a lower gross profit margin than snowmobiles, and the negative impact of
the Canadian dollar and Japanese yen exchange rates during the third quarter
1999, when compared to the prior year period.
Gross profit of $232.7 million in the year-to-date period ended September 30,
1999 represents an 18 percent increase from gross profit of $197.4 for the same
period of 1998. This increase in gross profit dollars resulted primarily from
higher sales volume in the current year period. The gross profit margin
increased to 24.5 percent for the year-to-date period ended September 30, 1999
as compared to 23.4 percent for the year-to-date period in 1998. This increase
is primarily due to manufacturing cost reductions, improved snowmobile margins,
and increased PG&A sales partially offset by shifts in sales mix to lower margin
ATVs and negative impact of Canadian dollar and Japanese yen exchange rates.
Operating expenses in the third quarter of 1999 increased 19 percent to $59.3
million from the comparable 1998 period and as a percentage of sales, increased
to 15.3 percent for the third quarter of 1999 compared to 13.9 percent for the
same period in 1998. Operating expenses in the year-to-date period ended
September 30, 1999 increased 21 percent to $155.0 million from the comparable
1998 period and as a percentage of sales increased to 16.3 percent for the nine
months ended September 30, 1999 compared to 15.2 percent for the same period in
1998. The higher levels of operating expenses as a percentage of sales are
related to a planned increase in expenses to build the infrastructure to support
the Company's growth and brand recognition initiatives.
12
<PAGE>
Non-operating expense (income) in the 1998 third quarter and 1998 year to date
period included a provision in the amount of $61.4 million for litigation loss
related to the settlement of litigation with Injection Research Specialists.
This was a one-time charge that did not effect the on-going operations of the
Company.
Polaris proforma results adjusted to exclude the provision for litigation loss
are as follows:
<TABLE>
<CAPTION>
Third Quarter For the Nine Months
Ended September 30 Ended September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before taxes $42,245 $38,922 $79,723 $74,617
Provision for income taxes 14,996 13,817 28,301 26,667
------- ------- ------- -------
Net income $27,249 $25,105 $51,422 $47,950
------- ------- ------- -------
------- ------- ------- -------
Diluted Net Income Per Share $ 1.10 $ 0.97 $ 2.05 $ 1.84
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
CASH DIVIDENDS
On July 22, 1999, the Polaris board of Directors declared a regular cash
dividend of $0.20 per share payable to holders of record on August 2, 1999,
which was paid on August 16, 1999.
On October 21, 1999, the Polaris Board of Directors declared a regular cash
dividend of $0.20 per share payable on or about November 15, 1999, to holders of
record on November 1, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The seasonality of production and shipments causes working capital requirements
to fluctuate during the year. Polaris maintains an unsecured bank line of credit
arrangement maturing on March 31, 2002 under which it may borrow up to $175.0
million. Interest is charged at rates based on LIBOR or "prime". At September
30, 1999, Polaris had borrowings under its bank line of credit arrangement of
$50.0 million and cash and cash equivalents of $3.2 million.
During the first nine months of 1999, Polaris paid $43.5 million to repurchase
and retire 1,253,500 shares of its common stock with cash on hand and borrowings
under its line of credit. On October 21, 1999, the Polaris Board of Directors
approved a new share repurchase authorization of 2,500,000 shares of the
Company's outstanding common stock. As of October 21, 1999, Polaris has 679,100
remaining shares available to repurchase under its prior Board of Directors'
authorization and 2,500,000 shares under the new authorization.
13
<PAGE>
Management believes that existing cash balances and bank borrowings, cash flow
to be generated from operating activities and available borrowing capacity under
the line of credit arrangement will be sufficient to fund operations, regular
dividends, share repurchases, and capital requirements for the remainder of
1999. At this time, management is not aware of any factors that would have a
materially adverse impact in cash flow beyond 1999.
YEAR 2000
During 1999, Polaris has continued with its company-wide program to prepare the
company's computer systems for Year 2000 compliance. In order for a computer
system to be year 2000 compliant, its time sensitive software must recognize a
date using "00" as the year 2000 rather than the year 1900. Polaris' project is
divided into two major areas: internal information systems and embedded
manufacturing systems/third party suppliers.
Polaris implemented a plan to make its internal information systems Year 2000
compliant by mid-1999. As of September 30, 1999, all of the programming
requirements for the Company's manufacturing systems and sales, distribution and
finance systems have been completed. The systems were tested as programming
modifications were implemented; further testing is expected to continue
throughout the remainder of 1999.
Polaris has completed inventories of equipment and machines with embedded
systems that are used at each of the Company's facilities. Polaris has assessed
whether the critical equipment will be Year 2000 compliant through simulations
and testing of the equipment as well as Year 2000 compliance letters from
vendors. Polaris identified its critical suppliers and sent them questionnaires
to address their Year 2000 plans and progress. Polaris has received responses
from these suppliers and is satisfied the critical equipment and machines are
Year 2000 compliant.
The cost of the Year 2000 initiatives (which are expensed as incurred) have not,
and are not expected to be material to Polaris' financial position. The total
cost is estimated to be approximately $1.5 million of which substantially all
has been incurred to date.
Polaris has completed a comprehensive analysis of the operational issues and
costs that would most likely result from failure by the company or third parties
to achieve Year 2000 compliance on a timely basis. The primary risk identified
is delivery timing to customers in January 2000. Polaris believes it will have
sufficient time to recover, although some delayed deliveries may result in
cancellations of orders. Polaris has developed contingency plans to protect the
business from Year 2000 related interruptions and is prepared to implement in
January 2000, if necessary.
The costs of the project and the date when Polaris believes it will complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events. However, there can be
no guarantee these estimates will be achieved and actual results could differ
materially from those anticipated.
14
<PAGE>
INFLATION AND EXCHANGE RATES
Polaris does not believe that inflation has had a material impact on the results
of its recent 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.
In 1998, purchases totaling 14 percent of Polaris' cost of sales were from
yen-denominated suppliers. The weakening of the U.S. dollar in relation to the
Japanese yen since mid 1998 has resulted in higher raw material purchase prices.
Polaris' cost of sales in the third quarter and year-to-date periods ended
September 30, 1999 was negatively impacted by the Japanese yen-U.S. dollar
exchange rate fluctuation when compared to the same periods in 1998. Polaris
anticipates that the Japanese yen-U.S. dollar exchange rate will continue to
have a negative impact on cost of sales during the remaining period of 1999 when
compared to the same period in 1998.
Polaris operates in Canada through a wholly owned subsidiary. Over the past
several years, strengthening of the U.S. dollar in relationship to the Canadian
dollar has resulted in lower gross margin levels on a comparable basis. The
fluctuation of the Canadian dollar exchange rate negatively impacted the gross
margin achieved in the third quarter and the year-to-date periods of 1999 and
when compared to the same periods in 1998. In view of the foreign exchange
hedging contracts currently in place, Polaris anticipates that the Canadian
dollar-U.S. dollar exchange rate will continue to have a negative impact on cost
of sales during the remaining period of 1999 when compared to the same period in
1998.
In the past, Polaris 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
September 30, 1999, Polaris had open Canadian dollar foreign exchange hedging
contracts, which mature throughout 1999 and 2000.
Certain matters discussed in this report are "forward-looking statements"
intended to qualify for the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These "forward-looking statements" can generally
be identified as such because the context of the statement will include words
such as the Company or management "believes", "anticipates", "expects",
"estimates" or words of similar import. Similarly, statements that describe the
Company's future plans, objectives or goals are also forward-looking.
Shareholders, potential investors and others are cautioned that all
forward-looking statements involve risks and uncertainty that could cause
results to differ materially from those anticipated by some of the statements
made herein. 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; future conduct of litigation or
audit processes; warranty expenses; 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 and spending.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
16
<PAGE>
POLARIS INDUSTRIES INC.
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 INC.
(Registrant)
Date: November 8, 1999 /s/ Thomas C. Tiller
-------------------------------------
Thomas C. Tiller
President and Chief Executive Officer
Date: November 8, 1999 /s/ Michael W. Malone
-------------------------------------
Michael W. Malone
Vice President, Finance, Chief
Financial Officer, Treasurer and
Secretary (Principal Financial and
Chief Accounting Officer)
17
<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 SEPTEMBER 30, 1999
AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, SHAREHOLDERS EQUITY AND
CASH FLOWS FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,170
<SECURITIES> 0
<RECEIVABLES> 68,778
<ALLOWANCES> 0
<INVENTORY> 145,067
<CURRENT-ASSETS> 256,184
<PP&E> 268,686
<DEPRECIATION> 134,150
<TOTAL-ASSETS> 467,426
<CURRENT-LIABILITIES> 261,615
<BONDS> 0
0
0
<COMMON> 243
<OTHER-SE> 155,568
<TOTAL-LIABILITY-AND-EQUITY> 467,426
<SALES> 950,960
<TOTAL-REVENUES> 950,960
<CGS> 718,296
<TOTAL-COSTS> 718,296
<OTHER-EXPENSES> 154,979
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,562
<INCOME-PRETAX> 79,723
<INCOME-TAX> 28,301
<INCOME-CONTINUING> 51,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,422
<EPS-BASIC> 2.06
<EPS-DILUTED> 2.05
</TABLE>
