<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 JUNE 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
___________________________________________
POLARIS INDUSTRIES INC.
_______________________________________________________________________________
(Exact Name of Registrant as Specified in its Charter)
MINNESOTA 41-1790959
_______________________________________________________________________________
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
1225 HIGHWAY 169 NORTH, MINNEAPOLIS, MN 55441-5078
_______________________________________________________________________________
(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
_____ _____
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 August 6, 1999, 24,999,571 shares of Common Stock of the
__________
issuer were outstanding.
<PAGE>
POLARIS INDUSTRIES INC.
FORM 10-Q
For Quarter Period Ended June 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
____
<S> <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.................................................................................13
Inflation and Exchange Rates..............................................................14
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>
June 30, 1999 December 31, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 11,085 $ 1,466
Trade receivables 36,526 43,035
Inventories 164,311 107,436
Prepaid expenses and other 5,995 2,903
Deferred tax assets 30,000 29,000
-------- --------
Total current assets 247,917 183,840
Deferred Tax Assets 20,000 21,000
Property and Equipment, net 129,115 124,254
Investments in Affiliates 25,407 26,636
Intangible Assets, net 22,524 22,967
-------- --------
Total Assets $444,963 $378,697
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts Payable $109,290 $ 77,258
Accrued expenses 97,607 120,695
Income taxes payable 22,776 7,011
-------- --------
Total Current Liabilities 229,673 204,964
Borrowings under credit agreement 61,100 20,500
-------- --------
Total Liabilities 290,773 225,464
-------- --------
Commitments and Contingencies (Notes 4, 6 and 7)
Shareholder's Equity:
Common Stock 250 253
Additional paid-in capital 36,800 48,622
Deferred compensation (4,796) (6,726)
Compensation payable in common stock 3,510 6,844
Retained earnings 118,426 104,240
-------- --------
Total shareholder's equity 154,190 153,233
-------- --------
Total Liabilities and Shareholder's Equity $444,963 $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>
Second Quarter For the Six Months
Ended June 30 Ended June 30
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $324,308 $274,711 $562,077 $484,712
Cost of Sales 249,405 210,502 430,701 373,699
-------- -------- -------- --------
Gross Profit 74,903 64,209 131,376 111,013
Operating Expenses
Selling and marketing 31,619 27,958 59,517 49,041
Research and development 8,233 6,829 15,566 13,272
General and administrative 11,631 8,305 20,562 15,958
-------- -------- -------- --------
Total operating expenses 51,483 43,092 95,645 78,271
-------- -------- -------- --------
Operating Income 23,420 21,117 35,731 32,742
Non-Operating Expense (Income)
Interest Expense 1,551 820 2,374 1,299
Equity in income of affiliates (1,928) (1,607) (3,933) (3,156)
Other expense (income), net 376 (727) (188) (1,096)
-------- -------- -------- --------
Income before taxes 23,421 22,631 37,478 35,695
Provision for income taxes 8,315 8,147 13,305 12,850
-------- -------- -------- --------
Net income $ 15,106 $ 14,484 $ 24,173 $ 22,845
======== ======== ======== ========
Basic and Diluted Net Income Per Share $ 0.60 $ 0.55 $ 0.96 $ 0.87
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
UNAUDITED
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 24,173 $ 22,845
Adjustments to reconcile net income to net cash
Depreciation and amortization 18,514 17,555
Non-cash compensation 5,665 4,498
Equity in income of affiliates (3,933) (3,156)
Deferred income taxes -- 4,000
Changes in current operating items
Trade receivables 6,509 24,004
Inventories (56,875) (22,005)
Accounts payable 32,032 34,504
Accrued expenses (23,088) (26,068)
Income taxes payable 15,765 6,165
Others, net (2,266) 1,206
--------- ---------
Net cash provided by operating activities 16,496 63,548
--------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment (22,932) (33,880)
Investments in affiliates, net 5,162 3,508
--------- ---------
Net cash used for investing activities (17,770) (30,372)
--------- ---------
Cash Flows From Financing Activities:
Borrowings under credit agreement 264,625 143,900
Repayments under credit agreement (224,025) (148,300)
Repurchase and retirement of common shares (19,720) (13,883)
Cash dividends to shareholders (9,987) (9,376)
--------- ---------
Net cash provided by (used for) financing activities 10,893 (27,659)
--------- ---------
Increase (decrease) in cash and cash equivalents 9,619 5,517
Cash and Cash Equivalents, Beginning 1,466 1,233
--------- ---------
Cash and Cash Equivalents, Ending $ 11,085 $ 6,750
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
FORM 10-Q
FOR QUARTERLY PERIOD ENDED
JUNE 30, 1999
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 3 7,569 1,930 (3,048) 0 6,454
First Rights Conversion to Stock 0 323 0 (286) 0 37
Cash dividends declared 0 0 0 0 (9,987) (9,987)
Repurchase and Retirement of common shares (6) (19,714) 0 0 0 (19,720)
Net Income 0 0 0 0 24,173 24,173
- - - - ------ ------
Balance, June 30, 1999 $250 $36,800 $(4,796) $3,510 $118,426 $154,190
==== ======= ======= ====== ======== ========
</TABLE>
6
<PAGE>
FORM 10-Q
FOR QUARTERLY PERIOD ENDED
JUNE 30, 1999
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>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Raw Materials $ 43,737 $ 32,235
Service Parts 44,157 41,085
Finished Goods 76,417 34,116
-------- --------
$164,311 $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" (5.32% at June 30,
1999) and the agreement expires on March 31, 2002 at which time
the balance is due. As of June 30, 1999, total borrowings under
this credit arrangement were $61.1 million and have been
classified as long-term in the accompanying consolidated balance
sheets.
7
<PAGE>
FORM 10-Q
FOR QUARTERLY PERIOD ENDED
JUNE 30, 1999
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 June 30, 1999, Polaris' contingent liability with respect
to the guarantee was approximately $150.0 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 six months of 1999, Polaris paid $19.7 million to
repurchase and retire 599,500 shares of its common stock with cash
on hand and borrowings under its line of credit. Polaris has
1,333,100 remaining shares available to repurchase under its
current Board of Directors' authorization as of June 30, 1999.
The Polaris Board of Directors declared a regular cash dividend of
$0.20 per share payable to holders of record on May 3, 1999, which
was paid on May 17, 1999.
On July 22, 1999, the Polaris Board of Directors declared a
regular cash dividend of $0.20 per share payable on or about
August 16, 1999, to holders of record on August 2, 1999.
Net income per share for the periods ended June 30, 1999 and 1998
was calculated based on the weighted average number of common and
potential common shares outstanding.
8
<PAGE>
FORM 10-Q
FOR QUARTERLY PERIOD ENDED
JUNE 30, 1999
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 Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income available to common shareholders $15,106 $14,484 $24,173 $22,845
======= ======= ======= =======
Weighted average number of common 24,796 25,932 24,896 25,966
shares outstanding
First Rights 0 10 0 31
Director Plan 23 16 22 16
ESOP 170 170 170 170
------- ------- ------- -------
Common shares outstanding - basic 24,989 26,128 25,088 26,183
======= ======= ======= =======
Dilutive effect of Option Plan 379 78 208 63
------- ------- ------- -------
Common and potential common shares
Outstanding 25,368 26,206 25,296 26,246
======= ======= ======= =======
Basic and diluted net income per share $ 0.60 $ 0.55 $ 0.96 $ 0.87
======= ======= ======= =======
</TABLE>
9
<PAGE>
FORM 10-Q
FOR QUARTERLY PERIOD ENDED
JUNE 30, 1999
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 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 June 30, 1999, Polaris had open Japanese yen
foreign exchange contracts with notional amounts totaling $28.6
million United States dollars, and open Canadian dollar foreign
exchange contracts with notional amounts totaling $65.5 million
United States dollars which mature throughout the remainder of
1999.
10
<PAGE>
FORM 10-Q
FOR QUARTERLY PERIOD ENDED
JUNE 30, 1999
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 June 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 $324.3 million in the second quarter of 1999, representing an 18
percent increase from $274.7 million in sales for the same period in 1998.
North American sales of ATVs and related Parts, Garments, and Accessories
("PG&A") of $187.8 million for the second quarter 1999 were 26 percent higher
than $148.8 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 $94.8 million for the
second quarter 1999 were six percent lower than $101.0 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 second quarter of
1998.
11
<PAGE>
FORM 10-Q
FOR QUARTERLY PERIOD ENDED
JUNE 30, 1999
North American sales of PWC and related PG&A of $13.8 million for the second
quarter 1999 were 25 percent higher than $11.1 million for the comparable period
in 1998. The increase is related to a return to a more normal shipping year in
1999.
North American sales of Victory motorcycles and related PG&A of $14.1 million
for the second quarter 1999 were significantly higher than $1.5 million for the
comparable period in 1998. The 1998 period represents only PG&A sales as Victory
motorcycle production and shipments did not begin until July 1998.
International sales of snowmobiles, ATVs, PWC and related PG&A of $13.8 million
for the second quarter 1999 were 12 percent higher than $12.3 million for the
comparable period in 1998 primarily as a result of stronger ATV and PWC unit
shipments.
Sales increased to $562.1 million for the year-to-date period ended June 30,
1999, representing a 16 percent increase from $484.7 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 $74.9 million in the second quarter of 1999 represents a 17
percent increase from gross profit of $64.2 million for the same period in 1998.
This increase in gross profit dollars resulted primarily from higher sales
volume in the current year period. The gross profit margin percentage decreased
to 23.1 percent for the second quarter of 1999 from 23.4 percent for the
comparable 1998 period. This slight decrease in gross profit margin percentage
is primarily due to changes in sales mix driven by the ramp up of production of
Victory motorcycles and continued growth in ATVs each of which has lower margins
than snowmobiles, the negative impact of Canadian dollar and Japanese yen
exchange rates when compared to the prior year period and an ATV sales mix shift
to lower priced, lower margin models, partially offset by manufacturing cost
reductions and increased PG&A sales.
Gross profit of $131.4 million in the year-to-date period ended June 30, 1999
represents an 18 percent increase from gross profit of $111.0 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 23.4 percent for the year-to-date period ended June 30, 1999 as
compared to 22.9 percent for the year-to-date period in 1998. This slight
increase is primarily due to manufacturing cost reductions and increased PG&A
sales partially offset by increased production of Victory motorcycles and shifts
in ATV sales mix.
Operating expenses in the second quarter of 1999 increased 19 percent to $51.5
million from the comparable 1998 period and as a percentage of sales, increased
to 15.9 percent for the second quarter of 1999 compared to 15.7 percent for the
same period in 1998. Operating expenses in the year-to-date period ended June
30, 1999 increased 22 percent to $95.6 million from the comparable 1998 period
and as a percentage of sales increased to 17.0 percent for the six months ended
June 30, 1999 compared to 16.1 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>
FORM 10-Q
FOR QUARTERLY PERIOD ENDED
JUNE 30, 1999
CASH DIVIDENDS
On April 23, 1999, the Polaris board of Directors declared a regular cash
dividend of $0.20 per share payable to holders of record on May 3, 1999,
which was paid on May 17, 1999.
On July 22, 1999, the Polaris Board of Directors declared a regular cash
dividend of $0.20 per share payable on or about August 16, 1999, to holders
of record on August 2, 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 June 30, 1999, Polaris had borrowings under its bank line of
credit arrangement of $61.1 million and cash and cash equivalents of $11.1
million.
During the first six months of 1999, Polaris paid $19.7 million to repurchase
and retire 599,500 shares of its common stock with cash on hand and
borrowings under its line of credit arrangement. Polaris has 1,333,100
remaining shares available to repurchase under its current Board of
Directors' authorization as of June 30, 1999.
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 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 has implemented a plan to make its internal information systems Year
2000 compliant by mid-1999. As of June 30, 1999, all of the programming
requirements for the Company's manufacturing systems were complete and 95% of
the programming for the sales, distribution and finance systems had been
completed. The systems are being tested when programming modifications are
completed, with testing expected to continue throughout 1999.
13
<PAGE>
FORM 10-Q
FOR QUARTERLY PERIOD ENDED
JUNE 30, 1999
Polaris has completed inventories of equipment and machines with embedded
systems that are used at each of the Company's facilities. Polaris is in the
process of assessing 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 has identified its critical
suppliers and sent them questionnaires to address their Year 2000 plans and
progress. As of June 30, 1999, Polaris has received responses from 98% of
these suppliers and is in the process of tabulating the results.
The cost of the Year 2000 initiatives (which are expensed as incurred) are
not expected to be material to Polaris' financial position. The total cost is
estimated to be approximately $1.5 million of which $1.3 million has been
incurred to date.
Polaris has begun 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
being 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 is in the process of developing
contingency plans to protect the business from Year 2000 related
interruptions and anticipates their completion by the third quarter of 1999.
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.
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 second quarter and year-to-date periods
ended June 30, 1999 was negatively impacted by the Japanese yen-U.S. dollar
exchange rate fluctuation when compared to the same periods in 1998. In view
of the foreign exchange hedging contracts currently in place, 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 periods of 1999
when compared to the same periods in 1998.
14
<PAGE>
FORM 10-Q
FOR QUARTERLY PERIOD ENDED
JUNE 30, 1999
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 second 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 periods of 1999 when
compared to the same periods 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 June 30, 1999, Polaris had open Japanese yen and Canadian dollar foreign
exchange hedging contracts, which mature throughout 1999.
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>
FORM 10-Q
FOR QUARTERLY PERIOD ENDED
JUNE 30, 1999
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
The Company held its annual meeting of shareholders on May 20,
1999. Proxies for matters to be voted upon at the Annual Meeting
were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934, as amended. The following matters were
voted upon at the Annual Meeting:
1. To elect the following nominees as Class II Directors for a
new term of three years and until their successors are duly
elected and qualified:
<TABLE>
<CAPTION>
Votes For Withheld Authority
---------- ------------------
<S> <C> <C>
Raymond J. Biggs 21,215,354 292,460
Beverly F. Dolan 21,213,879 293,935
Robert S. Moe 21,224,455 283,359
</TABLE>
2. To elect the following nominees as Class I Directors for the
remainder of the term of Class I directors expiring in 2001
and until their successors are duly elected and qualified:
<TABLE>
<CAPTION>
Votes For Withheld Authority
---------- ------------------
<S> <C> <C>
Bruce A. Thomson 21,230,116 277,698
Thomas C. Tiller 21,206,064 301,750
</TABLE>
The terms of the following Directors continued after the
meeting: Andris A. Baltins, W. Hall Wendel, Jr., Gregory R.
Palen, and Stephen G. Shank.
ITEM 5 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
16
<PAGE>
FORM 10-Q
FOR QUARTERLY PERIOD ENDED
JUNE 30, 1999
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: August 6, 1999 /s/ Thomas C. Tiller
-----------------------------------
Thomas C. Tiller
President and Chief Executive Officer
Date: August 6, 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 JUNE 30, 1999, AND
THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, SHAREHOLDERS EQUITY AND CASH
FLOWS FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,085
<SECURITIES> 0
<RECEIVABLES> 36,526
<ALLOWANCES> 0
<INVENTORY> 164,311
<CURRENT-ASSETS> 247,917
<PP&E> 252,414
<DEPRECIATION> 123,300
<TOTAL-ASSETS> 444,963
<CURRENT-LIABILITIES> 229,673
<BONDS> 0
0
0
<COMMON> 250
<OTHER-SE> 153,940
<TOTAL-LIABILITY-AND-EQUITY> 444,963
<SALES> 562,077
<TOTAL-REVENUES> 562,077
<CGS> 430,701
<TOTAL-COSTS> 430,701
<OTHER-EXPENSES> 95,645
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,374
<INCOME-PRETAX> 37,478
<INCOME-TAX> 13,305
<INCOME-CONTINUING> 24,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,173
<EPS-BASIC> 0.96
<EPS-DILUTED> 0.96
</TABLE>
