2018-10-22 5:15:00 AM

Polaris Reports 2018 Third Quarter Results


Click here if you want to download this article: POLARIS REPORTS 2018 THIRD QUARTER RESULTS

 

 

Q3 2018 Highlights

 

Reported and adjusted salesfor the third quarter of 2018 increased 12% to $1,651 million and $1,653 million, respectively

Reported net income was $1.50 per diluted share, up 17% over the prior year; adjusted net income for the same period was $1.86 per diluted share, up 22% over the prior year

North American retail sales increased 1% for the quarter compared to a strong 13% increase last year; ORV N.A. retail sales were up low single-digits driven by side-by-side vehicles

Dealer inventory was up 6% year-over-year for the third quarter 2018, in line with expectations

Polaris maintaining full year 2018 adjusted sales and earnings guidance with full year adjusted sales in the range of 11% to 12% over the prior year and  full year adjusted earnings in the range of $6.48 to $6.58 per diluted share which includes the absorption of an estimated $40 million of tariff cost increases anticipated in 2018 before counter-measures.

 

 

Key Financial Data

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

INCOME STATEMENT - Q3 September 30, 2018

Reported

 

YOY % Chg.

 

 

Adjusted*

 

YOY % Chg.

Sales..............................................................................................................

$

1,651,415

 

 

12%

 

 

$

1,653,130

 

 

12%

Net income......................................................................................................

$

95,529

 

 

17%

 

 

$

117,926

 

 

21%

Diluted EPS.....................................................................................................

$

1.50

 

 

17%

 

 

$

1.86

 

 

22%

 

 

 

 

 

 

 

 

 

BALANCE SHEET - Q3 September 30, 2018

Reported

 

YOY % Chg.

 

 

 

 

 

Cash and cash equivalents.................................................................................

$

183,411

 

 

39%

 

 

 

 

 

Inventories, net................................................................................................

$

1,019,517

 

 

21%

 

 

 

 

 

Total debt, capital lease obligations and notes payable.............................................

$

1,864,327

 

 

103%

 

 

 

 

 

Shareholders' equity.........................................................................................

$

898,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW - YTD September 30, 2018

Reported

 

YOY % Chg.

 

 

 

 

 

Net cash provided by operating activities...............................................................

$

354,138

 

 

(29)%

 

 

 

 

 

Purchase of property & equipment.......................................................................

$

157,763

 

 

25%

 

 

 

 

 

Repurchase and retirement of common shares ......................................................

$

246,931

 

 

178%

 

 

 

 

 

Cash dividends to shareholders...........................................................................

$

112,748

 

 

4%

 

 

 

 

 

Acquisition of businesses...................................................................................

$

729,925

 

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NM = Not meaningful

 

 

 

 

 

 

 

 

Note: the results and guidance in this release, including the highlights above, include references to non-GAAP operating measures, which are identified by the word “adjusted” preceding the measure. *A reconciliation of GAAP / non-GAAP measures can be found at the end of this release.

 

 

CEO Commentary

 

"The dedication and strong execution of our Polaris team continued to drive broad based growth across the business in the third quarter.  Our model year '19 product news was well received and our improving manufacturing and logistics performance accelerated the successful roll-out of RFM for side-by-sides.  International growth again outpaced North America, with Indian market share gains continuing in every market we serve.  We were also pleased with the early performance of Boat Holdings, the largest manufacturer of pontoon boats in the U.S. that we welcomed to our growing Powersports portfolio earlier in the quarter.  Our commitment to customers and investments in the U.S. remain strong, as we broke ground on a new multi-product PG&A and aftermarket distribution center in Nevada.  We are strategically and tactically committed to being a customer-centric, highly efficient growth company, and our investments demonstrate that commitment.  Our goals do not eliminate or even diminish the serious challenges we face from tariffs, but they certainly increase our resolve to find acceptable solutions or offsets.  We are making too much progress with our supply chain, safety and quality and innovation initiatives to have the benefits wiped out by protracted trade negotiations.  The challenge is real, and so are our efforts to overcome them.  We remain well-positioned with a world-class team and product line-up and are confident in our ability to deliver strong financial and operational performance in the quarter and years ahead.”

 

-- Scott Wine, Chairman and Chief Executive Officer of Polaris Industries Inc.

 

 

Third Quarter Performance Summary (Reported)

 

(in thousands, except per share data)

Three months ended September 30,

 

2018

 

2017

 

Change

Sales................................................................................................................................

$

1,651,415

 

 

$

1,478,726

 

 

12

%

Gross profit......................................................................................................................

401,270

 

 

363,962

 

 

10

%

  % of Sales.......................................................................................................................

24.3

%

 

24.6

%

 

-31 bpts

Total operating expenses....................................................................................................

283,749

 

 

265,192

 

 

7

%

  % of Sales......................................................................................................................

17.2

%

 

17.9

%

 

-75 bpts

Income from financial services............................................................................................

21,348

 

 

18,138

 

 

18

%

  % of Sales.......................................................................................................................

1.3

%

 

1.2

%

 

+7 bpts

Operating income..............................................................................................................

138,869

 

 

116,908

 

 

19

%

  % of Sales.......................................................................................................................

8.4

%

 

7.9

%

 

+50 bpts

Net income.......................................................................................................................

95,529

 

 

81,888

 

 

17

%

  % of Sales.......................................................................................................................

5.8

%

 

5.5

%

 

+25 bpts

Diluted net income per share..............................................................................................

$

1.50

 

 

$

1.28

 

 

17

%

 

 

Minneapolis, MN (October 22, 2018) - Polaris Industries Inc. (NYSE: PII) today reported third quarter 2018 sales of $1,651 million, up 12 percent from $1,479 million for the third quarter of 2017.  Adjusted sales for the third quarter of 2018 were $1,653 million, up 12 percent from the prior year period.  The Boat Holdings, LLC ("Boat Holdings") acquisition added $134 million of sales in the third quarter.  The Company reported third quarter 2018 net income of $96 million, or $1.50 per diluted share, compared with net income of $82 million, or $1.28 per diluted share, for the 2017 third quarter.  Adjusted net income for the quarter ended September 30, 2018 was $118 million, or $1.86 per diluted share, up 21 percent and 22 percent respectfully, compared to $98 million, or $1.52 per diluted share in the 2017 third quarter.

 

Gross profit increased 10 percent to $401 million for the third quarter of 2018 from $364 million in the third quarter of 2017.   Reported gross profit margin was 24.3 percent of sales for the third quarter of 2018 compared to 24.6 percent of sales for the third quarter of 2017.  Gross profit for the third quarter of 2018 includes the negative impact of $8 million of Victory Motorcycles® wind-down costs, acquisition-related costs for the acquisition of Boat Holdings and realignment and restructuring costs.  Excluding these items, third quarter 2018 adjusted gross profit was $410 million, or 24.8 percent of adjusted sales.  For the third quarter of 2017 adjusted gross profit of $378 million, or 25.5 percent of adjusted sales, excludes the negative impact of $14 million in Victory Motorcycles wind down costs and other restructuring and realignment costs. Gross profit margins on an adjusted basis were down slightly primarily due to mix and the impact of tariff, commodity and freight cost pressure during the quarter, partially offset by lower warranty and promotional costs.

 

Operating expenses increased seven percent for the third quarter of 2018 to $284 million, or 17.2 percent of sales, from $265 million, or 17.9 percent of sales, in the same period in 2017.  Operating expenses in dollars increased primarily due to the Boat Holdings acquisition completed during the quarter and investments in strategic projects. Operating expenses as a percentage of sales, improved as the Company realized efficiencies through its selling, marketing and general and administrative spend along with the addition of Boat Holdings which inherently has a lower operating expense to sales ratio.

 

Income from financial services was $21 million for the third quarter of 2018, up 18 percent compared with $18 million for the third quarter of 2017.  The increase is attributable to higher retail demand and penetration rates along with increased income from Polaris Acceptance as dealer inventories were at more appropriate levels to meet demand.

 

 

Non-Operating Expenses (Reported)

 

(in thousands)

Three months ended September 30,

 

2018

 

2017

 

Change

Interest expense......................................................................................

$

19,823

 

 

$

8,492

 

 

133

%

Equity in loss of other affiliates...................................................................

$

111

 

 

$

1,603

 

 

(93

)%

Other expense (income), net.....................................................................

$

(4,124

)

 

$

(2,368

)

 

74

%

Provision for income taxes........................................................................

$

27,530

 

 

$

27,293

 

 

 

 

 

Interest expense was $20 million for the third quarter of 2018 compared to $8 million for the same period last year, primarily due to increased debt levels to finance the Boat Holdings acquisition.

 

Other expense (income), net, was $4 million and $2 million of income in the third quarter of 2018 and 2017, respectively, resulting from foreign currency exchange rate movements and the corresponding effects on foreign currency transactions related to the Company’s foreign subsidiaries.

 

The provision for income taxesfor the third quarter of 2018 was $28 million, or 22.4 percent of pretax income, compared with $27 million, or 25.0 percent of pretax income for the third quarter of 2017.  The decrease in the effective income tax rate is primarily due to the reduction in the federal statutory tax rate to 21 percent as a result of U.S. Tax Reform offset by a decrease in excess tax benefits related to stock based compensation compared to the prior year.

 

 

Product Segment Highlights (Reported)

 

(in thousands)

Sales

 

Gross Profit

 

Q3 2018

 

Q3 2017

 

Change

 

Q3 2018

 

Q3 2017

 

Change

Off-Road Vehicles / Snowmobiles................................................

$

1,035,554

 

 

$

1,007,392

 

 

3

%

 

$

290,631

 

 

$

296,904

 

 

(2

)%

Motorcycles.............................................................................

$

155,316

 

 

$

155,059

 

 

 

 

$

19,577

 

 

$

10,354

 

 

89

%

Global Adjacent Markets............................................................

$

96,251

 

 

$

91,575

 

 

5

%

 

$

24,155

 

 

$

15,983

 

 

51

%

Aftermarket.............................................................................

$

229,973

 

 

$

224,700

 

 

2

%

 

$

66,092

 

 

$

63,239

 

 

5

%

Boats.....................................................................................

$

134,321

 

 

$

 

 

 

 

$

20,253

 

 

$

 

 

 

 

Off-Road Vehicle (“ORV”) and Snowmobile segment sales, including PG&A, totaled $1,036 million for the third quarter of 2018, up three percent over $1,007 million for the third quarter of 2017 driven by growth across most categories.  PG&A sales for ORV and Snowmobiles combined increased 12 percent in the 2018 third quarter compared to the third quarter last year. Gross profit decreased two percent to $291 million in the third quarter of 2018, compared to $297 million in the third quarter of 2017.

 

  • ORVwholegoodsales for the third quarter of 2018 increased 12 percent primarily driven by strong RANGER and ATV shipments.  Polaris North American ORV retail sales increased low-single digits percent for the quarter with side-by-side vehicles up low-single digits percent and ATV vehicles down low-single digits percent. ATVs again gained market share during the quarter.  The Company experienced a modest amount of market share loss for side-by-sides due to a very difficult comparable in the third quarter of 2017.  The North American ORV industry was up low-single digits percent compared to the third quarter last year.

 

  • Snowmobile wholegood sales in the third quarter of 2018 was $69 million compared to $144 million in the third quarter last year. Snowmobile sales are expected to be more heavily weighted towards the fourth quarter of 2018 due to the timing of shipments for the Company's pre-season snowmobile orders.

 

Motorcyclesegment sales, including PG&A, totaled $155 million, which were flat compared to the third quarter of 2017. Gross profit for the third quarter of 2018 was $20 million compared to $10 million in the third quarter of 2017. Adjusted for the Victory wind-down costs recorded in both the 2018 and 2017 third quarters, motorcycle gross profit was $21 million in the 2018 third quarter compared to $18 million for the 2017 third quarter.

 

North American consumer retail sales for the Polaris motorcycle segment, including both Indian Motorcycle and Slingshot, decreased high-single digits during the 2018 third quarter. Indian Motorcycle retail sales increased low-single digits, in spite of an overall weak N.A. motorcycle market.  Slingshot's retail sales were down during the quarter.  Motorcycle industry retail sales, 900cc and above, were down low-teens percent in the 2018 third quarter. Indian Motorcycle gained market share for the 2018 third quarter on a year-over-year basis.

 

Global Adjacent Marketssegment sales, including PG&A, increased five percent to $96 million in the 2018 third quarter compared to $92 million in the 2017 third quarter. Reported gross profit increased 51 percent to $24 million in the third quarter of 2018, compared to $16 million in the third quarter of 2017. Adjusted gross profit increased nine percent to $24 million in the third quarter of 2018, compared to $22 million in the third quarter of 2017.

 

Aftermarketsegment sales increased two percent to $230 million in the 2018 third quarter compared to $225 million in the 2017 third quarter driven by the Company's powersports aftermarket brands. TAP sales in the third quarter of 2018 were $189 million, which was down slightly compared to the third quarter of 2017. TAP sales were impacted by delayed accessory development work and weakness in business-to-business sales in the South/Southwest. Gross profit increased to $66 million in the third quarter of 2018, compared to $63 million in the third quarter of 2017.

 

Boats segment sales, which consist of the Boat Holdings acquisition that closed July 2, 2018, were $134 million in the 2018 third quarter, slightly better than expectations. Reported gross profit was $20 million or 15.1 percent of sales in the third quarter of 2018.  Adjusted gross profit, which excludes integration costs and purchase accounting, was $23 million or 17.4 percent of sales in the third quarter of 2018.

 

Supplemental Data:

 

  • Parts, Garments, and Accessories (“PG&A”)sales increased eight percent for the 2018 third quarter primarily driven by growth in ORV.

 

  • International sales to customers outside of North America, including PG&A, totaled $172 million for the third quarter of 2018, up 10 percent, from the same period in 2017. Foreign exchange movements reduced sales by three percent for the quarter. The increase was driven by strong sales in snowmobiles and motorcycles.

 

 

Financial Position and Cash Flow

 

(in thousands)

Nine Months ended September 30,

 

2018

 

2017

 

Change

Cash and cash equivalents..............................................................................................................

$

183,411

 

 

$

132,260

 

 

39

%

Net cash provided by operating activities............................................................................................

$

354,138

 

 

$

497,095

 

 

(29

)%

Repurchase and retirement of common shares....................................................................................

$

246,931

 

 

$

88,877

 

 

178

%

Cash dividends to shareholders........................................................................................................

$

112,748

 

 

$

108,923

 

 

4

%

Acquisition of businesses................................................................................................................

$

729,925

 

 

$

(1,645

)

 

NM

Total debt, capital lease obligations and notes payable..........................................................................

$

1,864,327

 

 

$

919,984

 

 

103

%

  Debt to Total Capital Ratio.............................................................................................................

67

%

 

51

%

 

 

 

 

 

 

 

 

NM = Not meaningful

 

 

 

 

 

 

Net cash provided by operating activities was $354 million for the nine months ended September 30, 2018, compared to $497 million for the same period in 2017. The decrease in net cash provided by operating activities for the 2018 period was due to the timing of accrual payments and higher factory inventory needed for ongoing refinement of retail flow management ("RFM"). Total debt at September 30, 2018, including capital lease obligations and notes payable, was $1,864 million. The Company’s debt-to-total capital ratio was 67 percent at September 30, 2018 compared to 51 percent at September 30, 2017. Cash and cash equivalents were $183 million at September 30, 2018, up from $132 million at September 30, 2017.

 

Share Buyback Activity:  During the third quarter of 2018, the Company repurchased 507,000 shares of its common stock for $55 million. Year-to-date through  September 30, 2018, the Company has repurchased 2,069,000 shares of its common stock for $247 million. As of September 30, 2018, the Company has authorization from its Board of Directors to repurchase up to an additional 4.4 million shares of Polaris common stock.

 

 

2018 Business Outlook

The Company is maintaining its adjusted sales and earnings guidance for the full year 2018. Adjusted sales are expected to increase in the range of 11 percent to 12 percent over 2017 adjusted sales of $5,428 million and adjusted net income is expected to be in the range of $6.48 to $6.58 per diluted share for the full year 2018 compared to adjusted net income of $5.10 per diluted share for 2017.  The Company is maintaining its current sales and earnings per share guidance ranges given the fluid nature of tariffs and the potential impact of trade negotiations and a more difficult motorcycle environment, which is impacting growth and profitability for that segment.  The full year earnings guidance includes approximately $40 million of tariff cost increases before counter-measures, as the Company understands them today.

 

 

Non-GAAP Financial Measures

This press release and our related earnings call contain certain non-GAAP financial measures, consisting of “adjusted" sales, gross profit, income before taxes, net income and net income per diluted share as measures of our operating performance. Management believes these measures may be useful in performing meaningful comparisons of past and present operating results, to understand the performance of its ongoing operations and how management views the business. Reconciliations of adjusted non-GAAP measures to reported GAAP measures are included in the financial schedules contained in this press release. These measures, however, should not be construed as an alternative to any other measure of performance determined in accordance with GAAP.

 

 

Investor Conference Call

Third Quarter 2018 Earnings Conference Call and Webcast Presentation

Today at 10:00 AM (CDT) Polaris Industries Inc. will host a conference call and webcast to discuss the 2018 third quarter results released this morning. The call will be hosted by Scott Wine, Chairman and CEO; and Mike Speetzen, Executive Vice President - Finance and CFO.  A slide presentation and link to the webcast will be posted on the Polaris Investor Relations website at ir.polaris.com.  To listen to the conference call by phone, dial 1-877-883-0383 in the U.S., or 1-412-902-6506 internationally.  The Conference ID is 1886245.  A replay of the conference call will be available by accessing the same link on our website.

 

 

About Polaris

Polaris Industries Inc. (NYSE: PII) is a global powersports leader that has been fueling the passion of riders, workers and outdoor enthusiasts for more than 60 years. With annual 2017 sales of $5.4 billion, Polaris’ innovative, high-quality product line-up includes the RANGER®, RZR® and Polaris GENERAL™ side-by-side off-road vehicles; the Sportsman® and Polaris ACE® all-terrain off-road vehicles; Indian Motorcycle® mid-size and heavyweight motorcycles; Slingshot® moto-roadsters; snowmobiles; and pontoon, deck, and cruiser boats. Polaris enhances the riding experience with parts, garments and accessories, along with a growing aftermarket portfolio, including Transamerican Auto Parts. Polaris’ presence in adjacent markets globally includes military and commercial off-road vehicles, quadricycles, and electric vehicles. Proudly headquartered in Minnesota, Polaris serves more than 100 countries across the globe. Visit www.polaris.com for more information.

 

 

Fordward-looking Statements

Except for historical information contained herein, the matters set forth in this news release, including management’s expectations regarding 2018 future sales, shipments, net income, and net income per share, operational initiatives, impact of tax reform, and tariffs and commodity costs, are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those forward-looking statements.  Potential risks and uncertainties include such factors as the Company’s ability to successfully implement its manufacturing operations expansion initiatives, product offerings, promotional activities and pricing strategies by competitors; economic conditions that impact consumer spending; acquisition integration costs; product recalls, warranty expenses; impact of changes in Polaris stock price on incentive compensation plan costs; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; commodity costs; freight and tariff costs; changes to international trade agreements; uninsured product liability claims; uncertainty in the retail and wholesale credit markets; performance of affiliate partners; changes in tax policy and overall economic conditions, including inflation, consumer confidence and spending and relationships with dealers and suppliers.  Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission.  The Company does not undertake any duty to any person to provide updates to its forward-looking statements.

 

(summarized financial data follows)

 

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data) (Unaudited)

 

Three months ended September 30,

 

Nine months ended September 30,

 

2018

 

2017

 

2018

 

2017

Sales.............................................................................

$

1,651,415

 

 

$

1,478,726

 

 

$

4,451,420

 

 

$

3,997,428

 

Cost of sales...................................................................

1,250,145

 

 

1,114,764

 

 

3,341,493

 

 

3,040,589

 

Gross profit....................................................................

401,270

 

 

363,962

 

 

1,109,927

 

 

956,839

 

Operating expenses:........................................................

 

 

 

 

 

 

 

Selling and marketing...................................................

128,929

 

 

122,642

 

 

369,495

 

 

355,486

 

Research and development...........................................

64,181

 

 

63,129

 

 

197,741

 

 

175,887

 

General and administrative............................................

90,639

 

 

79,421

 

 

262,206

 

 

245,998

 

Total operating expenses..................................................

283,749

 

 

265,192

 

 

829,442

 

 

777,371

 

Income from financial services...........................................

21,348

 

 

18,138

 

 

64,117

 

 

57,711

 

Operating income............................................................

138,869

 

 

116,908

 

 

344,602

 

 

237,179

 

Non-operating expense:....................................................

 

 

 

 

 

 

 

Interest expense..........................................................

19,823

 

 

8,492

 

 

37,087

 

 

24,438

 

Equity in loss of other affiliates........................................

111

 

 

1,603

 

 

25,576

 

 

4,839

 

Other expense (income), net..........................................

(4,124

)

 

(2,368

)

 

(27,660

)

 

7,088

 

Income before income taxes..............................................

123,059

 

 

109,181

 

 

309,599

 

 

200,814

 

Provision for income taxes.................................................

27,530

 

 

27,293

 

 

65,816

 

 

59,796

 

Net income....................................................................

$

95,529

 

 

$

81,888

 

 

$

243,783

 

 

$

141,018

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

Basic.......................................................................

$

1.54

 

 

$

1.31

 

 

$

3.88

 

 

$

2.24

 

Diluted.......................................................................

$

1.50

 

 

$

1.28

 

 

$

3.78

 

 

$

2.21

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic.......................................................................

62,207

 

 

62,646

 

 

62,894

 

 

62,890

 

Diluted.......................................................................

63,546

 

 

63,885

 

 

64,550

 

 

63,942

 

 

 

 

CONSOLIDATED BALANCE SHEETS

(In Thousands), (Unaudited)

 

September 30, 2018

 

September 30, 2017

 

 

 

 

Assets

 

 

 

Current Assets:

 

 

 

Cash and cash equivalents..............................................................................................

$

183,411

 

 

$

132,260

 

Trade receivables, net.....................................................................................................

217,694

 

 

184,074

 

Inventories, net..............................................................................................................

1,019,517

 

 

841,922

 

Prepaid expenses and other.............................................................................................

105,066

 

 

80,859

 

Income taxes receivable..................................................................................................

5,865

 

 

9,535

 

Total current assets................................................................................................................

1,531,553

 

 

1,248,650

 

Property and equipment, net....................................................................................................

807,511

 

 

735,441

 

Investment in finance affiliate....................................................................................................

88,790

 

 

70,910

 

Deferred tax assets.................................................................................................................

116,447

 

 

191,287

 

Goodwill and other intangible assets, net.....................................................................................

1,515,431

 

 

784,616

 

Other long-term assets.............................................................................................................

88,299

 

 

102,162

 

Total assets...........................................................................................................................

$

4,148,031

 

 

$

3,133,066

 

Liabilities and Shareholders’ Equity............................................................................................

 

 

 

Current Liabilities:

 

 

 

Current portion of debt, capital lease obligations and notes payable........................................

$

66,595

 

 

$

27,835

 

Accounts payable.........................................................................................................

436,401

 

 

385,858

 

Accrued expenses:

 

 

 

Compensation........................................................................................................

160,033

 

 

148,280

 

Warranties.............................................................................................................

122,544

 

 

112,085

 

Sales promotions and incentives................................................................................

187,307

 

 

192,568

 

Dealer holdback.....................................................................................................

124,259

 

 

117,934

 

Other....................................................................................................................

179,738

 

 

183,030

 

Income taxes payable ..................................................................................................

8,963

 

 

27,448

 

Total current liabilities..............................................................................................................

1,285,840

 

 

1,195,038

 

Long term income taxes payable..............................................................................................

26,805

 

 

22,036

 

Capital lease obligations.........................................................................................................

16,712

 

 

18,451

 

Long-term debt.....................................................................................................................

1,781,020

 

 

873,698

 

Deferred tax liabilities.............................................................................................................

7,054

 

 

9,366

 

Other long-term liabilities.........................................................................................................

122,728

 

 

107,182

 

Total liabilities........................................................................................................................

$

3,240,159

 

 

$

2,225,771

 

Deferred compensation...........................................................................................................

9,620

 

 

11,331

 

Shareholders’ equity:

 

 

 

Total shareholders’ equity........................................................................................................

898,252

 

 

895,964

 

Total liabilities and shareholders’ equity..................................................................................

$

4,148,031

 

 

$

3,133,066

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands), (Unaudited)

 

Nine months ended September 30,

 

2018

 

2017

Operating Activities:

 

 

 

Net income.................................................................................................................................................

$

243,783

 

 

$

141,018

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization..................................................................................................................

155,910

 

 

138,105

 

Noncash compensation............................................................................................................................

43,219

 

 

34,249

 

Noncash income from financial services......................................................................................................

(22,232

)

 

(20,131

)

Deferred income taxes.............................................................................................................................

(4,171

)

 

(2,703

)

Impairment charges.................................................................................................................................

21,716

 

 

25,395

 

Other, net..............................................................................................................................................

(9,618

)

 

4,839

 

Changes in operating assets and liabilities:

 

 

 

Trade receivables................................................................................................................................

(991

)

 

(447

)

Inventories.........................................................................................................................................

(201,229

)

 

(83,621

)

Accounts payable................................................................................................................................

90,842

 

 

108,198

 

Accrued expenses...............................................................................................................................

1,620

 

 

80,949

 

Income taxes payable/receivable............................................................................................................

28,715

 

 

62,336

 

Prepaid expenses and others, net..........................................................................................................

6,574

 

 

8,908

 

Net cash provided by operating activities.................................................................................................................

354,138

 

 

497,095

 

 

 

 

 

Investing Activities:

 

 

 

Purchase of property and equipment...............................................................................................................

(157,763

)

 

(126,647

)

Investment in finance affiliate, net...................................................................................................................

22,207

 

 

43,230

 

Investment in other affiliates, net....................................................................................................................

7,366

 

 

(7,110

)

Acquisition and disposal of businesses, net of cash acquired...............................................................................

(729,925

)

 

1,645

 

Net cash used for investing activities......................................................................................................................

(858,115

)

 

(88,882

)

 

 

 

 

Financing Activities:

 

 

 

Borrowings under debt arrangements / capital lease obligations...........................................................................

2,845,688

 

 

1,623,577

 

Repayments under debt arrangements / capital lease obligations.........................................................................

(1,970,701

)

 

(1,850,247

)

Repurchase and retirement of common shares.................................................................................................

(246,931

)

 

(88,877

)

Cash dividends to shareholders.....................................................................................................................

(112,748

)

 

(108,923

)

Proceeds from stock issuances under employee plans.......................................................................................

47,158

 

 

14,226

 

Net cash provided by (used for) financing activities....................................................................................................

562,466

 

 

(410,244

)

Impact of currency exchange rates on cash balances................................................................................................

(5,904

)

 

9,597

 

 

 

 

 

Net increase in cash, cash equivalents and restricted cash...................................................................................

52,585

 

 

7,566

 

Cash, cash equivalents and restricted cash at beginning of period...............................................................................

161,618

 

 

145,170

 

Cash, cash equivalents and restricted cash at end of period.................................................................................

$

214,203

 

 

$

152,736

 

 

 

 

 

Cash, cash equivalents and restricted cash by category:

 

 

 

Cash and cash equivalents.................................................................................................................................

$

183,411

 

 

$

132,260

 

Other long-term assets.......................................................................................................................................

30,792

 

 

20,476

 

Total.............................................................................................................................................................

$

214,203

 

 

$

152,736

 

 

 

 

NON-GAAP RECONCILIATION OF RESULTS

(In Thousands, Except Per Share Data), (Unaudited)

 

Three months ended September 30,

 

Nine months ended September 30,

 

2018

 

2017

 

2018

 

2017

Sales................................................................................

$

1,651,415

 

 

$

1,478,726

 

 

$

4,451,420

 

 

$

3,997,428

 

Victory wind down (1)...........................................................

1,055

 

 

1,560

 

 

1,304

 

 

507

 

Restructuring & realignment (3)..............................................

660

 

 

 

 

2,789

 

 

 

Adjusted sales....................................................................

1,653,130

 

 

1,480,286

 

 

4,455,513

 

 

3,997,935

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit........................................................................

401,270

 

 

363,962

 

 

1,109,927

 

 

956,839

 

Victory wind down (1)...........................................................

1,239

 

 

7,555

 

 

417

 

 

54,970

 

Acquisition-related costs (2)...................................................

3,130

 

 

 

 

3,130

 

 

12,950

 

Restructuring & realignment (3)..............................................

4,128

 

 

6,214

 

 

15,965

 

 

10,517

 

Adjusted gross profit...........................................................

409,767

 

 

377,731

 

 

1,129,439

 

 

1,035,276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes...................................................

123,059

 

 

109,181

 

 

309,599

 

 

200,814

 

Victory wind down (1)...........................................................

1,514

 

 

8,809

 

 

1,757

 

 

77,240

 

Acquisition-related costs (2)..................................................

8,989

 

 

3,492

 

 

16,798

 

 

23,459

 

Restructuring & realignment (3).............................................

4,671

 

 

6,214

 

 

22,564

 

 

10,517

 

EPPL impairment (5)...........................................................

 

 

 

 

23,447

 

 

 

Brammo (6).......................................................................

 

 

 

 

(13,478

)

 

 

Intangible amortization (7)....................................................

10,403

 

 

6,344

 

 

22,591

 

 

18,772

 

Other expenses (4).............................................................

3,288

 

 

 

 

5,010

 

 

 

Adjusted income before taxes.............................................

151,924

 

 

134,040

 

 

388,288

 

 

330,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income........................................................................

95,529

 

 

81,888

 

 

243,783

 

 

141,018

 

Victory wind down (1)..........................................................

1,154

 

 

5,537

 

 

1,339

 

 

53,378

 

Acquisition-related costs (2).................................................

6,848

 

 

2,195

 

 

12,799

 

 

14,746

 

Restructuring & realignment (3)............................................

3,559

 

 

3,906

 

 

17,192

 

 

6,611

 

EPPL impairment (5)..........................................................

 

 

 

 

22,325

 

 

 

Brammo (6)......................................................................

 

 

 

 

(13,113

)

 

 

Intangible amortization (7)...................................................

7,763

 

 

4,030

 

 

16,708

 

 

11,933

 

Other expenses (4)............................................................

3,073

 

 

 

 

5,110

 

 

 

Adjusted net income (8)......................................................

117,926

 

 

97,556

 

 

306,143

 

 

227,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS.......................................................................

$

1.50

 

 

$

1.28

 

 

$

3.78

 

 

$

2.21

 

Victory wind down (1)..........................................................

0.02

 

 

0.09

 

 

0.02

 

 

0.83

 

Acquisition-related costs (2).................................................

0.11

 

 

0.03

 

 

0.20

 

 

0.23

 

Restructuring & realignment (3)............................................

0.06

 

 

0.06

 

 

0.26

 

 

0.10

 

EPPL impairment (5)..........................................................

 

 

 

 

0.34

 

 

 

Brammo (6).......................................................................

 

 

 

 

(0.20

)

 

 

Intangible amortization (7)....................................................

0.12

 

 

0.06

 

 

0.26

 

 

0.19

 

Other expenses (4).............................................................

0.05

 

 

 

 

0.08

 

 

 

Adjusted EPS (8).................................................................

$

1.86

 

 

$

1.52

 

 

$

4.74

 

 

$

3.56

 

 

 

 

 

 

 

 

 

(1) Represents adjustments for the wind down of Victory Motorcycles, including wholegoods, accessories and apparel

(2) Represents adjustments for integration and acquisition-related expenses and purchase accounting adjustments

(3) Represents adjustments for corporate restructuring, network realignment costs, and supply chain transformation

(4) Represents adjustments for the impacts of tax reform and non-recurring litigation expenses

(5) Represents adjustments for the impairment of the Company's equity investment in Eicher-Polaris Private Limited (EPPL). This charge is included in Equity in loss of other affiliates (non-operating) on the Consolidated Statements of Income.

(6) Represents a gain on the Company's investment in Brammo, Inc. This gain is included in Other income (non-operating) on the Consolidated Statements of Income.

(7) Represents amortization expense for acquisition-related intangible assets

(8) The Company used its estimated statutory tax rate of 23.8% and 37.1% for the non-GAAP adjustments in 2018 and 2017, respectively, except for the non-deductible items and the tax reform related changes noted in Item 4

 

 

 

NON-GAAP RECONCILIATION OF SEGMENT RESULTS

(In Thousands), (Unaudited)

 

Three months ended September 30,

 

Nine months ended September 30,

SEGMENT SALES

2018

 

2017

 

2018

 

2017

ORV/Snow segment sales.........................................................................

$

1,035,554

 

 

$

1,007,392

 

 

$

2,858,959

 

 

$

2,577,003

 

Restructuring & realignment (3)

660

 

 

 

 

2,789

 

 

 

Adjusted ORV/Snow segment sales...............................................................

1,036,214

 

 

1,007,392

 

 

2,861,748

 

 

2,577,003

 

 

 

 

 

 

 

 

 

Motorcycles segment sales.......................................................................

155,316

 

 

155,059

 

 

458,285

 

 

473,345

 

Victory wind down (1)................................................................................

1,055

 

 

1,560

 

 

1,304

 

 

507

 

Adjusted Motorcycles segment sales.............................................................

156,371

 

 

156,619

 

 

459,589

 

 

473,852

 

 

 

 

 

 

 

 

 

Global Adjacent Markets (GAM) segment sales............................................

96,251

 

 

91,575

 

 

322,996

 

 

280,152

 

No adjustment.........................................................................................

 

 

 

 

 

 

 

Adjusted GAM segment sales.......................................................................

96,251

 

 

91,575

 

 

322,996

 

 

280,152

 

 

 

 

 

 

 

 

 

Aftermarket segment sales........................................................................

229,973

 

 

224,700

 

 

676,859

 

 

666,928

 

No adjustment.........................................................................................

 

 

 

 

 

 

 

Adjusted Aftermarket sales..........................................................................

229,973

 

 

224,700

 

 

676,859

 

 

666,928

 

 

 

 

 

 

 

 

 

Boats segment sales................................................................................

134,321

 

 

 

 

134,321

 

 

 

No adjustment.........................................................................................

 

 

 

 

 

 

 

Adjusted Boats sales..................................................................................

134,321

 

 

 

 

134,321

 

 

 

 

 

 

 

 

 

 

 

Total sales...............................................................................................

1,651,415

 

 

1,478,726

 

 

4,451,420

 

 

3,997,428

 

Total adjustments.....................................................................................

1,715

 

 

1,560

 

 

4,093

 

 

507

 

Adjusted total sales....................................................................................

$

1,653,130

 

 

$

1,480,286

 

 

$

4,455,513

 

 

$

3,997,935

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

SEGMENT GROSS PROFIT

2018

 

2017

 

2018

 

2017

ORV/Snow segment gross profit................................................................

$

290,631

 

 

$

296,904

 

 

$

831,413

 

 

$

776,013

 

Restructuring & realignment (3)

660

 

 

 

 

2,789

 

 

 

Adjusted ORV/Snow segment gross profit.......................................................

291,291

 

 

296,904

 

 

834,202

 

 

776,013

 

 

 

 

 

 

 

 

 

Motorcycles segment gross profit..............................................................

19,577

 

 

10,354

 

 

60,817

 

 

11,589

 

Victory wind down (1)................................................................................

1,239

 

 

7,555

 

 

417

 

 

54,970

 

Restructuring & realignment (3)...................................................................

 

 

 

 

1,185

 

 

 

Adjusted Motorcycles segment gross profit......................................................

20,816

 

 

17,909

 

 

62,419

 

 

66,559

 

 

 

 

 

 

 

 

 

Global Adjacent Markets (GAM) segment gross profit...................................

24,155

 

 

15,983

 

 

83,520

 

 

65,297

 

Restructuring & realignment (3)...................................................................

45

 

 

6,214

 

 

479

 

 

10,517

 

Adjusted GAM segment gross profit...............................................................

24,200

 

 

22,197

 

 

83,999

 

 

75,814

 

 

 

 

 

 

 

 

 

Aftermarket segment gross profit...............................................................

66,092

 

 

63,239

 

 

182,291

 

 

164,721

 

Acquisition-related costs (2)

 

 

 

 

 

 

12,950

 

Adjusted Aftermarket segment gross profit......................................................

66,092

 

 

63,239

 

 

182,291

 

 

177,671

 

 

 

 

 

 

 

 

 

Boats segment gross profit.......................................................................

20,253

 

 

 

 

20,253

 

 

 

Acquisition-related costs (2)........................................................................

3,130

 

 

 

 

3,130

 

 

 

Boats segment gross profit..........................................................................

23,383

 

 

 

 

23,383

 

 

 

 

 

 

 

 

 

 

 

Corporate segment gross profit................................................................

(19,438

)

 

(22,518

)

 

(68,367

)

 

(60,781

)

Restructuring & realignment (3)..................................................................

3,423

 

 

 

 

11,512

 

 

 

Adjusted Corporate segment gross profit.......................................................

(16,015

)

 

(22,518

)

 

(56,855

)

 

(60,781

)

 

 

 

 

 

 

 

 

Total gross profit.....................................................................................

401,270

 

 

363,962

 

 

1,109,927

 

 

956,839

 

Total adjustmentsn ..................................................................................

8,497

 

 

13,769

 

 

19,512

 

 

78,437

 

Adjusted total gross profit............................................................................

$

409,767

 

 

$

377,731

 

 

$

1,129,439

 

 

$

1,035,276

 

 

 

 

 

 

 

 

 

(1) Represents adjustments for the wind down of Victory Motorcycles, including wholegoods, accessories and apparel

(2) Represents adjustments for integration expenses and purchase accounting adjustments

(3) Represents adjustments for corporate restructuring, network realignment costs, and supply chain transformation

 

 

 

NON-GAAP ADJUSTMENTS
2018 Third Quarter Results & Full Year Guidance

 

Wind Down of Victory Motorcycles

In 2017, Polaris announced its intention to wind down its Victory Motorcycles operations. The decision is expected to improve the long-term profitability of Polaris and its global motorcycle business, while materially improving the Company’s competitive position in the industry. The Company will record costs, expected to be approximately $80 million through 2018, associated with supporting Victory dealers in selling their remaining inventory, the disposal of factory inventory, tooling, and other physical assets, and the cancellation of various supplier arrangements. In 2017, the Company recorded pretax costs of $77 million.  In the first three quarters of 2018, the Company recorded pretax costs of $2 million.  These costs are excluded from Polaris’ 2018 sales and earnings guidance on a non-GAAP basis.

 

Restructuring, Realignment and Supply Chain Transformation

Polaris announced in 2017 that it was making changes to its network to consolidate production and distribution of like products and better leverage plant capacity and embarked on a multi-phase supply chain transformation initiative to continue to leverage its supply chain as a strategic asset. Year-to-date ending September 30, 2018, the Company has recorded costs totaling $23 million related to the manufacturing and distribution network realignment and the supply chain transformation projects. In addition, the Company has recorded TAP and Boat Holdings integration and acquisition-related costs of $17 million for the year-to-date period ending September 30, 2018.  The costs for these projects are excluded from Polaris’ 2018 sales and earnings guidance on a non-GAAP basis.

 

Eicher-Polaris Joint Venture Impairment in India

Regulatory changes have negatively impacted the likelihood of success of the joint venture, and as a result, in late-February 2018, the Board of Directors of the joint venture approved the wind-down of the joint venture.  Year-to-date ended September 30, 2018, Polaris has recorded charges totaling $23 million, including the impairment of the Company's equity investment in the Eicher-Polaris joint venture in India and wind down costs.

 

Intangible amortization related to acquisitions

As a result of the Boat Holdings acquisition, Polaris' amortization of intangible assets will increase by approximately $20 million on an annual basis. Given the significant increase in non-cash amortization associated with this acquisition along with intangible amortization from prior acquisitions, the Company has moved to an adjusted net income metric, excluding intangible amortization from all acquisitions including prior year acquisitions of approximately $24 million for full year 2018. The Company believes this treatment will provide additional transparency into the true, ongoing earnings performance of its business.

 

2018 Adjusted Guidance

2018 guidance excludes the pre-tax effect of acquisition integration costs of approximately $25 million, supply chain transformation and network realignment costs of approximately $25 million to $30 million and the remaining impacts associated with the Victory wind down which is estimated to be approximately $5 million.  Additionally, 2018 guidance excludes the pre-tax gain of $13 million related to the Company's investment in Brammo and charges of $23 million, including the impairment of the Company's equity investment in the Eicher-Polaris joint venture in India and related wind down costs, recorded in the first half of 2018.  Additional costs associated with the wind down of the joint venture, if any, are expected to be immaterial for the remainder of 2018. Intangible amortization of approximately $35 million related to all acquisitions has also been excluded.  2018 adjusted sales guidance excludes any Victory wholegood, accessories and apparel sales and corresponding promotional costs as the Company is in the process of exiting the brand.  The Company has not provided reconciliations of guidance for adjusted diluted net income per share, in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. The Company is unable, without unreasonable efforts, to forecast certain items required to develop meaningful comparable GAAP financial measures. These items include costs associated with the Victory wind down, restructuring and realignment costs, and acquisition integration costs that are difficult to predict in advance in order to include in a GAAP estimate.