7/25/2018 5:15:00 AM

Polaris Reports 2018 Second Quarter Results


 

  • Reported sales for the second quarter of 2018 increased 10% to $1,503 million; adjusted sales increased 11% to 1,505 million
  • Reported net income was $1.43 per diluted share, up 47% over the prior year; adjusted net income for the same period was $1.77 per diluted share, up 45% over the prior year
  • North American retail sales increased 6% for the quarter; ORV N.A. retail sales were up mid-single digits % with both side-by-side and ATV vehicles up mid-single digits percent.  Gained market share in side-by-side's and ATVs during the quarter along with ongoing market share gains in Indian motorcycles
  • Dealer inventory was up 6% year-over-year, excluding Snowmobiles, for the second quarter 2018; ORV dealer inventory was up high single digits % due to new product shipments; motorcycle dealer inventory was down low single digits %
  • Increased full year 2018 sales guidance to up 11% to 12% taking into account improved volume expectations and the acquisition of Boat Holdings, LLC (Boat Holdings).  Adjusting full year earnings per share expectations by raising the lower end of the Company's earnings per share range and now expect adjusted net income to be in the range of $6.48 to $6.58 per diluted share which includes the absorption of an estimated additional $40 million of tariff and related commodity cost increases anticipated in 2018 and the adjustment to exclude intangible amortization for all prior acquisitions.

 

 

Key Financial Data

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

INCOME STATEMENT - Q2 June 30, 2018

Reported

 

YOY % Chg.

 

 

Adjusted*

 

YOY % Chg.

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

$

1,502,532

 

 

10%

 

 

$

1,504,989

 

 

11%

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

$

92,540

 

 

49%

 

 

$

114,614

 

 

47%

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

$

1.43

 

 

47%

 

 

$

1.77

 

 

45%

 

 

 

 

 

 

 

 

 

BALANCE SHEET - Q2 June 30, 2018

Reported

 

YOY % Chg.

 

 

 

 

 

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

$

181,753

 

 

43%

 

 

 

 

 

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

$

925,243

 

 

13%

 

 

 

 

 

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

$

1,112,622

 

 

4%

 

 

 

 

 

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

$

877,510

 

 

3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW - YTD June 30, 2018

Reported

 

YOY % Chg.

 

 

 

 

 

Cash flow from operations..............................................................................................................

$

165,149

 

 

(37%)

 

 

 

 

 

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

$

104,569

 

 

28%

 

 

 

 

 

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

$

192,367

 

 

193%

 

 

 

 

 

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

$

75,694

 

 

 4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

"I am very pleased with the Polaris team and the strong execution they delivered across the business during the 2nd Quarter.  With solid retail growth and market share gains in both our Off-Road Vehicle business and Indian Motorcycles, we are clearly reaping the benefits of our safety and quality investments, new product innovations and improved delivery performance.  Consumer sentiment and dealer traffic improved throughout the Quarter, building momentum which will help offset the rising risk of tariffs in the 2nd half.  During the Quarter we were excited to announce another expansion of the Polaris powersports portfolio with the acquisition of Boat Holdings, the largest manufacturer of pontoon boats in the U.S.  Between organic growth and considered acquisitions, Polaris’ underlying performance has significantly improved, but much of our success is being masked by substantial cost escalation driven by tariffs and commodities.  As we navigate through increasingly dynamic markets, our efforts to enhance product quality and innovation, boost productivity and become a more customer centric Company are paying off, and Polaris is well-positioned for further success.”

 

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

 

 

 

Second Quarter Performance Summary (Reported)

 

(in thousands, except per share data)

 

Three months ended June 30,

 

 

 

 

2018

 

 

 

2017

 

 

Change

 

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

 

$

1,502,532

 

 

$

1,364,920

 

 

10

%

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

 

385,176

 

 

350,386

 

 

10

%

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

 

25.6

%

 

25.7

%

 

-4 bpts

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

 

284,063

 

 

270,347

 

 

5

%

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

 

18.9

%

 

19.8

%

 

-90 bpts

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

 

21,344

 

 

19,143

 

 

11

%

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

 

1.4

%

 

1.4

%

 

+2 bpts

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

 

122,457

 

 

99,182

 

 

23

%

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

 

8.2

%

 

7.3

%

 

+88 bpts

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

 

92,540

 

 

62,041

 

 

49

%

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

 

6.2

%

 

4.5

%

 

+161 bpts

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

 

$

1.43

 

 

$

0.97

 

 

47

%

 

 

Minneapolis, MN (July 25, 2018) - Polaris Industries Inc. (NYSE: PII) today reported second quarter 2018 sales of $1,503 million, up 10 percent from $1,365 million for the second quarter of 2017.  Adjusted sales for the second quarter of 2018 were $1,505 million, up 11 percent from the prior year period.  The Company reported second quarter 2018 net income of $93 million, or $1.43 per diluted share, compared with net income of $62 million, or $0.97 per diluted share, for the 2017 second quarter.  Adjusted net income for the quarter ended June 30, 2018 was $115 million, or $1.77 per diluted share, up 45 percent compared to $78 million, or $1.22 per diluted share in the 2017 second quarter.

 

Gross profit increased 10 percent to $385 million for the second quarter of 2018 from $350 million in the second quarter of 2017.   Reported gross profit margin was 26 percent of sales for the second quarter of 2018 compared to 26 percent of sales for the second quarter of 2017.  Gross profit for the second quarter of 2018 includes the negative impact of $5 million of Victory Motorcycles wind-down costs and realignment and restructuring costs.  Excluding these items, second quarter 2018 adjusted gross profit was $390 million, or 26 percent of adjusted sales.  For the second quarter of 2017 adjusted gross profit of $364 million, or 27 percent of adjusted sales, excludes the negative impact of $13 million in Victory Motorcycles® wind down costs and restructuring and realignment costs. Gross profit margins on an adjusted basis were down slightly due to unfavorable product mix, the impact of tariff, commodity and freight cost pressure during the quarter, offset by improvements in warranty expense, VIP savings and favorable exchange rates.

 

Operating expenses increased five percent for the second quarter of 2018 to $284 million, or 19 percent of sales, from $270 million, or 20 percent of sales, in the same period in 2017.  Operating expenses as a percentage of sales, improved as the Company realized efficiencies through its selling, marketing and general and administrative spend.

 

Income from financial services was $21 million for the second quarter of 2018, up 11 percent compared with $19 million for the second quarter of 2017.  The increase is attributable to improved retail penetration and higher income from Polaris Acceptance due to higher dealer inventory levels.

 

 

 

Non-Operating Expenses (Reported)

 

(in thousands)

Three months ended June 30,

 

2018

 

2017

 

Change

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

$

9,216

 

 

$

8,032

 

 

15

%

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

$

3,954

 

 

$

1,336

 

 

196

%

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

$

(3,561

)

 

$

(2,152

)

 

65

%

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

$

20,308

 

 

$

29,925

 

 

 

 

 

Equity in loss of other affiliates was $4 million for the second quarter of 2018 compared to $1 million last year's second quarter resulting from losses associated with the wind-down of the Eicher-Polaris joint venture in India.

 

Other expense (income), net, was $4 million of income for the second quarter of 2018, versus $2 million of income in the second quarter of 2017 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 taxes for the second quarter of 2018 was $20 million, or 18.0 percent, of pretax income compared with $30 million, or 32.5 percent of pretax income for the second quarter of 2017.  The decrease in the effective income tax rates is primarily due to the reduction in the federal statutory tax rate to 21 percent as a result of U.S. Tax Reform and an increase in excess tax benefits related to stock based compensation.

 

 

 

Product Segment Highlights (Reported)

 

 

(in thousands)

Sales

 

Gross Profit

 

Q2 2018

 

Q2 2017

 

Change

 

Q2 2018

 

Q2 2017

 

Change

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

$

990,841

 

 

$

845,508

 

 

17

%

 

$

297,221

 

 

$

266,150

 

 

12

%

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

$

171,412

 

 

$

197,997

 

 

(13

)%

 

$

24,672

 

 

$

21,116

 

 

17

%

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

$

113,418

 

 

$

97,022

 

 

17

%

 

$

28,107

 

 

$

21,216

 

 

32

%

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

$

226,861

 

 

$

224,393

 

 

1

%

 

$

57,747

 

 

$

59,918

 

 

(4

)%

 

 

 

 

Off-Road Vehicle (“ORV”) and Snowmobile segment sales, including PG&A, totaled $991 million for the second quarter of 2018, up 17 percent over $846 million for the second quarter of 2017 driven by growth across most categories.  PG&A sales for ORV and Snowmobiles combined, increased 13 percent in the 2018 second quarter compared to the second quarter last year. Gross profit increased 12 percent to $297 million, in the second quarter of 2018, compared to $266 million in the second quarter of 2017.

 

ORV wholegoodsales for the second quarter of 2018 increased 18 percent primarily driven by strong  RANGER, RZR, and ATV shipments.  Polaris North American ORV retail sales increased in the mid-single digits percent range with side-by-side and ATV vehicles growing retail sales in the mid-single digit percent range.  Side-by-Sides and ATVs again gained market share during the quarter in their respective categories. The North American ORV industry was flat compared to the second quarter last year.  ORV dealer inventory was up high-single digits in the 2018 second quarter compared to the same period last year due to increased shipments of newly introduced products.

 

Snowmobile wholegood sales in the second quarter of 2018 was $4 million compared to $7 million in the second quarter last year.   Snowmobile sales in the Company’s second quarter are routinely low as it is the off-season for snowmobile retail sales and shipments.

 

Motorcyclesegment sales, including PG&A, totaled $171 million, a decrease of 13 percent compared to $198 million reported in the second quarter of 2017 due to a weak motorcycle industry and timing of shipments for Indian motorcycles year-over-year.  Slingshot sales were also down due to the weak motorcycle industry. Gross profit for the second quarter of 2018 was $25 million compared to $21 million in the second quarter of 2017. Adjusted for the Victory wind down costs recorded in both the 2018 and 2017 second quarters, and restructuring and realignment costs, motorcycle gross profit was $25 million in the 2018 second quarter compared to $30 million for the 2017 second quarter.

 

North American consumer retail demand for the Polaris motorcycle segment, including Indian Motorcycle and Slingshot, increased low-single digit percent during the 2018 second quarter.  Indian Motorcycle retail sales increased mid-single digits percent. Slingshot's retail sales were down mid-single digits percent during the quarter.  Motorcycle industry retail sales, 900cc and above, were down mid-single digit percent in the 2018 second quarter. Indian Motorcycle gained market share for the 2018 second quarter on a year-over-year basis, in spite of an overall weak N.A. industry motorcycle market in the second quarter.  Motorcycle dealer inventory was down low-single digits percent in the 2018 second quarter compared to the same period last year due to moderated shipments in an overall weak motorcycle market.

 

Global Adjacent Marketssegment sales, including PG&A, increased 17 percent to $113 million in the 2018 second quarter compared to $97 million in the 2017 second quarter. Sales of Goupil and the Commercial, Government, Defense businesses drove most of the increase. Reported gross profit increased 32 percent to $28 million in the second quarter of 2018, compared to $21 million in the second quarter of 2017.

 

Aftermarketsegment sales increased one percent to $227 million in the 2018 second quarter compared to $224 million in the 2017 second quarter. TAP sales in the second quarter of 2018 were $210 million, which was up slightly compared to the second quarter of 2017. Growth at TAP's retail stores and online platforms were largely offset by lower accessory sales for the new Jeep Wrangler which was available for sale later than anticipated. Gross profit decreased to $58 million in the second quarter of 2018, compared to $60 million in the second quarter of 2017.

 

 

Supplemental Data:

 

Parts, Garments, and Accessories (“PG&A”)sales,excluding Aftermarket segment sales, increased eleven percent for the 2018 second quarter driven by growth across all segments, regions and product lines during the quarter.

 

International sales to customers outside of North America, including PG&A, totaled $204 million for the second quarter of 2018, up 7 percent, from the same period in 2017. Foreign exchange movements represented four percent of the sales increase for the quarter. The remaining increase was driven by strong sales in the Company's EMEA business for ORV and motorcycles.

 

 

Financial Position and Cash Flow

 

(in thousands)

Six Months ended June 30,

 

2018

 

2017

 

Change

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

$

181,753

 

 

$

127,378

 

 

43

%

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

$

165,149

 

 

$

263,043

 

 

(37

)%

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

$

192,367

 

 

$

65,662

 

 

193

%

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

$

75,694

 

 

$

72,612

 

 

4

%

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

$

1,112,622

 

 

$

1,067,797

 

 

4

%

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

56

%

 

56

%

 

 

 

 

 

 

 

Net cash provided by operating activities was $165 million for the six months ended June 30, 2018, compared to $263 million for the same period in 2017. The decrease in net cash provided by operating activities for the 2018 period was due to higher factory inventory related to the higher sales and the model year changeover. Total debt at June 30, 2018, including capital lease obligations and notes payable, was $1,113 million. The Company’s debt-to-total capital ratio was 56 percent at June 30, 2018 and 2017. Cash and cash equivalents were $182 million at June 30, 2018, up from $127 million for the same period in 2017.

 

Share Buyback Activity:  During the second quarter of 2018, the Company repurchased and retired 1,429,000 shares of its common stock for $177 million. Year-to-date through June 30, 2018, the Company has repurchased and retired 1,562,000 shares of its common stock for $192 million. As of June 30, 2018, the Company has authorization from its Board of Directors to repurchase up to an additional 4.9 million shares of Polaris common stock.

 

 

2018 Business Outlook

 

The Company is raising its full year sales guidance and now expects sales to be in the range of 11 percent to 12 percent over 2017 adjusted sales of $5,428 million and narrowing and adjusting its earnings guidance range for the full year 2018 to account for Boat Holdings income and elimination of intangible amortization of previously acquired companies to better reflect the true underlying performance of Polaris' core businesses.  Adjusted net income is now expected to be in the range of $6.48 to $6.58 per diluted share, compared with adjusted net income of $5.10 per diluted share for 2017. The revised guidance takes into account approximately $40 million of escalating tariff and related commodity cost increases 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

  

Second Quarter 2018 Earnings Conference Call and Webcast Presentation

Today at 8:00 AM (CDT) Polaris Industries Inc. will host a conference call and webcast to discuss the 2018 second 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 8402413.  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.

 

 

Forward-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 and 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 June 30,

 

Six months ended June 30,

 

2018

 

2017

 

2018

 

2017

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

$

1,502,532

 

 

$

1,364,920

 

 

$

2,800,005

 

 

$

2,518,702

 

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

1,117,356

 

 

1,014,534

 

 

2,091,348

 

 

1,925,825

 

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

385,176

 

 

350,386

 

 

708,657

 

 

592,877

 

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

 

 

 

 

 

 

 

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

122,859

 

 

118,531

 

 

240,566

 

 

232,844

 

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

68,330

 

 

60,753

 

 

133,560

 

 

112,758

 

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

92,874

 

 

91,063

 

 

171,567

 

 

166,577

 

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

284,063

 

 

270,347

 

 

545,693

 

 

512,179

 

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

21,344

 

 

19,143

 

 

42,769

 

 

39,573

 

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

122,457

 

 

99,182

 

 

205,733

 

 

120,271

 

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

 

 

 

 

 

 

 

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

9,216

 

 

8,032

 

 

17,264

 

 

15,946

 

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

3,954

 

 

1,336

 

 

25,465

 

 

3,236

 

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

(3,561

)

 

(2,152

)

 

(23,536

)

 

9,456

 

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

112,848

 

 

91,966

 

 

186,540

 

 

91,633

 

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

20,308

 

 

29,925

 

 

38,286

 

 

32,503

 

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

$

92,540

 

 

$

62,041

 

 

$

148,254

 

 

$

59,130

 

 

 

 

 

 

 

 

 

Net income per share:............................................................................

 

 

 

 

 

 

 

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

$

1.46

 

 

$

0.99

 

 

$

2.34

 

 

$

0.94

 

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

$

1.43

 

 

$

0.97

 

 

$

2.28

 

 

$

0.92

 

Weighted average shares outstanding:............................................................................

 

 

 

 

 

 

 

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

63,172

 

 

62,895

 

 

63,238

 

 

63,012

 

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

64,886

 

 

63,807

 

 

65,052

 

 

63,970

 

 

 

 

CONSOLIDATED BALANCE SHEETS

(In Thousands), (Unaudited)

 

June 30, 2018

 

June 30, 2017

 

 

 

 

Assets

 

 

 

Current Assets:

 

 

 

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

$

181,753

 

 

$

127,378

 

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

190,343

 

 

169,314

 

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

925,243

 

 

815,990

 

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

106,586

 

 

85,221

 

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

10,269

 

 

18,976

 

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

1,414,194

 

 

1,216,879

 

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

762,268

 

 

736,866

 

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

92,954

 

 

86,552

 

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

115,399

 

 

192,167

 

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

765,050

 

 

786,935

 

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

89,613

 

 

95,573

 

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

$

3,239,478

 

 

$

3,114,972

 

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

 

 

 

Current Liabilities:

 

 

 

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

$

40,120

 

 

$

2,831

 

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

361,717

 

 

352,538

 

Accrued expenses:

 

 

 

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

129,719

 

 

116,341

 

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

106,155

 

 

108,403

 

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

184,811

 

 

176,978

 

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

125,016

 

 

116,804

 

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

161,659

 

 

164,486

 

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

5,973

 

 

9,725

 

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

1,115,170

 

 

1,048,106

 

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

25,332

 

 

27,764

 

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

17,135

 

 

18,245

 

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

1,055,367

 

 

1,046,721

 

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

8,667

 

 

9,009

 

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

127,529

 

 

100,625

 

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

$

2,349,200

 

 

$

2,250,470

 

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

12,768

 

 

10,725

 

Shareholders’ equity:

 

 

 

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

877,510

 

 

853,777

 

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

$

3,239,478

 

 

$

3,114,972

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands), (Unaudited)

 

Six months ended June 30,

 

2018

 

2017

Operating Activities:

 

 

 

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

$

148,254

 

 

$

59,130

 

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

 

 

 

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

98,584

 

 

91,124

 

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

33,001

 

 

31,416

 

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

(14,626

)

 

(13,328

)

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

(1,704

)

 

(4,083

)

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

20,249

 

 

18,760

 

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

(8,262

)

 

3,236

 

Changes in operating assets and liabilities:................................................................................................................................................

 

 

 

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

5,326

 

 

12,370

 

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

(146,661

)

 

(59,421

)

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

45,835

 

 

75,576

 

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

(35,693

)

 

6,406

 

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

19,828

 

 

40,727

 

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

1,018

 

 

1,130

 

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

165,149

 

 

263,043

 

 

 

 

 

Investing Activities:

 

 

 

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

(104,569

)

 

(81,803

)

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

10,436

 

 

20,785

 

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

7,366

 

 

(1,814

)

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

 

 

1,645

 

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

(86,767

)

 

(61,187

)

 

 

 

 

Financing Activities:

 

 

 

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

1,511,810

 

 

932,317

 

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

(1,310,863

)

 

(1,010,870

)

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

(192,367

)

 

(65,622

)

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

(75,694

)

 

(72,612

)

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

43,448

 

 

7,027

 

Net cash used for financing activities.............................................................................................

(23,666

)

 

(209,760

)

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

(6,370

)

 

6,951

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash..........................

48,346

 

 

(953

)

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

161,618

 

 

145,170

 

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

$

209,964

 

 

$

144,217

 

 

 

 

 

Cash, cash equivalents and restricted cash by category:

 

 

 

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

$

181,753

 

 

$

127,378

 

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

28,211

 

 

16,839

 

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

$

209,964

 

 

$

144,217

 

 

 

 

NON-GAAP RECONCILIATION OF RESULTS

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

 

Three months ended June 30,

 

Six months ended June 30,

 

2018

 

2017

 

2018

 

2017

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

$

1,502,532

 

 

$

1,364,920

 

 

$

2,800,005

 

 

$

2,518,702

 

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

798

 

 

(6,157

)

 

249

 

 

(1,053

)

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

1,659

 

 

 

 

2,129

 

 

 

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

1,504,989

 

 

1,358,763

 

 

2,802,383

 

 

2,517,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

385,176

 

 

350,386

 

 

708,657

 

 

592,877

 

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

(874

)

 

8,852

 

 

(822

)

 

47,415

 

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

 

 

53

 

 

 

 

12,950

 

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

6,045

 

 

4,303

 

 

11,837

 

 

4,303

 

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

390,347

 

 

363,594

 

 

719,672

 

 

657,545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

112,848

 

 

91,966

 

 

186,540

 

 

91,633

 

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

(426

)

 

10,851

 

 

243

 

 

68,431

 

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

5,729

 

 

3,767

 

 

7,809

 

 

19,967

 

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

11,696

 

 

4,303

 

 

17,893

 

 

4,303

 

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

3,817

 

 

 

 

23,447

 

 

 

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

 

 

 

 

(13,478

)

 

 

Intangible Amortization (7)..................................................................................

6,058

 

 

6,238

 

 

12,188

 

 

12,449

 

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

1,722

 

 

 

 

1,722

 

 

 

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

141,444

 

 

117,125

 

 

236,364

 

 

196,783

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

92,540

 

 

62,041

 

 

148,254

 

 

59,130

 

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

(325

)

 

6,820

 

 

185

 

 

47,841

 

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

4,366

 

 

2,368

 

 

5,951

 

 

12,551

 

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

8,912

 

 

2,705

 

 

13,633

 

 

2,705

 

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

2,908

 

 

 

 

22,325

 

 

 

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

 

 

 

 

(13,113

)

 

 

Intangible Amortization (7)..................................................................................

4,446

 

 

3,961

 

 

8,945

 

 

7,903

 

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

1,767

 

 

 

 

2,037

 

 

 

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

114,614

 

 

77,895

 

 

188,217

 

 

130,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

$

1.43

 

 

$

0.97

 

 

$

2.28

 

 

$

0.92

 

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

(0.01

)

 

0.11

 

 

 

 

0.75

 

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

0.07

 

 

0.04

 

 

0.09

 

 

0.20

 

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

0.14

 

 

0.04

 

 

0.21

 

 

0.04

 

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

0.04

 

 

 

 

0.34

 

 

 

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

 

 

 

 

(0.20

)

 

 

Intangible Amortization (7)..................................................................................

0.07

 

 

0.06

 

 

0.14

 

 

0.12

 

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

0.03

 

 

 

 

0.03

 

 

 

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

$

1.77

 

 

$

1.22

 

 

$

2.89

 

 

$

2.03

 

 

 

 

 

 

 

 

 

(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)

(6) Represents a gain on the Company's investment in Brammo, Inc.

(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 June 30,

 

Six months ended June 30,

 

2018

 

2017

 

2018

 

2017

SEGMENT SALES

 

 

 

 

 

 

 

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

$

990,841

 

 

$

845,508

 

 

$

1,823,405

 

 

$

1,569,611

 

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

1,659

 

 

 

 

2,129

 

 

 

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

992,500

 

 

845,508

 

 

1,825,534

 

 

1,569,611

 

 

 

 

 

 

 

 

 

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

171,412

 

 

197,997

 

 

302,969

 

 

318,286

 

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

798

 

 

(6,157

)

 

249

 

 

(1,053

)

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

172,210

 

 

191,840

 

 

303,218

 

 

317,233

 

 

 

 

 

 

 

 

 

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

113,418

 

 

97,022

 

 

226,745

 

 

188,577

 

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

 

 

 

 

 

 

 

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

113,418

 

 

97,022

 

 

226,745

 

 

188,577

 

 

 

 

 

 

 

 

 

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

226,861

 

 

224,393

 

 

446,886

 

 

442,228

 

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

 

 

 

 

 

 

 

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

226,861

 

 

224,393

 

 

446,886

 

 

442,228

 

 

 

 

 

 

 

 

 

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

1,502,532

 

 

1,364,920

 

 

2,800,005

 

 

2,518,702

 

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

2,457

 

 

(6,157

)

 

2,378

 

 

(1,053

)

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

$

1,504,989

 

 

$

1,358,763

 

 

$

2,802,383

 

 

$

2,517,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

2018

 

2017

 

2018

 

2017

SEGMENT GROSS PROFIT

 

 

 

 

 

 

 

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

$

297,221

 

 

$

266,150

 

 

$

540,782

 

 

$

479,109

 

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

1,659

 

 

 

 

2,129

 

 

 

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

298,880

 

 

266,150

 

 

542,911

 

 

479,109

 

 

 

 

 

 

 

 

 

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

24,672

 

 

21,116

 

 

41,240

 

 

1,235

 

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

(874

)

 

8,852

 

 

(822

)

 

47,415

 

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

1,185

 

 

 

 

1,185

 

 

 

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

24,983

 

 

29,968

 

 

41,603

 

 

48,650

 

 

 

 

 

 

 

 

 

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

28,107

 

 

21,216

 

 

59,365

 

 

49,314

 

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

(11

)

 

4,303

 

 

434

 

 

4,303

 

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

28,096

 

 

25,519

 

 

59,799

 

 

53,617

 

 

 

 

 

 

 

 

 

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

57,747

 

 

59,918

 

 

116,199

 

 

101,482

 

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

 

 

53

 

 

 

 

12,950

 

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

57,747

 

 

59,971

 

 

116,199

 

 

114,432

 

 

 

 

 

 

 

 

 

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

(22,571

)

 

(18,014

)

 

(48,929

)

 

(38,263

)

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

3,212

 

 

 

 

8,089

 

 

 

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

(19,359

)

 

(18,014

)

 

(40,840

)

 

(38,263

)

 

 

 

 

 

 

 

 

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

385,176

 

 

350,386

 

 

708,657

 

 

592,877

 

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

5,171

 

 

13,208

 

 

11,015

 

 

64,668

 

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

$

390,347

 

 

$

363,594

 

 

$

719,672

 

 

$

657,545

 

 

 

 

 

 

 

 

 

(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 Second 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, anticipated to be in the range of $80 million to $85 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 and second quarter of 2018 these costs were immaterial.  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 June 30, 2018, the Company has recorded costs totaling $18 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 $8 million for the year-to-date period ending June 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 June 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 is expected to increase by approximately $25 million to $30 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 will be moving 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 to $30 million, supply chain transformation and network realignment costs of approximately $20 million to $25 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 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 and acquisition integration costs that are difficult to predict in advance in order to include in a GAAP estimate.

 

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