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Fourth Quarter & Full Year 2019 Earnings Report

Polaris Reports Fourth Quarter & Full Year 2019 Earnings Results

Click here if you want to download this press release: POLARIS REPORTS Q4 AND 2019 FULL YEAR RESULTS

 

 

Q4 & Full Year 2019 Highlights

 

Fourth quarter reported and adjusted sales increased 7% to $1,736 million

Fourth quarter reported net income was $1.58 per diluted share; adjusted net income for the same period was $1.83 per diluted share

Full year reported and adjusted sales increased 12% to $6,783 million

Full year 2019 reported net income increased 2% for the quarter compared to last year; ORV N.A. retail sales were up low-single digits percent, Indian motorcycles retail sales were up low-single digits percent

North American retail sales $5.20 per diluted share; adjusted net income for the same period was $6.32 per diluted share, exceeding the high-end of previously issued guidance

Polaris announced full year 2020 sales and adjusted earnings guidance with full year sales growth in the range of 2% to 4% over the prior year and full year adjusted earnings in the range of $6.80 to $7.05 per diluted share.

 

 

Key Financial Data

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

INCOME STATEMENT - Q4 December 31, 2019

Reported

 

YOY % Chg.

 

 

Adjusted*

 

YOY % Chg.

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

$

1,735,866

 

 

7%

 

 

$

1,735,866

 

 

7%

Net income attributable to Polaris.................................................................................

$

98,931

 

 

8%

 

 

$

114,858

 

 

1%

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

$

1.58

 

 

7%

 

 

$

1.83

 

 

—%

 

 

 

 

 

 

 

 

 

BALANCE SHEET - December 31, 2019

Reported

 

YOY % Chg.

 

 

 

 

 

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

$

157,064

 

 

(3)%

 

 

 

 

 

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

$

1,121,111

 

 

16%

 

 

 

 

 

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

$

1,693,509

 

 

(14)%

 

 

 

 

 

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

$

1,107,999

 

 

28%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW - YTD December 31, 2019

Reported

 

YOY % Chg.

 

 

 

 

 

Net cash used for operating activities....................................................................................

$

655,036

 

 

37%

 

 

 

 

 

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

$

251,374

 

 

12%

 

 

 

 

 

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

$

8,378

 

 

(98)%

 

 

 

 

 

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

$

149,101

 

 

—%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*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

 

"We ended the year with positive fourth quarter retail momentum in both Off-Road Vehicles and Motorcycles, supporting strong full year, broad-based sales growth of 12 percent.  While TAP grew modestly in the fourth quarter, non-TAP Parts, Garments and Accessories (PG&A) and aftermarket sales stole the show, eclipsing $1 billion for the first time in 2019.  Our recent leadership changes were made to spur both tactical and strategic growth, and the 37 percent increase in Indian Motorcycle sales in the fourth quarter, driven largely by the Indian Challenger, demonstrates what is possible as Mike Dougherty takes over that important segment.  Steve Menneto is aggressively moving to accelerate retail performance in Off-Road Vehicles and Snowmobiles, building off a strong year of financial performance in our largest business.  In 2019, we delivered strong operational performance across Polaris, especially productivity and delivery, and we expect further gains to create value for customers and shareholders in the year ahead.  Our commitment to being a customer-centric highly profitable growth company is unwavering, and I am extremely confident in this Polaris team to deliver on that promise."

 

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

 

 

Fourth Quarter Performance Summary (Reported)

 

(in thousands, except per share data)

Three months ended December 31,

 

2019

 

2018

 

Change

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

$

1,735,866

 

 

$

1,627,120

 

 

7

%

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

423,344

 

 

391,273

 

 

8

%

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

24.4

%

 

24.0

%

 

+34 bpts

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

307,693

 

 

271,776

 

 

13

%

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

17.7

%

 

16.7

%

 

+102 bpts

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

20,708

 

 

23,313

 

 

11

%

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

1.2

%

 

1.4

%

 

-24 bpts

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

136,359

 

 

142,810

 

 

(5)

%

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

7.9

%

 

8.8

%

 

-92 bpts

Net income attributable to Polaris................................................................................................

98,931

 

 

91,474

 

 

8

%

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

5.7

%

 

5.6

%

 

+8 bpts

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

$

1.58

 

 

$

1.47

 

 

7

%

 

 

MINNEAPOLIS (January 28, 2020) - Polaris Inc. (NYSE: PII) (the "Company") today released fourth quarter 2019 results with sales of $1,736 million on a reported and adjusted basis, up seven percent from reported and adjusted sales of $1,627 million for the fourth quarter of 2018. The Company reported fourth quarter 2019 net income of $99 million, or 1.58 per diluted share, compared with net income of $91 million, or 1.47 per diluted share, for the 2018 fourth quarter. Adjusted net income for the quarter ended December 31, 2019 was $115 million, or $1.83 per diluted share compared to $113 million, or $1.83 per diluted share in the 2018 fourth quarter.

 

Gross profit increased eight percent to $423 million for the fourth quarter of 2019 from $391 million in the fourth quarter of 2018.  Reported gross profit margin was 24.4 percent of sales for the fourth quarter of 2019, up 34 basis points compared to 24.0 percent of sales for the fourth quarter of 2018.  Adjusted gross profit for the fourth quarter 2019 was $428 million, or 24.7 percent of adjusted sales compared to the fourth quarter of 2018 adjusted gross profit of $394 million, or 24.2 percent of adjusted sales.  Adjusted gross profit margins were up 42 basis points during the quarter.  Adjusted gross profit for the fourth quarter of 2019 excludes the negative impact of $5 million of restructuring and realignment costs, and adjusted gross profit for the fourth quarter of 2018 excludes the negative impact of $3 million of restructuring and realignment costs.

 

Operating expenses increased 13 percent for the fourth quarter of 2019 to $308 million, or 17.7 percent of sales, from $272 million, or 16.7 percent of sales, in the same period in 2018. Operating expenses in dollars and as a percent of sales increased primarily due to ongoing investment in research and development and strategic projects.

 

Income from financial services was $21 million for the fourth quarter of 2019, down 11 percent compared with $23 million for the fourth quarter of 2018. The decrease was driven by lower retail credit income.

 

Non-Operating Expenses (Reported)

 

(in thousands)

Three months ended December 31,

 

2019

 

2018

 

Change

Interest expense

$

16,817

 

 

$

19,880

 

 

(15)

%

Equity in loss of other affiliates

$

 

 

$

3,676

 

 

NM

 

Other expense (income), net

$

(1,368)

 

 

$

(396)

 

 

245

%

Provision for income taxes

$

21,955

 

 

$

28,176

 

 

(22)

%

 

 

Interest expense was $17 million for the fourth quarter of 2019 compared to $20 million for the same period last year due to lower debt levels.

 

Equity in loss of other affiliates was $0 for the fourth quarter of 2019 compared to $4 million for the same period last year due to the write-down of certain investments during the fourth quarter of 2018.

 

Other income, net, was $1 million in the fourth quarter of 2019 compared to $396 thousand in the fourth quarter of 2018. Other income is the result of 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 fourth quarter of 2019 was $22 million, or 18.2 percent of pretax income, compared with $28 million, or 23.5 percent of pretax income for the fourth quarter of 2018.  The decrease in the effective income tax rate is primarily due to favorable adjustments taken on the 2018 federal income tax return related to foreign tax credits, as well as, favorable adjustments related to the 2018 state research and development credit carryforwards.

 

 

 

Product Segment Highlights (Reported)

 

(in thousands)

Sales

 

Gross Profit

 

Q3 2019

 

Q3 2018

 

Change

 

Q3 2019

 

Q3 2018

 

Change

Off-Road Vehicles / Snowmobiles

$

1,139,890

 

 

$

1,060,458

 

 

7

%

 

$

315,424

 

 

$

282,495

 

 

12

%

Motorcycles

$

119,481

 

 

$

87,361

 

 

37

%

 

$

(1,639)

 

 

$

2,228

 

 

NM

 

Global Adjacent Markets

$

120,372

 

 

$

121,648

 

 

(1)

%

 

$

35,088

 

 

$

33,063

 

 

6

%

Aftermarket

$

221,083

 

 

$

212,318

 

 

4

%

 

$

49,229

 

 

$

52,074

 

 

(5)

%

Boats

$

135,040

 

 

$

145,335

 

 

(7)

%

 

$

25,637

 

 

$

25,999

 

 

(1)

%

 

Off-Road Vehicles (“ORV”) and Snowmobiles segment sales, including PG&A, totaled $1,140 million for the fourth quarter of 2019, up seven percent over $1,060 million for the fourth quarter of 2018 driven by growth in side-by-side sales. PG&A sales for ORV and Snowmobiles combined increased seven percent in the fourth quarter of 2019 compared to the fourth quarter last year. Gross profit increased 12 percent to $315 million in the fourth quarter of 2019, compared to $282 million in the fourth quarter of 2018. Gross profit percentage increased 103 basis points during the 2019 fourth quarter due to favorable product mix.

 

  • ORV wholegood sales for the fourth quarter of 2019 increased 13 percent, primarily driven by positive mix. Polaris North American ORV retail sales were up low-single digits percent for the quarter with side-by-side vehicles up low-single digits percent and ATV vehicles up mid-single digits percent. The North American ORV industry was up mid-single digits percent compared to the fourth quarter last year.

 

  • Snowmobile wholegood sales in the fourth quarter of 2019 were down 10 percent compared to the fourth quarter last year. Snowmobile sales growth was pressured by a challenging comparable in the prior year period, due to the timing of pre-season SnowCheck order shipments.

 

Motorcycles segment sales, including PG&A, totaled $119 million, up 37 percent compared to the fourth quarter of 2018, led by strong sales of Indian Motorcycles.  Slingshot reported a sales decline during the quarter. Gross profit for the fourth quarter of 2019 was negative $2 million compared to $2 million in the fourth quarter of 2018. The decrease in gross profit was primarily due to increased promotions and higher warranty costs.

 

North American consumer retail sales for Polaris Indian motorcycles increased low-single digits percent during the fourth quarter of 2019 in a weak mid to heavy-weight two-wheel motorcycle industry that was down high-single digits percent. North American consumer retail sales for Polaris' motorcycle segment, including both Indian Motorcycles and Slingshot, decreased low-single digit percent during the fourth quarter of 2019, while the North American Motorcycle industry retail sales for mid to heavy-weight motorcycles including three-wheel vehicles, was down mid-single digits percent in the fourth quarter of 2019.

 

Global Adjacent Markets segment sales, including PG&A, decreased one percent to $120 million in the 2019 fourth quarter compared to $122 million in the 2018 fourth quarter primarily due to lower sales in the commercial, government and defense business. Gross profit increased six percent to $35 million or 29.1 percent of sales in the fourth quarter of 2019, compared to $33 million or 27.2 percent of sales in the fourth quarter of 2018, due to improved operational efficiency.

 

Aftermarket segment sales of $221 million in the 2019 fourth quarter increased four percent compared to $212 million in the 2018 fourth quarter. Transamerican Auto Parts (TAP) sales of $185 million in the fourth quarter of 2019 increased one percent compared to $183 million in the fourth quarter of 2018. The Company's other aftermarket brands increased sales by 22 percent. Gross profit decreased to $49 million in the fourth quarter of 2019, compared to $52 million in the fourth quarter of 2018 due to higher tariff costs.

 

Boats segment sales decreased seven percent to $135 million in the 2019 fourth quarter compared to $145 million in the 2018 fourth quarter primarily due to negative product mix and planned dealer inventory reductions. Gross profit decreased one percent to $26 million or 19.0 percent of sales in the fourth quarter of 2019, compared to $26 million or 17.9 percent of sales in the fourth quarter of 2018.

 

Supplemental Data:

 

  • Parts, Garments, and Accessories (“PG&A”) sales increased seven percent for the 2019 fourth quarter driven primarily by growth in ORV, snowmobiles and global adjacent markets.

 

  • International sales to customers outside of North America, including PG&A, totaled $215 million for the fourth quarter of 2019, down one percent from the same period in 2018. The decrease was driven by negative currency rates.

 

Financial Position and Cash Flow

 

(in thousands)

Twelve months ended December 31,

 

2019

 

2018

 

Change

Cash and cash equivalents

$

157,064

 

 

$

161,164

 

 

(3)

%

Net cash used for operating activities

$

655,036

 

 

$

477,112

 

 

37

%

Repurchase and retirement of common shares

$

8,378

 

 

$

348,663

 

 

(98)

%

Cash dividends to shareholders

$

149,101

 

 

$

149,032

 

 

%

Acquisition of businesses

$

1,800

 

 

$

759,801

 

 

NM

 

Total debt, capital lease obligations and notes payable

$

1,693,509

 

 

$

1,962,570

 

 

(14)

%

  Debt to Total Capital Ratio

60

%

 

69

%

 

 

(NM = Not meaningful)

 

 

 

 

 

 

Net cash provided by operating activities was $655 million for the twelve months ended December 31, 2019, compared to $477 million for the same period in 2018. Total debt at December 31, 2019, including finance lease obligations and notes payable, was $1,694 million. The Company’s debt-to-total capital ratio was 60 percent at December 31, 2019 compared to 69 percent at December 31, 2018. Cash and cash equivalents were $157 million at December 31, 2019, down from $161 million at December 31, 2018.

 

 

2020 Business Outlook

The Company announced its sales and adjusted earnings guidance for the full year 2020. Sales are expected to increase in the range of 2 percent to 4 percent over 2019 adjusted sales of $6,783 million and adjusted net income is expected to be in the range of $6.80 to $7.05 per diluted share for the full year 2020 compared to adjusted net income of $6.32 per diluted share for 2019.  While the negative impact of tariffs remains a significant headwind on an annualized basis, the year-over-year impact is expected to be minimal to the Company’s 2020 full year earnings guidance.

 

 

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 reported GAAP measures to adjusted non-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.

 

 

Earnings Conference Call and Webcast

Today at 9:00 AM (CT) Polaris Inc. will host a conference call and webcast to discuss the 2019 fourth quarter results released this morning. The call will be hosted by Scott Wine, Chairman and CEO; and Mike Speetzen, Executive Vice President and CFO.  The earnings 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 1424755.  A replay of the conference call will be available by accessing the same link on our website.

 

 

About Polaris

As the global leader in Powersports, Polaris Inc. (NYSE: PII) pioneers product breakthroughs and enriching experiences and services that have invited people to discover the joy of being outdoors since our founding in 1954. With annual 2019 sales of $6.8 billion, Polaris’ high-quality product line-up includes the Polaris RANGER®, RZR® and Polaris GENERAL™ side-by-side off-road vehicles; Sportsman® all-terrain off-road vehicles; Indian Motorcycle® mid-size and heavyweight motorcycles; Slingshot® moto-roadsters; snowmobiles; and deck, cruiser and pontoon boats, including industry-leading Bennington pontoons. 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 includes military and commercial off-road vehicles, quadricycles, and electric vehicles. Proudly headquartered in Minnesota, Polaris serves more than 100 countries across the globe.  www.polaris.com

 

 

Forward-looking Statements

Except for historical information contained herein, the matters set forth in this news release, including management’s expectations regarding 2020 future sales, shipments, net income, and net income per share, future cash flows and capital requirements, operational initiatives, tariffs, currency fluctuations, interest rates, 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 and supply chain initiatives, product offerings, promotional activities and pricing strategies by competitors; economic conditions that impact consumer spending; disruptions in manufacturing facilities; 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 (tariff relief or ability to mitigate tariffs); changes to international trade policies and agreements; uninsured product liability claims; uncertainty in the retail and wholesale credit markets; performance of affiliate partners; changes in tax policy; relationships with dealers and suppliers; and the general overall economic and political environment.  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.  The data source for retail sales figures included in this release is registration information provided by Polaris dealers in North America compiled by the Company or Company estimates and other industry data sources. The Company must rely on information that its dealers supply concerning retail sales, and other retail sales data sources related to Polaris and the powersports industry, and this information is subject to revision. Retail sales references to total Company retail sales includes only ORV, snowmobiles and motorcycles in North America unless otherwise noted.

 

(summarized financial data follows)

 

CONSOLIDATED STATEMENTS OF INCOME

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

 

 

Three months ended
December 31,

 

Twelve months ended
December 31,

 

2019

 

2018

 

2019

 

2018

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

$

1,735,866

 

 

$

1,627,120

 

 

$

6,782,518

 

 

$

6,078,540

 

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

1,312,522

 

 

1,235,847

 

 

5,133,736

 

 

4,577,340

 

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

423,344

 

 

391,273

 

 

1,648,782

 

 

1,501,200

 

Operating expenses:

 

 

 

 

 

 

 

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

139,486

 

 

122,278

 

 

559,107

 

 

491,773

 

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

72,099

 

 

61,941

 

 

292,935

 

 

259,682

 

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

96,108

 

 

87,557

 

 

393,930

 

 

349,763

 

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

307,693

 

 

271,776

 

 

1,245,972

 

 

1,101,218

 

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

20,708

 

 

23,313

 

 

80,861

 

 

87,430

 

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

136,359

 

 

142,810

 

 

483,671

 

 

487,412

 

Non-operating expense:

 

 

 

 

 

 

 

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

16,817

 

 

19,880

 

 

77,589

 

 

56,967

 

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

 

 

3,676

 

 

5,133

 

 

29,252

 

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

(1,368

)

 

(396

)

 

(6,851

)

 

(28,056)

 

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

120,910

 

 

119,650

 

 

407,800

 

 

429,249

 

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

21,955

 

 

28,176

 

 

83,916

 

 

93,992

 

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

$

98,955

 

 

$

91,474

 

 

$

323,884

 

 

$

335,257

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interest.......................

(24)

 

 

----

 

 

76

 

 

----

 

Net income attributable to Polaris Industries Inc....................

$   98,931

 

 

$     91,474

 

 

$    323,960

 

 

$    335,257

 

Net income per share:

 

 

 

 

 

 

 

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

$

1.61

 

 

$

1.49

 

 

$

5.27

 

 

$

5.36

 

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

$

1.58

 

 

$

1.47

 

 

$

5.20

 

 

$

5.24

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

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

61,564

 

 

61,370

 

 

61,437

 

 

62,513

 

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

62,714

 

 

62,146

 

 

62,292

 

 

63,949

 

 

 


CONSOLIDATED BALANCE SHEETS

(In Thousands), (Unaudited)

 

December 31, 2019

 

December 31, 2018

 

 

 

 

Assets

 

 

 

Current Assets:

 

 

 

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

$

157,064

 

 

$

161,164

 

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

190,430

 

 

197,082

 

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

1,121,111

 

 

969,511

 

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

125,908

 

 

121,472

 

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

32,447

 

 

36,474

 

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

1,626,960

 

 

1,485,703

 

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

899,809

 

 

843,122

 

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

110,641

 

 

92,059

 

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

93,282

 

 

87,474

 

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

1,490,235

 

 

1,517,594

 

Operating lease assets......................................................................................................................

110,153

 

 

-

 

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

99,449

 

 

98,963

 

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

$

4,430,529

 

 

$

4,124,915

 

Liabilities and Equity...........................................................................

 

 

 

Current Liabilities:

 

 

 

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

$

166,695

 

 

$

66,543

 

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

450,228

 

 

346,294

 

Accrued expenses:

 

 

 

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

184,514

 

 

167,857

 

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

136,184

 

 

121,824

 

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

189,883

 

 

167,621

 

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

145,823

 

 

125,003

 

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

213,892

 

 

197,687

 

Current operating lease liabilities ........................................................................

34,904

 

 

-

 

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

5,867

 

 

4,545

 

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

1,527,990

 

 

1,197,374

 

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

28,092

 

 

28,602

 

Finance lease obligations..............................................................................................

14,814

 

 

16,140

 

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

1,512,000

 

 

1,879,887

 

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

3,952

 

 

6,490

 

Long-term operating lease liabilities............................................................................................

77,926

 

 

-

 

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

143,955

 

 

122,570

 

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

$

3,308,729

 

 

$

3,251,063

 

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

13,598

 

 

6,837

 

Equity:

 

 

 

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

1,107,999

 

 

866,736

 

Noncontrolling interest...........................................................................................

203

 

 

279

 

Total equity..........................................................................................................

$

1,108,202

 

 

$

867,015

 

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

$

4,430,529

 

 

$

4,124,915

 

 
 
 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands), (Unaudited)

 

Twelve months ended December 31,

 

2019

 

2018

Operating Activities: 

 

 

 

Net income

$

323,884 

 

 

$

335,257 

 

Adjustments to reconcile net income to net cash used for operating activities

 

 

 

Depreciation and amortization

234,513 

 

 

211,036 

 

Noncash compensation

74,962 

 

 

63,966 

 

Noncash income from financial services

(32,469)

 

 

(30,130)

 

Deferred income taxes

(9,484)

 

 

(23,440) 

 

Impairment charges

3,558

 

 

24,263 

 

Other, net

1,575 

 

 

(8,489)

 

Changes in operating assets and liabilities:

 

 

 

Trade receivables

6,812

 

 

 

20,686 

 

Inventories

(149,872)

 

 

(149,701)

 

Accounts payable

103,766 

 

 

(984) 

 

Accrued expenses

98,965

 

 

7,170

 

Income taxes payable/receivable

4,860 

 

 

(4,490) 

 

Prepaid expenses and others, net

(6,034) 

 

 

(14,912) 

 

Net cash used for operating activities

655,036

 

 

477,112

 

Investing Activities:

 

 

 

Purchase of property and equipment

(251,374)

 

 

(225,414)

 

Investment in finance affiliate, net

13,887 

 

 

26,836 

 

Investment in other affiliates, net

 

 

(1,113) 

 

Investment in other affiliates, net

(1,800)

 

 

(759,801) 

 

     

 

 

 

 

Net cash used for investing activities

(239,287)

 

 

(959,492)

 

Financing Activities:

 

 

 

Borrowings under debt arrangements / financial lease obligations

3,368,853 

 

 

3,553,237 

 

Repayments under debt arrangements / financial lease obligations

(3,638,864)

 

 

(2,579,495)

 

Repurchase and retirement of common shares

(8,378)

 

 

(348,663)

 

Cash dividends to shareholders

(149,101)

 

 

(149,032)

 

Proceeds from stock issuances under employee plans

15,660 

 

 

47,371 

 

Net cash provided by financing activities

(411,830) 

 

 

523,418 

 

Impact of currency exchange rates on cash balances

(759)

 

 

(9,530)

 

Net increase in cash, cash equivalents and restricted cash

3,160

 

 

31,508 

 

Cash, cash equivalents and restricted cash at beginning of period

193,126 

 

 

161,618 

 

Cash, cash equivalents and restricted cash at end of period

$

196,286 

 

 

$

193,126 

 

 

 

 

 

The following presents the classification of cash, cash equivalents and restricted cash within the consolidated balance sheets:

 

 

 

Cash and cash equivalents

$

157,064

 

 

$

161,164 

 

Other long-term assets

39,222

 

 

31,962 

 

Total

$

196,286

 

 

$

193,126 

 

 

 

 

 

NON-GAAP RECONCILIATION OF RESULTS

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

 

Three months ended December 31,

 

Twelve months ended December 31,

 

2019

 

2018

 

2019

 

2018

Sales

$

1,735,866

 

 

$

1,627,120

 

 

$

6,782,518

 

 

$

6,078,540

 

Victory wind down (1)

 

 

(490)

 

 

 

 

823

 

Restructuring & realignment (3)

 

 

397

 

 

 

 

3,177

 

Adjusted sales

1,735,866

 

 

1,627,027

 

 

6,782,518

 

 

6,082,540

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

423,344

 

 

391,273

 

 

1,648,782

 

 

1,501,200

 

Victory wind down (1)

 

 

(377)

 

 

 

 

40

 

Acquisition-related costs (2)

 

 

 

 

 

 

3,130

 

Restructuring & realignment (3)

4,693

 

 

3,410

 

 

22,741

 

 

19,375

 

Adjusted gross profit

428,037

 

 

394,306

 

 

1,671,523

 

 

1,523,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

120,910

 

 

119,650

 

 

407,800

 

 

429,249

 

Victory wind down (1)

 

 

626

 

 

 

 

2,383

 

Acquisition-related costs (2)

2,447

 

 

5,939

 

 

7,766

 

 

22,737

 

Restructuring & realignment (3)

5,054

 

 

3,448

 

 

23,102

 

 

26,012

 

EPPL impairment (5)

 

 

3,601

 

 

 

 

27,048

 

Brammo (6)

 

 

 

 

 

 

(13,478)

 

Intangible amortization (7)

10,206

 

 

10,341

 

 

41,131

 

 

32,932

 

Other expenses (4)

3,317

 

 

2,529

 

 

20,016

 

 

7,539

 

Adjusted income before taxes

141,934

 

 

146,134

 

 

499,815

 

 

534,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to PII

98,931

 

 

91,474

 

 

323,960

 

 

335,257

 

Victory wind down (1)

 

 

476

 

 

 

 

1,815

 

Acquisition-related costs (2)

1,864

 

 

4,528

 

 

5,918

 

 

17,327

 

Restructuring & realignment (3)

3,851

 

 

2,627

 

 

17,604

 

 

19,819

 

EPPL impairment (5)

 

 

2,744

 

 

 

 

25,069

 

Brammo (6)

 

 

 

 

 

 

(13,113)

 

Intangible amortization (7)

7,684

 

 

7,729

 

 

30,967

 

 

24,437

 

Other expenses (4)

2,528

 

 

3,850

 

 

15,252

 

 

8,960

 

Adjusted net income attributable to PII (8)

114,858

 

 

113,428

 

 

393,701

 

 

419,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS attributable to PII

$

1.58

 

 

$

1.47

 

 

$

5.20

 

 

$

5.24

 

Victory wind down (1)

 

 

0.01

 

 

 

 

0.03

 

Acquisition-related costs (2)

0.03

 

 

0.07

 

 

0.10

 

 

0.27

 

Restructuring & realignment (3)

0.06

 

 

0.05

 

 

0.28

 

 

0.31

 

EPPL impairment (5)

 

 

0.05

 

 

 

 

0.39

 

Brammo (6)

 

 

 

 

 

 

(0.20)

 

Intangible amortization (7)

0.12

 

 

0.12

 

 

0.50

 

 

0.38

 

Other expenses (4)

0.04

 

 

0.06

 

 

0.24

 

 

0.14

 

Adjusted EPS attributable to PII (8)

$

1.83

 

 

$

1.83

 

 

$

6.32

 

 

$

6.56

 

 

 

 

 

 

 

 

 

(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 class action litigation-related expenses and the impacts of tax reform

(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% for the non-GAAP adjustments in 2019 and 2018, 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 December 31,

 

Twelve months ended December 31,

SEGMENT SALES

2019

 

2018

 

2019

 

2018

ORV/Snow segment sales

$

1,139,890

 

 

$

1,060,458

 

 

$

4,209,063

 

 

$

3,919,417

 

Restructuring & realignment (3)

 

 

397

 

 

 

 

3,177

 

Adjusted ORV/Snow segment sales

1,139,890

 

 

1,060,855

 

 

4,209,063

 

 

3,922,594

 

 

 

 

 

 

 

 

 

Motorcycles segment sales

119,481

 

 

87,361

 

 

584,096

 

 

545,646

 

Victory wind down (1)

 

 

(490)

 

 

 

 

823

 

Adjusted Motorcycles segment sales

119,481

 

 

86,871

 

 

584,096

 

 

546,469

 

 

 

 

 

 

 

 

 

Global Adjacent Markets (GAM) segment sales

120,372

 

 

121,648

 

 

461,255

 

 

444,644

 

No adjustment

 

 

 

 

 

 

 

Adjusted GAM segment sales

120,372

 

 

121,648

 

 

461,255

 

 

444,644

 

 

 

 

 

 

 

 

 

Aftermarket segment sales

221,083

 

 

212,318

 

 

906,751

 

 

889,177

 

No adjustment

 

 

 

 

 

 

 

Adjusted Aftermarket sales

221,083

 

 

212,318

 

 

906,751

 

 

889,177

 

 

 

 

 

 

 

 

 

Boats segment sales

135,040

 

 

145,335

 

 

621,353

 

 

279,656

 

No adjustment

 

 

 

 

 

 

 

Adjusted Boats sales

135,040

 

 

145,335

 

 

621,353

 

 

279,656

 

 

 

 

 

 

 

 

 

Total sales

1,735,866

 

 

1,627,120

 

 

6,782,518

 

 

6,078,540

 

Total adjustments

 

 

(93)

 

 

 

 

4,000

 

Adjusted total sales

$

1,735,866

 

 

$

1,627,027

 

 

$

6,782,518

 

 

$

6,082,540

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended December 31,

 

Twelve months ended December 31,

SEGMENT GROSS PROFIT

2019

 

2018

 

2019

 

2018

ORV/Snow segment gross profit

$

315,424

 

 

$

282,495

 

 

$

1,204,288

 

 

$

1,113,908

 

Restructuring & realignment (3)

 

 

397

 

 

 

 

3,177

 

Adjusted ORV/Snow segment gross profit

315,424

 

 

282,892

 

 

1,204,288

 

 

1,117,085

 

 

 

 

 

 

 

 

 

Motorcycles segment gross profit

(1,639)

 

 

2,228

 

 

44,065

 

 

63,045

 

Victory wind down (1)

 

 

(377)

 

 

 

 

40

 

Restructuring & realignment (3)

(469)

 

 

45

 

 

(469)

 

 

1,220

 

Adjusted Motorcycles segment gross profit

(2,108)

 

 

1,896

 

 

43,596

 

 

64,305

 

 

 

 

 

 

 

 

 

Global Adjacent Markets (GAM) segment gross profit

35,088

 

 

33,063

 

 

129,939

 

 

116,583

 

Restructuring & realignment (3)

 

 

10

 

 

 

 

490

 

Adjusted GAM segment gross profit

35,088

 

 

33,073

 

 

129,939

 

 

117,073

 

 

 

 

 

 

 

 

 

Aftermarket segment gross profit

49,229

 

 

52,074

 

 

222,712

 

 

234,365

 

Acquisition-related costs (2)

 

 

 

 

 

 

 

Adjusted Aftermarket segment gross profit

49,229

 

 

52,074

 

 

222,712

 

 

234,365

 

 

 

 

 

 

 

 

 

Boats segment gross profit

25,637

 

 

25,999

 

 

124,613

 

 

46,252

 

Acquisition-related costs (2)

 

 

3,130

 

 

 

 

3,130

 

Boats segment gross profit

25,637

 

 

25,999

 

 

124,613

 

 

49,382

 

 

 

 

 

 

 

 

 

Corporate segment gross profit

(395)

 

 

(4,586

)

 

(76,835

)

 

(72,953

)

Restructuring & realignment (3)

5,162

 

 

2,958

 

 

23,210

 

 

14,488

 

Adjusted Corporate segment gross profit

(4,767

)

 

(1,628

)

 

(53,625

)

 

(58,465

)

 

 

 

 

 

 

 

 

Total gross profit

423,344

 

 

391,273

 

 

1,648,782

 

 

1,501,200

 

Total adjustments 

4,693

 

 

3,033

 

 

22,741

 

 

22,545

 

Adjusted total gross profit

$

428,037

 

 

$

394,306

 

 

$

1,671,523

 

 

$

1,523,745

 

 

 

 

 

 

 

 

 

(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

 

NON-GAAP ADJUSTMENTS
Fourth Quarter & Full Year 2019 Results & 2020 Full Year Guidance

 

Restructuring, Realignment and Acquisition Related Costs

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. Additionally, the Company has recorded acquisitions and integration related costs associated with the TAP and Boat Holdings acquisitions.  For the fourth quarter of 2019, the Company has recorded combined costs totaling $8 million which was included as a NON-GAAP adjustment.

 

Intangible amortization related to acquisitions

As a result of the Boat Holdings acquisition, Polaris' amortization of intangible assets increased significantly 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. The Company believes this treatment will provide additional transparency into the true, ongoing earnings performance of its business. For the fourth quarter of 2019, Polaris included $10 million of intangible amortization related to acquisitions as a NON-GAAP adjustment.

 

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.  For the full year ended December 31, 2018, Polaris has recorded charges totaling $27 million, including the impairment of the Company's equity investment in the Eicher-Polaris joint venture in India and wind down costs as a NON-GAAP adjustment.  No costs were recorded in 2019.

 

2020 Adjusted Guidance

2020 guidance excludes the pre-tax effect of supply chain transformation, restructuring and network realignment costs of approximately $25 million to $30 million, and approximately $25 million to $30 million for class action litigation-related expenses. Intangible amortization of approximately $35 million related to all acquisitions has also been excluded. 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 restructuring and realignment costs and acquisition integration costs that are difficult to predict in advance in order to include in a GAAP estimate.

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