Polaris Reports Record Third Quarter Results
20 October 1998
Polaris Reports Record Third Quarter Results; Adjusted Earnings Per Share up 18 Percent on 23 Percent Increase in Sales
MINNEAPOLIS--Oct. 20, 1998--Polaris Industries Inc. today reported an 18 percent increase in adjusted net income per diluted share on a 23 percent increase in sales for the third quarter ended September 30, 1998. Adjusted net income and adjusted net income per diluted share do not include the effects of a one-time provision for litigation loss of $61,409,000 resulting in an after-tax charge of $39,609,000 or $1.53 per diluted share. This provision for litigation loss relates to the resolution of a trade secret misappropriation claim brought by Injection Research Specialists, Inc. against Polaris in 1990 and has no effect on ongoing operations of the Company. Including the effects of the provision for litigation loss, the Company reported a third quarter 1998 net loss of $14,504,000, or $.56 per diluted share.Third quarter 1998 adjusted net income per diluted share totaled a record $.97 compared to $.82 per diluted share in the 1997 third quarter. Adjusted net income for the 1998 third quarter totaled a record $25,105,000 compared to $21,640,000 in the 1997 third quarter. Net sales for the 1998 third quarter were a record $359,861,000 compared to $293,428,000 in the prior year period.
For the nine months ended September 30, 1998, Polaris reported adjusted net income of a record $47,950,000, or $1.84 per diluted share compared to net income of $46,953,000, or $1.75 per diluted share, in the comparable 1997 period. Sales for the nine months ended September 30, 1998 grew 10 percent to $844,573,000 from $767,950,000 in the comparable year-ago period. Including the effects of the one-time provision for litigation loss, Polaris reported net income of $8,341,000, or $.32 per diluted share, for the nine months ended September 30, 1998.
Polaris Chairman and CEO W. Hall Wendel said third quarter sales and adjusted net income exceeded the Company's expectations. "With our strong third quarter results, we are well on our way to accomplishing our financial performance objectives for 1998: sales growth and adjusted net income exceeding 1997's record level," he said.
Wendel noted that continued strong demand for the Company's all-terrain vehicles (ATVs) was primarily responsible for the growth in third quarter sales and adjusted net income. "Our retail ATV sales continued to grow in excess of 20 percent during the third quarter and for the year-to-date period. While this reflects in part strong demand in the industry overall, we are also gaining market share in ATVs on the popularity of our Sportsman models and the strength of our new ATV product offerings."
Wendel said early snowmobile retail sales for both Polaris and the industry are tracking slightly behind expectations for the 1998-99 season but the Company has gained market share. "Although retail sales are somewhat slower than what we would like, it is still early in the season. Our completely revamped snowmobile line has generated very favorable response from our dealers and the enthusiast media and initial consumer interest is encouraging."
Season-ending dealer inventories for Polaris personal watercraft (PWC) are at their lowest levels since 1994, according to Wendel, averaging approximately 1.5 units per dealer. "Our 1999 product line was very well received at dealer meetings and we look forward to renewed growth in this category," said Wendel. The Company's 1999 product line includes the new Genesis model, a four-person PWC that features innovative sound reduction and low emission engine technology.
Polaris continues to ramp up production and shipment of Victory motorcycles and reaction from the dealers and consumers continues to be very enthusiastic. Wendel said that virtually all of the 1998 production has been pre-sold to consumers.
During the 1998 third quarter, Polaris recorded a one-time provision for litigation loss of $61,409,000 resulting from the Injection Research Specialists, Inc. litigation. A confidential settlement agreement was signed in October 1998 between the parties, which satisfies all obligations of Polaris in this litigation.
Wendel said, "we are disappointed in the outcome of this lawsuit, but we will absorb the impact and move on. We have a strong balance sheet, long-term debt of only $15 million at the end of the third quarter, ample borrowing capacity under our $175 million bank line of credit arrangement and we generated cash flow from operations of more than $100 million in 1997. We no longer use any of the technology in dispute. The settlement in no way affects our ongoing operations or inhibits our ability to invest in new product development."
Polaris continues to aggressively repurchase its common shares under an authorization from its Board of Directors for the repurchase of up to 5.0 million Polaris common shares. Through September 30, 1998, the Company had cumulatively repurchased approximately 2.7 million shares.
Polaris Industries Inc. designs, engineers, manufactures and markets snowmobiles, all-terrain vehicles, motorcycles, personal watercraft and the Polaris Ranger for recreational and utility use. Polaris is the world's largest snowmobile manufacturer, and one of the largest U.S. manufacturers of all-terrain vehicles and personal watercraft. Polaris Industries Inc. trades on the New York Stock Exchange and Pacific Stock Exchange under the symbol "PII", and the Company is included in the S&P SmallCap 600 stock price index.
Except for historical information contained herein, the matters set forth in this news release, including management's expectations regarding 1998 and 1999 sales and net income, 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 product offerings and pricing strategies by competitors; warranty expenses; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; uninsured product liability claims; and overall economic conditions, including inflation and consumer confidence and spending. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission.
(Summarized financial data follows)
POLARIS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
UNAUDITED
For the Third Quarter For the Nine Months
Ended September 30 Ended September 30
1998 1997 1998 1997
Sales $ 359,861 $ 293,428 $ 844,573 $ 767,950
Cost of sales 273,431 214,860 647,130 579,632
------- ------- ------- -------
Gross profit 86,430 78,568 197,443 188,318
Operating expenses 49,976 47,421 128,247 121,084
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Operating income 36,454 31,147 69,196 67,234
Nonoperating expense (income)
Interest expense 787 630 2,086 2,484
Equity in income
of affiliates (2,043) (2,108) (5,199) (4,978)
Other expense
(income), net (1,212) (1,188) (2,308) (3,636)
Provision for
litigation loss 61,409 0 61,409 0
------- - ------- -
Income before income
taxes (22,487) 33,813 13,208 73,364
Provision for income
taxes (7,983) 12,173 4,867 26,411
------- ------- ------- -------
Net income ($ 14,504) $ 21,640 $ 8,341 $ 46,953
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Basic and diluted net
income per share ($0.56) $0.82 $0.32 $1.75
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Weighted average number
of common and common
equivalent shares
outstanding:
Basic 25,811 26,453 26,059 26,883
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Diluted 25,811 26,476 26,101 26,892
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Pro forma results, adjusted
to exclude provision
for litigation loss:
Income before income
taxes $ 38,922 $ 33,813 $ 74,617 $ 73,364
Provision for income
taxes 13,817 12,173 26,667 26,411
-------- -------- ------- -------
Net income $ 25,105 $ 21,640 $ 47,950 $ 46,953
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Basic and diluted net
income per share $0.97 $0.82 $1.84 $1.75
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