1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------------- ----------- COMMISSION FILE NUMBER 1-11411 POLARIS INDUSTRIES INC. (Exact Name of Registrant as Specified in its Charter) MINNESOTA 41-1790959 (State or other jurisdiction of (IRS Employer incorporation or organization Identification No.) 2100 Highway 55, Medina, MN 55340 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (763) 542-0500 Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of November 8, 2000, 23,714,197 shares of Common Stock of the issuer were outstanding. - --------------------------------------------------------------------------------
2 POLARIS INDUSTRIES INC. FORM 10-Q For Quarter Period Ended September 30, 2000 TABLE OF CONTENTS PAGE Part I FINANCIAL INFORMATION ---- Item 1 - Consolidated Financial Statements Consolidated Balance Sheets.........................................3 Consolidated Statements of Operations...............................4 Consolidated Statements of Cash Flows...............................5 Consolidated Statements of Shareholder's Equity.....................6 Notes to Consolidated Financial Statements..........................7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations..............................................12 Cash Dividends.....................................................13 Liquidity and Capital Resources....................................14 Inflation and Exchange Rates.......................................14 Item 3 - Quantitative and Qualitative Disclosures on Market Risk......15 Note regarding forward-looking statements.....................................15 Part II OTHER INFORMATION.....................................................16 Item 1 Legal Proceedings Item 2 Changes in Securities Item 3 Defaults upon Senior Securities Item 4 Submission of Matters to a Vote of Security Holders Item 6 Exhibits and Reports on Form 8-K SIGNATURE PAGE................................................................17
3 POLARIS INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS (In Thousands) <TABLE> <CAPTION> Sept. 30, 2000 December 31, 1999 (Unaudited) - ---------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents $ 5,854 $ 6,184 Trade receivables 82,702 53,293 Inventories 171,012 118,062 Prepaid expenses and other 7,165 6,175 Deferred tax assets 35,000 31,000 ------ ------ Total current assets 301,733 214,714 Deferred Tax Assets 14,000 16,000 Property and Equipment, net 163,411 150,922 Investments in Affiliates 44,462 38,310 Intangible Assets, net 21,417 22,081 ------ ------ Total Assets $545,023 $442,027 ======== ======== LIABILITIES AND SHAREHOLDER'S EQUITY Current Liabilities: Accounts payable $126,189 $ 91,805 Accrued expenses 131,969 128,582 Income taxes payable 26,324 13,413 ------ ------ Total current liabilities 284,482 233,800 Borrowings under credit agreement 70,000 40,000 ------ ------ Total Liabilities 354,482 273,800 ------- ------- Commitments and Contingencies (Notes 4, 6 and 7) Shareholder's Equity: Common stock 237 242 Additional paid-in capital 0 8,987 Deferred compensation (3,544) (7,818) Compensation payable in common stock 0 5,975 Retained earnings 193,848 160,841 ------- ------- Total shareholder's equity 190,541 168,227 ------- ------- Total Liabilities and Shareholder's Equity $545,023 $442,027 ======== ======== </TABLE> See Notes to Consolidated Financial Statements 3
4 POLARIS INDUSTRIES INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data) UNAUDITED <TABLE> <CAPTION> Third Quarter For the Nine Months Ended Sept. 30 Ended Sept. 30 2000 1999 2000 1999 ---- ---- ---- ---- <S> <C> <C> <C> <C> Sales $396,962 $388,883 $1,010,738 $950,960 Cost of Sales 289,245 287,595 752,933 718,296 ------- ------- ------- ------- Gross profit 107,717 101,288 257,805 232,664 Operating Expenses Selling and marketing 44,124 40,698 112,322 100,215 Research and development 7,964 7,149 24,029 22,715 General and administrative 11,618 11,487 38,651 32,049 ------ ------ ------ ------ Total operating expenses 63,706 59,334 175,002 154,979 ------ ------ ------- ------- Operating income 44,011 41,954 82,803 77,685 Nonoperating Expense (Income) Interest expense 2,416 1,188 5,931 3,562 Equity in (income) of (3,952) (2,447) (10,349) (6,380) affiliates Other expense (income), net 172 968 1,634 780 --- --- ----- --- Income before taxes 45,375 42,245 85,587 79,723 Provision for Income Taxes 16,109 14,996 30,384 28,301 ------ ------ ------ ------ Net income $29,266 $27,249 $55,203 $51,422 ======= ======= ======= ======= Diluted Net Income Per Share $1.24 $1.10 $2.33 $2.05 ===== ===== ===== ===== </TABLE> See Notes to Consolidated Financial Statements 4
5 POLARIS INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) UNAUDITED <TABLE> <CAPTION> For the Nine Months Ended Sept. 30, 2000 1999 ---- ---- <S> <C> <C> Operating Activities: Net income $55,203 $51,422 Adjustments to reconcile net income to net cash Depreciation and amortization 34,443 29,587 Noncash compensation 8,729 8,517 Equity in (income) of affiliates (10,349) (6,380) Deferred income taxes (2,000) (2,000) Changes in current operating items Trade receivables (29,409) (25,743) Inventories (52,950) (37,631) Accounts payable 34,384 36,914 Accrued expenses 3,387 1,470 Income taxes payable 12,911 18,267 Prepaid and others, net 299 (1,919) ------ ------- Net cash from operating activities 54,648 72,504 ------ ------ Investing Activities: Purchase of property and equipment (46,268) (39,204) Investments in affiliates, net 4,197 (2,641) -------- -------- Net cash used for investing activities (42,071) (41,845) -------- -------- Financing Activities: Borrowings under credit agreement 356,750 381,350 Repayments under credit agreement (326,750) (351,850) Repurchase and retirement of common shares (27,368) (43,532) Cash dividends to shareholders (15,539) (14,923) -------- -------- Net cash from financing activities (12,907) (28,955) -------- -------- Increase (decrease) in cash and cash equivalents (330) 1,704 Cash and Cash Equivalents, Beginning 6,184 1,466 -------- -------- Cash and Cash Equivalents, Ending $5,854 $3,170 ======== ======== </TABLE> See Notes to Consolidated Financial Statements 5
6 POLARIS INDUSTRIES INC. CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (In Thousands) UNAUDITED <TABLE> <CAPTION> Additional Compensation Common Paid-In Deferred Payable in Retained Stock Capital Compensation Common Stock Earnings Total ----- ------- ------------ ------------- --------- -------- <S> <C> <C> <C> <C> <C> <C> Balance, December 31, 1999 $242 $8,987 ($7,818) $5,975 $160,841 $168,227 Employee stock compensation 4 11,715 4,274 (5,975) 0 10,018 Cash dividends declared 0 0 0 0 (15,539) (15,539) Repurchase and retirement of common shares (9) (20,702) 0 0 (6,657) (27,368) Net income 0 0 0 0 55,203 55,203 - - - - ------ ------ Balance, September 30, 2000 $237 $0 $(3,544) $0 $193,848 $190,541 ==== == ======== == ======== ======== </TABLE> See Notes to Consolidated Financial Statements 6
7 POLARIS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and, therefore, do not include all information and disclosures of results of operations, financial position and changes in cash flow in conformity with generally accepted accounting principles for complete financial statements. Accordingly, such statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1999, previously filed with the Securities and Exchange Commission. In the opinion of management, such statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. Due to the seasonality of the snowmobile, all terrain vehicle (ATV), personal watercraft (PWC) and motorcycle business, and to certain changes in production and shipping cycles, results of such periods are not necessarily indicative of the results to be expected for the complete year. NOTE 2. Inventories The major components of inventories are as follows (in millions): September 30, 2000 December 31, 1999 ------------------ ----------------- Raw Materials $33.2 $28.0 Parts, Garments & Accessories 51.2 50.6 Finished Goods 86.6 39.5 ------ ------ $171.0 $118.1 ====== ====== NOTE 3. Financing Agreement Polaris has an unsecured bank line of credit arrangement with maximum available borrowings of $150.0 million. Interest is charged at rates based on LIBOR or "prime" (6.93 percent at September 30, 2000) and the arrangement expires on March 31, 2002 at which time the balance is due. In addition, Polaris has an unsecured discretionary line of credit arrangement with maximum available borrowings of $10.0 million. This arrangement expires on May 31, 2001. 7
8 In 1999 and again in 2000, Polaris entered into interest rate swap agreements to manage exposures to fluctuations in interest rates. The effect of these agreements is to fix the interest rate at 5.80 percent for $20 million of borrowings under the credit line until July 2002 and at 7.21 percent for $18 million of borrowings under the credit line until June 2007. As of September 30, 2000, total borrowings under the bank line of credit arrangement were $70.0 million and have been classified as long-term in the accompanying consolidated balance sheets. NOTE 4. Investments in Affiliates A wholly owned subsidiary of Polaris is a partner with Transamerica Distribution Finance ("TDF") in Polaris Acceptance. Polaris Acceptance provides floor plan financing to dealer and distributor customers of Polaris, and provides other financial services such as retail credit, extended service contracts and insurance to dealers, distributors and retail customers of Polaris. Polaris has a 50 percent equity interest in Polaris Acceptance and was responsible for 50 percent of the outstanding indebtedness of Polaris Acceptance. In February 2000, the term of the partnership agreement was extended; in consideration thereof, Polaris is no longer required to guarantee the outstanding indebtedness of Polaris Acceptance. Polaris is a partner with Fuji Heavy Industries Ltd. in Robin Manufacturing, U.S.A. ("Robin"). Polaris has a 40 percent ownership interest in Robin, which builds engines in the United States for recreational and industrial products. Investments in affiliates are accounted for under the equity method. Polaris' allocable share of the income of Polaris Acceptance and Robin has been included as a component of non-operating expense (income) in the accompanying consolidated statements of operations. NOTE 5. Shareholder's Equity During the first nine months of 2000, Polaris paid $27.4 million to repurchase and retire 886,200 shares of its common stock, with cash on hand and borrowings under its line of credit. Polaris has approximately 2.1 million remaining shares available to repurchase under its current Board of Directors' authorization as of September 30, 2000. The Polaris Board of Directors declared a regular cash dividend of $0.22 per share payable to holders of record on August 1, 2000, which was paid on August 15, 2000. On October 19, 2000, the Polaris Board of Directors declared a regular cash dividend of $0.22 per share payable on or about November 15, 2000, to holders of record on November 1, 2000. 8
9 In May 2000, the Polaris Board of Directors adopted a shareholder rights plan. Under the plan, a dividend of preferred stock purchase rights will become excercisable if a person or group should acquire 15 percent or more of the company's stock. The dividend will consist of one purchase right for each outstanding share of the Company's common stock held by shareholders of record on June 1, 2000. Net income per share for the periods ended September 30, 2000 and 1999 was calculated based on the weighted average number of common and potential common shares outstanding. Basic earnings per share using SFAS No. 128 "Earnings per share" is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each year, including shares earned under the Director plan and the Employee Stock Ownership Plan (ESOP). Diluted earnings per share is computed under the treasury stock method and is calculated to reflect the dilutive effect of the Option Plan. A reconciliation of these amounts is as follows (in thousands, except per share data): <TABLE> <CAPTION> For Three Months For Nine Months Ended Sept. 30, Ended Sept. 30, 2000 1999 2000 1999 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net Income available to common shareholders $29,266 $27,249 $55,203 $51,422 ======= ======= ======= ======= Weighted average number of common 23,183 24,400 23,413 24,730 shares outstanding Director Plan 26 24 27 23 ESOP 170 170 170 170 ------ ------ ------- ------ Common shares outstanding - basic 23,379 24,594 23,610 24,923 ====== ====== ====== ====== Dilutive effect of Option Plan 163 113 80 176 ------ ------ ------ ------ Common and potential common shares Outstanding 23,542 24,707 23,690 25,099 ====== ====== ====== ====== Basic net income per share $1.25 $1.11 $2.34 $2.06 ===== ===== ===== ===== Diluted net income per share $1.24 $1.10 $2.33 $2.05 ===== ===== ===== ===== </TABLE> 9
10 NOTE 6. Commitments and Contingencies Polaris is subject to product liability claims in the normal course of business and prior to June 1996 elected not to purchase insurance for product liability losses. Effective June 1996, Polaris purchased excess insurance coverage for catastrophic product liability claims for incidents occurring subsequent to the policy date that exceeds a self-insured retention. The estimated costs resulting from any losses are charged to expense when it is probable a loss has been incurred and the amount of the loss is reasonably determinable. Revenue Canada has assessed Polaris approximately $17.0 million in taxes, penalties and interest for the period January 1, 1992 through December 31, 1994 resulting from an income tax audit for that period. Revenue Canada has asserted that Polaris over charged its Canadian subsidiary for various goods and services during the audit period primarily through improper intercompany transfer pricing policies. Polaris disagrees with the assessment and is vigorously contesting it. Polaris is a defendant in lawsuits and subject to claims arising in the normal course of business. In the opinion of management, it is not probable that any legal proceedings pending against or involving Polaris will have a material adverse effect on Polaris' financial position or results of operations. NOTE 7. Foreign Currency Contracts Polaris' Canadian and Australian subsidiaries use the United States dollar as their functional currency. Canadian and Australian assets and liabilities are translated at the foreign exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the average foreign exchange rate in effect. Translation and exchange gains and losses are reflected in the results of operations. Polaris enters into foreign exchange contracts to manage currency exposures of certain of its purchase commitments denominated in foreign currencies including the Japanese yen, the Euro and the Taiwan dollar as well as transfers of funds from its Canadian subsidiary. Polaris does not use any financial contracts for trading purposes. These contracts are accounted for as hedges, thus market value gains and losses are recognized at the time of purchase or transfer of funds, respectively. The criteria to determine if hedge accounting is appropriate are (1) the designation of a hedge to an underlying exposure, (2) whether or not overall risk is reduced and (3) if there is a correlation between the value of the foreign exchange contract and the underlying exposure. Gains and losses related to purchase commitments are recorded as adjustments to cost of sales while gains and losses related to transfers of funds are recorded as other expense (income) on the accompanying statement of operations. 10
11 At September 30, 2000, Polaris had open Canadian dollar foreign exchange contracts with notional amounts totaling $3.0 million U.S. dollars, open Japanese yen foreign exchange contracts with notional amounts totaling $29.0 million U.S. dollars, and open Euro foreign exchange contracts with notional amounts totaling $1.7 million U.S. dollars, all of which mature throughout the remainder of 2000. NOTE 8. New Accounting Pronouncements SFAS 133 The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133) in June 1998. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. Polaris will be required to adopt SFAS No. 133 no later than January 1, 2001. Polaris is in the process of quantifying the impacts of adopting SFAS No. 133 on the financial statements and, currently, does not expect it to have a material effect on its financial statements. EITF Issue No. 00-14 The Emerging Issues Task Force recently issued a consensus pertaining to EITF Issue No. 00-14, "Accounting for Certain Sales Incentives." EITF 00-14 establishes accounting and reporting standards for sales incentives and promotions. EITF 00-14 requires promotional expense to be recorded as a reduction of revenue or an increase in cost of sales as opposed to sales and marketing expense. Polaris will be required to adopt EITF 00-14 in the fourth quarter of 2000. Polaris has not quantified the impact of adopting EITF 00-14. However, EITF 00-14 is a classification change and will not effect net income. 11
12 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion pertains to the results of operations and financial position of Polaris Industries Inc., a Minnesota corporation ("Polaris" or the "Company") for the quarter and year to date periods ended September 30, 2000 and 1999. Due to the seasonality of the snowmobile, all terrain vehicle (ATV), personal watercraft (PWC), and motorcycle business, and to certain changes in production and shipping cycles, results of such periods are not necessarily indicative of the results to be expected for the complete year. Results of Operations Sales were $397.0 million in the third quarter of 2000, representing a two percent increase from $388.9 million in sales for the same period in 1999. North American sales of ATVs and related Parts, Garments, and Accessories ("PG&A") of $218.8 million for the third quarter 2000 were 14 percent higher than $191.6 million for the comparable period in 1999. The increase is related to increased unit sales reflecting the continuing growth in the ATV industry as well as initial shipments of our youth ATVs partially offset by a product mix driven average per unit sales price decrease. North American sales of snowmobiles and related PG&A of $144.0 million for the third quarter 2000 were 13 percent lower than $165.7 million for the comparable period in 1999. The decrease is primarily due to lower unit shipments to dealers after three consecutive winters of poor snow conditions. The average per unit sales price for the quarter remained flat compared to third quarter 1999. North American sales of PWC and related PG&A of $3.4 million for the third quarter 2000 were 26 percent lower than $4.6 million for the comparable period in 1999. The decrease is related to lower unit sales primarily due to the timing of shipments, which are typically low in the third quarter due to model year changeover. North American sales of Victory motorcycles and related PG&A of $3.2 million for the third quarter 2000 were 34 percent lower than $4.9 million for the comparable period in 1999. The decrease relates to a reduction in Victory shipments to dealers in 2000 in response to lower than expected retail sales. Shipments in the third quarter are typically low due to model year changeover. International sales of snowmobiles, ATVs, PWC, Victory motorcycles and related PG&A of $27.6 million for the third quarter 2000 were 25 percent higher than $22.1 million for the comparable period in 1999 primarily due to increased shipments of ATVs and PG&A into markets outside of North America. Sales increased to $1,010.7 million for the year-to-date period ended September 30, 2000, representing a six percent increase from $951.0 million sales for the same period in 1999. The sales increase was primarily due to strong ATV demand partially offset by lower snowmobile shipments. 12
13 Gross profit of $107.7 million in the third quarter of 2000 represents a six percent increase over gross profit of $101.3 million for the same period in 1999. This increase in gross profit dollars was the result of higher sales volume and an increase in the gross profit margin percentage to 27.1 percent for the third quarter of 2000 from 26.0 percent for the comparable 1999 period. The increase in the gross profit margin percentage was primarily due to cost reductions in the snowmobile product line and the sales mix benefit of an increase in PG&A sales partially offset by the negative impact of Japanese yen exchange rates during the third quarter 2000 when compared to the prior year period. Gross profit of $257.8 million in the year-to-date period ended September 30, 2000 represents an 11 percent increase over gross profit of $232.7 million for the same period in 1999. This increase in gross profit dollars resulted primarily from higher sales volumes in the current year period. The gross profit margin increased to 25.5 percent for the year-to-date period ended September 30, 2000 as compared to 24.5 percent for the year-to-date period in 1999. This increase in gross profit margin percentage is primarily due to improvements in ATV product cost reductions, the sales mix benefits of an increase in higher margin sales of PG&A items and lower warranty costs partially offset by the negative impact of Japanese yen exchange rates and increased tooling cost amortization. Operating expenses in the third quarter of 2000 increased seven percent to $63.7 million from the comparable 1999 period, and as a percentage of sales increased to 16.0 percent for the third quarter of 2000 compared to 15.3 percent for the same period in 1999. Operating expenses in the year-to-date period ended September 30, 2000 increased 13 percent to $175.0 million from the comparable 1999 period and as a percentage of sales increased to 17.3 percent for the nine months ended September 30, 2000 compared to 16.3 percent for the same period in 1999. The higher levels of operating expenses are related to additional Victory motorcycle and ATV advertising and sales promotion expenses as well as planned increases in areas such as PG&A sales and marketing and information technology during each of the 2000 periods. Non-operating income increased in the third quarter of 2000 from the comparable period in 1999 primarily as a result of higher income generated by the Company's investment in Polaris Acceptance, which is the primary component of equity in income of affiliates. This non-operating income increase is partially offset by higher interest expense due to increased seasonal borrowing requirements. Cash Dividends The Polaris Board of Directors declared a regular cash dividend of $0.22 per share payable to holders of record on August 1, 2000, which was paid on August 15, 2000. On October 19, 2000, the Polaris Board of Directors declared a regular cash dividend of $0.22 per share payable on or about November 15, 2000, to holders of record on November 1, 2000. 13
14 Liquidity and Capital Resources The seasonality of production and shipments causes working capital requirements to fluctuate during the year. Polaris has an unsecured bank line of credit arrangement with maximum available borrowings of $150.0 million. Interest is charged at rates based on LIBOR or "prime" (6.93 percent at September 30, 2000) and the arrangement expires on March 31, 2002 at which time the balance is due. In addition, Polaris has an unsecured discretionary line of credit arrangement with maximum available borrowings of $10.0 million. This arrangement expires on May 31, 2001. In 1999 and again in 2000, Polaris entered into interest rate swap agreements to manage exposures to fluctuations in interest rates. The effect of these agreements is to fix the interest rate at 5.80 percent for $20 million of borrowings under the credit line until July 2002 and at 7.21 percent for $18 million of borrowings under the credit line until June 2007. As of September 30, 2000, total borrowings under this credit arrangement were $70.0 million and have been classified as long-term in the accompanying consolidated balance sheets. During the first nine months of 2000, Polaris paid $27.4 million to repurchase and retire 886,200 shares of its common stock with cash on hand and borrowings under its line of credit. As of September 30, 2000, Polaris has approximately 2.1 million remaining shares available to repurchase under its Board of Directors' authorization. Management believes that existing cash balances and bank borrowings, cash flow to be generated from operating activities and available borrowing capacity under the line of credit arrangement will be sufficient to fund operations, regular dividends, share repurchases, and capital requirements for the remainder of 2000. At this time, management is not aware of any factors that would have a materially adverse impact in cash flow beyond 2000. Inflation and Exchange Rates Polaris does not believe that inflation has had a material impact on the results of its recent operations. However, the changing relationships of the U.S. dollar to the Japanese yen and Canadian dollar have had a material impact from time to time. In 1999, purchases totaling 16 percent of Polaris' cost of sales were from yen-denominated suppliers. The weakening of the U.S. dollar in relation to the Japanese yen since mid-1998 has resulted in higher raw material purchase prices. Polaris' cost of sales in the third quarter and year-to-date periods ended September 30, 2000 was negatively impacted by the Japanese yen-U.S. dollar exchange rate fluctuation when compared to the same period in 1999. Polaris anticipates that the Japanese yen-U.S. dollar exchange rate will continue to have a negative impact on cost of sales during the remaining period of 2000 when compared to the same period in 1999. 14
15 Polaris operates in Canada through a wholly owned subsidiary. Since late in the third quarter of 1999, strengthening of the Canadian dollar in relationship to the U.S. dollar has resulted in higher gross margin levels on a comparable basis. The fluctuation of the Canadian dollar exchange rate positively impacted the gross margin achieved in the third quarter and year-to-date periods ended September 30, 2000, when compared to the same periods in 1999. In view of the foreign exchange hedging contracts currently in place, Polaris anticipates that the Canadian dollar-U.S. dollar exchange rate will have a positive impact on cost of sales during the remaining period of 2000 when compared to the same period in 1999. In the past, Polaris has been a party to, and in the future may enter into, foreign exchange hedging contracts for each of the Japanese yen, Euro, Taiwan dollar and Canadian dollar to minimize the impact of exchange rate fluctuations within each year. At September 30, 2000, Polaris had open Japanese yen, Euro, and Canadian dollar foreign exchange hedging contracts that mature in the fourth quarter of 2000. Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Refer to the Company's annual report on Form 10-K for the year ended December 31, 1999 for a complete discussion on the Company's market risk. There have been no material changes to the market risk information included in the Company's 1999 annual report on Form 10-K. Note Regarding Forward Looking Statements Certain matters discussed in this report are "forward-looking statements" intended to qualify for the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These "forward-looking statements" can generally be identified as such because the context of the statement will include words such as the Company or management "believes", "anticipates", "expects", "estimates" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking. Shareholders, potential investors and others are cautioned that all forward-looking statements involve risks and uncertainty that could cause results to differ materially from those anticipated by some of the statements made herein. In addition to the factors discussed above, among the other factors that could cause actual results to differ materially are the following: product offerings and pricing strategies by competitors; future conduct of litigation or audit processes; warranty expenses; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; uninsured product liability claims; and overall economic conditions, including inflation and consumer confidence and spending. 15
16 PART II. OTHER INFORMATION Item 1 - Legal Proceedings None Item 2 - Changes in Securities None Item 3 - Defaults upon Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders None Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None 16
17 POLARIS INDUSTRIES INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. POLARIS INDUSTRIES INC. (Registrant) Date: November 8, 2000 /s/ Thomas C. Tiller -------------------- Thomas C. Tiller President and Chief Executive Officer Date: November 8, 2000 /s/ Michael W. Malone ------------------------------------ Michael W. Malone Vice President, Finance, Chief Financial Officer, and Secretary (Principal Financial and Chief Accounting Officer) 17