UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark one) | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20222023
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-11411
POLARIS INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | |
MinnesotaDelaware | | | 41-1790959 |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
| | | | | |
2100 Highway 55, | Medina | MN | | | 55340 |
(Address of principal executive offices) | | | (Zip Code) |
| | | 763 | 542-0500 | |
| | | (Registrant’s telephone number, including area code) | |
| | | N/A | |
| | | (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) | |
| | | | | | | | |
| Securities registered pursuant to Section 12(b) of the Act: | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value | PII | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required 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 ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | x | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of October 18, 2022, 57,958,51417, 2023, 56,472,703 shares of Common Stock, $.01 par value, of the registrant were outstanding.
POLARIS INC.
FORM 10-Q
For Quarterly Period Ended September 30, 20222023
Part I FINANCIAL INFORMATION
Item 1 – FINANCIAL STATEMENTS
POLARIS INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| | | | | | (Unaudited) | | |
Assets | Assets | | Assets | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 318.9 | | | $ | 502.3 | | Cash and cash equivalents | $ | 295.3 | | | $ | 324.5 | |
Trade receivables, net | Trade receivables, net | 329.5 | | | 227.9 | | Trade receivables, net | 477.8 | | | 343.0 | |
Inventories, net | Inventories, net | 1,929.4 | | | 1,510.7 | | Inventories, net | 2,051.7 | | | 1,896.1 | |
Prepaid expenses and other | Prepaid expenses and other | 158.3 | | | 150.9 | | Prepaid expenses and other | 177.3 | | | 183.7 | |
Income taxes receivable | Income taxes receivable | 98.7 | | | 4.0 | | Income taxes receivable | 41.2 | | | 20.3 | |
Current assets held for sale | — | | | 163.2 | | |
Total current assets | Total current assets | 2,834.8 | | | 2,559.0 | | Total current assets | 3,043.3 | | | 2,767.6 | |
Property and equipment, net | Property and equipment, net | 957.9 | | | 927.7 | | Property and equipment, net | 1,161.5 | | | 1,018.4 | |
Investment in finance affiliate | Investment in finance affiliate | 58.6 | | | 49.3 | | Investment in finance affiliate | 109.7 | | | 93.1 | |
Deferred tax assets | Deferred tax assets | 150.1 | | | 162.9 | | Deferred tax assets | 247.1 | | | 210.5 | |
Goodwill and other intangible assets, net | Goodwill and other intangible assets, net | 907.6 | | | 935.2 | | Goodwill and other intangible assets, net | 907.1 | | | 910.6 | |
Operating lease assets | Operating lease assets | 105.5 | | | 90.5 | | Operating lease assets | 131.6 | | | 111.0 | |
Other long-term assets | Other long-term assets | 78.9 | | | 97.2 | | Other long-term assets | 132.7 | | | 106.7 | |
Long-term assets held for sale | — | | | 226.0 | | |
Total assets | Total assets | $ | 5,093.4 | | | $ | 5,047.8 | | Total assets | $ | 5,733.0 | | | $ | 5,217.9 | |
Liabilities and Equity | Liabilities and Equity | | | | Liabilities and Equity | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Current portion of debt, finance lease obligations and notes payable | $ | 553.5 | | | $ | 553.3 | | |
Current financing obligations | | Current financing obligations | $ | 553.9 | | | $ | 553.6 | |
Accounts payable | Accounts payable | 850.8 | | | 776.0 | | Accounts payable | 882.4 | | | 847.6 | |
Accrued expenses | Accrued expenses | 772.9 | | | 756.5 | | Accrued expenses | 967.6 | | | 896.8 | |
Current operating lease liabilities | 22.2 | | | 19.4 | | |
Income taxes payable | 13.3 | | | 17.1 | | |
Current liabilities held for sale | — | | | 107.8 | | |
Other current liabilities | | Other current liabilities | 34.4 | | | 30.6 | |
Total current liabilities | Total current liabilities | 2,212.7 | | | 2,230.1 | | Total current liabilities | 2,438.3 | | | 2,328.6 | |
Long-term income taxes payable | 14.7 | | | 13.3 | | |
Finance lease obligations | 9.4 | | | 12.1 | | |
Long-term debt | 1,571.5 | | | 1,235.3 | | |
Deferred tax liabilities | 4.9 | | | 5.5 | | |
Long-term operating lease liabilities | 83.6 | | | 71.3 | | |
Long-term financing obligations | | Long-term financing obligations | 1,655.6 | | | 1,504.2 | |
Other long-term liabilities | Other long-term liabilities | 165.2 | | | 176.6 | | Other long-term liabilities | 292.7 | | | 271.0 | |
Long-term liabilities held for sale | — | | | 66.1 | | |
Total liabilities | Total liabilities | $ | 4,062.0 | | | $ | 3,810.3 | | Total liabilities | $ | 4,386.6 | | | $ | 4,103.8 | |
Deferred compensation | Deferred compensation | $ | 12.0 | | | $ | 11.2 | | Deferred compensation | $ | 11.2 | | | $ | 12.6 | |
Shareholders’ equity: | Shareholders’ equity: | | Shareholders’ equity: | |
Preferred stock 0.01 par value per share, 20.0 shares authorized, no shares issued and outstanding | — | | | — | | |
Common stock 0.01 par value per share, 160.0 shares authorized, 58.0 and 60.4 shares issued and outstanding, respectively | $ | 0.6 | | | $ | 0.6 | | |
Preferred stock $0.01 par value per share, 20.0 shares authorized, no shares issued and outstanding | | Preferred stock $0.01 par value per share, 20.0 shares authorized, no shares issued and outstanding | — | | | — | |
Common stock $0.01 par value per share, 160.0 shares authorized, 56.5 and 57.0 shares issued and outstanding, respectively | | Common stock $0.01 par value per share, 160.0 shares authorized, 56.5 and 57.0 shares issued and outstanding, respectively | $ | 0.6 | | | $ | 0.6 | |
Additional paid-in capital | Additional paid-in capital | 1,155.5 | | | 1,143.8 | | Additional paid-in capital | 1,221.7 | | | 1,152.1 | |
Retained earnings (accumulated deficit) | (20.2) | | | 157.3 | | |
Retained earnings | | Retained earnings | 190.7 | | | 33.8 | |
Accumulated other comprehensive loss, net | Accumulated other comprehensive loss, net | (119.0) | | | (77.4) | | Accumulated other comprehensive loss, net | (80.3) | | | (87.5) | |
Total shareholders’ equity | Total shareholders’ equity | 1,016.9 | | | 1,224.3 | | Total shareholders’ equity | 1,332.7 | | | 1,099.0 | |
Noncontrolling interest | Noncontrolling interest | 2.5 | | | 2.0 | | Noncontrolling interest | 2.5 | | | 2.5 | |
Total equity | Total equity | 1,019.4 | | | 1,226.3 | | Total equity | 1,335.2 | | | 1,101.5 | |
Total liabilities and equity | Total liabilities and equity | $ | 5,093.4 | | | $ | 5,047.8 | | Total liabilities and equity | $ | 5,733.0 | | | $ | 5,217.9 | |
The accompanying footnotes are an integral part of these consolidated statements.
POLARIS INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Sales | Sales | $ | 2,340.6 | | | $ | 1,777.7 | | | $ | 6,184.9 | | | $ | 5,446.6 | | Sales | $ | 2,248.9 | | | $ | 2,340.6 | | | $ | 6,645.2 | | | $ | 6,184.9 | |
Cost of sales | Cost of sales | 1,781.4 | | | 1,357.7 | | | 4,798.4 | | | 4,097.4 | | Cost of sales | 1,740.1 | | | 1,781.4 | | | 5,162.2 | | | 4,798.4 | |
Gross profit | Gross profit | 559.2 | | | 420.0 | | | 1,386.5 | | | 1,349.2 | | Gross profit | 508.8 | | | 559.2 | | | 1,483.0 | | | 1,386.5 | |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Selling and marketing | Selling and marketing | 120.7 | | | 112.0 | | | 347.8 | | | 348.4 | | Selling and marketing | 145.1 | | | 120.7 | | | 415.3 | | | 347.8 | |
Research and development | Research and development | 98.5 | | | 84.8 | | | 266.1 | | | 249.1 | | Research and development | 91.8 | | | 98.5 | | | 281.5 | | | 266.1 | |
General and administrative | General and administrative | 97.8 | | | 76.3 | | | 258.7 | | | 240.8 | | General and administrative | 91.3 | | | 97.8 | | | 285.9 | | | 258.7 | |
Total operating expenses | Total operating expenses | 317.0 | | | 273.1 | | | 872.6 | | | 838.3 | | Total operating expenses | 328.2 | | | 317.0 | | | 982.7 | | | 872.6 | |
Income from financial services | Income from financial services | 12.1 | | | 11.3 | | | 33.7 | | | 41.2 | | Income from financial services | 20.5 | | | 12.1 | | | 57.9 | | | 33.7 | |
Operating income | Operating income | 254.3 | | | 158.2 | | | 547.6 | | | 552.1 | | Operating income | 201.1 | | | 254.3 | | | 558.2 | | | 547.6 | |
Non-operating expense: | Non-operating expense: | | Non-operating expense: | |
Interest expense | Interest expense | 20.1 | | | 10.7 | | | 46.8 | | | 33.0 | | Interest expense | 32.5 | | | 20.1 | | | 92.2 | | | 46.8 | |
Other (income) expense, net | Other (income) expense, net | (7.4) | | | (0.1) | | | (13.9) | | | (5.4) | | Other (income) expense, net | (13.1) | | | (7.4) | | | (33.6) | | | (13.9) | |
| Income from continuing operations before income taxes | Income from continuing operations before income taxes | 241.6 | | | 147.6 | | | 514.7 | | | 524.5 | | Income from continuing operations before income taxes | 181.7 | | | 241.6 | | | 499.6 | | | 514.7 | |
Provision for income taxes | Provision for income taxes | 50.9 | | | 30.4 | | | 107.9 | | | 119.0 | | Provision for income taxes | 30.2 | | | 50.9 | | | 100.2 | | | 107.9 | |
Net income from continuing operations | Net income from continuing operations | 190.7 | | | 117.2 | | | 406.8 | | | 405.5 | | Net income from continuing operations | 151.5 | | | 190.7 | | | 399.4 | | | 406.8 | |
Income (loss) from discontinued operations, net of tax | (3.5) | | | (2.4) | | | (11.9) | | | 2.0 | | |
Loss from sale / impairment of discontinued operations, net of tax | (0.6) | | | — | | | (142.8) | | | — | | |
Loss from discontinued operations, net of tax | | Loss from discontinued operations, net of tax | — | | | (3.5) | | | — | | | (11.9) | |
Loss from sale of discontinued operations, net of tax | | Loss from sale of discontinued operations, net of tax | — | | | (0.6) | | | — | | | (142.8) | |
Net income | Net income | 186.6 | | | 114.8 | | | 252.1 | | | 407.5 | | Net income | 151.5 | | | 186.6 | | | 399.4 | | | 252.1 | |
Net income attributable to noncontrolling interest | (0.3) | | | (0.2) | | | (0.5) | | | (0.4) | | |
Net (income) loss attributable to noncontrolling interest | | Net (income) loss attributable to noncontrolling interest | 0.2 | | | (0.3) | | | — | | | (0.5) | |
Net income attributable to Polaris Inc. | Net income attributable to Polaris Inc. | $ | 186.3 | | | $ | 114.6 | | | $ | 251.6 | | | $ | 407.1 | | Net income attributable to Polaris Inc. | $ | 151.7 | | | $ | 186.3 | | | $ | 399.4 | | | $ | 251.6 | |
| Amounts attributable to Polaris Inc. common shareholders: | Amounts attributable to Polaris Inc. common shareholders: | | Amounts attributable to Polaris Inc. common shareholders: | |
Net income from continuing operations | Net income from continuing operations | $ | 190.7 | | | $ | 117.2 | | | $ | 406.8 | | | $ | 405.5 | | Net income from continuing operations | $ | 151.5 | | | $ | 190.7 | | | $ | 399.4 | | | $ | 406.8 | |
Less net income attributable to noncontrolling interest | Less net income attributable to noncontrolling interest | (0.3) | | | (0.2) | | | (0.5) | | | (0.4) | | Less net income attributable to noncontrolling interest | 0.2 | | | (0.3) | | | — | | | (0.5) | |
Net income from continuing operations attributable to Polaris Inc. common shareholders | Net income from continuing operations attributable to Polaris Inc. common shareholders | 190.4 | | | 117.0 | | | 406.3 | | | 405.1 | | Net income from continuing operations attributable to Polaris Inc. common shareholders | 151.7 | | | 190.4 | | | 399.4 | | | 406.3 | |
Net income (loss) from discontinued operations attributable to Polaris Inc. common shareholders | (4.1) | | | (2.4) | | | (154.7) | | | 2.0 | | |
Net loss from discontinued operations attributable to Polaris Inc. common shareholders | | Net loss from discontinued operations attributable to Polaris Inc. common shareholders | — | | | (4.1) | | | — | | | (154.7) | |
Net income attributable to Polaris Inc. | Net income attributable to Polaris Inc. | $ | 186.3 | | | $ | 114.6 | | | $ | 251.6 | | | $ | 407.1 | | Net income attributable to Polaris Inc. | $ | 151.7 | | | $ | 186.3 | | | $ | 399.4 | | | $ | 251.6 | |
| Net income (loss) per share attributable to Polaris Inc. common shareholders: | Net income (loss) per share attributable to Polaris Inc. common shareholders: | | Net income (loss) per share attributable to Polaris Inc. common shareholders: | |
Basic | Basic | | Basic | |
Continuing operations | Continuing operations | $ | 3.21 | | | $ | 1.92 | | | $ | 6.80 | | | $ | 6.60 | | Continuing operations | $ | 2.66 | | | $ | 3.21 | | | $ | 6.98 | | | $ | 6.80 | |
Discontinued operations | Discontinued operations | $ | (0.06) | | | $ | (0.04) | | | $ | (2.59) | | | $ | 0.03 | | Discontinued operations | $ | — | | | $ | (0.06) | | | $ | — | | | $ | (2.59) | |
Basic | Basic | $ | 3.15 | | | $ | 1.88 | | | $ | 4.21 | | | $ | 6.63 | | Basic | $ | 2.66 | | | $ | 3.15 | | | $ | 6.98 | | | $ | 4.21 | |
Diluted | Diluted | | | | | | | | Diluted | | | | | | | |
Continuing operations | Continuing operations | $ | 3.17 | | | $ | 1.88 | | | $ | 6.71 | | | $ | 6.44 | | Continuing operations | $ | 2.62 | | | $ | 3.17 | | | $ | 6.90 | | | $ | 6.71 | |
Discontinued operations | Discontinued operations | $ | (0.07) | | | $ | (0.04) | | | $ | (2.56) | | | $ | 0.04 | | Discontinued operations | $ | — | | | $ | (0.07) | | | $ | — | | | $ | (2.56) | |
Diluted | Diluted | $ | 3.10 | | | $ | 1.84 | | | $ | 4.15 | | | $ | 6.48 | | Diluted | $ | 2.62 | | | $ | 3.10 | | | $ | 6.90 | | | $ | 4.15 | |
Weighted average shares outstanding: | Weighted average shares outstanding: | | | | | | | | Weighted average shares outstanding: | | | | | | | |
Basic | Basic | 59.2 | | 61.0 | | 59.8 | | 61.4 | Basic | 57.0 | | 59.2 | | 57.2 | | 59.8 |
Diluted | Diluted | 60.0 | | 62.3 | | 60.6 | | 62.9 | Diluted | 57.8 | | 60.0 | | 57.9 | | 60.6 |
The accompanying footnotes are an integral part of these consolidated statements.
POLARIS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Net income | Net income | $ | 186.6 | | | $ | 114.8 | | | $ | 252.1 | | | $ | 407.5 | | Net income | $ | 151.5 | | | $ | 186.6 | | | $ | 399.4 | | | $ | 252.1 | |
Other comprehensive income, net of tax: | Other comprehensive income, net of tax: | | Other comprehensive income, net of tax: | |
Foreign currency translation adjustments | Foreign currency translation adjustments | (33.5) | | | (12.9) | | | (64.4) | | | (21.4) | | Foreign currency translation adjustments | (16.8) | | | (33.5) | | | 3.5 | | | (64.4) | |
Unrealized gain on derivative instruments | Unrealized gain on derivative instruments | 8.2 | | | 2.5 | | | 22.6 | | | 5.7 | | Unrealized gain on derivative instruments | (0.4) | | | 8.2 | | | 3.5 | | | 22.6 | |
Retirement plan and other activity | Retirement plan and other activity | — | | | — | | | 0.2 | | | 0.2 | | Retirement plan and other activity | — | | | — | | | 0.2 | | | 0.2 | |
Comprehensive income | Comprehensive income | 161.3 | | | 104.4 | | | 210.5 | | | 392.0 | | Comprehensive income | 134.3 | | | 161.3 | | | 406.6 | | | 210.5 | |
Comprehensive income attributable to noncontrolling interest | (0.3) | | | (0.2) | | | (0.5) | | | (0.4) | | |
Comprehensive (income) loss attributable to noncontrolling interest | | Comprehensive (income) loss attributable to noncontrolling interest | 0.2 | | | (0.3) | | | — | | | (0.5) | |
Comprehensive income attributable to Polaris Inc. | Comprehensive income attributable to Polaris Inc. | $ | 161.0 | | | $ | 104.2 | | | $ | 210.0 | | | $ | 391.6 | | Comprehensive income attributable to Polaris Inc. | $ | 134.5 | | | $ | 161.0 | | | $ | 406.6 | | | $ | 210.0 | |
The accompanying footnotes are an integral part of these consolidated statements.
POLARIS INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In millions)
(Unaudited)
| | | Number of Shares | | Common Stock | | Additional Paid- In Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (loss) | | Non Controlling Interest | | Total Equity | | Number of Shares | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non Controlling Interest | | Total Equity |
Balance, June 30, 2022 | 59.5 | | | $ | 0.6 | | | $ | 1,161.4 | | | $ | 3.1 | | | $ | (93.7) | | | $ | 2.2 | | | $ | 1,073.6 | | |
Balance as of June 30, 2023 | | Balance as of June 30, 2023 | 56.6 | | | $ | 0.6 | | | $ | 1,186.9 | | | $ | 122.1 | | | $ | (63.1) | | | $ | 2.7 | | | $ | 1,249.2 | |
Employee stock compensation | Employee stock compensation | — | | | — | | | 15.9 | | | — | | | — | | | — | | | 15.9 | | Employee stock compensation | 0.1 | | | — | | | 15.2 | | | — | | | — | | | — | | | 15.2 | |
Deferred compensation | Deferred compensation | — | | | — | | | (1.1) | | | 0.5 | | | — | | | — | | | (0.6) | | Deferred compensation | — | | | — | | | 2.2 | | | 2.2 | | | — | | | — | | | 4.4 | |
Proceeds from stock issuances under employee plans | Proceeds from stock issuances under employee plans | 0.2 | | | — | | | 12.9 | | | — | | | — | | | — | | | 12.9 | | Proceeds from stock issuances under employee plans | 0.3 | | | — | | | 27.1 | | | — | | | — | | | — | | | 27.1 | |
Cash dividends declared (1) | Cash dividends declared (1) | — | | | — | | | — | | | (37.5) | | | — | | | — | | | (37.5) | | Cash dividends declared (1) | — | | | — | | | — | | | (36.7) | | | — | | | — | | | (36.7) | |
Repurchase and retirement of common shares | Repurchase and retirement of common shares | (1.7) | | | — | | | (33.6) | | | (172.6) | | | — | | | — | | | (206.2) | | Repurchase and retirement of common shares | (0.5) | | * | — | | | (9.7) | | | (48.6) | | | — | | | — | | | (58.3) | |
Net income | — | | | — | | | — | | | 186.3 | | | — | | | 0.3 | | | 186.6 | | |
| Net income (loss) | | Net income (loss) | — | | | — | | | — | | | 151.7 | | | — | | | (0.2) | | | 151.5 | |
Other comprehensive loss | Other comprehensive loss | — | | | — | | | — | | | — | | | (25.3) | | | — | | | (25.3) | | Other comprehensive loss | — | | | — | | | — | | | — | | | (17.2) | | | — | | | (17.2) | |
Balance, September 30, 2022 | 58.0 | | | 0.6 | | | 1,155.5 | | | (20.2) | | | (119.0) | | | 2.5 | | | 1,019.4 | | |
Balance as of September 30, 2023 | | Balance as of September 30, 2023 | 56.5 | | | 0.6 | | | 1,221.7 | | | 190.7 | | | (80.3) | | | 2.5 | | | 1,335.2 | |
| | | Number of Shares | | Common Stock | | Additional Paid- In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (loss) | | Non Controlling Interest | | Total Equity | | Number of Shares | | Common Stock | | Additional Paid-In Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Non Controlling Interest | | Total Equity |
Balance, June 30, 2021 | 60.6 | | | $ | 0.6 | | | $ | 1,110.0 | | | $ | 73.5 | | | $ | (63.5) | | | $ | 1.7 | | | $ | 1,122.3 | | |
Balance as of June 30, 2022 | | Balance as of June 30, 2022 | 59.5 | | | $ | 0.6 | | | $ | 1,161.4 | | | $ | 3.1 | | | $ | (93.7) | | | $ | 2.2 | | | $ | 1,073.6 | |
Employee stock compensation | Employee stock compensation | 0.1 | | | — | | | 20.0 | | | — | | | — | | | — | | | 20.0 | | Employee stock compensation | — | | | — | | | 15.9 | | | — | | | — | | | — | | | 15.9 | |
Deferred compensation | Deferred compensation | — | | | — | | | (1.0) | | | 1.4 | | | — | | | — | | | 0.4 | | Deferred compensation | — | | | — | | | (1.1) | | | 0.5 | | | — | | | — | | | (0.6) | |
Proceeds from stock issuances under employee plans | Proceeds from stock issuances under employee plans | — | | | — | | | 5.6 | | | — | | | — | | | — | | | 5.6 | | Proceeds from stock issuances under employee plans | 0.2 | | | — | | | 12.9 | | | — | | | — | | | — | | | 12.9 | |
Cash dividends declared (1) | Cash dividends declared (1) | — | | | — | | | — | | | (38.2) | | | — | | | — | | | (38.2) | | Cash dividends declared (1) | — | | | — | | | — | | | (37.5) | | | — | | | — | | | (37.5) | |
Repurchase and retirement of common shares | Repurchase and retirement of common shares | — | | | — | | | — | | | (0.8) | | | — | | | — | | | (0.8) | | Repurchase and retirement of common shares | (1.7) | | | — | | | (33.6) | | | (172.6) | | | — | | | — | | | (206.2) | |
Net income | Net income | — | | | — | | | — | | | 114.6 | | | — | | | 0.2 | | | 114.8 | | Net income | — | | | — | | | — | | | 186.3 | | | — | | | 0.3 | | | 186.6 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | (10.4) | | | — | | | (10.4) | | |
Balance, September 30, 2021 | 60.7 | | | 0.6 | | | 1,134.6 | | | 150.5 | | | (73.9) | | | 1.9 | | | 1,213.7 | | |
Other comprehensive loss | | Other comprehensive loss | — | | | — | | | — | | | — | | | (25.3) | | | — | | | (25.3) | |
Balance as of September 30, 2022 | | Balance as of September 30, 2022 | 58.0 | | | 0.6 | | | 1,155.5 | | | (20.2) | | | (119.0) | | | 2.5 | | | 1,019.4 | |
(1) Polaris Inc. declared a $0.64 dividend of $0.65 per share for the three month period ended September 30, 20222023 and a $0.63 dividend of $0.64 per share for the three month period ended September 30, 2021.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Common Stock | | Additional Paid- In Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (loss) | | Non Controlling Interest | | Total Equity |
Balance, December 31, 2021 | 60.4 | | | $ | 0.6 | | | $ | 1,143.8 | | | $ | 157.3 | | | $ | (77.4) | | | $ | 2.0 | | | $ | 1,226.3 | |
Employee stock compensation | 0.4 | | | — | | | 44.7 | | | — | | | — | | | — | | | 44.7 | |
Deferred compensation | — | | | — | | | (2.6) | | | 1.8 | | | — | | | — | | | (0.8) | |
Proceeds from stock issuances under employee plans | 0.4 | | | — | | | 30.7 | | | — | | | — | | | — | | | 30.7 | |
Cash dividends declared (2) | — | | | — | | | — | | | (113.5) | | | — | | | — | | | (113.5) | |
Repurchase and retirement of common shares | (3.2) | | | — | | | (61.1) | | | (317.4) | | | — | | | — | | | (378.5) | |
Net income | — | | | — | | | — | | | 251.6 | | | — | | | 0.5 | | | 252.1 | |
| | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (41.6) | | | — | | | (41.6) | |
Balance, September 30, 2022 | 58.0 | | | 0.6 | | | 1,155.5 | | | (20.2) | | | (119.0) | | | 2.5 | | | 1,019.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non Controlling Interest | | Total Equity |
Balance as of December 31, 2022 | 57.0 | | | $ | 0.6 | | | $ | 1,152.1 | | | $ | 33.8 | | | $ | (87.5) | | | $ | 2.5 | | | $ | 1,101.5 | |
Employee stock compensation | 0.4 | | | — | | | 44.8 | | | — | | | — | | | — | | | 44.8 | |
Deferred compensation | — | | | — | | | 1.7 | | | (0.3) | | | — | | | — | | | 1.4 | |
Proceeds from stock issuances under employee plans | 0.5 | | | — | | | 50.9 | | | — | | | — | | | — | | | 50.9 | |
Cash dividends declared (2) | — | | | — | | | — | | | (110.6) | | | — | | | — | | | (110.6) | |
Repurchase and retirement of common shares | (1.4) | | | — | | | (27.8) | | | (131.6) | | | — | | | — | | | (159.4) | |
Net income | — | | | — | | | — | | | 399.4 | | | — | | | — | | | 399.4 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 7.2 | | | — | | | 7.2 | |
Balance as of September 30, 2023 | 56.5 | | | 0.6 | | | 1,221.7 | | | 190.7 | | | (80.3) | | | 2.5 | | | 1,335.2 | |
| | | Number of Shares | | Common Stock | | Additional Paid- In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (loss) | | Non Controlling Interest | | Total Equity | | Number of Shares | | Common Stock | | Additional Paid-In Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Non Controlling Interest | | Total Equity |
Balance, December 31, 2020 | 61.9 | | | $ | 0.6 | | | $ | 983.9 | | | $ | 218.4 | | | $ | (58.4) | | | $ | 0.3 | | | $ | 1,144.8 | | |
Balance as of December 31, 2021 | | Balance as of December 31, 2021 | 60.4 | | | $ | 0.6 | | | $ | 1,143.8 | | | $ | 157.3 | | | $ | (77.4) | | | $ | 2.0 | | | $ | 1,226.3 | |
Employee stock compensation | Employee stock compensation | 0.4 | | | — | | | 49.7 | | | — | | | — | | | — | | | 49.7 | | Employee stock compensation | 0.4 | | | — | | | 44.7 | | | — | | | — | | | — | | | 44.7 | |
Deferred compensation | Deferred compensation | — | | | — | | | 1.9 | | | (1.1) | | | — | | | — | | | 0.8 | | Deferred compensation | — | | | — | | | (2.6) | | | 1.8 | | | — | | | — | | | (0.8) | |
Proceeds from stock issuances under employee plans | Proceeds from stock issuances under employee plans | 1.7 | | | — | | | 151.7 | | | — | | | — | | | — | | | 151.7 | | Proceeds from stock issuances under employee plans | 0.4 | | | — | | | 30.7 | | | — | | | — | | | — | | | 30.7 | |
Cash dividends declared (2) | Cash dividends declared (2) | — | | | — | | | — | | | (115.2) | | | — | | | — | | | (115.2) | | Cash dividends declared (2) | — | | | — | | | — | | | (113.5) | | | — | | | — | | | (113.5) | |
Repurchase and retirement of common shares | Repurchase and retirement of common shares | (3.3) | | | — | | | (52.6) | | | (358.7) | | | — | | | — | | | (411.3) | | Repurchase and retirement of common shares | (3.2) | | | — | | | (61.1) | | | (317.4) | | | — | | | — | | | (378.5) | |
Net income | Net income | — | | | — | | | — | | | 407.1 | | | — | | | 0.4 | | | 407.5 | | Net income | — | | | — | | | — | | | 251.6 | | | — | | | 0.5 | | | 252.1 | |
Contributions | — | | | — | | | — | | | — | | | — | | | 1.2 | | | 1.2 | | |
Other comprehensive loss | Other comprehensive loss | — | | | — | | | — | | | — | | | (15.5) | | | — | | | (15.5) | | Other comprehensive loss | — | | | — | | | — | | | — | | | (41.6) | | | — | | | (41.6) | |
Balance, September 30, 2021 | 60.7 | | | 0.6 | | | 1,134.6 | | | 150.5 | | | (73.9) | | | 1.9 | | | 1,213.7 | | |
Balance as of September 30, 2022 | | Balance as of September 30, 2022 | 58.0 | | | 0.6 | | | 1,155.5 | | | (20.2) | | | (119.0) | | | 2.5 | | | 1,019.4 | |
(2) Polaris Inc. declared a $1.92 dividendaggregate dividends of $1.95 per share for the nine month period ended September 30, 20222023 and a $1.89 dividendaggregate dividends of $1.92 per share for the nine month period ended September 30, 2021.2022.
The accompanying footnotes are an integral part of these consolidated statements.
POLARIS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
| | | Nine months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Operating Activities: | Operating Activities: | | | | Operating Activities: | | | |
Net income | Net income | $ | 252.1 | | | $ | 407.5 | | Net income | $ | 399.4 | | | $ | 252.1 | |
(Income) loss from discontinued operations, net of tax | 11.9 | | | (2.0) | | |
Loss from sale / impairment of discontinued operations, net of tax | 142.8 | | | — | | |
Loss from discontinued operations, net of tax | | Loss from discontinued operations, net of tax | — | | | 11.9 | |
Loss from sale of discontinued operations, net of tax | | Loss from sale of discontinued operations, net of tax | — | | | 142.8 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 169.9 | | | 162.2 | | Depreciation and amortization | 186.9 | | | 169.9 | |
Noncash compensation | Noncash compensation | 47.5 | | | 45.2 | | Noncash compensation | 44.8 | | | 47.5 | |
Noncash income from financial services | Noncash income from financial services | (8.5) | | | (5.7) | | Noncash income from financial services | (29.1) | | | (8.5) | |
Deferred income taxes | Deferred income taxes | 11.9 | | | 17.1 | | Deferred income taxes | (36.5) | | | 11.9 | |
Other, net | Other, net | (0.6) | | | — | | Other, net | (6.2) | | | (0.6) | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Trade receivables | Trade receivables | (120.7) | | | 8.7 | | Trade receivables | (131.5) | | | (120.7) | |
Inventories | Inventories | (442.5) | | | (597.0) | | Inventories | (151.9) | | | (442.5) | |
Accounts payable | Accounts payable | 82.9 | | | 154.4 | | Accounts payable | 31.4 | | | 82.9 | |
Accrued expenses | Accrued expenses | 12.4 | | | (104.4) | | Accrued expenses | 71.8 | | | 12.4 | |
Income taxes payable/receivable | Income taxes payable/receivable | (49.7) | | | 17.8 | | Income taxes payable/receivable | (18.9) | | | (49.7) | |
Prepaid expenses and others, net | Prepaid expenses and others, net | 30.0 | | | 31.6 | | Prepaid expenses and others, net | 15.8 | | | 30.0 | |
Net cash provided by operating activities of continuing operations | Net cash provided by operating activities of continuing operations | 139.4 | | | 135.4 | | Net cash provided by operating activities of continuing operations | 376.0 | | | 139.4 | |
Net cash provided by (used for) operating activities of discontinued operations | (25.8) | | | 18.0 | | |
Net cash used for operating activities of discontinued operations | | Net cash used for operating activities of discontinued operations | — | | | (25.8) | |
Net cash provided by operating activities | Net cash provided by operating activities | 113.6 | | | 153.4 | | Net cash provided by operating activities | 376.0 | | | 113.6 | |
Investing Activities: | Investing Activities: | | Investing Activities: | |
Purchase of property and equipment | Purchase of property and equipment | (193.6) | | | (189.2) | | Purchase of property and equipment | (311.7) | | | (193.6) | |
Investment in finance affiliate, net | Investment in finance affiliate, net | (0.8) | | | 33.7 | | Investment in finance affiliate, net | 12.5 | | | (0.8) | |
Distributions from other affiliates | 0.7 | | | — | | |
Proceeds from sale of businesses, net | 40.8 | | | — | | |
Investments in and distributions from other affiliates | | Investments in and distributions from other affiliates | (21.6) | | | 0.7 | |
Acquisitions and disposals of businesses, net of cash acquired | | Acquisitions and disposals of businesses, net of cash acquired | (25.1) | | | 40.8 | |
Net cash used for investing activities of continuing operations | Net cash used for investing activities of continuing operations | (152.9) | | | (155.5) | | Net cash used for investing activities of continuing operations | (345.9) | | | (152.9) | |
Net cash used for investing activities of discontinued operations | Net cash used for investing activities of discontinued operations | (5.3) | | | (10.1) | | Net cash used for investing activities of discontinued operations | — | | | (5.3) | |
Net cash used for investing activities | Net cash used for investing activities | (158.2) | | | (165.6) | | Net cash used for investing activities | (345.9) | | | (158.2) | |
Financing Activities: | Financing Activities: | | Financing Activities: | |
Borrowings under debt arrangements | 1,364.0 | | | 1,250.1 | | |
Repayments under debt arrangements | (1,028.0) | | | (1,176.4) | | |
Borrowings under financing obligations | | Borrowings under financing obligations | 1,910.5 | | | 1,364.0 | |
Repayments under financing obligations | | Repayments under financing obligations | (1,752.8) | | | (1,028.0) | |
Repurchase and retirement of common shares | Repurchase and retirement of common shares | (378.5) | | | (411.3) | | Repurchase and retirement of common shares | (159.4) | | | (378.5) | |
Cash dividends to shareholders | Cash dividends to shareholders | (113.5) | | | (115.2) | | Cash dividends to shareholders | (110.6) | | | (113.5) | |
Proceeds from stock issuances under employee plans | Proceeds from stock issuances under employee plans | 30.7 | | | 151.7 | | Proceeds from stock issuances under employee plans | 50.9 | | | 30.7 | |
| Net cash used for financing activities | Net cash used for financing activities | (125.3) | | | (301.1) | | Net cash used for financing activities | (61.4) | | | (125.3) | |
Impact of currency exchange rates on cash balances | Impact of currency exchange rates on cash balances | (24.5) | | | (6.9) | | Impact of currency exchange rates on cash balances | 2.1 | | | (24.5) | |
Net decrease in cash, cash equivalents and restricted cash | Net decrease in cash, cash equivalents and restricted cash | (194.4) | | | (320.2) | | Net decrease in cash, cash equivalents and restricted cash | (29.2) | | | (194.4) | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | 529.1 | | | 657.5 | | Cash, cash equivalents and restricted cash at beginning of period | 339.7 | | | 529.1 | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | $ | 334.7 | | | $ | 337.3 | | Cash, cash equivalents and restricted cash at end of period | $ | 310.5 | | | $ | 334.7 | |
| Supplemental Cash Flow Information: | Supplemental Cash Flow Information: | | | | Supplemental Cash Flow Information: | | | |
Interest paid on debt borrowings | Interest paid on debt borrowings | $ | 51.0 | | | $ | 38.0 | | Interest paid on debt borrowings | $ | 96.6 | | | $ | 51.0 | |
Income taxes paid | Income taxes paid | $ | 152.9 | | | $ | 86.3 | | Income taxes paid | $ | 156.9 | | | $ | 152.9 | |
Leased assets obtained for operating lease liabilities | Leased assets obtained for operating lease liabilities | $ | 44.5 | | | $ | 69.9 | | Leased assets obtained for operating lease liabilities | $ | 38.6 | | | $ | 44.5 | |
| The following presents the classification of cash, cash equivalents and restricted cash within the consolidated balance sheets: | The following presents the classification of cash, cash equivalents and restricted cash within the consolidated balance sheets: | | The following presents the classification of cash, cash equivalents and restricted cash within the consolidated balance sheets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 318.9 | | | $ | 309.7 | | Cash and cash equivalents | $ | 295.3 | | | $ | 318.9 | |
Current assets held for sale | — | | | 6.8 | | |
Other long-term assets | Other long-term assets | 15.8 | | | 20.8 | | Other long-term assets | 15.2 | | | 15.8 | |
Total | Total | $ | 334.7 | | | $ | 337.3 | | Total | $ | 310.5 | | | $ | 334.7 | |
The accompanying footnotes are an integral part of these consolidated statements.
POLARIS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation and Significant Accounting Policies
Basis of presentation. The accompanying unaudited consolidated financial statements of Polaris Inc. (“Polaris” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States 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, 20212022 previously filed with the Securities and Exchange Commission (“SEC”). 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, equity, and cash flows for the periods presented. Due to the seasonality trends for certain products 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.
Reclassifications. Reclassifications of certain prior year segment results and account balances have been made to conform to the current-year presentation. The reclassifications had no impact on the consolidated balance sheets, statements of income, comprehensive income, equity, or cash flows, as previously reported. See further information in Note 12.
On July 1, 2022, the Company completed the sale of its Transamerican Auto Parts (“TAP”) business. The operating results of the TAP business are reported in Income (loss)loss from discontinued operations, net of tax, in the Consolidatedconsolidated statements of income for all periods presented. In addition, the related assets and liabilities are reported as assets and liabilities held for sale in the consolidated balance sheets.income. All amounts and disclosures included in the Notes to consolidated financial statements reflect only the Company's continuing operations unless otherwise noted. See further information inRefer to Note 4.4 for additional information.
Fair value measurements. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
In making fair value measurements, observable market data must be used when available. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. The Company utilizes the market approach to measure fair value for its non-qualified deferred compensation assets and liabilities, and the income approach for foreign currency contracts, and interest rate contracts, and commodity contracts. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities, and for the income approach, the Company uses significant other observable inputs to value its derivative instruments used to hedge foreign currency, and interest rate transactions, and commodity transactions.
Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Input Level | | September 30, 2022 | | December 31, 2021 |
Assets | | | | | | |
Non-qualified deferred compensation assets | | Level 1 | | $ | 38.3 | | | $ | 52.4 | |
Foreign exchange contracts, net | | Level 2 | | $ | 17.9 | | | $ | 2.1 | |
Interest rate contracts, net | | Level 2 | | 7.0 | | | $ | — | |
Liabilities | | | | | | |
Non-qualified deferred compensation liabilities | | Level 1 | | $ | (38.3) | | | $ | (52.4) | |
| | | | | | |
Interest rate contracts, net | | Level 2 | | $ | — | | | $ | (7.8) | |
| | | | | | | | | | | | | | | | | | | | |
| | Input Level | | September 30, 2023 | | December 31, 2022 |
Assets | | | | | | |
Non-qualified deferred compensation assets | | Level 1 | | $ | 43.6 | | | $ | 39.8 | |
Foreign exchange contracts, net | | Level 2 | | $ | 9.3 | | | $ | 8.4 | |
Interest rate contracts, net | | Level 2 | | $ | 7.9 | | | $ | 5.9 | |
Commodity contracts, net | | Level 2 | | $ | 0.8 | | | $ | — | |
Liabilities | | | | | | |
Non-qualified deferred compensation liabilities | | Level 1 | | $ | (43.6) | | | $ | (39.8) | |
| | | | | | |
| | | | | | |
Fair value of other financial instruments. The carrying values of the Company’s short-term financial instruments, including cash and cash equivalents, trade receivables, accounts payable and short-term debt, including current maturities of long-term debt, finance leasefinancing obligations, and notes payable, approximate their fair values.values due to their short-term nature. As of September 30, 20222023 and December 31, 2021,2022, the fair value of the Company’s current and long-term debt, finance leasefinancing obligations and notes payable was approximately $2,141.6$2,207.3 million and $1,870.0$2,070.3 million, respectively, and was
determined primarily using Level 2 inputs, including quoted market prices or discounted cash flows based on quoted market rates for similar types of debt. The carrying value of current and long-term debt, finance leasefinancing obligations and notes payable including current maturities was $2,134.4$2,209.5 million and $1,800.7$2,057.8 million as of September 30, 20222023 and December 31, 2021,2022, respectively.
Property and equipment. Depreciation expense was $51.7$62.0 million and $48.8$51.7 million for the three months ended September 30, 20222023 and 2021,2022, respectively, and $155.6$173.6 million and $141.2$155.6 million for the nine months ended September 30, 20222023 and 2021,2022, respectively. Substantially all of the Company’s property and equipment is located in North America.
Product warranties. The activity in the warranty reserve during the periods presented was as follows (in millions):
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Balance at beginning of period | Balance at beginning of period | $ | 128.7 | | | $ | 140.0 | | | $ | 132.9 | | | $ | 138.6 | | Balance at beginning of period | $ | 154.6 | | | $ | 128.7 | | | $ | 172.9 | | | $ | 132.9 | |
| Additions charged to expense | Additions charged to expense | 60.5 | | | 26.9 | | | 121.2 | | | 97.3 | | Additions charged to expense | 49.3 | | | 60.5 | | | 141.7 | | | 121.2 | |
Warranty claims paid, net | Warranty claims paid, net | (32.1) | | | (32.0) | | | (97.0) | | | (101.0) | | Warranty claims paid, net | (40.9) | | | (32.1) | | | (151.6) | | | (97.0) | |
Balance at end of period | Balance at end of period | $ | 157.1 | | | $ | 134.9 | | | $ | 157.1 | | | $ | 134.9 | | Balance at end of period | $ | 163.0 | | | $ | 157.1 | | | $ | 163.0 | | | $ | 157.1 | |
New accounting pronouncements.
Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The FASB also issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, in January 2021, which adds implementation guidance to clarify which optional expedients in Topic 848 may be applied to derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified as a result of the transition. The Company adopted ASU 2020-04 and ASU 2021-01 on January 1, 2022. The adoption of the ASUs did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows.
There are no other new accounting pronouncements that are expected to have a significant impact on the Company’s consolidated financial statements.
Note 2. Supplemental Balance Sheet Information
| In millions | In millions | | September 30, 2022 | | December 31, 2021 | In millions | | September 30, 2023 | | December 31, 2022 |
Inventories | Inventories | | | | | Inventories | | | | |
Raw materials and purchased components | Raw materials and purchased components | | $ | 884.5 | | | $ | 720.2 | | Raw materials and purchased components | | $ | 926.7 | | | $ | 843.5 | |
Service parts, garments and accessories | Service parts, garments and accessories | | 369.2 | | | 276.4 | | Service parts, garments and accessories | | 365.5 | | | 371.1 | |
Finished goods | Finished goods | | 758.1 | | | 588.2 | | Finished goods | | 853.3 | | | 768.2 | |
Less: reserves | Less: reserves | | (82.4) | | | (74.1) | | Less: reserves | | (93.8) | | | (86.7) | |
Inventories, net | Inventories, net | | $ | 1,929.4 | | | $ | 1,510.7 | | Inventories, net | | $ | 2,051.7 | | | $ | 1,896.1 | |
Property and equipment | Property and equipment | | | | | Property and equipment | | | | |
Land, buildings and improvements | Land, buildings and improvements | | $ | 508.9 | | | $ | 501.1 | | Land, buildings and improvements | | $ | 622.7 | | | $ | 539.1 | |
Equipment and tooling | Equipment and tooling | | 1,715.0 | | | 1,598.3 | | Equipment and tooling | | 1,857.5 | | | 1,645.0 | |
| | 2,223.9 | | | 2,099.4 | | | 2,480.2 | | | 2,184.1 | |
Less: accumulated depreciation | Less: accumulated depreciation | | (1,266.0) | | | (1,171.7) | | Less: accumulated depreciation | | (1,318.7) | | | (1,165.7) | |
Property and equipment, net | Property and equipment, net | | $ | 957.9 | | | $ | 927.7 | | Property and equipment, net | | $ | 1,161.5 | | | $ | 1,018.4 | |
Accrued expenses | Accrued expenses | | | | | Accrued expenses | | | | |
Compensation | Compensation | | $ | 188.4 | | | $ | 205.9 | | Compensation | | $ | 208.5 | | | $ | 212.3 | |
Warranties | Warranties | | 157.1 | | | 132.9 | | Warranties | | 163.0 | | | 172.9 | |
Sales promotions and incentives | Sales promotions and incentives | | 98.6 | | | 96.9 | | Sales promotions and incentives | | 192.7 | | | 127.0 | |
Dealer holdback | Dealer holdback | | 115.5 | | | 98.9 | | Dealer holdback | | 166.4 | | | 129.7 | |
Other accrued expenses | Other accrued expenses | | 213.3 | | | 221.9 | | Other accrued expenses | | 237.0 | | | 254.9 | |
Accrued expenses | | $ | 772.9 | | | $ | 756.5 | | |
Total accrued expenses | | Total accrued expenses | | $ | 967.6 | | | $ | 896.8 | |
Other current liabilities | | Other current liabilities | | | | |
Current operating lease liabilities | | Current operating lease liabilities | | 27.9 | | | 24.1 | |
Income taxes payable | | Income taxes payable | | 6.5 | | | 6.5 | |
Total other current liabilities | | Total other current liabilities | | $ | 34.4 | | | $ | 30.6 | |
Other long-term liabilities | | Other long-term liabilities | | | | |
Long-term operating lease liabilities | | Long-term operating lease liabilities | | $ | 104.3 | | | $ | 87.0 | |
Long-term income taxes payable | | Long-term income taxes payable | | 13.5 | | | 11.7 | |
Deferred tax liabilities | | Deferred tax liabilities | | 4.5 | | | 4.6 | |
Other long-term liabilities | | Other long-term liabilities | | 170.4 | | | 167.7 | |
Total other long-term liabilities | | Total other long-term liabilities | | $ | 292.7 | | | $ | 271.0 | |
Note 3. Revenue Recognition
The Company recognizes revenue when it satisfies a performance obligation by transferring control of a good or service to a customer (primarily dealers and distributors).customer. Revenue is measured based on the amount of consideration that the Company expects to be entitled to in exchange for the goods or services transferred. Sales, value add, and other taxes that are collected from a customer concurrent with revenue-producing activities are excluded from revenue. Revenue from goods and services transferred to customers at a point-in-time accounts for the majority of the Company’s revenue. Revenue from products or services transferred over time is discussed in the contract liabilities section.
The following tables disaggregate the Company's revenue by major product type and geography (in millions):
| | | Three months ended September 30, 2022 | | Three months ended September 30, 2023 |
| | Off-Road | | On-Road | | Marine | | Corporate | | Total | | Off Road | | On Road | | Marine | | Total |
Revenue by product type | Revenue by product type | | | | | | | | | | Revenue by product type | | | | | | | |
Wholegoods | Wholegoods | $ | 1,345.7 |
| $ | 282.1 | | $ | 260.2 |
| $ | — | | $ | 1,888.0 | Wholegoods | $ | 1,385.4 |
| $ | 221.6 | | $ | 134.2 |
| $ | 1,741.2 |
PG&A | PG&A | 400.7 |
| 51.9 | | — | | — | | 452.6 | PG&A | 459.0 |
| 48.7 | | — | | 507.7 |
Total revenue | Total revenue | $ | 1,746.4 |
| $ | 334.0 | | $ | 260.2 |
| $ | — | | $ | 2,340.6 | Total revenue | $ | 1,844.4 |
| $ | 270.3 | | $ | 134.2 |
| $ | 2,248.9 |
| |
| | | | | | | | | |
| | | | | | |
Revenue by geography | Revenue by geography |
| | Revenue by geography |
| |
United States | United States | $ | 1,472.2 | | $ | 191.7 | | $ | 251.2 | | $ | — | | $ | 1,915.1 | United States | $ | 1,566.1 | | $ | 147.3 | | $ | 132.1 | | $ | 1,845.5 |
Canada | Canada | 127.2 | | 17.4 | | 9.0 | | — | | 153.6 | Canada | 128.9 | | 9.2 | | 1.9 | | 140.0 |
EMEA | EMEA | 86.5 | | 101.9 | | — | | — | | 188.4 | EMEA | 81.6 | | 96.5 | | 0.1 | | 178.2 |
APLA | APLA | 60.5 | | 23.0 | | — | | — | | 83.5 | APLA | 67.8 | | 17.3 | | 0.1 | | 85.2 |
Total revenue | Total revenue | $ | 1,746.4 | | $ | 334.0 | | $ | 260.2 | | $ | — | | $ | 2,340.6 | Total revenue | $ | 1,844.4 | | $ | 270.3 | | $ | 134.2 | | $ | 2,248.9 |
| | | Three months ended September 30, 2021 | | Three months ended September 30, 2022 |
| | Off-Road | | On-Road | | Marine | | Corporate | | Total | | Off Road | | On Road | | Marine | | Total |
Revenue by product type | Revenue by product type | | | | | | | | | | Revenue by product type | | | | | | | |
Wholegoods | Wholegoods | $ | 977.1 | | $ | 213.4 | | $ | 183.6 | | $ | 17.0 | | $ | 1,391.1 | Wholegoods | $ | 1,345.7 | | $ | 282.1 | | $ | 260.2 | | $ | 1,888.0 |
PG&A | PG&A | 339.1 | | 44.4 | | — | | 3.1 | | 386.6 | PG&A | 400.7 | | 51.9 | | — | | 452.6 |
Total revenue | Total revenue | $ | 1,316.2 | | $ | 257.8 | | $ | 183.6 | | $ | 20.1 | | $ | 1,777.7 | Total revenue | $ | 1,746.4 | | $ | 334.0 | | $ | 260.2 | | $ | 2,340.6 |
| Revenue by geography | Revenue by geography | | Revenue by geography | |
United States | United States | $ | 1,057.3 | | $ | 141.0 | | $ | 177.6 | | $ | 18.8 | | $ | 1,394.7 | United States | $ | 1,472.2 | | $ | 191.7 | | $ | 251.2 | | $ | 1,915.1 |
Canada | Canada | 120.8 | | 10.1 | | 6.0 | | — | | 136.9 | Canada | 127.2 | | 17.4 | | 9.0 | | 153.6 |
EMEA | EMEA | 84.7 | | 84.2 | | — | | — | | 168.9 | EMEA | 86.5 | | 101.9 | | — | | 188.4 |
APLA | APLA | 53.4 | | 22.5 | | — | | 1.3 | | 77.2 | APLA | 60.5 | | 23.0 | | — | | 83.5 |
Total revenue | Total revenue | $ | 1,316.2 | | $ | 257.8 | | $ | 183.6 | | $ | 20.1 | | $ | 1,777.7 | Total revenue | $ | 1,746.4 | | $ | 334.0 | | $ | 260.2 | | $ | 2,340.6 |
| | | Nine months ended September 30, 2022 | | Nine months ended September 30, 2023 |
| | Off-Road | | On-Road | | Marine | | Corporate | | Total | | Off Road | | On Road | | Marine | | Total |
Revenue by product type | Revenue by product type | | | | | | | | | | Revenue by product type | | | | | | | |
Wholegoods | Wholegoods | $ | 3,527.6 |
| $ | 693.0 | | $ | 744.7 |
| $ | — | | $ | 4,965.3 | Wholegoods | $ | 3,905.8 |
| $ | 789.7 | | $ | 622.2 |
| $ | 5,317.7 |
PG&A | PG&A | 1,051.3 |
| 168.3 | | — | | — | | 1,219.6 | PG&A | 1,161.8 |
| 165.7 | | — | | 1,327.5 |
Total revenue | Total revenue | $ | 4,578.9 |
| $ | 861.3 | | $ | 744.7 |
| $ | — | | $ | 6,184.9 | Total revenue | $ | 5,067.6 |
| $ | 955.4 | | $ | 622.2 |
| $ | 6,645.2 |
| |
| | | | | | | | | |
| | | | | | |
Revenue by geography | Revenue by geography |
| | Revenue by geography |
| |
United States | United States | $ | 3,689.0 | | $ | 449.2 | | $ | 723.1 | | $ | — | | $ | 4,861.3 | United States | $ | 4,189.1 | | $ | 491.8 | | $ | 605.0 | | $ | 5,285.9 |
Canada | Canada | 388.8 | | 36.6 | | 21.5 | | — | | 446.9 | Canada | 372.3 | | 37.5 | | 15.3 | | 425.1 |
EMEA | EMEA | 317.3 | | 313.8 | | 0.1 | | — | | 631.2 | EMEA | 287.8 | | 368.4 | | 0.7 | | 656.9 |
APLA | APLA | 183.8 | | 61.7 | | — | | — | | 245.5 | APLA | 218.4 | | 57.7 | | 1.2 | | 277.3 |
Total revenue | Total revenue | $ | 4,578.9 | | $ | 861.3 | | $ | 744.7 | | $ | — | | $ | 6,184.9 | Total revenue | $ | 5,067.6 | | $ | 955.4 | | $ | 622.2 | | $ | 6,645.2 |
| | | Nine months ended September 30, 2021 | | Nine months ended September 30, 2022 |
| | Off-Road | | On-Road | | Marine | | Corporate | | Total | | Off Road | | On Road | | Marine | | Total |
Revenue by product type | Revenue by product type | | | | | | | | | | Revenue by product type | | | | | | | |
Wholegoods | Wholegoods | $ | 3,048.0 | | $ | 653.0 | | $ | 579.9 | | $ | 43.2 | | $ | 4,324.1 | Wholegoods | $ | 3,527.6 | | $ | 693.0 | | $ | 744.7 | | $ | 4,965.3 |
PG&A | PG&A | 967.5 | | 145.4 | | — | | 9.6 | | 1,122.5 | PG&A | 1,051.3 | | 168.3 | | — | | 1,219.6 |
Total revenue | Total revenue | $ | 4,015.5 | | $ | 798.4 | | $ | 579.9 | | $ | 52.8 | | $ | 5,446.6 | Total revenue | $ | 4,578.9 | | $ | 861.3 | | $ | 744.7 | | $ | 6,184.9 |
| Revenue by geography | Revenue by geography | | Revenue by geography | |
United States | United States | $ | 3,186.6 | | $ | 397.5 | | $ | 562.2 | | $ | 49.7 | | $ | 4,196.0 | United States | $ | 3,689.0 | | $ | 449.2 | | $ | 723.1 | | $ | 4,861.3 |
Canada | Canada | 359.3 | | 28.4 | | 17.5 | | 0.2 | | 405.4 | Canada | 388.8 | | 36.6 | | 21.5 | | 446.9 |
EMEA | EMEA | 294.4 | | 304.3 | | 0.2 | | 0.4 | | 599.3 | EMEA | 317.3 | | 313.8 | | 0.1 | | 631.2 |
APLA | APLA | 175.2 | | 68.2 | | — | | 2.5 | | 245.9 | APLA | 183.8 | | 61.7 | | — | | 245.5 |
Total revenue | Total revenue | $ | 4,015.5 | | $ | 798.4 | | $ | 579.9 | | $ | 52.8 | | $ | 5,446.6 | Total revenue | $ | 4,578.9 | | $ | 861.3 | | $ | 744.7 | | $ | 6,184.9 |
For the majority of wholegood vehicles, boats, and Parts, Garments, and Accessories (“PG&A”), the Company transfers control and recognizes a sale when it ships the product from its manufacturing facility, distribution center, or vehicle holding center to its customer. The amount of consideration the Company receives and revenue it recognizes varies with changes in marketing incentives and rebates it offers to its dealers and their customers. Payment terms vary by customer and most of the Company’s sales are financed by the customer under floorplan financing arrangements whereby the Company receives payment within a few days of shipment of the product.
When the right of return exists, the Company adjusts the consideration for the estimated effect of returns. The Company estimates expected returns based on historical sales levels, the timing and magnitude of historical sales return levels as a percent of sales, type of product, type of customer, and a projection of this experience into the future. The Company adjusts its estimate of revenue at the earlier of when the most likely amount of consideration it expects to receive changes or when the consideration becomes fixed.
Depending on the terms of the arrangement, the Company may also defer the recognition of a portion of the consideration received because it has to satisfy a future obligation. The Company uses an observable price to determine the stand-alone selling price for separate performance obligations. The Company has elected to recognize the cost for freight and shipping when control over vehicles, boats, parts, garments or accessories has transferred to the customer as an expense in cost of sales.
Financial Products. The Company sells separately-priced extended service contracts (“ESCs”) that extend mechanical coverages beyond the base limited warranty as well as prepaid maintenance agreements to vehicle owners. Each of these separately priced service contracts range from 12 months to 84 months. The Company typically receives payment at the
inception of the contract and recognizes revenue over the term of the agreement in proportion to the costs expected to be incurred in satisfying the obligations under the contract.
Contract Liabilities
Contract liabilities relate to deferred revenue recognized for cash consideration received at contract inception in advance of the Company's performance under the respective contract and generally relate to the sale of separately priced ESCs. The Company finances its self-insured risks related to ESCs. The premiums for ESCs are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. Warranty costs are recognized as incurred.
The Company expects to recognize approximately $35.8 million of the unearned amount over the next 12 months and $76.2 million thereafter. The activity in the deferred revenue reserve during the periods presented was as follows (in millions):
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Balance at beginning of period | Balance at beginning of period | $ | 113.6 | | | $ | 105.5 | | | $ | 108.3 | | | $ | 89.1 | | Balance at beginning of period | $ | 108.7 | | | $ | 113.6 | | | $ | 111.1 | | | $ | 108.3 | |
New contracts sold | New contracts sold | 10.7 | | | 10.7 | | | 38.5 | | | 43.3 | | New contracts sold | 9.9 | | | 10.7 | | | 35.2 | | | 38.5 | |
Less: reductions for revenue recognized | (12.3) | | | (8.8) | | | (34.8) | | | (25.0) | | |
Revenue recognized on existing contracts | | Revenue recognized on existing contracts | (11.4) | | | (12.3) | | | (39.1) | | | (34.8) | |
Balance at end of period (1) | Balance at end of period (1) | $ | 112.0 | | | $ | 107.4 | | | $ | 112.0 | | | $ | 107.4 | | Balance at end of period (1) | $ | 107.2 | | | $ | 112.0 | | | $ | 107.2 | | | $ | 112.0 | |
(1) The unamortized ESC premiumsCompany expects to recognize approximately $34.3 million of the unearned amount over the next 12 months, which is recorded in other current liabilities totaledas of September 30, 2023, compared to $35.8 million and $34.4 million as of September 30, 2022 and 2021, respectively, while the2022. The amount recorded in other long-term liabilities totaled $76.2$72.9 million and $73.0$76.2 million as of September 30, 20222023 and 2021,2022, respectively.
Note 4. Divestitures and Discontinued Operations
2021 Divestitures.
In an effort to more strategically allocate the Company’s resources, the Company sold its Global Electric Motorcar (“GEM”) and Taylor-Dunn businesses on December 31, 2021. The sale resulted in a loss of $36.8 million which was recorded in the fourth quarter of 2021. The 2021 financial results of these businesses are reflected in the Corporate segment.
2022 Divestitures.
On July 1, 2022, the Company completed the sale of its Transamerican Auto Parts (“TAP”)TAP business, an aftermarket parts business, for a sales price, net of $50.0 million, subject to customary post-closing purchase price adjustments. TAP is a vertically integrated manufacturer, distributor, retailer, and installeradjustments, of off-road Jeep and truck parts and accessories. The transaction included TAP’s full portfolio of operations, including all brands, product lines, manufacturing operations, distribution facilities, more than 100 4 Wheel Parts retail locations, and more than 1,700 TAP employees.
$42.2 million. The results of TAP have been presented as discontinued operations and the related assets and liabilities have been classified as held for sale for all periods presented. As a result, for the year-to-date period an impairment and loss on sale of $187.8 million was recorded which resulted in a $45.0 million income tax benefit.
operations. TAP was historically included withinwithin the Company’s Aftermarket segment; however, as a result of the divestiture, the Company began management of its portfolio of businesses under a new basis as of June 30, 2022. The Aftermarket segment was eliminated and the results of the Company’s remaining aftermarket businesses historically included within the Aftermarket segment were reclassified to the Off-RoadOff Road and On-RoadOn Road segments. The comparative 20212022 segment results were reclassified for comparability.
Results of discontinued operations were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Sales | $ | — | | | $ | 181.8 | | | $ | 349.3 | | | $ | 581.2 | |
Cost of sales | — | | | 136.2 | | | 262.9 | | | 432.9 | |
Other costs and expenses | 2.0 | | | 48.7 | | | 99.5 | | | 146.1 | |
Income (loss) from discontinued operations before income taxes | (2.0) | | | (3.1) | | | (13.1) | | | 2.2 | |
Income tax expense (benefit) | 1.5 | | | (0.7) | | | (1.2) | | | 0.2 | |
Income (loss) from discontinued operations, net of tax | (3.5) | | | (2.4) | | | (11.9) | | | 2.0 | |
| | | | | | | |
Impairment of discontinued operations | — | | | — | | | 187.8 | | | — | |
Provision for income taxes | 0.6 | | | — | | | (45.0) | | | — | |
Loss from sale / impairment of discontinued operations, net of tax | 0.6 | | | — | | | 142.8 | | | — | |
| | | | | | | |
Net income (loss) from discontinued operations | $ | (4.1) | | | $ | (2.4) | | | $ | (154.7) | | | $ | 2.0 | |
The carrying amounts of major classes of assets and liabilities of discontinued operations were as follows (in millions):
| | | | | | | | |
| | December 31, 2021 |
Cash | | $ | 6.9 | |
Trade receivables | | 12.6 | |
Inventories, net | | 134.1 | |
Other current assets | | 9.6 | |
Current assets held for sale | | $ | 163.2 | |
| | |
Property and equipment, net | | $ | 47.7 | |
Intangible assets, net | | 102.3 | |
Operating lease assets | | 74.8 | |
Other long-term assets | | 1.2 | |
| | |
Long-term assets held for sale | | $ | 226.0 | |
| | |
Accounts payable | | $ | 21.5 | |
Accrued expenses and other current liabilities | | 66.5 | |
Current operating lease liabilities | | 19.8 | |
Current liabilities held for sale | | $ | 107.8 | |
| | |
Long-term operating lease liabilities | | $ | 57.2 | |
Other long-term liabilities | | 8.9 | |
Long-term liabilities held for sale | | $ | 66.1 | |
| | | | | | | | | | | |
| Three months ended September 30, 2022 | | Nine months ended September 30, 2022 |
Sales | $ | — | | | $ | 349.3 | |
Cost of sales | — | | | 262.9 | |
Other costs and expenses | 2.0 | | | 99.5 | |
Loss from discontinued operations before income taxes | (2.0) | | | (13.1) | |
Income tax benefit | 1.5 | | | (1.2) | |
Loss from discontinued operations, net of tax | (3.5) | | | (11.9) | |
| | | |
Impairment of discontinued operations | — | | | 187.8 | |
Income tax benefit | 0.6 | | | (45.0) | |
Impairment of discontinued operations, net of tax | 0.6 | | | 142.8 | |
| | | |
Net loss from discontinued operations | $ | (4.1) | | | $ | (154.7) | |
Note 5. Share-Based Compensation
Total share-based compensation expenses were comprised as follows (in millions):
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Option awards | Option awards | $ | 2.5 | | | $ | 2.3 | | | $ | 9.7 | | | $ | 7.6 | | Option awards | $ | 2.0 | | | $ | 2.5 | | | $ | 9.7 | | | $ | 9.7 | |
Other share-based awards | Other share-based awards | 12.8 | | | 13.1 | | | 28.6 | | | 31.2 | | Other share-based awards | 7.9 | | | 12.8 | | | 24.7 | | | 28.6 | |
Total share-based compensation before tax | Total share-based compensation before tax | 15.3 | | | 15.4 | | | 38.3 | | | 38.8 | | Total share-based compensation before tax | 9.9 | | | 15.3 | | | 34.4 | | | 38.3 | |
Tax benefit | Tax benefit | 3.7 | | | 3.7 | | | 9.2 | | | 9.3 | | Tax benefit | 2.4 | | | 3.7 | | | 8.2 | | | 9.2 | |
Total share-based compensation expense included in net income | Total share-based compensation expense included in net income | $ | 11.6 | | | $ | 11.7 | | | $ | 29.1 | | | $ | 29.5 | | Total share-based compensation expense included in net income | $ | 7.5 | | | $ | 11.6 | | | $ | 26.2 | | | $ | 29.1 | |
In addition to the above share-based compensation expenses, the Company sponsors a qualified non-leveraged employee stock ownership plan (“ESOP”). Shares allocated to eligible participants’ accounts vest at various percentage rates based on years of service and require no cash payments from the recipient.
As of September 30, 2022,2023, there was $61.9$60.1 million of total unrecognized share-based compensation expense related to unvested share-based equity awards. Unrecognized share-based compensation expense is expected to be recognized over a weighted-average period of 1.41.5 years. Included in unrecognized share-based compensation expense was approximately $6.8$7.1 million related to stock options and $55.1$53.0 million related to restricted stock.
Note 6. Financing Agreements
The carrying value of debt, finance leasefinancing obligations and notes payable and the average related interest rates were as follows (in millions):
| | | Average interest rate as of September 30, 2022 | | Maturity | | September 30, 2022 | | December 31, 2021 | | Average interest rate as of September 30, 2023 | | Maturity | | September 30, 2023 | | December 31, 2022 |
Incremental term loan | | Incremental term loan | 6.54% | | December 2023 | | $ | 500.0 | | | $ | 500.0 | |
Revolving loan facility | Revolving loan facility | 4.22% | | June 2026 | | $ | 378.0 | | | $ | — | | Revolving loan facility | 5.78% | | June 2026 | | 507.7 | | | 312.9 | |
Term loan facility | Term loan facility | 4.37% | | June 2026 | | 840.0 | | | 876.0 | | Term loan facility | 6.54% | | June 2026 | | 792.0 | | | 828.0 | |
Incremental term loan | 4.12% | | December 2022 | | 500.0 | | | 500.0 | | |
Senior notes—fixed rate | Senior notes—fixed rate | 4.23% | | July 2028 | | 350.0 | | | 350.0 | | Senior notes—fixed rate | 4.23% | | July 2028 | | 350.0 | | | 350.0 | |
Finance lease obligations | Finance lease obligations | 5.20% | | Various through 2029 | | 10.8 | | | 13.5 | | Finance lease obligations | 5.22% | | Various through 2029 | | 10.2 | | | 11.4 | |
Notes payable and other | Notes payable and other | 4.25% | | Various through 2030 | | 61.4 | | | 68.3 | | Notes payable and other | 4.26% | | Various through 2030 | | 54.2 | | | 61.4 | |
Debt issuance costs | Debt issuance costs | | (5.8) | | | (7.1) | | Debt issuance costs | | (4.6) | | | (5.9) | |
Total debt, finance lease obligations, and notes payable | | $ | 2,134.4 | | | $ | 1,800.7 | | |
Less: current maturities | | 553.5 | | | 553.3 | | |
Total long-term debt, finance lease obligations, and notes payable | | $ | 1,580.9 | | | $ | 1,247.4 | | |
Total financing obligations | | Total financing obligations | | $ | 2,209.5 | | | $ | 2,057.8 | |
Less: Current financing obligations | | Less: Current financing obligations | | 553.9 | | | 553.6 | |
Long-term financing obligations | | Long-term financing obligations | | $ | 1,655.6 | | | $ | 1,504.2 | |
In December 2010, the Company entered into an unsecured Master Note Purchase Agreement, which has been amended and supplemented, under which it has issued senior notes. In July 2018, the Company issued $350 million of unsecured senior notes due July 2028 whichthat remain outstanding.
The Company maintains an unsecured credit facility which consists of a term loan facility (the “Term Loan Facility”) and a revolving loan facility (the “Revolving Loan Facility”). In July 2018, the Company amended its unsecured credit facility to increase its Term Loan Facility to $1,180 million, of which $840$792.0 million was outstanding as of September 30, 2022.2023. In June 2021, the Company further amended its unsecured credit facility to increase its Revolving Loan Facility to $1.0 billion, of which $507.7 million was outstanding as of September 30, 2023, and extend the maturity date to June 2026. Interest is charged at rates based on a LIBOR or “prime” base rate.adjusted Term SOFR.
OnIn December 17, 2021, the Company amended the Term Loan Facilitycredit facility to provide an unsecured incremental 364-day term loan (the “Incremental Term Loan”) in the amount of $500 million. The incremental term loan,million, which was fully drawn on closing, is unsecured and matures onclosing. In December 16, 2022.2022, the Company further amended its credit facility to extend the maturity date of the Incremental Term Loan to December 15, 2023. There are no required principal payments prior to the maturity date. In addition to the payment of the $500 million Incremental Term Loan, the Company is required to make principal payments under the Term Loan Facility totaling $45$45.0 million over the next 12 months. These payments are classified as current maturities in the consolidated balance sheets.
The credit agreements governing the credit facility and the Master Note Purchase Agreement contain covenants that require the Company to maintain certain financial ratios, including minimum interest coverage and maximum leverage ratios. The
agreements also require the Company to maintain an interest coverage ratio of not less than 3.00 to 1.00 and a leverage ratio of not more than 3.50 to 1.00 on a rolling four quarter basis. The Company was in compliance with all such covenants as of September 30, 2022.2023.
Debt issuance costs are recognized as a reduction in the carrying value of the related long-term debt in the consolidated balance sheets and are being amortized to interest expense in the consolidated statements of income over the expected remaining terms of the related debt.
On July 2, 2018, pursuant to the Agreement and Plan of Merger dated May 29, 2018, the Company completed the acquisition of Boat Holdings, LLC, a privately held Delaware limited liability company, headquartered in Elkhart, Indiana whichthat manufactures boats (“Boat Holdings”). As a component of the Boat Holdings merger agreement, the Company has committed to make a series of deferred payments to the former owners following the closing date of the merger through July 2030. The original discounted payable was for $76.7 million, of which $55.3$49.4 million was outstanding as of September 30, 2022.2023. The outstanding balance is included in long-term debtfinancing obligations and current portion of long-term debtfinancing obligations in the consolidated balance sheets.
Note 7. Goodwill and Other Intangible Assets
Goodwill and other intangible assets, net of accumulated amortization, as of September 30, 20222023 and December 31, 20212022 are as follows (in millions):
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
Goodwill | Goodwill | $ | 379.7 | | | $ | 391.3 | | Goodwill | $ | 389.4 | | | $ | 386.2 | |
Other intangible assets, net | Other intangible assets, net | 527.9 | | | 543.9 | | Other intangible assets, net | 517.7 | | | 524.4 | |
Total goodwill and other intangible assets, net | Total goodwill and other intangible assets, net | $ | 907.6 | | | $ | 935.2 | | Total goodwill and other intangible assets, net | $ | 907.1 | | | $ | 910.6 | |
The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 20222023 and 20212022 are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Off-Road | | On-Road | | Marine | | Total |
Goodwill | 172.5 | | | 72.8 | | | 227.1 | | | $ | 472.4 | |
Accumulated goodwill impairment losses | (60.8) | | | (20.3) | | | — | | | (81.1) | |
Balance as of December 31, 2021 | $ | 111.7 | | | $ | 52.5 | | | $ | 227.1 | | | $ | 391.3 | |
| | | | | | | |
Currency translation effect on foreign goodwill balances | (1.5) | | | (10.1) | | | — | | | (11.6) | |
| | | | | | | |
Goodwill | 171.0 | | | 62.7 | | | 227.1 | | | 460.8 | |
Accumulated goodwill impairment losses | (60.8) | | | (20.3) | | | — | | | (81.1) | |
Balance as of September 30, 2022 | $ | 110.2 | | | $ | 42.4 | | | $ | 227.1 | | | $ | 379.7 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Off Road | | On Road | | Marine | | Total |
Balance as of December 31, 2022 | $ | 110.7 | | | $ | 48.4 | | | $ | 227.1 | | | $ | 386.2 | |
Goodwill acquired and related adjustments | 4.2 | | | — | | | — | | | 4.2 | |
Currency translation effect on foreign goodwill balances | (0.3) | | | (0.7) | | | — | | | (1.0) | |
Balance as of September 30, 2023 | $ | 114.6 | | | $ | 47.7 | | | $ | 227.1 | | | $ | 389.4 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Off-Road | | On-Road | | Marine | | Total |
Goodwill | 172.4 | | | 78.9 | | | 227.1 | | | $ | 478.4 | |
Accumulated goodwill impairment losses | (60.8) | | | (20.3) | | | — | | | (81.1) | |
Balance as of December 31, 2020 | $ | 111.6 | | | $ | 58.6 | | | $ | 227.1 | | | $ | 397.3 | |
| | | | | | | |
Currency translation effect on foreign goodwill balances | — | | | (4.1) | | | — | | | (4.1) | |
| | | | | | | |
Goodwill | 172.4 | | | 74.8 | | | 227.1 | | | 474.3 | |
Accumulated goodwill impairment losses | (60.8) | | | (20.3) | | | — | | | (81.1) | |
Balance as of September 30, 2021 | $ | 111.6 | | | $ | 54.5 | | | $ | 227.1 | | | $ | 393.2 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Off Road | | On Road | | Marine | | Total |
Balance as of December 31, 2021 | $ | 111.7 | | | $ | 52.5 | | | $ | 227.1 | | | $ | 391.3 | |
Currency translation effect on foreign goodwill balances | (1.5) | | | (10.1) | | | — | | | (11.6) | |
Balance as of September 30, 2022 | $ | 110.2 | | | $ | 42.4 | | | $ | 227.1 | | | $ | 379.7 | |
The accumulated$270.3 million related to goodwill impairment losses recorded relate toof the Company’s $270.3 million goodwill impairment of its Aftermarket segment in 2020.reporting segment. As part of the Company’s segment reorganization in the second quarter of 2022, the Aftermarket segment was eliminated and historical goodwill impairments of $60.8 million and $20.3 million were allocated to existingthe Off Road and On Road segments, respectively, on a relative fair value basis. The goodwill amounts above are shown net of these impairment charges.
The components of other intangible assets were as follows ($ in millions):
| | | | | | | | | | | | | | | | | |
| Weighted-average useful life (years) | | September 30, 2022 | | December 31, 2021 |
Non-amortizable—indefinite lived: | | | | | |
Brand/trade names | | | $ | 261.7 | | | $ | 263.5 | |
Amortizable: | | | | | |
Non-compete agreements | | | — | | | 2.6 | |
Dealer/customer related | 19 | | 344.3 | | | 349.7 | |
Developed technology | 7 | | 0.7 | | | 2.9 | |
Total amortizable | 19 | | 345.0 | | | 355.2 | |
Less: Accumulated amortization | | | (78.8) | | | (74.8) | |
Net amortized other intangible assets | | | 266.2 | | | 280.4 | |
Total other intangible assets, net | | | $ | 527.9 | | | $ | 543.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2023 | | December 31, 2022 |
| Weighted-average useful life (years) | | Cost | Accumulated amortization | Net | | Cost | Accumulated amortization | Net |
Definite-life intangibles | | | | | | | | | |
Dealer/customer related | 19 | | $ | 341.6 | | $ | (93.2) | | $ | 248.4 | | | $ | 341.7 | | $ | (80.0) | | $ | 261.7 | |
Indefinite-life intangibles | | | | | | | | | |
Brand/trade names | | | 269.3 | | — | | 269.3 | | | 262.7 | | — | | 262.7 | |
Total other intangible assets, net | | | $ | 610.9 | | $ | (93.2) | | $ | 517.7 | | | $ | 604.4 | | $ | (80.0) | | $ | 524.4 | |
Amortization expense for intangible assets was $4.5$4.4 million and $5.5$4.5 million for the three months ended September 30, 20222023 and 2021,2022, respectively, and $14.3$13.3 million and $16.9$14.3 million for the nine months ended September 30, 20222023 and 2021,2022, respectively. Estimated future amortization expense for identifiable intangible assets during the remainder of 2022 through 2027next five years is as follows: 2022 (remainder), $4.5 million; 2023, $17.7 million; 2024, $17.7 million; 2025, $17.7 million; 2026, $17.7 million; 2027, $17.7 million; and after 2027, $173.2 million. follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Remainder 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 |
Estimated amortization expense | $ | 4.4 | | | $ | 17.7 | | | $ | 17.7 | | | $ | 17.7 | | | $ | 17.7 | | | $ | 17.7 | |
The preceding expected amortization expense is an estimate and actual amounts could differ due to additional intangible asset acquisitions, changes in foreign currency rates or impairments of intangible assets.
Note 8. Shareholders’ Equity
During the nine months ended September 30, 2022,2023, the Company paid $378.5$159.4 million to repurchase approximately 3.21.4 million shares of its common stock. As of September 30, 2022,2023, the Board of Directors has authorized the Company to repurchase up to an additional $475.6$204.0 million of the Company’s common stock. The repurchase of any or all such shares authorized for repurchase will be governed by applicable SEC rules and dependent on management’s assessment of market conditions and subject to the restrictions on share repurchases set forth in the incremental amendment.
The Company paid a regular cash dividend of $0.64$0.65 per share on September 15, 20222023 to holders of record at the close of business on September 1, 2022.2023. Cash dividends declared and paid per common share for the three and nine months ended September 30, 20222023 and 2021,2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Cash dividends declared and paid per common share | | $ | 0.64 | | | $ | 0.63 | | | $ | 1.92 | | | $ | 1.89 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Cash dividends declared and paid per common share | | $ | 0.65 | | | $ | 0.64 | | | $ | 1.95 | | | $ | 1.92 | |
Net income per share
Basic income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each period, including shares earned under the Deferred Compensation Plan for Directors (“Director Plan”), the ESOP and deferred stock units under the 2007 Omnibus Incentive Plan (“Omnibus Plan”). Diluted income per share is computed under the treasury stock method and is calculated to compute the dilutive effect of outstanding stock options and certain share-based awards issued under the Omnibus Plan. A reconciliation of these amounts is as follows (in millions):
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Weighted average number of common shares outstanding | Weighted average number of common shares outstanding | 58.8 | | | 60.6 | | | 59.4 | | | 61.1 | | Weighted average number of common shares outstanding | 56.6 | | | 58.8 | | | 56.8 | | | 59.4 | |
Director Plan and deferred stock units | Director Plan and deferred stock units | 0.2 | | | 0.2 | | | 0.2 | | | 0.2 | | Director Plan and deferred stock units | 0.2 | | | 0.2 | | | 0.2 | | | 0.2 | |
ESOP | ESOP | 0.2 | | | 0.2 | | | 0.2 | | | 0.1 | | ESOP | 0.2 | | | 0.2 | | | 0.2 | | | 0.2 | |
Common shares outstanding—basic | Common shares outstanding—basic | 59.2 | | | 61.0 | | | 59.8 | | | 61.4 | | Common shares outstanding—basic | 57.0 | | | 59.2 | | | 57.2 | | | 59.8 | |
Dilutive effect of restricted stock units | Dilutive effect of restricted stock units | 0.4 | | | 0.7 | | | 0.4 | | | 0.7 | | Dilutive effect of restricted stock units | 0.4 | | | 0.4 | | | 0.4 | | | 0.4 | |
Dilutive effect of stock option awards | Dilutive effect of stock option awards | 0.4 | | | 0.6 | | | 0.4 | | | 0.8 | | Dilutive effect of stock option awards | 0.4 | | | 0.4 | | | 0.3 | | | 0.4 | |
Common and potential common shares outstanding—diluted | Common and potential common shares outstanding—diluted | 60.0 | | | 62.3 | | | 60.6 | | | 62.9 | | Common and potential common shares outstanding—diluted | 57.8 | | | 60.0 | | | 57.9 | | | 60.6 | |
During the three and nine months ended September 30, 2022,2023, the number of options that were not included in the computation of diluted income per share because the option exercise price was greater than the market price, and therefore the effect would have been anti-dilutive, were 1.0 million and 1.4 million, respectively, compared to 1.4 million and 1.6 million compared to 0.8 million and 0.8 million for the samecomparable periods in 2021, respectively.2022.
Accumulated other comprehensive loss
Changes in the accumulated other comprehensive loss balance were as follows (in millions):
| | | Foreign Currency Translation | | Cash Flow Hedging Derivatives | | Retirement Plan and Other Activity | | Accumulated Other Comprehensive Loss | | Foreign Currency Translation | | Cash Flow Hedging Derivatives | | Retirement Plan Activity | | Accumulated Other Comprehensive Loss |
Balance as of December 31, 2021 | $ | (69.5) | | | $ | (4.4) | | | $ | (3.5) | | | $ | (77.4) | | |
Balance as of December 31, 2022 | | Balance as of December 31, 2022 | $ | (94.8) | | | $ | 10.5 | | | $ | (3.2) | | | $ | (87.5) | |
Reclassification to the statement of income | Reclassification to the statement of income | — | | | (3.0) | | | 0.2 | | | (2.8) | | Reclassification to the statement of income | — | | | (25.2) | | | 0.2 | | | (25.0) | |
Change in fair value | Change in fair value | (64.4) | | | 25.6 | | | — | | | (38.8) | | Change in fair value | 3.5 | | | 28.7 | | | — | | | 32.2 | |
Balance as of September 30, 2022 | $ | (133.9) | | | $ | 18.2 | | | $ | (3.3) | | | $ | (119.0) | | |
Balance as of September 30, 2023 | | Balance as of September 30, 2023 | $ | (91.3) | | | $ | 14.0 | | | $ | (3.0) | | | $ | (80.3) | |
The table below providesSee Note 11 for the amount of gains and losses, net of tax, reclassified from accumulated other comprehensive loss into the statements of income for cash flow derivatives designated as hedging instruments and retirement plan activity for the three and nine months ended September 30, 2022 and 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationships and Other Activity | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income | | Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Foreign currency contracts | Other (income) expense, net | | $ | 1.7 | | | $ | (0.5) | | | $ | 3.0 | | | $ | (1.7) | |
Foreign currency contracts | Cost of sales | | 0.3 | | | 0.2 | | | 2.0 | | | 1.0 | |
Interest rate contracts | Interest expense | | 1.0 | | | (2.0) | | | (2.0) | | | (6.1) | |
Retirement plan activity | Operating expenses | | — | | | — | | | (0.2) | | | (0.2) | |
Total | | | $ | 3.0 | | | $ | (2.3) | | | $ | 2.8 | | | $ | (7.0) | |
The net amount of the existing gains or losses as of September 30, 2022 that is expected to be reclassified into the statements of income within the next 12 months is not expected to be material. See Note 11 for further information regarding derivative activities.instruments.
Note 9. Financial Services Arrangements
Polaris Acceptance, a joint venture between the Company and Wells Fargo Commercial Distribution Finance Corporation, a direct subsidiary of Wells Fargo Bank, N.A. (“Wells Fargo”), which is supported by a partnership agreement between their respective wholly owned subsidiaries, finances substantially all of the Company’s United States sales of snowmobiles, off-
roadoff-road vehicles (“ORV”), motorcycles, and related PG&A, whereby the Company receives payment within a few days of shipment of the product.
The Company’s subsidiary has a 50 percent equity interest in Polaris Acceptance. Polaris Acceptance sells a portion of its receivable portfolio to a securitization facility (the “Securitization Facility”) arranged by Wells Fargo. The sale of receivables from Polaris Acceptance to the Securitization Facility is accounted for in Polaris Acceptance’s financial statements as a “true-sale” under Accounting Standards Codification (“ASC”) Topic 860. The Company’s allocable share of the income of Polaris Acceptance has been included as a component of income from financial services in the consolidated statements of income. The partnership agreement is effective through February 2027.
The Company’s total investment in Polaris Acceptance of $58.6$109.7 million as of September 30, 20222023 is accounted for under the equity method and is recorded in investment in finance affiliate in the consolidated balance sheets. As of September 30, 2022,2023, the outstanding amount of net receivables financed for dealers under this arrangement was $938.4 million, which included $743.6 million in the Polaris Acceptance portfolio and $194.8 million of receivables within the Securitization Facility (“Securitized Receivables”).$1,705.9 million.
The Company has agreed to repurchase products repossessed by Polaris Acceptance up to an annual maximum of 15 percent of the aggregate average month-end outstanding Polaris Acceptance receivables and Securitized Receivables during the prior calendar year. For calendar year 2022,2023, the potential 15 percent aggregate repurchase obligation is approximately $69.2$110.5 million.
A subsidiary of Huntington Bancshares Incorporated (“Huntington”) finances a portion of the Company’s United States sales of boats whereby the Company receives payment within a few days of shipment of the product. The Company has agreed to repurchase products repossessed by Huntington up to a maximum of 100 percent of the aggregate outstanding Huntington receivables balance. As of September 30, 2022,2023, the potential aggregate repurchase obligation was approximately $192.6$288.1 million.
The Company has other financing arrangements related to its foreign subsidiaries in which it has agreed to repurchase repossessed products. For calendar year 2022,2023, the potential aggregate repurchase obligations are approximately $21.8$24.4 million.
The Company’s financial exposure under these repurchase agreements is limited to the difference between the amounts unpaid by the dealer or distributor with respect to the repossessed product plus costs of repossession and the amount received on the resale of the repossessed product. No material losses have been incurred under these agreements during the periods presented.
The Company has agreements with third-party financing companies to provide financing options to end consumers of the Company’s products. The Company has no material contingent liabilities for residual value or credit collection risk under these agreements. The Company’s income generated from these agreements has been included as a component of income from financial services in the consolidated statements of income.
Note 10. Commitments and Contingencies
Product liability. The Company is subject to product liability claims in the normal course of business. In 2012, the Company began purchasing excess insurance coverage for product liability claims. The Company self-insures product liability claims before the policy date and up to the purchased insurance coverage after the policy date. The estimated costs resulting from any losses are charged to operating expenses when it is probable a loss has been incurred and the amount of the loss is reasonably estimable. The Company utilizes historical trends and actuarial analysis, along with an analysis of current claims, to assist in determining the appropriate loss reserve levels. As of September 30, 2022,2023, the Company had an accrual of $79.5$98.2 million for the probable payment of pending claims related to product liability litigation associated with the Company’s products. This accrual is included as a component of other accrued expenses in the consolidated balance sheets.
Litigation. The Company is a defendant in lawsuits and subject to other claims arising in the normal course of business, including matters related to intellectual property, commercial matters, employment, and product liability claims. In addition, as of September 30, 2022,2023, the Company is party toputative class actions pending against the Company in the United States which are described in more detail in Part II, Item 1 – Legal Proceedings. The Company is unable to provide an evaluation of the likelihood that a loss will be incurred or an estimate of the range of possible loss on the putative class actions.
In the opinion of management, it is presently unlikely that any legal proceedings pending against or involving the Company will have a material adverse effect on the Company’s financial position, results of operations, or cash flows. However, in many of these matters, it is inherently difficult to determine whether a loss is probable or reasonably possible or to estimate the size or range of the possible loss given the variety of potential outcomes of actual and potential claims, including legal proceedings seeking punitive damages for which we are not insured, the uncertainty of
future rulings, the behavior or incentives of adverse parties, and other factors outside of the control of the Company. Accordingly, the Company’s loss reserve may change from time to time, and actual losses could exceed the amounts accrued by an amount that could be material to the Company’s consolidated financial position, results of operations, or cash flows in any particular reporting period.
Regulatory. In the normal course of business, the Company’s products are subject to extensive laws and regulations relating to safety, environmental, and other regulations promulgated by the United States federal government and individual states, as well as international regulatory authorities. Failure to comply with applicable regulations could result in fines, penalties or other costs.
Note 11. Derivative Instruments and Hedging Activities
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments arefrom fluctuations in foreign currency risk and interest rate risk. Derivative contracts on various currencies are entered into in order to manage foreign currency exposures associated with certain product sourcing activities and intercompany cash flows. Interest rate swaps are entered into in order to maintain a balanced risk of fixed and floatingexchange rates, interest rates, associated withand commodity prices. To reduce its exposure to such risks, the Company’s debt.
The Company’s foreign currency management objective is to mitigate the potential impact of currency fluctuations on the value of its U.S. dollar cash flows and to reduce the variability of certain cash flows at the subsidiary level. The Company actively manages certain forecasted foreign currency exposures andselectively uses a centralized currency management operation to take advantage of potential opportunities to naturally offset foreign currency exposures.derivative financial instruments. The decision of whether and when to execute derivative instruments, along with the duration of the instrument, may vary from period to period depending on market conditions, the relative costs of the instruments and capacity to hedge. The duration is linked to the timing of the underlying exposure, with the connection between the two being regularly monitored. The Company does not use any financial contracts for trading purposes. The derivative contracts contain credit risk to the extent that our bank counterparties may be unable to meet the terms of the agreements. The amount of such credit risk is generally limited to the unrealized gains, if any, in such contracts. Such risk is minimized by limiting those counterparties to major financial institutions of high credit quality.
AsThe Company conducts business in various locations throughout the world and is subject to market risk associated with certain product sourcing activities and intercompany cash flows due to changes in the value of September 30, 2022foreign currencies in relation to its reporting currency, the U.S. dollar. The Company’s foreign currency management objective is to mitigate the potential impact of currency fluctuations on the value of its U.S. dollar cash flows and December 31, 2021,to reduce the variability of certain cash flows at the subsidiary level. The Company hadactively manages certain forecasted foreign currency exposures and uses a centralized currency management operation to take advantage of potential opportunities to naturally offset foreign currency exposures. The Company utilizes foreign currency exchange contracts to mitigate the followingeffects of foreign currency exchange rate fluctuations related to the Australian dollar, Canadian dollar, and Mexican peso. The Company's foreign currency exchange contracts generally have maturities of less than one year. The Company’s open foreign currency contracts, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
Foreign Currency | | Notional Amounts (in U.S. Dollars) | | Net Unrealized Gain (Loss) | | Notional Amounts (in U.S. Dollars) | | Net Unrealized Gain (Loss) |
Australian Dollar | | $ | 18.6 | | | $ | 1.6 | | | $ | 20.3 | | | $ | 0.4 | |
Canadian Dollar | | 167.2 | | | 11.3 | | | 121.1 | | | 0.6 | |
Mexican Peso | | 65.0 | | | 5.0 | | | 87.9 | | | 1.1 | |
Total | | $ | 250.8 | | | $ | 17.9 | | | $ | 229.3 | | | $ | 2.1 | |
These contracts, with maturities through December 2023,June 2024, met the criteria for cash flow hedges,hedges.
The Company manages its interest rate risk by balancing its exposure to fixed and are recorded in other current assets or other current liabilities in the consolidated balance sheet. The unrealized gains or losses, after tax, are recorded as a component of accumulated other comprehensive loss in shareholders’ equity.
variable rates while attempting to optimize its interest costs. The Company enters into interest rate swap transactions to hedge the variable interest rate payments for the Term Loan Facility. In connection with these transactions,contracts, the Company pays interest based upon a fixed rate and receives
variable rate interest payments based on the one-month LIBOR.
As of September 30, 2022 and December 31, 2021, the Company had the following open interest rate swap contracts (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2022 | | December 31, 2021 |
Effective Date | | Termination Date | | Notional Amounts | | Net Unrealized Gain (Loss) | | Notional Amounts | | Net Unrealized Gain (Loss) |
September 30, 2019 | | September 30, 2023 | | 150.0 | | | 2.0 | | | 150.0 | | | (5.8) | |
March 3, 2020 | | February 28, 2023 | | 400.0 | | | 5.0 | | | 400.0 | | | (2.0) | |
Total | | | | $ | 550.0 | | | $ | 7.0 | | | $ | 550.0 | | | $ | (7.8) | |
adjusted Term SOFR. These contracts, with maturities through September 2023,February 2026, met the criteria for cash flow hedges.
Commodity hedging contracts are entered into in order to manage fluctuating market prices of certain purchased commodities and raw materials that are integrated into the Company’s end products. The Company's commodity contracts generally have maturities of less than one year.
The notional and fair values of the Company’s derivative financial instruments designated as cash flow hedges were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| Notional Value (in U.S. Dollars) | | Fair Value — Assets | | Fair Value — Liabilities | | Notional Value (in U.S. Dollars) | | Fair Value — Assets | | Fair Value — Liabilities |
Foreign currency contracts | $ | 231.9 | | | $ | 10.0 | | | $ | (0.7) | | | $ | 154.0 | | | $ | 8.4 | | | $ | — | |
Interest rate contracts | 400.0 | | | 7.9 | | | — | | | 550.0 | | | 5.9 | | | — | |
Commodity contracts | 32.3 | | | 1.3 | | | (0.5) | | | — | | | — | | | — | |
Total | $ | 664.2 | | | $ | 19.2 | | | $ | (1.2) | | | $ | 704.0 | | | $ | 14.3 | | | $ | — | |
Assets are included in prepaid expenses and other and liabilities are recordedincluded in other current assets or other current liabilitiesaccrued expenses in the consolidated balance sheet.sheets. Assets and liabilities are offset in the consolidated balance sheet if the right of offset exists.
The amounts of gains and losses related to the Company’s derivative financial instruments designated as cash flow hedges were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives Designated as Cash Flow Hedges | Location of Gain (Loss) Reclassified from Accumulated OCI into Income | Gain (Loss) Reclassified from AOCI into Income | | Gain (Loss) Recognized in OCI |
Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Commodity contracts | Cost of sales | $ | 0.9 | | | $ | — | | | $ | 0.1 | | | $ | — | | | $ | (0.2) | | | $ | (0.3) | | | $ | 1.2 | | | $ | (0.7) | |
Interest rate contracts | Interest expense | 2.3 | | | 1.0 | | | 7.4 | | | (2.0) | | | 1.0 | | | 1.2 | | | 1.6 | | | 11.3 | |
Foreign exchange contracts | Other (income) expense, net | 13.2 | | | 2.0 | | | 17.7 | | | 5.0 | | | (1.2) | | | 7.3 | | | 0.7 | | | 12.0 | |
Total | | $ | 16.4 | | | $ | 3.0 | | | $ | 25.2 | | | $ | 3.0 | | | $ | (0.4) | | | $ | 8.2 | | | $ | 3.5 | | | $ | 22.6 | |
The unrealized gains or losses, after tax, are recorded as a component of accumulated other comprehensive loss in shareholders’ equity.
The table below summarizes the carrying values of derivative instruments as of September 30, 2022 and December 31, 2021 (in millions):
| | | | | | | | | | | | | | | | | |
| Carrying Values of Derivative Instruments as of September 30, 2022 |
| Fair Value— Assets | | Fair Value— (Liabilities) | | Derivative Net Carrying Value |
Derivatives designated as hedging instruments | | | | | |
Foreign exchange contracts | $ | 17.9 | | | $ | — | | | $ | 17.9 | |
Interest rate contracts | 7.0 | | | — | | | 7.0 | |
Total derivatives designated as hedging instruments | $ | 24.9 | | | $ | — | | | $ | 24.9 | |
| | | | | | | | | | | | | | | | | |
| Carrying Values of Derivative Instruments as of December 31, 2021 |
| Fair Value— Assets | | Fair Value— (Liabilities) | | Derivative Net Carrying Value |
Derivatives designated as hedging instruments | | | | | |
Foreign exchange contracts | $ | 2.4 | | | $ | (0.3) | | | $ | 2.1 | |
Interest rate contracts | — | | | (7.8) | | | (7.8) | |
Total derivatives designated as hedging instruments | $ | 2.4 | | | $ | (8.1) | | | $ | (5.7) | |
Assets are included in prepaid expenses and other and liabilities are included in other accrued expenses in the consolidated balance sheets. Gains and losses on derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness areis recognized currently in the current statementconsolidated statements of income.income and were not material for the periods presented.
The net amount of the existing gains (losses), netor losses as of tax, related to the effective portion of derivative instruments designated as cash flow hedges included in accumulated other comprehensive loss for the three and nine months ended September 30, 2022 were $8.2 million and $22.6 million, respectively, compared2023 that is expected to $2.5 million and $5.7 million for the same periods in 2021, respectively.
See Note 8 for information about the amount of gains and losses, net of tax,be reclassified from accumulated other comprehensive loss into the statements of income for derivative instruments designated as hedging instruments. The ineffective portion of foreign currency contracts waswithin the next 12 months is not material for the three and nine month period ended September 30, 2022.expected to be material.
Note 12. Segment Reporting
On January 1, 2022, the Company began management of its portfolio of businesses under a new basis which was intended to create a simplified reporting structure to provide better focus and allow for resources to be best leveraged for future growth and profitability improvement. Asas a result of the Company eliminated itsdivestiture of the GEM and Taylor-Dunn businesses. As such, the Global Adjacent Markets reporting segment.segment was eliminated and the results of the Company’s remaining businesses historically included within the Global Adjacent Markets segment were reclassified to the Off Road and On Road segments. All historical segment results were reclassified for comparability.
On June 30, 2022, the Company again began management of its portfolio of businesses under a new basis as a result of the divestiture of TAP. As such, the Aftermarket segment was eliminated and the results of the Company’s remaining aftermarket businesses historically included within the Aftermarket segment were reclassified to the Off-RoadOff Road and On-RoadOn Road segments. The comparative 2021All historical segment results were reclassified for comparability.
The Company’s reportable segments are based on the Company’s method of internal reporting and are comprised of various product offerings that serve multiple end markets. These results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. The internal reporting of these operating segments is defined based, in part, on the reporting and review process used by the Company’s Chief Executive Officer. The Company has three operating segments: 1) Off-Road,Off Road, 2) On-Road,On Road, and 3) Marine, which are all reportable segments. The Corporate amounts include revenues and costs of businesses that were divested in 2021, as well as costs that are not allocated to segments, including certain unallocated
manufacturing costs.costs and the impacts from certain foreign currency transactions. Businesses that are presented as discontinued operations are excluded from the table below.
Segment sales and gross profit data areis summarized as follows (in millions):
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Sales | Sales | | | | | | | | Sales | | | | | | | |
Off-Road | $ | 1,746.4 | | | $ | 1,316.2 | | | $ | 4,578.9 | | | $ | 4,015.5 | | |
On-Road | 334.0 | | | 257.8 | | | 861.3 | | | 798.4 | | |
Off Road | | Off Road | $ | 1,844.4 | | | $ | 1,746.4 | | | $ | 5,067.6 | | | $ | 4,578.9 | |
On Road | | On Road | 270.3 | | | 334.0 | | | 955.4 | | | 861.3 | |
Marine | Marine | 260.2 | | | 183.6 | | | 744.7 | | | 579.9 | | Marine | 134.2 | | | 260.2 | | | 622.2 | | | 744.7 | |
Corporate | — | | | 20.1 | | | — | | | 52.8 | | |
Total sales | Total sales | $ | 2,340.6 | | | $ | 1,777.7 | | | $ | 6,184.9 | | | $ | 5,446.6 | | Total sales | $ | 2,248.9 | | | $ | 2,340.6 | | | $ | 6,645.2 | | | $ | 6,184.9 | |
Gross profit | Gross profit | | | | | | | | Gross profit | | | | | | | |
Off-Road | $ | 449.2 | | | $ | 293.8 | | | $ | 1,062.1 | | | $ | 1,020.9 | | |
On-Road | 60.1 | | | 38.7 | | | 154.7 | | | 129.2 | | |
Off Road | | Off Road | $ | 425.5 | | | $ | 449.2 | | | $ | 1,122.6 | | | $ | 1,062.1 | |
On Road | | On Road | 57.7 | | | 60.1 | | | 208.7 | | | 154.7 | |
Marine | Marine | 55.9 | | | 41.2 | | | 169.0 | | | 135.0 | | Marine | 24.3 | | | 55.9 | | | 143.3 | | | 169.0 | |
Corporate | Corporate | (6.0) | | | 46.3 | | | 0.7 | | | 64.1 | | Corporate | 1.3 | | | (6.0) | | | 8.4 | | | 0.7 | |
Total gross profit | Total gross profit | $ | 559.2 | | | $ | 420.0 | | | $ | 1,386.5 | | | $ | 1,349.2 | | Total gross profit | $ | 508.8 | | | $ | 559.2 | | | $ | 1,483.0 | | | $ | 1,386.5 | |
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 Inc., a MinnesotaDelaware corporation, for the three and nine month period ended September 30, 20222023 compared to the three and nine month period ended September 30, 2021.2022. The terms “Polaris,” the “Company,” “we,” “us,” and “our” as used herein refer to the business and operations of Polaris Inc., its subsidiaries and its predecessors, which began doing business in 1954. We design, engineer and manufacture powersports vehicles, which include: off-road vehicles (“ORV”), including all-terrain vehicles (“ATV”) and side-by-side vehicles; military and commercial off-road vehicles; snowmobiles; motorcycles; moto-roadsters; quadricycles; boats; and related Parts, Garments and Accessories (“PG&A”), which includes aftermarket accessories and apparel. Due to the seasonality of certain products 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. Unless otherwise noted, all “quarter” comparisons are from the third quarter of 20222023 to the third quarter of 20212022 and all “year-to-date” comparisons are from the nine month period ended September 30, 20222023 to the nine month period ended September 30, 2021.2022. Estimates related to industry retail sales are unaudited and based on internally-generated management estimates, including estimates based on extrapolations from third-party surveys of the industries in which we compete, and are subject to change.
Overview
The impact of the novel coronavirus (COVID-19) pandemic as well as other disruptive events have impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The impact of these factors has affected our business segments, employees, dealers, suppliers, and customers in a variety of ways.
In 2021 and the first half of 2022 we saw strong retail demand for our Powersports products and boats. Consistent with macroeconomic trends, as we progressed through 2022 we have seen indicators of demand moderating. Due to the dynamics of the COVID-19 pandemic, heightened demand, natural disasters, and geopolitical events, including the conflict between Russia and Ukraine and related sanctions, our supply chain and manufacturing operations have experienced inefficiencies caused by production-limiting disruptions, including supplier labor shortages. Although these disruptions are moderating, we have made pricing changes to address the resulting increase in production costs. Manufacturing disruptions combined with the impact of elevated commodity and logistics costs are expected to negatively affect the Company’s profitability. As a result of these demand and supply chain trends, North American dealer inventory as of September 30, 2022 was down significantly compared to pre-pandemic levels, but up sequentially from the second quarter.
Third quarter sales totaled $2,340.6$2,248.9 million, an increasea decrease of 32four percent from last year’s third quarter sales of $1,777.7$2,340.6 million. Our third quarter sales to customers in North America increased 35decreased four percent and our sales to customers outside of North America increased 10decreased three percent. The increasedecrease in sales in the quarter was primarily driven primarily by increased shipments, higher pricing, and favorable product mix.decreased shipments.
Our gross profit of $559.2$508.8 million increased 33decreased nine percent from $420.0$559.2 million in the comparable prior year third quarter. Gross profit, as a percentage of sales, increaseddecreased primarily due to higher pricing, partially offset by higher input costs. We reportedfinance interest, unfavorable product mix, and unfavorable foreign currency exchange rate movement.
Net income from continuing operations attributable to Polaris was $151.7 million, or $2.62 per diluted share, compared to 2022 third quarter net income from continuing operations attributable to Polaris of $190.4 million, or $3.17 per diluted share, compared to 2021 third quartershare. The decrease in net income from continuing operations attributablewas primarily driven by decreased shipments, higher finance interest, and higher marketing expenses. We reported third quarter Adjusted EBITDA of $282.6 million, compared to Polaris2022 third quarter Adjusted EBITDA of $117.0 million, or $1.88 per diluted share.$319.8 million. For information on how we define and calculate Adjusted EBITDA and a reconciliation of net income from continuing operations to Adjusted EBITDA, see “Non-GAAP Financial Measures”.
During the third quarter of 2022, we completed the sale of our Transamerican Auto Parts (“TAP”) business, an aftermarket parts business. The results of TAP have been presented as discontinued operations and the related assets and liabilities have been classified as held for sale for all periods presented. As a result, for the year-to-date period an impairment and loss on sale of $187.8 million was recorded which resulted in a $45.0 million income tax benefit.
Consolidated Results of Operations
The consolidated results of operations were as follows:
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
($ in millions except percentages and share data) | ($ in millions except percentages and share data) | 2022 | | 2021 | | Change 2022 vs. 2021 | | 2022 | | 2021 | | Change 2022 vs. 2021 | ($ in millions except percentages and share data) | 2023 | | 2022 | | Change 2023 vs. 2022 | | 2023 | | 2022 | | Change 2023 vs. 2022 |
Sales | Sales | $ | 2,340.6 | | | $ | 1,777.7 | | | 32 | % | | $ | 6,184.9 | |
| $ | 5,446.6 | | | 14 | % | Sales | $ | 2,248.9 | | | $ | 2,340.6 | | | (4) | % | | $ | 6,645.2 | |
| $ | 6,184.9 | | | 7 | % |
Cost of sales | Cost of sales | $ | 1,781.4 | | | $ | 1,357.7 | | | 31 | % | | $ | 4,798.4 | |
| $ | 4,097.4 | | | 17 | % | Cost of sales | $ | 1,740.1 | | | $ | 1,781.4 | | | (2) | % | | $ | 5,162.2 | |
| $ | 4,798.4 | | | 8 | % |
Gross profit | Gross profit | $ | 559.2 | | | $ | 420.0 | | | 33 | % | | $ | 1,386.5 | | | $ | 1,349.2 | | | 3 | % | Gross profit | $ | 508.8 | | | $ | 559.2 | | | (9) | % | | $ | 1,483.0 | | | $ | 1,386.5 | | | 7 | % |
Percentage of sales | Percentage of sales | 23.9 | % | | 23.6 | % | | +26 bps | | 22.4 | % | | 24.8 | % | | -236 bps | Percentage of sales | 22.6 | % | | 23.9 | % | | -127 bps | | 22.3 | % | | 22.4 | % | | -10 bps |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Selling and marketing | Selling and marketing | $ | 120.7 | | | $ | 112.0 | | | 8 | % | | $ | 347.8 | | | $ | 348.4 | | | — | % | Selling and marketing | $ | 145.1 | | | $ | 120.7 | | | 20 | % | | $ | 415.3 | | | $ | 347.8 | | | 19 | % |
Research and development | Research and development | $ | 98.5 | | | $ | 84.8 | | | 16 | % | | $ | 266.1 | | | $ | 249.1 | | | 7 | % | Research and development | $ | 91.8 | | | $ | 98.5 | | | (7) | % | | $ | 281.5 | | | $ | 266.1 | | | 6 | % |
General and administrative | General and administrative | $ | 97.8 | | | $ | 76.3 | | | 28 | % | | $ | 258.7 | | | $ | 240.8 | | | 7 | % | General and administrative | $ | 91.3 | | | $ | 97.8 | | | (7) | % | | $ | 285.9 | | | $ | 258.7 | | | 11 | % |
Total operating expenses | Total operating expenses | $ | 317.0 | | | $ | 273.1 | | | 16 | % | | $ | 872.6 | | | $ | 838.3 | | | 4 | % | Total operating expenses | $ | 328.2 | | | $ | 317.0 | | | 4 | % | | $ | 982.7 | | | $ | 872.6 | | | 13 | % |
Percentage of sales | Percentage of sales | 13.5 | % | | 15.4 | % | | -182 bps | | 14.1 | % | | 15.4 | % | | -128 bps | Percentage of sales | 14.6 | % | | 13.5 | % | | +105 bps | | 14.8 | % | | 14.1 | % | | +68 bps |
Income from financial services | Income from financial services | $ | 12.1 | | | $ | 11.3 | | | 7 | % | | $ | 33.7 | | | $ | 41.2 | | | (18) | % | Income from financial services | $ | 20.5 | | | $ | 12.1 | | | 69 | % | | $ | 57.9 | | | $ | 33.7 | | | 72 | % |
Operating income | Operating income | $ | 254.3 | | | $ | 158.2 | | | 61 | % | | $ | 547.6 | | | $ | 552.1 | | | (1) | % | Operating income | $ | 201.1 | | | $ | 254.3 | | | (21) | % | | $ | 558.2 | | | $ | 547.6 | | | 2 | % |
| Non-operating expense: | Non-operating expense: | | Non-operating expense: | |
Interest expense | Interest expense | $ | 20.1 | | $ | 10.7 | | 88 | % | | $ | 46.8 | |
| $ | 33.0 | | | 42 | % | Interest expense | $ | 32.5 | | $ | 20.1 | | 62 | % | | $ | 92.2 | |
| $ | 46.8 | | | 97 | % |
| Other (income) expense, net | Other (income) expense, net | $ | (7.4) | | $ | (0.1) | | NM | | $ | (13.9) | |
| $ | (5.4) | | | 157 | % | Other (income) expense, net | $ | (13.1) | | $ | (7.4) | | 77 | % | | $ | (33.6) | |
| $ | (13.9) | | | 142 | % |
Income from continuing operations before income taxes | Income from continuing operations before income taxes | $ | 241.6 | | $ | 147.6 | | 64 | % | | $ | 514.7 | | | $ | 524.5 | | | (2) | % | Income from continuing operations before income taxes | $ | 181.7 | | $ | 241.6 | | (25) | % | | $ | 499.6 | | | $ | 514.7 | | | (3) | % |
Provision for income taxes | Provision for income taxes | $ | 50.9 | | $ | 30.4 | | 67 | % | | $ | 107.9 | | | $ | 119.0 | | | (9) | % | Provision for income taxes | $ | 30.2 | | $ | 50.9 | | (41) | % | | $ | 100.2 | | | $ | 107.9 | | | (7) | % |
Effective income tax rate | Effective income tax rate | 21.1 | % | | 20.6 | % | | +46 bps | | 21.0 | % | | 22.7 | % | | -174 bps | Effective income tax rate | 16.6 | % | | 21.1 | % | | -443 bps | | 20.1 | % | | 21.0 | % | | -89 bps |
| Net income from continuing operations | Net income from continuing operations | $ | 190.7 | | $ | 117.2 | | 63 | % | | $ | 406.8 | | | $ | 405.5 | | | — | % | Net income from continuing operations | $ | 151.5 | | $ | 190.7 | | (21) | % | | $ | 399.4 | | | $ | 406.8 | | | (2) | % |
Net income attributable to noncontrolling interest | Net income attributable to noncontrolling interest | $ | (0.3) | | | $ | (0.2) | | | 50 | % | | $ | (0.5) | | | $ | (0.4) | | | 25 | % | Net income attributable to noncontrolling interest | $ | 0.2 | | | $ | (0.3) | | | NM | | $ | — | | | $ | (0.5) | | | NM |
Net income from continuing operations attributable to Polaris Inc. shareholders | Net income from continuing operations attributable to Polaris Inc. shareholders | $ | 190.4 | | | $ | 117.0 | | | 63 | % | | $ | 406.3 | | | $ | 405.1 | | | — | % | Net income from continuing operations attributable to Polaris Inc. shareholders | $ | 151.7 | | | $ | 190.4 | | | (20) | % | | $ | 399.4 | | | $ | 406.3 | | | (2) | % |
Percentage of sales | | Percentage of sales | 6.7 | % | | 8.1 | % | | -139 bps | | 6.0 | % | | 6.6 | % | | -56 bps |
| Adjusted EBITDA | | Adjusted EBITDA | $ | 282.6 | | $ | 319.8 | | (12) | % | | $ | 786.2 | | $ | 738.7 | | 6 | % |
Adjusted EBITDA Margin | | Adjusted EBITDA Margin | 12.6 | % | | 13.7 | % | | -110 bps | | 11.8 | % | | 11.9 | % | | -11 bps |
| Diluted net income from continuing operations per share attributable to Polaris Inc. shareholders | Diluted net income from continuing operations per share attributable to Polaris Inc. shareholders | $ | 3.17 | | | $ | 1.88 | | | 69 | % | | $ | 6.71 | | $ | 6.44 | | | 4 | % | Diluted net income from continuing operations per share attributable to Polaris Inc. shareholders | $ | 2.62 | | | $ | 3.17 | | | (17) | % | | $ | 6.90 | | $ | 6.71 | | | 3 | % |
Weighted average diluted shares outstanding | Weighted average diluted shares outstanding | 60.0 | | 62.3 | | (4) | % | | 60.6 | | | 62.9 | | | (4) | % | Weighted average diluted shares outstanding | 57.8 | | 60.0 | | (4) | % | | 57.9 | | | 60.6 | | | (4) | % |
NM = not meaningful | NM = not meaningful | | NM = not meaningful | |
Sales:
Sales for the quarter were $2,340.6 million, a 32 percent increase from $1,777.7 million ofThe decrease in sales in the prior year, and year-to-date sales were $6,184.9 million, a 14 percent increase from $5,446.6 million of sales in the prior year. The growth for the quarter was driven primarily by increaseddecreased shipments and higher pricing, andfinance interest, partially offset by favorable product mix, while themix. The sales growth for the year-to-date period was driven primarily by higher pricing and favorable product mix.
The components of the consolidated sales change were as follows:
| | | Percent change in total Company sales compared to corresponding period of the prior year | | Percent change in total Company sales compared to corresponding period of the prior year |
| | Three months ended | | Nine months ended | | Three months ended | | Nine months ended |
| | September 30, 2022 | | September 30, 2022 | | September 30, 2023 | | September 30, 2023 |
Volume | Volume | 14 | % | | (1) | % | Volume | (5) | % | | 5 | % |
Product mix and price | Product mix and price | 20 | | | 17 | | Product mix and price | 1 | | | 2 | |
| Currency | Currency | (2) | | | (2) | | Currency | — | | | — | |
| | 32 | % | | 14 | % | | (4) | % | | 7 | % |
Volume drove a 14 percent increase to salesThe volume decrease for the quarter primarily driven by increased ORV shipments. Volume caused a one percent decrease for the year-to-date period,was primarily driven by decreased ORV, Indian Motorcycle, and pontoon shipments, partially offset by increased snowmobile shipments. The volume increase for the year-to-date period was primarily driven by increased snowmobile and ORV shipments. Product mix and price contributed a 20 percent and 17 percent increase for the quarter and year-to-date periods respectively, primarily due to increased product pricing. Currency drovewere favorable as a two percent decrease inresult of a higher sales for both the quarter and the year-to-date periods.mix of premium ORV models.
Sales by geographic region were as follows:
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
($ in millions) | ($ in millions) | 2022 | | Percent of Total Sales | | 2021 | | Percent of Total Sales | | Percent Change 2022 vs. 2021 | | 2022 | | Percent of Total Sales | | 2021 | | Percent of Total Sales | | Percent Change 2022 vs. 2021 | ($ in millions) | 2023 | | Percent of Total Sales | | 2022 | | Percent of Total Sales | | Percent Change 2023 vs. 2022 | | 2023 | | Percent of Total Sales | | 2022 | | Percent of Total Sales | | Percent Change 2023 vs. 2022 |
United States | United States | $ | 1,915.1 | | | 82 | % | | $ | 1,394.7 | | | 78 | % | | 37 | % | | $ | 4,861.3 | | | 79 | % | | $ | 4,196.0 | | | 77 | % | | 16 | % | United States | $ | 1,845.5 | | | 82 | % | | $ | 1,915.1 | | | 82 | % | | (4) | % | | $ | 5,285.9 | | | 80 | % | | $ | 4,861.3 | | | 79 | % | | 9 | % |
Canada | Canada | 153.6 | | | 6 | % | | 136.9 | | | 8 | % | | 12 | % | | 446.9 | | | 7 | % | | 405.4 | | | 7 | % | | 10 | % | Canada | 140.0 | | | 6 | % | | 153.6 | | | 6 | % | | (9) | % | | 425.1 | | | 6 | % | | 446.9 | | | 7 | % | | (5) | % |
Other countries | Other countries | 271.9 | | | 12 | % | | 246.1 | | | 14 | % | | 10 | % | | 876.7 | | | 14 | % | | 845.2 | | | 16 | % | | 4 | % | Other countries | 263.4 | | | 12 | % | | 271.9 | | | 12 | % | | (3) | % | | 934.2 | | | 14 | % | | 876.7 | | | 14 | % | | 7 | % |
Total sales | Total sales | $ | 2,340.6 | | | 100 | % | | $ | 1,777.7 | | | 100 | % | | 32 | % | | $ | 6,184.9 | | | 100 | % | | $ | 5,446.6 | | | 100 | % | | 14 | % | Total sales | $ | 2,248.9 | | | 100 | % | | $ | 2,340.6 | | | 100 | % | | (4) | % | | $ | 6,645.2 | | | 100 | % | | $ | 6,184.9 | | | 100 | % | | 7 | % |
Sales in the United States decreased during the quarter driven by decreased shipments and higher finance interest. Sales increased 37 percentfor the year-to-date period driven by increased shipments and 16 percentfavorable product mix, partially offset by higher finance interest.
Sales in Canada decreased during the quarter and year-to-date periods respectively,primarily driven by increaseddecreased shipments higher pricing, and unfavorable foreign currency exchange rate movement, partially offset by favorable product mix.
Sales in Canada increased 12 percent and 10 percent during the quarter and year-to-date periods, respectively, driven by increased pricing. Currency rate movements had an unfavorable impact of fourtwo and threefour percentage points on quarter and year-to-date sales, respectively.
Sales in other countries, primarily in Europe, increased 10 percent and four percentdecreased during the quarter, and year-to-date periods, respectively,primarily driven by lower ORV and Indian Motorcycle shipments, partially offset by favorable foreign currency rate movement. Sales increased pricing.during the year-to-date period primarily driven by favorable product mix, partially offset by lower ORV and Indian Motorcycle shipments. Currency rate movements had an unfavorablea favorable impact of 13five and nineone percentage points on quarter and year-to-date sales, respectively.
Cost of Sales:
The following table reflects our cost of sales in dollars and as a percentage of sales:
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
($ in millions) | ($ in millions) | 2022 | | Percent of Total Cost of Sales | | 2021 | | Percent of Total Cost of Sales | | Percent Change 2022 vs. 2021 | | 2022 | | Percent of Total Cost of Sales | | 2021 | | Percent of Total Cost of Sales | | Percent Change 2022 vs. 2021 | ($ in millions) | 2023 | | Percent of Total Cost of Sales | | 2022 | | Percent of Total Cost of Sales | | Percent Change 2023 vs. 2022 | | 2023 | | Percent of Total Cost of Sales | | 2022 | | Percent of Total Cost of Sales | | Percent Change 2023 vs. 2022 |
Purchased materials and services | Purchased materials and services | $ | 1,504.6 | | | 84 | % | | $ | 1,142.5 | | | 84 | % | | 32 | % | | $ | 4,067.8 | | | 85 | % | | $ | 3,449.4 | | | 84 | % | | 18 | % | Purchased materials and services | $ | 1,442.1 | | | 83 | % | | $ | 1,504.6 | | | 84 | % | | (4) | % | | $ | 4,299.6 | | | 83 | % | | $ | 4,067.8 | | | 85 | % | | 6 | % |
Labor and benefits | Labor and benefits | 171.1 | | | 10 | % | | 147.3 | | | 11 | % | | 16 | % | | 475.4 | | | 10 | % | | 432.5 | | | 11 | % | | 10 | % | Labor and benefits | 195.7 | | | 11 | % | | 171.1 | | | 10 | % | | 14 | % | | 573.5 | | | 11 | % | | 475.4 | | | 10 | % | | 21 | % |
Depreciation and amortization | Depreciation and amortization | 45.2 | | | 3 | % | | 41.0 | | | 3 | % | | 10 | % | | 134.0 | | | 3 | % | | 118.2 | | | 3 | % | | 13 | % | Depreciation and amortization | 53.0 | | | 3 | % | | 45.2 | | | 3 | % | | 17 | % | | 147.4 | | | 3 | % | | 134.0 | | | 3 | % | | 10 | % |
Warranty costs | Warranty costs | 60.5 | | | 3 | % | | 26.9 | | | 2 | % | | 125 | % | | 121.2 | | | 2 | % | | 97.3 | | | 2 | % | | 25 | % | Warranty costs | 49.3 | | | 3 | % | | 60.5 | | | 3 | % | | (19) | % | | 141.7 | | | 3 | % | | 121.2 | | | 2 | % | | 17 | % |
Total cost of sales | Total cost of sales | $ | 1,781.4 | | | 100 | % | | $ | 1,357.7 | | | 100 | % | | 31 | % | | $ | 4,798.4 | | | 100 | % | | $ | 4,097.4 | | | 100 | % | | 17 | % | Total cost of sales | $ | 1,740.1 | | | 100 | % | | $ | 1,781.4 | | | 100 | % | | (2) | % | | $ | 5,162.2 | | | 100 | % | | $ | 4,798.4 | | | 100 | % | | 8 | % |
Percentage of sales | Percentage of sales | 76.1 | % | | | | 76.4 | % | | -26 bps | | 77.6 | % | | | | 75.2 | % | | +236 bps | Percentage of sales | 77.4 | % | | | | 76.1 | % | | +127 bps | | 77.7 | % | | | | 77.6 | % | | +10 bps |
Cost of sales decreased during the quarter primarily due to decreased shipments and lower warranty costs, partially offset by higher labor costs. Cost of sales increased during the quarter and year-to-date periodsperiod primarily due to increased volume, highershipments and increased labor raw material, andcosts, partially offset by lower logistics costs, as well as increased warranty costs.
Gross Profit:
Consolidated gross profit for the quarter, as a percentage of sales, increaseddecreased primarily due to higher pricing, partially offset by higher input costs.finance interest, unfavorable product mix, and unfavorable foreign currency exchange rate movement. Consolidated gross profit for the year-to-date period, as a percentage of sales, decreased primarily due to higher input costs including logistics, components,finance interest, unfavorable foreign currency exchange rate movement, and commodity prices, as well as plant inefficiencies related to supply chain constraints,unfavorable product mix, partially offset by increased pricing.higher net pricing and lower input costs.
Operating Expenses:
Operating expenses, in absolute dollars increased during the quarter and year-to-date periods primarily due to higher research and development and general and administrative expenses. Operating expenses, as a percentage of sales, decreased duringincreased for the quarter and year-to-date periods due to higher shipmentsselling and increased pricing.marketing expenses.
Income from Financial Services:
Income from financial services increased seven percent for the quarter and year-to-date periods, primarily due to higher wholesale financing income from Polaris Acceptance driven by higher dealer inventory levels. Income from financial services decreased 18 percent for the year-to-date period, primarily due to lower retail credit income resulting from lower retail sales, partially offset by higher wholesale financing income.
Interest Expense:
Interest expense increased for the quarter and year-to-date periods due to higher debt levels and higher interest rates.
Other (income) expense, net:
Other (income) expense is primarily the result of currency exchange rate movements and the corresponding effects on currency transactions related to the Company’s international subsidiaries.
Provision for income taxes:
The increasedecrease in the effective income tax rate for the quarter ended September 30, 2022 is primarily due to a decreaseto an increase in research and development credits partially offset by an increased deduction for Foreign Derived Intangible Income (“FDII”) and incremental foreign tax credits, as well as the unfavorablefavorable impact of higher pretaxlower pre-tax income generated in the current period.quarter.
The decrease in the effective income tax rate for the year-to-date period ended September 30, 2022 is primarily due to an increased deduction for FDII and incremental foreign tax credits offset by a decreaseincrease in research and development credits.
Adjusted EBITDA:
Adjusted EBITDA, in absolute dollars and as a percentage of sales, decreased during the quarter primarily due to decreased shipments and higher finance interest, partially offset by lower input costs.
Adjusted EBITDA, in absolute dollars, increased during the year-to-date period primarily due to higher net pricing, lower input costs, and increased shipments, partially offset by higher finance interest and higher operating expenses. Adjusted EBITDA, as a percentage of sales, decreased during the year-to-date period primarily due higher finance interest and higher operating expenses, partially offset by higher net pricing and lower input costs.
For information on how we define and calculate Adjusted EBITDA and a reconciliation of net income from continuing operations to Adjusted EBITDA, see “Non-GAAP Financial Measures”.
Weighted average diluted shares outstanding:
Over the time period within and between the comparable quarterly and year-to-date periods, weighted average diluted shares outstanding was down four percentdecreased compared to the comparable prior year periods, primarily due to share repurchases.
Cash Dividends:
We paid a regular cash dividend of $0.64$0.65 per common share on September 15, 20222023 to holders of record at the close of business on September 1, 2022.2023. We paid aggregate cash dividends of $1.92$1.95 per common share for the nine months ended September 30, 2022.2023.
Segment Results of Operations
On January 1, 2022, the Company began management of its portfolio of businesses under a new basis which was intended to createas a simplified reporting structure to provide better focusresult of the divestiture of the GEM and allow for resources to be best leveraged for future growth and profitability improvement.Taylor-Dunn businesses. As a result,such, the Company eliminated its Global Adjacent Markets reporting segment.segment was eliminated and the results of the Company’s remaining businesses historically included within the Global Adjacent Markets segment were reclassified to the Off Road and On Road segments. All historical segment results were reclassified for comparability.
On June 30, 2022, the Company again began management of its portfolio of businesses under a new basis as a result of the divestiture of TAP. As such, the Aftermarket segment was eliminated and the results of the Company’s remaining aftermarket businesses historically included within the Aftermarket segment were reclassified to the Off-RoadOff Road and On-RoadOn Road segments. The comparative 2021All historical segment results were reclassified for comparability.
The summary that follows provides a discussion of the results of operations of each of our three reportable segments, Off-Road, On-Road,Off Road, On Road, and Marine. Each of these segments is comprised of various product offerings that serve multiple end markets. We evaluate performance based on sales and gross profit. The Corporate amounts include revenues and costs of businesses that were divested in 2021, as well as costs that are not allocated to segments, including certain unallocated manufacturing costs. Businesses that are presented as discontinued operations are excluded from the tables below.
Our sales and gross profit by reporting segment, which includes the respective PG&A, were as follows:
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| Three months ended September 30, | | Nine months ended September 30, |
($ in millions) | 2022 | | Percent of Sales | | 2021 | | Percent of Sales | | Percent Change 2022 vs. 2021 | | 2022 | | Percent of Sales | | 2021 | | Percent of Sales | | Percent Change 2022 vs. 2021 |
Off-Road | $ | 1,746.4 | | 75 | % | | $ | 1,316.2 | | 74 | % | | 33 | % | | $ | 4,578.9 | | 74 | % | | $ | 4,015.5 | | 74 | % | | 14 | % |
On-Road | 334.0 | | 14 | % | | 257.8 | | 15 | % | | 30 | % | | 861.3 | | 14 | % | | 798.4 | | 15 | % | | 8 | % |
Marine | 260.2 | | 11 | % | | 183.6 | | 10 | % | | 42 | % | | 744.7 | | 12 | % | | 579.9 | | 10 | % | | 28 | % |
Corporate | — | | — | % | | 20.1 | | 1 | % | | NM | | — | | — | % | | 52.8 | | 1 | % | | NM |
Total sales | $ | 2,340.6 | | 100 | % | | $ | 1,777.7 | | 100 | % | | 32 | % | | $ | 6,184.9 | | 100 | % | | $ | 5,446.6 | | 100 | % | | 14 | % |
NM = not meaningful | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
($ in millions) | 2023 | | Percent of Sales | | 2022 | | Percent of Sales | | Percent Change 2023 vs. 2022 | | 2023 | | Percent of Sales | | 2022 | | Percent of Sales | | Percent Change 2023 vs. 2022 |
Off Road | $ | 1,844.4 | | 82 | % | | $ | 1,746.4 | | 75 | % | | 6 | % | | $ | 5,067.6 | | 76 | % | | $ | 4,578.9 | | 74 | % | | 11 | % |
On Road | 270.3 | | 12 | % | | 334.0 | | 14 | % | | (19) | % | | 955.4 | | 15 | % | | 861.3 | | 14 | % | | 11 | % |
Marine | 134.2 | | 6 | % | | 260.2 | | 11 | % | | (48) | % | | 622.2 | | 9 | % | | 744.7 | | 12 | % | | (16) | % |
Total sales | $ | 2,248.9 | | 100 | % | | $ | 2,340.6 | | 100 | % | | (4) | % | | $ | 6,645.2 | | 100 | % | | $ | 6,184.9 | | 100 | % | | 7 | % |
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended September 30, | | Nine months ended September 30, |
($ in millions) | ($ in millions) | 2022 | | Percent of Sales | | 2021 | | Percent of Sales | | Percent Change 2022 vs. 2021 | | 2022 | | Percent of Sales | | 2021 | | Percent of Sales | | Percent Change 2022 vs. 2021 | ($ in millions) | 2023 | | Percent of Sales | | 2022 | | Percent of Sales | | Percent Change 2023 vs. 2022 | | 2023 | | Percent of Sales | | 2022 | | Percent of Sales | | Percent Change 2023 vs. 2022 |
Off-Road | $ | 449.2 | | | 25.7 | % | | $ | 293.8 | | | 22.3 | % | | 53 | % | | $ | 1,062.1 | | | 23.2 | % | | $ | 1,020.9 | | | 25.4 | % | | 4 | % | |
On-Road | 60.1 | | | 18.0 | % | | 38.7 | | | 15.0 | % | | 55 | % | | 154.7 | | | 18.0 | % | | 129.2 | | | 16.2 | % | | 20 | % | |
Off Road | | Off Road | $ | 425.5 | | | 23.1 | % | | $ | 449.2 | | | 25.7 | % | | (5) | % | | $ | 1,122.6 | | | 22.2 | % | | $ | 1,062.1 | | | 23.2 | % | | 6 | % |
On Road | | On Road | 57.7 | | | 21.3 | % | | 60.1 | | | 18.0 | % | | (4) | % | | 208.7 | | | 21.8 | % | | 154.7 | | | 18.0 | % | | 35 | % |
Marine | Marine | 55.9 | | | 21.5 | % | | 41.2 | | | 22.4 | % | | 36 | % | | 169.0 | | | 22.7 | % | | 135.0 | | | 23.3 | % | | 25 | % | Marine | 24.3 | | | 18.1 | % | | 55.9 | | | 21.5 | % | | (57) | % | | 143.3 | | | 23.0 | % | | 169.0 | | | 22.7 | % | | (15) | % |
Corporate | Corporate | (6.0) | | | 46.3 | | | 0.7 | | | 64.1 | | | Corporate | 1.3 | | | (6.0) | | | 8.4 | | | 0.7 | | |
Total gross profit | Total gross profit | $ | 559.2 | | | $ | 420.0 | | | 33 | % | | $ | 1,386.5 | | | $ | 1,349.2 | | | 3 | % | Total gross profit | $ | 508.8 | | | $ | 559.2 | | | (9) | % | | $ | 1,483.0 | | | $ | 1,386.5 | | | 7 | % |
Percentage of sales | Percentage of sales | 23.9 | % | | 23.6 | % | | +26 bps | | 22.4 | % | | 24.8 | % | | -236 bps | Percentage of sales | 22.6 | % | | 23.9 | % | | -127 bps | | 22.3 | % | | 22.4 | % | | -10 bps |
|
Off-RoadOff Road:
Off Road sales, inclusive of PG&A sales, increased 33 percent and 14 percent for the quarter and year-to-date periods ended September 30, 2022, respectively. The growth for the quarter was driven primarily by increased shipments, higher pricing, and favorable product mix, while the growth for the year-to-date period was driven primarilypartially offset by higher pricing. Off-Road sales to customers outside of North America increased six percent and seven percent for the quarter and year-to-date periods, respectively. The growth for the quarter and year-to-date period was driven primarily by higher pricing, with the year-to-date period also benefiting from increased snowmobile shipments.finance interest. The average per unit sales price for the Off-RoadOff Road segment increased approximately 22one percent and 19four percent for the quarter and year-to-date periods, respectively, driven by favorable product mix.
Off Road sales to customers outside of North America increased two percent for the quarter driven by higher snowmobile shipments and higher PG&A sales. Off Road sales to customers outside of North America increased one percent for year-to-date period driven by higher PG&A sales.
Gross profit, as a percentage of sales, decreased during the quarter primarily due to unfavorable product pricing.mix, unfavorable foreign currency exchange rate movement, and higher finance interest. Gross profit, as a percentage of sales, decreased during the year-to-date period primarily due to unfavorable foreign currency exchange rate movement, higher finance interest, and unfavorable mix, partially offset by favorable net pricing and lower input costs.
Additional information on our end markets for the quarter:
•Polaris North America ATV unit retail sales down high-teensup mid-single digits percent
•Polaris North America side-by-side unit retail sales down low-singleup mid-single digits percent
•Total Polaris North America ORV unit retail sales down high-singleup mid-single digits percent
•Estimated North America industry ORV unit retail sales up low-single digits percent
•Total Polaris North America ORV dealer inventories up approximately 14095 percent
Gross profit, as a percentageOn Road:
On Road sales, inclusive of PG&A sales, increased duringdecreased for the quarter primarily due to decreased shipments. On Road sales, inclusive of PG&A sales, increased pricing more than offsetting higher input costs. Gross profit, as a percentage of sales, decreased duringfor the year-to-date period primarily due to higher input costs including logistics, components, and commodity prices, plant inefficiencies related to supply chain constraints, and unfavorable product mix,increased shipments, partially offset by lower net pricing and higher finance interest. The average per unit sales price for the On Road segment increased pricing.
On-Road:
On-Road sales, inclusive of PG&A sales, increased 30approximately 11 percent and eight percent for the quarter and year-to-date periods, ended September 30, 2022, respectively. The increases wererespectively, primarily driven by increaseddue to favorable product mix.
On Road sales to customers outside of North America decreased nine percent for the quarter primarily due to lower Indian Motorcycle shipments, higher pricing, and increased PG&A sales. On-Roadshipments. On Road sales to customers outside of North America increased 17 percent for the quarter primarily driven by increased Indian Motorcycle shipments. On-Road sales to customers outside of North America increased one13 percent for the year-to-date period primarily driven bydue to higher Indian Motorcycle shipments and favorable product mix.
Gross profit, as a percentage of sales, increased pricing. The average per unit sales price for the On-Road segment decreased approximately two percent for the quarter driven by currency rate movements while the
average per unit sales, price for the On-Road segment increased approximately one percent for the year-to-date period driven by lower promotional costs and favorable product mix, partially offset by unfavorable foreign currency exchange rate movement.higher finance interest.
Additional information on our end markets for the quarter:
•Indian Motorcycle North America unit retail sales up high-single digitsdown low-teens percent
•Estimated North America industry 900cc cruiser, touring, and standard motorcycles unit retail sales down low-single digitsmid-teens percent
•Estimated Polaris North America motorcycle dealer inventories up approximately 4515 percent
Gross profit, as a percentage of sales, increased for the quarter and the year-to-date periods, driven by favorable product mix and lower promotional costs, partially offset by higher input costs and unfavorable foreign currency exchange rate movement.
Marine:
Marine sales increased 42 percent and 28 percent fordecreased during the quarter and year-to-date periods respectively, primarily due to increased unit volume, favorabledriven by decreased shipments and unfavorable product mix, and pricing actions.partially offset by higher net pricing. The average per unit sales price for the Marine segment increased approximately 16three percent and 17two percent for the quarter and year-to-date periods, respectively, drivenprimarily due to favorable net pricing.
Gross profit, as a percentage of sales, decreased during the quarter and year-to-date periods primarily due to a decrease in sales volumes resulting in decreased leverage of manufacturing costs, partially offset by favorable product mix and pricing actions.higher net pricing.
Additional information on our end markets for the quarter:
•Polaris U.S pontoon unit retail sales down low-doubleup low-single digits percent
•Estimated U.S. industry pontoon unit retail sales up low-doubledown low-single digits percent
Gross profit,•Polaris U.S deck boat unit retail sales down low-twenties percent
•Estimated U.S. industry deck boat unit retail sales down mid-twenties percent
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
We use the non-GAAP financial measure of Adjusted EBITDA, which is defined as net income from continuing operations, excluding interest expense, income tax expense, depreciation and amortization, and certain other non-cash, non-recurring, or non-operating items impacting net income from continuing operations from time to time. For example, costs associated with our multi-phase supply chain transformation initiative and certain corporate restructuring activities, such as acquisitions and divestitures, are included as non-GAAP adjustments. We use the non-GAAP financial measure of Adjusted EBITDA Margin, which is defined as Adjusted EBITDA divided by net sales. We believe that Adjusted EBITDA and Adjusted EBITDA Margin help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude from Adjusted EBITDA and Adjusted EBITDA Margin.
We believe that these measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to key metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP measures to assist investors in seeing our financial performance through the eyes of management, and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.
Adjusted EBITDA has limitations and should not be considered in isolation from, as a percentagesubstitute for, or more meaningful than, net income from continuing operations as determined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance. Our presentation of sales, decreased duringAdjusted EBITDA and Adjusted EBITDA Margin should not be construed as an inference that our results will be unaffected by unusual or non-recurring items.
The following table presents a reconciliation of net income from continuing operations, the quartermost comparable GAAP financial measure, to Adjusted EBITDA for each of the periods presented:
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| Three months ended September 30, | Nine months ended September 30, |
($ in millions) | 2023 | | 2022 | | 2023 | | 2022 |
Sales | $ | 2,248.9 | | $ | 2,340.6 | | $ | 6,645.2 | | $ | 6,184.9 |
| | | | | | | |
Net income from continuing operations | 151.5 | | 190.7 | | 399.4 | | 406.8 |
Provision for income taxes | 30.2 | | 50.9 | | 100.2 | | 107.9 |
Interest expense | 32.5 | | 20.1 | | 92.2 | | 46.8 |
Depreciation | 62.0 | | 51.7 | | 173.6 | | 155.6 |
Intangible amortization | 4.4 | | 4.5 | | 13.3 | | 14.3 |
Distributions from other affiliates | — | | (0.7) | | — | | (0.7) |
Acquisition-related costs (1) | 0.7 | | — | | 0.7 | | — |
Restructuring and realignment expenses (2) | 0.9 | | 1.2 | | 1.4 | | 5.5 |
Class action litigation expenses (3) | 0.4 | | 1.4 | | 5.4 | | 2.5 |
Adjusted EBITDA | $ | 282.6 | | $ | 319.8 | | $ | 786.2 | | $ | 738.7 |
Adjusted EBITDA Margin | 12.6 | % | | 13.7 | % | | 11.8 | % | | 11.9 | % |
(1) Represents adjustments for integration and year-to-date periods, primarily due to higher inputacquisition-related expenses
(2) Represents adjustments for corporate restructuring, network realignment costs, and higher floor plan interest expense, partially offset by favorable product mix.supply chain transformation costs
(3) Represents adjustments for certain class action litigation-related expenses
Liquidity and Capital Resources
Our primary sources of funds have beenliquidity are expected to be cash provided by operating and financing activities.activities, including funds as needed from our credit facility and issuances of long-term debt. Our primary uses of funds have been for acquisitions, repurchases and retirement of common stock, capital investments, new product development and cash dividends to shareholders. The seasonality of production and shipments cause working capital requirements to fluctuate during the year and year to year.
We believe that existing cash balances, cash flow to be generated from operating activities and, borrowing capacity under the credit facility arrangement and from future issuances or borrowings of long-term debt, will be sufficient to fund operations, new product development, cash dividends, share repurchases, and capital requirements for at least the next 12 months and for the foreseeable future thereafter.
Cash Flows
The following table summarizes the cash flows from operating, investing and financing activities of continuing operations:
| | | | | | | | | | | | | | | | | |
($ in millions) | Nine months ended September 30, |
2022 | | 2021 | | Change |
Total cash provided by (used for): | | | | | |
Operating activities | $ | 139.4 | | | $ | 135.4 | | | $ | 4.0 | |
Investing activities | (152.9) | | | (155.5) | | | 2.6 | |
Financing activities | (125.3) | | | (301.1) | | | 175.8 | |
| | | | | | | | | | | | | | | | | |
($ in millions) | Nine months ended September 30, |
2023 | | 2022 | | Change |
Total cash provided by (used for): | | | | | |
Operating activities | $ | 376.0 | | | $ | 139.4 | | | $ | 236.6 | |
Investing activities | (345.9) | | | (152.9) | | | (193.0) | |
Financing activities | (61.4) | | | (125.3) | | | 63.9 | |
Operating Activities:
The increase in net cash provided by operating activities of continuing operations was primarily the result of lower working capital additions, partially offset by lower net income.
Beginning in 2022, the Tax Cuts and Jobs Act ("Act") eliminates the option to deduct research and development expenditures and requires taxpayers to amortize domestic expenditures over five years and foreign expenditures over fifteen years. This
legislation is expected to decrease the Company's cash from operations beginning in 2022 and continue over the five year amortization period.additions.
Investing Activities:
The primary sources and uses of cash were for the purchase of property, equipment and tooling for continued capacity and capability at our manufacturing, distribution, and distributionproduct development facilities, and for product development, distributions from and contributions to Polaris Acceptance, as well as proceeds from the saleAcceptance. Net cash used for investing activities of businesses. Proceeds from the sale of businesses more than offsetcontinuing operations increased due to an increase in property, equipment and tooling purchases, and a decreaseas well as strategic investments in distributions from Polaris Acceptance, resulting in less cash used for investing activities of continuing operations compared to the priorcurrent year.
Financing Activities:
The decrease in net cash used for financing activities was primarily due to increasedlower share repurchases, partially offset by decreased net borrowings under debt arrangements. We recorded $336.0$157.7 million of net borrowings for the nine months ended September 30, 2022,2023, compared to $73.7$336.0 million of net borrowings for the comparable period in 2021. The change was also driven by lower share repurchases in 2022, partially offset by lower proceeds from stock issuances under employee plans.2022.
Financing Arrangements:
We are party to an unsecured Master Note Purchase Agreement, as amended and supplemented, under which we have issued senior notes. As of September 30, 2022,2023, outstanding borrowings under the Master Note Purchase Agreement totaled $350.0 million.
We are also party to an unsecured credit agreement,facility, which includes a $1.0 billion variable interest rate Revolving Loan Facility that matures in June 2026, under which we have unsecured borrowings. As of September 30, 2022,2023, there were borrowings of $378.0$507.7 million outstanding under the Revolving Loan Facility. Our credit agreementfacility also includes a Term Loan Facility, on which $840.0$792.0 million was outstanding as of September 30, 2022.2023. Interest is charged at rates based on LIBOR or “prime”adjusted Term SOFR for the credit facility. As of September 30, 2022,2023, we had $614.5$484.8 million of availability on the Revolving Loan Facility.
OnIn December 17, 2021, wethe Company amended the Term Loan Facilitycredit facility to provide an unsecured incremental 364-day term loan (the “incremental term loan”“Incremental Term Loan”) in the amount of $500 million. The incremental term loan,million, which was fully drawn on closing, is unsecured and matures onclosing. In December 16, 2022.2022, the Company further amended its credit facility to extend the maturity date of the Incremental Term Loan to December 15, 2023. There are no required principal payments prior to the maturity date. In addition to the payment of the $500 million incremental term loan, we areIncremental Term Loan, the Company is required to make principal payments under the Term Loan Facility totaling $45 million over the next 12 months.
The credit agreements governing the facility and the Master Note Purchase Agreement contain covenants that require the Company to maintain certain financial ratios, including minimum interest coverage and maximum leverage ratios. The agreements also require the Company to maintain an interest coverage ratio of not less than 3.00 to 1.00 and a leverage ratio of not more than 3.50 to 1.00 on a rolling four quarter basis.
On July 2, 2018, pursuant to the Agreement and Plan of Merger dated May 29, 2018, the Company completed the acquisition of Boat Holdings, LLC, a privately held Delaware limited liability company, headquartered in Elkhart, Indiana which manufactures boats (“Boat Holdings”). As a component of the Boat Holdings merger agreement, we have committed to make a series of deferred payments to the former owners through July 2030. The original discounted payable was for $76.7 million, of which $55.3$49.4 million was outstanding as of September 30, 2022.2023.
As of September 30, 2022,2023, we were in compliance with all debt covenants. Ourcovenants and our debt to total capital ratio was 68 percent as of September 30, 2022.62 percent. Additionally, as of September 30, 2022,2023, we had letters of credit outstanding of $43.0$36.2 million, primarily related to purchase obligations for raw materials.
Share Repurchases:
As of September 30, 2022, our Board of Directors has authorized us to repurchase up to an additional $475.6 million of our common stock. We repurchased a total of 3.21.4 million shares of our common stock for $378.5$159.4 million during the first nine months of 2022,2023, which had a favorable impact on diluted net income from continuing operations per share of 16eight cents. As of September 30, 2023, our Board of Directors has authorized us to repurchase up to an additional $204.0 million of our common stock.
Wholesale Customer Financing Arrangements:
We have arrangements with certain finance companies to provide secured floor plan financing for our dealers. These arrangements provide liquidity by financing dealer purchases of our products without the use of our working capital. A majority of the worldwide sales of snowmobiles, ORVs, motorcycles, boats and related PG&A are financed under similar
arrangements whereby we receive payment within a few days of shipment of the product. We participate in the cost of dealer financing up to certain limits.
Under these arrangements, we have agreed to repurchase products repossessed by these finance companies. As of September 30, 2022,2023, the potential aggregate repurchase obligations were approximately $283.6$423.0 million. Our financial exposure under these repurchase agreements is limited to the difference between the amounts unpaid by the dealer with respect to the repossessed product plus costs of repossession and the amount received on the resale of the repossessed product. No material losses have been incurred under this agreementthese agreements during the periods presented.
Retail Customer Financing Arrangements:
We have agreements with third-party financing companies to provide financing options to end consumers of our products. We have no material contingent liabilities for residual value or credit collection risk under these agreements. The income generated from these agreements has been included as a component of income from financial services in the consolidated statements of income.
Inflation, Foreign Exchange Rates, and Interest Rates
Inflation:
Rising costs, including wages, logistics, components, and commodity prices, are negatively impacting our gross profit margins. We strive to minimize the effects of inflation through cost containment, productivity improvements and price increases.
We are subject to market risk from fluctuating market prices of certain purchased commodities and raw materials, including steel, aluminum, petroleum-based resins, certain rare earth metals and diesel fuel. In addition, we are a purchaser of components and parts containing various commodities, including steel, aluminum, rubber and others, which are integrated into our end products. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. We generally buy these commodities and components based upon market prices that are established with the vendor as part of the purchase process. Based on our current outlook for commodity prices, which we expect to remain high, the total impact of commodities, including tariff costs, is expected to have a negative impact on our gross profit margins for full-year 2022 when compared to 2021.
Foreign Exchange Rates:
The changing relationships of the U.S. dollar to foreign currencies can have a material impact on our financial results.
Euro: We have operations in the Eurozone through wholly owned subsidiaries and distributors. We also purchase components from certain suppliers directly for our U.S. operations in transactions denominated in Euros. Fluctuations in the Euro to U.S. dollar exchange rate impacts sales, cost of sales, and net income.
Canadian Dollar: We operate in Canada through a wholly owned subsidiary. The relationship of the U.S. dollar in relation to the Canadian dollar impacts both sales and net income.
Other currencies: We operate in various countries, principally in Europe, Mexico and Australia, through wholly owned subsidiaries. We also sell to certain distributors in other countries. We also purchase components from certain suppliers directly for our U.S. operations in transactions denominated in these foreign currencies. The relationship of the U.S. dollar in relation to these other currencies impacts sales, cost of sales and net income.
We actively manage our exposure to fluctuating foreign currency exchange rates by entering into foreign exchange hedging contracts. A portion of our foreign currency exposure is mitigated with the following open foreign currency hedging contracts as of September 30, 2022:
| | | | | | | | | | | | | | | | | |
Foreign Currency
| | | Foreign currency hedging contracts |
Currency Position | | Notional amounts (in millions of U.S. Dollars) | | Average exchange rate of open contracts
|
Australian Dollar | Long | | $ | 18.6 | | | $0.70 to 1 AUD |
Canadian Dollar | Long | | 167.2 | | | $0.78 to 1 CAD |
Mexican Peso | Short | | 65.0 | | | 22 Peso to $1 |
During the quarter and year-to-date periods ended September 30, 2022, after consideration of the existing foreign currency hedging contracts, foreign currencies had a negative impact on net income compared to 2021. We expect currencies to have a negative impact on full-year net income from continuing operations in 2022 compared to 2021.
The assets and liabilities in all our international entities are translated at the foreign exchange rate in effect at the balance sheet date. Translation gains and losses are reflected as a component of accumulated other comprehensive loss, net in the shareholders’ equity section of the consolidated balance sheets. Revenues and expenses in all of our international entities are translated at the average foreign exchange rate in effect for each month of the year. Certain assets and liabilities related to intercompany positions reported on our consolidated balance sheet that are denominated in a currency other than the entity’s functional currency are translated at the foreign exchange rates at the balance sheet date and the associated gains and losses are included in net income.
Interest Rates:
We are a party to an unsecured credit agreement with various lenders consisting of a $1.0 billion revolving loan facility, a $1.2 billion term loan facility, and a $500 million incremental term loan. Interest accrues on the revolving loan, term loans, and the incremental term loan at variable rates based on LIBOR or “prime” plus the applicable add-on percentage as defined. As of September 30, 2022, there was $378.0 million outstanding on the revolving loan, $840.0 million outstanding on the term loan, and $500 million outstanding on the incremental term loan. We enter into interest rate swaps in order to maintain a balanced risk of fixed and floating interest rates associated with our debt. We expect interest rates to have a negative impact on full-year net income from continuing operations in 2022 compared to 2021.
Critical Accounting Policies
See our most recent Annual Report on Form 10-K for the year ended December 31, 20212022 for a discussion of our critical accounting policies. There have been no material changes to our critical accounting policies discussed in such report.
Note Regarding Forward Looking Statements
This report contains not only historical information, but also “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 we or our management “believes,” “should,” “anticipates,” “expects,” “estimates” or words of similar import. Similarly, statements that describe our future plans or trends, objectives or goals, such as future sales, shipments, inventory levels, consumer demand, net income, net income per share, future cash flows and capital requirements, operational initiatives, pricing actions, 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, are also forward-looking. Forward-looking statements may also be made from time to time in oral presentations, including telephone conferences and/or webcasts open to the public.
Potential risks and uncertainties include such factors as the severity and duration of the supply-chain related constraints currently impacting the Company; the Company’s ability to successfully source necessary parts and materials on a timely basis; the ability of the Company to manufacture and deliver products to dealers to meet demand; the Company’s ability to
identify and meet optimal dealer inventory levels; the Company’s ability to accurately forecast and sustain consumer demand; the Company’s ability to mitigate increasing input costs through pricing or other measures; the COVID-19 pandemicglobal pandemics and the resulting impact on the Company’s business, supply chain, and the global economy; the Company’s ability to successfully implement its manufacturing operations strategy and supply chain initiatives; product offerings, promotional activities and
pricing strategies by competitors that make our products less attractive to consumers; our ability to strategically invest in innovation and new products, including as compared to our competitors; economic conditions that impact consumer spending or consumer credit including recessionary conditions;conditions and changes in interest rates; disruptions in manufacturing facilities; product recalls and/or warranty expenses; product rework costs; 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 and class action claims, including claims seeking punitive damages, and other litigation expenses incurred due to the nature of our business; 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 global economic, social and political environment.
The risks and uncertainties discussed in this report are not exclusive and other factors that we may consider immaterial or do not anticipate may emerge as significant risks and uncertainties.
Any forward-looking statements made in this report or otherwise speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures made on related subjects in future Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that are filed with or furnished to the Securities and Exchange Commission.
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, 20212022 for a complete discussion on the Company’s market risk. There have been no material changes in market risk from those disclosed in the Company’s Form 10-K for the year ended December 31, 2021.2022. Refer below for further discussion on commodity cost risk, foreign currency exchange rate risk, and interest rate risk.
Inflation:
We are subject to market risk from fluctuating market prices of certain purchased commodities and raw materials, including steel, aluminum, petroleum-based resins, certain rare earth metals and diesel fuel. In addition, we are a purchaser of components and parts containing various commodities, including steel, aluminum, rubber and others, which are integrated into our end products. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. We generally buy these commodities and components based upon market prices that are established with the vendor as part of the purchase process. Based on our current outlook for commodity prices, the total impact of commodities, including tariff costs, is expected to have a positive impact on our gross profit margins for full-year 2023 when compared to 2022.
Foreign Exchange Rates:
The changing relationships of the U.S. dollar to foreign currencies can have a material impact on our financial results.
Euro: We have operations in the Eurozone through wholly owned subsidiaries and distributors. We also purchase components from certain suppliers directly for our U.S. operations in transactions denominated in Euros. Fluctuations in the Euro to U.S. dollar exchange rate impacts sales, cost of sales, and net income.
Canadian Dollar: We operate in Canada through a wholly owned subsidiary. The relationship of the U.S. dollar in relation to the Canadian dollar impacts both sales and net income.
Other currencies: We operate in various countries, principally in Europe, Mexico and Australia, through wholly owned subsidiaries. We also sell to certain distributors in other countries. We also purchase components from certain suppliers directly for our U.S. operations in transactions denominated in these foreign currencies. The relationship of the U.S. dollar in relation to these other currencies impacts sales, cost of sales and net income.
We actively manage our exposure to fluctuating foreign currency exchange rates by entering into foreign exchange hedging contracts. A portion of our foreign currency exposure is mitigated with the following open foreign currency hedging contracts as of September 30, 2023:
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Foreign Currency | | | Foreign currency hedging contracts |
Currency Position | | Notional amounts (in millions of U.S. Dollars) | | Average exchange rate of open contracts |
Australian Dollar | Long | | $ | 9.4 | | | $0.68 to 1 AUD |
Canadian Dollar | Long | | 170.4 | | | $0.75 to 1 CAD |
Mexican Peso | Short | | 52.1 | | | 20 Peso to $1 |
During the quarter and year-to-date periods ended September 30, 2023, after consideration of the existing foreign currency hedging contracts, foreign currencies had a negative impact on net income compared to 2022. We expect currencies to have a negative impact on full-year net income from continuing operations in 2023 compared to 2022.
The assets and liabilities in all our international entities are translated at the foreign exchange rate in effect at the balance sheet date. Translation gains and losses are reflected as a component of accumulated other comprehensive loss, net in the shareholders’ equity section of the consolidated balance sheets. Revenues and expenses in all of our international entities are translated at the average foreign exchange rate in effect for each month of the year. Certain assets and liabilities related to intercompany positions reported on our consolidated balance sheet that are denominated in a currency other than the entity’s functional currency are translated at the foreign exchange rates at the balance sheet date and the associated gains and losses are included in net income.
Interest Rates:
We are a party to an unsecured credit facility with various lenders consisting of a $1.0 billion revolving loan facility, a $1.2 billion term loan facility, and a $500 million incremental term loan. Interest accrues on the revolving loan, term loans, and the incremental term loan at variable rates based on adjusted Term SOFR plus the applicable add-on percentage as defined. As of September 30, 2023, there was $507.7 million outstanding on the revolving loan, $792.0 million outstanding on the term loan, and $500 million outstanding on the incremental term loan. We enter into interest rate swaps in order to maintain a balanced risk of fixed and floating interest rates associated with our debt. We expect interest rates to have a negative impact on full-year net income from continuing operations in 2023 compared to 2022.
Item 4 – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (2) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
Changes in Internal Controls
There have been no changes in the Company’s internal controlscontrol over financial reporting during the latest fiscal quarter covered by this quarterly reportQuarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal controlscontrol over financial reporting.
Part II OTHER INFORMATION
Item 1 – LEGAL PROCEEDINGS
We are involved in a number of legal proceedings incidental to our business, none of which is presently expected to have a material effect on our financial position, results of operations or cash flows, or the financial results of our business.
As of the date hereof, we are also party to certain putative class actions brought by the same plaintiff’s counsel and largely repeating the same allegations regarding various state consumer protection laws focused on rollover protection systems’structures’ certifications for various Polaris off-road vehicles sold in California, Oregon and Texas.California. The first case brought related to this matter—GuzmanGuzman/Albright—was first reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The district court granted summary judgment against both plaintiff’s claims. Theplaintiffs’ claims, which the plaintiffs appealed. The Ninth Circuit recently issued two rulings in September 2022 that reversed the district court’s summary judgment rulings and remanded the case to the district court with instructions to dismiss one plaintiff’s claims without prejudice. We haveThe plaintiff whose claims were dismissed without prejudice refiled a putative class action in California State Court under the name Albright. In June 2023, the Albright court granted the parties’ stipulation to stay that case pending a decision on class certification in the Guzman case. On September 27, 2023, the district court in Guzman entered an order granting in part and denying in part plaintiff’s motion for class certification. The district court certified a California class for plaintiff’s claim seeking money damages under the California Consumers Legal Remedies Act but denied class certification of plaintiff’s claim seeking injunctive relief under Fed. R. Civ. P. 23(b)(2). On October 11, 2023, Polaris filed a petition for rehearing or rehearing en banc with respect to appeal the decision requiring dismissal without prejudice.portion of the district court’s order granting class certification. The second case—HellmanHellman/Berlanga—was first reported in the Company’s quarterly report for the period ended June 30, 2021. AdditionalPlaintiffs’ counsel, in both the Albright and Hellman/Berlanga cases, filed similar putative class actions on behalf of certain plaintiffs dismissed from the HellmanHellman/Berlanga case have been filed in Texas (Lollar), Nevada (Mitchell), and Oregon (Artoff)., though the
TableLollar and Mitchell matters have since been dismissed, the parties reached a final settlement agreement of Contentsthe plaintiff’s individual claims in Artoff, and another plaintiff from the Hellman/Berlanga matter, Michael Hellman, has been dismissed. In May 2023, the remaining plaintiff in the Berlanga case filed a motion for class certification. We have filed an opposition to plaintiff’s motion for class certification and have filed a motion to exclude the opinions of certain of plaintiff’s expert witnesses. On August 28, 2023, the United States District Court for the Eastern District of California transferred the Berlanga case to the United States District Court for the Central District of California. On September 13, 2023, the district court in the Guzman case consented to the transfer of the Berlanga case. That district court has not yet ruled on the Berlanga plaintiff’s motion for class certification or Polaris’s motion to exclude the opinions of plaintiff’s expert witnesses in that case.As previously reported in the Company’s quarterly report on Form 10-Q for the period ended September 30, 2021, the district court in In re Polaris dismissed half of the plaintiffs and their claims related to alleged fire hazards in certain Polaris products. Plaintiffs’ counsel voluntarily dismissed the remaining plaintiffs to appeal. The Eighth Circuit affirmed dismissal of the claims brought by plaintiffs who had appealed. On April 28, 2022, the In re Polaris plaintiffs’ counsel filed a new, substantially similar putative class action in California State Court, seeking damages for alleged economic loss: James DeBiasio v. Polaris Industries Inc. (County of Los Angeles, Ca.). We removed the matter to federal court (C.D. Cal.) in June 2022 (C.D. Cal.) and have moved to dismiss the plaintiff’s claims; plaintiff filed a motion to remand the case. The district court recently denied plaintiff’s motion to remand and granted our motion to dismiss, givingallowing plaintiff a limited time to file an amended compliant.
As previously reported in the Company’s quarterly report on Form 10-Q for the period ended September 30, 2021, the district court in Johannessohn denied class certification related to plaintiffs’ claims of excessive heat hazards in Sportsman ATVs. The Eighth Circuit subsequently affirmed that denial. On June 13, 2022, Johannessohn plaintiffs’ counsel filed a new, substantially similar putative class action in Minnesota State Court, seeking damages for alleged economic loss: Jay Miller, individually and on behalf of all others similarly situated v. Polaris Inc. (4th Dist. Minn.).complaint. We have moved to dismiss plaintiff’s claims.amended complaint, which the Court denied in March 2023. The parties are engaged in fact discovery.
With respect to each of these putative class action lawsuits, we are unable to provide any reasonable evaluation of the likelihood that a loss will be incurred or any reasonable estimate of the range of possible loss.
Item 1A – RISK FACTORS
Please consider the factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.2022. There have been no material changes or additions to our risk factors discussed in such report, which could materially affect the Company’s business, financial condition, or future results.
Item 2 – UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
This table provides certain information with respect to Polaris Inc.’s purchases of its common stock during the third quarter of 2022:2023:
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Period | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (1) |
July 1 — 31, 2022 | 100,000 | | | $ | 115.02 | | | 100,000 | | | $ | 670,208,481 | |
August 1 — 31, 2022 | 1,170,000 | | | $ | 118.47 | | | 1,170,000 | | | $ | 531,605,129 | |
September 1 — 30, 2022 | 500,000 | | | $ | 112.02 | | | 500,000 | | | $ | 475,599,414 | |
Total / Average | 1,770,000 | | | $ | 116.46 | | | 1,770,000 | | | |
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Period | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (1) |
July 1 — 31, 2023 | 60,000 | | | $ | 135.40 | | | 60,000 | | | $ | 254,113,847 | |
August 1 — 31, 2023 | 320,000 | | | $ | 122.80 | | | 320,000 | | | $ | 214,832,173 | |
September 1 — 30, 2023 | 100,000 | | | $ | 108.20 | | | 100,000 | | | $ | 204,010,314 | |
Total / Average | 480,000 | | | $ | 121.30 | | | 480,000 | | | |
(1) In April 2021, the Company’s Board of Directors authorized the purchase of up to $1.0 billion of the Company’s common stock (the “Program”), which replaced the previous share repurchase program. As of September 30, 2022,2023, the approximate value of shares that may yet to be purchased pursuant to the Program is $475.6$204.0 million. The Program does not have an expiration date.
Item 5 – OTHER INFORMATION
Trading Arrangements
Adoptions
On August 4, 2023, James P. Williams, the Company’s Chief Human Resources Officer, entered into a written plan for the sale of an aggregate 159,609 shares of common stock. The plan is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act, and is scheduled to terminate no later than August 4, 2025.
Item 6 – EXHIBITS
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Exhibit Number | | Description |
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| | Restated ArticlesCertificate of Incorporation of Polaris Inc., effective as of July 29, 2019, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed July 29, 2019.May 1, 2023. |
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| | Bylaws of Polaris Inc., as amended and restated on July 29, 2019, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed July 29, 2019.May 1, 2023. |
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| | Certification of Chief Executive Officer required by Exchange Act Rule 13a-14(a). |
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| | Certification of Chief Financial Officer required by Exchange Act Rule 13a-14(a). |
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| | Certification furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| | Certification furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101 | | The following financial information from Polaris Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2022,2023, filed with the SEC on October 25, 2022,24, 2023, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets as of September 30, 20222023 and December 31, 2021,2022, (ii) the Consolidated Statements of Income for the three and nine month periods ended September 30, 20222023 and 2021,2022, (iii) the Consolidated Statements of Comprehensive Income for the three and nine month periods ended September 30, 20222023 and 2021,2022, (iv) the Consolidated Statements of Equity for the three and nine month periods ended September 30, 20222023 and 2021,2022, (v) the Consolidated Statements of Cash Flows for the nine month periods ended September 30, 20222023 and 2021,2022, and (vi) Notes to Consolidated Financial Statements. |
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104 | | The cover page from the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 20222023 formatted in iXBRL. |
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.
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| | | POLARIS INC. (Registrant) |
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Date: | October 25, 202224, 2023 | | /s/ MICHAEL T. SPEETZEN |
| | | Michael T. Speetzen Chief Executive Officer (Principal Executive Officer) |
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Date: | October 25, 202224, 2023 | | /s/ ROBERT P. MACK |
| | | Robert P. Mack Chief Financial Officer (Principal Financial and Accounting Officer) |