|POLARIS REPORT 2006 FIRST QUARTER
April 13 2006.
First Quarter Highlights:
-- Results in-line with expectations
-- Operating cash flow used for continuing operations improved $27.2 million primarily due to lower factory inventories
-- Victory motorcycle sales grew 8%
-- Revising guidance for full year 2006 earnings from continuing operations to a range of $3.08 to $3.20 per diluted share due to lower than expected snowmobiles orders
Polaris Industries Inc. today reported first quarter net income from continuing operations of $11.2 million or $0.26 per diluted share for the quarter ended March 31, 2006, in line with previously issued guidance. By comparison, 2005 first quarter net income from continuing operations as adjusted for the impact of SFAS 123 (R) would have been $17.9 million or $0.40 per diluted share. Sales from continuing operations for the first quarter 2006 totaled $333.5 million, a decrease of seven percent from last year's first quarter sales from continuing operations of $358.3 million.
"Our first quarter results met our expectations in a challenging environment. As expected, our decision to reduce North American ATV shipments to dealers in the 2006 first quarter resulted in reduced overall Company sales and earnings when compared to the same period last year. We made progress in reducing factory inventories and dealers adjusted their ATV orders to Polaris to continue rebalancing their inventory levels. However, both Polaris and our dealers still have more work ahead of us as we strive to bring ATV inventories in line with expectations," commented Tom Tiller, Chief Executive Officer of Polaris.
Tiller continued, "In February we held our customary snowmobile dealer meeting and are now in the process of taking dealer orders for the upcoming season. While the snowmobile order process is not yet completed, it has become obvious that our previous expectations for snowmobile sales for the full year 2006 were optimistic. There are a number of challenges currently affecting our snowmobile business; including declining overall market demand, poor snowfall this past riding season, higher warranty costs resulting from some of our past new product introductions and the resulting decline in dealer confidence. Collectively, these issues have resulted in slower retail sales, increased inventories, and weaker new order demand for snowmobiles. While these issues have been challenging, we are confronting them head on and are in the process of implementing plans to strengthen our long-term competitive position in the snowmobile business."
Tiller concluded, "We are confident in our ability to manage through the challenges in our traditional snowmobile and ATV businesses. We will also continue to invest in several areas that have performed well in the past and are expected to provide continued growth opportunities for the Company in the future including our rapidly growing Victory motorcycle line, the RANGER utility vehicle business and our international operations. Our underlying businesses remain strong, our balance sheet is healthy, our employees are energized and we continue to work on recent strategic investments, including our exciting partnership with KTM. I remain confident that Polaris is well positioned to achieve our long term strategic goals of $3 billion in sales and a 9 percent net margin by 2009."
2006 Business Outlook
Due to anticipated levels of upcoming model year snowmobile orders, the Company now expects sales from continuing operations for the full year 2006 to be one to three percent lower than during the full year 2005. Full year 2006 earnings from continuing operations are now expected to be in the range of $3.08 to $3.20 per diluted share, compared to SFAS 123(R) adjusted earnings of $3.15 per diluted share for the full year 2005. During the second quarter of 2006, the Company expects that snowmobile and North American ATV shipments will decline from second quarter of 2005 levels, due to lower snowmobile orders and the continued objective of North American dealers reducing their ATV inventories. Second quarter 2006 sales from continuing operations are expected to be nine percent to twelve percent lower than during the second quarter of 2005. Second quarter 2006 earnings from continuing operations are expected to be in the range of $0.50 to $0.54 per diluted share, compared to SFAS 123(R) adjusted earnings of $0.66 per diluted share for the second quarter of 2005.
Accounting for Stock-Based Compensation
Polaris adopted SFAS 123(R) "Accounting for Stock-Based Compensation" effective the beginning of fiscal year 2006 using the modified retrospective method. In connection with the adoption of this new accounting standard, Polaris recorded an after tax benefit of $0.4 million or $0.01 per diluted share on its income statement for the first quarter 2006 resulting from the cumulative effect of the accounting change. All prior periods have been adjusted to give effect to the adoption of SFAS 123 (R) using the modified retrospective method. The Company provided revised quarterly Consolidated Financial Statements for the 2005 year reflecting the adoption of SFAS 123 (R) under the modified retrospective method in a Form 8-K dated January 26, 2006.
Discontinued operations results
The Company ceased manufacturing marine products on September 2, 2004. As a result, the marine products division's financial results are being reported separately as discontinued operations for all periods presented. The Company's 2006 first quarter loss from discontinued operations was $0.1 million, net of tax, or $0.00 per diluted share, compared to a loss of $0.3 million, net of tax, or $0.01 per diluted share in the first quarter 2005.
Reported Net Income
Reported net income for the 2006 first quarter, including each of continuing and discontinued operations and the cumulative effect of the accounting change, was $11.5 million, or $0.27 per diluted share compared to net income of $17.6 million, or $0.39 per diluted share in the first quarter of 2005.