POLARIS INC. The following discussion pertains to the results of operations and financial
position of
Overview
The global spread of the novel coronavirus (COVID-19) in recent months has
negatively impacted the global economy, disrupted global supply chains and
created significant volatility and disruption of financial markets. The impact
of this pandemic has created significant uncertainty in the global economy and
has affected our business segments, employees, dealers, suppliers, and customers
in a variety of ways.
As a result of COVID-19, our sales and profitability during the quarter were
negatively impacted by the temporary suspension of select plant operations which
reduced our manufacture and ship of products. However, sales and profitability
were also negatively impacted by a decline in economic activity related to
certain of our end markets, such as those served by Global Adjacent Markets and
Aftermarket. Going forward, we anticipate these end markets to be more
negatively impacted by COVID-19 than our other markets due to the nature of
their products and end customers.
In spite of this, the Company saw stronger than anticipated retail demand for
ORVs and motorcycles as our products provided
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an attractive social-distancing solution for new and existing Powersports
customers. In particular, North American ORV retail sales increased over 60
percent and North American consumer retail sales for Polaris' motorcycle
segment, including both Indian Motorcycle and Slingshot, increased low-twenties
percent for the quarter compared to the prior year. Our unit retail sales of
ORVs, snowmobiles, and motorcycles to consumers in North America increased 57
percent in the second quarter of 2020. Polaris North American dealer inventory
was down significantly, driven by higher retail sales.
The duration of these trends and the magnitude of such impacts cannot be
precisely estimated at this time, as they are affected by a number of factors
(some of which are outside management's control), including those presented in
Item 1A. Risk Factors of this Quarterly Report. However, we generally expect
sequential improvement throughout the remainder of the fiscal year.
Adverse impacts to certain of the Company's business segments, certain
suppliers, dealers or customers may also affect the Company's future valuation
of certain assets and therefore may increase the likelihood of additional
impairment charges, write-offs, or reserves associated with such assets,
including goodwill, indefinite and finite-lived intangible assets, property and
equipment, inventories, accounts receivable, tax assets, and other assets.
We believe we are well positioned to mitigate the impacts of COVID-19. As the
situation evolves into a more prolonged pandemic, we will continue to adjust
mitigation measures as needed related to health and safety. Those measures might
include further suspensions of select plant operations, modifying workspaces,
continuing social distancing policies, implementing new personal protective
equipment or health screening policies at our facilities, or such other industry
best practices needed to continue to maintain a healthy and safe environment for
our employees amidst the pandemic. In addition, while we have and will continue
to enhance functionality and security of technology for off-site functions, we
are also planning for the eventual reintroduction of our on-site workforce to
our facilities.
We are continuing to mitigate negative impacts to our operating results by
taking significant actions, including reducing working capital, postponing
non-essential capital expenditures, reducing operating costs, modulating
production in line with demand, initiating workforce reductions and furloughs,
and substantially reducing discretionary spending. As the impact of the COVID-19
pandemic on the economy and our operations evolves, we will continue to assess
the impact on the Company and respond accordingly.
Second quarter sales totaled $1,511.8 million , a decrease of 15 percent from
last year's second quarter sales of $1,779.3 million . Our second quarter sales
to North American customers decreased 15 percent and our sales to customers
outside of North America decreased 18 percent.
Our gross profit of $332.7 million decreased 24 percent from $436.4 million in
the comparable prior year second quarter. We reported a net loss of $235.4
million , or $(3.82) per diluted share, compared to 2019 second quarter net
income of $88.2 million , or $1.42 per diluted share.
The net loss was primarily due to the impairment of goodwill and other
intangible assets associated with the Company's Aftermarket segment as a result
of the current market and economic conditions resulting from the COVID-19
pandemic, as well as recent financial performance and restructuring actions. The
Company recorded impairment charges totaling $379.2 million during the three
months ended June 30, 2020 . Of the $379.2 million of impairment charges, $270.3
million related to goodwill of the Aftermarket reporting unit and $108.9 million
related to certain brand/trade names associated with Transamerican Auto Parts .
The impairment charges were principally a result of a decline, in the second
quarter, in market conditions and a decline in the outlook for sales and
operating performance driven by the COVID-19 pandemic.
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Table of Contents Consolidated Results of Operations The consolidated results of operations were as follows:
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