Polaris announced today that it will be improving its Roseau, Minn., and Spirit Lake, Iowa, factories while establishing a new factory in Mexico. The realignment will lead to the eventual sale or closure of Polaris’ Osceola, Wis., manufacturing operations over time.
Polaris said the realignment allows it to invest in painting, welding and assembly operations by outsourcing certain “nonstrategic” component manufacturing processes. Polaris expects the Mexico facility to maintain quality standards while improving on-time delivery to customers, and providing savings in logistical and production costs.
“While this was a difficult decision for us, given the impact on our employees at the Osceola facility, we believe the creation of these manufacturing centers of excellence will strengthen our company over the long term and enable us to maintain our lead in a competitive market,” Scott Wine, CEO of Polaris Industries Inc., stated in a press release. “Pursuing opportunities in new markets outside the United States, while concurrently evaluating our cost structure to improve our long-term competitive positioning, are key components to our growth strategy. This decision was based on a thorough review of our worldwide operations and will allow us to improve our ability to meet the quality, delivery and cost standards desired by our dealers and customers.”
Polaris said that it’s evaluating several possible locations in Mexico’s Monterrey/Saltillo area for the new facility. The company noted that the new factory will give it one closer to customers in the southern U.S. and global markets the company serves or expects to serve.
Polaris said that when the realignment is done, it will be able to manufacture ATVs and side-by-sides in multiple locations depending on customer demand.
Snowmobile assembly will remain in Roseau. Victory motorcycle assembly will remain in Spirit Lake.
As part of the realignment, certain Osceola manufacturing processes will be moved into the Roseau, Spirit Lake and Mexico facilities.
Polaris intends to sell certain processes and equipment to suppliers that will continue to supply components to Polaris. Other nonstrategic component manufacturing operations now performed in the Osceola facility will be outsourced.
The realignment will begin immediately and is scheduled to be complete in 2012. Polaris plans to have the factory in Mexico operational beginning in the first half of 2011.
Polaris is negotiating with several suppliers to sell certain nonstrategic component manufacturing processes and equipment in the Osceola factory. If successful, Polaris’ intent is that the suppliers will continue to manufacture these components in the Osceola location.
Polaris said it will operate the Osceola factory during the transition. Afterward, the company will provide the affected employees severance benefits and work with the Wisconsin Department of Labor and other state and local agencies to offer employment assistance and other services.
Polaris expects to record pre-tax transition charges to its income statement in the range of $20 million to $25 million and incur capital expenditures up to $35 million over the next few years related to the realignment.
The company expects the Osceola facility exit costs, comprising largely of one-time employee termination benefits, to amount to about a third of the total transition charges, while the start-up costs related to the new Mexico facility and other “centers of excellence” will comprise the balance.
Polaris expects transition charges to be incurred in calendar year 2010 to be in the range of $8 to $10 million. Polaris’ current earnings guidance of earnings per share of $3.48 to $3.60 for the full year 2010 will not change as a result of this announcement. Polaris expects the realignment to generate pre-tax costs and expense savings in excess of $30 million on an annual basis when the transition has been completed. The company expects to begin realizing some of the cost savings as early as 2011.