-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, e+VwqQ/R1plmYHOfcTefwNk8i54C5Wc5WvK26l/clHEtfOoss6g2tyxFAc4i33Hm ZDzsuhQ1qTjl0iEEHTNJhg== 0000912057-95-001683.txt : 19950602 0000912057-95-001683.hdr.sgml : 19950602 ACCESSION NUMBER: 0000912057-95-001683 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950324 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLARIS INDUSTRIES INC/MN CENTRAL INDEX KEY: 0000931015 STANDARD INDUSTRIAL CLASSIFICATION: IRS NUMBER: 411790959 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-11411 FILM NUMBER: 95523038 BUSINESS ADDRESS: STREET 1: 1225 HIGHWAY 169 NORTH CITY: MINNEAPOLIS STATE: MN ZIP: 55441 BUSINESS PHONE: 6125420500 MAIL ADDRESS: STREET 1: 1225 HIGHWAY 169 NORTH STREET 2: 425 LEXINGTON AVE CITY: MINNESOTA STATE: MN ZIP: 55441 10-K405 1 FORM 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-11411 POLARIS INDUSTRIES INC. (Exact name of registrant as specified in its charter) MINNESOTA 41-1790959 (State or other jurisdiction (IRS employer of incorporation or organization) identification no.) 1225 HIGHWAY 169 NORTH 55441 MINNEAPOLIS, MN (Zip Code) (Address of principal executive offices) (612) 542-0500 (Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH TITLE OF EACH CLASS REGISTERED - ------------------------------------ ------------------------------- Common Stock, $.01 par value New York Stock Exchange Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of Common Stock of the registrant as of March 13, 1994 (based upon the closing reported sale price of the Common Stock at that date on the New York Stock Exchange) held by non-affiliates (16,323,050 shares) was approximately $759,021,825. APPLICABLE ONLY TO CORPORATE REGISTRANTS: Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. As of March 13, 1995, 18,206,258 shares of Common Stock of the registrant were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held May 10, 1995 filed with the Securities and Exchange Commission (the "1995 Proxy Statement") are incorporated by reference into Part III of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. DESCRIPTION OF BUSINESS Polaris Industries Inc. (the "Company"), a Minnesota corporation, was formed in 1994 for the purpose of merging (the "Merger") a subsidiary of the Company into Polaris Industries Partners L.P., a Delaware limited partnership (the "Partnership") and merging Polaris Industries L.P., a Delaware limited partnership, into the Partnership. The Merger took place on December 22, 1994. Upon consummation of the Merger, each unit of Beneficial Assignment of Class A Limited Partnership Interests of the Partnership was exchanged for one share of common stock, $.01 par value of the Company. The Company, directly or indirectly, owns 100% of the Partnership and continues to conduct the business and operations of Polaris Industries L.P. The term "Polaris" as used herein refers to the business and operations of the Partnership and its predecessor, Polaris Industries L.P. Polaris designs, engineers and manufactures snowmobiles, four-and six-wheel all terrain recreational and utility vehicles ("ATVs"), and personal watercraft ("PWC") and markets them, together with related accessories, clothing and replacement parts through dealers and distributors principally located in the United States, Canada and Europe. Snowmobiles, ATVs, PWC and clothing, accessories and parts, accounted for the following approximate percentages of Polaris' sales for the periods indicated.
CLOTHING, YEAR ENDED ACCESSORIES DECEMBER 31 SNOWMOBILES ATVS PWC AND PARTS - ---------------------------------------- ----------- ---- --- ----------- 1994.................................... 44% 29% 14% 13% 1993.................................... 50% 26% 9% 15% 1992.................................... 54% 25% 7% 14%
INDUSTRY BACKGROUND SNOWMOBILES. In the early 1950s, a predecessor to Polaris produced a "gas powered sled" which became the forerunner of the Polaris snowmobile. Snowmobiles have been manufactured under the Polaris name since 1954. Originally conceived as a utility vehicle for northern, rural environments, the snowmobile gained popularity as a recreational vehicle. From the mid-1950s through the late 1960s, over 100 producers entered the snowmobile market and snowmobile sales reached a peak of approximately 495,000 units in 1971. The Polaris product survived the industry decline in which snowmobile sales fell to a low point of approximately 87,000 units in 1983 and the number of snowmobile manufacturers serving the North American market declined to four: Yamaha, Bombardier, Arctco and Polaris. Polaris estimates that industry sales of snowmobiles on a world wide basis were approximately 198,000 units for the season ended March 31, 1995. ALL TERRAIN VEHICLES. ATVs are four-wheel and six-wheel vehicles with balloon style tires designed for off road use and traversing rough terrain, swamps and marshland. ATVs are used for recreation, in such sports as fishing and hunting, as well as for utility purposes on farms, ranches and construction sites. ATVs were introduced to the North American market in 1971 by Honda. By 1980, the number of ATV units sold in the North American market had increased to approximately 140,000 units. Other Japanese motorcycle manufacturers, Yamaha, Kawasaki and Suzuki, entered the North American market in the late 1970s and early 1980s, and in August 1994, Arctco announced its intention to enter the ATV market commencing in 1995. In 1985, the number of three-and four-wheel ATVs sold in North America peaked at approximately 650,000 units. Polaris estimates that since declining from that level the industry has stabilized and begun growing slowly with approximately 270,000 ATVs sold worldwide during the calendar year 1994. PERSONAL WATERCRAFT. PWC are sit-down versions of water scooter vehicles, and designed for use on lakes, rivers, oceans and bays. PWC are used primarily for recreational purposes and are designed 1 for one, two or three passengers. Polaris entered the PWC market in 1992. Polaris estimates that the worldwide market for PWC was approximately 160,000 units in 1994. Other major PWC manufacturers are Yamaha, Bombardier, Kawasaki and Arctco. PRODUCTS SNOWMOBILES. Polaris produces a full line of snowmobiles, consisting of twenty-six models, ranging from utility and economy models to performance and competition models, with 1994 suggested retail prices ranging from approximately $2,550 to $8,250. Polaris snowmobiles are sold principally in the United States, Canada and Europe. Polaris believes it has the largest share of the worldwide snowmobile market. Polaris believes that the Polaris snowmobile has a long-standing reputation for quality, dependability and performance. Polaris believes that it and its predecessors were the first to develop several features for commercial use in snowmobiles, including independent front suspension, variable transmission, hydraulic disc brakes, liquid cooled engines and brakes and a three cylinder engine. Polaris also markets a full line of snowmobile accessories, such as luggage, tow hitches, hand warmers, specialized instrumentation, reverse gear, special traction products, cargo racks, oils, lubricants, paints and parts. For the year ended December 31, 1994, snowmobiles accounted for approximately 44% of Polaris' sales. ALL TERRAIN VEHICLES. Polaris entered the ATV market in the spring of 1985 with both a three-wheel and a four-wheel product. Polaris currently produces four-wheel and six-wheel ATV products, which provide more stability for the rider than the earlier three-wheel versions. Polaris' line of ATVs consisting of ten models, includes general purpose, sport and four-and six-wheel drive utility models, with 1994 suggested retail prices ranging from approximately $2,900 to $6,200. Polaris' ATV features the totally automatic Polaris variable transmission which requires no manual shifting and a MacPherson strut front suspension, which Polaris believes enhances control and stability. Polaris' ATV is also the only ATV in its class that uses a two cycle engine and chain drive, which Polaris believes improves performance and efficiency. Prior to 1989, the ATV industry experienced some reduced demand arising from publicity surrounding safety-related and environmental concerns. However, management believes that this market has stabilized somewhat since 1989 and has begun to resume modest growth. For the year ended December 31, 1994, ATVs accounted for approximately 29% of Polaris' sales. PERSONAL WATERCRAFT. In 1992, Polaris introduced the SL650 personal watercraft, Polaris' first entry into this product category. In 1993, Polaris added its SL750 with more power and performance. Management believes that the SL650 and SL750 have the industry's first three-cylinder engines developed specifically for PWC. The introduction of the PWC made use of Polaris' engineering, production and distribution strengths, and also reduced Polaris' dependence on its then existing product lines for overall sales and earnings. In late 1993 Polaris introduced a new, three passenger PWC, the Polaris SLT750. The 1994 suggested retail prices for Polaris' PWC range from approximately $5,500 to $6,300. For the year ended December 31, 1994, PWC accounted for approximately 14% of Polaris' sales. CLOTHING, ACCESSORIES AND REPLACEMENT PARTS. Polaris produces or supplies a variety of replacement parts and accessories for its snowmobiles, ATVs and PWC. Polaris also markets a full line of recreational clothing, which includes suits, helmets, gloves, boots, hats, sweaters and jackets for its snowmobile, ATV and PWC lines. The clothing is designed to Polaris' specifications, purchased from independent vendors and sold by Polaris through its dealers and distributors under the Polaris brand name. Replacement parts and accessories are also marketed by Polaris. 2 For the year ended December 31, 1994, clothing, accessories and parts accounted for approximately 13% of Polaris' sales. MANUFACTURING OPERATIONS Polaris' products are assembled at its manufacturing facility at Roseau, Minnesota. Since snowmobiles, ATVs and PWC incorporate similar technology, substantially the same equipment and personnel are employed in their production. Polaris emphasizes vertical integration in its manufacturing process, which includes machining, stamping, welding, clutch assembly and balancing, painting, cutting and sewing, and manufacture of foam seats. Engines, fuel tanks, hoods and hulls, tracks, tires and instruments, and certain other component parts are purchased from third party vendors. Polaris manufactures a number of other components for its snowmobiles, ATVs and PWC. Raw materials or standard parts are readily available from multiple sources for the components manufactured by Polaris. Polaris' work force is familiar with the use, operation and maintenance of the product, since many employees own snowmobiles, ATVs and PWC. In August of 1991, Polaris acquired an additional manufacturing facility in Osceola, Wisconsin to manufacture component parts previously produced by third party suppliers. In August 1994, Polaris signed a one-year lease agreement for a 223,000 square foot assembly facility located on 24 acres of land in Spirit Lake, Iowa. Polaris has an option to purchase the facility for $1.85 million at the end of the lease term. Polaris currently uses the facility to assemble its PWC product line, and potentially certain snowmobile and ATV models in the future. Pursuant to informal agreements between Polaris and Fuji Heavy Industries Ltd. ("Fuji"), Fuji has been the exclusive manufacturer of the Polaris two-cycle snowmobile engines since 1968. Fuji has manufactured engines for Polaris' ATV products since their introduction in the spring of 1985 and also supplies engines for Polaris' PWC products. Such engines are developed by Fuji to the specific requirements of Polaris. Polaris believes its relationship with Fuji to be excellent. If, however, its informal relationship were terminated by Fuji, interruption in the supply of engines would adversely affect Polaris' production pending the establishment of substitute supply arrangements. In February, 1995, Polaris entered into a agreement with Fuji to form Robin Manufacturing, U.S.A. ("Robin"). Under the agreement, Polaris will initially invest $800,000 for a 40% ownership position in Robin, which will build engines in the United States for recreational and industrial products. Management anticipates that, through Robin, Polaris may experience reduced foreign exchange risk, lower shipping costs and less dependence on a single source for engines. Polaris anticipates no significant difficulties in obtaining substitute supply arrangements for other raw materials or components for which it relies upon limited sources of supply. Polaris' products are shipped from its manufacturing facilities by a contract carrier. PRODUCTION SCHEDULING Snowmobiles are used principally in the northern United States, Canada and northern Europe in what is referred to as the "snow belt." Delivery of snowmobiles to consumers begins in the fall and continues during the winter season. Orders for each year's production of snowmobiles are placed in the spring and orders for ATVs and PWC are placed in fall and winter, after meetings with dealers and distributors, and units are built to order each year. In addition, non-refundable deposits made by consumers to dealers in the spring for snowmobiles assist in production planning. The budgeted volume of units to be produced each year is sold to dealers and distributors prior to production. Sales activity at the dealer level is monitored on a monthly basis for each of snowmobiles, ATVs and PWC. Manufacture of snowmobiles commences in the spring and continues through late autumn or early winter. Polaris manufactures PWC during the fall, winter and spring months. Since May 1993, Polaris has the ability to manufacture ATVs year round. Generally, Polaris commences ATV production in late autumn and continues through early autumn of the following year. For the past several years, Polaris has had virtually no carryover inventory at the dealer level of its production of snowmobiles, ATVs and PWC. 3 SALES AND MARKETING With the exception of Illinois, upper Michigan, eastern Wisconsin and offshore markets, where Polaris sells its snowmobiles through independent distributors, Polaris sells its snowmobiles directly to dealers in the snowbelt regions of the United States and Canada. Over the past several years, Polaris has placed an increasing emphasis on dealer-direct, as opposed to independent distributor, sales. Snowmobile sales in Europe are handled through independent distributors. See Note 7 of Notes to Financial Statements for discussion of foreign and domestic operations and export sales. Most dealers and distributors of Polaris snowmobiles also distribute Polaris' ATVs and PWC. In the southern region of the United States, where snowmobiles are not used, Polaris has established a direct dealer network. Since the beginning of 1986, Polaris has established approximately 500 dealerships in the southern United States. Unlike its competitors, which market their ATV products principally through their affiliated motorcycle dealers, Polaris also sells its ATVs and PWC through lawn and garden, boat and marine, and farm implement dealers. Dealers and distributors sell Polaris' products under contractual arrangements pursuant to which the dealer or distributor is authorized to market specified products, required to carry certain replacement parts and perform certain warranty and other services. The dealer and distributor contracts may be canceled by either party on specified notice. Changes in dealers and distributors take place from time to time. Polaris believes that a sufficient number of qualified dealers and distributors exists in all areas to permit orderly transition whenever necessary. Polaris has arrangements with Transamerica Commercial Finance Corporation, Canadian Imperial Bank of Commerce, The Bank of Nova Scotia and ITT Commercial Finance, a division of ITT Industries of Canada, to provide floor plan financing for its dealers and distributors. Substantially all of Polaris' sales of snowmobiles, ATVs and PWC are financed under arrangements in which Polaris is paid within a few days of shipment of its product. Polaris participates in the cost of dealer and distributor financing and is required to repurchase products from the finance companies under certain circumstances and subject to certain limitations. Polaris has not historically recorded a sales return allowance because it has not been required to repurchase a significant number of units in the past. However, there can be no assurance that this will continue to be the case. If necessary, Polaris will record a sales return allowance at the time of sale should management anticipate material repurchases of units financed through the finance companies. See Notes 1 and 4 of Notes to Financial Statements. Polaris does not directly finance the purchase of Polaris snowmobiles, ATVs or PWC by consumers. However, retail financing plans are offered by certain of the dealers and Polaris has programs to make consumer financing available to its dealers through unaffiliated third parties. Polaris' marketing activities are designed primarily to promote and communicate directly with consumers and secondarily to assist the selling and marketing efforts of its dealers and distributors. From time to time Polaris makes available discount or rebate programs or other incentives for its dealers and distributors to remain price competitive in order to accelerate reduction of retail inventories. Polaris advertises its products directly using print advertising in the industry press and in user group publications, on billboards, and, less extensively, on television and radio. Polaris also provides media advertising and partially underwrites dealer and distributor media advertising to a degree and on terms which vary by product and from year to year. Most dealer and distributor advertising appears in newspapers and on radio. Each season Polaris produces a promotional film for its snowmobiles, ATVs and PWC which is available to dealers for use in the showroom or at special promotions. Polaris also provides product brochures, leaflets, posters, dealer signs, and miscellaneous other promotional items for use by dealers. It is anticipated that during 1995 Polaris will centralize its sales, marketing and dealer and distributor support activities in a wholly owned subsidiary corporation. 4 ENGINEERING, RESEARCH AND DEVELOPMENT Polaris employs approximately 200 persons who are engaged in the development and testing of existing products and research and development of new products and improved production techniques. Polaris believes that Polaris and its predecessors were the first to develop, for commercial use, independent front end suspension for snowmobiles, the long travel rear suspension for snowmobiles, direct drive of the snowmobile track, the use of liquid cooling in snowmobile engines and brakes, the use of hydraulic brakes in snowmobiles, the three cylinder engine in snowmobiles and PWC, the adaptation of the MacPherson strut front suspension and "on demand" four-wheel drive systems for use in ATVs and the application of a forced air cooled variable power transmission system to ATVs. Polaris utilizes internal combustion engine testing facilities to design and optimize engine configurations for its products. Polaris utilizes specialized facilities for matching engine, exhaust system and clutch performance parameters in its products to achieve desired fuel consumption, power output, noise level and other objectives. Polaris' engineering department is equipped to make small quantities of new product prototypes for testing by Polaris' testing teams and for the planning of manufacturing procedures. In addition, Polaris' manufacturing facility in Roseau, Minnesota has a proving ground where each of the products is extensively tested under actual use conditions. Polaris expended for research and development approximately $13.5 million for 1994, $11.1 million for 1993, and $7.4 million for 1992, which amounts were included as a component of the cost of sales in the period incurred. COMPETITION The snowmobile, ATV and PWC markets in the United States and Canada are highly competitive. Competition in such markets is based upon a number of factors, including price, quality, reliability, styling, product features and warranties. At the dealer level, competition is based on a number of factors including sales and marketing support programs (such as financing and cooperative advertising). Certain of Polaris' competitors are more diversified and have financial marketing resources which are substantially greater than those of Polaris. Polaris snowmobiles, ATVs and PWC are competitively priced and management believes Polaris' sales and marketing support programs for dealers are comparable to those provided by its competitors. Polaris' products compete with many other recreational products for the discretionary spending of consumers, and, to a lesser extent, with other vehicles designed for utility applications. PRODUCT SAFETY AND REGULATION Snowmobiles, ATVs and PWC are motorized machines which may be operated at high speeds and in a careless or reckless manner. Accidents involving property damage, personal injuries and deaths occur in the use of snowmobiles, ATVs and PWC. Laws and regulations have been promulgated or are under consideration in a number of states relating to the use or manner of use of snowmobiles, ATVs and PWC. State approved trails and recreational areas for snowmobile and ATV use have been developed in response to environmental and safety concerns. Polaris has supported laws and regulations pertaining to safety and noise abatement and believes that its products would be no more adversely affected than those of its competitors by the adoption of any pending laws or regulations. In September 1986, the staff of the Consumer Products Safety Commission ("CPSC") ATV Task Force issued a report on regulatory options for ATVs. The Task Force recommended that the ATV industry voluntarily cease marketing ATVs intended for use by children under 12 years of age. It proposed that warning labels be placed on ATVs intended for use by children under age 14 stating that these ATVs are not recommended for use by children under 12, and on adult-sized ATVs stating that these ATVs are not recommended for use by children under the age of 16. Warning labels were recommended for use on all ATVs stating that operator training is necessary to reduce risk of injury or death. 5 Based upon its findings that most states have not enacted laws regulating ATVs, the Task Force recommended that the CPSC work closely with states and other federal agencies to develop practical uniform state legislation. Topics to be addressed included minimum operator age recommendations, licensing or certification standards requiring operator training, helmet requirements, and prohibitions on the use of alcohol and controlled-substances while operating ATVs. In December 1986, in a follow-up measure to the Task Force Report, the CPSC voted unanimously to continue efforts with the ATV industry to develop a voluntary standard regarding the dynamic stability characteristics of ATVs. In February 1987, the CPSC formally requested that the Justice Department initiate an enforcement action against the ATV industry seeking a voluntary recall of all three-wheel ATVs and four-wheel ATVs sold with the intention that they be used by children under 16, as well as a requirement that ATV purchasers receive "hands-on" training. Except for 1,700 three-wheel models initially produced, Polaris manufactures only four-wheel and six-wheel ATVs. Polaris has always placed warning labels on its ATVs stating that they are designed for use only by persons aged 16 or older (which warning was revised in 1987 to provide that only adults over age 18 should operate the vehicle), that operators should always wear proper safety helmets and that riders should complete proper training prior to operating an ATV. On December 30, 1987, Polaris reached an agreement with the CPSC regarding ATV safety. The agreement called for the repurchase of all three-wheel ATVs remaining in the hands of its distributors and dealers, the provision of additional safety oriented point-of-purchase materials in all Polaris ATV dealerships, and the addition of a mandatory "hands on" consumer and dealer safety training program designed to give all Polaris ATV dealers and consumers maximum exposure to safe riding techniques, as outlined by the Specialty Vehicle Institute of America. Polaris conditions its ATV warranties described below under "-- Product Liability" on completion of the mandatory "hands on" consumer training program. Pursuant to the agreement with the CPSC, Polaris has procedures in place for ascertaining dealer compliance with the provisions of the CPSC consent decree, including random "undercover" on-site inspections of dealerships to ensure compliance with the age restriction. Polaris continually attempts to assure that its dealers are in compliance with the provisions of the CPSC consent decree. Polaris has notified its dealers that it will terminate any dealer it determines to have violated the provisions of the CPSC consent decree. To date, it has terminated five dealers for such reason. The Company does not believe that the agreement with the CPSC has had or will have a material adverse effect on Polaris. Nevertheless, there can be no assurance that future recommendations or regulatory actions by the CPSC, the Justice Department or individual states would not have an adverse effect on the Company. Certain state attorneys-general have asserted that the CPSC agreement is inadequate and have indicated that they will seek stricter ATV regulation. Polaris is unable to predict the outcome of such action or the possible effect on its ATV business. Certain states, notably California and New York, have proposed certain legislation involving more stringent emissions standards for two-cycle engines. Such engines are used on Polaris' snowmobiles, ATVs and PWC. However, Polaris has developed and currently sells a four-cycle engine for its ATVs which produces lower emissions. Polaris currently is unable to predict whether such legislation will be enacted and, if so, the ultimate impact on Polaris and its operations. Finally, local ordinances have been and may from time to time be considered and adopted which restrict the use of PWC to specified hours and locations. PRODUCT LIABILITY Polaris' product liability insurance limits and coverages have been adversely affected by the general decline in the availability of liability insurance. As a result of the high cost of premiums, and in view of the historically small amount of claims paid by Polaris, Polaris has been self-insured since June 1985. 6 Product liability claims are made against Polaris from time to time. Since its inception in 1981 through December 31, 1994, Polaris has paid an aggregate of less than $1.5 million in product liability claims and had accrued $5.0 million at December 31, 1994, for the defense and possible payment of pending claims. Polaris believes such accruals are adequate. Polaris does not believe that the outcome of any pending product liability litigation will have a material adverse effect on the operations of Polaris. However, no assurance can be given that its historical claims record, which did not include ATVs prior to 1985, or PWC prior to 1992, will not change or that material product liability claims against Polaris will not be made in the future. Adverse determination of material product liability claims made against Polaris would have a material adverse effect on Polaris' financial condition. See Note 8 of Notes to Financial Statements. Polaris warrants its snowmobiles, ATVs and PWC under a "limited warranty" for a period of one year, six months, and one year, respectively. Although Polaris employs quality control procedures, a product is sometimes distributed which needs repair or replacement. Historically, product recalls have been administered through Polaris' dealers and distributors and have not had a material effect on Polaris' business. EFFECTS OF WEATHER Lack of snowfall in any year in any particular region of the United States or Canada may adversely affect snowmobile retail sales in that region. Polaris seeks to minimize this potential effect by stressing pre-season sales (see "-- Production Scheduling") and shifting dealer inventories from one location to another. However, there is no assurance that weather conditions would not have a material effect on Polaris' sales of snowmobiles, ATVs or PWC. EMPLOYMENT Polaris employed a total of approximately 2,850 persons at December 31, 1994. Approximately 600 of its employees are salaried. Polaris considers its relations with its personnel to be excellent. Historically, Polaris' snowmobile business has been seasonal, resulting in significant differences in employment levels during the year. Despite such variations in employment levels, employee turnover has not been high. With the introduction of the ATV line in 1985, Polaris' employment levels have become more stable. Polaris' employees have not been represented by a union since July 1982. ITEM 2. PROPERTIES Polaris owns its principal manufacturing facility in Roseau, Minnesota. The facility consists of approximately 456,000 square feet of manufacturing space located on approximately 100 acres. In 1991 Polaris acquired a fabricating facility in order to bring more component parts manufacturing in-house. This facility consists of a 190,000 square foot plant situated on 38 acres and is located in Osceola, Wisconsin. Polaris makes ongoing capital investments in its facilities. In August, 1994, Polaris signed a one-year lease agreement for a 223,000 square foot assembly facility located on 24 acres of land in Spirit Lake, Iowa. Polaris has an option to purchase the facility for $1.85 million at the end of the lease term. Polaris currently uses the facility to assemble its PWC product line, and potentially certain snowmobile and ATV models in the future. These investments have increased production capacity for snowmobiles, ATVs and PWC. The Company believes that Polaris' manufacturing facilities are adequate in size and suitability for its present manufacturing needs. Polaris owns all tooling and machinery (including heavy presses, conventional and computer-controlled welding facilities for steel and aluminum, assembly lines, paint lines, and sewing lines) used in the manufacture of its products. Although Polaris holds numerous patents and uses various registered trademarks and names, it believes that the loss of any of them would not have a material effect on its business. Polaris leases 92,000 square feet of headquarters and warehouse space in Minneapolis, Minnesota from related parties pursuant to a lease that will terminate in 1997. Polaris also leases an additional 7 45,000 square feet of warehouse space in Minneapolis, Minnesota and 42,000 square feet of office and warehouse space in Winnipeg, Manitoba. Polaris does not anticipate any difficulty in securing alternate facilities on competitive terms, if necessary, upon the termination of any of its leases. ITEM 3. LEGAL PROCEEDINGS Polaris is involved in a number of legal proceedings, none of which is expected to have a material effect on the financial condition or the business of Polaris. Injection Research Specialists commenced an action in June 1990 against Polaris in Colorado federal court alleging various claims arising out of Polaris' advertisement and sale of electronic fuel injection snowmobiles. Injection Research Specialists seeks compensatory and punitive damages, its fees and costs, and injunctive relief. Fuji and UNISIA Japanese Electronic Control Systems also are parties to the action. Polaris has filed counterclaims in that action and has instructed its counsel to contest the matter vigorously. Management does not believe that any judgment rendered against it in this matter would have a material adverse effect on the financial condition of Polaris. In 1990, the Canadian income tax authorities proposed certain adjustments, principally relating to the original purchase price allocation to the Canadian subsidiary and transfer pricing matters for additional income taxes payable by Polaris' Canadian subsidiary for 1987 and 1988. The resolution of these proposed adjustments may also affect the Company's Canadian income tax expense for years subsequent to 1988. The Company has been informed of the Canadian income tax authorities' intent to initiate an audit of the tax years 1989 through 1991. Management intends to vigorously contest a substantial amount of the proposed adjustments. Management does not believe that the outcome of this matter will have a materially adverse impact on the financial position or continuing operations of Polaris. See Note 8 of Notes to Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A special meeting (the "Special Meeting") of the holders of units of Beneficial Assignment of Class A Limited Partnership Interests ("BACs") of the Partnership was held on December 22, 1994. At the Special Meeting, BAC holders voted upon the following resolution: RESOLVED, that the Agreement and Plan of Conversion, dated as of September 29, 1994, by and among Polaris Industries Partners L.P., Polaris Industries Inc., EIP Associates L.P., Polaris Industries L.P., EIP Capital Corporation and the other persons named therein in the form attached as an exhibit to the proxy statement for this meeting, pursuant to which, among other matters, a newly formed subsidiary of Polaris Industries Inc. will be merged with and into the Polaris Industries Partners L.P., with Polaris Industries Partners L.P. as the surviving entity, and each BAC then outstanding will be exchanged for one share of common stock of Polaris Industries Inc. shall be and hereby is approved. At the Special Meeting: (i) 11,813,540 of all BACs outstanding were voted in favor of the resolution, approximately 426,300 of all BACs outstanding were voted against the resolution or abstained, and the vote in favor was approximately 73% of all outstanding BACs; (ii) 9,727,422 of the BACs held by BAC holders other than the sponsors and affiliates of the general partner of Polaris Industries Partners L.P. were voted in favor of the resolution, approximately 426,300 of the BACs held by such unaffiliated BAC holders were voted against the resolution or abstained, and the vote in favor was approximately 69% of the BACs held by unaffiliated BAC holders; and (iii) accordingly, the resolution was approved. 8 EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names of the executive officers of the Company as of March 23, 1995, their ages, titles, the year first appointed as an executive officer of the Company and employment for the past five years:
NAME AGE TITLE - ------------------------ --- ----------------------------------------------------------- W. Hall Wendel, Jr. 52 Chairman and Chief Executive Officer Kenneth D. Larson 54 President and Chief Operating Officer John H. Grunewald 58 Executive Vice President, Chief Financial Officer and Secretary Charles A. Baxter 47 Vice President -- Engineering and Product Safety Ed Skomoroh 57 Vice President -- Sales and Marketing Jeffrey A. Bjorkman 35 Vice President -- Manufacturing Michael W. Malone 36 Vice President and Treasurer
Executive officers of the Company are elected at the discretion of the Board of Directors with no fixed term. There are no family relationships between or among any of the executive officers or directors of the Company. Mr. Wendel has served as a Chairman and Chief Executive Officer since the Company's formation in 1994. Mr. Wendel was the Chief Executive Officer of Polaris Industries Capital Corporation ("PICC"), which was the managing general partner of Polaris Industries Associates L.P., which was the operating general partner of Polaris Industries L.P. from 1987 to December 1994. From 1981 to 1987, Mr. Wendel was Chief Executive Officer of a predecessor of Polaris, which was formed to purchase the snowmobile assets of the Polaris E-Z-GO Division of Textron Inc. Before that time, Mr. Wendel was President of the Polaris E-Z-GO Division for two years and prior thereto, held marketing positions as Vice President of Sales and Marketing and National Sales Manager since 1974. Mr. Larson has been President and Chief Operating Officer of the Company since 1994. Mr. Larson was President and Chief Operating Officer of PICC from October 1988 to December 1994. Prior thereto, Mr. Larson was Executive Vice President of Toro Company and was responsible for its commercial, consumer and international equipment business, and had held a number of general management positions since joining Toro Company in 1975. Mr. Grunewald has been Executive Vice President, Chief Financial Officer and Secretary of the Company since its formation and was Executive Vice President, Finance and Administration of PICC from September 1993 through December 1994. Prior to joining Polaris, Mr. Grunewald was employed for 16 years by Pentair, Inc., a diversified manufacturer of industrial products, most recently as Executive Vice President, Chief Financial Officer and Secretary. Mr. Baxter has been Vice President -- Engineering and Product Safety of the Company since December 1994 and held that position with PICC or its predecessor since 1981. Prior thereto, since 1970, Mr. Baxter was employed as Director of Engineering of the Polaris E-Z-GO Division of Textron. Mr. Skomoroh has been Vice President -- Sales and Marketing of the Company since December 1994 and held that position with PICC since October 1988. Prior thereto, he was Vice President, Polaris Canada and President, Secretary and Director of Polaris Industries, Inc., an Ontario corporation and a wholly owned subsidiary of Polaris Industries Partners L.P. Mr. Skomoroh joined Polaris in 1982 as General Manager, Canada, and was prior thereto the General Manager of the Canadian operations of Arctic Enterprises, Inc., a snowmobile manufacturer. 9 Mr. Bjorkman has been Vice President -- Manufacturing of the Company since January 1995, and prior thereto held positions of Plant Manager and Manufacturing Engineering Manager since July 1990. Prior to joining Polaris, Mr. Bjorkman was employed by General Motors Corporation in various management positions for nine years. Mr. Malone has been Treasurer of the Company since December 1994 and was Chief Financial Officer and Treasurer of PICC from January 1993 to December 1994. Prior thereto and since 1986, he was Assistant Treasurer of PICC or its predecessor. Mr. Malone joined Polaris in 1984 after four years with Arthur Andersen & Co. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS During 1993, and through December 21, 1994, BACs of the Partnership traded on the American Stock Exchange ("AMEX") and the Pacific Stock Exchange ("PSE") under the symbol "SNO." On December 22, 1994, a subsidiary of the Company was merged into the Partnership, each BAC was exchanged for one share of common stock, $.01 par value, of the Company (the "Shares") and the Shares commenced trading on the AMEX and the PSE under the Symbol "SNO." On February 24, 1995, the Shares began trading on the New York Stock Exchange (in lieu of the AMEX) and on the PSE under the symbol "PII." The following table reflects the high and low closing sale prices of the BACs or the Shares, as the case may be, on the aforementioned exchanges for the periods indicated, all as adjusted to reflect a two-for-one split which became effective on August 18, 1993:
1994 HIGH LOW - ---------------------------------------- --------- --------- Fourth Quarter.......................... 52 1/4 37 5/8 Third Quarter........................... 39 32 1/8 Second Quarter.......................... 35 7/8 30 1/8 First Quarter........................... 37 3/8 29 1/8 1993 HIGH LOW - ---------------------------------------- --------- --------- Fourth Quarter.......................... 38 1/2 32 1/4 Third Quarter........................... 36 27 15/16 Second Quarter.......................... 30 15/16 25 13/16 First Quarter........................... 26 9/16 21 13/16
As of March 13, 1995, there were approximately 4,820 holders of record of the Shares. The Partnership declared the following distributions per unit to BAC holders during the years ended December 31, 1994 and 1993, all as adjusted for a two-for-one unit split which became effective on August 18, 1993:
1994 1993 ------ ------ First Quarter................................................. $0.630 $0.625 Second Quarter................................................ $0.630 $0.625 Third Quarter................................................. $0.630 $0.630 Fourth Quarter................................................ $0.630 $0.630
On January 26, 1995, the Company declared a regular quarterly dividend of $0.15 per share which was paid on February 15, 1995 to holders of record on February 6, 1995 and also declared a special cash distribution of $1.92 per share to be paid on or about April 1, 1995 to holders of record on March 17, 1995. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of factors or restrictions that may reduce materially future payments of dividends by the Company. 10 ITEM 6. SELECTED FINANCIAL DATA The Selected Financial Data presented below are qualified in their entirety by, and should be read in conjunction with, the Financial Statements and Notes thereto and other financial and statistical information referenced elsewhere in this Report including the information referenced under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." POLARIS INDUSTRIES INC. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT DATA)
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------------------- 1994* 1993 1992 1991 1990 1989 1988 --------- --------- --------- --------- --------- --------- --------- STATEMENT OF OPERATIONS DATA Sales data Total dollars......................... $826,286 $528,011 $383,818 $297,677 $296,147 $242,618 $171,497 % change from prior year............ 56% 38% 29% 1% 22% 41% 24% Sales mix by product (%) Snowmobiles......................... 44% 50% 54% 60% 67% 67% 70% ATVs................................ 29% 26% 25% 25% 19% 19% 16% PWC................................. 14% 9% 7% -- -- -- -- Parts, garments and access.......... 13% 15% 14% 15% 14% 14% 14% Sales mix by customer (%) Dealer-direct....................... 88% 87% 86% 84% 84% 76% 64% Distributor......................... 12% 13% 14% 16% 16% 24% 36% Gross profit data Total dollars......................... $183,283 $130,287 $104,926 $ 88,440 $ 89,349 $ 77,320 $ 52,247 % to sales.......................... 22% 25% 27% 30% 30% 32% 30% Operating expense data Amortization of intangibles and First Rights compensation.................. $ 14,321 $ 13,466 $ 11,997 $ 13,108 $ 12,116 $ 15,717 $ 8,645 Conversion costs...................... 12,315 -- -- -- -- -- -- Other operating expenses.............. 80,985 63,594 52,238 43,614 46,421 35,302 25,139 % to sales.......................... 10% 12% 14% 15% 16% 15% 15% Net income data* Total net income...................... $128,950 $ 45,813 $ 34,701 $ 31,462 $ 31,363 $ 26,190 $ 17,605 Net income per unit................... $ 2.25 $ 1.73 $ 1.65 $ 1.65 $ 1.65 $ 1.23 Net income per share.................. $ 7.00 Pro forma data* Pro forma operating income............ $ 87,977 $ 53,227 $ 40,691 $ 31,718 $ 30,812 $ 26,301 $ 18,463 % to sales.......................... 11% 10% 11% 11% 10% 11% 11% Pro forma net income.................. $ 54,703 $ 33,027 $ 24,602 $ 20,727 $ 20,465 $ 16,657 $ 11,538 Pro forma net income per share........ $ 2.97 $ 1.81 $ 1.37 $ 1.21 $ 1.19 $ 0.97 $ 0.71 CASH FLOW DATA Cash flow from operating activities..... $111,669 $ 79,323 $ 55,316 $ 46,642 $ 54,782 $ 44,447 $ 37,542 Cash purchases of property and equipment.............................. 32,529 18,126 12,295 15,988 7,158 7,065 2,724 Cash distributions declared............. 50,942 47,217 44,507 42,581 42,582 32,514 17,722 Cash distributions declared per unit.... $ 2.52 $ 2.51 $ 2.50 $ 2.50 $ 2.50 $ 2.27 $ 1.20 BALANCE SHEET DATA (AT END OF YEAR) Cash and cash equivalents............... $ 62,881 $ 33,798 $ 19,094 $ 20,098 $ 32,025 $ 27,886 $ 15,599 Current assets.......................... 206,489 109,748 74,999 59,200 66,893 60,344 36,377 Total assets............................ 331,166 180,548 146,681 135,509 138,704 137,628 118,070 Current liabilities..................... 161,457 98,055 69,054 52,646 46,602 38,875 20,665 Shareholders' equity/Partners' capital................................ 169,709 82,493 77,627 82,863 92,102 98,753 97,405 - ------------------------------ *The comparability of the information reflected in the Selected Financial Data is materially affected by the conversion from a master limited partnership to a corporation on December 22, 1994, which resulted in the Company recording a net deferred tax asset of $65.0 million, conversion expenses of $12.3 million and a corresponding net increase in 1994 net income (see Notes 1 and 5 of Notes to the Financial Statements). Pro forma data is presented to assist in comparing the continuing results of operations of the Company exclusive of the conversion costs and as if the Company was a taxable corporation for each period presented (see Note 10 of Notes to the Financial Statements).
11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion pertains to the results of operation and financial position of the Company for each of the three years in the period ended December 31, 1994, and should be read in conjunction with the Financial Statements included elsewhere herein. RESULTS OF OPERATIONS 1994 VS. 1993 Sales increased to $826.3 million in 1994, representing a 56 percent increase over the $528.0 million of sales in 1993. Total finished goods unit shipments for 1994 increased 52 percent over 1993. The increase in sales is primarily attributable to the broadening of the three product lines and the continued popularity of all Polaris products. Additional factors include the growth of the worldwide market for all three product lines, the continuing favorable U.S. economy and a competitive pricing strategy. Snowmobile unit sales volume increased 34 percent during 1994, primarily because of the introduction of new models, including the XLT Special and RXL with Polaris' new XTRA suspension system. ATV unit sales volume increased 55 percent during 1994, primarily because of the continued growth in the utility and sports-enthusiasts' markets and the improvement in product availability at the dealer level as a result of the dedicated ATV production line. The average per unit sales price increased by 11 percent for ATVs in 1994, principally through the sale of new, more high-performance models that have a higher selling price than economy models. The Company introduced several new models in 1994, including the Magnum, Xplorer and Scrambler. PWC unit sales volume increased 146 percent during 1994, primarily because of the fast growth in the PWC market and the introduction of models aimed at both the family and sports rider market segments. Sales of related parts, garments and accessories increased 36 percent in 1994 as a result of the increased sales volume of all three product lines. Gross profit increased to $183.3 million in 1994, representing a 41 percent increase over gross profit of $130.3 million. The gross profit margin percentage decreased to 22.2 percent for 1994, from 24.7 percent for 1993. This decrease in gross margin percentage is primarily a result of: (a) the change in product mix towards a greater percentage of sales from ATVs and PWC which generate lower gross margins than snowmobiles; (b) continued increases in raw material purchase prices for engines and certain other component parts because of the weakening of the U.S. dollar in relation to the Japanese yen; (c) strengthening of the U.S. dollar in relation to the Canadian dollar, which results in lower gross margins from the Company's Canadian subsidiary operation; and (d) increase in warranty expenses as a result of the emphasis on technological innovation and introduction of new high-performance models. The Company has continued to invest in new product development, particularly in the areas of innovation and product diversification. New product research and development costs are recorded as cost of sales in the statements of operations. Research and development expenses were $13.5 million (1.6 percent of sales) in 1994, and $11.1 million (2.1 percent of sales) in 1993. In addition, the Company incurred tooling expenditures for new products of $12.6 million in 1994 and $9.3 million in 1993. In 1994, more than 70 percent of sales came from products introduced in the past three years. Operating expenses (exclusive of $12.3 million of costs of conversion to a corporation) increased $18.2 million (24 percent) in 1994 as a result of the sales volume increases, but as a percentage of sales, decreased to 11.5 percent for 1994, from 14.6 percent in 1993. The percentage decrease is due primarily to the Company supporting an increasing level of sales without a corresponding increase in selling and administrative expenses. 12 Income tax expense (exclusive of the income tax adjustment for the change in tax status) increased $4.5 million in 1994 compared to 1993. This increase is attributable primarily to additional reserves established relating to certain open tax years in the United States and Canada, some of which are under audit by Revenue Canada (see Note 8 of Notes to the Financial Statements). Pro forma information is presented in the Statements of Operations to assist in comparing the continuing results of operations of the Company exclusive of the conversion costs and as if the Company was a taxable corporation for each period presented. The pro forma provision for income taxes was calculated at an effective tax rate of 38 percent. Pro forma net income increased 66 percent to $54.7 million in 1994 from $33.0 million in 1993. Pro forma net income as a percent of sales was 6.6 percent and 6.3 percent in 1994 and 1993, respectively. Pro forma net income per share increased 64 percent to $2.97 in 1994 from $1.81 in 1993. 1993 VS. 1992 Sales for 1993 were $528.0 million, an increase of 38 percent over 1992 sales of $383.8 million. Total finished goods unit shipments for 1993 increased 34 percent over 1992. Management believes Polaris' success in the snowmobile market is attributable to product superiority, aggressive consumer promotional programs and a strong dealer network. The 1993 sales increase resulted from the introduction of new models and the continued success of other popular models, including the lightweight XLT model. Snowmobile unit sales volume increased by 26 percent in 1993 over 1992. In 1993, the Company's ATV product lines sales grew by 41 percent over 1992 sales as retail sales rose to the highest level in Polaris' history. Management believes Polaris has been successful by targeting the all-purpose segment of the ATV market with new and improved products. Polaris introduced several new models in 1993, including the Sportsman 4x4. Manufacturing and sales of PWC commenced in the first quarter of 1992 with the introduction of the SL650 model. In 1993, the Company added the SL750 and the three-passenger SLT750 models designed for families and sports riders. PWC unit sales volume increased 62 percent in 1993 over the initial shipments of PWC products in 1992. Sales of related parts, garments and accessories increased 43 percent in 1993 over 1992 as a result of the increased finished goods shipments. Gross profit increased to $130.3 million in 1993, a 24 percent increase over 1992. However, the gross profit percentage decreased to 24.7 percent in 1993 compared to 27.3 percent in 1992, primarily due to an aggressive pricing strategy, changes in the product mix and foreign exchange rates. The growing ATV and PWC businesses provided a lower gross profit percentage than did the snowmobile business. Raw material purchase prices increased for engines and certain other component parts because of the weakening of the U.S. dollar in relation to the Japanese yen. Strengthening of the U.S. dollar in relation to the Canadian dollar caused gross margin erosion of the Canadian subsidiary operation. Operating expenses increased $12.8 million in 1993, but as a percentage of sales decreased to 14.6 percent in 1993 from 16.7 percent in 1992. Operating expenses as a percentage of sales decreased because the Company was able to increase sales without incurring a corresponding amount of general and administrative expenses. In addition, because of the strong demand and competitive pricing for the Company's products, sales and marketing program expenses remained relatively constant between 1993 and 1992. The provision for income taxes in 1993 increased over the prior year at a rate greater than the growth in income from the Canadian subsidiary because the Company continued to accrue for open tax years in the United States and Canada (see Note 8 of Notes to the Financial Statements). 13 CASH DISTRIBUTIONS Since its inception, and prior to the conversion to a corporation in 1994, the Partnership paid cumulative cash distributions to holders of its BACs in the amount of $16.37 per BAC, which, together with cash distributions paid to its general partner, aggregated $282.4 million. On January 26, 1995, the Board of Directors of the Company declared a regular dividend of $0.15 per share to holders of record on February 6, 1995, payable on February 15, 1995, and a special cash distribution of $1.92 per share to holders of record on March 17, 1995, payable on April 1, 1995. Management has recommended to the Company's Board of Directors that it establish an initial cash dividend rate of $0.15 per share per quarter, and pay two additional special cash distributions, each of $1.92 per share, payable during the third and fourth quarters of 1995. Management expects to incur indebtedness of up to $70 million in connection with the payment of the special cash distributions. However, the timing and amount of future dividends and distributions will be at the discretion of the Board of Directors of the Company and will depend, among other things, on continuing levels of performance and the financial strength of the Company. There can be no assurance that the recommended dividends or cash distributions for 1995 will be declared and paid. LIQUIDITY AND CAPITAL RESOURCES Polaris' primary sources of funds have been cash provided by operating activities, a line of credit and a dealer financing program provided by third parties. Polaris' primary uses of funds have been for cash distributions to partners, capital investments and for new product development. During 1994, Polaris generated net cash from operating activities of $111.7 million, which was utilized to fund cash distributions to partners of $50.1 million and capital expenditures of $32.5 million. In 1993, Polaris generated net cash from operating activities of $79.3 million, which was utilized to fund cash distributions to partners of $46.5 million and capital expenditures of $18.1 million. At December 31, 1994, cash and cash equivalents totaled $62.9 million, an increase of $29.1 million from December 31, 1993. Working capital totaled $45.0 million at December 31, 1994. The seasonality of production and shipments causes working capital requirements to fluctuate during the year. The Company has a $40 million unsecured bank line of credit arrangement expiring May 1, 1995 to provide letters of credit and borrowings for working capital needs. Borrowings under the line of credit bear interest at the prime interest rate, or at CD-based or LIBOR-based rates. At December 31, 1994, the Company had no short-term debt under this line of credit and had utilized its bank line to the extent of letters of credit outstanding of $15.5 million related to purchase obligations for raw materials. The Company is currently in negotiations to obtain a $125 million unsecured bank line of credit arrangement to replace its current line of credit arrangements. The Company has arrangements with unrelated finance companies to provide floor plan financing for its distributors and dealers. These arrangements provide liquidity by financing distributor and dealer purchases of snowmobiles, ATVs and PWC without the use of the Company's working capital. Substantially all of the sales of snowmobiles, ATVs and PWC are financed under these arrangements whereby the Company receives payment within a few days of shipment of the product. The amount financed by distributors and dealers under these arrangements at December 31, 1994 and 1993, was approximately $108.0 million and $64.9 million, respectively. From time to time, the Company participates in the cost of dealer and distributor financing up to certain limits. The Company has agreed to repurchase products repossessed by the finance companies to an annual maximum of 15 percent of the average amount outstanding during the prior calendar year. The Company's financial exposure under these agreements is limited to the difference between the amount paid to the finance companies and the amount received on the resale of the repossessed product. No material losses have been incurred under these agreements. However, an adverse change in the economy could cause this situation to change and thereby require the Company to repurchase financed units. Management intends to record a sales allowance when it becomes probable that returns under this program will be material. 14 The Company has made capital investments to increase production capacity, quality and efficiency, and for new product development. Over the past several years, these investments have included the introduction of the PWC product line, the introduction of new snowmobile and ATV models to broaden those product lines, the expansion of manufacturing capacity, the purchase of enhanced fabrication and assembly equipment, the expansion of computer-aided engineering and design systems, installation of a new state-of-the art metals paint system, and the continuing development and implementation of systems and programs to improve quality and efficiency and to reduce costs. Improvements in manufacturing capacity include the $8.0 million purchase of a component parts fabrication facility in 1991, the addition of an assembly line dedicated to year-round production of ATVs in 1993, improvements in plant layout and the expansion to a new leased assembly facility in 1994. The Company anticipates that capital expenditures, including tooling, for 1995 will approximate $45 million. The Canadian income tax authorities have proposed adjustments to the 1987 and 1988 income tax returns of the Canadian subsidiary. The resolution of these proposed adjustments may also affect the Canadian income tax returns for years subsequent to 1988. The Company has been informed of the Canadian income tax authorities' intent to initiate audits of the tax years 1989 through 1991. The proposed adjustments relate primarily to the original purchase price allocation of the Canadian subsidiary and certain transfer pricing matters. Management continues to vigorously contest a certain amount of the proposed adjustments. Management does not believe the outcome of this matter will have a materially adverse impact on the financial position or continuing operations of the Company. At December 31, 1994, the Company has accrued $14.3 million for income taxes related to certain open tax years in the United States and Canada. The conversion to a corporation effective in December 1994 will significantly impact future liquidity and capital resources. Management has recommended to the Company's Board of Directors that it make special cash distributions aggregating approximately $105 million during 1995. As a corporation, the Company will be responsible for payment of corporate federal, state and certain foreign income taxes on current earnings. The combined tax rate is estimated to be approximately 38 percent of pre-tax income, net of related research and development credits and foreign sales corporations benefits. As a result of the conversion, the Company has recorded a deferred tax asset of $65 million in 1994 which will have the effect of reducing income taxes payable in future periods. Management believes that existing cash balances, cash flow to be generated from operating activities and available borrowing capacity under the new line of credit arrangement currently being negotiated will be sufficient to fund operations, regular dividends, special cash distributions and capital expenditure requirements for 1995. At this time, management is not aware of any factors that would have a materially adverse impact on cash flow beyond 1995. INFLATION AND EXCHANGE RATES The Company does not believe that inflation has had a material impact on the results of its operations. However, the changing relationships of the U.S. dollar to the Canadian dollar and Japanese yen have had a material impact from time-to-time. Over the past several years, weakening of the U.S. dollar in relation to the yen has resulted in higher raw material purchase prices. During 1994, purchases totaling 28 percent of the Company's cost of sales were from Japanese suppliers. Management believes that such cost increases also affect its principal competitors in ATVs, and, to varying degrees, some of its snowmobile and PWC competitors. The Company operates in Canada through a wholly-owned subsidiary. Sales of the Canadian subsidiary comprised 16 percent of total Company sales in 1994. Strengthening of the U.S. dollar in relation to the Canadian dollar has caused unfavorable foreign currency fluctuations from prior periods resulting in lower gross margin levels. 15 In the past, the Company has been a party to, and in the future may enter into, foreign exchange hedging contracts for both the Japanese yen and the Canadian dollar to minimize the impact of exchange rate fluctuations within each year. To date, such contracts have not had a material impact on earnings. There were no open contracts as of December 31, 1994. In February 1995, the Company entered into a venture with Fuji Heavy Industries Ltd. to build engines in the United States for recreational and industrial products. Potential advantages to the Company of participation in the joint venture include reduced foreign exchange risk, lower shipping costs and less dependence on a single source for engines. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by this Item are as set forth in the Financial Statements of the Company. Reference is made to the Index to the Financial Statements and Supporting Schedule which appears on page F-1. Such Financial Statements are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Directors of the Registrant The information under the caption "Election of Directors" in the Company's 1995 Proxy Statement is incorporated herein by reference. (b) Executive Officers of the Registrant Information concerning Executive Officers of the Company is included in this Report under Item 4, "Executive Officers of the Registrant." (c) Compliance with Section 16(a) of the Exchange Act The information under the caption "Compliance with Beneficial Ownership Reporting Rules" in the Company's 1995 Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information under the caption "Executive Compensation and Other Information" and "Election of Directors -- Directors' Remuneration" in the Company's 1995 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's 1995 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the caption "Certain Relationships and Related Transactions" in the Company's 1995 Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) Financial Statements Reference is made to the Index to Financial Statements and Supporting Schedule which appears on page F-1. 16 (2) Financial Statement Schedules Reference is made to the Index to Financial Statements and Supporting Schedule, which appears on page F-1. (3) Exhibits The Exhibits to this Report are listed in the Exhibit Index on page E-1 which follows the Financial Statement Schedule. A copy of any of these Exhibits will be furnished at a reasonable cost to any person who was a shareholder of the Company as of March 13, 1995, upon receipt from any such person of a written request for any such exhibit. Such request should be sent to Polaris Industries Inc., 1225 Highway 169 North, Minneapolis, Minnesota 55441, Attention: Investor Relations. (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of the fiscal year ended December 31, 1994. (c) Exhibits Included in Item 14(a)(3) above. (d) Financial Statement Schedules Included in Item 14(a)(2) above. 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Minneapolis, State of Minnesota on March 24, 1995. POLARIS INDUSTRIES INC. By: /s/ W. HALL WENDEL, JR. ----------------------------------- W. Hall Wendel, Jr. CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------------------ ------------------------------------- ------------------ /s/ W. HALL WENDEL, JR. ------------------------------------------- Chief Executive Officer and Director March 24, 1995 W. Hall Wendel, Jr. (Principal Executive Officer) Executive Vice President, Chief /s/ JOHN H. GRUNEWALD Financial Officer and Secretary ------------------------------------------- (Principal Financial and Accounting March 24, 1995 John H. Grunewald Officer) * ------------------------------------------- Director March 24, 1995 Beverly F. Dolan * ------------------------------------------- Director March 24, 1995 Robert S. Moe * ------------------------------------------- Director March 24, 1995 Kenneth D. Larson * ------------------------------------------- Director March 24, 1995 Stephen G. Shank * ------------------------------------------- Director March 24, 1995 Gregory R. Palen
18
SIGNATURE TITLE DATE - ------------------------------------------------------ ------------------------------------- ------------------ * ------------------------------------------- Director March 24, 1995 Andris A. Baltins *By: /s/ W. HALL WENDEL, JR. -------------------------------------- March 24, 1995 (W. Hall Wendel, Jr. Attorney-in-Fact) - ------------------------ *W. Hall Wendel, Jr., pursuant to Powers of Attorney executed by each of the officers and directors listed above whose name is marked by an "*" and filed as an exhibit hereto, by signing his name hereto does hereby sign and execute this Report of Polaris Industries Inc. on behalf of each of such officers and directors in the capacities in which the names of each appear above.
19 POLARIS INDUSTRIES INC. FINANCIAL STATEMENTS AND SUPPORTING SCHEDULE INCLUDED IN ANNUAL REPORT ON FORM 10-K Page numbers refer to pages in the attached financial statements.
INDEX PAGE - ---------------------------------------------------------------------------------------------------------- --------- INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS.................................................. F-2 FINANCIAL STATEMENTS Balance sheets.......................................................................................... F-3 Statements of operations................................................................................ F-5 Statements of shareholders' equity...................................................................... F-6 Statements of cash flows................................................................................ F-7 Notes to financial statements........................................................................... F-8
The following financial statement schedule of Polaris Industries Inc. for the years ended December 31, 1994, 1993 and 1992, is filed as part of this report and should be read in conjunction with the financial statements. INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE......................... FS-1 SCHEDULE II -- Valuation and qualifying accounts..................................... FS-2
Schedules not listed above have been omitted because they are not applicable or are not required or the information requested to be set forth therein is included in the financial statements or notes thereto. F-1 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Shareholders Polaris Industries Inc. Minneapolis, Minnesota We have audited the accompanying balance sheets of POLARIS INDUSTRIES INC. (formerly Polaris Industries Partners L.P.) as of December 31, 1994 and 1993, and the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Polaris Industries Inc. as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. McGLADREY & PULLEN, LLP Minneapolis, Minnesota February 2, 1995 F-2 POLARIS INDUSTRIES INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS
DECEMBER 31, ----------------------- 1994 1993 ---------- ----------- CURRENT ASSETS Cash and cash equivalents (Note 2)..................................................... $ 62,881 $ 33,798 Trade receivables...................................................................... 29,700 21,340 Inventories (Note 3)................................................................... 88,714 52,057 Prepaid expenses and other............................................................. 5,194 2,553 Deferred tax assets (Note 5)........................................................... 20,000 -- ---------- ----------- Total current assets............................................................... 206,489 109,748 ---------- ----------- DEFERRED TAX ASSETS (NOTE 5)............................................................. 45,000 -- ---------- ----------- PROPERTY AND EQUIPMENT, at cost Land, buildings and improvements....................................................... 14,913 10,737 Equipment and tooling.................................................................. 77,116 56,480 ---------- ----------- 92,029 67,217 Less accumulated depreciation.......................................................... 38,368 27,486 ---------- ----------- 53,661 39,731 ---------- ----------- INTANGIBLES Cost in excess of net assets of business acquired, net of amortization of $5,722, 1994 and $4,968, 1993...................................................................... 24,956 25,710 Dealer network, net of amortization of $44,000, 1994 and $39,811, 1993................. -- 4,189 Other, net of amortization of $2,421, 1994 and $2,311, 1993............................ 1,060 1,170 ---------- ----------- 26,016 31,069 ---------- ----------- $ 331,166 $ 180,548 ---------- ----------- ---------- -----------
See Notes to Financial Statements. F-3 POLARIS INDUSTRIES INC. BALANCE SHEETS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, ----------------------- 1994 1993 ---------- ----------- CURRENT LIABILITIES Accounts payable....................................................................... $ 58,932 $ 36,122 Distributions payable.................................................................. 12,736 11,851 Accrued expenses: Compensation (Note 6)................................................................ 33,349 20,060 Warranties........................................................................... 23,838 11,412 Other................................................................................ 17,447 10,856 Income taxes payable (Notes 5 and 8)................................................... 15,155 7,754 ---------- ----------- Total current liabilities.......................................................... 161,457 98,055 ---------- ----------- COMMITMENTS AND CONTINGENCIES (NOTES 4, 6, 8 AND 9) PARTNERS' CAPITAL........................................................................ -- 82,493 SHAREHOLDERS' EQUITY (NOTES 6 AND 8) Preferred stock $0.01 par value, authorized 20,000 shares, no issued and outstanding shares................................................................................ -- -- Common stock $0.01 par value, authorized 80,000 shares, issued and outstanding, 18,111 shares 1994........................................................................... 181 -- Additional paid-in capital............................................................. 103,935 -- Compensation payable in common stock................................................... 12,251 -- Retained earnings...................................................................... 53,342 -- ---------- ----------- 169,709 82,493 ---------- ----------- $ 331,166 $ 180,548 ---------- ----------- ---------- -----------
See Notes to Financial Statements. F-4 POLARIS INDUSTRIES INC. STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 1994 1993 1992 ---------- ----------- ----------- Sales....................................................................... $ 826,286 $ 528,011 $ 383,818 Cost of Sales............................................................... 643,003 397,724 278,892 ---------- ----------- ----------- Gross profit............................................................ 183,283 130,287 104,926 ---------- ----------- ----------- Operating Expenses Selling, general and administrative....................................... 80,985 63,594 52,238 First Rights compensation................................................. 9,268 6,300 4,570 Amortization of intangibles............................................... 5,053 7,166 7,427 Conversion (Note 1)....................................................... 12,315 -- -- ---------- ----------- ----------- Total operating expenses................................................ 107,621 77,060 64,235 ---------- ----------- ----------- Operating income........................................................ 75,662 53,227 40,691 Nonoperating Expense (Income), net.......................................... (254) (43) 1,010 ---------- ----------- ----------- Income before income taxes.............................................. 75,916 53,270 39,681 Provision for Income Taxes (Notes 5 and 8).................................. 11,966 7,457 4,980 ---------- ----------- ----------- 63,950 45,813 34,701 Income Tax Adjustment for Change in Tax Status (Note 5)..................... (65,000) -- -- ---------- ----------- ----------- Net income.............................................................. $ 128,950 $ 45,813 $ 34,701 ---------- ----------- ----------- ---------- ----------- ----------- Net Income Per Share (Note 1)............................................... $ 7.00 ---------- ---------- Weighted Average Number of Common and Common Equivalent Shares Outstanding (Note 1)................................................................... 18,423 18,215 17,968 ---------- ----------- ----------- ---------- ----------- ----------- Pro Forma Information (Note 10) Income before income taxes................................................ $ 88,231 $ 53,270 $ 39,681 Provision for income taxes................................................ 33,528 20,243 15,079 ---------- ----------- ----------- Net income.............................................................. $ 54,703 $ 33,027 $ 24,602 ---------- ----------- ----------- ---------- ----------- ----------- Net income per share...................................................... $ 2.97 $ 1.81 $ 1.37 ---------- ----------- ----------- ---------- ----------- -----------
See Notes to Financial Statements. F-5 POLARIS INDUSTRIES INC. STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
PARTNERS' CAPITAL ------------------------------------------------------ LIMITED PARTNERS' INTEREST -------------------------------------------- SHAREHOLDERS' EQUITY FIRST RIGHTS --------------------------------------- ----------------------- TOTAL ADDITIONAL COMPENSATION GENERAL ASSIGNED LIMITED COMMON PAID-IN PAYABLE IN RETAINED PARTNER'S CAPITAL DEFERRED PARTNERS' STOCK CAPITAL COMMON STOCK EARNINGS INTEREST BACS VALUE COMPENSATION INTEREST TOTAL ------ ---------- ------------ -------- -------- --------- -------- ------------- --------- -------- Balance, December 31, 1991.................... $-- $ -- $ -- $ -- $(5,066 ) $ 71,499 $ 19,114 $(2,684) $ 87,929 $ 82,863 First Rights conversion to BACs............... -- -- -- -- -- 12,407 (12,407) -- -- -- First Rights grants and amortization.......... -- -- -- -- -- -- 2,395 2,175 4,570 4,570 Cash distributions declared.............. -- -- -- -- (9,257 ) (35,250) -- -- (35,250) (44,507) Net income for the year.................. -- -- -- -- 7,218 27,483 -- -- 27,483 34,701 ------ ---------- ------------ -------- -------- --------- -------- ------------- --------- -------- Balance, December 31, 1992.................... -- -- -- -- (7,105 ) 76,139 9,102 (509) 84,732 77,627 First Rights conversion to BACs............... -- -- -- -- -- 6,042 (6,072) -- (30) (30) First Rights grants and amortization.......... -- -- -- -- -- -- 5,791 509 6,300 6,300 Cash distributions declared.............. -- -- -- -- (9,821 ) (37,396) -- -- (37,396) (47,217) Net income for the year.................. -- -- -- -- 9,529 36,284 -- -- 36,284 45,813 ------ ---------- ------------ -------- -------- --------- -------- ------------- --------- -------- Balance, December 31, 1993.................... -- -- -- -- (7,397 ) 81,069 8,821 -- 89,890 82,493 First Rights conversion to BACs............... -- -- -- -- -- 5,778 (5,838) -- (60) (60) First Rights grants.... -- -- -- -- -- -- 9,268 -- 9,268 9,268 Cash distributions declared.............. -- -- -- -- (10,596 ) (40,346) -- -- (40,346) (50,942) Net income for the year (Note 1).............. -- -- -- 53,342 15,726 59,882 -- -- 59,882 128,950 Conversion (Note 1).... 181 103,935 12,251 -- 2,267 (106,383) (12,251) -- (118,634) -- ------ ---------- ------------ -------- -------- --------- -------- ------------- --------- -------- Balance, December 31, 1994.................... $ 181 $ 103,935 $ 12,251 $53,342 $ -- $ -- $ -- $-- $ -- $169,709 ------ ---------- ------------ -------- -------- --------- -------- ------------- --------- -------- ------ ---------- ------------ -------- -------- --------- -------- ------------- --------- --------
See Notes to Financial Statements. F-6 POLARIS INDUSTRIES INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1994 1993 1992 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................................. $ 128,950 $ 45,813 $ 34,701 Adjustments to reconcile net income to cash flow from operating activities Depreciation............................................................. 18,599 12,446 9,830 Amortization............................................................. 5,053 7,166 7,427 First Rights compensation................................................ 9,268 6,300 4,570 Deferred income taxes.................................................... (65,000) -- -- Changes in current operating items Trade receivables...................................................... (8,360) (4,465) (6,372) Inventories............................................................ (36,657) (14,481) (10,528) Accounts payable....................................................... 22,810 11,176 11,605 Accrued expenses....................................................... 32,306 12,977 1,167 Income taxes payable................................................... 7,401 4,124 3,154 Other.................................................................. (2,701) (1,733) (238) ---------- ---------- ---------- Net cash provided by operating activities............................ 111,669 79,323 55,316 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment......................................... (32,529) (18,126) (12,295) CASH FLOWS FROM FINANCING ACTIVITIES Cash distributions......................................................... (50,057) (46,493) (44,025) ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents..................... 29,083 14,704 (1,004) CASH AND CASH EQUIVALENTS Beginning.................................................................. 33,798 19,094 20,098 ---------- ---------- ---------- Ending..................................................................... $ 62,881 $ 33,798 $ 19,094 ---------- ---------- ---------- ---------- ---------- ----------
See Notes to Financial Statements. F-7 POLARIS INDUSTRIES INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION: Polaris Industries Inc. (the Corporation) was formed for the purpose of effecting the conversion of Polaris Industries Partners L.P., a Delaware limited partnership (the Partnership), from a publicly traded limited partnership to a publicly traded corporation on December 22, 1994 (the Conversion). The Corporation issued 16,010,441 shares of $0.01 par value common stock to the Partnership's Limited Partners in exchange for their limited partner interests, 2,100,243 shares of common stock to the affiliates of EIP Associates L.P. (the General Partner) in exchange for the entire general partnership interests and rights and ultimately 312,500 shares of common stock to the holders of 312,500 First Rights. As a result of the Conversion, the Corporation owns all of the general and limited partnership interests in the Partnership. The Corporation had no operations prior to the conversion and is continuing the business of the Partnership with the same operating management, but without management involvement by the General Partner. The activities of the Partnership and the Corporation are referred to herein as activities of the Company. The Conversion has been accounted for as a reorganization of affiliated entities, with the assets and liabilities of the Partnership recorded at their historical cost basis, except that deferred taxes relating to the temporary differences between the financial reporting and the income tax bases of certain assets and liabilities at the date of the Conversion were recorded by the Corporation (Note 5). The statements of operations, shareholders' equity and cash flows for 1992, 1993 and for 1994 through the date of the Conversion reflect the operations of the Partnership. The costs of the Conversion were recorded as an expense of the Corporation in the statement of operations at the time of the Conversion. Other than the effect of recording deferred taxes and the costs of the Conversion, net income for the year ended December 31, 1994, has been prorated between retained earnings of the Corporation and partners' capital of the Partnership for purposes of the statement of shareholders' equity. BUSINESS: The Company is engaged in a single industry segment consisting of the design, engineering and manufacture of recreational and utility vehicles and markets them together with related parts, garments and accessories through a network of dealers, distributors and its Canadian subsidiary. BASIS OF PRESENTATION: The financial statements of the Company include the accounts of the Corporation, the Partnership and its Canadian subsidiary. All significant intercompany transactions and balances have been eliminated in the combination. CASH EQUIVALENTS: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out method) or market. DEPRECIATION AND AMORTIZATION: Depreciation and amortization are provided using the straight-line method based on the estimated useful lives of individual assets over the following periods:
YEARS --------- Building and improvements...................................... 10 - 20 Equipment and tooling.......................................... 1 - 7 Cost in excess of net assets of business acquired.............. 40 Other intangibles.............................................. 5 - 17
Fully depreciated tooling is eliminated from the accounting records annually. The Company reviews its intangibles quarterly to determine potential impairment by comparing the carrying value of the intangibles with expected future net cash flows provided by operating activities of the business. Should the sum of the expected future net cash flows be less than the F-8 POLARIS INDUSTRIES INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) carrying value, the Company would determine whether an impairment loss should be recognized. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the business. Fair value will be determined based on appraised market value. To date, management has determined that no impairment of intangibles exists. PRODUCT WARRANTIES: The Company provides for estimated normal and extended warranty costs at the time of sale to distributors and dealers and for other costs associated with specific items at the time their existence and amounts are determinable. RECLASSIFICATION: For the years ended December 31, 1993 and 1992, the Company has reclassified certain expenses to be consistent with the classification adopted for the current year's statement of operations presentation. FOREIGN CURRENCY: The Canadian subsidiary maintains its books of record using Canadian currency and uses United States currency as the functional currency. Canadian assets and liabilities are translated at the foreign exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average foreign exchange rate in effect. Translation and exchange gains and losses are reflected in earnings. FOREIGN EXCHANGE CONTRACTS: The Company enters into foreign exchange contracts to hedge certain of its purchase commitments denominated in foreign currencies and transfers of funds from its Canadian subsidiary; market value gains and losses are recognized at the time of purchase or transfer of funds, respectively. REVENUE RECOGNITION: Revenues are recognized at the time of delivery to the dealer or distributor. The Company has not historically recorded an allowance for product returns because such returns, whether in the normal course of business or resulting from repossession under its customer financing program (see Note 4), have not been material. However, management intends to record a return allowance when it becomes probable such returns will be material. The Company provides for estimated sales promotion expenses at the time of sale to the dealer or distributor customer. RESEARCH AND DEVELOPMENT COSTS: Research and development costs are charged to operations as incurred and totaled $13,465,000, $11,145,000 and $7,396,000 for 1994, 1993 and 1992, respectively. These costs are included as a component of cost of sales on the accompanying statements of operations. NET INCOME PER SHARE: Net income per share is calculated based on the weighted average number of common and common equivalent shares outstanding during 1994 as if the conversion transaction discussed above occurred at the beginning of the year. Common equivalent shares represent the number of shares issuable upon conversion of the rights outstanding. Net income per share is not applicable for 1993 or 1992 because the Company was a partnership in those years. CASH DISTRIBUTIONS FROM OPERATIONS: Prior to the Conversion, cash distributions from operations were determined at the discretion of the General Partner and were allocated 79.2 percent to the limited partners and 20.8 percent to the General Partner. F-9 POLARIS INDUSTRIES INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of the following (in thousands):
DECEMBER 31, -------------------- 1994 1993 --------- --------- Cash on deposit with United States financial institutions.............. $ 10 $ 522 Cash on deposit with a Canadian financial institution (in US dollars)....................................................... 12,553 3,469 Investment in institutional and government fund........................ 20,352 29,807 Commercial paper....................................................... 29,966 -- --------- --------- $ 62,881 $ 33,798 --------- --------- --------- ---------
The Company maintains cash in deposit accounts which frequently exceed United States and Canadian insured limits. Management places deposits with financial institutions only after evaluating the institution's financial strength. The Company invests in an institutional and government fund, consisting of a portfolio of money market instruments with an average weighted maturity of not more than 90 days, including those of the United States government, banker's acceptances, time deposits, certificate of deposits and certain high grade commercial paper, nonconvertible corporate debt and loan participation interest. The Company also invests in commercial paper, consisting of corporate debt securities with maturities of not more than 90 days. At December 31, 1994, the investment in corporate debt securities is diversified among five high credit quality issuers in various industries. The commercial paper is classified as available for sale and as such, is stated at fair value, which at December 31, 1994, approximated amortized cost. During 1994, the Company purchased $109,966,000 of commercial paper and realized proceeds of $80,000,000 from sales of commercial paper. NOTE 3. INVENTORIES The major components of inventories are as follows (in thousands):
DECEMBER 31, -------------------- 1994 1993 --------- --------- Raw materials.......................................................... $ 32,717 $ 21,571 Service parts.......................................................... 29,067 23,379 Finished goods......................................................... 26,930 7,107 --------- --------- $ 88,714 $ 52,057 --------- --------- --------- ---------
NOTE 4. FINANCING BANK FINANCING: The Company has an unsecured bank line of credit arrangement to meet seasonal short-term financing needs with a maximum available of $40,000,000. Interest is charged at the prime interest rate, C.D.-based or LIBOR-based rates, and the agreement expires on May 1, 1995. The Company is currently in negotiations to obtain a $125,000,000 unsecured bank line of credit arrangement to replace its current line of credit arrangement. CUSTOMER FINANCING PROGRAM: Unrelated finance companies provide floor plan financing to distributors and dealers on the purchase of the Company's products. The amount financed by distributors and dealers under these arrangements at December 31, 1994, was approximately $108,000,000. The Company has agreed to repurchase products repossessed by the finance companies to an annual maximum of 15 percent of the average amounts outstanding during the prior calendar year. The financial exposure under these arrangements is limited to the difference between the amount paid to F-10 POLARIS INDUSTRIES INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 4. FINANCING (CONTINUED) the finance companies and the amount received on the resale of the repossessed product. No material losses have been incurred under these agreements during the periods presented. As a part of its marketing program, the Company will from time to time pay a specified portion of the floor plan interest expense payable by its distributors and dealers. Cash payment for interest amounted to $12,121,000, $8,348,000 and $6,764,000 in 1994, 1993 and 1992, respectively. NOTE 5. INCOME TAX MATTERS AND CHANGE IN TAX STATUS The Partnership was not a taxpaying entity for United States federal and state income tax purposes and its taxable income was passed through to the BAC holders and to the General Partner. The Canadian subsidiary is a corporation which is subject to Canadian federal and provincial income taxes, at a current combined effective rate of 44 percent. As a result of the Conversion, the Corporation, as a taxable entity, recorded a net deferred tax asset of $65,000,000 with a corresponding credit to income tax expense, for the following temporary differences between financial reporting and income tax bases (in thousands): Current assets: Inventories..................................................... $ 5,100 Accrued expenses................................................ 13,300 Compensation payable in common stock............................ 1,600 --------- Total current................................................. 20,000 --------- Noncurrent assets: Cost in excess of net assets of business acquired (a)........... 39,500 Property and equipment.......................................... 1,700 Compensation payable in common stock............................ 3,800 --------- Total noncurrent.............................................. 45,000 --------- Less valuation allowance.......................................... -- --------- Total......................................................... $ 65,000 --------- --------- - ------------------------ (a) The Corporation received a step-up in the tax basis of the assets of the Partnership, which resulted in a deferred tax asset. There was no step-up for financial statement purposes.
The Company made cash payments for income taxes of $4,119,000, $3,227,000 and $1,483,000 in 1994, 1993 and 1992, respectively. NOTE 6. EMPLOYEE BENEFIT PLANS The Company has various employee benefit plans for management and employees. A summary of these plans follows: BONUS AND PROFIT SHARING PLANS: A bonus and profit sharing plan has been established with amounts determined annually based upon a predetermined formula. In addition, the Company has an employee retirement savings plan. COMPENSATION PAYABLE IN COMMON STOCK: The Company has an employee benefit plan which provides for the issuance of rights which convert to shares of common stock as an incentive for management and employees. The rights require no cash payments by the recipients. Of such rights, F-11 POLARIS INDUSTRIES INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 6. EMPLOYEE BENEFIT PLANS (CONTINUED) 900,000 have been reserved for issuance to nonmanagement employees (the Employee Plan) and 1,500,000 have been reserved for issuance to middle management and senior management (the Management Plan). Rights will not be granted after December 31, 1999, and expire January 1, 2003. Rights under the Employee Plan are vested when granted. Rights under the Management Plan are earned but contain vesting provisions up to three years and terminate if employment ceases prior to the issuance of the related common stock. As of December 31, 1994, 215,500 rights under the Management Plan and 97,000 rights under the Employee Plan, respectively, are outstanding as summarized below:
OUTSTANDING AT END GRANTED CONVERTED FORFEITED OF YEAR --------- ------------ ------------- ----------- 1992....................................... 105,000 (1,205,784) -- 580,022 1993....................................... 171,594 (433,356) -- 318,260 1994....................................... 220,597 (226,357) -- 312,500
The Company records the rights at fair market value on the date of grant and accrues the related compensation expense throughout the year. However, prior to 1993, deferred compensation was recognized for portions of rights granted under the Management Plan, since certain conversion criteria had not been achieved at that date. Cash and noncash compensation expense recorded under these employee benefit plans was $37,512,000, $22,538,000 and $15,969,000 for 1994, 1993 and 1992, respectively. Accrued compensation includes approximately $28,243,000 and $16,236,000 for certain of these plans at December 31, 1994 and 1993, respectively. NOTE 7. FOREIGN OPERATIONS United States operations include export sales (excluding sales in Canada) of $36,049,000, $27,179,000 and $21,091,000 for 1994, 1993 and 1992, respectively. The following data relates to Canadian operations (in thousands of United States dollars):
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------- 1994 1993 1992 ----------- ----------- --------- Sales................................................... $ 129,689 $ 106,664 $ 99,286 Operating income........................................ 12,116 6,887 6,541 Identifiable assets..................................... 19,620 15,248 16,639
NOTE 8. COMMITMENTS AND CONTINGENCIES DIVIDENDS: On January 26, 1995, the Company declared a regular dividend of $0.15 per share to holders of record on February 6, 1995, payable on February 15, 1995, and a special dividend of $1.92 per share to holders of record on March 17, 1995, payable on April 1, 1995. Management has recommended to the Company's Board of Directors that it establish an initial cash dividend rate of $0.15 per share per quarter and pay two additional special cash distributions, each of $1.92 per share, payable during the third and fourth quarters of 1995. Management expects to incur indebtedness of up to $70,000,000 in connection with the payment of the special cash distributions. CANADIAN INCOME TAX EXAMINATION: In 1990, the Canadian income tax authorities proposed certain adjustments, principally relating to the original purchase price allocation to the Canadian subsidiary and transfer pricing matters, for additional income taxes payable by the Company's Canadian subsidiary for 1987 and 1988. The resolution of these proposed adjustments may also affect F-12 POLARIS INDUSTRIES INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED) the Company's Canadian income tax expense for years subsequent to 1988. The Company was informed of the Canadian income tax authorities' intent to initiate an audit of the tax years 1989 through 1991. Management continues to vigorously contest certain of the proposed adjustments. Management does not believe that the outcome of this matter will have a materially adverse impact on the financial position or continuing operations of the Company. Income taxes payable reflected on the accompanying December 31, 1994 and 1993, balance sheets include $14,265,000 and $6,824,000, respectively, related to certain open tax years in Canada and the United States. PRODUCT LIABILITY: The Company is subject to product liability claims in the normal course of business and has elected not to insure for product liability losses. 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 determinable. At December 31, 1994 and 1993, the Company has accrued $4,957,000 and $3,513,000, respectively, in connection with product liability claims. LITIGATION: The Company is a defendant in lawsuits and subject to claims arising in the normal course of business. While it is not feasible to determine the outcome of any of these cases, it is the opinion of management that their outcomes will not have a material adverse effect on the financial position or operations of the Company. WORKERS' COMPENSATION AND HEALTH BENEFITS: The Company is self-insured for workers' compensation losses and employee health benefits. The costs resulting from any losses are charged to expense when it is probable a loss has been incurred and the amount of the loss is determinable. MAJOR SUPPLIER: During 1994, 1993 and 1992, purchases totaling 26 percent of the Company's cost of sales were from a single supplier. The Company has agreed with the supplier to share the impact of fluctuations in the exchange rate between the U.S. dollar and the Japanese yen. DERIVATIVE FINANCIAL INSTRUMENTS: The Company enters into foreign exchange contracts to hedge certain of its purchase commitments denominated in foreign currencies and transfers of funds from its Canadian subsidiary. The purpose of the Company's foreign exchange contracts is to protect it from the risk that the eventual dollar cash flows resulting from the purchase commitments and transfers of funds from its Canadian subsidiary will be adversely affected by changes in exchange rates. At December 31, 1994, the Company had no open foreign exchange contracts. LETTERS OF CREDIT: At December 31, 1994, the Company has open letters of credit totaling approximately $15,500,000. The amounts outstanding are reduced as inventory purchases pertaining to the contracts are received. LEASES: The Company leases warehouse and office space from a partnership controlled by certain directors under an operating lease agreement expiring in 1997. The lease requires payments of $458,000 annually plus other costs. In addition, the Company leases other buildings and equipment from unrelated parties under noncancelable operating leases. Total rent expense under all lease agreements was $1,570,000, $1,643,000 and $1,564,000 for 1994, 1993 and 1992, respectively. Future minimum payments, exclusive of other costs, required under noncancelable operating leases at December 31, 1994, total $1,797,000 cumulatively through 1998. NOTE 9. SUBSEQUENT EVENT Subsequent to year end, the Company entered into a shareholder agreement with Fuji Heavy Industries Ltd. to form Robin Manufacturing, USA (Robin). Under the agreement, the Company will initially invest $800,000 for a 40 percent ownership position in Robin. Robin will build engines in the United States for recreational and industrial products. F-13 POLARIS INDUSTRIES INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 10. PRO FORMA INFORMATION Pro forma information is presented to assist in comparing the continuing results of operations of the Company for 1994, 1993 and 1992 exclusive of the Conversion costs and as if the Company was a taxable corporation for these years. The pro forma provision for income taxes has been calculated at a rate of 38 percent, which reflects a combined federal and state statutory rate, net of related research and development credits and foreign sales corporation benefits. The weighted average number of BACs and BAC equivalents has been retroactively adjusted to reflect the issuance of an equal number of shares of common stock to the Partnership's Limited Partners in exchange for the number of BACs outstanding and the issuance of 2,100,243 shares of common stock to the affiliates of the General Partner in exchange for the general partnership interests. NOTE 11. QUARTERLY FINANCIAL DATA (Unaudited) (In Thousands, Except Per Share Data)
PRO FORMA PRO FORMA NET INCOME GROSS NET NET INCOME PER SHARE SALES PROFIT INCOME (NOTE 10) (NOTE 10) ----------- ----------- ----------- ----------- ----------- 1994: First Quarter.................................. $ 145,471 $ 27,858 $ 8,566 $ 6,144 $ .33 Second Quarter................................. 180,884 34,252 10,542 7,348 .40 Third Quarter.................................. 258,370 63,673 31,503 21,611 1.18 Fourth Quarter................................. 241,561 57,500 78,339 19,600 1.06 ----------- ----------- ----------- ----------- Totals......................................... $ 826,286 $ 183,283 $ 128,950 $ 54,703 $ 2.97 ----------- ----------- ----------- ----------- ----- ----------- ----------- ----------- ----------- ----- 1993: First Quarter.................................. $ 107,115 $ 23,264 $ 6,138 $ 4,703 $ .26 Second Quarter................................. 111,235 26,996 6,542 4,702 .26 Third Quarter.................................. 166,803 43,044 18,762 12,907 .70 Fourth Quarter................................. 142,858 36,983 14,371 10,715 .59 ----------- ----------- ----------- ----------- Totals......................................... $ 528,011 $ 130,287 $ 45,813 $ 33,027 $ 1.81 ----------- ----------- ----------- ----------- ----- ----------- ----------- ----------- ----------- ----- 1992: First Quarter.................................. $ 70,227 $ 15,613 $ 2,133 $ 1,642 $ .09 Second Quarter................................. 85,467 22,293 6,181 4,441 .25 Third Quarter.................................. 121,548 36,343 15,850 10,815 .60 Fourth Quarter................................. 106,576 30,677 10,537 7,704 .43 ----------- ----------- ----------- ----------- Totals......................................... $ 383,818 $ 104,926 $ 34,701 $ 24,602 $ 1.37 ----------- ----------- ----------- ----------- ----- ----------- ----------- ----------- ----------- -----
F-14 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders Polaris Industries Inc. Minneapolis, Minnesota Our audit of the financial statements of POLARIS INDUSTRIES INC. (formerly Polaris Industries Partners L.P.) included schedule II contained herein, for the years ended December 31, 1994, 1993 and 1992. In our opinion, the schedule presents fairly the information required to be set forth therein in conformity with generally accepted accounting principles. McGLADREY & PULLEN, LLP Minneapolis, Minnesota February 2, 1995 FS-1 POLARIS INDUSTRIES INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT ADDITIONS BALANCE AT BEGINNING CHARGED TO END OF OF PERIOD EXPENSE DEDUCTIONS PERIOD ----------- ----------- ------------- ----------- For the Year Ended December 31, 1992: Allowance for doubtful accounts.............................. $ 398 $ 176 $ (295)(a) $ 279 Warranty reserve............................................. 4,738 7,230 (6,263)(b) 5,705 Product liability claims reserve............................. 2,156 500 (198)(c) 2,458 Workers' compensation claims reserve......................... 180 471 (349)(c) 302 For the Year Ended December 31, 1993: Allowance for doubtful accounts.............................. 279 482 (196)(a) 565 Warranty reserve............................................. 5,705 14,220 (8,513)(b) 11,412 Product liability claims reserve............................. 2,458 1,250 (195)(c) 3,513 Workers' compensation claims reserve......................... 302 351 (390)(c) 263 For the Year Ended December 31, 1994: Allowance for doubtful accounts.............................. 565 294 (26)(a) 833 Warranty reserve............................................. 11,412 28,142 (15,716)(b) 23,838 Product liability claims reserve............................. 3,513 1,500 (56)(c) 4,957 Workers' compensation claims reserve......................... 263 608 (393)(c) 478 Health benefits reserve...................................... -- 1,141 (321)(c) 820 - ------------------------ (a) Uncollected receivables written off, net of recoveries. (b) Warranty credits issued, net of recoveries. (c) Claims paid.
FS-2 POLARIS INDUSTRIES INC. EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1994
EXHIBIT NUMBER DESCRIPTION - ------------ ----------------------------------------------------------------------------------------------------- 3.(a) Articles of Incorporation of Polaris Industries Inc. (the "Company"), as amended, incorporated by reference to Exhibit 3(a) to the Company's Registration Statement on Form S-4 (No. 33-55769) (the "Form S-4"). (b) Bylaws of the Company, incorporated by reference to Exhibit 3(b) to the Form S-4. 4. Specimen Stock Certificate of the Company, incorporated by reference to Exhibit 4 to the Form S-4. 10.(a) Agreement for Deferred Compensation and Disability Income and Amendment No. 1 thereto with W. Hall Wendel, Jr. (b) Profit Sharing Plan, incorporated by reference to Exhibit 10(f) to the Form S-1. (c) Retirement Savings Plan, incorporated by reference to Exhibit 10(g) to the Form S-1. (d) 1987 Management Ownership Plan, incorporated by reference to Exhibit 10(h) to the Form S-1. (e) 1987 Employee Ownership Plan, incorporated by reference to Exhibit 10(i) to the Form S-1. (f) Management Bonus Plan, incorporated by reference to Exhibit 10(j) to the Form S-1. (g) Plymouth, Minnesota, Executive Office Lease, incorporated by reference to Exhibit 10(m) to the Form S-1. (h) Transamerica Commercial Finance Corporation, formerly Borg Warner Acceptance Corporation, Repurchase Agreement, incorporated by reference to Exhibit 10(p) to the Form S-1. (i) First Bank National Association, formerly First National Bank of Minneapolis, Credit Agreement (the "Credit Agreement"), incorporated by reference to Exhibit 19 to the Partnership's Quarterly Report on Form 10-Q, dated as of November 12, 1987. (j) Fourth Amendment to the Credit Agreement. (k) Shareholder Agreement with Fuji Heavy Industries Ltd. (l) Registration Rights Agreement between and among the Company, Victor K. Atkins, EIP I Inc., EIP Holdings Inc. and LB I Group Inc. 11. Statement re: Computation of per share earnings. 21. Subsidiaries of Registrant. 23. Consent of McGladrey & Pullen, LLP. 24. Power of Attorney. 27. Financial Data Schedule.
E-1 EX-10.(A) 2 EXHIBIT 10.A AGREEMENT FOR DEFERRED COMPENSATION AND DISABILITY INCOME DATE: SEPTEMBER 14, 1982 ------------------ PARTIES: Polaris Industries, Inc., a Minnesota corporation 1225 North County Road 18 Minneapolis, Minnesota 55427 ("Employer") Hall Wendel ("Employee") ------------------------------- RECITALS: A. Employer desires to have the benefit of Employee's continued loyalty, services, judgment and skills in the future conduct of Employer's business. B. Employee desires and intends to continue to devote his best efforts, skills and experience to his full time employment in the business of the Employer. C. The parties consider it to be in their mutual best interests to provide for certain deferred compensation, disability and death benefit payments to Employee upon the terms and conditions contained herein. AGREEMENTS: ARTICLE 1. DEFERRED COMPENSATION 1.1) After voluntary or involuntary termination of the employment of Employee (excluding termination by death), Employer shall pay to Employee additional compensation, the amount of which shall be determined as follows: (a) In the event of an involuntary termination of the employment of Employee for any reason other than dishonesty or gross misconduct against Employer in the performance of Employee's duties, Employee's additional compensation shall be equal to $100,000 multiplied by the number of full years of continuous service by him with Employer since the date of this Agreement, up to a maximum amount of $500,000. (b) In the event of a voluntary termination of the employment of Employee, Employee's additional compensation shall be equal to $33,333.33 multiplied by - 1 - the number of full years of continuous service by him with Employer since the date of this Agreement, up to a maximum amount of $500,000. (c) For purposes of this Agreement, Employee shall be considered employed by Employer during the period during which he is receiving disability payments pursuant to Article 2 of this Agreement. 1.2) The amount payable to Employee pursuant to Section 1.1 shall be paid in 120 equal monthly installments, commencing on the first day of the second calendar month following either the effective date of Employee's retirement or Employee's 65th birthday, whichever is later. 1.3) If Employee dies before receiving all payments of deferred compensation due him under Section 1.1, any remaining installments shall be paid to either the beneficiary designated by Employee in writing to Employer as provided in Section 1.7, or the legal representatives of Employee's estate. 1.4) In the event of the death of Employee prior to commencement of payments under Section 1.1 (provided that Employee is employed by Employer or is receiving disability payments pursuant to Article 2 of this Agreement at the time of his death), Employer shall pay to either the beneficiary designated in writing by Employee to Employer as provided in Section 1.7, or to the legal representatives of Employee's estate $500,000, representing additional compensation to Employee. 1.5) The amount payable to Employee's beneficiary or legal representative pursuant to Section 1.4 hereof shall be paid in 120 equal monthly installments, commencing on the first day of the second calendar month following notification of Employer of the appointment of the legal representative of Employee's estate. Employer may, in its discretion, pay such amount in larger or more frequent installments (including lump sum payment), with no discount applicable for such prepayment. 1.6) Payments made under this Article are a continuation of compensation to Employee, as additional consideration for his services as an employee of Employer. Such payments shall be treated as ordinary income when received on any applicable state and federal income tax returns. 1.7) Employee may, by written instrument delivered to Employer during his lifetime, designate primary and contingent beneficiaries to receive any installments which may be payable hereunder following Employee's death, and may designate the proportions in which such beneficiaries are to receive such payments. Employee may change such designation from time to time, and the last written designation filed with Employer prior to Employee's death will control. If no designated beneficiary survives Employee, or if all designated beneficiaries who - 2- survive Employee die before all payments are made, remaining payments shall be made to the legal representatives of Employee's estate. ARTICLE 2. DISABILITY PAYMENTS 2.1) If, during the term of his employment, Employee is totally disabled, Employer will pay to Employee a monthly disability payment equal to $4,166.67. Such payments shall continue during the period of Employee's total disability until Employee reaches age 65. Such payments shall not be offset by any disability benefits from whatever source received including, without limitation, Social Security disability benefits, which Employee may receive during that period. 2.2) "Total disability" shall mean that, as a result of physical or mental injury or sickness, Employee is unable to perform his regular and customary duties as an employee of Employer and is not engaged in any other gainful occupation. Total disability shall be determined by the Board of Directors of Employer or an examining physician acceptable to Employer. Employer, at its own expense, shall have the right and opportunity to examine Employee when, and as often as, it may reasonably require during the period of disability. ARTICLE 3. GENERAL PROVISIONS 3.1) This Agreement may be amended in any and all respects at any time by written agreement of both parties hereto. 3.2) This Agreement may be terminated at any time by written agreement of both parties hereto. 3.3) This Agreement is binding upon and inures to the benefit of Employer, its successors and assigns, and Employee, his heirs, legal representatives and assigns. 3.4) No person shall have any power to transfer, assign, anticipate, mortgage or otherwise encumber or dispose of in advance any of the payments or entitlements to payments provided herein; nor shall any of such payments be subject to seizure for payment of any debts, judgments, alimony or separate maintenance, or be reached or transferred by operation of law in the event of bankruptcy, insolvency or otherwise. 3.5) Nothing herein contained shall in any way affect or interfere with Employee's rights or privileges under any other retirement, pension, profit sharing, bonus, insurance, - 3 - hospitalization or other employee benefit plan, now in effect or hereafter adopted, in which Employee is entitled to share or participate as an employee of Employer. Notwithstanding the foregoing, it is understood that Employer may purchase a disability income policy covering Employee for the specific purpose of funding in whole or in part the payments described in Article 2 or a life insurance policy or policies covering Employee for the specific purpose of funding in whole or in part the payments described in Article 1; and any such policy or policies so designated shall not constitute separate and additional benefits to which Employee would be entitled. 3.6) This Agreement shall not be construed as giving to Employee a right to be retained in the service of Employer, or any right or claim to any benefit or allowance after termination of employment by Employer, unless the right to such benefit has accrued prior to such termination as provided herein. 3.7) This Agreement supersedes all prior agreements and understandings between the parties relating to the payment of deferred compensation and disability income. 3.8) This Agreement shall be subject to and construed in accordance with the laws of the State of Minnesota. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. POLARIS INDUSTRIES, INC. By /s/ Robert Moe ------------------------------------ Its Executive Vice President EMPLOYER /s/ Hall Wendel ---------------------------------------- Hall Wendel EMPLOYEE - 4 - AMENDMENT NO. 1 TO AGREEMENT FOR DEFERRED COMPENSATION AND DISABILITY INCOME THIS AGREEMENT, made this 2nd day of May, 1985, between Polaris Industries, Inc., a Minnesota corporation (herein called "Employer"), and W. Hall Wendel, Jr. (herein called "Employee"); W I T N E S S E T H WHEREAS, Employer and Employee entered into an Agreement for Deferred Compensation and Disability Income dated September 14, 1982, providing for certain deferred compensation, disability and death benefit payments to Employee; and WHEREAS, the parties desire to amend said Agreement in the manner provided below; NOW, THEREFORE, it is agreed between the parties as follows: 1. Paragraph (b) of Section 1.1 of Article 1 of the Agreement is hereby amended in its entirety to read as follows: "(b) In the event of a voluntary termination of the employment of Employee, Employee's additional compensation shall be equal to $50,000 multiplied by the number of full years of continuous service by him with Employer since the date of this Agreement, up to a maximum amount of $500,000." 2. Except as amended herein, the Agreement for Deferred Compensation and Disability Income between Employer and Employee dated September 14, 1982 shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 the day and year first above written. POLARIS INDUSTRIES, INC. By /s/ Robert Moe ------------------------------------ EMPLOYER /s/ Hall Wendel --------------------------------------- W. Hall Wendel, Jr. EMPLOYEE EX-10.(J) 3 FOURTH AMENDMENT TO CREDIT AGREEMENT FOURTH AMENDMENT TO CREDIT AGREEMENT THIS FOURTH AMENDMENT is made and entered into as of the 21st day of December, 1994 by and between POLARIS INDUSTRIES L.P., a Delaware limited partnership (the "Original Borrower"), POLARIS INDUSTRIES PARTNERS L.P., a Delaware limited partnership (the "Successor Borrower") and FIRST BANK NATIONAL ASSOCIATION, a national banking association (the "Bank"). WHEREAS, the Original Borrower and the Bank have previously entered into a Credit Agreement dated as of March 31, 1992, as amended by that certain First Amendment to Credit Agreement dated as of November 16, 1992, that certain Second Amendment to Credit Agreement dated as of March 31, 1993, and that certain Third Amendment to Credit Agreement dated as of March 31, 1994, each between the Original Borrower and the Bank (as so amended, the "Credit Agreement"); and WHEREAS, the Original Borrower and the Successor Borrower wish to induce the Bank to amend certain provisions of the Credit Agreement so as to permit the merger of the Original Borrower into the Successor Borrower, which shall be the surviving partnership in such merger, and the Bank is willing to do so if and only if the Original Borrower and the Successor Borrower each executes this Fourth Amendment. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Original Borrower, the Successor Borrower and the Bank hereby agree as follows: 1. CAPITALIZED TERMS. All capitalized terms used herein without definition shall have the meaning given in the Credit Agreement. 2. AMENDMENT TO CREDIT AGREEMENT. (a) The definitions of "First Rights" and "Termination Date" in Section 1.1 of the Credit Agreement are amended to read in their entirety as follows: "FIRST RIGHTS": (i) Prior to the Merger Effective Date, options to receive partnership capital interests in the Successor Borrower, as described and reported in the most recent financial statements of the Successor Borrower; and (ii) On or after the Merger Effective Date, options to receive shares of common stock in Polaris Industries Inc., as described and reported in the most recent financial statements of Polaris Industries Inc. "TERMINATION DATE": The earliest of (a) April 30, 1995, (b) the date on which the Commitment is terminated pursuant to SECTION 10.2 hereof or (c) the date on which the Commitment is reduced to zero pursuant to SECTION 4.3 hereof. (b) New definitions of "Merger," "Merger Agreement," "Merger Effective Date," "Original Borrower" and "Successor Borrower" are added to Section 1.1 of the Credit Agreement, to read in their entirety as follows: "MERGER": The merger of the Original Borrower into the Successor Borrower, with the Successor Borrower as the surviving partnership, pursuant to and as described in the Merger Agreement. "MERGER AGREEMENT": That certain Agreement and Plan of Conversion dated as of September 29, 1994, by and among Polaris Industries Inc. the Successor Borrower, the Original Borrower, EIP Associates L.P., Polaris Industries Associates L.P., EIP Capital Corporation, Polaris Industries Capital Corporation, and certain partners and stockholders in the foregoing entities, as it exists as of December 21, 1994, without regard for any subsequent amendment. "MERGER EFFECTIVE DATE": The date (on or after the date and time as of which the Merger becomes effective) when the Successor Borrower delivers to the Bank: (i) a copy of the certificate of merger with respect to the Merger, certified by the Delaware Secretary of State; (ii) evidence satisfactory to the Bank that no Default or Event of Default exists or would be caused by the Merger and that all representations and warranties contained in Article VII of this Agreement and Section 3 of that certain Fourth Amendment to Credit Agreement dated as of December 21, 1994 are true and correct on the Merger Effective Date; and (iii) an opinion of Kaplan, Strangis and Kaplan, P.A., in form and substance satisfactory to the Bank, that the Merger has become "effective," as such term is used in Sections 17-211(e) and 17-211(h) of the Delaware Revised Uniform Limited Partnership Act. "ORIGINAL BORROWER": Polaris Industries L.P., a Delaware limited partnership. "SUCCESSOR BORROWER": Polaris Industries Partners L.P., a Delaware limited partnership. (c) Section 8.3(a) of the Credit Agreement is amended to read in its entirety as follows: - 2 - (a) (i) With respect to any financial statements delivered prior to the Merger Effective Date, as soon as possible, and in any event within ninety (90) days after the close of Borrower's fiscal year, the audited consolidated financial statements of the Successor Borrower, including a balance sheet as at the end of such year, a statement of income and partners' capital and a cash flow statement for such year, all prepared in accordance with generally accepted accounting principles; and (ii) With respect to any financial statements delivered on or after the Merger Effective Date, as soon as possible, and in any event within ninety (90) days after the close of Borrower's fiscal year, the audited consolidated financial statements of Polaris Industries Inc., including a balance sheet as at the end of such year, a statement of income and stockholders' equity and a cash flow statement for such year, in each case all prepared in accordance with generally accepted accounting principles. (d) Section 8.8 of the Credit Agreement is amended to read in its entirety as follows: Section 8.8 MAINTENANCE OF PARTNERSHIP EXISTENCE, ETC. Borrower will take such action as may be necessary to maintain and preserve its partnership existence, except that the Original Borrower may merge into the Successor Borrower through the Merger, if and only if the Merger Effective Date occurs prior to January 31, 1995. (e) Section 9.1(a) of the Credit Agreement is amended to read in its entirety as follows: (a) Consolidate with or merge into any other Person (except that the Original Borrower may merge into the Successor Borrower through the Merger, if and only if the Merger Effective Date occurs prior to January 31, 1995); or (f) Section 9.4 (a) and (b) of the Credit Agreement are amended to read in their entirety as follows: (a) Restricted Payments made prior to the Merger Effective Date for the purpose of purchasing or redeeming BACs; and (b) Other Restricted Payments not to exceed $15,000,000 in any fiscal quarter, which shall be made not more frequently than once per quarter or earlier than 30 days after the end of each fiscal quarter of the Borrower; (g) A new Section 11.9 is added to the Credit Agreement, to read in its entirety as follows: - 3 - Section 11.9 (a) ASSUMPTION AND ASSIGNMENT. Effective as of the Merger Effective Date, the Original Borrower hereby assigns and transfers to the Successor Borrower all of the Original Borrower's right, title and interest in and to, and its privileges, duties and obligations under, each of this Agreement, the Note, each Letter of Credit Agreement and each other Loan Document (collectively, the "Bank Agreements"). The Successor Borrower as of the Merger Effective Date hereby accepts the foregoing assignment from the Original Borrower, agrees to be bound by each of the Bank Agreements, agrees to perform all of the obligations and duties to be performed by, and to observe all of the conditions to be observed by, the Original Borrower under the Bank Agreements, and agrees to pay to the Bank when due all obligations of the Borrower under the Bank Agreements. The foregoing assignment and assumption is not intended to, and shall not be deemed to, limit the effect of Delaware Revised Uniform Limited Partnership Act Section 17-211 or Section 6.2 of Merger Agreement. The Successor Borrower acknowledges that, under said statute and section of the Merger Agreement, and as a consequence of the Merger of the Original Borrower into the Successor Borrower, all debts, liabilities and duties of the Original Borrower (including but not limited to all debts, liabilities and duties of the Original Borrower under the Bank Agreements) will become debts, liabilities and duties of the Successor Borrower on the "Operating Partnership Effective Time" (as defined in the Merger Agreement) just as if such debts, liabilities and duties had been incurred or contracted by the Successor Partnership. (b) NOTICES. The address for notices to the Borrower contained in any Bank Agreement is hereby deleted and the following addresses inserted in its place: Polaris Industries Partners L.P. 1225 Highway 169 North Minneapolis, Minnesota 55441 Attention: Michael W. Malone (c) WAIVERS. The Bank hereby agrees that it will not assert the merger of the Original Borrower into the Successor Borrower, in and of itself, as a default or an event of default under any of the Bank Agreements; provided, however, that the Bank reserves all rights and remedies available to it under any of the Bank Agreements should the Successor Borrower, as the surviving Partnership, fail to satisfy any financial test or other covenant contained in any of the Bank Agreements. - 4 - (d) REFERENCES TO THE BORROWER. Until and unless the Merger Effective Date occurs, all references to the Borrower or any similar term in any Bank Agreement shall be deemed to be references to the Original Borrower. From and after the Merger Effective Date, all references to the Borrower or any similar term in any Bank Agreement shall be deemed to be references to the Successor Borrower. 3. REPRESENTATIONS BY SUCCESSOR BORROWER. In order to induce the Bank to enter into this Fourth Amendment, the Successor Borrower represents and warrants as follows: (a) ORGANIZATION. The Successor Borrower is a limited partnership duly organized, validly existing and in good standing under the limited partnership laws of the State of Delaware and has all requisite partnership power and authority to own, lease and operate its and the Original Borrower's properties and to carry on its and the Original Borrower's business as now being conducted, except for the failure to be so organized, existing and in good standing or to have such power and authority would not have a material adverse effect on the Successor Borrower. (b) AUTHORITY. The Successor Borrower has the requisite partnership power and authority to execute and deliver this Fourth Amendment and to consummate the Merger and the transactions contemplated by this Fourth Amendment. The execution, delivery and performance of this Fourth Amendment by the Successor Partnership and the consummation by the Successor Partnership of the Merger and the transactions contemplated hereby have been duly authorized by all necessary partnership action on the part of the Successor Partnership and no other partnership action on the part of the Successor Partnership is necessary to authorize this Fourth Amendment or to consummate the transactions contemplated by this Fourth Amendment. This Fourth Amendment has been duly executed and delivered by the Successor Borrower. (c) PENDING LITIGATION AND BURDENSOME PROVISIONS. There are not, in any court or before any arbitrator of any kind or before or by any government or nongovernmental body, any actions, suits or proceedings pending or threatened (nor to the knowledge of the Successor Borrower, is there any basis therefore) against or any other way relating adversely to or affecting the Successor Borrower or the business or any property of the Successor Borrower, except actions, suits or proceedings that, if adversely determined would not, singly or in the aggregate have a materially adverse effect on the Successor Borrower, or the ability of the Successor Borrower to perform its obligations under the Credit Agreement, as amended by this Fourth Amendment. The Successor Borrower is not a party to nor bound by any contract or applicable law - 5 - that could forseeably have a materially adverse effect on the Successor Borrower. (d) FINANCIAL STATEMENTS. The Successor Borrower has furnished the Bank with the audited consolidated financial statements of the Successor Borrower for the fiscal year ended December 31, 1993 and unaudited consolidated financial statements of the Successor Borrower for the fiscal quarter ended September 30, 1994. These financial statements are true and correct and were prepared in accordance with generally accepted accounting principles consistently maintained throughout the periods involved, and present fairly the financial condition of the Successor Borrower as of the dates thereof. Since September 30, 1994 there has been no, and neither the Merger nor any other transaction consummated pursuant to the Merger Agreement will cause any, materially adverse change in the business, assets, liabilities (except that the Successor Borrower will become liable for all liabilities of the Original Borrower as a result of the Merger), financial condition, results of operations or business prospects of the Successor Borrower, and no event has occurred or failed to occur, which has had or may have, either alone or in conjunction with any other event or failure, a materially adverse effect on the Successor Borrower or the ability of the Successor Borrower to perform its obligations under the Credit Agreement, as amended by this Fourth Amendment. The Successor Borrower has good and marketable title to all assets reflected in the latest balance sheet referred to above, and following the Merger will have good and marketable title to all assets reflected in the most recent financial statements provided to the Bank by the Original Borrower, except for assets disposed of in the ordinary course of business. The Successor Borrower does not have any indebtedness for borrowed money outstanding, and following the Merger will not have any indebtedness for borrowed money outstanding, except: (i) indebtedness disclosed in the most recent financial statement referred to above; (ii) indebtedness disclosed in the most recent financial statement of the Original Borrower provided to the Bank; (iii) short-term trade debt incurred by the Original Borrower or the Successor Borrower in the ordinary course of business; and (iv) increases, if any, in the amounts outstanding under the Credit Agreement. There exists no default under the provisions of any instrument evidencing such indebtedness for borrowed money or of any agreement relating thereto that could have a material adverse effect on the Successor Borrower. 4. EFFECTIVENESS OF AMENDMENTS. The amendments contained in this Fourth Amendment shall not become effective until, and shall become effective when, each of the following conditions precedent have been fulfilled: (a) The Bank shall have received this Fourth Amendment, duly executed by the Original Borrower and the Successor Borrower; - 6 - (b) The Bank shall have received a certificate of authority with respect to each of the Original Borrower and the Successor Borrower, in form and substance satisfactory to the Bank; (c) The Bank shall have received certificates of good standing from the Secretaries of State of Delaware and Minnesota with respect to the Successor Borrower, dated as of a date not more than ten days prior to the date hereof; (d) The Bank shall have received a copy of the Merger Agreement, certified as true, correct and complete by the Original Borrower and the Successor Borrower; (e) The Bank shall have received an opinion of Kaplan, Strangis and Kaplan, P.A., in form and substance satisfactory to the Bank, to the effect that the Successor Borrower is validly organized and existing under the laws of the State of Delaware and qualified to do business in the State of Minnesota, and has the partnership power and authority under those laws to carry on its businesses and to own its properties; that all partnership action by the Successor Partnership necessary to authorize the execution, delivery and performance of this Fourth Amendment has been duly taken; that this Fourth Amendment has been validly executed by the Successor Borrower and is fully enforceable against the Successor Borrower in accordance with its terms (subject to limitations as to enforceability which might result from bankruptcy, reorganization, arrangement, insolvency or other general similar laws affecting creditors' rights generally); and that the agreements on the part of the Successor Borrower contained in this Fourth Amendment and the performance by the Successor Borrower of its obligations hereunder and under the Credit Agreement do not or will not violate any provision of any presently applicable law, or of the Successor Borrower's partnership agreement or any agreement, indenture, note or other instrument presently binding on it, to the extent such agreements, indentures, notes or other instruments are known to such counsel; (f) The Bank shall have received such other documents, instruments, approvals and, if requested by the Bank, certified duplicates of executed copies thereof, and opinions that the Bank may reasonably request; and (g) The Bank shall have received reimbursement from the Borrower for all reasonable out-of-pocket expenses (including reasonable attorneys' fees and legal expenses of Dorsey & Whitney, special counsel for the Bank) paid or incurred by the Bank prior to the date of this Fourth Amendment in connection with the preparation, review, execution, delivery, amendment, - 7 - modification and administration of the Credit Agreement and this Fourth Amendment. 5. REPRESENTATIONS: NO DEFAULT: RESERVATION OF RIGHTS. Each of the Original Borrower and the Successor Borrower hereby represents that on and as of the date hereof and after giving effect to this Fourth Amendment, (x) all of the representations and warranties contained in the Credit Agreement are true, correct and complete in all material respects as of the date hereof as though made on and as of such date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they are true and correct as of such earlier date, and (y) there will exist no Default or Event of Default on such date. 6. AFFIRMATION. The Bank, the Original Borrower and the Successor Borrower each acknowledge and affirm that the Credit Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Credit Agreement, except as amended by this Fourth Amendment, shall remain in full force and effect. All references to the Credit Agreement in any Loan Document or other document delivered to the Bank by the Borrower or entered into between the Bank and the Borrower shall be deemed to be references to the Credit Agreement as amended by this Fourth Amendment and by any subsequent amendment. - 8 - IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be executed as of the day and year first above written. Original Borrower: POLARIS INDUSTRIES L.P. By Polaris Industries Associates L.P. Its General Partner By /s/ V. K. Atkins, Jr. -------------------------- Victor K. Atkins, Jr. Its General Partner And by Polaris Industries Capital Corporation Its General Partner By /s/ V. K. Atkins, Jr. ------------------------------- Name V. K. Atkins, Jr. ----------------------------- Title Chairman ---------------------------- Successor Borrower: POLARIS INDUSTRIES PARTNERS L.P. By EIP Associates L.P. Its General Partner By EIP Capital Corporation Its General Partner By /s/ V. K. Atkins, Jr. ----------------------- Name: Victor K. Atkins, Jr. Title: President And By /s/ V. K. Atkins, Jr. ---------------------------- Victor K. Atkins, Jr. Its General Partner - 9 - Bank: FIRST BANK NATIONAL ASSOCIATION By /s/ William T. Bailey ------------------------------- William T. Bailey Vice President - 10 - EX-10.(K) 4 SHAREHOLDER AGREEMENT SHAREHOLDER AGREEMENT THIS AGREEMENT is made and entered into this 3rd day of February, 1995 between Fuji Heavy Industries, Ltd., a Japanese corporation with its principal place of business at 7-2, 1-chome Nishishinjuku, Shinjuku-ku, Tokyo, Japan (hereinafter referred to as "FHI") and Polaris Industries Inc., a Minnesota corporation with its principal place of business at 1225 Highway 169 North, Minneapolis, Minnesota 55441, U.S.A. (hereinafter referred to as "Polaris"). WHEREAS, FHI is engaged in the business of manufacturing and selling various Robin brand gasoline and diesel engines (including OEM) and other Robin brand products, and WHEREAS, Polaris is engaged in the business of manufacturing and selling the finished products incorporated with the aforesaid engines, and WHEREAS, FHI and Polaris are desirous of establishing a new company for the purposes of manufacturing certain products designed by FHI and selling such products in the U.S.A under the terms and conditions set forth herein. NOW, THEREFORE, both of the parties hereto agree as follows: Article 1. ESTABLISHMENT. FHI shall initially establish a wholly owned company of which capital is US$1,000 in the State of Delaware, U.S.A. (hereinafter referred to as "NEWCO"). Article 2. NAME. The name of NEWCO shall be ROBIN MANUFACTURING U.S.A. INC. Article 3. PRINCIPAL OFFICE. The address of principal office of NEWCO shall be 1201 Industrial Road, Hudson, Wisconsin 54016, U.S.A. Article 4. CAPITAL. 1) The authorized capital of NEWCO shall be US$10,000 divided into 10,000 shares of US$1.00 each in par value. 2) FHI and Polaris shall subscribe for and pay for in full and in cash the following equity shares respectively as soon as possible after completion of this Agreement. 1
(FHI: US $1,200,000 1,200 shares 60%) (Polaris: US $800,000 800 Shares 40%) (Total US $2,000,000 2,000 Shares 100%)
Article 5. DISPOSAL OF SHARES. 1) No other party shall be allowed to purchase any shares of NEWCO without the prior written consent of both parties. 2) If either party wishes to transfer or sell all or a part of the shares of its holding, the remaining party shall have a right of first refusal to purchase said shares prior to any such transfer. 3) If NEWCO desires to sell all or substantially all of its assets or merge with any other corporation or entity, each of the parties hereto shall have a right of first refusal to purchase such assets, effect such merger or provide to NEWCO the economic equivalent thereof which economic equivalent shall be of substantially the same value and utility and equally realizable as that offered by such third party. Article 6. BUSINESS PURPOSE. The principal business purpose of NEWCO shall, unless and until otherwise subsequently agreed by the parties, be as follows: 1) The manufacture and sale of the following products (hereinafter referred to as "products") in North and South America (hereinafter referred to as "Territory") a) Robin brand gasoline and diesel engines and parts therefor. b) Other Robin brand products (generator, pump and others) 2) The import and purchase of machinery, tools and materials and parts of which Products are composed. 3) Other related business activities in Territory. To the extent legally permissible, all of the Products shall be stamped "Made in the U.S.A." 2 In respect of Polaris, the trade practices, customs and policies of NEWCO shall be substantially similar to the historical practices, customs and policies of FHI in connection with the sale and manufacturing of the Products. Article 7. BOARD OF DIRECTORS. NEWCO shall be administered and operated by the Board of Directors consisting of five (5) directors, three (3) of whom shall be nominated by FHI and the remaining two (2) shall be nominated by Polaris. The Polaris board representative shall have access to the books, records, and audited financial statements of NEWCO. Article 8. OFFICERS. The officers of NEWCO shall be elected by the Board of Directors of NEWCO. Article 9. ROLES OF BOTH PARTIES. 1) FHI shall provide NEWCO with technical and engineering assistance in the manufacturing of the Products and necessary training to NEWCO personnel in accordance with the terms and conditions of the License Agreement to be entered into between FHI and NEWCO separately. 2) Polaris shall provide NEWCO with information on local purchasing of the component parts of the Products and advice on manufacturing. Article 10. NOTICE. Any notice to be given shall be addressed in writing to FHI and Polaris at their respective offices to the attention of the responsible person as follows: Fuji Heavy Industries Ltd. Polaris Industries Inc. 7-2 1-chome, Nishishinjuku 1225 Highway 169 North Shinjuku-ku, Tokyo 160 Minneapolis, MN 55441 Mr. Yasuhito Yamaki Mr. Kenneth Larson Director and General Manager President and COO Tel. 3-3347-2400 Tel. 612-542-0507 Fax. 3-3347-2625 Fax. 612-542-0599 Article 11. CONFIDENTIALITY. Each of the parties shall not disclose to any third parties any business secrets related to the execution of this Agreement. Article 12. ASSIGNMENT. Neither this agreement nor any right or obligation hereunder shall be assignable in whole or in part by either party without the prior written consent of the other party. Article 13. ARBITRATION. All disputes, controversies, or differences which may arise between the parties, in connection with this Agreement, and which can not be amicably settled by the 3 parties, shall be finally settled by arbitration in accordance with the Rules of International Chamber of Commerce. The arbitration shall be conducted in Minneapolis if it is initiated by FHI or in Tokyo if it is initiated by Polaris. The award shall be final and binding upon both parties. Article 14. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware. Article 15. ENTIRE AGREEMENT. This Agreement constitutes the entire and only agreement between the parties with respect to the subject matter of this Agreement and supersedes any other commitments, agreements or understanding that the parties may have had with respect to the subject matter or this Agreement. Article 16. AMENDMENTS. Any amendments to this Agreement must be in writing and signed by both parties. Article 17. RELEASE. Public and private announcements concerning this Agreement and the transactions contemplated hereby shall only be made upon written consent of both Buyer and Seller and in a mutually agreeable manner. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives on the day and year first above written. FUJI HEAVY INDUSTRIES LTD. POLARIS INDUSTRIES INC. By: /s/ Isamu Kawai By: /s/ W. Hall Wendel Jr. ------------------------- --------------------------- Isamu Kawai W. Hall Wendel Jr. Its: President Its: Chairman and CEO ----------------------- ------------------------- Witness: Witness: -------------------- ---------------------- Yasuhito Yamaki Director and General Manager 4 EX-10.(L) 5 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of December 22, 1994, by and between Polaris Industries Inc., a Minnesota corporation (the "Company"), and Victor K. Atkins, Jr. ("Atkins") and EIP Holdings Inc., a Delaware corporation, EIP I Inc., a Delaware corporation and LB I Group Inc., a Delaware Corporation (collectively, the "Lehman Entities"), (Atkins and the Lehman Entities collectively, the Shareholders"). RECITALS A. The Company is issuing shares of Common Stock, $.Ol par value, of the Company to the Shareholders (collectively, the "Shares") in connection with the conversion of Polaris Industries Partners L.P. into corporate form. B. The Shareholders are executing affiliate letters in connection with the receipt of their Shares. C. The Company desires to grant to each Shareholder certain registration rights with respect to the Shares held by such Shareholder or any transferees from time to time. D. The parties hereto desire to set forth the terms and conditions of the Company's covenants and agreements in respect of the registration of the Shares with the Securities and Exchange Commission and all applicable state securities agencies. E. In consideration of the premises and the mutual agreements contained herein, the parties hereby agree as follows: AGREEMENT 1. DEFINITIONS. As used in this Agreement, the following capitalized terms shall have the following meanings: ADVICE: See the last paragraph of Section 5 hereof. COMMON STOCK: Shares of the Company's common stock, $.Ol par value, as the same may be constituted from time to time. COMPANY NOTICE: See Section 4(a) hereof. DEMAND REGISTRATION: See Section 3(a) hereof. EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, as in effect from time to time. HOLDER: The Shareholders or any transferees of the Shareholders with respect to the Shares other than transferees who do not receive Registrable Securities. PERSON: An individual, partnership, corporation, joint venture, trust or unincorporated organization, or a government or agency or political subdivision thereof. PIGGYBACK NOTICE: See Section 4(a) hereof. PIGGYBACK REGISTRATION STATEMENT: See Section 4(a) hereof. PROSPECTUS: The prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement and all other amendments and supplements to the Prospectus, including post-effective amendments and all material incorporated by reference in such Prospectus. REGISTRATION EXPENSES: See Section 6 hereof. REGISTRABLE SECURITIES: (i) The Shares and (ii) any securities issued or issuable with respect to the Shares by way of a stock dividend or stock split or other distribution or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. A Share ceases to be a Registrable Security when (i) it has been effectively registered under the Securities Act and disposed of in accordance with the Registration Statement covering it, (ii) it has been distributed pursuant to Rule 145(d) (or any similar provisions then in force) under the Securities Act with the result that the transferor is not deemed to be engaged in a distribution, (iii) it has otherwise been transferred and no further restriction on transfer remains or (iv) it no longer is outstanding. REGISTRATION STATEMENT: Any registration statement of the Company which covers Registrable Securities pursuant to the provisions of this Agreement, including (i) the Prospectus, (ii) amendments and supplements to such Registration Statement, (iii) post-effective amendments, (iv) all exhibits and all material incorporated by reference in such Registration Statement, (v) any registration statement pursuant to a Demand Registration and (vi) any Piggyback Registration Statement. - 2 - SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and regulations thereunder, as in effect from time to time. SEC: The Securities and Exchange Commission. SHARES: See Recital A. SHAREHOLDERS: As defined in the preamble. UNDERWRITTEN OFFERING: The offering and sale of securities of the Company covered by any Registration Statement pursuant to a firm commitment underwriting to an underwriter at a fixed price for reoffering or pursuant to agency or best efforts arrangements with an underwriter. Unless the context otherwise requires: (i) "or" is not exclusive; and (ii) words in the singular include the plural and words in the plural include the singular. 2. SECURITIES SUBJECT TO THIS AGREEMENT. The securities entitled to the benefits of this Agreement are the Registrable Securities but, with respect to any particular Registrable Security, only so long as such security continues to be a Registrable Security. 3. DEMAND REGISTRATION. (a) REQUESTS FOR REGISTRATION. At any time after the date hereof, any Holder or Holders may make a written request to the Company for registration with the SEC under and in accordance with the provisions of the Securities Act of all or part of his Registrable Securities (a "Demand Registration"). All requests made pursuant to this Section 3(a) shall specify the number of Registrable Securities to be registered and the intended methods of disposition thereof. Promptly after receipt of any such request the Company will give written notice of such requested registration to all other Holders of Registrable Securities and thereupon will, as expeditiously as possible, use its best efforts to effect the registration under the Securities Act of (i) the Registrable Securities which the Company has been so requested to register in the Demand Registration, and (ii) all other Registrable Shares requested to be registered pursuant to the first sentence. Upon the receipt of such notice from the Company, each Holder shall be entitled for a period of 15 days from the date of receipt of such notice to deliver a written request to the Company specifying the number of his Registrable Securities to be included in such Demand Registration. (b) NUMBER OF, AND LIMITATIONS ON, REGISTRATIONS. The Holders will be entitled to request an aggregate of four - 3 - Demand Registrations, provided that Atkins and/or his transferees and the Lehman Entities and/or their respective transferees in any event each shall be entitled to submit the initial written request for a Demand Registration in respect of two Demand Registrations. The Company will not be obligated to register any Registrable Securities pursuant to such a Demand Registration (i) unless there is requested to be included in such registration at least 300,000 Shares (subject to such adjustments as may be necessary by reason of the occurrence of an event contemplated by clause (ii) of the first sentence of the definition of Registrable Securities) or (ii) if a prior Demand Registration was declared effective within a period commencing 6 months prior to the date of the written request for such Demand Registration and such prior Demand Registration was maintained effective for a period of not less than 120 days, or such shorter period during which all Registrable Securities covered by such prior Demand Registration were sold or withdrawn. (c) EFFECTIVE REGISTRATION - EXPENSES. In any registration initiated as a Demand Registration pursuant to this Section 3, each Holder and the Company will pay its share of all Registration Expenses, pro rata, based on the relation that the number of Registrable Securities registered by each bears to the total number of shares of Common Stock registered in such offering, whether or not the Registration Statement has become effective; provided, however, that in the event that any Registrable Securities are excluded from a Piggyback Registration Statement pursuant to Section 4(a), the Registration Expenses of the next Demand Registration shall be borne exclusively by the Company. (d) SELECTION OF UNDERWRITERS. If any of the Registrable Securities covered by a Demand Registration are to be sold in an Underwritten Offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders. (e) REDUCTION. If a Demand Registration pursuant to this Section 3 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) exceeds the number which can be sold in such offering, the Company will include in such registration only the Registrable Securities requested to be included in such registration. 4. PIGGYBACK REGISTRATION RIGHTS. (a) REQUESTS FOR PIGGYBACK REGISTRATION. The Company covenants and agrees with each Holder that in the event the Company proposes to file at any time and from time to time a - 4 - registration statement on any form for the general registration of securities under the Securities Act with respect to the offering of any class of security (other than in connection with an offering solely to the "employees" (as such term is defined in the General Instructions to Form S-8 under the Securities Act) of the Company or its subsidiaries pursuant to a registration statement on Form S-8 under the Securities Act or an offering pursuant to a registration Statement on Form S-4 under the Securities Act, or any successor forms thereto), whether or not for sale for its own account (a "Piggyback Registration Statement"), then the Company shall in each such case promptly give written notice (a "Company Notice") to each Holder of such proposed filing, and such notice shall offer to each Holder the opportunity to include in such Piggyback Registration Statement such number of Registrable Securities as each may request. Upon the written request of any such Holder (a "Piggyback Notice") made within fifteen (15) days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be sold by such Holder), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof. Notwithstanding the foregoing, the Company shall not be obligated to register the Registrable Securities of any Holder (i) unless a Piggyback Notice shall have been received by the Company within fifteen (15) days of receipt of the Company Notice by such Holder, or (ii) if the Company shall, within ten (10) calendar days after receipt of a Piggyback Notice, have delivered to any Holder whose Registrable Securities shall have been the subject of a Piggyback Notice an opinion of counsel reasonably satisfactory to said Holder to the effect that the proposed transfer can be made without registration in accordance with Rule 145(d) under the Securities Act or any other exemption from the registration provisions thereof (other than Rule 144A). The Company shall use its best efforts to cause the underwriter of a proposed offering, if any, to permit the Holders holding Registrable Securities requested to be included in the Piggyback Registration Statement to include such Registrable Securities in the proposed offering on terms and conditions at least as favorable to the Holders holding such Registrable Securities as those offered with respect to the other securities of the Company included therein. Notwithstanding the foregoing, if the managing underwriter shall advise the Company in writing that, in its opinion, the distribution of the Registrable Securities requested to be included in the Piggyback Registration Statement concurrently with the securities being registered by the Company would materially adversely affect the price, timing or distribution of such securities by the Company, then the Company will include in such registration (i) first, 100% of the securities the Company proposes to sell and (ii) second, to the extent of the number of Registrable - 5 - Securities requested to be included in such registration, which, in the opinion of such managing underwriter, can be sold without having the adverse effect referred to above, the number of Registrable Securities which the Holders have requested to be included in such registration, such amount to be allocated pro rata among all requesting Holders on the basis of the relative number of shares of Registrable Securities then held by each such Holder (provided that any Shares thereby allocated to any such Holder that exceed such Holder's request will be reallocated among the remaining requesting Holders in like manner). (b) ADDITIONAL OBLIGATIONS OF THE COMPANY. In connection with the registration of Registrable Securities in accordance with Section 4(a) above, the Company agrees to pay all Registration Expenses in connection with the registration of the Registrable Securities under the Securities Act. 5. REGISTRATION PROCEDURES. Whenever either Holder has requested that any Registrable Securities be registered pursuant to this Agreement, the Company will promptly take all such actions as may be necessary or desirable to permit the sale of such Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company will as expeditiously as possible: (a) with respect to a request to file a Registration Statement covering Registrable Securities made pursuant to Section 3 hereof, use its best efforts to prepare and file with the SEC, not later than 90 days after receipt of such request (which 90-day period may be extended by the Company for up to an additional 90 days if at the time of such request the Company is engaged in negotiations looking toward its participation in a material merger, acquisition or other form of business combination or, if by reason of such transaction, the Company is not in a position to timely prepare and file the Registration Statement) a Registration Statement on a form for which the Company then qualifies which is satisfactory to the Company and the Holders (unless the offering is made on an underwritten basis, including on a best efforts underwriting basis, in which event the managing underwriter or underwriters shall determine the form to be used) and which form shall be available for the sale of the Registrable Securities in accordance with the intended method or methods of distribution thereof, and use its best efforts to cause such Registration Statement to become effective; the Company shall not file any Registration Statement pursuant to Section 3 hereof or any amendment thereto or any Prospectus or any supplement thereto (including such documents incorporated by reference) to which the Holders or the underwriters, if any, shall reasonably object in - 6 - light of the requirements of the Securities Act or any other applicable laws or regulations; (b) before filing a Registration Statement or Prospectus or any amendments or supplements thereto (excluding documents to be incorporated by reference therein), the Company will within five days of filing, furnish to the Holders and the underwriters, if any, copies of all such documents in substantially the form proposed to be filed (including documents incorporated therein by reference), to enable the Holders and the underwriters, if any, to review such documents prior to the filing thereof, and the Company shall make such reasonable changes thereto (including changes to, or the filing of amendments reflecting such changes to, documents incorporated by reference) as may be reasonably requested by the Holders and the managing underwriter or underwriters, if any; (c) subject to the five-day review period required by paragraph (b) above, prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement continuously effective for a period of not less than 120 days or such longer period as is required for the intended method of distribution, or such shorter period which will terminate when all Registrable Securities covered by such Registration Statement have been sold or withdrawn; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in such Registration Statement or supplement to the Prospectus; (d) notify the Holders and the managing underwriters, if any, promptly, and (if requested by any such Person) confirm such advice in writing, (1) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post- effective amendment, when the same has become effective, (2) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (3) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, (4) if at any time the representations and warranties of the Company contemplated by paragraph (o) below cease to be true and correct, (5) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (6) of the - 7 - happening of any event which makes any statement made in the Registration Statement, the Prospectus or any document incorporated therein by reference untrue or which requires the making of any changes in the Registration Statement, the Prospectus or any document incorporated therein by reference in order to make the statements therein not misleading; (e) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment; (f) as promptly as practicable after filing with the SEC of any document which is incorporated by reference into the Registration Statement or the Prospectus (after initial filing of the Registration Statement) provide copies of such document to counsel to the Holders and to the managing underwriters; (g) furnish to the Holders and each managing underwriter, without charge, at least one signed copy of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference) and a reasonable number of conformed copies of all such documents; (h) deliver to the Holders and the underwriters, if any, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons may reasonably request; the Company consents to the use of the Prospectus or any amendment or supplement thereto by the Holders and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (i) prior to the date on which the Registration Statement is declared effective, use its best efforts to register or qualify or cooperate with the Holders and the underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any seller or underwriter reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject; - 8 - (j) cooperate with the Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of Registrable Securities to the underwriters; (k) use its best efforts to cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities within the United States as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities; (l) upon the occurrence of any event contemplated by paragraph (d)(6) above, prepare a supplement or post-effective amendment to the Registration Statement or the Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (m) use its best efforts to cause all Registrable Securities covered by the Registration Statement to be listed on each securities exchange on which similar securities issued by the Company are then listed if requested by the Holders or the managing underwriters, if any; (n) provide a transfer agent and registrar for all Registrable Securities; (o) enter into such agreements (including an underwriting agreement) and take all such other actions in connection therewith as the Holders or the managing underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration (1) make such representations and warranties to the Holders and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings and confirm the accuracy of the same if and when requested, and matters relating to the compliance of the Registration Statement and the Prospectus with the Securities Act; (2) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters) addressed to the Holders and the underwriters, if - 9 - any, covering the matters customary in underwritten primary offerings and such other matters as may be reasonably requested by the Holders and underwriters, if any; (3) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the Holders and the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters by underwriters in connection with primary underwritten offerings; (4) if an underwriting agreement is entered into, the same shall set forth in full the indemnification and contribution provisions and procedures of Sections 7 and 8 hereof with respect to all parties to be indemnified pursuant to said Section; and (5) the Company shall deliver such documents and certificates as may be requested by the Holders and the managing underwriters, if any, to evidence compliance with clause (1) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement or as and to the extent required thereunder; (p) make available for inspection during normal business hours by the Holders, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; PROVIDED, that any records, information or documents that are designated by the Company in writing as confidential shall be kept confidential by such Persons; (q) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make generally available to its security holders, earnings statements satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of any 12-month period (1) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm or best efforts underwriting offering, and (2) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statements shall cover said 12-month periods. The Company may require the Holders to furnish to the Company such information and documents regarding the distribution of such securities and the seller as the Company may from time to time reasonably request in writing. - 10 - The Holders each agree by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(d)(6) hereof, such Holder will forthwith discontinue disposition of Registrable Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(l) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by the Company, each Holder will, or will request the underwriters to, deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. If the Company shall give such notice, the time periods mentioned in Section 5(c) hereof shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 5(d)(6) to and including the date when the Holders shall have received the copies of the supplemented or amended prospectus contemplated by Section 5(l) hereof or the Advice. 6. REGISTRATION EXPENSES. Except as otherwise provided herein, "Registration Expenses" include all expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all registration and filing fees, including with respect to filings required to be made with the National Association of Securities Dealers, fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities and determination of their eligibility for investment under the laws of such jurisdictions as the managing underwriters or holders of a majority of the Registrable Securities being sold may designate), printing expenses, messenger, telephone and delivery expenses, and fees and disbursements of counsel for the Company, the Holders and of all independent certified public accountants (including the expenses of any special audit and "cold comfort" letters required by or incident to such performance), the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed, rating agency fees, securities acts liability insurance if the Holders so require, and the reasonable fees and expenses of any special experts retained by the Holders or by the Company at the request of the managing underwriters in connection with such registration. The Company shall, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or - 11 - accounting duties) and the expense of any annual audit, which are not "Registration Expenses" for purposes of this Agreement. In no event shall the Company be liable for the payment of any discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar industry professionals relating to the distribution of the Registrable Securities or for the fees and expenses of more than one law firm for all Holders. 7. INDEMNIFICATION. (a) INDEMNIFICATION BY COMPANY. The Company will indemnify and hold harmless, to the full extent permitted by law, each Holder, its officers and directors, their agents and each Person who controls each such Holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities (or actions in respect thereto) and expenses to which any such Person may be subject, under the Securities Act or otherwise, and reimburse all such Persons for any legal or other expenses incurred with investigating or defending against any such losses, claims, damages or liabilities, insofar as such losses, claims, damages or liabilities arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in a Registration Statement, Prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same arise out of or are based upon an untrue statement of a material fact or omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, which statement or omission is made therein in reliance upon and in conformity with information furnished in writing to the Company by such Holder, expressly for use therein. The Company will also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of each Holder of Registrable Securities. (b) INDEMNIFICATION BY HOLDERS. Each Holder will, severally and not jointly, indemnify and hold harmless, to the full extent permitted by law, the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities (or actions in respect thereto) and expenses to which any such Person may be subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in a Registration Statement or Prospectus or preliminary prospectus or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not - 12 - misleading, to the extent, but only if and to the extent, that such untrue or alleged untrue statement or omission or alleged omission is made therein in reliance upon and in conformity with the information furnished in writing by such Holder specifically for inclusion therein. In no event shall the liability of a Holder hereunder be greater in amount than the dollar amount of the proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above with respect to information so furnished in writing by such Persons. (c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party's reasonable judgment a conflict of interest may exist between such indemnified and indemnifying parties with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party and in that case the indemnified party shall have the right to participate in the conduct of such defense provided that it will pay for the fees of its own counsel. Whether or not such defense is assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving of the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels. 8. CONTRIBUTION. (a) If the indemnification provided for in Section 7 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such - 13 - indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 7, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding; (b) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding any other provision hereof, in no event shall the contribution obligation of any Holder be greater in amount than the excess of (i) the dollar amount of the proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such contribution obligation over (ii) the dollar amount of any damages that such Holder has otherwise been required to pay by reason of the untrue or alleged untrue statement or omission or alleged omission giving rise to such obligation. No person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation; and (c) If indemnification is available under Section 7, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Section 7 without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 8. 9. PUBLIC INFORMATION. For a period of three years after the date of this Agreement, the Company shall cause "adequate current public information" (as such term is used in Rule 144 promulgated under - 14 - the Securities Act) to be maintained and shall timely file all reports required pursuant to the Exchange Act. 10. MISCELLANEOUS. (a) REMEDIES. Without limiting the rights of any Holder to pursue all other legal and equitable remedies available for any breach of the provisions of this Agreement, including recovery of damages, each will be entitled to specific performance of their rights under this Agreement. The Company expressly agrees that monetary damages would not be adequate compensation for any loss incurred by any Holder by reason of a breach by the Company of the provisions of this Agreement and that such Holder would sustain irreparable harm, and therefore the Company further agrees that any such Holder shall be entitled to specific performance to prevent any such breach or any continuing breach hereof and the Company waives the defense in any action for specific performance that a remedy at law would be adequate. (b) NO INCONSISTENT AGREEMENTS. The Company will not on or after the date of this Agreement enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The Company has not previously entered into any agreement with respect to its securities granting any registration rights to any Person. (c) NOTICES. All notices, requests, demands and other communications provided for by this Agreement shall be in writing (including telecopier or similar writing) and shall be deemed to have been given at the time when mailed in any general or branch office of the United States Postal Service, enclosed in a registered or certified postpaid envelope, or sent by Federal Express or other similar overnight courier service, addressed to the address of the parties stated below or to such changed address as such party may have fixed by notice or, if given by telecopier, when such telecopy is transmitted and the appropriate answerback is received. (i) If to the Company: Polaris Industries Inc. 1225 North Highway 169 Minneapolis, Minnesota 55441 Attention: John H. Grunewald Executive Vice President, Finance and Administration (ii) If to Atkins: Victor K. Atkins, Jr. - 15 - 33 Flying Point Road Southhampton, New York 11968 (iii) If to the Lehman Entities: Lehman Brothers Inc. 3 World Financial Center New York, New York 10285 Attention: Ron Hiram (d) SUCCESSORS AND ASSIGNS. This Agreement is solely for the benefit of the parties and their respective successors and assigns, including any Holder. Nothing herein shall be construed to provide any rights to any other entity or individual. (e) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. (f) HEADINGS. Section headings are for convenience only and do not control or affect the meaning or interpretation of any terms or provisions of this Agreement. (g) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York governing contracts to be made and performed therein without giving effect to principles of conflicts of law, and, with respect to any dispute arising out of this Agreement, each party hereby consents to the exclusive jurisdiction of the courts sitting in such State. (h) SEVERABILITY. Should any part, term, condition or provision hereof or the application thereof be declared illegal, invalid or otherwise unenforceable or in conflict with any other law by a court of competent jurisdiction, the validity of the remaining parts, terms, conditions or provisions of this Agreement shall not be affected thereby, and the illegal, invalid or unenforceable portions of this Agreement shall be and hereby are redrafted to conform with applicable law, while leaving the remaining portions of this Agreement intact, except to the extent necessary to conform to the redrafted portions hereof. (i) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding between the parties and supersedes all proposals, commitments, writings, negotiations, discussions, agreements and understandings, oral or written, of every kind and nature between them concerning the subject matter hereof. This Agreement may not be amended or otherwise modified except in a writing signed by both parties hereto. No discharge - 16 - of the terms hereof shall be deemed valid unless by full performance by the parties or by a writing signed by the parties. A waiver by any party of any breach or violation of any this Agreement shall not be deemed or construed as a waiver of any other breach or violation hereof. (j) ATTORNEYS' FEES. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. - 17 - IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. POLARIS INDUSTRIES INC. By: /s/ W. Hall Wendel, Jr. ------------------------------ Name: Title: /s/ V. K. Atkins, Jr. ----------------------------------- Victor K. Atkins, Jr. EIP HOLDINGS INC. By: /s/ ------------------------------ Name: Title: EIP I INC. By: /s/ ------------------------------ Name: Title: LB I GROUP INC. By: /s/ ------------------------------ Name: Title: - 18 - EX-11 6 STATEMENT OF COMPUTATION OF EARNINGS POLARIS INDUSTRIES INC. EXHIBIT 11 - -------------------------------------------------------------------------------- STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS - CONTINUED (NOT COVERED BY AUDITOR'S REPORT) - -------------------------------------------------------------------------------- Polaris Industries Inc. (the Company) was formed for the purpose of effecting the conversion of Polaris Industries Partners L.P. (the Partnership) from a publicly traded limited partnership to a publicly traded corporation on December 22, 1994 (the Conversion). The Company issued 16,010,441 shares of common stock to the Partnership's Limited Partners in exchange for their limited partner interests, 2,100,243 shares of common stock to the affiliates of EIP Associates L.P. (the General Partner) in exchange for the entire general partnership interests and rights and ultimately 312,500 shares of common stock to the holders of 312,500 First Rights. Net income per share for the fourth quarter of 1994 and for the year ended December 31, 1994, is calculated based on the weighted average number of common and common equivalent shares outstanding as if the Conversion transaction discussed above occurred at the beginning of the period. Net income per share is not applicable for 1992, 1993, and the first, second and third quarters of 1994 because the Company was a partnership in those periods. See Note 1 of Notes to the Financial Statements. Pro forma information is presented to assist in comparing the continuing results of operations of the Company for 1994, 1993 and 1992 exclusive of the Conversion costs and as if the Company was a taxable corporation for these periods. The weighted average number of units of Beneficial Assignment of Class A Limited Partnership Interests (BACs) and BAC equivalents has been retroactively adjusted to reflect the issuance of an equal number of shares of common stock to the Partnership's Limited Partners in exchange for the number of BACs outstanding and the issuance of 2,100,243 shares of common stock to the affiliates of the General Partner in exchange for the general partnership interests. See Note 10 of Notes to the Financial Statements. NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Year Ended Ended December 31, December 31, 1994 1994 ------------ ------------- Net Income for the Period $ 78,339 $ 128,950 ------------ ------------- ------------ ------------- Weighted Average Number of Outstanding: Common shares 18,111 18,111 Rights 312 312 ------------ ------------- Total common and common equivalent shares 18,423 18,423 ------------ ------------- ------------ ------------- Net Income Per Share $ 4.25 $ 7.00 ------------ ------------- ------------ -------------
POLARIS INDUSTRIES INC. EXHIBIT 11 - CONTINUED - -------------------------------------------------------------------------------- STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS - CONTINUED (NOT COVERED BY AUDITOR'S REPORT) - -------------------------------------------------------------------------------- PRO FORMA NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended ------------------------------------------------------ March 31, June 30, September 30, December 31, Total 1994 1994 1994 1994 1994 ----------- ----------- -------------- ------------ ------------- Pro Forma Net Income for the Period $ 6,144 $ 7,348 $ 21,611 $ 19,600 $ 54,703 ----------- ----------- -------------- ------------ ------------- ----------- ----------- -------------- ------------ ------------- Weighted Average Number of Outstanding: Common shares 18,065 18,111 18,111 18,111 18,111 Rights 342 296 304 312 312 ----------- ----------- -------------- ------------ ------------- Total common and common equivalent shares 18,407 18,407 18,415 18,423 18,423 ----------- ----------- -------------- ------------ ------------- ----------- ----------- -------------- ------------ ------------- Pro Forma Net Income Per Share $ .33 $ .40 $ 1.18 $ 1.06 $ 2.97 ----------- ----------- -------------- ------------ ------------- ----------- ----------- -------------- ------------ ------------- Quarter Ended ----------------------------------------------------- March 31, June 30, September 30, December 31, Total 1993 1993 1993 1993 1993 ---------- ------------ ------------- ------------ ------------- Pro Forma Net Income for the Period $ 4,703 $ 4,702 $ 12,907 $ 10,715 $ 33,027 ----------- ----------- -------------- ------------ ------------- ----------- ----------- -------------- ------------ ------------- Weighted Average Number of Outstanding: Common shares 16,999 16,999 16,999 17,017 17,017 Rights 1,227 1,227 1,226 1,198 1,198 ----------- ----------- -------------- ------------ ------------- Total common and common equivalent shares 18,226 18,226 18,225 18,215 18,215 ----------- ----------- -------------- ------------ ------------- ----------- ----------- -------------- ------------ ------------- Pro Forma Net Income Per Share $ .26 $ .26 $ .70 $ .59 $ 1.81 ----------- ----------- -------------- ------------ ------------- ----------- ----------- -------------- ------------ ------------- Quarter Ended ------------------------------------------------------ March 31, June 30, September 30, December 31, Total 1992 1992 1992 1992 1992 ----------- ------------ ------------- ------------ ------------- Pro Forma Net Income for the Period $ 1,642 $ 4,441 $ 10,815 $ 7,704 $ 24,602 ----------- ----------- -------------- ------------ ------------- ----------- ----------- -------------- ------------ ------------- Weighted Average Number of Outstanding: Common shares 16,200 16,200 16,200 16,402 16,402 Rights 1,488 1,912 1,912 1,672 1,566 ----------- ----------- -------------- ------------ ------------- Total common and common equivalent shares 17,688 18,112 18,112 18,074 17,968 ----------- ----------- -------------- ------------ ------------- ----------- ----------- -------------- ------------ ------------- Pro Forma Net Income Per Share $ .09 $ .25 $ .60 $ .43 $ 1.37 ----------- ----------- -------------- ------------ ------------- ----------- ----------- -------------- ------------ -------------
EX-21 7 SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES OF THE REGISTRANT
SHARES % OF COMPANY ORGANIZATION OUTSTANDING OWNERSHIP - ------------------------------------------------------------------------ EIP Capital Corporation Delaware 70 100% Corporation - ------------------------------------------------------------------------ EIP Associates L.P. Delaware Limited N/A 100% (1) Partnership - ------------------------------------------------------------------------ Polaris Industries Delaware Limited N/A 100% (2) Partners L.P. Partnership - ------------------------------------------------------------------------ Polaris Real Estate Delaware 1,000 100% (3) Corporation of Iowa, Inc. Corporation - ------------------------------------------------------------------------ Polaris Real Estate Delaware 1,000 100% (4) Corporation Corporation - ------------------------------------------------------------------------ Polaris Industries Barbados 1,000 100% Export Ltd. Corporation - ------------------------------------------------------------------------ Polaris Industries, Manitoba 101 100% (6) Inc.(5) Corporation - ------------------------------------------------------------------------ (1) The Company and EIP Capital Corporation are the only partners in EIP Associates L.P. (2) The Company, EIP Capital Corporation and EIP Associates L.P. are the only partners in Polaris Industries Partners L.P. (3), (4), and (6) Owned 100% by Polaris Industries Partners L.P. (5) Articles of Amendment are being prepared to effect a name change.
EX-23 8 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 of our report, dated February 2, 1995, with respect to the financial statements of Polaris Industries Inc. and the schedule included in the annual report on Form 10-K for the year ended December 31, 1994. /s/ McGladrey & Pullen, LLP McGLADREY & PULLEN, LLP Minneapolis, Minnesota March 23, 1995 EX-24 9 POWER OF ATTORNEY POWER OF ATTORNEY (FORM 10K) KNOW ALL MEN BY THESE PRESENTS, that POLARIS INDUSTRIES INC., a Minnesota corporation (the "Company"), and each of the undersigned directors of the Company, hereby constitutes and appoints W. Hall Wendel, Jr. and John H. Grunewald and each of them (with full power to each of them to act alone) its/his/her true and lawful attorney-in-fact and agent, for it/him/her and on it/his/her behalf and in its/his/her name, place and stead, in any and all capacities to sign, execute, affix its/his/her seal thereto and file the Annual Report on Form 10-K for the year ended December 31, 1994 under the Securities Exchange Act of 1933, as amended, with any amendment or amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority. There is hereby granted to said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in respect of the foregoing as fully as it/he/she or itself/himself/herself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. This Power of Attorney may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same instrument and any of the undersigned directors may execute this Power of Attorney by signing any such counterpart. POLARIS INDUSTRIES INC. has caused this Power of Attorney to be executed in its name by its Chief Executive Officer on the 26th day of January 1995. POLARIS INDUSTRIES INC. By /s/ W. Hall Wendel, Jr. ------------------------------ W. Hall Wendel, Jr., Chief Executive Officer The undersigned, directors of POLARIS INDUSTRIES INC., have hereunto set their hands as of the 26th day of January 1995. /s/ W. Hall Wendel, Jr. /s/ Stephen G. Shank - ------------------------------ ----------------------------- W. Hall Wendel, Jr. Stephen G. Shank /s/ Beverly F. Dolan /s/ Gregory R. Palen - ------------------------------ ----------------------------- Beverly F. Dolan Gregory R. Palen /s/ Robert S. Moe /s/ Andris A. Baltins - ------------------------------ ----------------------------- Robert S. Moe Andris A. Baltins /s/ Kenneth D. Larson - ------------------------------ Kenneth D. Larson D I R E C T 0 R S 2 EX-27 10 EXHIBIT 27
5 This schedule contains summary financial information extracted from the balance sheet of Polaris Industries Inc. as of December 31, 1994, and the related statements of operations, shareholders' equity and cash flows for the year ended December 31, 1994, and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1994 JAN-01-1994 DEC-31-1994 62,881 0 29,700 0 88,714 206,489 92,029 38,368 331,166 161,457 0 181 0 0 169,528 331,166 826,286 826,286 643,003 643,003 107,621 0 0 75,662 (53,034) 128,950 0 0 0 128,950 7.00 7.00
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