-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MP/PE5R1JwwFJbSQCFXBxu6N3il/njSJbtZ7s80VMVlgajnNiErswWYGHxGG4OE1 a2wBrAvqMn8RoFvjKjpmeQ== 0000950124-01-001699.txt : 20010329 0000950124-01-001699.hdr.sgml : 20010329 ACCESSION NUMBER: 0000950124-01-001699 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLARIS INDUSTRIES INC/MN CENTRAL INDEX KEY: 0000931015 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS TRANSPORTATION EQUIPMENT [3790] IRS NUMBER: 411790959 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11411 FILM NUMBER: 1582078 BUSINESS ADDRESS: STREET 1: 2100 HIGHWAY 55 CITY: MEDINA STATE: MN ZIP: 55340 BUSINESS PHONE: 6125420500 MAIL ADDRESS: STREET 1: 1225 HIGHWAY 169 N STREET 2: 425 LEXINGTON AVE CITY: MINNESOTA STATE: MN ZIP: 55441 10-K 1 c60829e10-k.txt ANNUAL REPORT ENDED 12/31/00 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 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.) 2100 HIGHWAY 55 MEDINA, MN 55340 (Address of principal executive offices) (Zip Code) (763) 542-0500 (Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH 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 1, 2001 (based upon the closing reported sale price of the Common Stock at that date on the New York Stock Exchange) held by non-affiliates (21,949,780 shares) was approximately $1,047,004,506. 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 1, 2001, 23,577,066 shares of Common Stock of the registrant were outstanding. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Registrant's Annual Report to Shareholders for the year ended December 31, 2000 furnished to the Securities and Exchange Commission (the "2000 Annual Report") are incorporated by reference into Parts II and III of this Form 10-K. 2. Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held May 3, 2001 filed with the Securities and Exchange Commission (the "2001 Proxy Statement") are incorporated by reference into Part III of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 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. On December 31, 1996, the Partnership was merged with and into Polaris Industries Inc., a Delaware corporation (the "Operating Subsidiary"). The Company owns 100% of the Operating Subsidiary. The term "Polaris" as used herein refers to the business and operations of the Operating Subsidiary and its predecessors, Polaris Industries Partners L.P. and Polaris Industries L.P. Polaris designs, engineers and manufactures all terrain vehicles ("ATVs"), snowmobiles, motorcycles and personal watercraft ("PWC") and markets them, together with related replacement parts, garments and accessories ("PG&A") through dealers and distributors principally located in the United States, Canada and Europe. Sales of ATVs, snowmobiles, motorcycles, PWC and PG&A accounted for the following approximate percentages of Polaris' sales for the periods indicated.
YEAR ENDED DECEMBER 31 ATVS SNOWMOBILES MOTORCYCLES PWC PG&A ---------------------- ---- ----------- ----------- --- ---- 2000.............................................. 59% 22% 1% 5% 13% 1999.............................................. 57% 24% 3% 4% 12% 1998.............................................. 56% 27% 1% 4% 12%
INDUSTRY BACKGROUND All Terrain Vehicles. ATVs are four-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. Other Japanese motorcycle manufacturers, Yamaha, Kawasaki and Suzuki entered the North American market in the late 1970s and early 1980s. Polaris entered the ATV market in 1985, Arctic Cat entered in 1995 and Bombardier entered in 1998. In 1985, the number of three- and four-wheel ATVs sold in North America peaked at approximately 650,000 units per year, then dropped dramatically to a low of 148,000 in 1989. Polaris estimates that the industry grew 19% with approximately 775,000 ATVs sold worldwide during the calendar year 2000. 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, Arctic Cat and Polaris. Polaris estimates industry sales of snowmobiles on a worldwide basis were approximately 213,000 units for the season ended March 31, 2000. Motorcycles. Heavyweight motorcycles are over the road vehicles utilized as a mode of transportation as well as for recreational purposes. There are four segments: cruisers, touring, sport bikes, and standards. Polaris entered the worldwide motorcycle market in 1998 with an initial entry product in the cruiser segment. U.S. retail cruiser sales more than doubled from 1993 to 1999. Polaris estimates the cruiser market 3 grew 20% in 2000 with approximately 220,000 cruiser motorcycles sold in the U.S. market. Other major cruiser motorcycle manufacturers include Harley Davidson, Honda, Yamaha, Kawasaki and Suzuki. 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 for one, two, three or four passengers. Polaris entered the PWC market in 1992. After many years of rapid growth, the number of PWC sold peaked at approximately 225,000 units in 1996. Polaris estimates worldwide industry retail sales for PWC were approximately 120,000 units for the season ended September 30, 2000. Other major PWC manufacturers are Bombardier, Yamaha, and Kawasaki. PRODUCTS All Terrain Vehicles. Polaris entered the ATV market in the spring of 1985. Polaris currently produces four-wheel ATVs, which provide more stability for the rider than earlier three-wheel versions. Polaris' line of ATVs consisting of eighteen models includes general purpose, sport and four-wheel drive utility models, with 2001 suggested retail prices ranging from approximately $1,900 to $7,600. In 2000, Polaris introduced its first youth ATV models. In addition, Polaris has a six-wheel off-road utility vehicle and the Polaris RANGER, a six-wheel off-road side by side utility and recreational vehicle. In early 2001, Polaris expanded its utility line with an all surface loader product. Most of Polaris' ATVs feature the totally automatic Polaris variable transmission, which requires no manual shifting, and a MacPherson strut front suspension, which enhances control and stability. Polaris' ATVs include two cycle and four cycle engines and both shaft and concentric chain drive. In 1999, Polaris introduced its first manual transmission ATV models. Prior to 1989, the ATV industry experienced some reduced demand arising from publicity surrounding safety-related and environmental concerns. However, management believes this market has stabilized since 1989 and has sustained consistent growth. For the year ended December 31, 2000, sales of ATVs accounted for approximately 59% of Polaris' sales. Snowmobiles. Polaris produces a full line of snowmobiles, consisting of twenty-nine models, ranging from youth to utility and economy models to performance and competition models. The 2001 model year suggested United States retail prices range from approximately $1,900 to $9,000. Polaris snowmobiles are sold principally in the United States, Canada and Europe. Polaris believes it is the worldwide market share leader. Polaris believes its snowmobiles have 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. For the year ended December 31, 2000, sales of snowmobiles accounted for approximately 22% of Polaris' sales. Motorcycles. In 1998, Polaris began manufacturing a V-twin cruiser motorcycle, the "Victory V92C." Design and assembly of the engine is performed in Polaris' Osceola, Wisconsin facility and final assembly is completed at Polaris' Spirit Lake, Iowa facility. The two facilities provide sufficient capacity to handle the production of Victory motorcycles. In 1999, Polaris introduced its second model, a sport cruiser, the Victory V92SC and in 2000, introduced its third model, the Victory Deluxe. The 2001 model year Victory motorcycle suggested United States retail prices range from approximately $13,400 to $14,400. For the year ended December 31, 2000, sales of Victory motorcycles accounted for approximately 1% of Polaris' sales. Personal Watercraft. Polaris entered the personal watercraft market in 1992. Polaris' 2001 line of PWC consists of eight models across the touring, performance and racing segments. Management believes that its models had the industry's first three-cylinder engines developed specifically for PWC and that its models were 2 4 the first to comply with EPA 2006 requirements. The 2001 model year suggested United States retail prices for Polaris' PWC range from approximately $6,100 to $9,000. For the year ended December 31, 2000, sales of PWC accounted for approximately 5% of Polaris' sales. Parts, Garments and Accessories. Polaris produces or supplies a variety of replacement parts and accessories for its snowmobiles, ATVs, motorcycles and PWC. ATV accessories include products such as winches, mowers, blades, cargo racks, utility trailers, sprayers, seeders, tires, oils, and lubricants. Snowmobile accessories include products such as luggage, covers, tow hitches, hand warmers, specialized instrumentation, reverse gear, electric start, special traction products, cargo racks, oils, and lubricants. Polaris also markets a full line of recreational clothing, which includes suits, helmets, gloves, boots, hats, sweaters and jackets for its snowmobile, ATV, motorcycle 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. For the year ended December 31, 2000, sales of PG&A accounted for approximately 13% of Polaris' sales. MANUFACTURING OPERATIONS Polaris' products are assembled at its original manufacturing facility in Roseau, Minnesota and at its facility in Spirit Lake, Iowa. Since snowmobiles, ATVs, motorcycles and PWC incorporate similar technology, substantially the same equipment and personnel are employed in their production. Polaris is vertically integrated in several key components of its manufacturing process, including machining, stamping, welding, clutch assembly and balancing, painting, cutting and sewing, and manufacture of foam seats. Fuel tanks, 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, motorcycles, 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, motorcycles and PWC. In 1991, Polaris acquired a manufacturing facility in Osceola, Wisconsin to manufacture component parts previously produced by third party suppliers. In 1998, Victory motorcycle production began at Polaris' Spirit Lake, Iowa facility. The production includes welding, finish painting, and final assembly. Certain Victory operations, including engine assembly, seat manufacturing, and the bending of frame tubes are conducted at the Osceola, Wisconsin facility. In 2000, Polaris began an expansion and renovation of its Roseau manufacturing facility to increase capacity and production flexibility in order to meet its growth goals. In 1998, Polaris completed construction of a plastic injection molding facility adjacent to the Roseau, Minnesota facility. This is a vertical integration project for Polaris in the manufacture of snowmobile hoods and certain large plastic molded parts on ATVs. Pursuant to informal agreements between Polaris and Fuji Heavy Industries Ltd. ("Fuji"), Fuji had been the exclusive manufacturer of 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 certain of Polaris PWC products. Fuji develops such engines to the specific requirements of Polaris. Polaris believes its relationship with Fuji to be excellent. If, however, Fuji terminated its relationship, interruption in the supply of engines would adversely affect Polaris' production pending the continued development of substitute supply arrangements. Since 1995, Polaris has been designing and producing its own engines for selected models of PWC, snowmobiles and all Victory motorcycles. Polaris purchased a building adjacent to the Osceola facility to house the manufacturing of these Polaris designed and built domestic engines. In addition, in 1995, Polaris entered into an agreement with Fuji to form Robin Manufacturing, U.S.A. ("Robin"). Under the agreement, Polaris made an investment for a 40% ownership position in Robin, which builds engines in the United States for recreational and industrial products. Potential advantages to Polaris of these additional sources of engines 3 5 include reduced foreign exchange risk, lower shipping costs and less dependence in the future on a single supplier 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. A contract carrier ships Polaris' products from its manufacturing facilities. PRODUCTION SCHEDULING Polaris' products are produced and delivered throughout the year. Orders for ATVs are placed by the dealers often throughout the year. Delivery of snowmobiles to consumers begins in autumn and continues during the winter season. Orders for each year's production of snowmobiles are placed by the dealers in the spring. Orders for PWC are placed by the dealers in autumn after meetings with dealers and distributors. Orders for Victory motorcycles are placed by the dealers in the summer after meetings with dealers. 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 substantially sold to dealers and distributors prior to production. Retail sales activity at the dealer level is monitored by Polaris for each of snowmobiles, ATVs, motorcycles and PWC and incorporated into production scheduling. In 2000, Polaris began testing a dealer inventory replenishment program for ATV dealers, where Polaris continually restocks the dealer inventory of a particular model upon the completion of a retail sale to the consumer, rather than taking dealers orders periodically throughout the year. Polaris intends to expand this program throughout North America gradually in 2001. 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 1993, Polaris has had the ability to manufacture ATVs year round. Motorcycle manufacturing began in 1998 and continues year round. SALES AND MARKETING Polaris products are sold through a network of nearly 2,000 dealers in North America and 52 distributors in 121 countries. With the exception of Illinois, upper Michigan and eastern Wisconsin, where Polaris sells its snowmobiles through an independent distributor, Polaris sells its snowmobiles directly to dealers in the snowbelt regions of the United States and Canada. With the exception of France, snowmobile sales in Europe and other offshore markets are handled through independent distributors. See Note 1 of Notes to Consolidated Financial Statements for discussion of international operations. Many dealers and distributors of Polaris snowmobiles also distribute Polaris' ATVs and PWC. At the end of 2000, approximately 800 dealerships were located in areas of the United States where snowmobiles are not regularly sold. Unlike its primary 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. In 1999, Polaris acquired its distributor in Australia and New Zealand and now distributes its products in those countries through its wholly owned subsidiary. During 2000, Polaris acquired its distributor in France and now distributes its products in France through its wholly owned subsidiary. Victory motorcycles are distributed direct through authorized Victory dealers. Polaris has a high quality dealer network in North America for its other product lines from which most of the current 350 Victory dealers were selected. Polaris expects to develop a Victory dealer network of approximately 500 to 600 dealers over the next three to four years. 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 4 6 perform certain warranty and other services. Changes in dealers and distributors take place from time to time. Polaris believes a sufficient number of qualified dealers and distributors exist in all areas to permit orderly transition whenever necessary. In 1996, Polaris entered into a partnership agreement with Transamerica Distribution Finance ("TDF") to form Polaris Acceptance. Polaris Acceptance provides floor plan financing to Polaris' dealers and distributors. In 1999, Polaris Acceptance began providing other financial services to dealers, distributors and retail customers such as retail financing and extended service contracts. Under the partnership agreement, Polaris has a 50% equity interest in Polaris Acceptance and was responsible for 50% of the outstanding indebtedness of Polaris Acceptance. In February 2000, the term of the partnership agreement was extended; in consideration thereof, Polaris is no longer required to guarantee the outstanding indebtedness of Polaris Acceptance. Polaris has arrangements with Polaris Acceptance and GE Commercial Corporation (Australia), to provide floor plan financing for its dealers and distributors. Substantially all of Polaris' North American sales of snowmobiles, ATVs, PWC, motorcycles and related PG&A 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. 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 2 of Notes to Consolidated Financial Statements. Polaris has historically not directly financed the purchase of its products by consumers. In 1999, Polaris made consumer financing available through its Polaris Acceptance joint venture. Polaris is not obligated to repurchase products related to the retail financing programs but will share in the losses of the program through its 50% equity interest in Polaris Acceptance. Polaris desires to create an awareness of the Polaris brand among the non-riding public and provide a wide range of products for enthusiasts by licensing the name Polaris. The company has currently licensed the production and sale of a range of items, including go-karts, die cast toys, video games, and numerous other products. The Company's licensing activity provides it with a valuable source of advertising. During 2000, Polaris established an e-commerce site, Purepolaris.com, to sell clothing and accessories over the internet directly to consumers. The site has been developed with a unique revenue sharing arrangement with the dealers. 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 dealer 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. Polaris also co-sponsors a race car on the NASCAR auto racing circuit. Each season, Polaris produces a promotional film for each of its products, 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. Polaris expended for sales and marketing approximately $122.0 million in 2000, $112.1 million in 1999, and $92.7 million in 1998. These amounts were included as a component of operating expenses in the period incurred. 5 7 ENGINEERING, RESEARCH AND DEVELOPMENT, AND NEW PRODUCT INTRODUCTION Polaris employs approximately 340 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 the Company and its predecessors were the first to develop, for commercial use, independent front end suspension for snowmobiles, 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, "on demand" four-wheel drive systems and the Concentric Drive System for use in ATVs, the application of a forced air cooled variable power transmission system to ATVs, and the diesel fuel powered ATV. 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 maintains numerous test facilities where each of the products is extensively tested under actual use conditions. Polaris expended for research and development approximately $32.4 million in 2000, $31.3 million in 1999, and $28.4 million in 1998. These amounts were included as a component of operating expenses in the period incurred. COMPETITION The snowmobile, ATV, motorcycle 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 and marketing resources which are substantially greater than those of Polaris. Polaris products 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, motorcycles 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 these products. Laws and regulations have been promulgated or are under consideration in a number of states relating to the use or manner of use of Polaris products. State approved trails and recreational areas for snowmobile and ATV use have been developed in response to environmental and safety concerns. Some states may pass legislation and local ordinances or regulations have been and may from time to time be considered which restrict the use of PWC to specified hours and locations. Polaris is unable to predict the outcome of such actions or the possible effect on its PWC business. Polaris has supported laws and regulations pertaining to safety and noise abatement. Polaris believes that its products would be no more adversely affected than those of its competitors by the adoption of any pending laws or regulations. Polaris continues to monitor these activities in conjunction with industry associations and supports balanced and appropriate programs that educate the product user on safe use of the product and how to protect the environment. In September 1986, the Consumer Product Safety Commission ("CPSC") ATV Task Force issued a report on regulatory options for ATVs with recommendations for ATV marketing activities and warning labels. In February 1987, the CPSC formally requested that the Justice Department initiate an enforcement 6 8 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 ATVs and six-wheel off-road vehicle products. Polaris has always placed warning labels on its ATVs stating that they are designed for use only by persons of a specified minimum age, operators should always wear approved safety helmets and riders should complete proper training prior to operating an ATV. On December 30, 1987, Polaris reached an agreement with the CPSC regarding ATV safety, which was confirmed in a ten-year Consent Decree in April 1988. In April 1998, the Consent Decree with the CPSC expired. Polaris has filed with the CPSC a Voluntary Action Plan under which Polaris undertook to continue various activities including age recommendations, warning labels, point of purchase materials, hands on training and an information education effort. Polaris also agreed to continue dealer monitoring for ascertaining dealer compliance with safety obligations including age recommendations and training requirements. Polaris conditions its ATV warranties described below under "Warranty" on completion of the mandatory "hands on" consumer training program. In December 1998, the CPSC issued a resolution commending Polaris and certain other industry members for their ATV Action Plans. The Company does not believe the Polaris Voluntary Action Plan 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. Polaris will continue to attempt to assure that its dealers are in compliance with their safety obligations. Polaris has notified its dealers that it will terminate or not renew any dealer it determines has violated such safety obligations. To date, it has terminated or not renewed at least eight dealers for such reasons. In May 1998, the National Transportation Safety Board ("NTSB") issued a report regarding PWC safety and made various recommendations. Prior to May 1998, Polaris was working with and continues to work with the Coast Guard to develop standards and to evaluate PWC safety matters, including the NTSB recommendations. Polaris PWC have always complied with industry standards relevant to PWCs. California has adopted regulations setting maximum emission standards for ATVs and the federal Environmental Protection Agency ("EPA") has indicated its intent to establish emission standards for non-road engines, including ATVs and snowmobiles. The EPA already has required PWC manufacturers to gradually reduce their emission by 75% between 1999 and 2006. For the State of California, the California Air Resources Board has accelerated this scheduled emission reduction by requiring that manufacturers meet the EPA 2006 level in 2001 and that manufacturers meet further emission reductions by 2004 and 2008. Conventional two-stroke cycle engines cannot meet these more restrictive emission requirements. In 1997, Polaris signed an agreement with Outboard Marine Corporation ("OMC") licensing the Ficht fuel injection technology. During 1998, Polaris began production of a new Genesis PWC model utilizing the Ficht technology which complies with the EPA 2006 emission requirements. During 2000, OMC filed for bankruptcy and in early 2001, Bombardier Inc. acquired the Ficht technology. Polaris has entered into a license agreement with Bombardier for the Ficht fuel injection technology. This technology may be used in other Polaris vehicles to meet emission standards in the future, particularly in Polaris vehicles with two-cycle engines. Polaris is unable to predict the ultimate impact of the adopted or proposed regulations on Polaris and its operations. Victory motorcycles are subject to federal and state emissions, vehicle safety and other standards. Polaris believes that its motorcycles comply fully with all such applicable standards and related regulations. PRODUCT LIABILITY Polaris' product liability insurance limits and coverages were adversely affected by the general decline in the availability of liability insurance starting in 1985. As a result of the high cost of premiums, and in view of the historically small amount of claims paid by Polaris, Polaris was self-insured from June 1985 to June 1996. In June 1996, Polaris purchased excess insurance coverage for catastrophic product liability claims for 7 9 incidents occurring subsequent to the policy date that exceeds its self-insured retention. Product liability claims are made against Polaris from time to time. Since its inception in 1981 through December 31, 2000, Polaris has paid an aggregate of approximately $6.5 million in product liability claims and accrued $6.0 million at December 31, 2000 for the defense and possible payment of pending claims. Polaris believes such accruals are adequate. Polaris does not believe 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, PWC prior to 1992, or motorcycles prior to 1998, 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 7 of Notes to Consolidated Financial Statements. WARRANTY Polaris provides a limited warranty for ATVs for a period of six months and for its snowmobiles, motorcycles and PWC for a period of one year. 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, motorcycles or PWC. EMPLOYMENT Due to the seasonality of the Polaris business and certain changes in production cycles, total employment levels vary throughout the year. Despite such variations in employment levels, employee turnover has not been high. During 2000, Polaris employed an average of approximately 3,560 persons. Approximately 1,240 of its employees are salaried. Polaris considers its relations with its personnel to be excellent. Polaris' employees have not been represented by a union since July 1982. ITEM 2. PROPERTIES The following sets forth the Company's material facilities as of December 31, 2000.
OWNED OR SQUARE LOCATION FACILITY TYPE/USE LEASED FOOTAGE - -------- ----------------- -------- ------- Roseau, Minnesota................. Whole Goods Manufacturing Owned 509,000 Osceola, Wisconsin................ Component Parts Manufacturing Owned 190,000 Spirit Lake, Iowa................. Whole Goods Manufacturing Owned 223,000 Osceola, Wisconsin................ Engine Manufacturing Owned 90,000 Roseau, Minnesota................. Injection Molding Owned 58,000 Vermillion, South Dakota.......... Distribution Center Owned 250,000 Medina, Minnesota................. Headquarters Owned 130,000 Winnipeg, Manitoba................ Office and Warehouse Leased 42,000 Spirit Lake, Iowa................. Warehouse Leased 10,000 Mount Gambier, Australia.......... Warehouse Leased 12,000 Passy, France..................... Office and Warehouse Owned 3,500
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. Polaris makes ongoing capital investments in its facilities. These investments 8 10 have increased production capacity for snowmobiles, ATVs, motorcycles and PWC. The Company believes Polaris' manufacturing facilities are adequate in size and suitability for its present manufacturing needs. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names of the executive officers of the Company as of March 8, 2001, 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.............................. 58 Chairman of the Board Thomas C. Tiller................................ 39 Chief Executive Officer and President Jeffrey A. Bjorkman............................. 41 Vice President - Operations John B. Corness................................. 46 Vice President - Human Resources Michael W. Malone............................... 42 Vice President - Finance, Chief Financial Officer and Secretary Richard R. Pollick.............................. 61 Vice President - International Thomas H. Ruschhaupt............................ 52 Vice President - Sales and Service
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 Chairman of the Board since the Company's formation in 1994 and was Chief Executive Officer of the Company until May 1999. 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. Tiller was named President and Chief Operating Officer of the Company in July 1998. In 1999, Mr. Tiller was promoted to his present position of Chief Executive Officer of the Company. Prior to joining Polaris, Mr. Tiller was employed by General Electric Company in various management positions for fifteen years. Mr. Bjorkman has been Vice President - Operations of the Company since July 2000. Mr. Bjorkman had been Vice President - Manufacturing 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. Corness has been Vice President -- Human Resources of the Company since January 1999. Prior to joining Polaris, Mr. Corness was employed by General Electric Company in various human resource positions for nine years. Before that time, Mr. Corness held various human resource positions with Maple Leaf Foods and Transalta Utilities. 9 11 Mr. Malone has been Vice President -- Finance, Chief Financial Officer and Secretary of the Company since January 1997. Mr. Malone was Vice President and Treasurer of the Company from December 1994 to January 1997 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 LLP. Mr. Pollick has been Vice President - International of the Company since September 1999. Prior to joining Polaris, Mr. Pollick was employed by The Toro Company in various management positions for nineteen years. Mr. Ruschhaupt has been Vice President -- Sales and Service of the Company since March 1998. Prior to joining Polaris, Mr. Ruschhaupt was employed by Goodyear Tire and Rubber Corporation in various management positions for twenty years. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under the caption "Investor Information" included in the Company's 2000 Annual Report is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information under the caption "Selected Financial Data" included in the Company's 2000 Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis" included in the Company's 2000 Annual Report is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The information under the caption "Management's Discussion and Analysis -- Inflation and Exchange Rates" and Note 1 to the financial statements of the Registrant, included in the Company's 2000 Annual Report, are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements of the Registrant, included in the Company's 2000 Annual Report, are incorporated herein by reference: Consolidated Balance Sheets December 31, 2000 and 1999. Consolidated Statements of Operations Years Ended December 31, 2000, 1999, and 1998. Consolidated Statements of Shareholders' Equity Years Ended December 31, 2000, 1999, and 1998. Consolidated Statements of Cash Flows Years Ended December 31, 2000, 1999, and 1998. Notes to Consolidated Financial Statements. Report of Independent Public Accountants. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 10 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Directors of the Registrant The information under the caption "Election of Directors Information Concerning Nominees and Directors" in the Company's 2001 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 after Item 4, under "Executive Officers of the Registrant." (c) Compliance with Section 16(a) of the Exchange Act The information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's 2001 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 2001 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 2001 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 2001 Proxy Statement is incorporated herein by reference. 11 13 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) Consolidated Financial Statements Information concerning financial statements of Polaris Industries Inc. included in the Company's 2000 Annual Report are incorporated by reference to this Report under Item 8 "Financial Statements and Supplementary Data". (2) Financial Statement Schedules All supplemental financial statement schedules have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or notes thereto. (3) Exhibits The Exhibits to this Report are listed in the Exhibit Index on page E-1. 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, 2001, upon receipt from any such person of a written request for any such exhibit. Such request should be sent to Polaris Industries Inc., 2100 Highway 55, Medina, Minnesota 55340, 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, 2000. (c) Exhibits Included in Item 14(a)(3) above. 12 14 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 16, 2001. POLARIS INDUSTRIES INC. By: /s/ W. HALL WENDEL JR. ------------------------------------ W. Hall Wendel Jr. Chairman of the Board 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. Chairman and Director March 16, 2001 - ------------------------------------------ W. Hall Wendel, Jr. /s/ THOMAS C. TILLER Chief Executive Officer and Director March 16, 2001 - ------------------------------------------ (Principal Executive Officer) Thomas C. Tiller /s/ MICHAEL W. MALONE Vice President Finance, Chief Financial March 16, 2001 - ------------------------------------------ Officer and Secretary (Principal Michael W. Malone Financial and Accounting Officer) * Director March 16, 2001 - ------------------------------------------ Andris A. Baltins * Director March 16, 2001 - ------------------------------------------ Raymond J. Biggs * Director March 16, 2001 - ------------------------------------------ Beverly F. Dolan * Director March 16, 2001 - ------------------------------------------ William E. Fruhan * Director March 16, 2001 - ------------------------------------------ Robert S. Moe * Director March 16, 2001 - ------------------------------------------ Gregory R. Palen * Director March 16, 2001 - ------------------------------------------ J. Richard Stonesifer * Director March 16, 2001 - ------------------------------------------ R. M. Schreck * Director March 16, 2001 - ------------------------------------------ Bruce A. Thomson * Director March 16, 2001 - ------------------------------------------ Richard A. Zona *By: /s/ THOMAS C. TILLER March 16, 2001 ------------------------------------- (Thomas C. Tiller Attorney-in-Fact)
Thomas C. Tiller, 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. 13 15 POLARIS INDUSTRIES INC. EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2000
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.(a) Specimen Stock Certificate of the Company, incorporated by reference to Exhibit 4 to the Form S-4. (b) Rights Agreement, dated as of May 18, 2000 between the Company and Norwest Bank Minnesota, N.A. (now Wells Fargo Bank Minnesota, N.A.), as Rights Agent, incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form 8-A, filed on May 25, 2000. 10.(a) Agreement for Deferred Compensation and Disability Income and Amendment No. 1 thereto with W. Hall Wendel, Jr. incorporated by reference to Exhibit 10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (b) [RESERVED] (c) Polaris 401(K) Retirement Savings Plan, incorporated by reference to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on January 11, 2000 (No. 333-94451) (d) Polaris Industries Inc. Employee Stock Ownership Plan effective January 1, 1997 incorporated by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. (e) Polaris Industries Inc. 1999 Broad Based Stock Option Plan incorporated by reference to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 5, 1999 (No. 333-77765) (f) Management Bonus Plan, incorporated by reference to Exhibit 10(j) to the Form S-1. (g) Polaris Industries Inc. 1995 Stock Option Plan, incorporated by reference to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June 12, 1995 (No. 33-60157). (h) Polaris Industries Inc. Deferred Compensation Plan for Directors incorporated by reference to Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (i) Joint Venture Agreement between the Company and Transamerica Commercial Finance Corporation, now known as Transamerica Distribution Finance ("TDF") dated February 7, 1996 incorporated by reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (j) Manufacturer's Repurchase Agreement between the Company and Polaris Acceptance dated February 7, 1996 incorporated by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (k) Credit Agreement by and between the Company and First Bank National Association and Bank of America Illinois and First Union National Bank of North Carolina, Dated May 8, 1995 incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q dated May 15, 1995. (l) [RESERVED]
14 16
EXHIBIT NUMBER DESCRIPTION - ------- ----------- (m) Shareholder Agreement with Fuji Heavy Industries LTD., incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (n) Registration Rights Agreement between and among the Company, Victor K. Atkins, EIP I Inc., EIP Holdings Inc. and LB I Group Inc., incorporated by reference to Exhibit 10(1) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (o) Amended and Restated Polaris Industries Inc. 1996 Restricted Stock Plan, incorporated by reference to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June 7, 1996 (No. 333-05463). (p) Polaris Industries Inc. Employee Stock Purchase Plan, incorporated by reference to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on February 3, 1997 (No. 333-21007). (q) Form of Change of Control Agreement entered into with executive officers of Company incorporated by reference to Exhibit 10(q) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. (r) [RESERVED] (s) Employment Agreement between the Company and Thomas Tiller incorporated by reference to Exhibit 10(s) to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998. (t) Fifth Amendment to Credit Agreement by and between the Company and U.S. Bank National Association et al. Dated August 24, 1998, incorporated by reference to Exhibit 10(t) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (u) Sixth Amendment to Credit Agreement by and between the Company and U.S. Bank National Association et al. Dated December 7, 1998, incorporated by reference to Exhibit 10(u) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (v) Seventh Amendment to Credit Agreement by and between the Company and U.S. Bank National Association et al. Dated May 10, 1999, incorporated by reference to Exhibit 10(v) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999. (w) Eighth Amendment to Credit Agreement by and between the Company and U.S. Bank National Association et al. Dated December 22, 1999, incorporated by reference to Exhibit 10(w) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999. (x) First Amendment to Joint Venture Agreement between the Company and TDF dated June 30, 1999, incorporated by reference to Exhibit 10(x) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999. (y) Second Amendment to Joint Venture Agreement between the Company and TDF dated February 24, 2000, incorporated by reference to Exhibit 10(y) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 13. Portions of the Annual Report to Security Holders for the Year Ended December 31, 2000 included pursuant to Note 2 to General Instruction G. 21. Subsidiaries of Registrant. 23. Consent of Arthur Andersen LLP. 24. Power of Attorney.
15 EX-13 2 c60829ex13.txt PORTIONS OF ANNUAL REPORT 1 11-YEAR SELECTED FINANCIAL DATA in thousands, except per share and per unit data The selected financial data presented below are qualified in their entirety by, and should be read in conjunction with, the Consolidated Financial Statements and Notes thereto and other financial and statistical information referenced elsewhere herein, including the information referenced under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations."
For the Years Ended December 31, 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA Sales data: Total sales(3) $1,425,678 $1,328,620 $1,180,648 $ 1,031,470 - ---------------------------------------------------------------------------------------------------------------------- % change from prior year 7% 13% 14% (13%) - ---------------------------------------------------------------------------------------------------------------------- Sales mix by product: All-terrain vehicles 59% 57% 56% 45% - ---------------------------------------------------------------------------------------------------------------------- Snowmobiles 22% 24% 27% 35% - ---------------------------------------------------------------------------------------------------------------------- Personal watercraft 5% 4% 4% 6% - ---------------------------------------------------------------------------------------------------------------------- Motorcycles 1% 3% 1% -- - ---------------------------------------------------------------------------------------------------------------------- PG&A 13% 12% 12% 14% - ---------------------------------------------------------------------------------------------------------------------- Gross profit data: Total gross profit(3) $ 328,104 $ 298,050 $ 252,344 $ 222,608 - ---------------------------------------------------------------------------------------------------------------------- % of sales 23% 22% 21% 22% - ---------------------------------------------------------------------------------------------------------------------- Operating expense data: Amortization of intangibles and noncash compensation $ 12,701 $ 10,472 $ 8,703 $ 5,887 - ---------------------------------------------------------------------------------------------------------------------- Conversion costs -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------- Other operating expenses(1)(3) 193,609 173,932 143,535(1) 123,619 - ---------------------------------------------------------------------------------------------------------------------- % of sales 14% 13% 12% 12% - ---------------------------------------------------------------------------------------------------------------------- Actual, adjusted,(1) and pro forma data:(2) Net income $ 82,809 $ 76,326 $ 70,624(1) $ 65,383 - ---------------------------------------------------------------------------------------------------------------------- Diluted net income per share $ 3.50 $ 3.07 $ 2.72(1) $ 2.45 - ---------------------------------------------------------------------------------------------------------------------- CASH FLOW DATA Cash flow from operating activities $ 107,666 $ 124,354 $ 121,385 $ 102,308 - ---------------------------------------------------------------------------------------------------------------------- Purchase of property and equipment 63,056 65,063 61,532 36,798 - ---------------------------------------------------------------------------------------------------------------------- Repurchase and retirement of common stock 39,622 52,412 37,728 39,903 - ---------------------------------------------------------------------------------------------------------------------- Cash dividends to shareholders 20,648 19,732 18,582 16,958 - ---------------------------------------------------------------------------------------------------------------------- Cash dividends per share $ 0.88 $ 0.80 $ 0.72 $ 0.64 - ---------------------------------------------------------------------------------------------------------------------- Cash distributions declared to partners -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------- Cash distributions declared per unit -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA (at end of year) Cash and cash equivalents $ 2,369 $ 6,184 $ 1,466 $ 1,233 - ---------------------------------------------------------------------------------------------------------------------- Current assets 240,912 214,714 183,840 217,458 - ---------------------------------------------------------------------------------------------------------------------- Total assets 490,186 442,027 378,697 384,746 - ---------------------------------------------------------------------------------------------------------------------- Current liabilities 238,384 233,800 204,964 191,111 - ---------------------------------------------------------------------------------------------------------------------- Borrowings under credit agreement 47,068 40,000 20,500 24,400 - ---------------------------------------------------------------------------------------------------------------------- Shareholders' equity/partners' capital 204,734 168,227 153,233 169,235 ======================================================================================================================
(1) In 1998, Polaris entered into a settlement agreement related to a trade secret infringement claim brought by Injection Research Specialists, Inc. The one-time provision for litigation loss of $61.4 million, or $1.53 per diluted share, has been excluded from the 1998 financial data presented to assist in comparing the continuing results of operations of the Company exclusive of the settlement which had no effect on the future operations of the Company. (2) 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. 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. (3) In 2000, the Company adopted Emerging Issues Task Force issue 00-10, "Accounting for Shipping and Handling Fees and Costs" and Emerging Issues Task Force issue 00-14, "Accounting for Certain Sales Incentives." Sales, cost of sales and operating expenses have been adjusted to reflect these accounting changes. See Note 1 in the Notes to Consolidated Financial Statements for further details. 12 POLARIS INDUSTRIES INC. 2000 2
1996 1995 1994 1993 1992 1991 1990 - ----------------------------------------------------------------------------------------- $1,184,368 $1,104,060 $816,713 $520,197 $376,903 $291,563 $288,943 - ----------------------------------------------------------------------------------------- 7% 35% 57% 38% 29% 1% 19% - ----------------------------------------------------------------------------------------- 37% 33% 30% 27% 25% 25% 20% - ----------------------------------------------------------------------------------------- 36% 40% 43% 49% 54% 59% 66% - ----------------------------------------------------------------------------------------- 15% 16% 14% 9% 7% -- -- - ----------------------------------------------------------------------------------------- -- -- -- -- -- -- -- - ----------------------------------------------------------------------------------------- 12% 11% 13% 15% 14% 16% 14% - ----------------------------------------------------------------------------------------- $ 231,020 $ 219,663 $175,211 $127,045 $101,328 $ 85,330 $ 84,352 - ----------------------------------------------------------------------------------------- 20% 20% 21% 24% 27% 29% 29% - ----------------------------------------------------------------------------------------- $ 5,325 $ 5,616 $ 14,321 $ 13,466 $ 11,997 $ 13,108 $ 12,116 - ----------------------------------------------------------------------------------------- -- -- 12,315 -- -- -- -- - ----------------------------------------------------------------------------------------- 128,278 112,389 72,913 60,352 48,640 40,504 41,424 - ----------------------------------------------------------------------------------------- 11% 10% 9% 12% 13% 14% 14% - ----------------------------------------------------------------------------------------- $ 62,293 $ 60,776 $ 54,703 $ 33,027 $ 24,602 $ 20,727 $ 20,465 - ----------------------------------------------------------------------------------------- $ 2.24 $ 2.19 $ 1.98 $ 1.21 $ 0.91 $ 0.81 $ 0.79 - ----------------------------------------------------------------------------------------- $ 89,581 $ 77,749 $111,542 $ 78,503 $ 55,316 $ 46,642 $ 54,782 - ----------------------------------------------------------------------------------------- 45,336 47,154 32,656 18,946 12,295 15,988 7,158 - ----------------------------------------------------------------------------------------- 13,587 -- -- -- -- -- -- - ----------------------------------------------------------------------------------------- 16,390 116,639 -- -- -- -- -- - ----------------------------------------------------------------------------------------- $ 0.60 $ 4.27 -- -- -- -- -- - ----------------------------------------------------------------------------------------- -- -- 50,942 47,217 44,507 42,581 42,582 - ----------------------------------------------------------------------------------------- -- -- $ 1.68 $ 1.67 $ 1.67 $ 1.67 $ 1.67 - ----------------------------------------------------------------------------------------- $ 5,812 $ 3,501 $ 62,881 $ 33,798 $ 19,094 $ 20,098 $ 32,025 - ----------------------------------------------------------------------------------------- 193,405 175,271 206,489 109,748 74,999 59,200 66,893 - ----------------------------------------------------------------------------------------- 351,717 314,436 331,166 180,548 146,681 135,509 138,704 - ----------------------------------------------------------------------------------------- 161,387 155,722 161,457 98,055 69,054 52,646 46,602 - ----------------------------------------------------------------------------------------- 35,000 40,200 -- -- -- -- -- - ----------------------------------------------------------------------------------------- 155,330 118,514 169,709 82,493 77,627 82,863 92,102 =========================================================================================
2000 POLARIS INDUSTRIES INC. 13 3 MANAGEMENT'S DISCUSSION AND ANALYSIS of financial condition and results of operations The following discussion pertains to the results of operations and financial position of the Company for each of the three years in the period ended December 31, 2000, and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere herein. RESULTS OF OPERATIONS 2000 VS. 1999 Sales increased to $1.426 billion in 2000, representing a seven percent increase from $1.329 billion in 1999. The increase in sales was primarily due to higher all-terrain vehicle (ATV) sales, resulting from the eleventh consecutive year of increased ATV retail sales, and higher Parts, Garments and Accessories (PG&A) sales. Sales of ATVs of $843.5 million in 2000 were 12 percent higher than $753.2 million in 1999. The increased sales reflect the continued double-digit growth of both Polaris and the industry as consumers find new and expanded uses for the product, as well as the introduction of the new youth ATVs. The increased unit sales were partially offset by a product mix driven average per unit sales price decrease. Sales of ATVs comprised 59 percent of total Company sales in 2000 compared to 57 percent in 1999. Sales of snowmobiles of $311.3 million in 2000 were three percent lower than $322.4 million in 1999. The decrease was due to lower unit shipments to dealers after three consecutive winters of poor snow conditions. This decrease in unit sales was partially offset by a product mix driven increase in the average per unit sales price. Sales of snowmobiles comprised 22 percent of total Company sales in 2000 compared to 24 percent in 1999. Sales of personal watercraft (PWC) of $68.3 million in 2000 were 27 percent higher than $53.7 million in 1999. The increase was primarily due to shipment timing as more of the 2001 models were shipped to dealers earlier in 2000 in advance of the winter boat shows. The average per unit sales price for PWC remained flat. Sales of PWC comprised five percent of total Company sales in 2000 compared to four percent in 1999. Sales of Victory motorcycles of $19.4 million in 2000 were 53 percent lower than $41.2 million in 1999. The decrease relates to a reduction in Victory shipments to dealers in 2000 in response to lower than expected retail sales. The average per unit sales price for motorcycles remained flat. Sales of Victory motorcycles comprised one percent of total Company sales in 2000 compared to three percent in 1999. Sales of PG&A of $183.2 million in 2000 were 16 percent higher than $158.1 million in 1999. The increase in PG&A sales was a result of increases in each of the Parts, Garments and Accessories across all product line categories. ATV PG&A sales were particularly strong in 2000, increasing 27 percent from 1999. The Company introduced over 1,100 new PG&A products during 2000 and established a dedicated PG&A sales force. PG&A sales comprised 13 percent of total Company sales in 2000, compared to 12 percent in 1999. Gross profit increased to $328.1 million in 2000, representing a 10 percent increase over $298.1 million gross profit in 1999. This increase in gross profit dollars was a result of higher sales volume and an increase in gross profit margin percentage to 23.0 percent in 2000 from 22.4 percent in 1999. The increase in gross profit margin percentage was primarily a result of increased margins in the ATV and Victory product lines due to manufacturing cost reductions, lower snowmobile promotional expenses, lower warranty costs and the margin benefit of increased sales of higher margin PG&A. These positive factors have been somewhat offset by the negative impact of the Japanese yen exchange rate and the increased amortization of tooling expenditures. Operating expenses in 2000 increased 12 percent to $206.3 million from $184.4 million in 1999. Expressed as a percentage of sales, operating expenses increased to 14.5 percent in 2000 from 13.9 percent in 1999. These increases are primarily related to a planned increase in expenses to support the Company's growth and brand recognition initiatives, as well as investments in information systems, PG&A sales and marketing and international sales. Polaris has continued to invest in new product development, innovation, and product diversification. Research and development expenses were $32.4 million (2.3 percent of sales) in 2000 and $31.3 million (2.4 percent of sales) in 1999. In 2000, more than 75 percent of sales came from products introduced in the past three years. Nonoperating expense (income) increased in 2000 from 1999 due to the positive financial impact of the Company's equity in the income of Polaris Acceptance, which is the primary component of the equity in income of affiliates increase of $4.6 million. This increase was partially offset by a $3.4 million increase in interest expense resulting from higher average borrowing levels. Net income in 2000 was $82.8 million, an increase of eight percent from $76.3 million in 1999. Net income as a percent of sales was 5.8 percent in 2000, an increase from 5.7 percent in 1999. Net income per diluted share increased 14 percent to $3.50 in 2000 from $3.07 in 1999. 14 POLARIS INDUSTRIES INC. 2000 4 1999 VS. 1998 Sales increased to $1.329 billion in 1999, representing a 13 percent increase from $1.181 billion in 1998. The increase in sales was primarily due to higher ATV sales, resulting from the tenth consecutive year of increased ATV retail sales. Sales of ATVs of $753.2 million in 1999 were 14 percent higher than $657.9 million in 1998. The increased sales reflect the continued double-digit growth of the industry as consumers find new and expanded uses for the product. Polaris' growth was consistent with the industry. The average per unit sales price for the year ended 1999 remained flat compared to the prior year period. Sales of ATVs comprised 57 percent of total Company sales in 1999 compared to 56 percent in 1998. Sales of snowmobiles of $322.4 million in 1999 were one percent lower than $324.6 million in 1998. Snowmobile shipments and the average selling price per unit in 1999 were both essentially flat compared to the prior year period. Sales of snowmobiles comprised 24 percent of total Company sales in 1999 compared to 27 percent in 1998. Sales of PWC of $53.7 million in 1999 were 11 percent higher than $48.2 million in 1998. The increase was attributable to a slight market share increase driven by the new Genesis model. Sales of PWC comprised four percent of total Company sales in 1999, the same as in 1998. Sales of Victory motorcycles of $41.2 million in 1999 were significantly higher than $10.7 million in 1998. 1999 was the first full year of Victory production. Sales of Victory motorcycles comprised three percent of total Company sales in 1999 compared to one percent in 1998. Sales of PG&A of $158.1 million in 1999 were 14 percent higher than $139.2 million in 1998. The increase in PG&A sales was primarily due to increased parts shipments for our snowmobile and ATV product lines. PG&A sales comprised 12 percent of total Company sales in 1999, the same as in 1998. Gross profit increased to $298.1 million in 1999, representing an 18 percent increase over $252.3 million gross profit in 1998. This increase in gross profit dollars was a result of higher sales volume and an increase in gross profit margin percentage to 22.4 percent in 1999 from 21.4 percent in 1998. The increase in gross profit margin percentage was primarily a result of (a) manufacturing cost reductions, (b) increased margins across all product lines except PWC, and (c) increased sales of higher margin PG&A. These positive factors have been somewhat offset by shifts in sales mix to ATVs, which have a lower margin than snowmobiles, and the negative impact of Japanese yen and Canadian dollar exchange rates. Polaris has continued to invest in new product development, innovation, and product diversification. Research and development expenses were $31.3 million (2.4 percent of sales) in 1999 and $28.4 million (2.4 percent of sales) in 1998. In addition, Polaris incurred tooling expenditures for new products of $18.3 million in 1999 and $24.8 million in 1998. In 1999, more than 79 percent of sales came from products introduced in the past three years. Operating expenses in 1999 increased 21 percent to $184.4 million from $152.2 million in 1998, excluding the provision for litigation loss. Expressed as a percentage of sales, operating expenses increased to 13.9 percent in 1999 from 12.9 percent in 1998. These increases are primarily related to a planned increase in expenses to build the infrastructure to support the Company's growth and brand recognition initiatives and a higher level of advertising expenditures. Operating expenses in 1998 included a $61.4 million provision for litigation loss related to the settlement of the Injection Research Specialists litigation. This is a one-time charge that does not affect the ongoing operations of the Company. The decline in nonoperating expense (income) in 1999 from 1998 primarily reflects the unfavorability related to Canadian dollar hedging in 1999, which is the primary component of the other expense (income) change of $5.6 million. This decline is partially offset by the positive financial impact of the Company's equity in the income of Polaris Acceptance, which is the primary component of the equity in (income) of affiliates change of $1.9 million. The provision for income taxes remained at a rate of 35.5 percent of pretax income in 1999. Polaris reduced its tax rate beginning in the third quarter of 1998 from 36.0 percent in prior periods as a result of tax planning opportunities Polaris has taken advantage of. Net income in 1999 was $76.3 million, up from $31.0 million in 1998, primarily a result of the 1998 litigation settlement. Net income as a percent of sales was 5.7 percent in 1999, an increase from 2.6 percent in 1998. Net income per diluted share increased to $3.07 in 1999 from $1.19 in 1998. 2000 POLARIS INDUSTRIES INC. 15 5 LIQUIDITY AND CAPITAL RESOURCES Polaris' primary sources of funds have been cash provided by operating activities, a $150 million bank line of credit and a dealer floor plan financing program. Polaris' primary uses of funds have been for cash dividends to shareholders, repurchase and retirement of common stock, capital investments and new product development. During 2000, Polaris generated net cash from operating activities of $107.7 million, which was utilized to fund capital expenditures of $63.1 million, cash dividends of $20.6 million and the repurchase of common stock of $39.6 million. During 1999, Polaris generated net cash from operating activities of $124.4 million, which was utilized to fund capital expenditures of $65.1 million, cash dividends of $19.7 million, and the repurchase of common stock of $52.4 million. During 1998, Polaris generated net cash from operating activities of $121.4 million, which was utilized to fund capitalized expenditures of $61.5 million, cash dividends of $18.6 million and the repurchase of common stock of $37.7 million. The seasonality of production and shipments causes working capital requirements to fluctuate during the year. Polaris has a $150 million unsecured bank line of credit arrangement maturing on March 31, 2002. The arrangement provides borrowing for working capital needs and the repurchase and retirement of common stock. Borrowings under the line of credit bear interest, 7.30 percent at December 31, 2000, based on LIBOR or "prime" rates. At December 31, 2000, Polaris had total borrowings under the line of credit of $47.1 million compared to $40.0 million at December 31, 1999. In addition, at December 31, 2000, Polaris had letters of credit outstanding of $8.3 million related to purchase obligations for raw materials. The Polaris Board of Directors has authorized the cumulative repurchase of up to 7.5 million shares of the Company's common stock. During 2000, Polaris paid $39.6 million to repurchase and retire 1.2 million shares. Polaris had 1.7 million shares available to repurchase under the Board of Directors authorization as of December 31, 2000. A wholly owned subsidiary of Polaris is a partner with Transamerica Distribution Finance in Polaris Acceptance. Polaris Acceptance provides floor plan financing to Polaris' dealers and distributors and provides other financial services to dealers, distributors and retail customers of Polaris including retail credit, extended service contracts and insurance. Polaris has a 50 percent equity interest in Polaris Acceptance and was responsible for 50 percent of the outstanding indebtedness of Polaris Acceptance. In February 2000, the term of the partnership agreement was extended; in consideration thereof, Polaris is no longer required to guarantee the outstanding indebtedness of Polaris Acceptance. Polaris has arrangements with certain finance companies, including Polaris Acceptance, to provide floor plan financing for its distributors and dealers. These arrangements provide liquidity by financing distributor and dealer purchases of Polaris products without the use of Polaris' working capital. Substantially all of the sales of snowmobiles, ATVs, motorcycles and PWC and related Parts, Garments and Accessories are financed under these arrangements whereby Polaris receives payment within a few days of shipment of the product. The amount financed by distributors and dealers under these arrangements at December 31, 2000 and 1999, was approximately $502.0 million and $472.0 million, respectively. Polaris participates in the cost of dealer and distributor financing up to certain limits. Polaris 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. Polaris' 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 retail sales could cause this situation to change and thereby require Polaris to repurchase financed units. Polaris has made significant capital investments to increase production capacity, quality, and efficiency, and for new product development and diversification. Improvements in manufacturing and distribution capacity include: (a) tooling expenditures for new product development across all product lines of $22.4 million during 2000, (b) continued investments of $7.2 million in returnable crates, which not only reduce costs but also are environmentally friendly and (c) the investment in the new corporate headquarters, which was completed in early 2000. Polaris anticipates that capital expenditures, including tooling, for 2001 will range from $65 million to $75 million. Management believes that existing cash balances, cash flows to be generated from operating activities and available borrowing capacity under the line of credit arrangement will be sufficient to fund operations, regular dividends, share repurchases, and capital expenditure requirements for 2001. At this time, management is not aware of any factors that would have a material adverse impact on cash flow beyond 2001. Injection Research Specialists ("IRS") commenced an action in 1990 against Polaris and Fuji Heavy Industries, Ltd. ("Fuji"), one of Polaris' engine suppliers, in Colorado Federal Court alleging various claims relating to electronic fuel injection systems for snowmobiles. In October 1998, following the entry of judgment against Polaris for $34.0 million (before pre- and post-judgement interest) and affirmance thereof by the Federal Court of Appeals, IRS, Polaris and Fuji entered into a confidential settlement agreement to settle all outstanding claims between the parties. The resulting provision for litigation loss of $61.4 million was reflected as an operating expense in the accompanying consolidated statement of operations for the year ended December 31, 1998. Polaris no longer uses any of the technology in dispute. 16 POLARIS INDUSTRIES INC. 2000 6 INFLATION AND EXCHANGE RATES Polaris 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. During 2000, purchases totaling 16 percent of Polaris cost of sales were from Japanese yen denominated suppliers. The weakening of the U.S. dollar in relation to the Japanese yen since mid-1998 has resulted in higher raw material purchase prices. Polaris' cost of sales in 2000 was negatively impacted by the Japanese yen exchange rate fluctuation when compared to the prior year. The dollar has began to strengthen in relation to the yen in early 2001, and in view of the foreign exchange hedging contracts currently in place, Polaris anticipates that the yen-dollar exchange rate will have a positive impact on cost of sales during 2001 when compared to 2000. Polaris operates in Canada through a wholly owned subsidiary. Sales of the Canadian subsidiary comprised 11 percent of total Company sales in 2000. Polaris utilizes foreign exchange hedging contracts to manage its exposure to the Canadian dollar. The U.S. dollar weakened slightly in relation to the Canadian dollar in 2000 resulting in a positive financial impact on Polaris' gross margins when compared to 1999. In view of the currently weakening Canadian dollar and the foreign exchange hedging contracts currently in place, Polaris anticipates a negative impact on net income during 2001 when compared to 2000. In the past, Polaris has been a party to, and in the future may enter into, foreign exchange hedging contracts for each of the Japanese yen, Euro, Taiwan dollar and the Canadian dollar to minimize the impact of exchange rate fluctuations within each year. At December 31, 2000, Polaris had open Japanese yen foreign exchange hedging contracts with notional amounts totaling $65.0 million U.S. dollars which mature throughout 2001. Since 1995, Polaris has been manufacturing its own engines for selected models of PWC, motorcycles and snowmobiles at its Osceola, Wisconsin facility. Also, in 1995, Polaris entered into an agreement with Fuji Heavy Industries Ltd. to form Robin Manufacturing U.S.A., Inc. ("Robin"). Under the terms of the agreement, Polaris has a 40 percent ownership interest in Robin, which builds engines in the United States for recreational and industrial products. Potential advantages to Polaris of having these additional sources of engines include reduced foreign exchange risk, lower shipping costs and less dependence in the future on a single supplier for engines. Certain matters discussed in this report are "forward-looking statements" intended to qualify for the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These "forward-looking statements" can generally be identified as such because the context of the statement will include words such as the Company or management "believes," "anticipates," "expects," "estimates" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking. Shareholders, potential investors and others are cautioned that all forward-looking statements involve risks and uncertainty that could cause results to differ materially from those anticipated by some of the statements made herein. In addition to the factors discussed above, among the other factors that could cause actual results to differ materially are the following: product offerings and pricing strategies by competitors; future conduct of litigation processes; warranty expenses; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; uninsured product liability claims; and overall economic conditions, including inflation and consumer confidence and spending. 2000 POLARIS INDUSTRIES INC. 17 7 CONSOLIDATED BALANCE SHEETS in thousands, except per share data
December 31, 2000 1999 - ----------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,369 $ 6,184 Trade receivables 56,130 53,293 Inventories 143,491 118,062 Prepaid expenses and other 4,922 6,175 Deferred tax assets 34,000 31,000 - ----------------------------------------------------------- Total current assets 240,912 214,714 - ----------------------------------------------------------- PROPERTY AND EQUIPMENT Land, buildings and improvements 51,135 38,616 Equipment and tooling 267,484 236,951 - ----------------------------------------------------------- 318,619 275,567 Less accumulated depreciation (150,755) (124,645) - ----------------------------------------------------------- Net property and equipment 167,864 150,922 - ----------------------------------------------------------- INVESTMENTS IN AFFILIATES 48,318 38,310 DEFERRED TAX ASSETS 11,384 16,000 INTANGIBLE ASSETS, NET 21,708 22,081 - ----------------------------------------------------------- TOTAL ASSETS $ 490,186 $ 442,027 ===========================================================
The accompanying notes are an integral part of these consolidated balance sheets. 18 POLARIS INDUSTRIES INC. 2000 8
December 31, 2000 1999 - ------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 89,498 $ 91,805 Accrued expenses: Compensation 25,000 35,291 Warranties 34,216 40,392 Sales promotions 21,116 19,999 Other 52,657 32,900 Income taxes payable 15,897 13,413 - ------------------------------------------------------------------------------------------------------------- Total current liabilities 238,384 233,800 - ------------------------------------------------------------------------------------------------------------- BORROWINGS UNDER CREDIT AGREEMENT 47,068 40,000 - ------------------------------------------------------------------------------------------------------------- Total liabilities 285,452 273,800 - ------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Preferred stock $0.01 par value, 20,000 shares authorized, no shares issued and outstanding -- -- Common stock $0.01 par value, 80,000 shares authorized, 23,542 and 24,226 shares issued and outstanding 235 242 Additional paid-in capital -- 8,987 Deferred compensation (3,300) (7,818) Compensation payable in common stock -- 5,975 Retained earnings 207,613 160,841 Accumulated other comprehensive income 186 -- - ------------------------------------------------------------------------------------------------------------- Total shareholders' equity 204,734 168,227 - ------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 490,186 $ 442,027 =============================================================================================================
The accompanying notes are an integral part of these consolidated balance sheets. 2000 POLARIS INDUSTRIES INC. 19 9 CONSOLIDATED STATEMENTS OF OPERATIONS in thousands, except per share data
For the Years Ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------------------ Sales $ 1,425,678 $ 1,328,620 $ 1,180,648 Cost of sales 1,097,574 1,030,570 928,304 - ------------------------------------------------------------------------------------------ Gross profit 328,104 298,050 252,344 - ------------------------------------------------------------------------------------------ Operating expenses: Selling and marketing 122,028 112,116 92,745 Research and development 32,360 31,311 28,387 General and administrative 51,922 40,977 31,106 Provision for litigation loss (Note 8) -- -- 61,409 - ------------------------------------------------------------------------------------------ Total operating expenses 206,310 184,404 213,647 - ------------------------------------------------------------------------------------------ Operating income 121,794 113,646 38,697 Nonoperating expense (income): Interest expense 7,704 4,285 2,959 Equity in (income) of affiliates (14,350) (9,745) (7,819) Other expense (income), net 54 771 (4,805) - ------------------------------------------------------------------------------------------ Income before income taxes 128,386 118,335 48,362 Provision for income taxes 45,577 42,009 17,347 - ------------------------------------------------------------------------------------------ Net income $ 82,809 $ 76,326 $ 31,015 ========================================================================================== Basic net income per share $ 3.52 $ 3.09 $ 1.20 ========================================================================================== Diluted net income per share $ 3.50 $ 3.07 $ 1.19 ========================================================================================== Weighted average number of common and common equivalent shares outstanding: Basic 23,501 24,732 25,917 - ------------------------------------------------------------------------------------------ Diluted 23,666 24,900 25,986 ==========================================================================================
The accompanying notes are an integral part of these consolidated statements. 20 POLARIS INDUSTRIES INC. 2000 10 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME in thousands
Accumulated Additional Compensation Other Common Paid-in Deferred Payable in Retained Comprehensive Stock Capital Compensation Common Stock Earnings Income Total - ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 $ 260 $ 72,955 $(3,133) $ 7,346 $ 91,807 -- $ 169,235 First Rights conversion to stock 1 1,841 -- (1,864) -- -- (22) Employee stock compensation 3 11,543 (3,593) 1,362 -- -- 9,315 Cash dividends -- -- -- -- (18,582) -- (18,582) Repurchase and retirement of common shares (11) (37,717) -- -- -- -- (37,728) Net income -- -- -- -- 31,015 -- 31,015 - ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 253 48,622 (6,726) 6,844 104,240 -- 153,233 First Rights conversion to stock -- 323 -- (286) 7 -- 44 Employee stock compensation 4 12,439 (1,092) (583) -- -- 10,768 Cash dividends -- -- -- -- (19,732) -- (19,732) Repurchase and retirement of common shares (15) (52,397) -- -- -- -- (52,412) Net income -- -- -- -- 76,326 -- 76,326 - ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 242 8,987 (7,818) 5,975 160,841 -- 168,227 Employee stock compensation 5 15,234 4,518 (5,975) -- -- 13,782 Cash dividends -- -- -- -- (20,648) -- (20,648) Repurchase and retirement of common shares (12) (24,220) -- -- (15,389) -- (39,622) Comprehensive income: Net income -- -- -- -- 82,809 -- -- Foreign currency translation adjustments -- -- -- -- -- 186 -- Total comprehensive income -- -- -- -- -- -- 82,995 - ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 $ 235 $ -- $(3,300) $ -- $ 207,613 $186 $ 204,734 =======================================================================================================================
The accompanying notes are an integral part of these consolidated statements. 2000 POLARIS INDUSTRIES INC. 21 11 CONSOLIDATED STATEMENTS OF CASH FLOWS in thousands
For the Years Ended December 31, 2000 1999 1998 - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 82,809 $ 76,326 $ 31,015 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 46,997 39,281 36,192 Noncash compensation 11,820 9,586 7,808 Equity in (income) of affiliates (14,350) (9,745) (7,819) Deferred income taxes 1,616 3,000 5,000 Changes in current operating items: Trade receivables (2,837) (10,258) (443) Inventories (25,429) (10,626) 32,108 Accounts payable (2,307) 14,547 16,231 Accrued expenses 4,407 7,887 6,828 Income taxes payable 2,484 6,402 (9,206) Others, net 2,456 (2,046) 3,671 - ---------------------------------------------------------------------------------------------------- Net cash provided by operating activities 107,666 124,354 121,385 ==================================================================================================== CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (63,056) (65,063) (61,532) Investments in and advances to affiliates (8,857) (11,366) (9,112) Distributions and repayments to affiliates 13,199 9,437 9,702 Other (512) -- -- - ---------------------------------------------------------------------------------------------------- Net cash used for investing activities (59,226) (66,992) (60,942) ==================================================================================================== CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under credit agreement 502,621 501,275 338,200 Repayments under credit agreement (495,553) (481,775) (342,100) Repurchase and retirement of common shares (39,622) (52,412) (37,728) Cash dividends to shareholders (20,648) (19,732) (18,582) Other 947 -- -- - ---------------------------------------------------------------------------------------------------- Net cash used for financing activities (52,255) (52,644) (60,210) ==================================================================================================== Increase (decrease) in cash and cash equivalents (3,815) 4,718 233 CASH AND CASH EQUIVALENTS Beginning 6,184 1,466 1,233 - ---------------------------------------------------------------------------------------------------- Ending $ 2,369 $ 6,184 $ 1,466 ==================================================================================================== SUPPLEMENTAL CASH FLOW INFORMATION Interest paid during the year $ 40,957 $ 36,620 $ 24,731 - ---------------------------------------------------------------------------------------------------- Income taxes paid during the year $ 43,044 $ 38,651 $ 21,475 ====================================================================================================
The accompanying notes are an integral part of these consolidated statements. 22 POLARIS INDUSTRIES INC. 2000 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Polaris Industries Inc. ("Polaris" or the "Company") a Minnesota corporation, and its subsidiaries, are engaged in a single industry segment consisting of the design, engineering, manufacturing and marketing of innovative, high-quality, high-performance motorized products for recreation and utility use, including all-terrain vehicles, snowmobiles, motorcycles and personal watercraft. Polaris products, together with related Parts, Garments and Accessories, are sold worldwide through a network of dealers, distributors and its subsidiaries. BASIS OF PRESENTATION: All significant intercompany transactions and balances have been eliminated in consolidation. Certain numbers previously reported in the 1999 and 1998 financial statements have been reclassified to conform to 2000 presentation. These reclassifications had no effect on previously reported net income or shareholders' equity. USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. Ultimate results could differ from those estimates. FOREIGN OPERATIONS: The following data relates to Polaris' foreign operations (in millions of United States dollars):
For the Years Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------- Canadian subsidiary: Sales $ 151.9 $ 145.9 $ 140.0 Operating income 2.8 3.1 3.0 Identifiable assets 22.3 23.6 18.9 Other export sales $ 83.3 $ 68.3 $ 61.7 =================================================================
CASH EQUIVALENTS: Polaris considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents. Such investments have consisted principally of commercial paper and money market mutual funds. FAIR VALUE OF FINANCIAL INSTRUMENTS: Except as noted, the carrying value of all financial instruments approximates their fair value. INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out method) or market. The major components of inventories are as follows (in millions):
December 31, 2000 1999 - ------------------------------------------------------------- Raw materials and purchased components $ 27.7 $ 28.0 Service Parts, Garments and Accessories 50.4 50.6 Finished goods 65.4 39.5 - ------------------------------------------------------------- $ 143.5 $ 118.1 =============================================================
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost. Depreciation is provided using the straight-line method over the estimated useful life of the respective assets, ranging from 10-40 years for buildings and improvements and from 1-7 years for equipment and tooling. Fully depreciated tooling is eliminated from the accounting records annually. INTANGIBLE ASSETS: Intangible assets are stated net of accumulated amortization totaling $13.3 million at December 31, 2000, and $12.5 million at December 31, 1999, and consist principally of cost in excess of the net assets of the business acquired which is amortized on a straight-line basis over 5-40 years. Other intangible assets are amortized using the straight-line method over their estimated useful lives ranging from 5-17 years. Polaris periodically assesses the amortization period and recoverability of the carrying amount of its intangible assets to determine potential impairment based upon future undiscounted cash flows from the related business. To date, management has determined no such impairment exists. PRODUCT WARRANTIES: Polaris provides for estimated warranty costs at the time of sale to the dealer or distributor customer and for other costs associated with specific items at the time their existence and amounts are determinable. FOREIGN CURRENCY: Polaris' Canadian and Australian subsidiaries use the United States dollar as their functional currencies. Polaris' French subsidiary uses the French franc as its functional currency. 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 the results of operations for the Canadian and Australian subsidiaries and are reflected as accumulated other comprehensive income in the equity section of the balance sheet for the French subsidiary. Polaris enters into foreign exchange contracts to manage currency exposures of its purchase commitments denominated in foreign currencies and transfers of funds from its Canadian subsidiary. Polaris does not use any financial contracts for trading purposes. These contracts are accounted 2000 POLARIS INDUSTRIES INC. 23 13 for as hedges, thus market value gains and losses are recognized at the time of purchase or transfer of funds, respectively. The criteria to determine if hedge accounting is appropriate are (1) the designation of a hedge to an underlying exposure, (2) whether or not overall risk is reduced and (3) if there is a correlation between the value of the foreign exchange contract and the underlying exposure. Gains and losses related to purchase commitments are recorded as adjustments to cost of sales while gains and losses related to transfers of funds are recorded as other expense (income) on the accompanying statements of operations. At December 31, 2000, Polaris had open Japanese yen foreign exchange contracts with notional amounts totaling $65.0 million United States dollars which mature throughout 2001. The fair value of these foreign exchange contacts was a liability of $2.7 million as of December 31, 2000. REVENUE RECOGNITION: Revenues are recognized at the time of shipment to the dealer or distributor. Product returns, whether in the normal course of business or resulting from repossession under its customer financing program (Note 2), have not been material. Polaris provides for estimated sales promotion expenses at the time of sale to the dealer or distributor customer. COMPREHENSIVE INCOME: Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. For the Company, comprehensive income represents net income adjusted for foreign currency translation adjustments. The Company has chosen to disclose comprehensive income in the accompanying consolidated statements of shareholders equity and comprehensive income. MAJOR SUPPLIER: During 2000, 1999, and 1998, purchases of engines and related components totaling 15, 15 and 12 percent respectively of Polaris' cost of sales were from a single Japanese supplier. Polaris has agreed with the supplier to share the impact of fluctuations in the exchange rate between the United States dollar and the Japanese yen. NEW ACCOUNTING PRONOUNCEMENTS: Polaris adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," on January 1, 2001. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge criteria are met, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. Polaris has performed an analysis of this pronouncement and believes the adoption of SFAS No. 133 will not have a material impact on Polaris' financial position or results of operations. Polaris adopted Emerging Issues Task Force Issue 00-10 (EITF 00-10), "Accounting for Shipping and Handling Fees and Costs," in 2000. EITF 00-10 requires amounts billed to customers related to shipping and handling to be classified as sales and the actual shipping and handling costs to be classified as cost of sales. Polaris had previously netted these amounts in sales. The adoption of EITF 00-10 by the Company resulted in a reclassification of freight expense from net sales to cost of goods sold of $47.3 million, $37.1 million and $29.7 million in 2000, 1999 and 1998, respectively. Polaris adopted Emerging Issues Task Force Issue 00-14 (EITF 00-14), "Accounting for Certain Sales Incentives," in 2000. EITF 00-14 requires, among other things, that cash sales incentives be classified as a reduction of sales and sales incentives that involve a free product or service delivered at the time of sale be classified as a cost of sale. Polaris had previously classified all sales incentives as selling and marketing expense. The adoption of EITF 00-14 by the Company resulted in reclassification of cash sales incentives to net sales of $25.0 million, $29.6 million and $24.5 million in 2000, 1999 and 1998, respectively, and the reclassification of free product incentives to cost of sales of $4.4 million, $0.7 million and $1.4 million in 2000, 1999 and 1998, respectively. NOTE 2 FINANCING BANK FINANCING: Polaris is a party to an unsecured bank line of credit arrangement under which it may borrow up to $150 million until maturity. Interest is charged at rates based on LIBOR or "prime" and the agreement expires on March 31, 2002, at which time the outstanding balance is due. The Company was in compliance with all covenants related to the line of credit at December 31, 2000. The following summarizes activity under Polaris' credit arrangement (in millions):
2000 1999 - ------------------------------------------------------------------- Total borrowings at December 31 $ 47.1 $ 40.0 Average outstanding borrowings during year $ 112.1 $ 80.5 Maximum outstanding borrowings during year $ 149.0 $ 131.5 Interest rate at December 31 7.30% 6.16% ===================================================================
Polaris has entered into interest rate swap agreements to manage exposures to fluctuations in interest rates. The effect of these agreements is to fix the interest rate at 5.80 percent for $20 million of borrowings under the credit line until July 2002 and at 7.21 percent for $18 million of borrowings under the credit line until July 2007. The fair value of the interest rate swaps were a liability of $1.3 million as of December 31, 2000. LETTERS OF CREDIT: At December 31, 2000, Polaris had open letters of credit totaling approximately $8.3 million. The amounts outstanding are reduced as inventory purchases pertaining to the contracts are received. CUSTOMER FINANCING PROGRAM: Certain finance companies, including Polaris Acceptance, an affiliate (Note 6), provide floor plan financing to distributors and dealers on the purchase of Polaris products. The amount financed by distributors and dealers under these arrangements at December 31, 2000, was approximately $502.0 million. Polaris has agreed to repurchase products repossessed by the finance companies up to an annual maximum of 15 percent of the average amounts outstanding during the prior calendar year. Polaris' financial exposure under these arrangements is limited to the difference between the amount paid to the finance companies for repurchases 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, Polaris contributes to the cost of dealer and distributor financing up to certain limits and subject to certain conditions. Such expenditures are included with selling and marketing expenses in the accompanying statements of operations. 24 POLARIS INDUSTRIES INC. 2000 14 INVESTOR INFORMATION INDEPENDENT AUDITORS Arthur Andersen LLP Minneapolis, MN DIVIDENDS Communications concerning transfer requirements, address changes, dividends and lost certificates, as well as requests for Dividend Reinvestment Plan enrollment information, should be addressed to: Wells Fargo Bank Minnesota, N.A. 161 North Concord Exchange South St. Paul, MN 55075-0738 1-800-468-9716 stocktransfer@wellsfargo.com FORM 10-K The Form 10-K annual report to the Securities and Exchange Commission is available without charge to shareholders upon written request to: Investor Relations Polaris Industries Inc. 2100 Highway 55 Medina, MN 55340 ANNUAL SHAREHOLDERS' MEETING The meeting will be held at 9 a.m., Thursday, May 3, 2001, at the Polaris Industries Inc. corporate headquarters, 2100 Highway 55, Medina, Minn. A proxy statement will be mailed on or about March 20, 2001 to each shareholder of record on March 20, 2001. PRODUCT BROCHURES For product brochures and dealer locations write or call: Polaris Industries Inc. 2100 Highway 55 Medina, MN 55340 1-800-Polaris (1-800-765-2747) INTERNET ACCESS To view the Company's annual report and financial information, products and specifications, press releases, and dealer locations, access Polaris on the Internet at: www.polarisindustries.com www.victory-usa.com SUMMARY OF TRADING
For the Year Ended December 31, ----------------------------------------- 2000 1999 - ------------------------------------------------------ Quarter HIGH LOW High Low - ------------------------------------------------------ First $ 36.25 $ 25.56 $ 39.94 $ 27.00 Second 32.94 27.63 45.69 29.94 Third 36.25 29.19 45.00 33.75 Fourth 42.06 32.06 40.13 32.50 - ------------------------------------------------------
STOCK EXCHANGES Shares of common stock of Polaris Industries Inc. trade on the New York Stock Exchange and on the Pacific Stock Exchange under the symbol PII. CASH DIVIDENDS DECLARED
Quarter 2000 1999 - ------------------------------------------------------ First $0.22 $0.20 Second 0.22 0.20 Third 0.22 0.20 Fourth 0.22 0.20 - ------------------------------------------------------ Total 0.88 0.80 - ------------------------------------------------------
Shareholders of record of the Company's common stock on March 1, 2001: 2,731. Share price on March 1, 2001: $46.25. PII LISTED NYSE THE NEW YORK STOCK EXCHANGE [POLARIS LOGO] Polaris Industries Inc 2100 Highway 55 Medina, MN 55340 763-542-0500 763-542-0599 fax 15 NOTE 3 INCOME TAX MATTERS Components of Polaris' provision for income taxes are as follows (in millions):
For the Years Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------- Current: Federal $ 41.3 $ 36.1 $ 10.4 State 2.3 1.6 0.7 Foreign 0.4 1.3 1.2 Deferred 1.6 3.0 5.0 - ----------------------------------------------------------------- Total $ 45.6 $ 42.0 $ 17.3 =================================================================
Reconciliation of the Federal statutory income tax rate to the effective tax rate is as follows:
For the Years Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income taxes (net of federal benefit) 2.0 1.5 2.5 Other permanent differences (1.5) (1.0) (1.6) - ----------------------------------------------------------------------------- Effective income tax rate 35.5% 35.5% 35.9% =============================================================================
Polaris utilizes the liability method of accounting for income taxes whereby deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. The net deferred tax assets consist of the following (in millions):
December 31, 2000 1999 1998 - ---------------------------------------------------------------------------- Current deferred tax assets: Inventories $ 4.9 $ 4.1 $ 4.1 Accrued expenses 29.1 26.9 24.9 - ---------------------------------------------------------------------------- Total current 34.0 31.0 29.0 - ---------------------------------------------------------------------------- Noncurrent deferred tax assets/liabilities: Cost in excess of net assets of business acquired 21.1 23.0 25.2 Property and equipment (13.7) (8.9) (4.9) Compensation payable in common stock 4.0 1.9 0.7 - ---------------------------------------------------------------------------- Total noncurrent 11.4 16.0 21.0 - ---------------------------------------------------------------------------- Total $ 45.4 $ 47.0 $ 50.0 ============================================================================
NOTE 4 STOCK-BASED COMPENSATION AND SAVINGS PLAN The Company sponsors a 401(k) retirement savings plan under which eligible U.S. employees may choose to contribute up to 15 percent of eligible compensation on a pre-tax basis, subject to certain IRS limitations. The Company matches 100 percent of employee contributions up to a maximum of five percent of eligible compensation. Matching contributions were $5.3 million, $5.0 million and $3.8 million in 2000, 1999 and 1998, respectively. Polaris maintains a stock option plan (Option Plan) under which incentive and nonqualified stock options for a maximum of 2.35 million shares of common stock may be issued to certain employees. Options granted to date generally vest three years from the award date and expire after ten years. Polaris maintains a broad based stock option plan (Broad Based Plan) under which incentive stock options for a maximum of 350,000 shares of common stock may be issued to substantially all Polaris employees. Options vest three years from the award date and expire after ten years. Options were granted under this plan during 1999 at an exercise price of $31.56. Polaris maintains a restricted stock plan (Restricted Plan) under which a maximum of 800,000 shares of common stock may be awarded as an incentive to certain employees with no cash payments required from the recipient. The restrictions lapse after a three to four year period for awards issued prior to 2000 if Polaris achieves certain performance measures. Awards issued in 2000 did not contain performance measures. Shares of restricted stock granted, net of lapsed and forfeited shares, totaled 116,995, 133,440 and 119,160 in 2000, 1999 and 1998, respectively. Polaris sponsors a qualified non-leveraged Employee Stock Ownership Plan (ESOP) under which a maximum of 1.25 million shares of common stock can be awarded. The shares are allocated to eligible participants accounts based on total cash compensation earned during the calendar year. The shares vest immediately with no required cash payment from the recipient. Substantially all U.S. employees are eligible to participate in the ESOP. Total expense related to the ESOP was $5.9 million, $6.2 million, and $6.8 million in 2000, 1999, and 1998, respectively. As of December 31, 2000 there were 635,777 shares vested in the plan. The following summarizes activity in the Option and Broad Based Plans, and the weighted average exercise price for the Option Plan:
Broad Option Plan Based Plan ------------------------------------ Exercise Shares Price* Shares - ------------------------------------------------------------------------------ Outstanding as of December 31, 1997 495,743 $29.33 -- Granted 691,590 $40.15 -- Exercised/converted (33,425) $29.00 -- Forfeited (76,183) $30.94 -- - ------------------------------------------------------------------------------ Outstanding as of December 31, 1998 1,077,725 $36.17 -- Granted 311,970 $32.47 337,900 Exercised/lapsed (29,768) $29.54 -- Forfeited (19,774) $31.50 (19,300) - ------------------------------------------------------------------------------ Outstanding as of December 31, 1999 1,340,153 $35.06 318,600 Granted 410,300 $29.96 -- Exercised/lapsed (31,931) $27.30 -- Forfeited (52,808) $31.94 (29,100) - ------------------------------------------------------------------------------ Outstanding as of December 31, 2000 1,665,714 $34.42 289,500 ============================================================================== Exercisable/vested as of December 31, 2000 328,704 $29.37 -- ==============================================================================
* Weighted average Shares outstanding under the Option Plan have exercise prices ranging from $25.75 to $49.45 and a weighted average remaining contractual life of 7.6 years. Polaris maintains a nonqualified deferred compensation plan (Director Plan) under which directors who are not Polaris officers or employees can elect to receive common stock equivalents in lieu of director's fees, which will be converted into common stock when board service ends. A maximum of 75,000 shares of common stock has been authorized under this plan and 34,266 shares have been earned as of December 31, 2000. 2000 POLARIS INDUSTRIES INC. 25 16 Polaris accounts for all stock based compensation plans under APB Opinion No. 25, under which compensation costs of $11.8 million, $9.6 million, and $7.8 million were recorded in 2000, 1999 and 1998, respectively. Had compensation costs for these plans been recorded at fair value consistent with the methodology prescribed by SFAS No. 123 "Accounting for Stock-Based Compensation," Polaris' net income and net income per share would have been reduced to the following pro forma amounts:
2000 1999 1998 - ---------------------------------------------------------------- Net income (in millions): As reported $ 82.8 $ 76.3 $ 31.0 Pro forma 79.6 73.5 29.3 Net income per share: As reported $ 3.50 $ 3.07 $ 1.19 Pro forma 3.37 2.95 1.13 ================================================================
The fair value of each award under the Option Plan is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used to estimate the fair value of options:
2000 1999 1998 - ---------------------------------------------------------- Risk free interest rate 6.4% 6.6% 5.6% Expected life 7 YEARS 7 years 7 years Expected volatility 18% 23% 14% Expected dividend yield 2.4% 2.2% 2.0% ==========================================================
The weighted average fair values at the grant dates of shares awarded under the above plans are as follows:
2000 1999 1998 - ------------------------------------------------------- Option Plan $ 6.73 $ 8.99 $ 5.57 Restricted Plan $ 29.96 $ 32.47 $ 34.89 ESOP $ 33.04 $ 36.25 $ 39.19 Broad Based Plan $ -- $ 8.99 $ -- =======================================================
NOTE 5 SHAREHOLDERS' EQUITY STOCK REPURCHASE PROGRAM: The Polaris Board of Directors has authorized the cumulative repurchase of up to 7.5 million shares of the Company's common stock. During 2000, Polaris paid $39.6 million to repurchase and retire 1.2 million shares. Cumulative repurchases through December 31, 2000 are 5.8 million shares for $183.3 million. SHAREHOLDER RIGHTS PLAN: During 2000, the Polaris Board of Directors adopted a shareholder rights plan. Under the plan, a dividend of preferred stock purchase rights will become exercisable if a person or group should acquire 15 percent or more of the Company's stock. The dividend will consist of one purchase right for each outstanding share of the Company's common stock held by shareholders of record on June 1, 2000. Each right will entitle its holder to purchase one-hundredth of a new series of junior participating preferred stock at an exercise price of $150, subject to adjustment. The rights expire in 2010 and may be redeemed earlier by the Board of Directors for $0.01 per right. NET INCOME PER SHARE: Polaris calculates net income per share in accordance with Statement of Financial Accounting Standards No. 128, which requires the presentation of basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each year, including shares earned under the First Rights plan, the Director Plan and the ESOP. Diluted earnings per share is computed under the treasury stock method and is calculated to compute the dilutive effect of outstanding stock options and certain shares issued under the restricted plan. A reconciliation of these amounts is as follows (in thousands, except per share data):
2000 1999 1998 - ---------------------------------------------------------------------- Net income available to common shareholders $82,809 $76,326 $31,015 ====================================================================== Weighted average number of common shares outstanding 23,304 24,539 25,709 First Rights -- -- 21 Director Plan 27 23 17 ESOP 170 170 170 - ---------------------------------------------------------------------- Common shares outstanding--basic 23,501 24,732 25,917 - ---------------------------------------------------------------------- Dilutive effect of Option Plan 134 168 69 Dilutive effect of Restricted Plan 31 -- -- - ---------------------------------------------------------------------- Common and potential common shares outstanding--diluted 23,666 24,900 25,986 ====================================================================== Basic earnings per share $ 3.52 $ 3.09 $ 1.20 ====================================================================== Diluted earnings per share $ 3.50 $ 3.07 $ 1.19 ======================================================================
STOCK PURCHASE PLAN: Polaris maintains an Employee Stock Purchase Plan (Purchase Plan). A total of 750,000 shares of common stock are reserved for this plan. The Purchase Plan permits eligible employees to purchase common stock at 85 percent of the average market price each month. As of December 31, 2000, approximately 103,000 shares have been purchased under this plan. NOTE 6 INVESTMENTS IN AFFILIATES In 1996, a wholly owned subsidiary of Polaris entered into a partnership agreement with Transamerica Distribution Finance to form Polaris Acceptance. Polaris Acceptance provides floor plan financing to Polaris' dealers and distributors and provides other financial services including retail credit, extended service contracts, and insurance to dealers, distributors and retail customers of Polaris. Polaris' subsidiary has a 50 percent equity interest in Polaris Acceptance. Polaris is a partner with Fuji Heavy Industries Ltd. in Robin Manufacturing, U.S.A. (Robin). Polaris has a 40 percent ownership interest in Robin, which builds engines in the United States for recreational and industrial products. Polaris' investments in affiliates are accounted for under the equity method. Polaris' allocable share of the income of Polaris Acceptance and Robin has been included as a component of nonoperating expense (income) in the accompanying statements of operations. Polaris Acceptance is a partnership and the payment of income tax is the responsibility of each of the partners. Robin is a corporation responsible for the payment of its own income taxes. 26 POLARIS INDUSTRIES INC. 2000 17 Summarized combined financial information for the joint ventures is presented as follows (in millions):
December 31, 2000 1999 - --------------------------------------------------------------------------- Revenues $ 117.5 $ 81.7 Cost of goods sold, interest and operating expenses 88.7 61.5 - --------------------------------------------------------------------------- Net income before income taxes $ 28.8 $ 20.2 =========================================================================== Finance receivables, net $ 482.8 $ 408.8 Other assets 31.3 21.3 - --------------------------------------------------------------------------- $ 514.1 $ 430.1 =========================================================================== Notes payable $ 385.5 $ 338.6 Other liabilities 33.3 14.2 Shareholders' equity and partners' capital 95.3 77.3 - --------------------------------------------------------------------------- $ 514.1 $ 430.1 ===========================================================================
NOTE 7 COMMITMENTS AND CONTINGENCIES PRODUCT LIABILITY: Polaris is subject to product liability claims in the normal course of business and prior to June 1996 elected not to purchase insurance for product liability losses. Effective June 1996, Polaris purchased excess insurance coverage for catastrophic product liability claims for incidents occurring subsequent to the policy date that exceed a self-insured retention. The estimated costs resulting from any losses are charged to operating expenses when it is probable a loss has been incurred and the amount of the loss is reasonably determinable. LITIGATION: Polaris is a defendant in lawsuits and subject to claims arising in the normal course of business. In the opinion of management, it is not a probability that any legal proceedings pending against or involving Polaris will have a material adverse effect on Polaris' financial position or results of operations. LEASES: Polaris leases buildings and equipment under noncancelable operating leases. Total rent expense under all lease agreements was $2.9 million, $2.9 million, and $2.5 million, for 2000, 1999 and 1998, respectively. Future minimum payments, exclusive of other costs, required under noncancelable operating leases at December 31, 2000, total $0.2 million cumulatively through 2003. NOTE 8 LITIGATION SETTLEMENT Injection Research Specialists ("IRS") commenced an action in 1990 against Polaris and Fuji Heavy Industries, Ltd. ("Fuji") one of Polaris' engine suppliers, in Colorado Federal Court alleging various claims relating to electronic fuel injection systems for snowmobiles. In October 1998, following a judgment against Polaris for $34.0 million (before pre- and post-judgement interest) and affirmance thereof by the Federal Court of Appeals, IRS, Polaris and Fuji entered into a confidential settlement agreement to settle all outstanding claims between the parties. The resulting provision for litigation loss of $61.4 million has been reflected as an operating expense in the accompanying statement of operations for the year ended December 31, 1998. Polaris no longer uses any of the technology in dispute. NOTE 9 SEGMENT REPORTING Polaris has reviewed SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" and determined that the Company meets the aggregation criteria outlined since the Company's segments have similar (1) economic characteristics, (2) product and services, (3) production processes, (4) customers, (5) distribution channels, and (6) regulatory environments. Therefore, the Company reports as a single business segment. NOTE 10 QUARTERLY FINANCIAL DATA (Unaudited) (In millions, except per share data)
Diluted Net Gross Net Income Sales Profit Income Per Share - ------------------------------------------------------------------ 2000 First Quarter $ 279.1 $ 61.5 $ 9.7 $ 0.41 Second Quarter 344.7 74.9 16.2 0.68 Third Quarter 401.3 98.9 29.3 1.24 Fourth Quarter 400.6 92.8 27.6 1.17 - ---------------------------------------------------- Totals $1,425.7 $ 328.1 $ 82.8 $ 3.50 ================================================================== 1999 First Quarter $ 242.2 $ 53.7 $ 9.1 $ 0.36 Second Quarter 326.7 68.0 15.1 0.60 Third Quarter 389.3 91.9 27.2 1.10 Fourth Quarter 370.4 84.5 24.9 1.02 - ---------------------------------------------------- Totals $1,328.6 $ 298.1 $ 76.3 $ 3.07 ==================================================================
2000 POLARIS INDUSTRIES INC. 27 18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO POLARIS INDUSTRIES INC.: We have audited the accompanying consolidated balance sheets of Polaris Industries Inc. (a Minnesota corporation) and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity and comprehensive income and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of Polaris' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Polaris Industries Inc. and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Minneapolis, Minnesota January 26, 2001 BOARD OF DIRECTORS ANDRIS A. BALTINS (A, C) Member of the law firm of Kaplan, Strangis and Kaplan, P.A. RAYMOND J. BIGGS (S) Chairman Emeritus of Huntington Bancshares of Michigan BEVERLY F. DOLAN (C*, S*) Retired Chairman and Chief Executive Officer of Textron Inc. WILLIAM E. FRUHAN Professor of Business Administration- Harvard University ROBERT S. MOE (C, E) Retired Executive Vice President and Treasurer of Polaris Industries Inc. GREGORY R. PALEN (A) Chief Executive Officer of Spectro Alloys and Palen/Kimball Company R.M. (MARK) SCHRECK President, RMS Engineering and retired Vice President of Technology, GE J. RICHARD STONESIFER Retired President and CEO of GE Appliances BRUCE A. THOMSON (A) Chairman of the Board of Tomsten, Inc. THOMAS C. TILLER (E) President and Chief Executive Officer of Polaris Industries Inc. W. HALL WENDEL, JR. (E*) Chairman of the Board of Polaris Industries Inc. RICHARD A. ZONA (A*) CEO, Zona Financial and retired Vice Chairman of U.S. Bancorp. (A) Audit Committee Member (C) Compensation Committee Member (E) Executive Committee Member (S) Stock Award Compensation Committee Member * Committee Chairman CORPORATE OFFICERS W. HALL WENDEL, JR. Chairman THOMAS C. TILLER President and Chief Executive Officer JEFFREY A. BJORKMAN Vice President - Operations JOHN B. CORNESS Vice President - Human Resources MICHAEL W. MALONE Vice President - Finance, Chief Financial Officer and Secretary RICHARD R. POLLICK Vice President - International THOMAS H. RUSCHHAUPT Vice President - Sales and Service GENERAL MANAGERS RONALD A. BILLS General Manager - Personal Watercraft MARK E. BLACKWELL General Manager - Victory Motorcycles MITCHELL D. JOHNSON General Manager - All-Terrain Vehicles BENNETT J. MORGAN General Manager - Parts, Garments & Accessories ROBERT R. NYGAARD General Manager - Snowmobiles 28 POLARIS INDUSTRIES INC. 2000 EX-21 3 c60829ex21.txt SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
Shares % of Company Organization Outstanding Ownership ------- ------------ ----------- --------- Polaris Industries Inc. Delaware Corporation 100 100% ("Polaris Delaware") Polaris Real Estate Delaware Corporation 1,000 100%(1) Corporation of Iowa, Inc. Polaris Real Estate Delaware Corporation 1,000 100%(2) Corporation Polaris Industries Export Barbados Corporation 1,000 100% Ltd. Polaris Industries Ltd. Manitoba Corporation 101 100%(3) Polaris Acceptance Inc. Minnesota Corporation 1 100% Polaris Sales Inc. Minnesota Corporation 100 100%(4) Polaris Sales Australia Pty Ltd. Australian Corporation 1 100%(5) Polaris France S.A. French Corporation 1,950 100%(6) Polaris Direct Inc. Minnesota Corporation 100 100%(7)
- ----------------------- (1), (2), (3) and (4) Owned 100% by Polaris Delaware. (5), (6) and (7) Owned 100% by Polaris Sales, Inc. EX-23 4 c60829ex23.txt CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-57503, 33-60157, 333-05463, 333-21007, 333-77765, 333-94451 and 001-11411. /s/ Arthur Andersen LLP Minneapolis, Minnesota, March 28, 2001 EX-24 5 c60829ex24.txt POWER OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY (FORM 10-K) 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 Thomas C. Tiller and Michael W. Malone and each of them (with full power to each of them to act alone) its/his true and lawful attorney-in-fact and agent, for it/him and on its/his behalf and in its/his name, place and stead, in any and all capacities to sign, execute, affix its/his seal thereto and file the Annual Report on Form 10-K for the year ended December 31, 2000 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 or itself/himself 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 18th day of January, 2001. POLARIS INDUSTRIES INC. By /s/ Thomas C. Tiller -------------------------------------- Thomas C. Tiller Chief Executive Officer 2 The undersigned, directors of POLARIS INDUSTRIES INC., have hereunto set their hands as of the 18th day of January, 2001. /s/ Andris A. Baltins /s/ Thomas C. Tiller - ------------------------------------ ------------------------------------- Andris A. Baltins Thomas C. Tiller /s/ Bruce A. Thomson /s/ J. Richard Stonesifer - ------------------------------------ ------------------------------------- Bruce A. Thomson J. Richard Stonesifer /s/ Beverly F. Dolan /s/ Robert S. Moe - ------------------------------------ ------------------------------------- Beverly F. Dolan Robert S. Moe /s/ Raymond J. Biggs /s/ William E. Fruhan, Jr. - ------------------------------------ ------------------------------------- Raymond J. Biggs William E. Fruhan, Jr. /s/ R. M. Schreck /s/ Gregory R. Palen - ------------------------------------ ------------------------------------- R. M. (Mark) Schreck Gregory R. Palen /s/ Richard A. Zona /s/ W. Hall Wendel, Jr. - ------------------------------------ ------------------------------------- Richard A. Zona W. Hall Wendel, Jr. D I R E C T O R S 2 -----END PRIVACY-ENHANCED MESSAGE-----