Note 4. Financing

Bank financing: In August 2011, Polaris entered into a $350,000,000 unsecured revolving loan facility. Subsequent to December 31, 2012, Polaris amended the loan facility to provide more beneficial covenant and interest rate terms and extend the expiration date from August 2016 to January 2018. Interest is charged at rates based on LIBOR or “prime.” The agreement also requires Polaris to maintain certain financial ratios including minimum interest coverage and a maximum leverage ratio. Polaris was in compliance with each of the covenants as of December 31, 2012. There were no borrowings under this revolving loan facility at December 31, 2012 and 2011. Prior to August 2011, Polaris was a party to an unsecured bank agreement comprised of a $250,000,000 revolving loan facility for working capital needs. As part of the previous bank agreement, the Company had a $200,000,000 term loan outstanding at December 31, 2010, which was paid off in its entirety in May 2011 with the issuance of the Senior Notes described below and $100,000,000 of cash on hand.

In December 2010, the Company entered into a Master Note Purchase Agreement to issue $25,000,000 of 3.81 percent unsecured senior notes due May 2018 and $75,000,000 of 4.60 percent unsecured senior notes due May 2021 (collectively, the “Senior Notes”). The Senior Notes were issued in May 2011.

The Company entered into and settled an interest rate lock contract in November 2009 in connection with the Master Note Purchase Agreement. The interest rate lock settlement resulted in a $251,000 gain, net of deferred taxes of $149,000, which will be amortized into income over the life of the related debt.

The following summarizes activity under Polaris’ credit arrangements, excluding the acquired borrowings of Klim under their credit arrangement of $4,647,000 that was fully paid and retired by December 31, 2012 (dollars in thousands):


	2012			2011			2010
Total borrowings at December 31,	$	100,000		$	100,000		$	200,000
Average outstanding borrowings during year	$	100,000		$	133,800		$	200,000
Maximum outstanding borrowings during year	$	100,000		$	200,000		$	200,000
Interest rate at December 31		4.40	%		4.40	%		0.65	%

The carrying amount of the Company’s long-term debt approximates its fair value as December 31, 2012 and 2011.

Capital Leases: With the acquisition of Goupil in late 2011, the Company assumed capital lease obligations related to certain lease agreements entered into by Goupil. These transactions are classified as capital lease obligations and recorded at fair value. As of December 31, 2012 and 2011 the Company’s capital lease obligations totaled $7,179,000 and $7,253,000, respectively, which includes $2,887,000 and $2,653,000, respectively, classified as a current liability.

Letters of credit: At December 31, 2012, Polaris had open letters of credit totaling approximately $29,358,000. The amounts are primarily to inventory purchases and are reduced as the purchases are received.

Dealer financing programs: Certain finance companies, including Polaris Acceptance, an affiliate (see Note 8), provide floor plan financing to dealers on the purchase of Polaris products. The amount financed by worldwide dealers under these arrangements at December 31, 2012, was approximately $981,584,000. Polaris has agreed to repurchase products repossessed by the finance companies up to an annual maximum of no more than 15 percent of the average month-end balances 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 financing up to certain limits and subject to certain conditions. Such expenditures are included as an offset to Sales in the accompanying consolidated statements of income.