e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31,
2010
Commission file number
001-11411
POLARIS INDUSTRIES
INC.
(Exact name of registrant as
specified in its charter)
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Minnesota
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41-1790959
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2100 Highway 55, Medina MN
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55340
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(Address of principal executive
offices)
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(Zip Code)
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(763) 542-0500
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Name of Each Exchange
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Title of Class
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on Which Registered
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Common Stock, $.01 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the registrants common stock
held by non-affiliates of the registrant was approximately
$1,745,902,000 as of June 30, 2010, based upon the last
sales price per share of the registrants Common Stock, as
reported on the New York Stock Exchange on such date.
As of February 16, 2011, 34,097,865 shares of Common
Stock, $.01 par value, of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrants Annual Report to Shareholders
for the year ended December 31, 2010 (the 2010 Annual
Report) furnished to the Securities and Exchange
Commission are incorporated by reference into Part II of
this
Form 10-K.
Portions of the definitive Proxy Statement for the
registrants Annual Meeting of Shareholders to be held on
April 28, 2011 to be filed with the Securities and Exchange
Commission within 120 days after the end of the fiscal year
covered by this report (the 2011 Proxy Statement),
are incorporated by reference into Part III of this
Form 10-K.
POLARIS
INDUSTRIES INC.
2010
FORM 10-K
ANNUAL REPORT
TABLE OF
CONTENTS
i
PART I
Polaris Industries Inc., a Minnesota corporation, was formed in
1994 and is the successor to Polaris Industries Partners LP. The
terms Polaris, the Company,
we, us, and our as used
herein refer to the business and operations of Polaris
Industries Inc., its subsidiaries and its predecessors, which
began doing business in the early 1950s. We design,
engineer and manufacture off-road vehicles (ORV),
including all-terrain vehicles (ATV) and
side-by-side
vehicles for recreational and utility use, snowmobiles, and
on-road vehicles (On-Road), including motorcycles
and low emission vehicles (LEV), together with the
related replacement parts, garments and accessories
(PG&A). These products are sold through dealers
and distributors principally located in the United States,
Canada and Europe. Sales of ORVs, snowmobiles, on-road vehicles,
and PG&A accounted for the following approximate
percentages of our sales for the years ended December 31:
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ORVs
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Snowmobiles
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On-Road
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PG&A
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2010
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69
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%
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10
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%
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4
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%
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17
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%
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2009
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65
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%
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12
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%
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3
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%
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20
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%
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2008
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67
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%
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10
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%
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5
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%
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18
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%
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We discontinued the manufacture of marine products effective
September 2, 2004. The Marine Products Divisions
financial results are reported separately as discontinued
operations for all periods presented. See Note 11 of Notes
to Consolidated Financial Statements for a discussion of the
discontinuation of marine products.
Industry
Background
ORVs. Our off-road vehicles include both core
ATVs and
RANGER®
side-by-side
vehicles. ATVs are
four-wheel
vehicles with balloon style tires designed for off-road use and
traversing rough terrain, swamps and marshland.
Side-by-side
vehicles are multi-passenger off-road, all-terrain vehicles that
can carry up to six passengers in addition to cargo. ORVs 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 Motor Co., Ltd. (Honda). Other Japanese
motorcycle manufacturers, including Yamaha Motor Corporation
(Yamaha), Kawasaki Motors Corp.
(Kawasaki), and Suzuki Motor Corporation
(Suzuki), entered the North American ATV market in
the late 1970s and early 1980s. We entered the ATV
market in 1985, Arctic Cat Inc. (Arctic Cat) entered
in 1995 and Bombardier Recreational Products Inc.
(BRP) entered in 1998. KTM Power Sports AG
(KTM) entered the market in 2007. In addition,
numerous Chinese and Taiwanese manufacturers of youth and small
ATVs exist for which limited industry sales data is available.
By 1985, the number of three- and four-wheel ATVs sold in North
America had grown to approximately 650,000 units per year,
then dropped dramatically to a low of 148,000 in 1989. The ATV
industry then grew each year in North America from 1990 until
2005, but has declined in each year since 2005, primarily due to
weak overall economic conditions and a move to
side-by-side
vehicles. Internationally, ATVs are also sold primarily in
Western European countries by similar manufacturers as in North
America. We estimate that during 2010 world-wide industry sales
declined 14 percent from 2009 levels with approximately
425,000 ATVs sold worldwide.
We estimate that the
side-by-side
vehicle market sales increased approximately seven percent
during 2010 over 2009 levels with an estimated 240,000
side-by-side
vehicles sold worldwide. The
side-by-side
market is up primarily due to the continued shift by the
consumer from ATVs to
side-by-side
vehicles, new competitors entering the market and continued
innovation by existing and new manufacturers. The main
competitors for our
RANGER®
side-by-side
vehicles are Deere & Company (Deere),
Kawasaki, Yamaha, Arctic Cat, Kubota Tractor Corporation
(Kubota), Honda and BRP.
We estimate that total ORV industry sales for 2010, which
includes core ATVs and
side-by-side
vehicles, decreased eight percent from 2009 levels with
approximately 665,000 units sold worldwide.
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.
1
Originally conceived as a utility vehicle for northern, rural
environments, over time 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, BRP, Arctic Cat and Polaris. These
four manufacturers also sell snowmobiles in certain overseas
markets where the climate is conducive to snowmobile riding. We
estimate that during the season ended March 31, 2010,
industry sales of snowmobiles on a worldwide basis were
approximately 113,000 units, down 23 percent from the
previous season.
On-Road Vehicles. Polaris on-road
vehicles consist of
Victory®
motorcycles and low emission vehicles (LEV).
Heavyweight motorcycles are utilized as a mode of transportation
as well as for recreational purposes. There are four segments:
cruisers, touring, sport bikes and standard motorcycles. We
entered the motorcycle market in 1998 with an initial entry
product in the cruiser segment. United States industry retail
cruiser sales more than doubled from 1996 to 2006, however the
motorcycle industry declined in 2007 through 2010 due to weak
overall economic conditions. We entered the touring segment in
2000. We estimate that the 1,400cc and above cruiser and touring
market segments combined declined 11 percent in 2010
compared to 2009 levels with approximately 163,000 heavyweight
cruiser and touring motorcycles sold in the North American
market. Other major cruiser and touring motorcycle manufacturers
include BMW of North America, LLC (BMW) Harley
Davidson, Inc., Honda, Yamaha, Kawasaki and Suzuki.
We introduced our initial LEV product, the Polaris
Breeze®,
in 2009, which is an electric powered vehicle primarily used in
master planned communities in the sunbelt United States. We
estimate the target market for LEVs at approximately
$1.6 billion in 2010, which includes master planned
communities and golf courses, light duty people transport and
urban/suburban commuting. Other major LEV manufacturers include
Textron Inc.s
E-Z-Go,
Ingersoll-Rand Plcs Club Car, Yamaha and JH
Global Services, Inc. (Starcar).
Products
Off-Road Vehicles. We entered the off-road
vehicle market in 1985 with an ATV. We currently produce
four-wheel ATVs, which provide more stability for the rider than
earlier three-wheel versions. In 2000, we introduced our first
youth ATV models. In 1998, we introduced the Polaris RANGER,
an off-road
side-by-side
utility vehicle and in 2000, we introduced a six-wheeled version
of the RANGER utility vehicle. In 2004, we introduced a
military version ATV and
side-by-side
vehicles with features specifically designed for ultra-light
tactical military applications. In 2007, we introduced our first
recreational
side-by-side
vehicle, the RANGER
RZR®,
and our first six-passenger
side-by-side
vehicle, the RANGER
Crew®.
Our standard line of military and government vehicles for 2011
consists of 16 models at suggested United States retail prices
ranging from approximately $7,500 to $22,500. Our full line of
ORVs beyond military vehicles consists of 32 models, including
two-, four- and six-wheel drive general purpose, sport and
side-by-side
models, with 2011 model year suggested United States retail
prices ranging from approximately $2,000 to $17,000.
Most of our ORVs feature the totally automatic Polaris variable
transmission, which requires no manual shifting, and several
have a MacPherson strut front suspension, which enhances control
and stability. Our on demand all-wheel drive
provides industry leading traction performance and ride quality
due to its patented on demand, easy shift
on-the-fly
design. Our ORVs have four-cycle engines and both shaft and
concentric chain drive. In 1999, we introduced our first manual
transmission ATV models. In 2003, we introduced the
industrys first electronic fuel injected ATV, the
Sportsman®
700 EFI. In 2005, we introduced the industrys first
independent rear suspension on a sport ATV named the
Outlaw®.
In 2007, we introduced the RANGER RZR, a big bore
recreational
side-by-side
model. In 2008, we celebrated the one millionth unit sale of our
Sportsman ATV family, which has been the industry leading big
bore ATV for 13 years, by introducing the 100 percent
redesigned Sportsman XP. In 2008, we also introduced an
extension of our recreational
side-by-side
vehicle with the introduction of the RANGER RZR
S®.
In 2009, we introduced our first all-electric
side-by-side
vehicle, the RANGER EV. In 2010, we introduced our first
four-seat recreational
side-by-side,
the RANGER RZR
4®,
Robby Gordon Edition, a mid-sized RANGER
side-by-side
with increased power, a four-person mid-sized RANGER
Crew®
and a RANGER powered by our first 24 horsepower diesel
engine. In addition, shipments to Bobcat Company
(Bobcat) of the differentiated utility vehicle
produced by us for Bobcat, began shipping in 2010.
2
Snowmobiles. We produce a full line of
snowmobiles, consisting of 26 models, ranging from youth models
to utility and economy models to performance and competition
models. The 2011 model year suggested United States retail
prices range from approximately $2,500 to $12,000. Polaris
snowmobiles are sold principally in the United States,
Canada and Europe. We believe our snowmobiles have a
long-standing reputation for quality, dependability and
performance. We believe that we were the first to develop
several features for wide commercial use in snowmobiles,
including independent front suspension, long travel rear
suspension, hydraulic disc brakes, liquid cooling for brakes and
a three cylinder engine. In 2001, we introduced a new, more
environmentally-friendly snowmobile featuring a four-stroke
engine designed specifically for snowmobiles. In 2009, we
introduced the first true progressive-rate rear suspension
snowmobile, the Polaris
RUSH®.
On-road Vehicles. In 1998, we began
manufacturing V-twin cruiser motorcycles under the Victory brand
name. In 2008, we introduced our first luxury touring models,
the Victory
Vision®.
In 2009, we expanded our touring product line to include the
Victory Cross
Roads®
and Cross
Country®
models. Our 2011 model year line of motorcycles consists
of 12 models with suggested U.S. retail prices ranging from
approximately $12,500 to $28,000. In 2009, we introduced our
first electric neighborhood vehicle, the Polaris Breeze. We have
three 2011 LEV models with a suggested United States retail
price of approximately $8,000.
Parts, Garments and Accessories. We produce or
supply a variety of replacement parts and accessories for our
ORVs, snowmobiles, motorcycles and LEVs. ORV accessories include
winches, bumper/brushguards, plows, racks, mowers, tires,
pull-behinds, cabs, cargo box accessories, tracks and oil.
Snowmobile accessories include covers, traction products,
reverse kits, electric starters, tracks, bags, windshields, oil
and lubricants. Motorcycle accessories include saddle bags,
handlebars, backrests, exhaust, windshields, seats, oil and
various chrome accessories. We also market a full line of
recreational apparel, including helmets, jackets, bibs and
pants, leathers and hats for our snowmobile, ORV and motorcycle
lines. The apparel is designed to our specifications, purchased
from independent vendors and sold by us through our dealers and
distributors, and online through our
e-commerce
subsidiary under the Polaris brand name.
Discontinued Operations Marine Products
Division. We entered the personal watercraft
market in 1992. In September, 2004, we announced that we had
decided to cease manufacturing marine products effective
immediately. As technology and the distribution channel evolved,
the Marine Products Divisions lack of commonality with
other Polaris product lines created challenges for us and our
dealer base. The Marine Products Division continued to
experience escalating costs and increasing competitive pressures
and was never profitable. See Note 11 of Notes to
Consolidated Financial Statements for a discussion of the
discontinuation of The Marine Products Division.
Manufacturing
and Distribution Operations
Our products are assembled at our original manufacturing
facility in Roseau, Minnesota and at our facilities in Spirit
Lake, Iowa and Osceola, Wisconsin. Since snowmobiles, ORVs and
motorcycles incorporate similar technology, substantially the
same equipment and personnel are employed in their production.
We are vertically integrated in several key components of our
manufacturing process, including plastic injection molding,
stamping, welding, clutch assembly and balancing, painting,
cutting and sewing, and the manufacture of foam seats. Fuel
tanks, tracks, tires and instruments, and certain other
component parts are purchased from third-party vendors. Raw
materials or standard parts are readily available from multiple
sources for the components manufactured by us. Our work force is
familiar with the use, operation and maintenance of the products
since many employees own snowmobiles, ORVs and motorcycles. In
1991, we acquired a manufacturing facility in Osceola, Wisconsin
to manufacture component parts previously produced by
third-party suppliers. In 1994, we acquired a manufacturing
facility in Spirit Lake, Iowa in order to expand our assembly
capacity. Certain operations, including engine assembly and the
bending of frame tubes, seat manufacturing, drivetrain and
exhaust assembly and stamping, have been conducted at the
Osceola, Wisconsin facility. In 1998, Victory motorcycle
production began at our Spirit Lake, Iowa facility. The
production process in Spirit Lake includes welding, finish
painting, and final assembly. In 2002, we completed an expansion
and renovation of our Roseau manufacturing facility, which
resulted in increased capacity and enhanced production
flexibility. In 2010, we announced plans to realign our
manufacturing operations. We are creating manufacturing centers
of excellence for Polaris products by enhancing the existing
Roseau and Spirit Lake production facilities and establishing a
new manufacturing facility in Monterrey, Mexico, which is
3
expected to be operational mid- 2011. This realignment will lead
to the eventual closure or sale of our Osceola, Wisconsin
manufacturing operations.
Pursuant to informal agreements between us and Fuji Heavy
Industries Ltd. (Fuji), Fuji was the sole
manufacturer of our two-cycle snowmobile engines from 1968 to
1995. Fuji has manufactured engines for our ATV products since
their introduction in 1985 and remains a major supplier of
engines to us. Fuji develops such engines to our specific
requirements. We believe that our relationship with Fuji is
strong. Although we have alternative sources for our engines and
do not currently have knowledge that Fuji intends to terminate
supplying engines to us, a termination of the supply
relationship with Fuji would materially adversely affect our
production until substitute supply arrangements for the quantity
of engines we require have been established.
In addition, we entered into an agreement with Fuji to
form Robin Manufacturing, U.S.A. (Robin) in
1995. Under the agreement, we made an investment for a
40 percent ownership position in Robin, which builds
engines in the United States for recreational and industrial
products. Both parties have agreed to close the Robin facility
by mid-2011 as the production volume of engines made at the
facility has declined significantly in recent years. See
Note 7 of Notes to Consolidated Financial Statements for a
discussion of the Robin agreement.
We have been designing and producing our own engines for select
models of snowmobiles since 1995, for all Victory motorcycles
since 1998, and for select ORV models since 2001.
In 2000, we entered into an agreement with a Taiwan manufacturer
to co-design, develop and produce youth ATVs. We expanded the
agreement with the Taiwan manufacturer in 2004 to include the
design, development and production of value-priced smaller adult
ATV models and in 2008 to include a youth
side-by-side
vehicle, the RANGER
RZR®
170. In 2002, we entered into an agreement with a German
manufacturer to co-design, develop and produce four-stroke
engines for snowmobiles. In 2006, we entered into a long-term
supply agreement with KTM whereby KTM supplies four-stroke
engines for use in certain Polaris ATVs.
We do not anticipate any significant difficulties in obtaining
substitute supply arrangements for other raw materials or
components that we generally obtain from limited sources.
Contract carriers ship our products from our manufacturing and
distribution facilities to our customers.
We maintain sales and administration facilities in Medina,
Minnesota; Winnipeg, Canada; Passy, France; Askim, Norway;
Ostersund, Sweden; Birmingham, United Kingdom; Griesheim,
Germany; Barcelona, Spain; Ballarat, Australia; Shanghai, China;
Rolle, Switzerland; and Sao Paulo, Brazil. Our primary
distribution facility is in Vermillion, South Dakota which
distributes PG&A products to our North American dealers and
we have various other locations around the world that distribute
PG&A to our international dealers and distributors.
Production
Scheduling
We produce and deliver our products throughout the year based on
dealer and distributor orders. Beginning in 2008, we began
testing a new dealer ordering process called Maximum Velocity
Program (MVP) with select dealers in North America,
where ORV orders are placed in approximately two-week intervals
for the high volume dealers driven by retail sales trends at the
individual dealership. Smaller dealers utilize a similar MVP
process but on a less frequent ordering cycle. Effective in the
second half of 2010, the MVP process is now being utilized by
all North American ORV dealers. Prior to the MVP process, most
ORV orders were taken from North American dealers twice a year,
in the summer and late winter. International distributor ORV
orders are taken throughout the year. Orders for each
years production of snowmobiles are placed by the dealers
and distributors in the spring.
Non-refundable
deposits made by consumers to dealers in the spring for
pre-ordered snowmobiles assist in production planning. Annual
orders for Victory motorcycles are placed by the dealers in the
summer after meetings with dealers. For non-MVP dealers and
products, units are built to order each year, subject to
fluctuations in market conditions and supplier lead times. The
anticipated volume of units to be produced is substantially
committed to by dealers and distributors prior to production.
For MVP dealers, ORV retail sales activity at the dealer level
drives orders which are incorporated into each products
production scheduling.
Manufacture of snowmobiles commences in late winter of the
previous season and continues through late autumn or early
winter of the current season. We generally manufacture ORVs,
motorcycles and LEVs year round.
4
We have the ability to mix production of the various products on
the existing manufacturing lines as demand dictates.
Sales and
Marketing
Our products are sold through a network of approximately 1600
independent dealers in North America, through 11 subsidiaries
and 43 distributors in approximately 130 countries outside of
North America.
We sell our snowmobiles directly to dealers in the snowbelt
regions of the United States and Canada. Many dealers and
distributors of our snowmobiles also distribute our ORVs. At the
end of 2010, approximately 700 Polaris dealers were located in
areas of the United States where snowmobiles are not regularly
sold. Unlike our primary competitors, which market their ORV
products principally through their affiliated motorcycle
dealers, we also sell our ORVs through lawn and garden and farm
implement dealers.
With the exception of France, the United Kingdom, Sweden,
Norway, Australia, New Zealand, Germany, Spain, China and
Brazil, sales of our products in Europe and other offshore
markets are handled through independent distributors. In 1999,
we acquired certain assets of our distributor in Australia and
New Zealand and now distribute our products to the dealer
network in those countries through a wholly-owned subsidiary.
During 2000, we acquired our distributor in France and now
distribute our products to our dealer network in France through
a wholly-owned subsidiary. In 2002, we acquired certain assets
of our distributors in the United Kingdom, Sweden and Norway and
now distribute our products to our dealer networks in the United
Kingdom, Sweden and Norway through wholly-owned subsidiaries.
During 2007, we established a wholly-owned subsidiary in Germany
and now distribute our products directly to our dealer network
in Germany. In 2008, we established a wholly-owned subsidiary in
Spain and now distribute our products directly to our dealer
network in Spain. In 2010, we established wholly-owned
subsidiaries in China and Brazil and will distribute our
products directly to the dealer network in those countries. See
Notes 1 and 12 of Notes to Consolidated Financial
Statements for a discussion of international operations.
Victory motorcycles are distributed directly through authorized
Victory dealers. We have a high quality dealer network for our
other product lines from which many of the approximately 350
current North American Victory dealers were selected. In 2005,
we began selling Victory motorcycles in the United Kingdom.
Since 2005 we have been gradually expanding our international
sales of Victory motorcycles, primarily in Europe. We expect to
further expand our Victory dealer network over the next few
years in North America and internationally. The Polaris Breeze
electric vehicles are distributed through authorized LEV and
golf vehicle dealers. At December 31, 2010, we had 37
dealers authorized to sell our Breeze product.
Dealers and distributors sell Polaris products under
contractual arrangements pursuant to which the dealer or
distributor is authorized to market specified products and is
required to carry certain replacement parts and perform certain
warranty and other services. Changes in dealers and distributors
take place from time to time. We believe a sufficient number of
qualified dealers and distributors exist in all geographic areas
to permit an orderly transition whenever necessary. In addition,
we sell military and other Polaris vehicles directly to military
and government agencies and other national accounts and we
supply a highly differentiated
side-by-side
vehicle branded Bobcat, to their dealerships in North America.
In 1996, a wholly-owned subsidiary of Polaris entered into a
partnership agreement with a subsidiary of Transamerica
Distribution Finance (TDF) to form Polaris
Acceptance. Polaris Acceptance provides floor plan financing to
our dealers in the United States. Under the partnership
agreement, we have a 50 percent equity interest in Polaris
Acceptance. We do not guarantee the outstanding indebtedness of
Polaris Acceptance. In 2004, TDF was merged with a subsidiary of
General Electric Company (GE) and, as a result of
that merger, TDFs name was changed to GE Commercial
Distribution Finance Corporation (GECDF). No
significant change in the Polaris Acceptance relationship
resulted from the change of ownership from TDF. In November
2006, Polaris Acceptance sold a majority of its receivable
portfolio to a securitization facility arranged by General
Electric Capital Corporation, a GECDF affiliate
(Securitization Facility), and the partnership
agreement was amended to provide that Polaris Acceptance would
continue to sell portions of its receivable portfolio to the
Securitization Facility from time to time on an ongoing basis.
See Notes 3 and 6 of Notes to Consolidated Financial
Statements for a discussion of this financial services
arrangement.
5
We have arrangements with Polaris Acceptance (United States) and
GE affiliates (Australia, Canada, France, Germany, the United
Kingdom, Ireland and New Zealand) to provide floor plan
financing for our dealers. Substantially all of our United
States sales of snowmobiles, ORVs, motorcycles and related
PG&A are financed under arrangements whereby we are paid
within a few days of shipment of our product. We participate in
the cost of dealer financing and have agreed to repurchase
products from the finance companies under certain circumstances
and subject to certain limitations. We have not historically
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, we will adjust our sales return
allowance at the time of sale should we anticipate material
repurchases of units financed through the finance companies. See
Note 6 of Notes to Consolidated Financial Statements for a
discussion of these financial services arrangements.
In August 2005, a wholly-owned subsidiary of Polaris entered
into a multi-year contract with HSBC Bank Nevada, National
Association (HSBC), formerly known as Household Bank
(SB), N.A., under which HSBC manages our private label credit
card program under the StarCard label, which until July 2007
included providing retail credit for non-Polaris products. The
2005 agreement provides for income to be paid to us based on a
percentage of the volume of retail credit business generated.
HSBC ceased financing non-Polaris products under its arrangement
with us effective July 1, 2007. During the first quarter of
2008, HSBC notified us that the profitability to HSBC of the
contractual arrangement was unacceptable and, absent some
modification of that arrangement, HSBC might significantly
tighten its underwriting standards for our customers, reducing
the number of qualified retail credit customers who would be
able to obtain credit from HSBC. In order to avoid the potential
reduction of revolving retail credit available to our consumers,
we agreed to forgo the receipt of a volume-based fee provided
for under our agreement with HSBC effective March 1, 2008.
Management anticipates that the elimination of the volume-based
fee will continue and that HSBC will continue to provide
revolving retail credit to qualified customers through the end
of the contract term. During the 2010 second quarter, Polaris
and HSBC extended the term of the agreement on similar terms to
October 2013. See Note 6 of Notes to Consolidated Financial
Statements for a discussion of this financial services
arrangement.
In April 2006, a wholly-owned subsidiary of Polaris entered into
a multi-year contract with GE Money Bank (GE Bank)
under which GE Bank makes available closed-end installment
consumer and commercial credit to customers of our dealers for
both Polaris and non-Polaris products. In January 2009, a
wholly-owned subsidiary of Polaris entered into a multi-year
contract with Sheffield Financial (Sheffield)
pursuant to which Sheffield agreed to make available closed-end
installment consumer and commercial credit to customers of our
dealers for Polaris products. In October 2010, we extended our
installment credit agreement with Sheffield to February 2016
under which Sheffield will provide exclusive installment credit
lending for ORV and Snowmobiles. In November 2010, we extended
our installment credit contract with GE Bank to March 2016 under
which GE Bank will provide exclusive installment credit lending
for Victory motorcycles only. See Note 6 of Notes to
Consolidated Financial Statements for a discussion of these
financial services arrangements.
We promote the Polaris brand among the riding and non-riding
public and provide a wide range of products for enthusiasts by
licensing the name Polaris. We currently license the production
and sale of a range of items, including die cast toys, ride on
toys, video games, and numerous other products.
During 2000, a wholly-owned subsidiary of Polaris established an
e-commerce
site, purepolaris.com, to sell clothing and accessories over the
Internet directly to consumers.
Our marketing activities are designed primarily to promote and
communicate directly with consumers and secondarily to assist
the selling and marketing efforts of our dealers and
distributors. We make available and advertise discount or rebate
programs, retail financing or other incentives for our dealers
and distributors to remain price competitive in order to
accelerate retail sales to consumers and gain market share. We
advertise our products directly to consumers using print
advertising in the industry press and in user group
publications, billboards, television and radio. We also provide
media advertising and partially underwrite dealer and
distributor media advertising to a degree and on terms which
vary by product and from year to year. From time to time, we
produce promotional films for our products, which are available
to dealers for use in the showroom or at special promotions. We
also provide product brochures, leaflets, posters, dealer signs,
and miscellaneous other promotional items for use by dealers.
6
We expended approximately $142.4 million,
$111.1 million and $137.0 million for sales and
marketing activities in 2010, 2009 and 2008, respectively.
Engineering,
Research and Development, and New Product Introduction
We have approximately 390 employees who are engaged in the
development and testing of existing products and research and
development of new products and improved production techniques
primarily in our Roseau and Wyoming, Minnesota facilities and in
Burgdorf, Switzerland We believe Polaris was the first to
develop, for wide commercial use, independent front suspensions
for snowmobiles, long travel rear suspensions for snowmobiles,
liquid cooled snowmobile brakes, hydraulic brakes for
snowmobiles, the three cylinder engine in snowmobiles, the
adaptation of the MacPherson strut front suspension, on
demand all-wheel drive systems and the Concentric Drive
System for use in ORVs, the application of a forced air cooled
variable power transmission system to ORVs and the use of
electronic fuel injection for ORVs.
We utilize internal combustion engine testing facilities to
design and optimize engine configurations for our products. We
utilize specialized facilities for matching engine, exhaust
system and clutch performance parameters in our products to
achieve desired fuel consumption, power output, noise level and
other objectives. Our engineering department is equipped to make
small quantities of new product prototypes for testing by our
testing teams and for the planning of manufacturing procedures.
In addition, we maintain numerous test facilities where each of
the products is extensively tested under actual use conditions.
In 2005, we completed construction of our
127,000 square-foot research and development facility in
Wyoming, Minnesota for engineering, design and development
personnel for our line of engines and powertrains, ORVs and
Victory motorcycles. The total cost of the facility was
approximately $35.0 million. In 2010, we acquired Swissauto
Powersports Ltd., an engineering company that develops high
performance and high efficiency engines and innovative vehicles.
We expended approximately $84.9 million, $63.0 million
and $77.5 million for research and development activities
in 2010, 2009 and 2008, respectively.
Intellectual
Property
We rely on a combination of patents, trademarks, copyrights,
trade secrets, and nondisclosure and non-competition agreements
to establish and protect our intellectual property and
proprietary technology. We have filed and obtained numerous
patents in the United States and abroad, and regularly file
patent applications worldwide in our continuing effort to
establish and protect our proprietary technology. We hold
patents in the United States and foreign countries and apply for
patents as applicable. Additionally, we have numerous registered
trademarks, trade names and logos in the United States, Canada
and international locations.
Investment
in KTM Power Sports AG
In 2005, we purchased a 25 percent interest in Austrian
motorcycle manufacturer KTM and began several important
strategic projects with KTM intended to strengthen the
competitive position of both companies and provide tangible
benefits to our respective customers, dealers, suppliers and
shareholders. Additionally, Polaris and KTMs largest
shareholder, Cross Industries AG (Cross), entered
into an option agreement, which provided that under certain
conditions in 2007, either Cross could purchase our interest in
KTM or, alternatively, we could purchase Cross interest in
KTM. In December 2006, Polaris and Cross cancelled the option
agreement and entered into a share purchase agreement for the
sale by us of approximately 1.38 million shares of KTM, or
approximately 80 percent of our investment in KTM, to a
subsidiary of Cross. The agreement provided for completion of
the sale of the KTM shares in two stages. In the first half of
2007, we completed both stages of our sale of KTM shares
generating proceeds of $77.1 million. After the completion
of the sale of the KTM shares, we held ownership of
approximately 0.34 million shares, representing slightly
less than five percent of KTMs outstanding shares. During
the first quarter 2009, we determined that the decline in the
market value of the KTM shares owned by us was other than
temporary; therefore, we recorded the decrease in the fair value
of the investment as a charge to the income statement in the
first quarter of 2009 totaling $9.0 million. During the
second quarter 2010, we determined that the further decline in
the market value of the KTM shares owned by us was other than
temporary and, therefore, we
7
recorded a $0.8 million decrease in the fair value of the
investment. In the third quarter 2010, we sold our remaining
investment in KTM and recorded a gain on securities available
for sale of $1.6 million.
Competition
The off-road vehicle, snowmobile, motorcycle and low emission
vehicle 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 our competitors are more diversified
and have financial and marketing resources that are
substantially greater than those of Polaris.
We believe that our products are competitively priced and our
sales and marketing support programs for dealers are comparable
to those provided by our competitors. Our 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
Safety regulation. The federal government and
individual states have promulgated or are considering
promulgating laws and regulations relating to the use and safety
of certain of our products. The federal government is currently
the primary regulator of product safety. The Consumer Product
Safety Commission (CPSC) has federal oversight over
product safety issues related to ATVs, snowmobiles and off-road
side-by-side
vehicles. The National Highway Transportation Safety
Administration (NHTSA) has federal oversight over
product safety issues related to on-road motorcycles and LSV
vehicles.
In 1988, Polaris, five competitors and the CPSC entered into a
ten-year consent decree settling litigation involving
CPSCs attempt to force an industry-wide recall of all
three-wheel ATVs and four-wheel ATVs sold that could be used by
youth under 16 years of age. The settlement required, among
other things, that ATV purchasers receive hands on
training. In 1998, this consent decree expired and we entered
into a voluntary action plan under which we agreed to continue
various activities previously required under the consent decree,
including age recommendations, warning labels, point of purchase
materials, hands on training and an information and education
effort. We also agreed to continue dealer monitoring to
ascertain dealer compliance with safety obligations, including
age recommendations and training requirements.
We do not believe that our voluntary action plan has had or will
have a material adverse effect on us or negatively affect our
business to any greater degree than those of our competitors who
have undertaken similar action plans with the CPSC.
Nevertheless, there can be no assurance that future
recommendations or regulatory actions by the federal government
or individual states would not have an adverse effect on us. We
will continue to attempt to assure that our dealers are in
compliance with their safety obligations. We have notified our
dealers that we may terminate or not renew any dealer we
determine has violated such safety obligations. We believe that
our ATVs have always complied with safety standards relevant to
ATVs.
In August 2006, the CPSC issued a Notice of Proposed Rulemaking
to establish mandatory standards for ATVs and to ban
three-wheeled ATVs. The CPSC did not complete this rulemaking
process or issue a final rule.
In August 2008, the Consumer Product Safety Improvement Act
(Act) was passed. The Act includes a provision that
requires all manufacturers and distributors who import into or
distribute ATVs in the United States to comply with the American
National Standards Institute (ANSI) ATV safety
standards, which were previously voluntary. The Act also
requires the same manufacturers and distributors to have ATV
action plans filed with the CPSC that are substantially similar
to the voluntary action plans that were previously in effect
through the voluntary agreement with the CPSC. We believe that
our products comply with the ANSI/SVIA standard and we have had
an action plan filed with the CPSC since 1998 when the consent
decree expired. We do not believe the new law will negatively
affect our business to any greater degree than those of our
competitors who are now subject to the same mandatory standards.
8
The Act also includes a provision that requires the CPSC to
complete the ATV rulemaking process it started in August, 2006
and issue a final rule regarding ATV safety. The Act requires
the CPSC to evaluate certain matters in the final rule,
including the safety of the categories of youth ATVs as well as
the need for safety standards or increased safety standards for
suspension, brakes, speed governors, warning labels, marketing
and dynamic stability.
The Act also includes provisions that limit the amount of lead
paint and lead content that can exist in the accessible
components of ATVs and snowmobiles that we sell in the United
States for youth 12 years of age and younger. Under the
Act, products that have lead content in excess of these limits
may not be sold in the United States starting February 10,
2009. We, along with others in the recreational products
industry, filed a petition for exclusion with the CPSC which, if
approved, would have exempted certain metal alloys and battery
terminals from the requirements of the law.
The CPSC did not approve this request, but instead issued a Stay
of Enforcement (Stay) until May 2011. The Stay
provides that the CPSC will not seek to enforce the Act against
manufacturers who sell recreational vehicle products for youth
provided the metal alloys in these products meet certain lead
limits and information regarding the lead content of the
relevant products is submitted to the CPSC. To meet the
requirements of the law and the Stay, we have installed
lead-compliant parts on our vehicles where possible and in some
cases have designed features and kits to be installed on our
vehicles to make lead-containing parts inaccessible. We believe
that our products meet the terms of the Stay and we are
currently selling youth products. The CPSC recently extended the
Stay until December 31, 2011. However, if the Stay expires
at the end of 2011 and is not extended, we will again be
restricted from selling youth products that do not comply with
the lead limits in the Act. Furthermore, the legal protection
provided under the Stay is limited because it only limits the
enforcement actions of the CPSC. The Stay does not prevent third
parties from bringing legal action under the law or state
Attorneys General from bringing an action to enforce the law.
We do not believe that any of our youth products present a
harmful risk of lead exposure because children are not exposed
to vehicle parts containing lead during normal operation and
use. It is for this reason that we, along with others in the
recreational product industry, are seeking an amendment to the
Act that would exclude such products from the scope of the law.
However, until the Act is changed or a permanent petition for
exclusion is approved by the CPSC exempting the youth products
from the law, there is uncertainty about whether Polaris and our
dealers will be restricted from selling some of our youth
products in the United States at some time in the future. We do
not believe that these restrictions have had or will have a
material adverse effect on Polaris or negatively impact our
business to any greater degree than those of our competitors who
sell youth products in the United States.
We are a member of the Recreational Off-Highway Vehicle
Association (ROHVA), which was established to
promote the safe and responsible use of
side-by-side
vehicles also known as Recreational Off-Highway Vehicles
(ROVs). Since early 2008, ROHVA has been engaged in
a comprehensive process for developing a voluntary standard for
equipment, configuration and performance requirements of ROVs
through ANSI. Comments on the draft standard were actively
solicited from the CPSC and other stakeholders as part of the
ANSI process. The standard, which addresses stability, occupant
retention, and other safety performance criteria, was approved
and published by ANSI in March, 2010. The standard was then
immediately opened for maintenance and revision in accordance
with the ANSI process to evaluate additional safety provisions.
In October, 2009, the Consumer Product Safety Commission
published an advance notice of proposed rulemaking regarding
ROVs. Our RANGER and RZR
side-by-side
vehicles are included in the ROV category. In its notice, the
CPSC stated that it was reviewing the risk of injury associated
with ROVs and beginning a rule-making procedure under the
Consumer Product Safety Act. The CPSC also noted the draft ANSI
standard developed by ROHVA and expressed concerns with the
draft standard in the areas of vehicle stability, vehicle
handling, and occupant retention and protection. We are a member
of ROHVA, which submitted written comments and a technical
response to the CPSC notice. We, through ROHVA, also met with
CPSC Commissioners and staff on several occasions during 2010 to
provide updates on ROHVAs efforts to address CPSC concerns
through changes to the voluntary ANSI standard relating to
stability, occupant retention and warnings. Comments on these
changes were solicited from the CPSC and other stakeholders as
part of the ANSI process and these comments are currently
9
being reviewed by ROHVA. We are unable to predict the outcome of
the CPSC rule-making procedure and the ultimate impact of the
procedure or any resulting rules on our business and operating
results.
We are a member of the International Snowmobile Manufacturers
Association (ISMA), a trade association formed to
promote safety in the manufacture and use of snowmobiles, among
other things. ISMA members include all of the major snowmobile
manufacturers. The ISMA members are also members of the
Snowmobile Safety and Certification Committee, which promulgated
voluntary sound and safety standards for snowmobiles that have
been adopted as regulations in some states of the United States
and in Canada. These standards require testing and evaluation by
an independent testing laboratory. We believe that our
snowmobiles have always complied with safety standards relevant
to snowmobiles.
Victory motorcycles are subject to federal vehicle safety
standards administered by NHTSA. Victory motorcycles are also
subject to various state vehicle safety standards. We believe
that our motorcycles have always complied with safety standards
relevant to motorcycles.
Our products are also subject to international standards related
to safety in places where we sell our products outside the
United States. We believe that our Victory motorcycles, ATVs,
off-road
side-by-side
vehicles and snowmobiles have always complied with applicable
safety standards in the United States and other international
locations.
Use regulation. State and federal laws and
regulations have been promulgated or are under consideration
relating to the use or manner of use of our products. Some
states and localities have adopted, or are considering the
adoption of, legislation and local ordinances that restrict the
use of ATVs, snowmobiles and off-road
side-by-side
vehicles to specified hours and locations. The federal
government also has restricted the use of ATVs, snowmobiles and
side-by-side
vehicles in some national parks and federal lands. In several
instances, this restriction has been a ban on the recreational
use of these vehicles.
We are unable to predict the outcome of such actions or the
possible effect on our business. We believe that our business
would be no more adversely affected than those of our
competitors by the adoption of any pending laws or regulations.
We continue to monitor these activities in conjunction with
industry associations and support balanced and appropriate
programs that educate the product user on safe use of our
products and how to protect the environment.
Emissions. The federal Environmental
Protection Agency (EPA) and the California Air
Resources Board (CARB) have adopted emissions
regulations applicable to our products.
The CARB has emission regulations for ATVs and off-road
side-by-side
vehicles that we already meet. In 2002, the EPA established new
corporate average emission standards effective for model years
2006 and later, for on-road recreational vehicles, including
ATVs, off-road
side-by-side
vehicles and snowmobiles. We have developed engine and emission
technologies along with our existing technology base to meet
current and future requirements. In 2002, we entered into an
agreement with a German manufacturer to supply four-stroke
engines that meet emission requirements for certain snowmobile
models. In 2008, the EPA modified the snowmobile emission
standards for model year 2012 and we have developed engine and
emission technologies to meet these requirements with the use of
early reduction credits generated in prior model years. The EPA
announced its intention to issue a future rulemaking on
snowmobiles in or around 2010 and any new emission standards
under this rule are expected to become effective after model
year 2012.
Victory motorcycles are also subject to EPA and CARB emission
standards. We believe that our motorcycles have always complied
with these standards. The CARB regulations required additional
motorcycle emission reductions in model year 2008, which the
Company meets. The EPA adopted the CARB emission limits in a
2004 rulemaking that allowed an additional two model years to
meet these new CARB emission requirements on a nationwide basis.
We have developed engine and emission technologies and met these
requirements nationwide in model year 2010.
Our products are also subject to international laws and
regulations related to emissions in places where we sell our
products outside the United States. Europe currently regulates
emissions from certain of our ATV-based products and motorcycles
and the Company meets these requirements. Canadas emission
regulations for
10
motorcycles are similar to those in the United States. In
December 2006, Canada proposed a new regulation that would
essentially adopt the United States emission standards for ATVs,
off-road
side-by-side
vehicles and snowmobiles. These regulations have not yet been
finalized, but they are not expected to have a material effect
on our business. The European Commission proposed new
regulations in 2010 that would apply to certain of the
Companys motorcycles and ATV-based products beginning in
2013. These future EU regulations have not been finalized.
We believe that our Victory motorcycles, ATVs, off-road
side-by-side
vehicles and snowmobiles have always complied with applicable
emission standards and related regulations in the United States
and internationally. We are unable to predict the ultimate
impact of the adopted or proposed regulations on Polaris and our
business. We are currently developing and obtaining engine and
emission technologies to meet the requirements of the future
emission standards.
Employees
Due to the seasonality of our 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 2010, we employed an average
of approximately 3,000 full-time persons, a slight increase
from 2009. Approximately 1,300 of our employees are salaried. We
consider our relations with our employees to be excellent. Our
employees have not been represented by a union since 1982.
Available
Information
Our Internet website is
http://www.polarisindustries.com.
We make available free of charge, on or through our website, our
annual, quarterly and current reports, and any amendments to
those reports, as soon as reasonably practicable after
electronically filing such reports with the Securities and
Exchange Commission. We also make available through our website
our corporate governance materials, including our Corporate
Governance Guidelines, the charters of the Audit Committee,
Compensation Committee, Corporate Governance and Nominating
Committee and Technology Committee of our Board of Directors and
its Code of Business Conduct and Ethics. Any shareholder or
other interested party wishing to receive a copy of these
corporate governance materials should write to Polaris
Industries Inc., 2100 Highway 55, Medina, Minnesota 55340,
Attention: Investor Relations. Information contained on our
website is not part of this report.
Forward-Looking
Statements
This 2010 Annual Report contains not only historical
information, but also 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 we or our management believes,
anticipates, expects,
estimates or words of similar import. Similarly,
statements that describe our future plans, objectives or goals
are also forward-looking. Forward-looking statements may also be
made from time to time in oral presentations, including
telephone conferences
and/or
webcasts open to the public. Shareholders, potential investors
and others are cautioned that all forward-looking statements
involve risks and uncertainties that could cause results in
future periods to differ materially from those anticipated by
some of the statements made in this report, including the risks
and uncertainties described below under the heading entitled
Item 1A Risk Factors and elsewhere
in this report. The risks and uncertainties discussed in this
report are not exclusive and other factors that we may consider
immaterial or do not anticipate may emerge as significant risks
and uncertainties.
Any forward-looking statements made in this report or otherwise
speak only as of the date of such statement, and we undertake no
obligation to update such statements to reflect actual results
or changes in factors or assumptions affecting such
forward-looking statements. We advise you, however, to consult
any further disclosures made on related subjects in future
quarterly reports on
Form 10-Q
and current reports on
Form 8-K
that are filed with or furnished to the Securities and Exchange
Commission.
11
Executive
Officers of the Registrant
Set forth below are the names of our executive officers as of
February 11, 2011, their ages, titles, the year first
appointed as an executive officer, and employment for the past
five years:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Title
|
|
Scott W. Wine
|
|
|
43
|
|
|
Chief Executive Officer
|
Bennett J. Morgan
|
|
|
47
|
|
|
President and Chief Operating Officer
|
Todd-Michael Balan
|
|
|
41
|
|
|
Vice President Corporate Development
|
Stacy L. Bogart
|
|
|
47
|
|
|
Vice President General Counsel, Compliance Officer
and Secretary
|
John B. Corness
|
|
|
56
|
|
|
Vice President Human Resources
|
Michael D. Dougherty
|
|
|
43
|
|
|
Vice President Global New Market Development
|
William C. Fisher
|
|
|
56
|
|
|
Vice President and Chief Information Officer
|
Matthew J. Homan
|
|
|
39
|
|
|
Vice President Off-Road Vehicles
|
Michael P. Jonikas
|
|
|
50
|
|
|
Vice President On-Road Vehicles, Sales and Marketing
|
Suresh Krishna
|
|
|
42
|
|
|
Vice President Global Operations and Integration
|
David C. Longren
|
|
|
52
|
|
|
Vice President and Chief Technical Officer
|
Michael W. Malone
|
|
|
52
|
|
|
Vice President Finance and Chief Financial Officer
|
Scott A. Swenson
|
|
|
47
|
|
|
Vice President Snowmobiles and PG&A
|
Executive officers of the Company are elected at the discretion
of the Board of Directors with no fixed terms. Each of
Messrs. Wine and Morgan has an employment letter agreement
with no expiration date. There are no family relationships
between or among any of the executive officers or directors of
the Company.
Mr. Wine joined Polaris Industries Inc. as Chief Executive
Officer on September 1, 2008. Prior to joining Polaris,
Mr. Wine was President of Fire Safety Americas, a division
of United Technologies, a provider of high technology products
and services to the building systems and aerospace industries,
from 2007 to August 2008. Prior to that, Mr. Wine held
senior leadership positions at Danaher Corp. in the United
States and Europe from 2003 to 2007, including President of its
Jacob Vehicle Systems and Veeder-Roots subsidiaries, and Vice
President and General Manager, Manufacturing Programs in Europe.
From 1996 to 2003, Mr. Wine held a number of operations and
executive posts, both international and domestic with Allied
Signal Corporations Aerospace Division.
Mr. Morgan has been President and Chief Operating Officer
of the Company since April 2005; prior to that he was Vice
President and General Manager of the ATV Division of Polaris.
Prior to managing the ATV Division, Mr. Morgan was General
Manager of the PG&A Division for Polaris from 1997 to 2001.
He joined Polaris in 1987 and spent his early career in
various product development, marketing and operations management
positions of increasing responsibility.
Mr. Balan joined Polaris in July 2009 as Vice
President Corporate Development. Prior to joining
Polaris, Mr. Balan was Director of Marketing and Strategy
for United Technologies Fire & Security Business from
2007 to June 2009. Prior to that, Mr. Balan held various
marketing, general management, business development, and
strategy roles within Danaher Corp. from 2001 to 2007.
Mr. Balans work history also includes various
strategy, marketing, and sales management roles with Emerson
Electric and Colfax Corporation.
Ms. Bogart has been Vice President General
Counsel and Compliance Officer of Polaris since November 2009
and Corporate Secretary since January 2010. From February 2009
to November 2009, Ms. Bogart was General Counsel of Liberty
Diversified International. From October 1999 until February
2009, Ms. Bogart held several positions at The Toro
Company, including Assistant General Counsel and Assistant
Secretary. Before joining The Toro Company, Ms. Bogart was
a Senior Attorney for Honeywell Inc.
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.
12
Mr. Dougherty has been Vice President Global
New Market Development since December 2008. Prior to this,
Mr. Dougherty was Vice President and General Manager of the
ATV Division since November 2007, and was General Manager of the
ATV Division since April 2005. In 2002, Mr. Dougherty was
appointed General Manager, International Operations. In 1998,
Mr. Dougherty joined Polaris as the International Sales
Manager for Europe, Mid-East and Africa. Prior to Polaris, he
was employed at Trident Medical International, a trading company.
Mr. Fisher has been Vice President and Chief Information
Officer since November 2007, and has been Chief Information
Officer since July 1999. He has also served as General Manager
of Service overseeing all technical, dealer, and consumer
service operations since 2005. Prior to joining Polaris,
Mr. Fisher was employed by MTS Systems for
15 years in various positions in information services,
software engineering, control product development, and general
management. Before that time, Mr. Fisher worked as a civil
engineer for
Anderson-Nichols
and he later joined Autocon Industries, where he developed
process control software.
Mr. Homan has been Vice President Off-Road
Vehicles since December 2008. Prior to this, Mr. Homan was
Vice President and General Manager of the
Side-by-Side
Division since August 2008, General Manager of the
Side-by-Side
Division since December 2005, and was Director of Marketing for
the All-Terrain Vehicle Division since joining Polaris in 2002.
Prior to working at Polaris, Mr. Homan spent nearly seven
years at General Mills working in various marketing and brand
management positions.
Mr. Jonikas has been Vice President On-Road
Vehicles, Sales and Marketing since May 2009, and was Vice
President Sales and Marketing since November 2007.
Mr. Jonikas joined Polaris in 2000, and during the past
eleven years has held several key roles including Director of
Product and Marketing Management for the ATV Division and
General Manager of the Polaris
Side-by-Side
Division. Prior to joining Polaris, Mr. Jonikas spent
12 years at General Mills in numerous general management
positions.
Mr. Krishna joined Polaris Industries Inc. as Vice
President Supply Chain and Integration on
March 29, 2010 and was promoted to Vice
President Global Operations and Integration in
September 2010. Prior to joining Polaris, Mr. Krishna was
Vice President Global Operations, Supply Chain and IT for a
division of United Technologies Corporation
Fire & Security business where he was responsible for
significant operations in China, Mexico, United States and
Europe from August 2007 to March 2010. Prior to United
Technologies Corporation, Mr. Krishna worked for Diageo, a
global producer of famous drink brands as Vice President Supply
Chain for their North American business from February 2002 to
July 2007.
Mr. Longren has been Vice President and Chief Technical
Officer since November 2007, and has been the Chief Technical
Officer since May 2006. Mr. Longren joined Polaris in
January 2003 as the Director of Engineering for the ATV
Division. Prior to joining Polaris, Mr. Longren was a Vice
President in the Weapons Systems Division of Alliant Tech System
and Vice President, Engineering and Marketing at Blount Sporting
Equipment Group.
Mr. Malone has been Vice President Finance and
Chief Financial Officer of the Company since January 1997.
From January 1997 to January 2010, Mr. Malone also served
as Corporate Secretary. Mr. Malone was Vice President and
Treasurer of the Company from December 1994 to January 1997 and
was Chief Financial Officer and Treasurer of a predecessor
company of Polaris from January 1993 to December 1994. Prior
thereto and since 1986, he was Assistant Treasurer of a
predecessor company of Polaris. Mr. Malone joined Polaris
in 1984 after four years with Arthur Andersen LLP.
Mr. Swenson has been Vice President Snowmobiles
and PG&A since November 2007. Prior to his current
position, Mr. Swenson was General Manager of the Snowmobile
Division since April 2006 and General Manager of the PG&A
Division beginning in May 2001. In 1998, Mr. Swenson joined
Polaris as Assistant Treasurer. Prior to joining Polaris,
Mr. Swenson was employed in various finance positions at
General Electric and Shell Oil Company.
13
The following are significant factors known to us that could
materially adversely affect our business, financial condition,
or operating results, as well as adversely affect the value of
an investment in our common stock.
Our
products are subject to extensive United States federal and
state and international safety, environmental and other
government regulation that may require us to incur expenses or
modify product offerings in order to maintain compliance with
the actions of regulators and could decrease the demand for our
products.
Our products are subject to extensive laws and regulations
relating to safety, environmental and other regulations
promulgated by the United States federal government and
individual states as well as international regulatory
authorities. Failure to comply with applicable regulations could
result in fines, increased expenses to modify our products and
harm to our reputation, all of which could have an adverse
effect on our operations. In addition, future regulations could
require additional safety standards or emission reductions that
would require additional expenses
and/or
modification of product offerings in order to maintain
compliance with applicable regulations. Our products are also
subject to laws and regulations that restrict the use or manner
of use during certain hours and locations, and these laws and
regulations could decrease the popularity and sales of our
products. We continue to monitor regulatory activities in
conjunction with industry associations and support balanced and
appropriate programs that educate the product user on safe use
of our products and how to protect the environment.
A
significant adverse determination in any material product
liability claim against us could adversely affect our operating
results or financial condition.
The manufacture, sale and usage of our products expose us to
significant risks associated with product liability claims. If
our products are defective or used incorrectly by our customers,
bodily injury, property damage or other injury, including death,
may result and this could give rise to product liability claims
against us or adversely affect our brand image or reputation.
Any losses that we may suffer from any liability claims, and the
effect that any product liability litigation may have upon the
reputation and marketability of our products, may have a
negative impact on our business and operating results.
Because of the high cost of product liability insurance premiums
and the historically insignificant amount of product liability
claims paid by us, we were self-insured from 1985 to 1996. In
1996, we purchased excess insurance coverage for catastrophic
product liability claims for incidents occurring subsequent to
the policy date that exceeded our self-insured retention levels.
Since September 2002, due to insurance market conditions
resulting in significantly higher proposed premium costs, we
have elected not to purchase insurance for product liability
losses. The estimated costs resulting from any losses are
charged to expense when it is probable a loss has been incurred
and the amount of the loss is reasonably determinable.
We had a product liability reserve accrual on our balance sheet
of $12.0 million at December 31, 2010 for the possible
payment of pending claims related to continuing operations and
$1.6 million for discontinued operations for product
liability, regulatory and other legal costs related to marine
products. We believe such accruals are adequate. We do not
believe the outcome of any pending product liability litigation
will have a material adverse effect on our operations. However,
no assurance can be given that our historical claims record,
which did not include ATVs prior to 1985 or motorcycles and
side-by-side
vehicles prior to 1998, will not change or that material product
liability claims against us will not be made in the future.
Adverse determination of material product liability claims made
against us would have a material adverse effect on our financial
condition.
Significant
product repair and/or replacement due to product warranty claims
or product recalls could have a material adverse impact on the
results of operations.
We provide a limited warranty for ORVs for a period of six
months and for a period of one year for our snowmobiles and
motorcycles. We may provide longer warranties related to certain
promotional programs, as well as longer warranties in certain
geographical markets as determined by local regulations and
market conditions. We also provide a limited emission warranty
for certain emission-related parts in our ORVs, snowmobiles, and
motorcycles as required by the United States Environmental
Protection Agency and the California Air Resources Board.
Although we employ quality control procedures, sometimes a
product is distributed that needs repair or
14
replacement. Our standard warranties require us or our dealers
to repair or replace defective products during such warranty
periods at no cost to the consumer. Historically, product
recalls have been administered through our dealers and
distributors. The repair and replacement costs we could incur in
connection with a recall could adversely affect our business. In
addition, product recalls could harm our reputation and cause us
to lose customers, particularly if recalls cause consumers to
question the safety or reliability of our products.
Changing
weather conditions may reduce demand and negatively impact net
sales of certain of our products.
Lack of snowfall in any year in any particular geographic region
may adversely affect snowmobile retail sales and related
PG&A sales in that region. Additionally, to the extent that
unfavorable weather conditions are exacerbated by global climate
change or otherwise, our sales may be affected to a greater
degree than we have previously experienced. There is no
assurance that weather conditions could not have a material
effect on our sales of ORVs, snowmobiles, motorcycles, or
PG&A.
We
face intense competition in all product lines, including from
some competitors that have greater financial and marketing
resources. Failure to compete effectively against competitors
would negatively impact our business and operating
results.
The snowmobile, off-road vehicle, motorcycle and low emission
vehicle markets 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 our
competitors are more diversified and have financial and
marketing resources which are substantially greater than ours,
which allow these competitors to invest more heavily in
intellectual property, product development and advertising. If
we are not able to compete with new products or models of our
competitors, our future business performance may be materially
and adversely affected. Internationally, our products typically
face more competition where foreign competitors manufacture and
market products in their respective countries because that
allows those competitors to sell products at lower prices, which
could adversely affect our competitiveness. In addition, our
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. A failure
to effectively compete with these other competitors could have a
material adverse effect on our performance.
Termination
or interruption of informal supply arrangements could have a
material adverse effect on our business or results of
operations.
Pursuant to our informal agreements with Fuji in Japan, Fuji was
the sole manufacturer of our two-cycle snowmobile engines from
1968 to 1995. Fuji has manufactured engines for our ATV products
since their introduction in the spring of 1985 and remains a
major supplier of engines to us. Such engines are developed by
Fuji to our specific requirements. Although we have alternative
sources for our engines and do not currently have knowledge that
Fuji intends to terminate supplying engines to us, a termination
of the supply relationship with Fuji would materially adversely
affect our production until substitute supply arrangements for
the quantity of engines required by us could be established.
There can be no assurance that alternate supply arrangements
will be made on satisfactory terms. If we need to enter into
supply arrangements on unsatisfactory terms, or if there are any
delays to our supply arrangements, it could adversely affect our
business and operating results.
Fluctuations
in foreign currency exchange rates could result in declines in
our reported sales and net earnings.
The changing relationships of primarily the United States dollar
to the Canadian dollar, the Euro, the Japanese yen and certain
other foreign currencies, have from time to time had a negative
impact on our results of operations because fluctuations in the
value of the United States dollar relative to these foreign
currencies can adversely affect the price of our products in
foreign markets and the costs we incur to import certain
components for our products. While we actively manage our
exposure to fluctuating foreign currency exchange rates by
entering into foreign exchange hedging contracts from time to
time, these contracts hedge foreign currency denominated
transactions
15
and any change in the fair value of the contracts would be
offset by changes in the underlying value of the transactions
being hedged.
Our
business may be sensitive to economic conditions that impact
consumer spending.
Our results of operations may be sensitive to changes in overall
economic conditions that impact consumer spending, including
discretionary spending. Weakening of, and fluctuations in,
economic conditions affecting disposable consumer income such as
employment levels, business conditions, changes in housing
market conditions, capital markets, tax rates, savings rates,
interest rates, fuel and energy costs, the impacts of natural
disasters and acts of terrorism and other matters including the
availability of consumer credit could reduce consumer spending
or reduce consumer spending on powersports products. A general
reduction in consumer spending or a reduction in consumer
spending on powersports products could adversely affect our
sales growth and profitability. In addition, we have a financial
services partnership arrangement with a subsidiary of General
Electric Company that requires us to repurchase products
financed and repossessed by the partnership, subject to certain
limitations. For calendar year 2010, our maximum aggregate
repurchase obligation was approximately $81.4 million. If
adverse changes to economic conditions result in increased
defaults on the loans made by this financial services
partnership, our repurchase obligation under the partnership
arrangement could adversely affect our liquidity and harm our
business.
We
depend on dealers, suppliers, financing sources and other
strategic partners who may be sensitive to economic conditions
that could affect their businesses in a manner that adversely
affects their relationship with us.
We distribute our products through numerous dealers and
distributors, sources component parts and raw materials through
numerous suppliers and have relationships with a limited number
of sources of product financing for our dealers and consumers.
Our sales growth and profitability could be adversely affected
if a further deterioration of economic or business conditions
results in a weakening of the financial condition of a material
number of our dealers and distributors, suppliers or financing
sources or if uncertainty about the economy or the demand for
our products causes these business partners to voluntarily or
involuntarily reduce or terminate their relationship with us.
Retail
credit market deterioration and volatility may restrict the
ability of our retail customers to finance the purchase of our
products and adversely affect our income from financial
services.
We have arrangements with each of HSBC, Sheffield and GE Bank to
make retail financing available to consumers who purchase our
products in the United States. During 2010, consumers financed
approximately 33 percent of the vehicles we sold in the
United States through the HSBC revolving retail credit, and
Sheffield and GE Bank installment retail credit programs.
Furthermore, some customers use financing from lenders who do
not partner with us. There can be no assurance that retail
financing will continue to be available in the same amounts and
under the same terms that had previously been available to our
customers. If retail financing is not available to customers on
satisfactory terms, it is possible that our sales and
profitability could be adversely affected. During the first
quarter of 2008, HSBC notified us that the profitability to HSBC
of the 2005 contractual arrangement was unacceptable and, absent
some modification of that arrangement, HSBC might significantly
tighten its underwriting standards for our customers, reducing
the number of qualified retail credit customers who would be
able to obtain credit from HSBC. In order to avoid the potential
reduction of revolving retail credit available to our consumers,
we agreed to forgo the receipt of a volume based fee provided
for under our agreement with HSBC effective March 1, 2008.
We anticipate that the elimination of the volume based fee will
continue and that HSBC will continue to provide revolving retail
credit to qualified customers through the end of the contract
term on October 31, 2013.
We
intend to grow our business through potential acquisitions,
alliances and new joint ventures and partnerships, which could
be risky and could harm our business.
One of our growth strategies is to drive growth in our
businesses and accelerate opportunities to expand our global
presence through targeted acquisitions, alliances, and new joint
ventures and partnerships that add value while considering our
existing brands and product portfolio. The benefits of an
acquisition or new joint venture or
16
partnership may take more time than expected to develop or
integrate into our operations, and we cannot guarantee that
acquisitions, alliances, joint ventures, or partnerships will in
fact produce any benefits. In addition, acquisitions, alliances,
joint ventures, and partnerships involve a number of risks,
including:
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diversion of managements attention;
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difficulties in integrating and assimilating the operations and
products of an acquired business or in realizing projected
efficiencies, cost savings, and synergies;
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potential loss of key employees or customers of the acquired
businesses or adverse effects on existing business relationships
with suppliers and customers;
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adverse impact on overall profitability if acquired businesses
do not achieve the financial results projected in our valuation
models;
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reallocation of amounts of capital from other operating
initiatives
and/or an
increase in our leverage and debt service requirements to pay
the acquisition purchase prices, which could in turn restrict
our ability to access additional capital when needed or to
pursue other important elements of our business strategy;
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inaccurate assessment of undisclosed, contingent or other
liabilities or problems, unanticipated costs associated with an
acquisition, and an inability to recover or manage such
liabilities and costs;
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incorrect estimates made in the accounting for acquisitions,
incurrence of non-recurring charges, and
write-off of
significant amounts of goodwill or other assets that could
adversely affect our operating results;
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dilution to existing shareholders if our securities are issued
as part of transaction consideration or to fund transaction
consideration; and
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inability to direct the management and policies of a joint
venture, alliance, or partnership, where other participants may
be able to take action contrary to our instructions or requests
and against our policies and objectives.
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Our ability to grow through acquisitions will depend, in part,
on the availability of suitable acquisition targets at
acceptable prices, terms, and conditions, our ability to compete
effectively for these acquisition candidates, and the
availability of capital and personnel to complete such
acquisitions and run the acquired business effectively. These
risks could be heightened if we complete a large acquisition or
multiple acquisitions within a relatively short period of time.
Any potential acquisition could impair our operating results,
and any large acquisition could impair our financial condition,
among other things.
Our
transition to a new dealer ordering process could affect our
sales and profitability during the transition
period.
Over the past several years we have been transitioning our North
American ORV dealers to the Maximum Velocity Program, an
enhanced dealer ordering process. Currently 100 percent of
our ORV dealers in North America are using the enhanced ordering
process. The ordering process negatively impacts sales during
the transition period because dealers place smaller, more
frequent orders which allow them to operate with lower inventory
levels. As a result, our results of operations during the
transition period may fluctuate more compared to similar periods
in prior years.
We may
encounter difficulties in our manufacturing realignment
initiatives, which could adversely affect our operating results
or financial condition.
In May 2010, we announced our plans to realign our manufacturing
operations footprint by enhancing our Roseau, Minnesota and
Spirit Lake, Iowa production facilities and establishing a new
facility in Mexico. The realignment is planned to lead to the
eventual sale or closure of our Osceola, Wisconsin manufacturing
operations by 2012. There are significant risks inherent in our
realignment initiatives. The realignment may not be accomplished
as quickly as anticipated and the expected cost reductions may
not fully materialize. We expect to record transition charges in
connection with the realignment efforts, including both exit
costs and startup costs, over the next few years. Even though we
anticipate that the realignment will ultimately result in
reduced transportation and
17
logistical expenses and increased operational efficiencies, we
give no assurance that we will be successful in implementing the
realignment efforts or that the amounts of our transition costs
or our cost savings will be as anticipated. Other risks and
uncertainties in connection with the realignment initiatives
include, but are not limited to, failing to ensure that:
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there is no negative impact to product quality or delivery to
customers as a result of shifting capacity;
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adequate raw material and other service providers are available
to meet the needs at the new production location;
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equipment can be successfully removed, transported and
re-installed; and
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adequate supervisory, production and support personnel are
available to accommodate the shift in production.
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In the event any of the risks or uncertainties related to the
manufacturing realignment initiatives occurs, we may not recoup
our investment, and we could experience lost future sales and
increased operating costs as well as customer relations
problems, which could have a material adverse effect on our
results of operations.
Increases
in the cost of raw material, commodity and transportation costs
and shortages of certain raw materials could negatively impact
our business.
The primary commodities used in manufacturing our products are
aluminum, steel and plastic resins as well as diesel fuel to
transport the products. Our profitability is affected by
significant fluctuations in the prices of the raw materials and
commodities we use in our products. We may not be able to pass
along any price increases in our raw materials to our customers.
As a result, an increase in the cost of raw materials,
commodities, labor or other costs associated with the
manufacturing of our products could increase our costs of sales
and reduce our profitability.
Our
reliance upon patents, trademark laws, and contractual
provisions to protect our proprietary rights may not be
sufficient to protect our intellectual property from others who
may sell similar products and may lead to costly
litigation.
We hold patents and trademarks relating to various aspects of
our products, such as our patented on demand
all-wheel drive, and believe that proprietary technical know-how
is important to our business. Proprietary rights relating to our
products are protected from unauthorized use by third parties
only to the extent that they are covered by valid and
enforceable patents or trademarks or are maintained in
confidence as trade secrets. We cannot be certain that we will
be issued any patents from any pending or future patent
applications owned by or licensed to us or that the claims
allowed under any issued patents will be sufficiently broad to
protect our technology. In the absence of enforceable patent or
trademark protection, we may be vulnerable to competitors who
attempt to copy our products, gain access to our trade secrets
and know-how or diminish our brand through unauthorized use of
our trademarks, all of which could adversely affect our
business. Others may initiate litigation to challenge the
validity of our patents, or allege that we infringe their
patents, or they may use their resources to design comparable
products that do not infringe our patents. We may incur
substantial costs if our competitors initiate litigation to
challenge the validity of our patents, or allege that we
infringe their patents, or if we initiate any proceedings to
protect our proprietary rights. If the outcome of any such
litigation is unfavorable to us, our business, operating
results, and financial condition could be adversely affected.
Regardless of whether litigation relating to our intellectual
property rights is successful, the litigation could
significantly increase our costs and divert managements
attention from operation of our business, which could adversely
affect our results of operations and financial condition. We
also cannot be certain that our products or technologies have
not infringed or will not infringe the proprietary rights of
others. Any such infringement could cause third parties,
including our competitors, to bring claims against us, resulting
in significant costs, possible damages and substantial
uncertainty.
18
Fifteen
percent of our total sales are generated outside of North
America, and we intend to continue to expand our international
operations. Our international operations require significant
management attention and financial resources, expose us to
difficulties presented by international economic, political,
legal, accounting, and business factors, and may not be
successful or produce desired levels of sales and
profitability.
We manufacture the substantial majority of our products in the
United States and plan to begin manufacturing products in Mexico
in 2011. We sell our products throughout the world and maintain
sales and administration facilities in Canada, France, Norway,
Sweden, United Kingdom, Switzerland, Germany, Spain, Australia,
China and Brazil. Our primary distribution facility is in
Vermillion, South Dakota which distributes PG&A products to
our North American dealers and we have various other locations
around the world that distribute PG&A to our international
dealers and distributors and one of our significant engine
suppliers is located in Japan. Our total sales outside North
America were 15 percent, 16 percent, and
16 percent of our total sales for fiscal 2010, 2009, and
2008, respectively. International markets have, and will
continue to be, a focus for sales growth. We believe many
opportunities exist in the international markets, and over time
we intend for international sales to comprise a larger
percentage of our total sales. Several factors, including
weakened international economic conditions, could adversely
affect such growth. Additionally, the expansion of our existing
international operations and entry into additional international
markets require significant management attention and financial
resources. Some of the countries in which we sell our products,
or otherwise have an international presence, are to some degree
subject to political, economic
and/or
social instability. Our international operations expose us and
our representatives, agents and distributors to risks inherent
in operating in foreign jurisdictions. These risks include:
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increased costs of customizing products for foreign countries;
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difficulties in managing and staffing international operations
and increases in infrastructure costs including legal, tax,
accounting, and information technology;
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the imposition of additional United States and foreign
governmental controls or regulations; new or enhanced trade
restrictions and restrictions on the activities of foreign
agents, representatives, and distributors; and the imposition of
increases in costly and lengthy import and export licensing and
other compliance requirements, customs duties and tariffs,
license obligations, and other non-tariff barriers to trade;
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the imposition of United States
and/or
international sanctions against a country, company, person, or
entity with whom we do business that would restrict or prohibit
our continued business with the sanctioned country, company,
person, or entity;
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international pricing pressures;
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laws and business practices favoring local companies;
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adverse currency exchange rate fluctuations;
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longer payment cycles and difficulties in enforcing agreements
and collecting receivables through certain foreign legal systems;
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difficulties in enforcing or defending intellectual property
rights; and
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multiple, changing, and often inconsistent enforcement of laws,
rules, and regulations, including rules relating to
environmental, health, and safety matters.
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Our international operations may not produce desired levels of
total sales or one or more of the factors listed above may harm
our business and operating results. Any material decrease in our
international sales or profitability could also adversely impact
our operating results.
19
If we
are unable to continue to enhance existing products and develop
and market new products that respond to customer needs and
preferences and achieve market acceptance, we may experience a
decrease in demand for our products, and our business could
suffer.
One of our growth strategies is to develop innovative,
customer-valued products to generate revenue growth. Our sales
from new products in the past have represented a significant
component of our sales and are expected to continue to represent
a significant component of our future sales. We may not be able
to compete as effectively with our competitors, and ultimately
satisfy the needs and preferences of our customers, unless we
can continue to enhance existing products and develop new
innovative products in the global markets in which we compete.
Product development requires significant financial,
technological, and other resources. While we expended
$84.9 million, $63.0 million and $77.5 million
for research and development in 2010, 2009 and 2008,
respectively, there can be no assurance that this level of
investment in research and development will be sufficient to
maintain our competitive advantage in product innovation which
could cause our business to suffer. Product improvements and new
product introductions also require significant planning, design,
development, and testing at the technological, product, and
manufacturing process levels and we may not be able to timely
develop product improvements or new products. Our
competitors new products may beat our products to market,
be more effective with more features
and/or less
expensive than our products, obtain better market acceptance, or
render our products obsolete. Any new products that we develop
may not receive market acceptance or otherwise generate any
meaningful sales or profits for us relative to our expectations
based on, among other things, existing and anticipated
investments in manufacturing capacity and commitments to fund
advertising, marketing, promotional programs, and research and
development.
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Item 1B.
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Unresolved
Staff Comments
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Not Applicable.
20
The following sets forth the Companys material facilities
as of December 31, 2010:
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Owned or
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Square
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Location
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Facility Type/Use
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Leased
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Footage
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Medina, Minnesota
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Headquarters
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Owned
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130,000
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Spirit Lake, Iowa
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Whole Goods Manufacturing
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Owned
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258,000
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Roseau, Minnesota
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Whole Goods Manufacturing and R&D
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Owned
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635,000
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Monterrey, Mexico
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Whole Goods Manufacturing
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Leased
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425,000
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Osceola, Wisconsin
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Component Parts Manufacturing
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Owned
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188,800
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Osceola, Wisconsin
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Engine Manufacturing
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Owned
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97,000
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Roseau, Minnesota
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Injection Molding manufacturing
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Owned
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76,800
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Wyoming, Minnesota
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Research and Development facility
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Owned
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127,000
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Burgdorf, Switzerland
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Research and Development facility
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Leased
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13,600
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Vermillion, South Dakota
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Distribution Center
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Owned
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385,000
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Vermillion, South Dakota
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Distribution Center
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Leased
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33,000
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Milford, Iowa
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Wholegoods Distribution
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Leased
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135,000
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St. Paul, Minnesota
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Wholegoods Distribution
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Leased
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110,000
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Brooklyn Park, Minnesota
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Wholegoods Distribution
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Leased
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65,000
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E. Syracuse, New York
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Wholegoods Distribution
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Leased
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40,000
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Redlands, California
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Wholegoods Distribution
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Leased
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40,000
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Nashville, Tennessee
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Wholegoods Distribution
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Leased
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37,500
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Irving, Texas
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Wholegoods Distribution
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Leased
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65,000
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Tacoma, Washington
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Wholegoods Distribution
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Leased
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15,000
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Askim, Norway
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Office facility
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Leased
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10,800
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Barcelona, Spain
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Office facility
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Leased
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4,300
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Birmingham, United Kingdom
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Office facility
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Leased
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6,500
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Griesheim, Germany
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Office facility
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Leased
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3,200
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Rolle, Switzerland
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Office Facility
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Leased
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8,000
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Sao Paulo, Brazil
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Office Facility
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Leased
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200
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Shanghai, China
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Office Facility
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Leased
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1,500
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Winnipeg, Canada
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Office facility
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Leased
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12,000
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Ballarat, Australia
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Office and Distribution facility
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|
Leased
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9,200
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Ostersund, Sweden
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Office and Distribution facility
|
|
Leased
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14,300
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Passy, France
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Office and Distribution facility
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Leased
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10,000
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Roseau, Minnesota
|
|
Warehouse (various locations)
|
|
Leased
|
|
|
33,600
|
|
Spirit Lake, Iowa
|
|
Warehouse
|
|
Leased
|
|
|
90,000
|
|
Melbourne, Australia
|
|
Retail store
|
|
Leased
|
|
|
9,600
|
|
Sydney, Australia
|
|
Retail store
|
|
Leased
|
|
|
13,000
|
|
We own substantially 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 our products. We make ongoing
capital investments in our facilities. These investments have
increased production capacity for ORVs, snowmobiles and
motorcycles. We believe our manufacturing and distribution
facilities are adequate in size and suitable for our present
manufacturing and distribution needs.
|
|
Item 3.
|
Legal
Proceedings
|
We are involved in a number of legal proceedings incidental to
our business, none of which is expected to have a material
effect on the financial results of our business.
|
|
Item 4.
|
(Removed
and Reserved)
|
21
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
The information under the caption Other Investor
Information appearing on the inside back cover of the
Companys 2010 Annual Report is incorporated herein by
reference. On February 16, 2011, the last reported sale
price for shares of our common stock on the New York Stock
Exchange was $77.97 per share.
STOCK
PERFORMANCE GRAPH
The graph below compares the five-year cumulative total return
to shareholders (stock price appreciation plus reinvested
dividends) for the Companys common stock with the
comparable cumulative return of three indexes: Russell 2000
Index and Morningstars Recreational Vehicles Industry
Group Index and Hemscotts Recreational Vehicles Industry
Group Index. The graph assumes the investment of $100 at the
close on December 31, 2005 in common stock of the Company
and in each of the indexes, and the reinvestment of all
dividends. Points on the graph represent the performance as of
the last business day of each of the years indicated.
Comparison
of 5-Year
Cumulative Total Return Among
Polaris Industries Inc., Russell 2000 Index and Recreational
Vehicles Indices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Polaris Industries Inc.
|
|
$
|
100.00
|
|
|
$
|
95.90
|
|
|
$
|
100.52
|
|
|
$
|
62.59
|
|
|
$
|
100.09
|
|
|
$
|
183.99
|
|
Russell 2000 Index
|
|
|
100.00
|
|
|
|
118.37
|
|
|
|
116.51
|
|
|
|
77.15
|
|
|
|
98.11
|
|
|
|
124.46
|
|
Recreational Vehicles Industry Group Index
Morningstar Group*
|
|
|
100.00
|
|
|
|
125.63
|
|
|
|
91.43
|
|
|
|
37.05
|
|
|
|
60.91
|
|
|
|
85.04
|
|
Recreational Vehicles Industry Group Index Hemscott
Group*
|
|
|
100.00
|
|
|
|
125.12
|
|
|
|
90.28
|
|
|
|
35.21
|
|
|
|
62.29
|
|
|
|
93.62
|
|
|
|
|
* |
|
The Hemscott Recreational Vehicles Industry Group Index is
being retired in favor of the Morningstar Recreational Vehicles
index, a result of Morningstars acquisition of Hemscott.
There are minor differences in the Companies included in each
index. For 2010 we will show both indices for consistency. Going
forward, we will include only the Morningstar Recreational
Vehicles Industry Group Index. |
Assumes $100
Invested at the close on December 31, 2005
Assumes Dividend Reinvestment
Fiscal Year Ended December 31, 2010
Source: Morningstar, Inc.
22
The Company made no purchases of equity securities during the
fourth quarter of the fiscal year ended December 31, 2010.
The Board of Directors previously authorized a share repurchase
program to repurchase up to an aggregate of 37.5 million
shares of the Companys common stock (the
Program). Of that total, approximately
34.4 million shares have been repurchased cumulatively from
1996 through December 31, 2010.
|
|
Item 6.
|
Selected
Financial Data
|
The information under the caption
11-Year
Selected Financial Data appearing on pages 6 and 7 of our
2010 Annual Report is incorporated herein by reference.
|
|
Item 7.
|
Managements
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, 2010, and should be
read in conjunction with the Consolidated Financial Statements
and the Notes thereto included elsewhere in this report.
Overview
At the beginning of 2010, we challenged our employees to
Make Growth Happen, and felt confident that it could
rebound from the recession and deliver moderate year over year
improvement in sales and earnings. Throughout the year, each
Polaris business and function performed extremely well and, as a
result, sales and earnings growth surpassed our highest stretch
goals.
While our 2010 predictions for the overall economy and the
powersports industry were relatively accurate, we underestimated
the market share gains and corresponding retail sales increase
that were the primary sources of the years performance.
Our total 2010 North American retail sales to consumers
increased 15 percent from 2009, helping to drive total
Company recorded sales to a record $1, 991.1 million, up
27 percent from 2009 and $42.8 million above the
previous record set in 2008.
The dramatic success of our
side-by-side
ORV business drove a significant portion of our sales growth.
However, it is also important to note how well the Victory
motorcycle business performed in the face of a weak heavyweight
motorcycle industry, and how effectively our European team
worked to overcome the difficult economic situation in many of
their markets. For the year ended December 31, 2010, we
reported net income of $147.1 million, or $4.28 per diluted
share, an increase of 46 percent and 40 percent,
respectively, compared to $101.0 million, or $3.05 per
diluted share, for the year ended December 31, 2009. Our
strong earnings performance contributed to a record year-end
cash balance, and we are pleased to be in the position to fund a
wide variety of growth initiatives and capital investments in
the years ahead.
The performance generated in 2010 was largely the result of the
successful execution of our long-term strategy. Our number one
objective is to be the Best in Powersports PLUS, as it fuels our
passion and funds its growth and diversification. The Company
saw sales growth in every product line and geography during
2010. Off-Road Vehicles is the largest product line representing
69 percent of our sales in 2010, Snowmobiles accounted for
10 percent of 2010 total sales, the On-Road Vehicles
Division represented four percent and PG&A represented
17 percent of 2010 total Company sales. The Company sells
its products through a network of approximately 1, 600 dealers
in North America (United States and Canada) and 11 subsidiaries
and 43 distributors in approximately 130 countries outside of
North America. Growth through adjacencies is critical to our
diversification efforts and will enable us to accelerate growth
in new markets. The Bobcat product sourcing relationship met our
2010 sales expectations and continues to grow. The neighborhood
electric vehicle business and the military business fell short
of our 2010 sales expectations, but both expanded their product
offering and distribution opportunities. During 2010, our
international team carefully balanced strong execution of our
current business with key strategic investments to position us
for growth in China, India and Brazil. International sales to
customers outside of North America grew 21 percent to a
record $305.9 million in 2010. The new Monterrey, Mexico
manufacturing plant is on target to begin production mid- 2011
and the global operations team continues to drive waste out of
other areas of the business with LEAN and other Operational
Excellence tools.
23
On January 20, 2011, we announced that our Board of
Directors approved a 13 percent increase in the regular
quarterly cash dividend to $0.45 per share per quarter,
representing the 16th consecutive year of increased
dividends.
Results
of Operations
Sales:
Sales were $1,991.1 million for 2010, a 27 percent
increase from $1,565.9 million in sales for the same period
in 2009. The following table is an analysis of the percentage
change in total Company sales for 2010 compared to 2009 and 2009
compared to 2008:
|
|
|
|
|
|
|
|
|
|
|
Percent Change in Total
|
|
|
|
Company Sales for the Years
|
|
|
|
Ended December 31
|
|
|
|
2010 vs. 2009
|
|
|
2009 vs. 2008
|
|
|
Volume
|
|
|
21
|
%
|
|
|
−29
|
%
|
Product mix and price
|
|
|
4
|
%
|
|
|
10
|
%
|
Currency
|
|
|
2
|
%
|
|
|
−1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
%
|
|
|
−20
|
%
|
|
|
|
|
|
|
|
|
|
Volume for 2010 increased 21 percent compared to 2009. This
increase is due to the Company shipping more ORV and on-road
vehicles, snowmobiles and related PG&A items to dealers
than during 2009, as consumer retail demand increased for our
products. Product mix and price increased for 2010 compared to
2009 primarily due to the increased shipments of
side-by-side
vehicles to dealers during 2010 compared to 2009.
Side-by-side
vehicles typically have a higher selling price than our other
ORV products. Increased sales of Victory motorcycles also
contributed to the improved mix of products. Additionally, we
realized select selling price increases on several of the new
model year products.
Volume for the 2009 decreased 29 percent compared to in
2008. This decrease is due to the Company shipping fewer ORV and
on-road vehicles, snowmobiles and related PG&A items to
dealers than during 2008 given the continued overall weak
economic environment and more dealers transitioning to the MVP
which some dealers began utilizing in 2008 and 2009, which
during the initial startup phase inherently requires lower
dealer inventory levels. Dealer inventory levels declined
24 percent in 2009 compared to 2008. Product mix and price
increased for 2009 compared to 2008 primarily due to shipments
of
side-by-side
vehicles to dealers declining less than shipments of other ORV
products during 2009 compared to 2008. Additionally, we realized
select selling price increases on several of the new model year
products.
Total company sales by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
Change
|
|
|
|
|
|
Percent
|
|
|
Change
|
|
|
|
|
|
|
of Total
|
|
|
|
|
|
of Total
|
|
|
2010 vs.
|
|
|
|
|
|
of Total
|
|
|
2009 vs.
|
|
($ in millions)
|
|
2010
|
|
|
Sales
|
|
|
2009
|
|
|
Sales
|
|
|
2009
|
|
|
2008
|
|
|
Sales
|
|
|
2008
|
|
|
Off-Road Vehicles
|
|
$
|
1,376.4
|
|
|
|
69
|
%
|
|
$
|
1,021.1
|
|
|
|
65
|
%
|
|
|
35
|
%
|
|
$
|
1,305.8
|
|
|
|
67
|
%
|
|
|
−22
|
%
|
Snowmobiles
|
|
|
188.9
|
|
|
|
10
|
%
|
|
|
179.3
|
|
|
|
12
|
%
|
|
|
5
|
%
|
|
|
205.3
|
|
|
|
10
|
%
|
|
|
−13
|
%
|
On-Road Vehicles
|
|
|
81.6
|
|
|
|
4
|
%
|
|
|
52.8
|
|
|
|
3
|
%
|
|
|
55
|
%
|
|
|
93.6
|
|
|
|
5
|
%
|
|
|
−44
|
%
|
PG&A
|
|
|
344.2
|
|
|
|
17
|
%
|
|
|
312.7
|
|
|
|
20
|
%
|
|
|
10
|
%
|
|
|
343.6
|
|
|
|
18
|
%
|
|
|
−9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
$
|
1,991.1
|
|
|
|
100
|
%
|
|
$
|
1,565.9
|
|
|
|
100
|
%
|
|
|
27
|
%
|
|
$
|
1,948.3
|
|
|
|
100
|
%
|
|
|
−20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ORV sales of $1,376.4 million in 2010, which includes both
core ATV and
RANGER®,
side-by-side
vehicles, increased 35 percent from 2009. This increase
reflects continued market share gains for both ATVs and
side-by-side
vehicles driven by industry leading product offerings. North
American dealer inventories of ATVs continued to decline,
decreasing 33 percent from 2009. Our North American ORV
unit retail sales to consumers increased approximately
15 percent for 2010 compared to the 2009 with
side-by-side
vehicle retail sales increasing in the mid
24
30 percent range year over year and ATV retail sales about
flat with the prior year. Given the growth in our ORV business
worldwide, we have widened our market share leadership in
off-road vehicles in both North America and Europe in 2010
compared to 2009.
ORV sales of $1,021.1 million in 2009 decreased
22 percent from 2008. This decrease reflects the overall
weakness in the consumer retail environment, more dealers
transitioning to MVP, which during the initial startup phase
inherently requires lower dealer inventory levels, and our
continued commitment to helping dealers reduce their core ATV
inventory. North American dealer inventories of core ATVs were
down significantly at year end 2009, declining 35 percent
when compared to 2008 levels. North American retail sales for
ORVs decreased in the mid-teens percentage range for the full
year 2009 compared to 2008. The decrease was directly related to
the overall weak economic environment. However, we again gained
market share during 2009 compared to 2008, an indication of the
acceptance in the marketplace of our new product introductions
in recent years.
Snowmobile sales increased five percent to $188.9 million
for 2010 compared to 2009. This increase is primarily due to an
increase in retail sales resulting from heavy amounts of early
snowfall in many key riding areas in North America in the 2011
season-to-date
period and the success of model year 2011 new product
introductions. Sales of snowmobiles to customers outside of
North America, principally the Scandinavian region, also
experienced sales growth in 2010 compared to a year ago.
Snowmobile sales decreased 13 percent to
$179.3 million for 2009 compared to 2008. The decrease
reflected the weakness in the consumer retail environment both
in North America and international markets.
Sales of the On-Road Vehicles Division, which primarily consists
of Victory motorcycles, increased 55 percent to
$81.6 million during 2010 compared to 2009. The sales
increase reflects increased Victory North American unit retail
sales to consumers of over 20 percent and international
Victory motorcycle sales up significantly during 2010 when
compared to 2009, resulting in continued market share gains. The
North American heavyweight cruiser and touring motorcycle
industry remained weak during 2010. However, consumer demand
remains strong for Victorys new touring models, the Cross
Country and Cross Roads and in January 2011 we introduced the
Victory High-Ball, a custom cruiser aimed at the younger rider
looking for a classic factory custom motorcycle. North American
dealer inventory of Victory motorcycles declined approximately
30 percent in 2010 compared to 2009 levels. Sales of the
on-road Vehicles Division decreased 44 percent during 2009
compared to 2008 to $52.8 million. The decrease reflected
the weak heavyweight cruiser and touring motorcycle industry and
our continued planned reduction in shipments of Victory
motorcycles to dealers in North America to assist their
efforts to further reduce inventory levels. North American
dealer inventory of Victory motorcycles was 32 percent
lower at year end 2009 compared to 2008 levels.
Parts, Garments, and Accessories sales increased 10 percent
during 2010 compared to 2009 to $344.2 million primarily
due to increased ORV, Victory motorcycle and international
related PG&A sales. During 2010, we continued to innovate
with over 300 accessories introduced for new model year
vehicles. PG&A sales decreased nine percent during 2009
compared to 2008 to $312.7 million primarily due to the
lower retail sales of our vehicles during 2009. However, the
decline in sales was less than the overall company sales decline
as the large installed base of our owners remain loyal to our
brand and continue to purchase PG&A for their products.
Sales by geographic region for the 2010, 2009 and 2008 year
end periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
Change
|
|
|
|
|
|
Percent
|
|
|
Change
|
|
|
|
|
|
|
of Total
|
|
|
|
|
|
of Total
|
|
|
2010 vs.
|
|
|
|
|
|
of Total
|
|
|
2009 vs.
|
|
($ in millions)
|
|
2010
|
|
|
Sales
|
|
|
2009
|
|
|
Sales
|
|
|
2009
|
|
|
2008
|
|
|
Sales
|
|
|
2008
|
|
|
United States
|
|
$
|
1,405.9
|
|
|
|
71
|
%
|
|
$
|
1,074.2
|
|
|
|
69
|
%
|
|
|
31
|
%
|
|
$
|
1,371.1
|
|
|
|
70
|
%
|
|
|
−22
|
%
|
Canada
|
|
|
279.3
|
|
|
|
14
|
%
|
|
|
239.3
|
|
|
|
15
|
%
|
|
|
17
|
%
|
|
|
273.0
|
|
|
|
14
|
%
|
|
|
−12
|
%
|
Other foreign countries
|
|
|
305.9
|
|
|
|
15
|
%
|
|
|
252.4
|
|
|
|
16
|
%
|
|
|
21
|
%
|
|
|
304.2
|
|
|
|
16
|
%
|
|
|
−17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
$
|
1,991.1
|
|
|
|
100
|
%
|
|
$
|
1,565.9
|
|
|
|
100
|
%
|
|
|
27
|
%
|
|
$
|
1,948.3
|
|
|
|
100
|
%
|
|
|
−20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Significant regional trends were as follows:
United
States:
Sales in the United States for 2010 increased 31 percent
compared to 2009, primarily resulting from higher shipments in
all product lines due to market share gains driven by innovative
products. The United States represented 71 percent,
69 percent and 70 percent of total company sales in
2010, 2009 and 2008, respectively. Sales in the United States
for 2009 decreased 22 percent when compared to 2008
resulting from lower shipments of off-road and on-road vehicles,
snowmobiles and related PG&A items to dealers given the
overall weak economic environment and more dealers transitioning
to MVP, which during the initial startup phase inherently
requires lower dealer inventory levels.
Canada:
Canadian sales increased 17 percent in 2010 compared to
2009. Fluctuations in the Canadian currency rate compared to the
United States dollar accounted for a nine percent increase in
sales for 2010 compared to 2009. Increased volume was the
primary contributor for the remainder of the increase in 2010
due to strong retail sales demand in Canada for our products.
Canadian sales decreased 12 percent in 2009 compared to
2008. Fluctuations in the Canadian currency rate compared to the
United States dollar accounted for a five percent reduction in
sales for 2009 compared to 2008. Decreased volume was the
primary contributor for the remainder of the decrease in 2009
due to a slowdown in the Canadian economy.
Other
Foreign Countries:
Sales in other foreign countries, primarily in Europe, increased
21 percent for 2010 compared to 2009. Favorable currency
rates accounted for two percent of the increase for the
2010 year compared to 2009. The remainder of the increase
was primarily driven by higher volume largely related to market
share gains. Sales decreased 17 percent for 2009 compared
to 2008. Unfavorable currency rates accounted for six percent of
the change for the 2009 year compared to 2008. The
remainder of the decrease was primarily driven by lower volume
due to the weak global economic environment.
Cost of
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Change
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
2010 vs.
|
|
|
|
|
|
Total Cost of
|
|
|
Change
|
|
($ in millions)
|
|
2010
|
|
|
Cost of Sales
|
|
|
2009
|
|
|
Cost of Sales
|
|
|
2009
|
|
|
2008
|
|
|
Sales
|
|
|
2009 vs. 2008
|
|
|
Purchased materials and services
|
|
$
|
1,208.4
|
|
|
|
83
|
%
|
|
$
|
968.6
|
|
|
|
83
|
%
|
|
|
25
|
%
|
|
$
|
1,278.2
|
|
|
|
85
|
%
|
|
|
−24
|
%
|
Labor and benefits
|
|
|
151.9
|
|
|
|
10
|
%
|
|
|
108.1
|
|
|
|
9
|
%
|
|
|
41
|
%
|
|
|
131.0
|
|
|
|
9
|
%
|
|
|
−18
|
%
|
Depreciation and amortization
|
|
|
56.9
|
|
|
|
4
|
%
|
|
|
55.0
|
|
|
|
5
|
%
|
|
|
3
|
%
|
|
|
53.3
|
|
|
|
3
|
%
|
|
|
3
|
%
|
Warranty costs
|
|
|
43.7
|
|
|
|
3
|
%
|
|
|
41.0
|
|
|
|
3
|
%
|
|
|
7
|
%
|
|
|
40.0
|
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of Sales
|
|
$
|
1,460.9
|
|
|
|
100
|
%
|
|
$
|
1,172.7
|
|
|
|
100
|
%
|
|
|
25
|
%
|
|
$
|
1,502.5
|
|
|
|
100
|
%
|
|
|
−22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of sales
|
|
|
73.4
|
%
|
|
|
|
|
|
|
74.9
|
%
|
|
|
|
|
|
|
−150 basis
|
|
|
|
77.1
|
%
|
|
|
|
|
|
|
−220 basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
points
|
|
|
|
|
|
|
|
|
|
|
|
points
|
|
For 2010 cost of sales increased 25 percent to
$1,460.9 million compared to $1,172.7 million in 2009.
The increase in cost of sales in 2010 resulted primarily from
the effect of a 21 percent sales volume increase and a
richer mix of products on purchased materials and services, and
labor and benefits offset somewhat by continued product cost
reduction efforts in 2010. Warranty costs increased only seven
percent in spite of the volume increase due to improved product
quality. For the full year 2009, cost of sales decreased
22 percent to $1,172.7 million compared to
$1,502.5 million in 2008. The decrease in cost of sales in
2009 resulted primarily from the effect of a 29 percent
sales volume reduction on purchased materials and services, and
labor and benefits. In addition, continued product cost
reduction efforts and lower commodity costs contributed to lower
costs for purchased materials and services in 2009.
26
Gross
Profit:
The following table reflects our gross profit in dollars and as
a percentage of sales for the 2010, 2009 and 2008 year end
periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
Change
|
|
|
|
Change
|
($ in millions)
|
|
2010
|
|
2009
|
|
2010 vs. 2009
|
|
2008
|
|
2009 vs. 2008
|
|
Gross profit dollars
|
|
$530.2
|
|
$393.2
|
|
35%
|
|
$445.7
|
|
−12%
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of sales
|
|
26.6%
|
|
25.1%
|
|
+150 basis points
|
|
22.9%
|
|
+220 basis points
|
For 2010 gross profit dollars increased 35 percent to
$530.2 million compared to 2009. Gross profit, as a
percentage of sales, improved 150 basis points to
26.6 percent compared to 25.1 percent for 2009. The
increase in gross profit dollars and the 150 basis points
increase in the gross profit margin percentage in 2010 resulted
primarily from higher volume, continued product cost reduction
efforts, higher selling prices and beneficial currency
movements. These increases were partially offset by
manufacturing realignment costs as well as higher sales
promotion costs. For 2009 gross profit dollars decreased
12 percent to $393.2 million compared to 2008. Gross
profit, as a percentage of sales, improved 220 basis points
to 25.1 percent compared to 22.9 percent for the full
year 2008. The increase in gross profit margin percentage in
2009 resulted primarily from continued product cost reduction
efforts, lower commodity costs, product mix benefit and higher
selling prices offset partially by unfavorable currency
movements.
Operating
Expenses:
The following table reflects our operating expenses in dollars
and as a percentage of sales for the 2010, 2009 and 2008 periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
($ in millions)
|
|
2010
|
|
|
2009
|
|
|
2010 vs. 2009
|
|
|
2008
|
|
|
2009 vs. 2008
|
|
|
Selling and marketing
|
|
$
|
142.4
|
|
|
$
|
111.1
|
|
|
|
28
|
%
|
|
$
|
137.0
|
|
|
|
−19
|
%
|
Research and development
|
|
|
84.9
|
|
|
|
63.0
|
|
|
|
35
|
%
|
|
|
77.5
|
|
|
|
−19
|
%
|
General and administrative
|
|
|
99.0
|
|
|
|
71.2
|
|
|
|
39
|
%
|
|
|
69.6
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
326.3
|
|
|
$
|
245.3
|
|
|
|
33
|
%
|
|
$
|
284.1
|
|
|
|
−14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of sales
|
|
|
16.4
|
%
|
|
|
15.7
|
%
|
|
|
+70 basis points
|
|
|
|
14.6
|
%
|
|
|
+110 basis points
|
|
Operating expenses for 2010 increased 33 percent to
$326.3 million compared to $245.3 million for 2009.
Operating expenses as a percentage of sales increased
70 basis points to 16.4 percent compared to
15.7 percent in 2009. Operating expenses in absolute
dollars and as a percentage of sales for 2010 increased
primarily due to an increase in performance-based incentive
compensation plan expenses of $50.1 million over 2009
driven by the higher profitability for 2010 and the recent
higher stock price, which reflects our pay for performance
compensation philosophy. In addition, incremental investments
made in global market expansion and new product development
initiatives contributed to the increase in operating expenses in
2010. Operating expenses for 2009 decreased 14 percent to
$245.3 million compared to $284.1 million for 2008.
Operating expenses in absolute dollars for 2009 decreased
$38.8 million primarily due to continued operating cost
control measures and the reduction in performance-based
incentive compensation plan expenses resulting from our lower
profitability in 2009. Operating expenses as a percentage of
sales were 15.7 percent for 2009, an increase from
14.6 percent in 2008, due primarily to lower sales volume
during 2009, partially offset by the implementation of operating
expense control measures.
27
Income
from Financial Services
The following table reflects our income from financial services
for the 2010, 2009 and 2008 periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
($ in millions)
|
|
2010
|
|
|
2009
|
|
|
2010 vs. 2009
|
|
|
2008
|
|
|
2009 vs. 2008
|
|
|
Equity in earnings of Polaris Acceptance
|
|
$
|
4.6
|
|
|
$
|
4.0
|
|
|
|
15
|
%
|
|
$
|
4.6
|
|
|
|
−13
|
%
|
Income from Securitization Facility
|
|
|
8.0
|
|
|
|
9.6
|
|
|
|
−17
|
%
|
|
|
8.6
|
|
|
|
12
|
%
|
Income from HSBC, Sheffield and GE Bank retail credit agreements
|
|
|
2.4
|
|
|
|
1.1
|
|
|
|
118
|
%
|
|
|
5.7
|
|
|
|
−81
|
%
|
Income from other financial services activities
|
|
|
1.9
|
|
|
|
2.4
|
|
|
|
−21
|
%
|
|
|
2.3
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from financial services
|
|
$
|
16.9
|
|
|
$
|
17.1
|
|
|
|
−1
|
%
|
|
$
|
21.2
|
|
|
|
−19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from financial services decreased one percent to
$16.9 million in 2010 compared to $17.1 million in
2009. This decrease is due to lower wholesale financing income
resulting from lower dealer inventories, which was somewhat
offset by higher retail credit income. Income from financial
services for 2009 decreased 19 percent to
$17.1 million compared to $21.2 million in 2008. This
decrease was due to our revolving retail credit provider, HSBC,
eliminating the volume-based fee income payment to us as of
March 1, 2008 partially offset by higher interest rates
paid to Polaris Acceptance by both Polaris and its dealers
during the 2009 fourth quarter.
Interest
Expense
Interest expense decreased to $2.7 million in 2010 compared
to $4.1 million in 2009. This decrease is due to lower
interest rates on our bank borrowings during the 2010 period.
Interest expense decreased to $4.1 million in 2009 compared
to $9.6 million in 2008. This decrease was due to lower
interest rates on our bank borrowings and lower average debt
outstanding during the 2009 period.
(Gain)
Loss on Securities Available for Sale
The net gain of $0.8 million in 2010 on securities
available for sale resulted from a $1.6 million gain on the
sale of our remaining investment in KTM during the 2010 third
quarter offset by a related non-cash impairment charge of
$0.8 million during the 2010 second quarter. In the first
quarter 2009, we recorded a non-cash impairment charge on
securities held for sales of $9.0 million from the decline
in the fair value of the KTM shares owned by us as of
March 31, 2009, when it was determined that the decline in
the fair value of the KTM shares owned by us was other than
temporary.
Other
Expense (Income), Net
Non-operating other expense (income) was $0.3 million of
expense, $0.7 million of expense, and $3.9 million of
income for 2010, 2009 and 2008, respectively. The changes
primarily relate to fluctuations of the U.S. dollar and the
resulting effects on currency hedging activities and foreign
currency transactions related to the foreign subsidiaries.
Provision
for Income Taxes
The income tax provision rate was similar for 2010, 2009 and
2008 and reflected an effective rate of 32.7, 33.2, and
33.7 percent of pretax income, respectively.
28
Reported
Net Income
The following table reflects our reported net income for the
2010, 2009 and 2008 periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
($ in millions)
|
|
2010
|
|
|
2009
|
|
|
2010 vs. 2009
|
|
|
2008
|
|
|
2009 vs. 2008
|
|
Net Income
|
|
$
|
147.1
|
|
|
$
|
101.0
|
|
|
|
46
|
%
|
|
$
|
117.4
|
|
|
|
−14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
4.28
|
|
|
$
|
3.05
|
|
|
|
40
|
%
|
|
$
|
3.50
|
|
|
|
−13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding
The weighted average diluted shares outstanding for 2010, 2009
and 2008 were 34.4 million, 33.1 million and
33.6 million shares, respectively. The increase in weighted
average diluted shares outstanding for 2010 compared to 2009 is
due to no open market share repurchases under our stock
repurchase program, the issuance of shares under employee
compensation plans, and the higher dilutive effect of stock
options outstanding due to a higher stock price in 2010. The
decrease in the average diluted shares outstanding for 2009
compared to 2008 is due principally to our share repurchase
activity.
Critical
Accounting Policies
The significant accounting policies that management believes are
the most critical to aid in fully understanding and evaluating
our reported financial results include the following: revenue
recognition, sales promotions and incentives, share-based
employee compensation, dealer holdback programs, product
warranties and product liability.
Revenue recognition: Revenues are recognized
at the time of shipment to the dealer, distributor or other
customers. Historically, product returns, whether in the normal
course of business or resulting from repurchases made under the
floorplan financing program, have not been material. However, we
have agreed to repurchase products repossessed by the finance
companies up to certain limits. Our financial exposure 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. We have not historically recorded any
significant sales return allowances because it has not been
required to repurchase a significant number of units. However,
an adverse change in retail sales could cause this situation to
change.
Sales promotions and incentives: We generally
provide for estimated sales promotion and incentive expenses,
which are recognized as a reduction to sales, at the time of
sale to the dealer or distributor. Examples of sales promotion
and incentive programs include dealer and consumer rebates,
volume incentives, retail financing programs and sales associate
incentives. Sales promotion and incentive expenses are estimated
based on current programs and historical rates for each product
line. We record these amounts as a liability in the consolidated
balance sheet until they are ultimately paid. At
December 31, 2010 and 2009, accrued sales promotions and
incentives were $75.5 million and $67.1 million,
respectively, resulting from an increase in the core ATV and
snowmobile sales promotions and incentives cost environment
offset by a reduction in units in dealer inventory during 2010.
Actual results may differ from these estimates if market
conditions dictate the need to enhance or reduce sales promotion
and incentive programs or if the customer usage rate varies from
historical trends. Adjustments to sales promotions and
incentives accruals are made from time to time as actual usage
becomes known in order to properly estimate the amounts
necessary to generate consumer demand based on market conditions
as of the balance sheet date. Historically, actual sales
promotion and incentive expenses have been within our
expectations and differences have not been material.
Share-based employee compensation: We
recognize in the financial statements the grant-date fair value
of stock options and other equity-based compensation issued to
employees. Determining the appropriate fair-value model and
calculating the fair value of share-based awards at the date of
grant requires judgment. The Company utilizes the Black-Scholes
option pricing model to estimate the fair value of employee
stock options. Option pricing models, including the
Black-Scholes model, also require the use of input assumptions,
including expected volatility, expected life, expected dividend
rate, and expected risk-free rate of return. The Company
utilizes historical
29
volatility as it believes this is reflective of market
conditions. The expected life of the awards is based on
historical exercise patterns. The risk-free interest rate
assumption is based on observed interest rates appropriate for
the terms of awards. The dividend yield assumption is based on
our history of dividend payouts. We develop an estimate of the
number of share-based awards which will be forfeited due to
employee turnover. Changes in the estimated forfeiture rate can
have a significant effect on reported share-based compensation,
as the effect of adjusting the rate for all expense amortization
is recognized in the period the forfeiture estimate is changed.
If the actual forfeiture rate is higher or lower than the
estimated forfeiture rate, then an adjustment is made to
increase or decrease the estimated forfeiture rate, which will
result in a decrease or increase to the expense recognized in
the financial statements. If forfeiture adjustments are made,
they would affect our gross margin and operating expenses.
We estimate the likelihood and the rate of achievement for
performance sensitive share-based awards, specifically long-term
compensation grants of long term incentive plan
(LTIP) and restricted stock. Changes in the
estimated rate of achievement can have a significant effect on
reported share-based compensation expenses as the effect of a
change in the estimated achievement level is recognized in the
period that the likelihood factor changes. If adjustments in the
estimated rate of achievement are made, they would be reflected
in our gross margin and operating expenses.
Dealer holdback programs: We provide dealer
incentive programs whereby at the time of shipment we withhold
an amount from the dealer until ultimate retail sale of the
product. We record these amounts as a liability on the
consolidated balance sheet until they are ultimately paid.
Payments are generally made to dealers twice each year, in the
first quarter and the third quarter, subject to previously
established criteria. We recorded accrued liabilities of
$79.7 million and $72.2 million for dealer holdback
programs in the consolidated balance sheets as of
December 31, 2010 and 2009, respectively.
Product warranties: We provide a limited
warranty for ORVs for a period of six months and for a period of
one year for our snowmobiles and motorcycles. We may provide
longer warranties related to certain promotional programs, as
well as longer warranties in certain geographical markets as
determined by local regulations and market conditions. Our
standard warranties require us or our dealers to repair or
replace defective products during such warranty periods at no
cost to the consumers. The warranty reserve is established at
the time of sale to the dealer or distributor based on
managements best estimate using historical rates and
trends. We record these amounts as a liability in the
consolidated balance sheet until they are ultimately paid. At
December 31, 2010 and 2009, the accrued warranty liability
was $32.7 million and $25.5 million, respectively.
Adjustments to the warranty reserve are made from time to time
based on actual claims experience in order to properly estimate
the amounts necessary to settle future and existing claims on
products sold as of the balance sheet date. While management
believes that the warranty reserve is adequate and that the
judgment applied is appropriate, such amounts estimated to be
due and payable could differ materially from what will actually
transpire in the future.
Product liability: We are subject to product
liability claims in the normal course of business. We
self-insure our product liability claims. 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. We utilize historical trends
and actuarial analysis tools to assist in determining the
appropriate loss reserve levels. At December 31, 2010 and
2009, we had accruals of $12.0 million and
$11.4 million, respectively, for the possible payment of
pending claims related to continuing operations. These accruals
are included in other accrued expenses in the consolidated
balance sheets. In addition, we had an accrual of
$1.6 million and $1.9 million at December 31,
2010 and 2009, respectively, for the possible payment of pending
claims related to discontinued operations. While management
believes the product liability reserves are adequate, adverse
determination of material product liability claims made against
us could have a material adverse effect on our financial
condition.
New
Accounting Pronouncements
Improving Disclosure about Fair Value
Measurements: In January 2010, the Financial
Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU)
2010-06,
Improving Disclosure about Fair Value Measurements.
ASU 2010-06
revises two disclosure requirements concerning fair value
measurements and clarifies two others. It requires separate
presentation of significant transfers into and out of
Levels 1 and 2 of the fair value hierarchy and disclosure
of the reasons for such transfers. It also requires the
presentation of purchases, sales,
30
issuances and settlements within Level 3 on a gross basis
rather than a net basis. The amendments also clarify that
disclosures should be disaggregated by class of asset or
liability and that disclosures about inputs and valuation
techniques should be provided for both recurring and
non-recurring fair value measurements. The ASU is effective for
interim and annual reporting periods beginning after
December 15, 2009, except for certain Level 3 activity
disclosure requirements that will be effective for reporting
periods beginning after December 15, 2010. We have included
the additional disclosure required by ASU
2010-06 in
its footnotes beginning with the 2010 first quarter.
Accounting for Transfers of Financial
Assets: In December 2009, the FASB issued
Accounting Standards Codification (ASC) Topic 860,
Transfers and Servicing: Accounting for Transfers of
Financial Assets. This Topic amends the FASB Accounting
Standards Codification for Statement 166, Accounting for
Transfers of Financial Assets an amendment of FASB
Statement No. 140). ASC Topic 860 provides guidance on
how to account for transfers of financial assets including
establishing conditions for reporting transfers of a portion of
a financial asset as opposed to an entire asset and requires
enhanced disclosures about a transferors continuing
involvement with transfers. The impact of adoption of this topic
was not material to us.
Improvements to Financial Reporting by Enterprises Involved
with Variable Interest Entities: In December
2009, the FASB issued ASU
2009-17,
Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities, which amends ASC
Topic 810, Consolidation (FASB Statement
No. 167, Amendments to FASB Interpretation No. 46(R)).
ASU 2009-17
requires the enterprise to qualitatively assess if it is the
primary beneficiary of a variable-interest entity (VIE), and, if
so, the VIE must be consolidated. The ASU also requires
additional disclosures about an enterprises involvement in
a VIE. ASU
2009-17 was
effective for us beginning with our quarter ended March 31,
2010. The impact of adopting the new guidance was not material
to us.
Liquidity
and Capital Resources
Our primary sources of funds have been cash provided by
operating activities and borrowings under our credit
arrangements. Our primary use of funds has been for repayments
under our credit arrangements, repurchase and retirement of
common stock, capital investments, cash dividends to
shareholders and new product development.
The following chart summarizes the cash flows from operating,
investing and financing activities for the years ended
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31
|
|
($ in millions):
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Total cash provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
297.6
|
|
|
$
|
193.2
|
|
|
$
|
104.4
|
|
Investment activities
|
|
|
(42.1
|
)
|
|
|
(29.7
|
)
|
|
|
(12.4
|
)
|
Financing activities
|
|
|
(1.8
|
)
|
|
|
(50.4
|
)
|
|
|
48.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
$
|
253.7
|
|
|
$
|
113.1
|
|
|
$
|
140.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities:
For the year ended December 31, 2010, we generated net cash
from operating activities of $297.6 million compared to net
cash from operating activities of $193.2 million in the
same period of 2009, an increase of 54 percent. The
$104.4 million increase in net cash provided by operating
activities for the year ended 2010 compared to the same period
in 2009 is primarily due to a $46.1 million increase in net
income, and $88.3 million lower investment in working
capital. This lower working capital investment resulted
primarily from higher accounts payable and accrued expenses
totaling $145.2 million partially offset by an increased
investment in inventory of $56.6 million based on the
higher demand for our products, which has resulted in a
27 percent increase in total sales. The Company used the
cash flow generated from operations in 2010 to fund investing
and financing activities as well as to increase cash and cash
equivalents by $253.7 million compared to 2009.
31
Investing
activities:
Net cash used for investing activities was $42.1 million
for 2010 compared to cash used totaling $29.7 million for
2009. The primary use of cash in 2010 and 2009 was the
investment in property and equipment of $55.7 million and
$43.9 million, respectively.
Financing
activities:
Net cash used for financing activities was $1.8 million for
2010 compared to $50.4 million in 2009. In 2010, we used
cash for financing activities to pay cash dividends of
$53.0 million and repurchase shares of common stock for
$27.5 million, offset by proceeds from stock issuances
under employee plans of $68.1 million. In 2009, we used
cash for financing activities to pay cash dividends of
$50.2 million and repurchase shares of common stock for
$4.6 million.
The seasonality of production and shipments causes working
capital requirements to fluctuate during the year. We are a
party to an unsecured variable interest rate bank lending
agreement that matures on December 2, 2011, comprised of a
$250.0 million revolving loan facility for working capital
needs and a $200.0 million term loan. The $200 million
term loan was utilized in its entirety in December 2006
principally to fund an accelerated share repurchase transaction.
Borrowings under the agreement bear interest based on LIBOR or
prime rates plus a margin, as defined (effective
rate was 0.65 percent at December 31, 2010). At
December 31, 2010 and 2009, we had total outstanding
borrowings under the agreement of $200.0 million. Our debt
to total capital ratio was 35 percent at December 31,
2010 and 49 percent at December 31, 2009.
In December 2010, we entered into a Master Note Purchase
Agreement to issue $25.0 million of 3.81 percent unsecured
Senior Notes due May 2018 and $75.0 million of
4.60 percent unsecured Senior Notes due May 2021
(collectively, the Senior Notes). The Senior Notes
are expected to be issued in May 2011. As a result, we have
classified $100.0 million of the $200.0 million term
loan outstanding as long-term liabilities in the consolidated
balance sheet as of December 31, 2010.
As of December 31, 2010, we have entered into the following
interest rate swap agreements to manage exposures to
fluctuations in interest rates by fixing the LIBOR interest rate
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Swap
|
|
Fixed Rate
|
|
Notional
|
|
Expiration
|
Entered into
|
|
(LIBOR)
|
|
Amount
|
|
Date
|
|
2009
|
|
|
1.34
|
%
|
|
$
|
25,000,000
|
|
|
|
April 2011
|
|
2009
|
|
|
0.98
|
%
|
|
$
|
25,000,000
|
|
|
|
April 2011
|
|
Each of these interest rate swaps was designated as and met the
criteria of cash flow hedges. The fair value of the interest
rate swap agreements on December 31, 2010 was a liability
of $0.1 million.
We entered into and settled an interest rate lock contract in
November 2010 in connection with the Master Note Purchase
Agreement. The interest rate lock settlement resulted in a
$0.3 million gain, net of deferred taxes of
$0.1 million, which will be amortized into income over the
life of the related debt.
The following table summarizes our significant future
contractual obligations at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions):
|
|
Total
|
|
|
<1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
>5 Years
|
|
|
Borrowings under credit agreement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving loan facility
|
|
$
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan
|
|
|
200.0
|
|
|
$
|
200.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense under term loan and swap agreements
|
|
|
1.4
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
32.0
|
|
|
|
3.7
|
|
|
$
|
8.1
|
|
|
$
|
5.9
|
|
|
$
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
233.4
|
|
|
$
|
205.1
|
|
|
$
|
8.1
|
|
|
$
|
5.9
|
|
|
$
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, at December 31, 2010, we had letters of
credit outstanding of $4.0 million related to purchase
obligations for raw materials. Not included in the above table
is unrecognized tax benefits of $5.5 million.
32
Our Board of Directors authorized the cumulative repurchase of
up to 37.5 million shares of our common stock through
December 31, 2010. Of that total, approximately
34.4 million shares were repurchased cumulatively from 1996
through December 31, 2010. We paid $27.5 million to
repurchase and retire approximately 0.6 million shares
during 2010 related to the exercise of certain employee stock
based incentive transactions. The share repurchase activity
during 2010 had a $0.07 beneficial impact on earnings per share
for the year ended December 31, 2010. We have authorization
from our Board of Directors to repurchase up to an additional
3.1 million shares of Polaris stock at December 31,
2010, which represents approximately nine percent of the total
shares currently outstanding.
We have arrangements with certain finance companies (including
Polaris Acceptance) to provide secured floor plan financing for
our dealers. These arrangements provide liquidity by financing
dealer purchases of our products without the use of our working
capital. A majority of the worldwide sales of snowmobiles, ORVs,
motorcycles and related PG&A are financed under similar
arrangements whereby we receive payment within a few days of
shipment of the product. The amount financed by worldwide
dealers under these arrangements at December 31, 2010 and
2009, was approximately $667.6 million and
$714.8 million, respectively. We participate in the cost of
dealer financing up to certain limits. We have 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.
Our financial exposure under these agreements is limited to the
difference between the amounts unpaid by the dealer with respect
to the repossessed product plus costs of repossession 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 us to repurchase
repossessed units subject to the annual limitation referred to
above.
In 1996, one of our wholly-owned subsidiaries entered into a
partnership agreement with a subsidiary of TDF to
form Polaris Acceptance. In 2004, TDF was merged with a
subsidiary of GE and, as a result of that merger, TDFs
name was changed to GECDF. Polaris Acceptance provides floor
plan financing to our dealers in the United States. Our
subsidiary has a 50 percent equity interest in Polaris
Acceptance. In November 2006, Polaris Acceptance sold a majority
of its receivable portfolio to a Securitization Facility, and
the partnership agreement was amended to provide that Polaris
Acceptance would continue to sell portions of its receivable
portfolio to the Securitization Facility from time to time on an
ongoing basis. At December 31, 2010 and 2009, the
outstanding balance of receivables sold by Polaris Acceptance to
the Securitization Facility (the Securitized
Receivables) amounted to approximately $323.8 million
and $387.5 million, respectively. The sale of receivables
from Polaris Acceptance to the Securitization Facility is
accounted for in Polaris Acceptances financial statements
as a true-sale under ASC Topic 860, (originally
issued as SFAS No. 140: Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities). Polaris Acceptance is not responsible for
any continuing servicing costs or obligations with respect to
the Securitized Receivables. The remaining portion of the
receivable portfolio is recorded on Polaris Acceptances
books, and is funded to the extent of 85 percent through a
loan from an affiliate of GECDF (which at December 31, 2010
and 2009 was approximately $92.9 million and
$83.9 million, respectively). We have not guaranteed the
outstanding indebtedness of Polaris Acceptance or the
Securitized Receivables. In addition, the two partners of
Polaris Acceptance share equally an equity cash investment equal
to 15 percent of the sum of the portfolio balance in
Polaris Acceptance plus the Securitized Receivables. Our total
investment in Polaris Acceptance at December 31, 2010 and
2009 was $37.2 million and $41.3 million,
respectively. The Polaris Acceptance partnership agreement
provides for periodic options for renewal, purchase or
termination by either party. Substantially all of our United
States sales are financed through Polaris Acceptance and the
Securitization Facility whereby we receive payment within a few
days of shipment of the product. The partnership agreement
provides that all income and losses of the Polaris Acceptance
portfolio and income and losses realized by GECDFs
affiliates with respect to the Securitized Receivables are
shared 50 percent by our wholly-owned subsidiary and
50 percent by GECDF. Our exposure to losses associated with
respect to the Polaris Acceptance Portfolio and the Securitized
Receivables is limited to its equity in its wholly-owned
subsidiary that is a partner in Polaris Acceptance.
Our investment in Polaris Acceptance is accounted for under the
equity method, and is recorded as investments in finance
affiliate in the consolidated balance sheets. Our allocable
share of the income of Polaris Acceptance and the Securitized
Receivables has been included as a component of income from
financial services in the consolidated statements of income. At
December 31, 2010, Polaris Acceptances wholesale
portfolio receivables from dealers in
33
the United States (excluding the Securitized Receivables) was
$174.0 million, a four percent increase from
$167.5 million at December 31, 2009. Including the
Securitized Receivables, the wholesale receivables from dealers
in the United States at December 31, 2010 was
$497.8 million, a 10 percent decrease from
$555.0 million at December 31, 2009. Credit losses in
the Polaris Acceptance portfolio have been modest, averaging
less than one percent of the portfolio over the life of the
partnership.
In August 2005, a wholly-owned subsidiary of Polaris entered
into a multi-year contract with HSBC, under which HSBC manages
the Polaris private label credit card program under the StarCard
label, which until July 2007 included providing retail credit
for non-Polaris products. The agreement provides for income to
be paid to us based on a percentage of the volume of revolving
retail credit business generated. HSBC ceased financing
non-Polaris products under its arrangement with us effective
July 1, 2007 resulting in a significant decline in the
income from financial services reported by us in the second half
of 2007. During the first quarter of 2008, HSBC notified us that
the profitability to HSBC of the contractual arrangement was
unacceptable and, absent some modification of that arrangement,
HSBC might significantly tighten its underwriting standards for
our customers, reducing the number of qualified retail credit
customers who would be able to obtain credit from HSBC. In order
to avoid the potential reduction of revolving retail credit
available to our consumers, we began to forgo the receipt of a
volume based fee provided for under its agreement with HSBC
effective March 1, 2008. Management currently anticipates
that the elimination of the volume based fee will continue and
that HSBC will continue to provide revolving retail credit to
qualified customers through the end of the contract term. During
the 2010 second quarter Polaris and HSBC extended the term of
the agreement on similar terms to October 2013.
In April 2006, a wholly-owned subsidiary of Polaris entered into
a multi-year contract with GE Money Bank (GE Bank)
under which GE Bank makes available closed-end installment
consumer and commercial credit to customers of our dealers for
Polaris products. Our income generated from the GE Bank
agreement has been included as a component of Income from
financial services in the accompanying consolidated statements
of income. In November 2010, we extended our installment credit
contract to March 2016 under which GE Bank will provide
exclusive installment credit lending for Victory motorcycles
only.
In January 2009, a wholly owned subsidiary of Polaris entered
into a multi-year contract with Sheffield Financial
(Sheffield) pursuant to which Sheffield agreed to
make available closed-end installment consumer credit to
customers of our dealers for Polaris products in the United
States. Our income generated from the Sheffield agreement has
been included as a component of Income from financial services
in the accompanying consolidated statements of income. In
October 2010, we extended our installment credit agreement to
February 2016 under which Sheffield will provide exclusive
installment credit lending for ORV and Snowmobiles.
During 2010, consumers financed approximately 33 percent of
our vehicles sold in the United States through the combined HSBC
revolving retail credit and GE Bank and Sheffield installment
retail credit arrangements, while the volume of revolving and
installment credit contracts written in calendar year 2010 was
$494.8 million, a 16 percent increase from 2009. The
income generated from the HSBC, GE Bank and Sheffield retail
credit agreements in 2011 is expected to increase over the 2010
income generated.
Improvements in manufacturing capacity and product development
during 2010 included $15.3 million of tooling expenditures
for new product development across all product lines. We
anticipate that capital expenditures for 2011, including tooling
and research and development equipment, will range from
$70.0 million to $80.0 million, which includes the
anticipated capital expenditure requirement for the new
manufacturing plant under construction in Monterrey, Mexico.
Management believes that existing cash balances, cash flows to
be generated from operating activities and available borrowing
capacity under the existing $250.0 million line of credit
arrangement and the new Master Note Purchase Agreement, will be
sufficient to fund operations, regular dividends, share
repurchases, and capital expenditure requirements for 2011. At
this time, management is not aware of any factors that would
have a material adverse impact on cash flow beyond 2011.
34
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Inflation,
Foreign Exchange Rates, Equity Prices and Interest
Rates
Commodity inflation has had an impact on our results of
operations in 2010. The changing relationships of the United
States dollar to the Canadian dollar, Euro and Japanese yen have
also had a material impact from
time-to-time.
During 2010, purchases totaling five percent of our cost of
sales were from Japanese yen denominated suppliers. The impact
of the Japanese yen exchange rate fluctuation on our raw
material purchase prices and cost of sales in 2010 had a
negative financial impact when compared to 2009. At
December 31, 2010, we had no Japanese yen foreign exchange
hedging contracts in place. We anticipate that the yen-dollar
exchange rate fluctuation will again have a negative impact on
cost of sales during 2011 when compared to 2010.
We operate in Canada through a wholly-owned subsidiary. Sales of
the Canadian subsidiary comprised 14 percent of our total
sales in 2010. From time to time, we utilize foreign exchange
hedging contracts to manage our exposure to the Canadian dollar.
The United States dollar weakened in relation to the Canadian
dollar in 2010, which resulted in a net positive financial
impact on our sales and gross margins for the full year 2010
when compared to 2009. At December 31, 2010, we had open
Canadian dollar foreign exchange hedging contracts in place for
approximately 50 percent of our exposure through
December 31, 2011 with notional amounts totaling
$122.9 million with an average exchange rate of
approximately 0.97 United States dollar to Canadian dollar. In
view of the current exchange rates and the foreign exchange
hedging contracts currently in place, we anticipate that the
Canadian dollar exchange rate fluctuation will have a neutral
impact on sales and gross margins during 2011 when compared to
2010.
We operate in various countries, principally in Europe, through
wholly-owned subsidiaries and also sell to certain distributors
in other countries and purchase components from certain
suppliers directly from our United States operations in
transactions denominated in Euros and other foreign currencies.
The fluctuation of the United States dollar in relation to the
Euro and other currencies has resulted in a neutral impact on
gross margins for 2010 when compared to 2009. At
December 31, 2010, we had open Swedish Krona foreign
exchange contracts in place through June 30, 2011, and
Australian dollar foreign exchange hedging contracts in place
through December 31, 2011. The open Swedish Krona contracts
had notional amounts totaling $4.8 million with an average
exchange rate of approximately .15 United States dollar to the
Swedish Krona, and the open Australian dollar contracts had
notional amounts totaling $6.3 million with an average
exchange rate of approximately .92 United States dollar to the
Australian dollar. We had no foreign exchange hedging contracts
in place for the Euro or Norwegian Krone at December 31,
2010. In view of the current exchange rates and the foreign
exchange hedging contracts currently in place, we anticipate
that the exchange rates for other foreign currencies, including
the Swedish Krona and Australian dollar, will have a negative
impact on sales and gross margins for 2011 when compared to 2010.
The assets and liabilities in all of our foreign entities are
translated at the foreign exchange rate in effect at the balance
sheet date. Translation gains and losses are reflected as a
component of Accumulated other comprehensive income, net in the
Shareholders Equity section of the consolidated balance
sheets. Revenues and expenses in all of our foreign entities are
translated at the average foreign exchange rate in effect for
each month of the quarter.
We are subject to market risk from fluctuating market prices of
certain purchased commodities and raw materials, including
steel, aluminum, fuel, natural gas and petroleum-based resins.
In addition, we are a purchaser of components and parts
containing various commodities, including steel, aluminum,
rubber and others which are integrated into our end products.
While such materials are typically available from numerous
suppliers, commodity raw materials are subject to price
fluctuations. We generally buy these commodities and components
based upon market prices that are established with the vendor as
part of the purchase process.
We generally attempt to obtain firm pricing from most of our
suppliers for volumes consistent with planned production. To the
extent that commodity prices increase and we do not have firm
pricing from our suppliers, or our suppliers are not able to
honor such prices, we may experience gross margin declines to
the extent we are not able to increase selling prices of our
products. At December 31, 2010, we had diesel fuel hedging
contracts in place to hedge approximately 13 percent of our
expected exposure for 2011. These diesel fuel contracts did not
meet the criteria for hedge accounting and the resulting
unrealized gain as of December 31, 2010 was
$0.3 million pretax,
35
which was included in the consolidated statements of income as a
component of cost of sales. We also have aluminum hedging
contracts in place to hedge approximately 13 percent of our
expected exposure for 2011. These aluminum contracts did not
meet the criteria for hedge accounting and the resulting
unrealized gain as of December 31, 2010 was
$0.6 million pretax, which was included in the consolidated
statements of income as a component of cost of sales.
We are a party to a credit agreement with various lenders
consisting of a $250 million revolving loan facility and a
$200 million term loan. Interest accrues on both the
revolving loan and the term loan at variable rates based on
LIBOR or prime plus the applicable add-on percentage
as defined. Additionally, as of December 31, 2010, we were
a party to two interest rate swap agreements that lock in a
fixed Libor interest rate on a total of $50.0 million of
borrowings. We are exposed to interest rate changes on any
borrowings during the year in excess of $50.0 million.
Based upon the average outstanding borrowings of
$200.0 million during 2010, the 0.65 percent interest
rate charged to us at December 31, 2010 and the interest
rate swap agreements, a one-percent increase in interest rates
would have had an approximately $1.5 million impact on
interest expense in 2010 and a 0.65 percent decrease in
interest rates would have had an approximately $1.0 million
impact on interest expense in 2010.
We have been manufacturing our own engines for selected models
of snowmobiles since 1995, motorcycles since 1998 and ORVs since
2001 at our Osceola, Wisconsin facility. Also, in 1995, we
entered into an agreement with Fuji to form Robin. Under
the terms of the agreement, we have 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. Fuji
and Polaris have agreed to close the Robin facility by mid-2011
as the production volume of engines produced at the facility has
declined significantly in recent years. Subsequent to the
closing of the Robin facility, Fuji will support the production
of the Polaris engines from its facility in Japan.
In the third quarter of 2010, we sold our remaining equity
investment in KTM for $9.6 million and recorded a net gain
on securities available for sale of $1.6 million. Prior to
the sale of the KTM investment, we owned less than
5 percent of KTMs outstanding shares. The KTM
investment, prior to the sale, had been classified as available
for sale securities under ASC Topic 320. During the second
quarter 2010, we determined that the decline in the fair value
of the KTM shares owned by us as of June 30, 2010 was other
than temporary and therefore recorded in the statement of income
a non-cash impairment charge on securities held for sale of
$0.8 million. During the first quarter 2009, we determined
that the decline in the fair value of the KTM shares owned by us
as of March 31, 2009 was other than temporary and therefore
recorded in the income statement a non-cash impairment charge on
securities held for sale of $9.0 million.
36
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
42
|
|
|
|
|
43
|
|
|
|
|
44
|
|
|
|
|
45
|
|
37
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Management is responsible for establishing and maintaining an
adequate system of internal control over financial reporting of
the Company. This system is designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with United States generally accepted accounting
principles.
Our internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
Companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting can only provide reasonable assurance and
may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the
system of internal control over financial reporting as of
December 31, 2010. In making this evaluation, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control Integrated Framework. Based on
managements evaluation and those criteria, management
concluded that the Companys system of internal control
over financial reporting was effective as of December 31,
2010.
Managements internal control over financial reporting as
of December 31, 2010 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report appearing on the following page, in which
they expressed an unqualified opinion.
Scott W. Wine
Chief Executive Officer
Michael W. Malone
Vice President of Finance,
Chief Financial Officer
March 1, 2011
Further discussion of our internal controls and procedures is
included in Item 9A of this report, under the caption
Controls and Procedures.
38
Report Of
Independent Registered Public Accounting Firm
on Internal Control over Financial Reporting
The Board of Directors and Shareholders
Polaris Industries Inc.
We have audited Polaris Industries Inc.s internal control
over financial reporting as of December 31, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Polaris Industries Inc.s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Polaris Industries Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Polaris Industries Inc. and
subsidiaries as of December 31, 2010 and 2009, and the
related consolidated statements of income, shareholders
equity and comprehensive income, and cash flows for each of the
three years in the period ended December 31, 2010, and our
report dated March 1, 2011, expressed an unqualified
opinion thereon.
Minneapolis, Minnesota
March 1, 2011
39
Report Of
Independent Registered Public Accounting Firm
on Consolidated Financial Statements
The Board of Directors and Shareholders
Polaris Industries Inc.
We have audited the accompanying consolidated balance sheets of
Polaris Industries Inc. and subsidiaries (the Company) as of
December 31, 2010 and 2009, and the related consolidated
statements of income, shareholders equity and
comprehensive income, and cash flows for each of the three years
in the period ended December 31, 2010. Our audits also
included the financial statement schedule listed in the index at
Item 15. These financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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 financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Polaris Industries Inc. and subsidiaries
at December 31, 2010 and 2009, and the consolidated results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2010, in conformity
with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Polaris Industries Inc.s internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
March 1, 2011, expressed an unqualified opinion thereon.
Minneapolis, Minnesota
March 1, 2011
40
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
393,927
|
|
|
$
|
140,240
|
|
Trade receivables, net
|
|
|
89,294
|
|
|
|
90,405
|
|
Inventories, net
|
|
|
235,927
|
|
|
|
179,315
|
|
Prepaid expenses and other
|
|
|
21,628
|
|
|
|
20,638
|
|
Deferred tax assets
|
|
|
67,369
|
|
|
|
60,902
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
808,145
|
|
|
|
491,500
|
|
Property and Equipment:
|
|
|
|
|
|
|
|
|
Land, buildings and improvements
|
|
|
118,831
|
|
|
|
118,304
|
|
Equipment and tooling
|
|
|
488,562
|
|
|
|
454,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
607,393
|
|
|
|
572,327
|
|
Less accumulated depreciation
|
|
|
(423,382
|
)
|
|
|
(377,911
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
184,011
|
|
|
|
194,416
|
|
Investments in finance affiliate
|
|
|
37,169
|
|
|
|
41,332
|
|
Investments in manufacturing affiliates
|
|
|
1,009
|
|
|
|
10,536
|
|
Goodwill and other intangible assets, net
|
|
|
31,313
|
|
|
|
25,869
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,061,647
|
|
|
$
|
763,653
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term borrowings under credit agreement
|
|
$
|
100,000
|
|
|
|
|
|
Accounts payable
|
|
|
113,248
|
|
|
$
|
75,657
|
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
126,781
|
|
|
|
55,313
|
|
Warranties
|
|
|
32,651
|
|
|
|
25,520
|
|
Sales promotions and incentives
|
|
|
75,494
|
|
|
|
67,055
|
|
Dealer holdback
|
|
|
79,688
|
|
|
|
72,229
|
|
Other
|
|
|
52,194
|
|
|
|
38,748
|
|
Income taxes payable
|
|
|
2,604
|
|
|
|
6,702
|
|
Current liabilities of discontinued operations
|
|
|
1,550
|
|
|
|
1,850
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
584,210
|
|
|
|
343,074
|
|
Long term income taxes payable
|
|
|
5,509
|
|
|
|
4,988
|
|
Deferred income taxes
|
|
|
937
|
|
|
|
11,050
|
|
Long-term borrowings under credit agreement
|
|
|
100,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
690,656
|
|
|
|
559,112
|
|
|
|
|
|
|
|
|
|
|
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, 34,234 and 32,648 shares issued and outstanding
|
|
|
342
|
|
|
|
326
|
|
Additional paid-in capital
|
|
|
79,257
|
|
|
|
9,992
|
|
Retained earnings
|
|
|
285,494
|
|
|
|
191,399
|
|
Accumulated other comprehensive income, net
|
|
|
5,898
|
|
|
|
2,824
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
370,991
|
|
|
|
204,541
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
1,061,647
|
|
|
$
|
763,653
|
|
|
|
|
|
|
|
|
|
|
The accompanying footnotes are an integral part of these
consolidated statements.
41
CONSOLIDATED
STATEMENTS OF INCOME
(In thousands, except per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Sales
|
|
$
|
1,991,139
|
|
|
$
|
1,565,887
|
|
|
$
|
1,948,254
|
|
Cost of sales
|
|
|
1,460,926
|
|
|
|
1,172,668
|
|
|
|
1,502,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
530,213
|
|
|
|
393,219
|
|
|
|
445,708
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
142,353
|
|
|
|
111,137
|
|
|
|
137,035
|
|
Research and development
|
|
|
84,940
|
|
|
|
62,999
|
|
|
|
77,472
|
|
General and administrative
|
|
|
99,055
|
|
|
|
71,184
|
|
|
|
69,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
326,348
|
|
|
|
245,320
|
|
|
|
284,114
|
|
Income from financial services
|
|
|
16,856
|
|
|
|
17,071
|
|
|
|
21,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
220,721
|
|
|
|
164,970
|
|
|
|
182,799
|
|
Non-operating expense (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2,680
|
|
|
|
4,111
|
|
|
|
9,618
|
|
Gain (Loss) on securities available for sale
|
|
|
(825
|
)
|
|
|
8,952
|
|
|
|
|
|
Other expense (income), net
|
|
|
325
|
|
|
|
733
|
|
|
|
(3,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
218,541
|
|
|
|
151,174
|
|
|
|
177,062
|
|
Provision for income taxes
|
|
|
71,403
|
|
|
|
50,157
|
|
|
|
59,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
147,138
|
|
|
$
|
101,017
|
|
|
$
|
117,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income per share
|
|
$
|
4.40
|
|
|
$
|
3.12
|
|
|
$
|
3.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Income per share
|
|
$
|
4.28
|
|
|
$
|
3.05
|
|
|
$
|
3.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
33,450
|
|
|
|
32,399
|
|
|
|
32,770
|
|
Diluted
|
|
|
34,382
|
|
|
|
33,074
|
|
|
|
33,564
|
|
The accompanying footnotes are an integral part of these
consolidated statements.
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
Number
|
|
|
Common
|
|
|
Additional
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
of Shares
|
|
|
Stock
|
|
|
Paid-In Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
Balance, December 31, 2007
|
|
|
34,212
|
|
|
$
|
342
|
|
|
|
|
|
|
$
|
146,763
|
|
|
$
|
25,877
|
|
|
$
|
172,982
|
|
Employee stock compensation
|
|
|
305
|
|
|
|
3
|
|
|
|
18,555
|
|
|
|
|
|
|
|
|
|
|
|
18,558
|
|
Proceeds from stock issuances under employee plans
|
|
|
520
|
|
|
|
5
|
|
|
|
12,860
|
|
|
|
|
|
|
|
|
|
|
|
12,865
|
|
Tax effect of exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
1,730
|
|
|
|
|
|
|
|
|
|
|
|
1,730
|
|
Cash dividends declared ($1.52 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,602
|
)
|
|
|
|
|
|
|
(49,602
|
)
|
Repurchase and retirement of common shares
|
|
|
(2,545
|
)
|
|
|
(25
|
)
|
|
|
(33,145
|
)
|
|
|
(73,997
|
)
|
|
|
|
|
|
|
(107,167
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,395
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,421
|
)
|
|
|
|
|
Unrealized loss on available for sale securities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,913
|
)
|
|
|
|
|
Unrealized gain on derivative instruments, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
32,492
|
|
|
|
325
|
|
|
|
|
|
|
|
140,559
|
|
|
|
(3,857
|
)
|
|
|
137,027
|
|
Employee stock compensation
|
|
|
31
|
|
|
|
0
|
|
|
|
10,226
|
|
|
|
|
|
|
|
|
|
|
|
10,226
|
|
Proceeds from stock issuances under employee plans
|
|
|
236
|
|
|
|
2
|
|
|
|
4,731
|
|
|
|
|
|
|
|
|
|
|
|
4,733
|
|
Tax effect of exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(410
|
)
|
|
|
|
|
|
|
|
|
|
|
(410
|
)
|
Cash dividends declared ($1.56 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,177
|
)
|
|
|
|
|
|
|
(50,177
|
)
|
Repurchase and retirement of common shares
|
|
|
(111
|
)
|
|
|
(1
|
)
|
|
|
(4,555
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,556
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,017
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax of $69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
|
|
|
|
|
|
Reclassification of unrealized loss on available for sale
securities to the income statement, net of tax of $2,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,675
|
|
|
|
|
|
Unrealized loss on available for sale securities, net of tax
benefit of $230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(382
|
)
|
|
|
|
|
Unrealized gain on derivative instruments, net of tax of $165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
273
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
32,648
|
|
|
|
326
|
|
|
|
9,992
|
|
|
|
191,399
|
|
|
|
2,824
|
|
|
|
204,541
|
|
Employee stock compensation
|
|
|
154
|
|
|
|
2
|
|
|
|
18,050
|
|
|
|
|
|
|
|
|
|
|
|
18,052
|
|
Proceeds from stock issuances under employee plans
|
|
|
2,033
|
|
|
|
20
|
|
|
|
68,085
|
|
|
|
|
|
|
|
|
|
|
|
68,105
|
|
Tax effect of exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
10,610
|
|
|
|
|
|
|
|
|
|
|
|
10,610
|
|
Cash dividends declared ($1.60 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,043
|
)
|
|
|
|
|
|
|
(53,043
|
)
|
Repurchase and retirement of common shares
|
|
|
(601
|
)
|
|
|
(6
|
)
|
|
|
(27,480
|
)
|
|
|
|
|
|
|
|
|
|
|
(27,486
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147,138
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax of $222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,131
|
|
|
|
|
|
Unrealized gain on available for sale securities, net of tax
benefit of $230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382
|
|
|
|
|
|
Unrealized loss on derivative instruments, net of tax benefit of
$256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(439
|
)
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
34,234
|
|
|
$
|
342
|
|
|
$
|
79,257
|
|
|
$
|
285,494
|
|
|
$
|
5,898
|
|
|
$
|
370,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying footnotes are an integral part of these
consolidated statements.
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
147,138
|
|
|
$
|
101,017
|
|
|
$
|
117,395
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on securities available for sale
|
|
|
(825
|
)
|
|
|
8,952
|
|
|
|
|
|
Depreciation and amortization
|
|
|
66,519
|
|
|
|
64,593
|
|
|
|
66,112
|
|
Noncash compensation
|
|
|
18,052
|
|
|
|
10,226
|
|
|
|
18,558
|
|
Noncash income from financial services
|
|
|
(4,574
|
)
|
|
|
(4,021
|
)
|
|
|
(4,604
|
)
|
Noncash expense from manufacturing affiliates
|
|
|
1,376
|
|
|
|
382
|
|
|
|
157
|
|
Deferred income taxes
|
|
|
(16,888
|
)
|
|
|
13,573
|
|
|
|
(966
|
)
|
Tax effect of stock based compensation exercises
|
|
|
(10,610
|
)
|
|
|
410
|
|
|
|
(1,731
|
)
|
Changes in current operating items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
1,111
|
|
|
|
8,192
|
|
|
|
(15,714
|
)
|
Inventories
|
|
|
(56,612
|
)
|
|
|
42,997
|
|
|
|
(3,970
|
)
|
Accounts payable
|
|
|
37,580
|
|
|
|
(40,329
|
)
|
|
|
25,941
|
|
Accrued expenses
|
|
|
107,663
|
|
|
|
(24,759
|
)
|
|
|
(7,469
|
)
|
Income taxes payable
|
|
|
7,033
|
|
|
|
7,325
|
|
|
|
(7,773
|
)
|
Prepaid expenses and others, net
|
|
|
956
|
|
|
|
4,643
|
|
|
|
(9,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operations
|
|
|
297,919
|
|
|
|
193,201
|
|
|
|
176,206
|
|
Net cash flow (used for) discontinued operations
|
|
|
(300
|
)
|
|
|
|
|
|
|
(452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
297,619
|
|
|
|
193,201
|
|
|
|
175,754
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(55,718
|
)
|
|
|
(43,932
|
)
|
|
|
(76,575
|
)
|
Investments in finance affiliate
|
|
|
(9,173
|
)
|
|
|
(3,007
|
)
|
|
|
(9,209
|
)
|
Distributions from finance affiliates
|
|
|
17,910
|
|
|
|
17,261
|
|
|
|
16,049
|
|
Proceeds from sale of investments
|
|
|
9,601
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired
|
|
|
(4,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investment activities
|
|
|
(42,118
|
)
|
|
|
(29,678
|
)
|
|
|
(69,735
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under credit agreement
|
|
|
|
|
|
|
364,000
|
|
|
|
786,000
|
|
Repayments under credit agreement
|
|
|
|
|
|
|
(364,000
|
)
|
|
|
(786,000
|
)
|
Repurchase and retirement of common shares
|
|
|
(27,486
|
)
|
|
|
(4,556
|
)
|
|
|
(107,167
|
)
|
Cash dividends to shareholders
|
|
|
(53,043
|
)
|
|
|
(50,177
|
)
|
|
|
(49,602
|
)
|
Tax effect of proceeds from stock based compensation exercises
|
|
|
10,610
|
|
|
|
(410
|
)
|
|
|
1,731
|
|
Proceeds from stock issuances under employee plans
|
|
|
68,105
|
|
|
|
4,733
|
|
|
|
12,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(1,814
|
)
|
|
|
(50,410
|
)
|
|
|
(142,173
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
253,687
|
|
|
|
113,113
|
|
|
|
(36,154
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
140,240
|
|
|
|
27,127
|
|
|
|
63,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
393,927
|
|
|
$
|
140,240
|
|
|
$
|
27,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid on debt borrowings
|
|
$
|
2,813
|
|
|
$
|
3,966
|
|
|
$
|
9,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
81,142
|
|
|
$
|
29,039
|
|
|
$
|
70,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying footnotes are an integral part of these
consolidated statements.
44
POLARIS
INDUSTRIES INC.
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 the design, engineering,
manufacturing and marketing of innovative, high-quality,
high-performance off-road vehicles snowmobiles, and on-road
vehicles including motorcycles and low emission vehicles.
Polaris products, together with related parts, garments and
accessories are sold worldwide through a network of dealers,
distributors and its subsidiaries located in the United States,
Canada, France, the United Kingdom, Australia, Norway, Sweden,
Germany, Spain, China and Brazil.
Basis of presentation: The accompanying consolidated
financial statements include the accounts of Polaris and its
wholly-owned subsidiaries. All inter-company transactions and
balances have been eliminated in consolidation. Income from
financial services is reported as a component of operating
income to better reflect income from ongoing operations of which
financial services has a significant impact.
In 2004, the Company announced its decision to discontinue the
manufacture of marine products effective immediately. The marine
products divisions financial results are reported
separately as discontinued operations for all periods presented.
The Company evaluates consolidation of entities under Accounting
Standards Codification (ASC) Topic 810. This Topic
requires management to evaluate whether an entity or interest is
a variable interest entity and whether the company is the
primary beneficiary. Polaris used the guidelines to analyze the
Companys relationships, including the relationship with
Polaris Acceptance, and concluded that there were no variable
interest entities requiring consolidation by the Company in
2010, 2009 and 2008.
Fair Value Measurements: ASC Topic 820 defines fair value
as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an
orderly transaction between market participants on the
measurement date. This Topic also establishes a fair value
hierarchy which requires classification based on observable and
unobservable inputs when measuring fair value. There are three
levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets
for identical assets or liabilities.
Level 2 Observable inputs other than
Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
assets or liabilities.
Level 3 Unobservable inputs that are
supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
The Company utilizes the market approach to measure fair value
for its non-qualified deferred compensation assets, and the
income approach for the interest rate swap agreements, foreign
currency contracts and commodity contracts. The market approach
uses prices and other relevant information generated by market
transactions involving identical or comparable assets or
liabilities and for the income approach the Company uses
significant other observable inputs to
45
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
value its derivative instruments used to hedge interest rate
volatility, foreign currency and commodity transactions. Assets
and liabilities measured at fair value on a recurring basis are
summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
December 31, 2010
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Asset (Liability)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified deferred compensation assets
|
|
$
|
2,124
|
|
|
$
|
2,124
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
(126
|
)
|
|
|
|
|
|
$
|
(126
|
)
|
|
|
|
|
Foreign exchange contracts, net
|
|
|
(2,019
|
)
|
|
|
|
|
|
|
(2,019
|
)
|
|
|
|
|
Commodity contracts
|
|
|
889
|
|
|
|
|
|
|
|
889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
868
|
|
|
$
|
2,124
|
|
|
$
|
(1,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
December 31, 2009
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Asset (Liability)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in KTM
|
|
$
|
8,150
|
|
|
$
|
8,150
|
|
|
|
|
|
|
|
|
|
Non-qualified deferred compensation assets
|
|
|
2,360
|
|
|
|
2,360
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
(699
|
)
|
|
|
|
|
|
$
|
(699
|
)
|
|
|
|
|
Foreign exchange contracts, net
|
|
|
(350
|
)
|
|
|
|
|
|
|
(350
|
)
|
|
|
|
|
Commodity contracts
|
|
|
3,485
|
|
|
|
|
|
|
|
3,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,946
|
|
|
$
|
10,510
|
|
|
$
|
2,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Finance Affiliate: The caption Investment
in finance affiliate in the consolidated balance sheets
represents Polaris 50 percent equity interest in
Polaris Acceptance, a partnership agreement between GE
Commercial Distribution Finance Corporation (GECDF)
and one of Polaris wholly-owned subsidiaries. Polaris
Acceptance provides floor plan financing to Polaris dealers in
the United States. Polaris investment in Polaris
Acceptance is accounted for under the equity method, and is
recorded as investments in finance affiliate in the consolidated
balance sheets. Polaris allocable share of the income of
Polaris Acceptance and the Securitized Receivables has been
included as a component of income from financial services in the
consolidated statements of income. Refer to Note 6 for
additional information regarding Polaris investment in
Polaris Acceptance.
Investment in Manufacturing Affiliates: The caption
Investments in manufacturing affiliates in the consolidated
balance sheets represents Polaris equity investment in
Robin Manufacturing, U.S.A. (Robin), which builds
engines in the United States for recreational and industrial
products and Polaris equity investment in KTM prior to the
sale of that investment. At December 31, 2010, Polaris had
a 40 percent ownership interest in Robin. Fuji and Polaris
have agreed to close the Robin facility by mid-2011 as the
production volume of engines made at the facility has declined
significantly in recent years. In the third quarter of 2010, the
Company sold its remaining equity investment in the Austrian
motorcycle company, KTM Power Sports AG (KTM) which
manufactures off-road and on-road motorcycles, for $9,601,000
and recorded a net gain on securities available for sale of
$1,594,000. Prior to the sale of the KTM investment, the Company
owned less than 5 percent of KTMs outstanding shares.
The KTM investment, prior to the sale, had been classified as
available for sale securities under ASC Topic 320. During the
second quarter 2010, the Company determined that the decline in
the fair value of the KTM shares owned by the Company as of
June 30, 2010 was other than temporary and therefore
recorded in the statement of income a non-cash impairment charge
on securities held for sale of $769,000. During the first
quarter 2009, the Company determined that the decline in the
fair value of the KTM shares owned by the Company as of
March 31, 2009 was other than temporary and therefore
recorded in the statement of income a non-cash impairment charge
on securities held for sale of $8,952,000.
46
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 revenues and expenses during the reporting period. Ultimate
results could differ from those estimates.
Cash equivalents: Polaris considers all highly liquid
investments purchased with an original maturity of 90 days
or less to be cash equivalents. Cash equivalents are stated at
cost, which approximates fair value. Such investments consist
principally of commercial paper and money market mutual funds.
Allowance for doubtful accounts: Polaris financial
exposure to collection of accounts receivable is limited due to
its agreements with certain finance companies. For receivables
not serviced through these finance companies, the Company
provides a reserve for doubtful accounts based on historical
rates and trends. This reserve is adjusted periodically as
information about specific accounts becomes available.
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 thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Raw materials and purchased components
|
|
$
|
35,580
|
|
|
$
|
19,777
|
|
Service parts, garments and accessories
|
|
|
60,813
|
|
|
|
58,556
|
|
Finished goods
|
|
|
155,744
|
|
|
|
116,575
|
|
Less: reserves
|
|
|
(16,210
|
)
|
|
|
(15,593
|
)
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
235,927
|
|
|
$
|
179,315
|
|
|
|
|
|
|
|
|
|
|
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.
Goodwill and other intangible assets: ASC Topic 350
prohibits the amortization of goodwill and intangible assets
with indefinite useful lives. Topic 350 requires that these
assets be reviewed for impairment at least annually. An
impairment charge is recognized only when the estimated fair
value of a reporting unit, including goodwill, is less than its
carrying amount. The Company performed analyses as of
December 31, 2010 and 2009. The results of the analyses
indicated that no goodwill or intangible impairment existed. In
accordance with Topic 350, the Company will continue to complete
an impairment analysis on an annual basis.
The changes in the carrying amount of goodwill for the years
ended December 31, 2010 and 2009 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance as of beginning of year
|
|
$
|
25,869
|
|
|
$
|
24,693
|
|
Goodwill acquired during the year
|
|
|
1,985
|
|
|
|
|
|
Currency translation effect on foreign goodwill balances
|
|
|
500
|
|
|
|
1,176
|
|
|
|
|
|
|
|
|
|
|
Balance as of end of year
|
|
$
|
28,354
|
|
|
$
|
25,869
|
|
|
|
|
|
|
|
|
|
|
47
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other intangibles consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing Technology
|
|
$
|
3,147
|
|
|
$
|
(188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets totaled $2,959,000 at
December 31, 2010 and consisted of product technology
acquired during 2010. Gross amounts and related accumulated
amortization amounts include adjustments related to the impact
of foreign currency translation and changes in the fair value of
net assets. Aggregate amortization expense for intangibles was
$188,000, $0 and $0 for the years ended December 31, 2010,
2009 and 2008, respectively. The weighted average amortization
period for the existing technology is seven years. Estimated
amortization expense for each of the years 2011 to 2015 is
expected to be $450,000 per year. The preceding expected
amortization expenses is an estimate and actual amounts could
differ due to additional intangible asset acquisitions, changes
in foreign currency rates or impairment of intangible assets.
Research and Development Expenses: Polaris records
research and development expenses in the period in which they
are incurred as a component of operating expenses. In the years
ended December 31, 2010, 2009, and 2008 Polaris incurred
$84,940,000, $62,999,000, and $77,472,000, respectively.
Advertising Expenses: Polaris records advertising
expenses as a component of selling and marketing expenses in the
period in which they are incurred. In the years ended
December 31, 2010, 2009, and 2008 Polaris incurred
$40,833,000, $37,433,000 and $51,193,000, respectively.
Shipping and Handling Costs: Polaris records shipping and
handling costs as a component of cost of sales at the time the
product is shipped.
Product warranties: Polaris provides a limited warranty
for its off-road vehicles for a period of six months and for a
period of one year for its snowmobiles and motorcycles. Polaris
may provide longer warranties related to certain promotional
programs, as well as longer warranties in certain geographical
markets as determined by local regulations and market
conditions. Polaris standard warranties require the
Company or its dealers to repair or replace defective products
during such warranty periods at no cost to the consumer. The
warranty reserve is established at the time of sale to the
dealer or distributor based on managements best estimate
using historical rates and trends. Adjustments to the warranty
reserve are made from time to time as actual claims become known
in order to properly estimate the amounts necessary to settle
future and existing claims on products sold as of the balance
sheet date. Factors that could have an impact on the warranty
accrual in any given year include the following: improved
manufacturing quality, shifts in product mix, changes in
warranty coverage periods, snowfall and its impact on snowmobile
usage, product recalls and any significant changes in sales
volume.
The activity in the warranty reserve during the years presented
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
25,520
|
|
|
$
|
28,631
|
|
|
$
|
31,782
|
|
Additions charged to expense
|
|
|
43,721
|
|
|
|
40,977
|
|
|
|
39,960
|
|
Warranty claims paid
|
|
|
(36,590
|
)
|
|
|
(44,088
|
)
|
|
|
(43,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
32,651
|
|
|
$
|
25,520
|
|
|
$
|
28,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales promotions and incentives: Polaris provides for
estimated sales promotion and incentive expenses, which are
recognized as a reduction to sales, at the time of sale to the
dealer or distributor. Examples of sales promotion and incentive
programs include dealer and consumer rebates, volume incentives,
retail financing programs and sales associate incentives. Sales
promotion and incentive expenses are estimated based on current
programs and
48
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
historical rates for each product line. Actual results may
differ from these estimates if market conditions dictate the
need to enhance or reduce sales promotion and incentive programs
or if the customer usage rate varies from historical trends.
Polaris recorded accrued liabilities of $75,494,000 and
$67,055,000 related to various sales promotions and incentive
programs as of December 31, 2010 and 2009, respectively.
Historically, sales promotion and incentive expenses have been
within the Companys expectations and differences have not
been material.
Dealer holdback programs: Polaris provides dealer
incentive programs whereby at the time of shipment Polaris
withholds an amount from the dealer until ultimate retail sale
of the product. Polaris records these amounts as a reduction of
revenue and a liability on the consolidated balance sheet until
they are ultimately paid. Payments are generally made to dealers
twice each year, in the first quarter and the third quarter,
subject to previously established criteria. Polaris recorded
accrued liabilities of $79,688,000 and $72,229,000, for dealer
holdback programs in the consolidated balance sheets as of
December 31, 2010 and 2009, respectively.
Foreign currency translation: The functional currency for
each of the Polaris foreign subsidiaries is their respective
local currencies.
The assets and liabilities in all Polaris foreign entities are
translated at the foreign exchange rate in effect at the balance
sheet date. Translation gains and losses are reflected as a
component of Accumulated other comprehensive income in the
shareholders equity section of the accompanying
consolidated balance sheets. Revenues and expenses in all of
Polaris foreign entities are translated at the average
foreign exchange rate in effect for each month of the quarter.
The net Accumulated other comprehensive income related to
translation gains and losses was a net gain of $6,991,000 and
$3,861,000 at December 31, 2010 and 2009, respectively.
Revenue recognition: Revenues are recognized at the time
of shipment to the dealer or distributor or other customers.
Product returns, whether in the normal course of business or
resulting from repossession under its customer financing program
(see Note 3), have not been material. Polaris withholds an
amount from the dealer for incentive programs and provides for
estimated sales promotion expenses which are recognized as
reductions to sales when products are sold to the dealer or
distributor customer.
Share-based employee compensation: For purposes of
determining estimated fair value of share-based payment awards
on the date of grant under ASC Topic 718, Polaris uses the
Black-Scholes Model. The Black-Scholes Model requires the input
of certain assumptions that require judgment. Because employee
stock options and restricted stock awards have characteristics
significantly different from those of traded options, and
because changes in the input assumptions can materially affect
the fair value estimate, the existing models may not provide a
reliable single measure of the fair value of the employee stock
options or restricted stock awards. Management will continue to
assess the assumptions and methodologies used to calculate
estimated fair value of share-based compensation. Circumstances
may change and additional data may become available over time,
which could result in changes to these assumptions and
methodologies and thereby materially impact the fair value
determination. If factors change and the Company employs
different assumptions in the application of Topic 718 in future
periods, the compensation expense that was recorded under Topic
718 may differ significantly from what was recorded in the
current period. Refer to Note 2 for additional information
regarding share-based compensation.
The Company estimates the likelihood and the rate of achievement
for performance sensitive share-based awards, specifically
long-term compensation grants of Long Term Incentive Plan
(LTIP) and restricted stock. Changes in the
estimated rate of achievement can have a significant effect on
reported share-based compensation expenses as the effect of a
change in the estimated achievement level is recognized in the
period that the likelihood factor changes. If adjustments in the
estimated rate of achievement are made, they would be reflected
in our gross margin and operating expenses.
Accounting for derivative instruments and hedging activities:
ASC Topic 815 requires that changes in the derivatives
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. The net unrealized
loss of the derivative instruments of $1,256,000 at
December 31, 2010 and the net
49
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
unrealized gain of $2,436,000 at December 31, 2009 were
recorded in the accompanying balance sheets as other current
assets or other current liabilities. Polaris derivative
instruments consist of the interest rate swap agreements and
foreign exchange and commodity contracts discussed below. The
after tax unrealized losses of $1,093,000 and $655,000 as of
December 31, 2010 and 2009, respectively, were recorded as
components of Accumulated other comprehensive income. The
Companys diesel fuel contracts in 2010 and 2009, and
aluminum contracts in 2010 and 2009 did not meet the criteria
for hedge accounting and therefore, the resulting unrealized
gains from those contracts are included in the consolidated
statements of income in Cost of sales. The unrealized gains for
the diesel fuel contracts for 2010 and 2009 totaled $282,000 and
212,000, respectively, pretax, and the unrealized gains for the
aluminum contracts for 2010 and 2009 totaled $607,000 and
$3,273,000, respectively, pretax.
Interest rate swap agreements: At December 31, 2010,
Polaris had two interest rate swaps on a combined $50,000,000 of
borrowings which expires in April 2011. Each of these interest
rate swaps were designated as and met the criteria as cash flow
hedges. The fair value of these swap agreements were calculated
by comparing the fixed rate on the agreement to the market rate
of financial instruments similar in nature. The fair values of
the swaps on December 31, 2010 and 2009 were unrealized
losses of $126,000 and $699,000, respectively, which were
recorded as a liability in the accompanying consolidated balance
sheets. Gains and losses resulting from these agreements are
recorded in interest expense when realized. Unrealized gains or
losses, after tax, are recorded as a component of Accumulated
other comprehensive income in Shareholders Equity.
Foreign exchange contracts: Polaris enters into foreign
exchange contracts to manage currency exposures of certain of
its purchase commitments denominated in foreign currencies and
transfers of funds from time to time from its foreign
subsidiaries. Polaris does not use any financial contracts for
trading purposes. These contracts met the criteria for cash flow
hedges. Gains and losses on the Canadian dollar, Norwegian
Krone, Swedish Krona, and Australian dollar contracts at
settlement are recorded in Nonoperating other expense (income).
Gains and losses on the Japanese yen contracts at settlement are
recorded in Cost of sales. Unrealized gains or losses, after
tax, are recorded as a component of Accumulated other
comprehensive income in Shareholders Equity. The fair
value of the foreign exchange contracts was a net liability of
$2,019,000 as of December 31, 2010 and a net liability of
$350,000 as of December 31, 2009.
Commodity derivative contracts: Polaris is subject to
market risk from fluctuating market prices of certain purchased
commodity raw materials including steel, aluminum, fuel, and
petroleum-based resins. In addition, the Company purchases
components and parts containing various commodities, including
steel, aluminum, rubber and others which are integrated into the
Companys end products. While such materials are typically
available from numerous suppliers, commodity raw materials are
subject to price fluctuations. The Company generally buys these
commodities and components based upon market prices that are
established with the vendor as part of the purchase process.
From time to time, Polaris utilizes derivative contracts to
hedge a portion of the exposure to commodity risks. During 2010
and 2009, the Company entered into derivative contracts to hedge
a portion of the exposure for diesel fuel and aluminum. These
contracts did not meet the criteria for hedge accounting and the
resulting unrealized gains and losses are recorded in the
consolidated statements of income as a component of cost of
sales. The fair value of the commodity derivative contracts was
a net asset of $889,000 as of December 31, 2010 and a net
asset of $3,485,000 as of December 31, 2009.
Comprehensive income: Components of comprehensive income
include net income, foreign currency translation adjustments,
unrealized gains or losses on derivative instruments, and
unrealized gains or losses on securities held for sale, net of
tax. The Company has chosen to disclose comprehensive income in
the accompanying consolidated statements of shareholders
equity and comprehensive income.
New accounting pronouncements: Improving Disclosure about
Fair Value Measurements: In January 2010, the Financial
Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU)
2010-06,
Improving Disclosure about Fair Value Measurements.
ASU 2010-06
revises two disclosure requirements concerning fair value
measurements and clarifies two others. It requires separate
presentation of significant transfers into and out of
Levels 1 and 2 of the fair value hierarchy and disclosure
of the reasons for such transfers. It also requires the
50
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
presentation of purchases, sales, issuances and settlements
within Level 3 on a gross basis rather than a net basis.
The amendments also clarify that disclosures should be
disaggregated by class of asset or liability and that
disclosures about inputs and valuation techniques should be
provided for both recurring and non-recurring fair value
measurements. The ASU is effective for interim and annual
reporting periods beginning after December 15, 2009, except
for certain Level 3 activity disclosure requirements that
will be effective for reporting periods beginning after
December 15, 2010. We have included the additional
disclosure required by ASU
2010-06 in
its footnotes beginning with the 2010 first quarter.
Accounting for Transfers of Financial Assets: In December
2009, the FASB issued ASC Topic 860, Transfers and
Servicing: Accounting for Transfers of Financial Assets.
This Topic amends the FASB Accounting Standards Codification for
Statement 166, Accounting for Transfers of Financial Assets - an
amendment of FASB Statement No. 140). ASC Topic 860
provides guidance on how to account for transfers of financial
assets including establishing conditions for reporting transfers
of a portion of a financial asset as opposed to an entire asset
and requires enhanced disclosures about a transferors
continuing involvement with transfers. The impact of adoption of
this topic was not material to us.
Improvements to Financial Reporting by Enterprises Involved
with Variable Interest Entities: In December 2009, the FASB
issued ASU
2009-17,
Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities, which amends ASC
Topic 810, Consolidation (FASB Statement
No. 167, Amendments to FASB Interpretation No. 46(R)).
ASU 2009-17
requires the enterprise to qualitatively assess if it is the
primary beneficiary of a variable-interest entity (VIE), and, if
so, the VIE must be consolidated. The ASU also requires
additional disclosures about an enterprises involvement in
a VIE. ASU
2009-17 was
effective for us beginning with our quarter ended March 31,
2010. The impact of adopting the new guidance was not material
to us.
|
|
NOTE 2.
|
Share-Based
Employee Compensation
|
Share-based plans: Polaris maintains an Omnibus Incentive
Plan (Omnibus Plan) under which the Company grants
long-term equity-based incentives and rewards for the benefit of
its employees, directors and consultants, which were previously
provided under several separate incentive and compensatory
plans. Upon approval by the shareholders of the Omnibus Plan in
April 2007, the Polaris Industries Inc. 1995 Stock Option Plan
(Option Plan), the 1999 Broad Based Stock Option
Plan (Broad Based Plan), the Restricted Stock Plan
(Restricted Plan) and the 2003 Non-Employee Director
Stock Option Plan (Director Stock Option Plan and,
collectively with the Option Plan, Restricted Plan and Broad
Based Plan, the Prior Plans) were frozen and no
further grants or awards have since been or will be made under
such plans. A maximum of 2,750,000 shares of common stock
are available for issuance under the Omnibus Plan, together with
additional shares cancelled or forfeited under the Prior Plans.
Stock option awards granted to date under the Omnibus Plan
generally vest two to four years from the award date and expire
after ten years. In addition, the Company has granted a total of
45,000 deferred stock units to its non-employee directors under
the Omnibus Plan since 2007 (10,000, 16,000 and 11,600 in 2010,
2009 and 2008, respectively) which will be converted into common
stock when the directors board service ends or upon a
change in control. Restricted shares awarded under the Omnibus
Plan to date generally contain restrictions which lapse after a
two to four year period if Polaris achieves certain performance
measures.
Under the Option Plan, incentive and nonqualified stock options
for a maximum of 8,200,000 shares of common stock could be
issued to certain employees. Options granted to date generally
vest three years from the award date and expire after ten years.
Under the Broad Based Plan, incentive stock options for a
maximum of 700,000 shares of common stock could be issued
to substantially all Polaris employees. Options with respect to
675,400 shares of common stock were granted under this plan
during 1999 at an exercise price of $15.78 and of the options
initially granted under the Broad Based Plan, an aggregate of
518,400 vested in March 2002. This plan and any outstanding
options expired in 2009.
51
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under the Restricted Plan, a maximum of 2,350,000 shares of
common stock could be awarded as an incentive to certain
employees with no cash payments required from the recipient. The
majority of the outstanding awards contain restrictions which
lapse after a two to four year period if Polaris achieves
certain performance measures.
Under the Director Stock Option Plan, nonqualified stock options
for a maximum of 200,000 shares of common stock could be
issued to non-employee directors. Each non-employee director as
of the date of the annual shareholders meetings through 2006 was
granted an option to purchase 4,000 shares of common stock
at a price per share equal to the fair market value as of the
date of grant. Options become exercisable as of the date of the
next annual shareholders meeting following the date of grant and
must be exercised no later than 10 years from the date of
grant.
Under the Polaris Industries Inc. Deferred Compensation Plan for
Directors (Director Plan) members of the Board of
Directors who are not Polaris officers or employees receive
annual grants of common stock equivalents and may also elect to
receive additional common stock equivalents in lieu of
directors fees, which will be converted into common stock
when board service ends. A maximum of 250,000 shares of
common stock has been authorized under this plan of which
115,249 equivalents have been earned and an additional
100,200 shares have been issued to retired directors as of
December 31, 2010. As of December 31, 2010 and 2009,
Polaris liability under the plan totaled $8,992,000 and
$5,690,000, respectively.
Polaris maintains a long term incentive plan under which awards
are issued to provide incentives for certain employees to attain
and maintain the highest standards of performance and to attract
and retain employees of outstanding competence and ability with
no cash payments required from the recipient. The awards are
paid in cash and are based on certain Company performance
measures that are measured over a period of three consecutive
calendar years. At the beginning of the plan cycle, participants
have the option to receive a cash value at the time of awards or
a cash value tied to Polaris stock price movement over the three
year plan cycle. At December 31, 2010 and 2009,
Polaris liability under the plan totaled $49,745,000 and
$4,587,000, respectively.
Share-based compensation expense: The amount of
compensation cost for share-based awards to be recognized during
a period is based on the portion of the awards that are
ultimately expected to vest. The Company estimates stock option
forfeitures at the time of grant and revises those estimates in
subsequent periods if actual forfeitures differ from those
estimates. The Company analyzes historical data to estimate
pre-vesting forfeitures and records share compensation expense
for those awards expected to vest.
Total share-based compensation expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Option plan
|
|
$
|
6,132
|
|
|
$
|
4,653
|
|
|
$
|
6,094
|
|
Other share-based awards, net
|
|
|
52,807
|
|
|
|
12,354
|
|
|
|
3,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation before tax
|
|
|
58,939
|
|
|
|
17,007
|
|
|
|
9,904
|
|
Tax benefit
|
|
|
23,039
|
|
|
|
6,620
|
|
|
|
3,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense included in net income
|
|
$
|
35,900
|
|
|
$
|
10,387
|
|
|
$
|
6,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These share-based compensation expenses are reflected in Cost of
sales and Operating expenses in the accompanying consolidated
statements of income. For purposes of determining the estimated
fair value of share-based payment awards on the date of grant
under ASC Topic 718, Polaris has used the Black-Scholes
option-pricing model. Assumptions utilized in the model are
evaluated and revised, as necessary, to reflect market
conditions and experience.
At December 31, 2010, there was $18,606,000 of total
unrecognized share-based compensation expense related to
unvested share-based awards. Unrecognized share-based
compensation expense is expected to be
52
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognized over a weighted-average period of 1.56 years.
Included in unrecognized share-based compensation is
approximately $15,899,000 related to stock options and
$2,707,000 for restricted stock.
General stock option and restricted stock information:
The following summarizes stock option activity and the weighted
average exercise price for the following plans for the each of
the three years ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Plan
|
|
|
Omnibus Plan
|
|
|
Broad Based Plan
|
|
|
Director Stock Option Plan
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Outstanding
|
|
|
Average
|
|
|
Outstanding
|
|
|
Average
|
|
|
Outstanding
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Balance as of December 31, 2007
|
|
|
4,140,297
|
|
|
$
|
37.51
|
|
|
|
14,000
|
|
|
$
|
49.28
|
|
|
|
46,400
|
|
|
$
|
15.78
|
|
|
|
88,000
|
|
|
$
|
46.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
764,100
|
|
|
|
41.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(484,548
|
)
|
|
|
24.17
|
|
|
|
|
|
|
|
|
|
|
|
(8,600
|
)
|
|
|
15.78
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(249,900
|
)
|
|
|
64.79
|
|
|
|
(2,200
|
)
|
|
|
38.04
|
|
|
|
(1,000
|
)
|
|
|
15.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
3,405,849
|
|
|
$
|
37.41
|
|
|
|
775,900
|
|
|
$
|
41.40
|
|
|
|
36,800
|
|
|
$
|
15.78
|
|
|
|
88,000
|
|
|
$
|
46.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
667,000
|
|
|
|
25.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(165,826
|
)
|
|
|
19.34
|
|
|
|
|
|
|
|
|
|
|
|
(33,999
|
)
|
|
|
15.78
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(20,400
|
)
|
|
|
44.78
|
|
|
|
(24,000
|
)
|
|
|
40.18
|
|
|
|
(2,801
|
)
|
|
|
15.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
3,219,623
|
|
|
$
|
38.29
|
|
|
|
1,418,900
|
|
|
$
|
33.78
|
|
|
|
|
|
|
|
|
|
|
|
88,000
|
|
|
$
|
46.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
807,906
|
|
|
|
53.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,975,993
|
)
|
|
|
33.00
|
|
|
|
(3,000
|
)
|
|
|
48.50
|
|
|
|
|
|
|
|
|
|
|
|
(36,000
|
)
|
|
|
49.30
|
|
Forfeited
|
|
|
(6,750
|
)
|
|
|
42.97
|
|
|
|
(69,400
|
)
|
|
|
37.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
|
1,236,880
|
|
|
$
|
46.72
|
|
|
|
2,154,406
|
|
|
$
|
41.07
|
|
|
|
|
|
|
|
|
|
|
|
52,000
|
|
|
$
|
43.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest as of December 31, 2010
|
|
|
1,236,880
|
|
|
$
|
46.72
|
|
|
|
2,056,540
|
|
|
$
|
40.85
|
|
|
|
|
|
|
|
|
|
|
|
52,000
|
|
|
$
|
43.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable as of December 31, 2010
|
|
|
1,236,880
|
|
|
$
|
46.72
|
|
|
|
10,500
|
|
|
$
|
49.63
|
|
|
|
|
|
|
|
|
|
|
|
52,000
|
|
|
$
|
43.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options
outstanding at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Number
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
Number
|
|
|
Weighted
|
|
|
|
Outstanding at
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercisable at
|
|
|
Average
|
|
Range of Exercise Prices
|
|
12/31/10
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
12/31/10
|
|
|
Exercise Price
|
|
|
$19.80 to $20.06
|
|
|
357,000
|
|
|
|
8.09
|
|
|
$
|
19.85
|
|
|
|
|
|
|
|
|
|
$20.07 to $30.97
|
|
|
439,012
|
|
|
|
5.97
|
|
|
$
|
28.98
|
|
|
|
155,012
|
|
|
$
|
26.57
|
|
$30.98 to $43.02
|
|
|
418,848
|
|
|
|
5.80
|
|
|
$
|
39.43
|
|
|
|
130,448
|
|
|
$
|
42.60
|
|
$43.03 to $44.66
|
|
|
596,876
|
|
|
|
7.54
|
|
|
$
|
44.18
|
|
|
|
102,400
|
|
|
$
|
43.80
|
|
$44.67 to $46.66
|
|
|
628,500
|
|
|
|
6.55
|
|
|
$
|
45.85
|
|
|
|
379,500
|
|
|
$
|
46.30
|
|
$46.67 to $59.45
|
|
|
513,020
|
|
|
|
4.93
|
|
|
$
|
52.93
|
|
|
|
491,020
|
|
|
$
|
52.96
|
|
$59.46 to $59.96
|
|
|
432,330
|
|
|
|
9.70
|
|
|
$
|
59.96
|
|
|
|
|
|
|
|
|
|
$59.97 to $75.21
|
|
|
57,700
|
|
|
|
5.85
|
|
|
$
|
68.64
|
|
|
|
41,000
|
|
|
$
|
69.38
|
|
The weighted average remaining contractual life of outstanding
options was 6.86 years as of December 31, 2010.
53
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following assumptions were used to estimate the weighted
average fair value of options of $18.60, $5.89, and $9.09
granted during the years ended December 31, 2010, 2009, and
2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Weighted-average volatility
|
|
|
48
|
%
|
|
|
42
|
%
|
|
|
31
|
%
|
Expected dividend yield
|
|
|
3.0
|
%
|
|
|
6.6
|
%
|
|
|
3.7
|
%
|
Expected term (in years)
|
|
|
5.1
|
|
|
|
5.7
|
|
|
|
5.7
|
|
Weighted average risk free interest rate
|
|
|
2.5
|
%
|
|
|
2.2
|
%
|
|
|
2.7
|
%
|
The total intrinsic value of options exercised during the year
ended December 31, 2010 was $49,626,000. The total
intrinsic value of options outstanding and exercisable at
December 31, 2010, 2009, and 2008 was $40,795,000,
$25,962,000, and $6,405,000, respectively. The total intrinsic
value at each of December 31, 2010, 2009 and 2008 is based
on the Companys closing stock price on the last trading
day of the applicable year for
in-the-money
options.
The following table summarizes restricted stock activity for the
year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
Average
|
|
|
|
Outstanding
|
|
|
Grant Price
|
|
|
Balance as of December 31, 2009
|
|
|
124,967
|
|
|
$
|
39.06
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
25,954
|
|
|
|
57.90
|
|
Vested
|
|
|
(9,967
|
)
|
|
|
48.15
|
|
Canceled/Forfeited
|
|
|
(12,500
|
)
|
|
|
31.73
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
|
128,454
|
|
|
$
|
42.87
|
|
|
|
|
|
|
|
|
|
|
Expected to vest as of December 31, 2010
|
|
|
128,454
|
|
|
$
|
42.87
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of restricted stock expected to vest
as of December 31, 2010 was $10,022,000. The total
intrinsic value at December 31, 2010 is based on the
Companys closing stock price on the last trading day of
the year. The weighted average fair values at the grant dates of
grants awarded under the Restricted Stock Plan for the years
ended December 31, 2010, 2009, and 2008 were $57.90,
$35.67, and $39.21, respectively.
Employee
Savings Plans
Polaris sponsors a qualified non-leveraged employee stock
ownership plan (ESOP) under which a maximum of
3,600,000 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. Shares vest
immediately and require no cash payments from the recipient.
Participants may instruct Polaris to pay respective dividends
directly to the participant in cash or reinvest the dividends
into the participants ESOP accounts. Substantially all employees
are eligible to participate in the ESOP, with the exception of
Company officers. Total expense related to the ESOP was
$8,123,000, $0, and $6,706,000, in 2010, 2009 and 2008,
respectively. In 2009, the Company suspended its annual
contribution of shares into the ESOP as a cost reduction
measure; however, contributions were made again in 2010. As of
December 31, 2010 there were 2,475,000 shares vested
in the plan.
Polaris sponsors a 401(k) retirement savings plan under which
eligible United States employees may choose to contribute up to
50 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 $7,073,000, $6,827,000, and $7,251,000, in 2010, 2009 and
2008, respectively.
54
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Bank financing: Polaris is a party to an
unsecured bank agreement comprised of a $250,000,000 revolving
loan facility for working capital needs and a $200,000,000 term
loan. The entire amount of the $200,000,000 term loan was
utilized in December 2006 to fund an accelerated share
repurchase transaction. Interest is charged at rates based on
LIBOR or prime. The agreement contains various
restrictive covenants which limit investments, acquisitions and
indebtedness. 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, 2010. The agreement
expires on December 2, 2011 and the outstanding borrowings
mature.
The following summarizes activity under Polaris credit
arrangements (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Total borrowings at December 31,
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
Average outstanding borrowings during year
|
|
$
|
200,000
|
|
|
$
|
268,100
|
|
|
$
|
282,600
|
|
Maximum outstanding borrowings during year
|
|
$
|
200,000
|
|
|
$
|
345,000
|
|
|
$
|
345,000
|
|
Interest rate at December 31
|
|
|
0.65
|
%
|
|
|
0.79
|
%
|
|
|
0.77
|
%
|
As of December 31, 2010, Polaris has entered into the
following interest rate swap agreements to manage exposures to
fluctuations in interest rates by fixing the LIBOR interest rate
as follows:
|
|
|
|
|
|
|
Year Swap
|
|
|
|
|
|
|
Entered into
|
|
Fixed Rate (LIBOR)
|
|
Notional Amount
|
|
Expiration Date
|
|
2009
|
|
1.34%
|
|
$25,000,000
|
|
April 2011
|
2009
|
|
0.98%
|
|
$25,000,000
|
|
April 2011
|
Each of these interest rate swaps were designated as and met the
criteria of cash flow hedges.
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
are expected to be issued in May 2011. As a result, the Company
has classified $100,000,000 of the $200,000,000 term loan
outstanding as of December 31, 2010 as a long-term
liability in the consolidated balance sheet.
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.
Letters of credit: At December 31, 2010,
Polaris had open letters of credit totaling approximately
$3,961,000. The amounts outstanding are reduced as inventory
purchases pertaining to the contracts are received.
Dealer financing programs: Certain finance
companies, including Polaris Acceptance, an affiliate (see
Note 6), provide floor plan financing to dealers on the
purchase of Polaris products. The amount financed by worldwide
dealers under these arrangements at December 31, 2010, was
approximately $667,607,000. 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.
55
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Polaris Income before income taxes was generated from its
United States and foreign operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(In thousands):
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
$
|
210,155
|
|
|
$
|
143,483
|
|
|
$
|
163,322
|
|
Foreign
|
|
|
8,386
|
|
|
|
7,691
|
|
|
|
13,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
218,541
|
|
|
$
|
151,174
|
|
|
$
|
177,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Polaris Provision for income taxes are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(In thousands):
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
73,597
|
|
|
$
|
27,104
|
|
|
$
|
48,370
|
|
State
|
|
|
7,381
|
|
|
|
3,723
|
|
|
|
5,520
|
|
Foreign
|
|
|
6,783
|
|
|
|
5,757
|
|
|
|
6,744
|
|
Deferred
|
|
|
(16,358
|
)
|
|
|
13,573
|
|
|
|
(967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71,403
|
|
|
$
|
50,157
|
|
|
$
|
59,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of the Federal statutory income tax rate to the
effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
|
|
1.8
|
|
|
|
2.3
|
|
|
|
2.3
|
|
Domestic manufacturing deduction
|
|
|
(1.8
|
)
|
|
|
(1.1
|
)
|
|
|
(1.1
|
)
|
Research tax credit
|
|
|
(1.2
|
)
|
|
|
(1.2
|
)
|
|
|
(1.0
|
)
|
Settlement of tax audits
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Valuation allowance for foreign subsidiaries net operating losses
|
|
|
0.4
|
|
|
|
|
|
|
|
0.5
|
|
Other permanent differences
|
|
|
(1.5
|
)
|
|
|
(1.8
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
32.7
|
%
|
|
|
33.2
|
%
|
|
|
33.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States income taxes have not been provided on
undistributed earnings of certain foreign subsidiaries as of
December 31, 2010. The Company has reinvested such earnings
overseas in foreign operations indefinitely and expects that
future earnings will also be reinvested overseas indefinitely in
these subsidiaries.
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
56
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
liabilities given the provisions of enacted tax laws. The net
deferred income taxes consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Current deferred income taxes:
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
6,618
|
|
|
$
|
7,920
|
|
Accrued expenses
|
|
|
60,100
|
|
|
|
52,588
|
|
Derivative instruments
|
|
|
651
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
67,369
|
|
|
|
60,902
|
|
|
|
|
|
|
|
|
|
|
Noncurrent net deferred income taxes:
|
|
|
|
|
|
|
|
|
Cost in excess of net assets of business acquired
|
|
|
(1,973
|
)
|
|
|
2,456
|
|
Property and equipment
|
|
|
(20,786
|
)
|
|
|
(24,801
|
)
|
Compensation payable in common stock
|
|
|
30,119
|
|
|
|
19,815
|
|
Net unrealized gains in other comprehensive income
|
|
|
(8,297
|
)
|
|
|
(8,520
|
)
|
|
|
|
|
|
|
|
|
|
Total noncurrent
|
|
|
(937
|
)
|
|
|
(11,050
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
66,432
|
|
|
$
|
49,852
|
|
|
|
|
|
|
|
|
|
|
Polaris had liabilities recorded related to unrecognized tax
benefits totaling $5,509,000 and $4,988,000 at December 31,
2010 and 2009, respectively. The liabilities were classified as
Long-term income taxes payable in the accompanying consolidated
balance sheets in accordance with ASC Topic 740. Polaris
recognizes potential interest and penalties related to income
tax positions as a component of the Provision for income taxes
on the consolidated statements of income. Polaris had reserves
related to potential interest of $331,000 and $612,000 recorded
as a component of the liabilities at December 31, 2010 and
2009, respectively. The entire balance of unrecognized tax
benefits at December 31, 2010, if recognized, would affect
the Companys effective tax rate. The Company does not
anticipate that total unrecognized tax benefits will materially
change in the next twelve months. Tax years 2006 through 2009
remain open to examination by certain tax jurisdictions to which
the Company is subject. A reconciliation of the beginning and
ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(In thousands):
|
|
2010
|
|
|
2009
|
|
|
Balance at January 1,
|
|
$
|
4,988
|
|
|
$
|
5,103
|
|
Gross increases for tax positions of prior years
|
|
|
1,259
|
|
|
|
94
|
|
Gross decreases for tax positions of prior years
|
|
|
|
|
|
|
(275
|
)
|
Gross increases for tax positions of current year
|
|
|
1,345
|
|
|
|
985
|
|
Decreases due to settlements
|
|
|
|
|
|
|
(171
|
)
|
Decreases for lapse of statute of limitations
|
|
|
(2,083
|
)
|
|
|
(748
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
5,509
|
|
|
$
|
4,988
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5:
|
Shareholders
Equity
|
Stock repurchase program: The Polaris Board of
Directors authorized the cumulative repurchase of up to
37,500,000 shares of the Companys common stock. As of
December 31, 2010, 3,119,000 shares remain available
for repurchases under the Boards authorization. During
2010 Polaris paid $27,486,000 to repurchase and retire
approximately 601,000 shares. During 2009 Polaris paid
$4,556,000 to repurchase and retire approximately
111,000 shares and in 2008 Polaris paid $107,167,000 to
repurchase and retire approximately 2,545,000 shares.
57
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Companys stock. The
dividend will consist of one purchase right for each outstanding
share of the Companys common stock held by shareholders of
record on June 1, 2000. The shareholder rights plan was
amended and restated in April 2010. The amended and restated
rights agreement extended the final expiration date of the
rights from May 2010 to April 2020, expanded the definition of
Beneficial Owner to include certain derivative
securities relating to the common stock of the Company and
increased the purchase price for the rights from $150 to $250
per share. The Board of Directors may redeem the rights earlier
for $0.01 per right.
Accumulated other comprehensive
income: Accumulated other comprehensive income
consisted of $6,991,000 and $3,861,000 of unrealized currency
translation gains (net of tax of $8,298,000 and $8,520,000) as
of December 31, 2010 and 2009, respectively, offset by
$1,093,000 and $654,000 of unrealized losses (net of tax benefit
of $650,000 and $394,000) related to derivative instruments as
of December 31, 2010 and 2009, respectively, and $382,000
of unrealized losses on shares held for sale as of
December 31, 2009.
Changes in the Accumulated other comprehensive income (loss)
balances is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains
|
|
|
Net Gains (Losses)
|
|
|
Accumulated Other
|
|
|
|
Foreign Currency
|
|
|
(Losses) on
|
|
|
on Cash Flow
|
|
|
Comprehensive
|
|
|
|
Items
|
|
|
Securities
|
|
|
Hedging Derivatives
|
|
|
Income
|
|
|
Balance at December 31, 2009
|
|
$
|
3,861
|
|
|
$
|
(382
|
)
|
|
$
|
(655
|
)
|
|
$
|
2,824
|
|
Reclassification to the income statement
|
|
|
|
|
|
|
382
|
|
|
|
(2,148
|
)
|
|
|
(1,766
|
)
|
Change in fair value
|
|
|
3,130
|
|
|
|
|
|
|
|
1,710
|
|
|
|
4,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
6,991
|
|
|
|
|
|
|
$
|
(1,093
|
)
|
|
$
|
5,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income 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
Director Plan, ESOP and deferred stock units under the Omnibus
Plan. 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 and Omnibus Plan. A reconciliation of these
amounts is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Weighted average number of common shares outstanding
|
|
|
33,159
|
|
|
|
32,245
|
|
|
|
32,456
|
|
Director Plan and Deferred stock units
|
|
|
163
|
|
|
|
154
|
|
|
|
112
|
|
ESOP
|
|
|
128
|
|
|
|
0
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding basic
|
|
|
33,450
|
|
|
|
32,399
|
|
|
|
32,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of Restricted Plan and Omnibus Plan
|
|
|
66
|
|
|
|
265
|
|
|
|
178
|
|
Dilutive effect of Option Plan and Omnibus Plan
|
|
|
866
|
|
|
|
410
|
|
|
|
616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and potential common shares outstanding
diluted
|
|
|
34,382
|
|
|
|
33,074
|
|
|
|
33,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2010, 2009 and 2008, the number of options that could
potentially dilute earnings per share on a fully diluted basis
that were not included in the computation of diluted earnings
per share because to do so would have been anti-dilutive was
394,000, 1,672,000, and 2,862,000, respectively.
Stock Purchase Plan: Polaris maintains an
employee stock purchase plan (Purchase Plan). A
total of 1,500,000 shares of common stock are reserved for
this plan. The Purchase Plan permits eligible employees to
purchase common stock at 95 percent of the average market
price each month. As of December 31, 2010, approximately
587,000 shares had been purchased under the Purchase Plan.
58
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6:
|
Financial
Services Arrangements
|
In 1996, one of Polaris wholly-owned subsidiaries entered
into a partnership agreement with a subsidiary of Transamerica
Distribution Finance (TDF) to form Polaris
Acceptance. In 2004, TDF was merged with a subsidiary of General
Electric Company and, as a result of that merger, TDFs
name was changed to GECDF. Polaris subsidiary has a
50 percent equity interest in Polaris Acceptance. In
November 2006, Polaris Acceptance sold a majority of its
receivable portfolio to the securitization facility arranged by
General Electric Capital Corporation, a GECDF affiliate
(Securitization Facility), and the partnership
agreement was amended to provide that Polaris Acceptance would
continue to sell portions of its receivable portfolio to a
Securitization Facility from time to time on an ongoing basis.
At December 31, 2010 and 2009, the outstanding balance of
receivables sold by Polaris Acceptance to the Securitization
Facility (the Securitized Receivables) amounted to
approximately $323,790,000 and $387,503,000, respectively. The
sale of receivables from Polaris Acceptance to the
Securitization Facility is accounted for in Polaris
Acceptances financial statements as a
true-sale under ASC Topic 860. Polaris Acceptance is
not responsible for any continuing servicing costs or
obligations with respect to the Securitized Receivables.
Polaris subsidiary and GECDF have an income sharing
arrangement related to income generated from the Securitization
Facility. The remaining portion of the receivable portfolio is
recorded on Polaris Acceptances books, and is funded to
the extent of 85 percent through a loan from an affiliate
of GECDF. Polaris has not guaranteed the outstanding
indebtedness of Polaris Acceptance or the Securitized
Receivables. In addition, the two partners of Polaris Acceptance
share equally an equity cash investment equal to 15 percent
of the sum of the portfolio balance in Polaris Acceptance plus
the Securitized Receivables. Polaris total investment in
Polaris Acceptance at December 31, 2010 and 2009, was
$37,169,000 and $41,332,000, respectively. The Polaris
Acceptance partnership agreement provides for periodic options
for renewal, purchase, or termination by either party.
Substantially all of Polaris United States sales are
financed through Polaris Acceptance and the Securitization
Facility whereby Polaris receives payment within a few days of
shipment of the product. The net amount financed for dealers
under this arrangement at December 31, 2010, including both
the portfolio balance in Polaris Acceptance and the Securitized
Receivables, was $497,830,000. Polaris has agreed to repurchase
products repossessed by Polaris Acceptance up to an annual
maximum of 15 percent of the average month-end balances
outstanding during the prior calendar year. For calendar year
2010, the potential 15 percent aggregate repurchase
obligation was approximately $81,443,000. Polaris
financial exposure under this arrangement is limited to the
difference between the amounts unpaid by the dealer with respect
to the repossessed product plus costs of repossession and the
amount received on the resale of the repossessed product. No
material losses have been incurred under this agreement during
the periods presented. Polaris trade receivables from
Polaris Acceptance were $29,000 and $1,837,000 at
December 31, 2010 and 2009, respectively. Polaris
exposure to losses with respect to the Polaris Acceptance
Portfolio and the Securitized Receivables is limited to its
equity in its wholly-owned subsidiary that is a partner in
Polaris Acceptance.
Polaris total investment in Polaris Acceptance at
December 31, 2010 of $37,169,000 is accounted for under the
equity method, and is recorded as Investments in finance
affiliate in the accompanying consolidated balance sheets. The
partnership agreement provides that all income and losses of the
Polaris Acceptance and the Securitized Receivables are shared
50 percent by Polaris wholly-owned subsidiary and
50 percent by GECDF. Polaris allocable share of the
income of Polaris Acceptance and the Securitized Facility has
been included as a component of Income from financial services
in the accompanying statements of income.
Summarized financial information for Polaris Acceptance
reflecting the effects of the Securitization Facility is
presented as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
$
|
12,459
|
|
|
$
|
12,559
|
|
|
$
|
12,484
|
|
Interest and operating expenses
|
|
|
3,311
|
|
|
|
4,517
|
|
|
|
3,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,148
|
|
|
$
|
8,042
|
|
|
$
|
9,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Finance receivables, net
|
|
$
|
174,040
|
|
|
$
|
167,485
|
|
Other assets
|
|
|
67
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
174,107
|
|
|
$
|
167,566
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
92,863
|
|
|
$
|
83,899
|
|
Other liabilities
|
|
|
6,980
|
|
|
|
1,766
|
|
Partners capital
|
|
|
74,264
|
|
|
|
81,901
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Partners Capital
|
|
$
|
174,107
|
|
|
$
|
167,566
|
|
|
|
|
|
|
|
|
|
|
In August 2005, a wholly-owned subsidiary of Polaris entered
into a multi-year contract with HSBC Bank Nevada, National
Association (HSBC), formerly known as Household Bank
(SB), N.A., under which HSBC is continuing to manage the Polaris
private label credit card program under the StarCard label,
which until July 2007 included providing retail credit for
non-Polaris products. The 2005 agreement provides for income to
be paid to Polaris based on a percentage of the volume of
revolving retail credit business generated including non-Polaris
products. The previous agreement provided for equal sharing of
all income and losses with respect to the retail credit
portfolio, subject to certain limitations. The 2005 contract
removed all credit, interest rate and funding risk to Polaris
and also eliminated the need for Polaris to maintain a retail
credit cash deposit with HSBC, which was approximately
$50,000,000 at August 1, 2005. HSBC ceased financing
non-Polaris products under its arrangement with Polaris
effective July 1, 2007. During the first quarter of 2008,
HSBC notified the Company that the profitability to HSBC of the
2005 contractual arrangement was unacceptable and, absent some
modification of that arrangement, HSBC might significantly
tighten its underwriting standards for Polaris customers,
reducing the number of qualified retail credit customers who
would be able to obtain credit from HSBC. In order to avoid the
potential reduction of revolving retail credit available to
Polaris consumers, Polaris began to forgo the receipt of a
volume based fee provided for under its agreement with HSBC
effective March 1, 2008. Management currently anticipates
that the elimination of the volume based fee will continue and
that HSBC will continue to provide revolving retail credit to
qualified customers through the end of the contract term. During
the 2010 second quarter Polaris and HSBC extended the term of
the agreement on similar terms to October 2013.
In April 2006, a wholly-owned subsidiary of Polaris entered into
a multi-year contract with GE Money Bank (GE Bank)
under which GE Bank makes available closed-end installment
consumer and commercial credit to customers of Polaris dealers
for both Polaris and non-Polaris products. In November 2010, the
Company extended its installment credit agreement to March 2016
under which GE Bank will provide exclusive installment credit
lending for Victory motorcycles only. Polaris income
generated from the GE Bank agreement has been included as a
component of Income from financial services in the accompanying
consolidated statements of income.
In January 2009, a wholly-owned subsidiary of Polaris entered
into a multi-year contract with Sheffield Financial
(Sheffield) pursuant to which Sheffield agreed to
make available closed-end installment consumer and commercial
credit to customers of Polaris dealers for Polaris products. In
October 2010, Polaris extended its installment credit agreement
to February 2016 under which Sheffield will provide exclusive
installment credit lending for ORV and Snowmobiles.
Polaris income generated from the Sheffield agreement has
been included as a component of Income from financial services
in the accompanying consolidated statements of income.
Polaris also provides extended service contracts to consumers
and certain insurance contracts to dealers and consumers through
various third-party suppliers. Polaris does not retain any
warranty, insurance or financial risk in any of these
arrangements. Polaris service fee income generated from
these arrangements has been included as a component of Income
from financial services in the accompanying consolidated
statements of income.
60
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income from financial services as included in the consolidated
statements of income is comprised of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Equity in earnings of Polaris Acceptance
|
|
$
|
4,574
|
|
|
$
|
4,021
|
|
|
$
|
4,604
|
|
Income from Securitization Facility
|
|
|
8,027
|
|
|
|
9,559
|
|
|
|
8,620
|
|
Income from HSBC, GE Bank and Sheffield retail credit agreements
|
|
|
2,422
|
|
|
|
1,090
|
|
|
|
5,703
|
|
Income from other financial services activities
|
|
|
1,833
|
|
|
|
2,401
|
|
|
|
2,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from financial services
|
|
$
|
16,856
|
|
|
$
|
17,071
|
|
|
$
|
21,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7:
|
Investment
in Manufacturing Affiliates
|
The caption Investments in manufacturing affiliates in the
consolidated balance sheets represents Polaris equity
investment in Robin Manufacturing, U.S.A. (Robin),
which builds engines in the United States for recreational and
industrial products as well as Polaris equity investment
in KTM prior to the 2010 third quarter. At December 31,
2010, Polaris had a 40 percent ownership interest in Robin.
Fuji and Polaris have agreed to close the Robin facility by
mid-2011 as the production volume of engines made at the
facility has declined significantly in recent years. In the
third quarter of 2010, the Company sold its remaining equity
investment in the Austrian motorcycle company, KTM Power Sports
AG (KTM) which manufactures off-road and on-road
motorcycles, for $9,601,000 and recorded a net gain on
securities available for sale of $1,594,000. Prior to the sale
of the KTM investment, the Company owned less than
5 percent of KTMs outstanding shares. The KTM
investment, prior to the sale, had been classified as available
for sale securities under ASC Topic 320. During the second
quarter 2010, the Company determined that the decline in the
fair value of the KTM shares owned by the Company as of
June 30, 2010 was other than temporary and therefore
recorded in the income statement a non-cash impairment charge on
securities held for sale of $769,000. During the first quarter
2009, the Company determined that the decline in the fair value
of the KTM shares owned by the Company as of March 31, 2009
was other than temporary and therefore recorded in the income
statement a non-cash impairment charge on securities held for
sale of $8,952,000.
Polaris investments in manufacturing affiliates, including
associated transaction costs, totaled $1,009,000 at
December 31, 2010 and $10,536,000 at December 31,
2009. The investment in Robin is accounted for under the equity
method.
|
|
Note 8:
|
Commitments
and Contingencies
|
Product liability: Polaris is subject to product
liability claims in the normal course of business. Polaris is
currently self-insured for all product liability claims. 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. The
Company utilizes historical trends and actuarial analysis tools
to assist in determining the appropriate loss reserve levels. At
December 31, 2010 the Company had an accrual of $11,956,000
for the probable payment of pending claims related to continuing
operations. This accrual is included as a component of Other
Accrued expenses in the accompanying consolidated balance
sheets. In addition, the Company had an accrual of $1,550,000
for the probable payment of pending claims related to
discontinued operations at December 31, 2010.
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 unlikely 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
non-cancelable operating leases. Total rent expense under all
lease agreements was $5,553,000, $4,999,000 and $5,777,000 for
2010, 2009 and 2008, respectively.
61
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Future minimum annual lease payments under long-term leases at
December 31, 2010, including payments for the Monterrey,
Mexico facility and exclusive of other costs required under
non-cancelable operating leases were as follows (in thousands):
|
|
|
|
|
|
|
Year Ended
|
|
Lease Obligations
|
|
December 31, 2010
|
|
|
2011
|
|
$
|
3,730
|
|
2012
|
|
|
4,422
|
|
2013
|
|
|
3,635
|
|
2014
|
|
|
3,091
|
|
2015
|
|
|
2,808
|
|
Thereafter
|
|
|
14,296
|
|
|
|
|
|
|
Total future minimum lease obligation
|
|
$
|
31,982
|
|
|
|
|
|
|
|
|
Note 9.
|
Derivative
Instruments and Hedging Activities
|
The Company is exposed to certain risks relating to its ongoing
business operations. The primary risks managed by using
derivative instruments are foreign currency risk, interest rate
risk and commodity price fluctuations. Forward exchange
contracts on various currencies are entered into in order to
manage foreign currency exposures associated with certain
product sourcing activities and intercompany sales. Interest
rate swaps are entered into in order to manage interest rate
risk associated with the Companys variable-rate
borrowings. Commodity hedging contracts are entered into in
order to manage fluctuating market prices of certain purchased
commodities and raw materials that are integrated into the
Companys end products.
The Companys foreign currency management objective is to
mitigate the potential impact of currency fluctuations on the
value of its United States dollar cash flows and to reduce the
variability of certain cash flows at the subsidiary level. The
Company actively manages certain forecasted foreign currency
exposures and uses a centralized currency management operation
to take advantage of potential opportunities to naturally offset
foreign currency exposures against each other. The decision of
whether and when to execute derivative instruments, along with
the duration of the instrument, can vary from period to period
depending on market conditions, the relative costs of the
instruments and capacity to hedge. The duration is linked to the
timing of the underlying exposure, with the connection between
the two being regularly monitored. Polaris does not use any
financial contracts for trading purposes. At December 31,
2010, Polaris had open Canadian Dollar contracts with notional
amounts totaling United States $122,895,000 and a net unrealized
loss of $1,544,000, open Swedish Krona contracts with notional
amounts totaling United States $4,790,000 and an unrealized gain
of $39,000, and open Australian Dollar contracts with notional
amounts totaling $6,255,000 and a net unrealized loss of
$514,000. These contracts have maturities through December 2011.
The Company had no open Yen, Euro, or Norwegian Krone foreign
currency derivative contracts in place at December 31, 2010.
Polaris has entered into derivative contracts to hedge a portion
of the exposure for gallons of diesel fuel for 2011 and metric
tons of aluminum for 2011. These diesel fuel and aluminum
derivative contracts did not meet the criteria for hedge
accounting.
62
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tables below summarize the carrying values of derivative
instruments as of December 31, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Values of Derivative Instruments as of
December 31, 2010
|
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Derivative Net
|
|
|
|
Assets
|
|
|
(Liabilities)
|
|
|
Carrying Value
|
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts(1)
|
|
|
|
|
|
$
|
(126
|
)
|
|
$
|
(126
|
)
|
Foreign exchange contracts(2)
|
|
$
|
39
|
|
|
|
(2,058
|
)
|
|
|
(2,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
$
|
39
|
|
|
$
|
(2,184
|
)
|
|
$
|
(2,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts(2)
|
|
$
|
889
|
|
|
|
|
|
|
$
|
889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
$
|
889
|
|
|
|
|
|
|
$
|
889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
$
|
928
|
|
|
$
|
(2,184
|
)
|
|
$
|
(1,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Values of Derivative Instruments as of
December 31, 2009
|
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Derivative Net
|
|
|
|
Assets
|
|
|
(Liabilities)
|
|
|
Carrying Value
|
|
|
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts(1)
|
|
|
|
|
|
$
|
(699
|
)
|
|
$
|
(699
|
)
|
Foreign exchange contracts(2)
|
|
$
|
323
|
|
|
|
(673
|
)
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
$
|
323
|
|
|
$
|
(1,372
|
)
|
|
$
|
(1,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts(2)
|
|
$
|
3,485
|
|
|
|
|
|
|
$
|
3,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
$
|
3,485
|
|
|
|
|
|
|
$
|
3,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
$
|
3,808
|
|
|
$
|
(1,372
|
)
|
|
$
|
2,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in Other Current Liabilities on the accompanying
consolidated balance sheet. |
|
(2) |
|
Assets are included in Prepaid expenses and other and
liabilities are included in Other Current Liabilities on the
accompanying consolidated balance sheet. |
For derivative instruments that are designated and qualify as a
cash flow hedge, the effective portion of the gain or loss on
the derivative is reported as a component of Accumulated other
comprehensive income and reclassified into the income statement
in the same period or periods during which the hedged
transaction affects the income statement. Gains and losses on
the derivative representing either hedge ineffectiveness or
hedge components excluded from the assessment of effectiveness
are recognized in the statement of income. The table below
provides data about the amount of gains and losses, net of tax,
related to derivative instruments designated as cash flow hedges
included as a component of Accumulated other comprehensive
income for the twelve month periods ended December 31:
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss)
|
|
|
Amount of Gain (Loss)
|
|
|
|
Recognized in Accumulated OCI on
|
|
|
Recognized in Accumulated OCI on
|
|
|
|
Derivative (Effective Portion)
|
|
|
Derivative (Effective Portion)
|
|
(In thousands):
|
|
Twelve Months Ended
|
|
|
Twelve Months Ended
|
|
Derivatives in Cash Flow
|
|
December 31,
|
|
|
December 31,
|
|
Hedging Relationships
|
|
2010
|
|
|
2009
|
|
|
Interest rate contracts
|
|
$
|
609
|
|
|
$
|
492
|
|
Foreign currency contracts
|
|
|
(1,048
|
)
|
|
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(439
|
)
|
|
$
|
273
|
|
|
|
|
|
|
|
|
|
|
63
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below provides data about the amount of gains and
losses, net of tax, reclassified from Accumulated other
comprehensive income into income on derivative instruments
designated as hedging instruments for the twelve month periods
ended December 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss)
|
|
|
Amount of Gain (Loss)
|
|
|
|
|
|
Reclassified from
|
|
|
Reclassified from
|
|
|
|
|
|
Accumulated OCI
|
|
|
Accumulated OCI
|
|
|
|
Location of Gain (Loss)
|
|
into Income
|
|
|
into Income
|
|
|
|
Reclassified from
|
|
Twelve Months Ended
|
|
|
Twelve Months Ended
|
|
Derivatives in Cash Flow
|
|
Accumulated OCI
|
|
December 31,
|
|
|
December 31,
|
|
Hedging Relationships
|
|
Into Income
|
|
2010
|
|
|
2009
|
|
|
Interest rate contracts
|
|
Interest Expense
|
|
$
|
(1,039
|
)
|
|
$
|
(1,683
|
)
|
Foreign currency contracts
|
|
Other income, net
|
|
|
(1,133
|
)
|
|
|
(1,668
|
)
|
Foreign currency contracts
|
|
Cost of Sales
|
|
|
24
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(2,148
|
)
|
|
$
|
(3,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
The net amount of the existing gains or losses at
December 31, 2010 that is expected to be reclassified into
the statement of income within the next 12 months is not
expected to be material. The ineffective portion of foreign
currency contracts was not material for the twelve months ended
December 31, 2010 and 2009.
The Company recognized a gain of $643,000 and a gain of
$4,039,000 in Cost of sales on commodity contracts not
designated as hedging instruments for the twelve month period
ended December 31, 2010 and 2009, respectively.
|
|
Note 10.
|
Manufacturing
Realignment
|
In May 2010, the Company announced that it was realigning its
manufacturing operations. The realignment will consolidate
operations into existing operations in Roseau, MN and Spirit
Lake, IA as well as establish a new facility in Monterrey,
Mexico. The realignment is expected to lead to the sale or
closure of the Osceola, WI manufacturing operations by 2012. The
Company expects to record transition charges, including both
exit costs and startup costs, over the next few years. The exit
costs pertaining to the manufacturing realignment are expected
to total approximately $10,000,000 over that time period. The
exit costs are classified within Cost of sales in the
consolidated statements of income. A summary of these exit costs
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Incurred
|
|
|
|
|
|
|
Total Amount
|
|
|
During the Twelve
|
|
|
Cumulative Amounts
|
|
|
|
Expected to be
|
|
|
Months Ended
|
|
|
Incurred through
|
|
(In thousands)
|
|
Incurred
|
|
|
December 31, 2010
|
|
|
December 31, 2010
|
|
|
Termination benefits
|
|
$
|
7,500
|
|
|
$
|
4,843
|
|
|
$
|
4,843
|
|
Other associated costs
|
|
|
2,500
|
|
|
|
621
|
|
|
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Exit Costs
|
|
$
|
10,000
|
|
|
$
|
5,464
|
|
|
$
|
5,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilization of components of the accrued exit costs during the
year ended December 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Amount provided for
|
|
|
Amount Paid
|
|
|
Balance
|
|
(In thousands)
|
|
December 31, 2009
|
|
|
During 2010
|
|
|
During 2010
|
|
|
December 31, 2010
|
|
|
Termination benefits
|
|
|
|
|
|
$
|
4,843
|
|
|
|
|
|
|
$
|
4,843
|
|
Other associated costs
|
|
|
|
|
|
|
621
|
|
|
$
|
(2
|
)
|
|
|
619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Exit Costs
|
|
|
|
|
|
$
|
5,464
|
|
|
$
|
(2
|
)
|
|
$
|
5,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11:
|
Discontinued
Operations
|
On September 2, 2004, the Company announced its decision to
discontinue the manufacture of marine products effective
immediately. In 2007 the Company substantially completed the
exit of the Marine Products
64
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Division, therefore, in the years ended December 31, 2008,
2009 and 2010, there were no additional material charges
incurred related to this discontinued operations event and the
Company does not expect any additional material charges in the
future.
Components of the accrued disposal costs are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilization from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges
|
|
|
Closedown
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Through
|
|
|
Date Through
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
Prior To
|
|
|
Initial
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Utilization
|
|
|
December 31,
|
|
|
|
Charge
|
|
|
Charge
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
During 2010
|
|
|
2010
|
|
|
Incentive costs to sell remaining inventory including product
warranty
|
|
$
|
3,960
|
|
|
$
|
11,608
|
|
|
$
|
550
|
|
|
$
|
(16,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs related to canceling supplier arrangements
|
|
|
|
|
|
|
14,159
|
|
|
|
|
|
|
|
(14,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal, regulatory, personnel and other costs
|
|
|
4,327
|
|
|
|
2,938
|
|
|
|
7,523
|
|
|
|
(12,938
|
)
|
|
$
|
1,850
|
|
|
$
|
(300
|
)
|
|
$
|
1,550
|
|
Disposition of tooling, inventory and other fixed assets
(non-cash)
|
|
|
|
|
|
|
6,895
|
|
|
|
|
|
|
|
(6,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,287
|
|
|
$
|
35,600
|
|
|
$
|
8,073
|
|
|
$
|
(50,110
|
)
|
|
$
|
1,850
|
|
|
$
|
(300
|
)
|
|
$
|
1,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The financial results of the marine products division included
in discontinued operations are as follows (in thousands):
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Accrued expenses
|
|
$
|
1,550
|
|
|
$
|
1,850
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
1,550
|
|
|
$
|
1,850
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12:
|
Segment
Reporting
|
Polaris has reviewed ASC Topic 280 and determined that the
Company meets the aggregation criteria outlined since the
Companys 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
reportable business segment.
The following data relates to Polaris foreign operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Canadian subsidiary:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
279,309
|
|
|
$
|
239,240
|
|
|
$
|
273,006
|
|
Identifiable assets
|
|
|
42,936
|
|
|
|
35,462
|
|
|
|
16,853
|
|
Other foreign countries:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
305,864
|
|
|
$
|
252,419
|
|
|
$
|
304,233
|
|
Identifiable assets
|
|
|
145,528
|
|
|
|
97,771
|
|
|
|
93,206
|
|
65
POLARIS
INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 13:
|
Subsequent
Events
|
During February 2011, Polaris and GECDF amended and restated its
Polaris Acceptance partnership agreement through February 2017
with similar terms to the original agreement. The Company has
evaluated events subsequent to the balance sheet date through
the date the consolidated financial statements have been filed.
There were no other subsequent events which required recognition
or disclosure in the consolidated financial statements.
|
|
Note 14:
|
Quarterly
Financial Data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
Sales
|
|
|
Gross Profit
|
|
|
Net Income
|
|
|
per Share
|
|
|
|
(In thousands, except per share data)
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
361,708
|
|
|
$
|
94,914
|
|
|
$
|
19,771
|
|
|
$
|
0.59
|
|
Second Quarter
|
|
|
430,907
|
|
|
|
113,084
|
|
|
|
25,624
|
|
|
|
0.75
|
|
|