AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 1995
REGISTRATION NO. 33-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
POLARIS INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 3700 41-1790959
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
</TABLE>
-------------------
1225 HIGHWAY 169 NORTH
MINNEAPOLIS, MN 55441
(612) 542-0500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JOHN H. GRUNEWALD
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND SECRETARY
POLARIS INDUSTRIES INC.
1225 HIGHWAY 169 NORTH
MINNEAPOLIS, MN 55441
(612) 542-0500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
COPIES TO:
<TABLE>
<S> <C>
ANDRIS A. BALTINS GEORGE R. KROUSE, JR.
KAPLAN, STRANGIS AND KAPLAN, P.A. SIMPSON THACHER & BARTLETT
90 SOUTH SEVENTH STREET 425 LEXINGTON AVENUE
MINNEAPOLIS, MN 55402 NEW YORK, NY 10017
(612) 375-1138 (212) 455-2730
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
/ /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
-------------------
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
PROPOSED MAXIMUM
NUMBER OF SHARES PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock ($.01 par
value)....................... 1,836,852 $46.56 $85,523,829 $29,491.18
</TABLE>
(1) Includes 136,852 shares subject to the over-allotment option granted to the
Underwriters.
(2) Estimated solely for the purpose of determining the registration fee.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED APRIL 25, 1995
PROSPECTUS
1,700,000 SHARES
POLARIS INDUSTRIES INC.
COMMON STOCK
-------------------
The above shares of common stock, par value $.01 per share ("Common
Stock"), of Polaris Industries Inc. ("Polaris" or the "Company") are being sold
by certain shareholders of the Company named herein (the "Selling
Shareholders"). 1,100,000 of such shares will be sold through the Underwriters
named herein (the "Offering") and, contemporaneously therewith, 600,000 of such
shares will be sold by one of the Selling Shareholders to Fuji Heavy Industries
Ltd. ("Fuji"). Fuji also has agreed to purchase from such Selling Shareholder
certain additional shares of Common Stock to the extent that the over-allotment
option described below is not fully exercised by the Underwriters in connection
with the Offering. Fuji will pay such Selling Shareholder a price per share
equal to the lesser of $65 or the Price to Public set forth in the table below.
See "Principal and Selling Shareholders" and "Sale of Shares to Fuji." The
Company will not receive any proceeds from the sale of shares in the Offering or
to Fuji.
The Common Stock is listed on the New York Stock Exchange and the Pacific
Stock Exchange under the symbol "PII." On April 24, 1995, the last reported sale
price of the Common Stock as reflected on the composite tape was $46 5/8.
Management of the Company has recommended to the Board of Directors the
continuation of a regular cash dividend with respect to the Common Stock through
1995 at the rate of $0.15 per share per quarter and the payment of two special
cash distributions, each of $1.92 per share, during the third and fourth
quarters of 1995. See "Market Prices" and "Dividends."
-------------------
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
[CAPTION]
<TABLE>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) SHAREHOLDERS(2)
Per Share.......................................... $ $ $
Total(3)........................................... $ $ $
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Selling Shareholders estimated at
$ . Includes proceeds from contemporaneous sale of shares of Common
Stock to Fuji by one of the Selling Shareholders.
(3) One of the Selling Shareholders has granted the Underwriters a 30-day option
to purchase up to 136,852 additional shares of Common Stock to cover
over-allotments. If this option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Selling Shareholders will be
$ , $ and $ , respectively. See "Underwriting."
-------------------
The shares of Common Stock offered by the several Underwriters are being
offered, subject to prior sale, when, as and if issued to and accepted by them,
subject to approval of certain legal matters by counsel for the Underwriters.
The Underwriters reserve the right to withdraw, cancel or modify such offer and
to reject orders in whole or in part. It is expected that delivery of the shares
of Common Stock will be made in New York, New York on or about , 1995.
-------------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
PIPER JAFFRAY INC.
, 1995
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, of which this Prospectus forms a part, as well as reports, proxy
statements and other information filed by the Company, may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, New York, New York 10048.
Copies of such material may be obtained at the prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street N.W., Washington, D.C.
20549. Reports and other information concerning the Company can also be
inspected at the office of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005, and the Pacific Stock Exchange, 301 Pine Street, San
Francisco, California 94104.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. The Registration Statement may be inspected and
copied at the public reference facilities maintained by the Commission at the
addresses set forth in the preceding paragraph. Statements contained herein
concerning the provisions of any documents are necessarily summaries of such
documents, and, in each instance, such statement is qualified in its entirety by
reference to the applicable document filed with the Commission.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following document, which has been filed with the Commission by the
Company, is hereby incorporated herein by reference: Annual Report on Form 10-K
of the Company for the fiscal year ended December 31, 1994. All documents filed
by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of this Prospectus and prior to the completion of the
offering being made hereby shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statements as
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon written or oral request of such person, a
copy of any or all of the documents referred to above which have been or may be
incorporated by reference in this Prospectus (other than certain exhibits to
such documents). Requests for such documents may be made by writing to the
principal executive offices of the Company at Polaris Industries Inc., 1225
Highway 169 North, Minneapolis, Minnesota 55441 (Attention: Investor Relations)
or by calling (612) 542-0500.
-------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE PACIFIC
STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
This summary does not purport to be complete and is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus. Terms not defined in this summary are defined elsewhere herein.
THE COMPANY
Polaris is a leading manufacturer of snowmobiles, all-terrain vehicles
("ATVs"), and personal watercraft ("PWC") and also markets related parts,
garments and accessories ("PG&A"). In recent years, the Company has increased
its share of the growing market for each of its product lines. Since 1990, the
Company's sales have increased at a 29% compound annual rate, with sales of $826
million in 1994, up 56% from $528 million in 1993. Management believes that
sales have increased, in part, by Polaris' responding to customer demand for
innovative products which emphasize ease of use, safety and reliability at
competitive prices. In this regard, the Company estimates that approximately 70%
of its 1994 sales were derived from products, models and model variations
introduced in the past three years. Polaris products are sold worldwide through
nearly 2,000 dealers in North America and 55 distributors.
Snowmobiles. The Company's original product line, snowmobiles, accounted for
approximately $363 million (44%) of 1994 sales, and the Company believes that it
has the largest share of the worldwide snowmobile market. Since 1990, the
Company's snowmobile unit sales have increased at a 12% compound annual rate,
including a 34% increase in 1994 as compared to 1993. Although specific
information with respect to industry sales in each of the Company's product
lines is not consistently and reliably available, management currently estimates
that worldwide snowmobile industry retail unit sales volume has grown at a
compound annual rate of more than 8% since the season ended March 31, 1991, with
worldwide industry retail unit sales reaching approximately 210,000 units in the
season ended March 31, 1995, up more than 20% over the comparable 1994 season.
The Company attributes its increased market penetration, in part, to its product
development efforts, strong dealer organization and competitive pricing. The
Company offers a broad line of snowmobiles (36 models) ranging from models
targeted at entry-level buyers to high performance models which provide more
features, comfort and performance. The Company's recent innovation, the XTRA
("extra length travel") suspension system, greatly enhances vehicle stability
and rider comfort and has drawn praise from industry publications. Approximately
1,200 Polaris dealers, concentrated in the northern United States and Canada,
carry part or all of the Polaris snowmobile line.
All-Terrain Vehicles. The Company began producing ATVs in 1985, and in 1994
ATV sales accounted for approximately $243 million (29%) of the Company's sales.
Although specific information with respect to industry sales in each of the
Company's product lines is not consistently and reliably available, management
currently estimates that worldwide ATV industry retail unit sales volume has
grown at a compound annual rate of more than 10% since 1990, while the Company's
ATV unit sales volume during this period has increased at a compound annual rate
of 36%. Management believes that the Company had the third largest share of the
worldwide ATV market in 1994 and that market demand for Polaris' ATV products
has been significantly influenced by product innovations, including: automatic
transmissions instead of motorcycle-type manual transmissions; single-lever
brakes instead of separate levers for front and rear brakes; "on demand"
all-wheel drive; and floor boards instead of motorcycle-type foot pegs. The
Company currently offers 12 ATV models, with products for utility, sports and
recreational applications. Polaris ATVs are distributed through approximately
1,700 dealers.
Personal Watercraft. The Company entered the PWC market in 1992, and in 1994
PWC sales accounted for approximately $115 million (14%) of the Company's sales.
The industry has experienced rapid growth in recent years with the introduction
of sit-down models, which have been better received by consumers than the
original stand-up models of the Company's competitors. Although specific
3
<PAGE>
information with respect to industry sales in each of the Company's product
lines is not consistently and reliably available, management currently estimates
that, since 1992, worldwide PWC industry retail unit sales volume grew at a
compound annual rate of approximately 29%. The Company believes that the most
significant factor contributing to the growth of its PWC business has been
product innovations such as the incorporation of three cylinder engines in its
PWC models. This growth has been supported by the expansion of Polaris' dealer
network outside the traditional snowmobile markets. The Company currently offers
five PWC models through approximately 1,200 dealers in North America and
anticipates broadening its PWC product line in the near future.
Parts, Garments and Accessories. PG&A are an important contributor to the
Company's earnings and accounted for approximately $105 million (13%) of the
Company's sales in 1994. Approximately half of PG&A sales consist of aftermarket
parts, with the balance consisting of garments and accessories. The Company
produces its own key aftermarket parts, while garments and some parts and
accessories production are contracted out to third parties. All PG&A products
are sold through the Polaris dealer network.
The Company follows a build-to-order philosophy for all of its product
lines. Most orders are received from dealers well in advance of the respective
selling seasons, and the Company generally does not set final production levels
until it has received dealer orders. For example, a new snowmobile model line is
introduced to dealers and consumers in mid-March and orders are taken from
dealers through April. To assist in gauging demand and preparing production
schedules, the Company has implemented a program, "Snow-Check", in which many of
its retail customers place non-refundable deposits with dealers during this
period in exchange for incentives and to ensure availability and priority
shipment of their desired model. Snowmobiles are manufactured from the spring
until late fall or early winter, with deliveries to dealers beginning in May and
ending in December. The "sell-through" by dealers to consumers begins in the
fall and continues through the winter season. Management believes that this
system facilitates efficient scheduling and execution of production and helps
avoid excessive build-up of inventories. Polaris also maintains contact with its
dealers to monitor field inventories which allows for products to be shifted to
areas of highest demand during the selling season. For the past several years,
dealers have experienced only minimal amounts of unsold inventory carryover of
Polaris snowmobiles at the end of each selling season.
Snowmobiles, ATVs and PWC incorporate similar technology in their design and
production, and snowmobiles and PWC are characterized by seasonally opposite
sales and production cycles. At the Company's main assembly facility in Roseau,
Minnesota, substantially the same equipment and personnel are employed in the
production of all types of vehicles, allowing the Company to operate that
facility at relatively high utilization rates throughout the year. The Company
strives to keep costs low and as variable as possible. It purchases such major
components as fuel tanks, hoods and hulls, tracks, tires and instruments from
multiple sources, while engines have been supplied solely by Fuji since 1968.
In-house processes employed in the fabrication of components include machining,
stamping, welding, painting and the cutting and sewing of foam seats.
The Company's predecessor was founded in 1954. In 1987, a predecessor to
Lehman Brothers Inc. sponsored a transaction in which the Company's predecessor
became a publicly-owned master limited partnership (the "Partnership"), and
Units of Beneficial Assignment of Class A Limited Partnership Interests
("BACs"), representing limited partnership interests in the Partnership, were
sold to the public. Affiliates of Lehman Brothers Inc. and others held interests
in the general partner of the Partnership. BACs were traded on the American
Stock Exchange and the Pacific Stock Exchange until December 1994. In December
1994, the Partnership converted to corporate form (the "Conversion") and BAC
holders and affiliates of the general partner (including affiliates of Lehman
Brothers Inc.) received shares of the Company's Common Stock in exchange for
their BACs and interests in the general partner, respectively.
The Company's Common Stock trades on the New York Stock Exchange and the
Pacific Stock Exchange under the symbol "PII."
4
<PAGE>
THE TRANSACTIONS
<TABLE>
<S> <C>
COMMON STOCK:
TO BE SOLD IN THE OFFERING... 1,100,000 shares*
TO BE SOLD TO FUJI........... 600,000 shares*
DIVIDENDS AND DISTRIBUTIONS.... Management of the Company has recommended to the Board of
Directors the continuation of a regular cash dividend with
respect to the Common Stock through 1995 at the rate of
$0.15 per share per quarter and the payment of two special
cash distributions, each of $1.92 per share, during the
third and fourth quarters of 1995. See "Market Prices" and
"Dividends--Common Stock."
COMMON STOCK OUTSTANDING
(BEFORE AND AFTER THE
TRANSACTIONS).................. 18,206,258 shares
PROCEEDS OF THE TRANSACTIONS... The Company will not receive any proceeds from the sale of
Common Stock in the transactions described herein.
</TABLE>
- ------------
* Does not include 136,852 shares subject to the over-allotment option granted
by one of the Selling Shareholders to the Underwriters, which shares will be
purchased by Fuji to the extent such option is not exercised by the
Underwriters in connection with the Offering.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the Common Stock.
5
<PAGE>
SUMMARY OF SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth a summary of selected financial data of the
Company. The comparability of the information reflected in the summary is
materially affected by the Conversion to corporate form on December 22, 1994,
which resulted in the Company recording a net deferred tax asset of $65.0
million, Conversion expenses of $12.3 million and a corresponding net increase
in 1994 net income (see Notes 1 and 5 of Notes to the Financial Statements). Pro
forma data for 1994 and prior years is presented to assist in comparing the
continuing results of operations of the Company exclusive of the Conversion
expenses and as if the Company were a taxable corporation with the pro forma
provision for income taxes calculated at an effective tax rate of 38% for each
period presented (see Note 10 of Notes to the Financial Statements).
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Sales..................................... $296,147 $297,677 $383,818 $528,011 $826,286
Gross profit.............................. 89,349 88,440 104,926 130,287 183,283
Pro forma operating income................ 30,812 31,718 40,691 53,227 87,977
Pro forma net income...................... 20,465 20,727 24,602 33,027 54,703
Pro forma net income per share............ $ 1.19 $ 1.21 $ 1.37 $ 1.81 $ 2.97
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................. $ 32,025 $ 20,098 $ 19,094 $ 33,798 $ 62,881
Current assets............................ 66,893 59,200 74,999 109,748 206,489
Total assets.............................. 138,704 135,509 146,681 180,548 331,166
Current liabilities....................... 46,602 52,646 69,054 98,055 161,457
Shareholders' equity/Partners' capital.... 92,102 82,863 77,627 82,493 169,709
</TABLE>
6
<PAGE>
RISK FACTORS
Prospective purchasers of Common Stock should consider carefully the
following specific investment considerations, as well as the other information
set forth in this Prospectus.
EXPOSURE TO CHANGES IN FOREIGN CURRENCY EXCHANGE RATES
Approximately 28% of Polaris' 1994 cost of sales was attributable to
purchases from Japanese suppliers. Accordingly, the Company has substantial
adverse exposure to a strengthening Japanese yen. Although its principal
Japanese supplier, Fuji, has agreed to share a portion of the exchange rate
risk, Polaris currently bears most of this risk. In addition, approximately 16%
of the Company's 1994 sales were made through its Canadian subsidiary, also
exposing Polaris to the adverse effects of a weakening Canadian dollar. The
weakening Canadian dollar has also strengthened the competitive position of one
of the Company's direct competitors based in Canada. Management believes that
currency fluctuations have had and may continue to have a significant adverse
impact on the Company's gross margin.
COMPETITION
The snowmobile, ATV and PWC markets are highly competitive. Competition in
such markets is based upon a number of factors, including brand loyalty, price,
quality, reliability, styling, product innovations and 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 the Company's competitors are more diversified and have financial and
marketing resources which are substantially greater than those of the Company.
In addition, the Company's 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.
EFFECTS OF WEATHER
As a manufacturer of outdoor motorized equipment, the Company's sales may be
impacted by weather conditions. For example, lack of snowfall in any year in any
particular region of the United States or Canada may adversely affect snowmobile
retail sales in that region. The Company seeks to minimize this potential effect
by stressing pre-season sales (see "Business--Production Scheduling") and
shifting dealer inventories from one location to another during the selling
season. However, there is no assurance that certain weather conditions would not
have a material adverse effect on the Company's sales.
PRODUCT SAFETY AND REGULATION
Snowmobiles, ATVs and PWC are motorized vehicles that may be operated at
high speeds and in a careless or reckless manner. Accidents involving property
damage, personal injuries and deaths occur in the use of snowmobiles, ATVs and
PWC. With respect to ATVs, the Consumer Products Safety Commission (the "CPSC")
has found a greater incidence of such occurrences with three-wheel ATVs. The
Company presently manufactures only four-wheel and six-wheel ATVs, having
discontinued production of three-wheel vehicles in 1985. The CPSC has conducted
investigations regarding the safety of ATVs, and has made recommendations
regarding their regulation, marketing and use. Such recommendations include that
the ATV industry voluntarily cease marketing ATVs intended for use by children
under 12 years of age; that warning labels be placed on ATVs intended for use by
children under age 14 stating that such ATVs are not recommended for use by
children under age 12, and on adult-sized ATVs stating that such ATVs are not
recommended for use by children under age 16; that warning labels be placed on
all ATVs stating that operator training is necessary to reduce risk of injury or
death; and that the CPSC work closely with states and other federal agencies to
develop practical,
7
<PAGE>
uniform state regulations. The Company does not believe that compliance with the
CPSC regulations has had or will have a material adverse effect on the Company.
However, certain state attorneys general have asserted that the CPSC agreement
is inadequate and have indicated that they will seek stricter ATV regulation.
The Company is unable to predict the outcome of such action or the possible
effect on its ATV business.
Certain states have proposed legislation involving more stringent emission
standards for two-cycle engines, the predominant engines used on the Company's
snowmobiles, ATVs and PWC. In addition, certain materials used in snowmobile,
ATV and PWC manufacturing which are toxic, flammable, corrosive, or reactive are
classified by federal and state governments as "hazardous materials." Finally,
local ordinances have been and may from time to time be considered and adopted
which restrict the use of PWC to specified hours and locations. There can be no
assurance that recommendations or regulatory actions by the CPSC, the Justice
Department or individual states would not have an adverse effect on the Company
and markets for its products.
PRODUCT LIABILITY
Product liability claims are made against the Company from time to time. The
Company has self-insured for product liability claims since June 1985. Between
1981 and March 31, 1995, the Company and its predecessors paid an aggregate of
less than $1.6 million in product liability claims, and, at March 31, 1995, the
Company had accrued $5.3 million for the defense and possible payment of pending
claims. The Company believes such accruals are adequate. The Company does not
believe that the outcome of any pending product liability litigation will have a
material adverse effect on the operations of the Company. However, no assurance
can be given that its historical claims record, which did not include ATVs prior
to 1985 or PWC prior to 1992, will not change or that material product liability
claims against the Company will not be made in the future. Adverse determination
of material product liability claims made against the Company would have a
material adverse effect on the Company's financial condition.
WARRANTIES AND PRODUCT RECALLS
The Company warrants its snowmobiles, ATVs, and PWC under a "limited
warranty" for a period of one year, six months, and one year, respectively.
Although the Company employs quality control procedures, a product is sometimes
distributed which needs repair or replacement. Historically, product recalls
have been administered through the Company's dealers and distributors and have
not had a material effect on the Company's business. However, no assurance can
be given that its historical claims record will not change adversely as a result
of the Company's growth or otherwise.
INFORMAL SUPPLY ARRANGEMENTS
Pursuant to informal agreements between the Company and Fuji, Fuji has been
the sole manufacturer of the Company's two-cycle snowmobile engines since 1968.
Fuji has manufactured engines for the Company's ATV products since their
introduction in the spring of 1985 and also supplies engines for its PWC
products. Such engines are developed by Fuji to the specific requirements of the
Company. Polaris believes its relationship with Fuji to be excellent. If,
however, its informal relationship were terminated, interruption in the supply
of engines would materially adversely affect the Company's production, pending
the establishment of substitute supply arrangements. The Company recently
entered into an agreement with Fuji for the manufacture of engines in the U.S.
which is expected by management of the Company to lessen the Company's
dependence on a single source for engines. However, the benefits of this
arrangement are not expected to be significant for some time.
The Company anticipates no significant difficulties in obtaining substitute
supply arrangements for other raw materials or components for which it currently
utilizes limited sources of supply.
8
<PAGE>
NO ASSURANCE OF FUTURE DIVIDENDS
While organized as a partnership the Company made regular distributions to
its BAC holders. In connection with the Conversion to corporate form, senior
management of the Company recommended to the Company's Board of Directors the
dividend payments described below under "Dividends-- Common Stock." However, the
Company is under no legal or contractual obligation to declare or to pay
dividends, and the timing and amount of future cash dividends and distributions
is at the discretion of the Board of Directors of the Company and will depend,
among other things, on the future after-tax earnings, operations, capital
requirements, borrowing capacity, and financial condition of the Company and
general business conditions.
SHARES ELIGIBLE FOR FUTURE SALE
As set forth on the cover page of this Prospectus, contemporaneously with
the Offering Fuji is purchasing a minimum of 600,000 (and a maximum of 736,852
if the over-allotment option is not exercised in full by the Underwriters)
shares of Common Stock directly from one of the Selling Shareholders. Future
sales of substantial amounts of Common Stock in the public market by Fuji or
other large shareholders, or the perception that such sales may occur, could
have a material adverse effect on the market price of the Common Stock. Fuji and
other large shareholders have certain rights to require registration of shares
of Common Stock owned by each of them. See "Shares Eligible for Future Sale,"
"Security Ownership of Directors, Officers and Selling Shareholders" and "Sale
of Shares to Fuji."
9
<PAGE>
THE COMPANY
The Company designs, engineers and manufactures snowmobiles, four- and
six-wheel all-terrain recreational and utility vehicles ("ATVs"), and personal
watercraft ("PWC") and markets them, together with related parts, garments and
accessories ("PG&A"), through dealers and distributors principally located in
the United States, Canada and Europe. Snowmobiles, ATVs, PWC and PG&A accounted
for the following dollar amounts (rounded to the nearest million) and
approximate percentages of the Company's sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1992 1993 1994
----------- ----------- -----------
$ % $ % $ %
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Snowmobiles.......................... $209 54% $263 50% $363 44%
ATVs................................. 95 25 141 26 243 29
PWC.................................. 26 7 47 9 115 14
PG&A................................. 54 14 77 15 105 13
---- --- ---- --- ---- ---
Total........................... $384 100% $528 100% $826 100%
---- --- ---- --- ---- ---
---- --- ---- --- ---- ---
</TABLE>
Snowmobiles. The Company produces a full line of snowmobiles, consisting of
36 models, ranging from utility and economy models to high performance models,
with current suggested retail prices ranging from approximately $3,000 to
$8,500. The Company's snowmobiles are sold principally in the United States and
Canada through approximately 1,200 dealers. The Company believes it has the
largest market share of the worldwide snowmobile market. The Company believes
that the Polaris snowmobile has a long-standing reputation for quality,
dependability and performance and that the Company and its predecessors were the
first to develop several features for commercial use in snowmobiles, including
independent front suspension, variable transmissions, hydraulic disc brakes,
liquid cooled engines and brakes, and a three cylinder engine.
All Terrain Vehicles. The Company entered the ATV market in the spring of
1985 with both three-wheel and four-wheel products. The Company produced
approximately 1,700 three-wheel models prior to discontinuing their production
in 1985. It currently produces only four-wheel and six-wheel ATV products, which
provide more stability for the rider than earlier three-wheel versions. The
Company's line of ATVs, consisting of 12 models marketed through approximately
1,700 dealers, includes general purpose, sport, recreational and utility four-
and six-wheel drive models, with current suggested retail prices ranging from
approximately $2,950 to $6,300. The Company's ATVs feature the totally automatic
Polaris Variable Transmission which requires no manual shifting and a
MacPhersonTM strut front suspension, which the Company believes enhances control
and stability. The Company's ATVs are also the only ATVs in their class that use
a two-cycle engine in combination with a chain drive, which the Company believes
improves performance and efficiency. In addition, certain of its models feature
"on demand" all-wheel drive, which the Company believes is available only on
Polaris ATVs.
Personal Watercraft. In 1992, the Company introduced the SL650 personal
watercraft, the Company's first entry into this product category. In 1993, the
Company added its SL750 with increased power and performance. Management
believes that, when introduced, the SL650 and SL750 had the industry's first
three cylinder engines developed specifically for PWC. The introduction of PWC
utilized the Company's engineering, production and distribution strengths, and
also reduced the Company's dependence on its then existing product lines for
overall sales and earnings. In late 1993, the Company introduced a three
passenger PWC, the Polaris SLT750, and in March 1995, introduced a high
performance PWC, the Polaris SLX. The current suggested retail prices for the
Company's PWC range from approximately $5,000 to $7,000. PWC growth has been
supported by the expansion of Polaris' dealer network outside the traditional
snowmobile markets, with approximately 1,200 dealers in North America currently
offering the Polaris PWC product line.
10
<PAGE>
Parts, Garments and Accessories. The Company produces or supplies a variety
of replacement parts and accessories for its snowmobiles, ATVs and PWC. The
Company also markets sportswear and a full line of recreational clothing, which
includes suits, helmets, gloves, boots, hats, sweaters and jackets for its
snowmobile, ATV and PWC lines. The clothing is designed to the Company's
specifications, purchased from independent vendors and sold by the Company
through its dealers and distributors under the Polaris brand name. Replacement
parts and accessories are also marketed by the Company.
The Company's principal executive offices are located at 1225 Highway 169
North, Minneapolis, Minnesota 55441, and its telephone number is (612) 542-0500.
MARKET PRICES
During 1993, and through December 22, 1994, BACs of the Partnership traded
on the American Stock Exchange ("AMEX") and the Pacific Stock Exchange ("PSE")
under the symbol "SNO." In connection with the Conversion, on December 23, 1994,
the Common Stock (into which each BAC was converted on a one-for-one basis)
commenced trading on the AMEX and the PSE under the symbol "SNO." On February
24, 1995, the Common Stock began trading on the New York Stock Exchange (in lieu
of the AMEX) and on the PSE under the symbol "PII."
COMMON STOCK
The following table sets forth the high and low closing sale prices of the
Common Stock on the aforementioned exchanges for the calendar periods indicated
subsequent to the Conversion:
<TABLE>
<CAPTION>
HIGH LOW
-------------- --------------
<S> <C> <C>
1994
Fourth Quarter (from December 23)............................ 51 5/8 50 3/8
1995
First Quarter................................................ 49 7/8 43 3/4
Second Quarter (through April 24)............................ 49 1/2 46
</TABLE>
As of March 13, 1995, there were approximately 4,820 holders of record of
the Common Stock.
The last reported sale price of the Common Stock as reflected on the
composite tape as of a recent date is set forth on the cover page of this
Prospectus.
BACS
The following table sets forth the high and low closing sale prices of the
BACs on the AMEX and PSE for the calendar periods indicated prior to the
Conversion, all as adjusted to reflect a two-for-one BAC split which became
effective on August 18, 1993:
<TABLE>
<CAPTION>
HIGH LOW
-------------- --------------
<S> <C> <C>
1993
First Quarter................................................ 26 9/16 21 13/16
Second Quarter............................................... 30 15/16 25 13/16
Third Quarter................................................ 36 27 15/16
Fourth Quarter............................................... 38 1/2 32 1/4
1994
First Quarter................................................ 37 3/8 29 1/8
Second Quarter............................................... 35 7/8 30 1/8
Third Quarter................................................ 39 32 1/8
Fourth Quarter (through December 22)......................... 52 1/4 37 5/8
</TABLE>
11
<PAGE>
DIVIDENDS
COMMON STOCK
In connection with the Conversion, management recommended to the Company's
Board of Directors that it establish an initial cash dividend rate of $0.15 per
share per quarter, and pay three special cash distributions, each of $1.92 per
share, payable during the second, third and fourth calendar quarters of 1995.
The Company declared the following regular cash dividends and special cash
distributions per share during 1995:
REGULAR SPECIAL
------- -------
1995
First Quarter................................................ $0.15 $1.92
Second Quarter (through April 24)............................ 0.15 --
BACS
Prior to the Conversion, the Partnership declared the following cash
distributions per BAC during the years ended December 31, 1993 and 1994, all as
adjusted for a two-for-one split which became effective on August 18, 1993:
1993 1994
------ -----
First Quarter................................................. $0.625 $0.63
Second Quarter................................................ 0.625 0.63
Third Quarter................................................. 0.63 0.63
Fourth Quarter................................................ 0.63 0.63
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for a discussion of factors or restrictions that may reduce
future payments of dividends by the Company.
12
<PAGE>
PROCEEDS OF OFFERING
The Company will not receive any proceeds from the sale of Common Stock in
the transactions described herein.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at December 31, 1994 (in thousands, except per share data):
Short-term debt.................................................... $ 0
--------
--------
Long-term debt..................................................... $ 0
--------
Shareholders' equity
Preferred stock $0.01 par value, authorized
20,000 shares, no issued and outstanding shares................. $ 0
Common stock $0.01 par value, authorized
80,000 shares, issued and outstanding 18,111 shares............. 181
Additional paid-in capital........................................ 103,935
Compensation payable in common stock.............................. 12,251
Retained earnings................................................. 53,342
--------
Total shareholders' equity.................................... 169,709
--------
Total capitalization.......................................... $169,709
--------
--------
13
<PAGE>
RECENT OPERATING RESULTS
The following is a summary of the statements of operations data of the
Company for the three months ended March 31, 1995, together with pro forma
information for the comparable period of 1994. The information presented below
is unaudited but, in the opinion of management, includes all adjustments,
consisting only of normal recurring items, necessary for a fair presentation of
such information. The pro forma provision for income taxes has been calculated
at a rate of 38% and assumes that the Company had been treated as a
C-corporation rather than a partnership for income tax purposes.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
<S> <C> <C>
1994
PRO FORMA 1995
--------- --------
Sales.................................................................. $145,471 $254,793
Cost of Sales.......................................................... 117,613 208,078
--------- --------
Gross profit.......................................................... 27,858 46,715
Operating Expenses..................................................... 18,020 27,098
--------- --------
Operating income...................................................... 9,838 19,617
Nonoperating Expense (Income), net..................................... (72 ) (1,255)
--------- --------
Income before income taxes............................................ 9,910 20,872
Provision for Income Taxes............................................. 3,766 7,932
--------- --------
Net income............................................................ $ 6,144 $ 12,940
--------- --------
Net Income Per Share................................................... $ 0.33 $ 0.70
--------- --------
--------- --------
</TABLE>
For the Company's first quarter ended March 31, 1995, sales were $254.8
million, up 75% over sales of $145.5 million for the same period of 1994. Net
income for the quarter was $12.9 million or $0.70 per share of Common Stock, a
111% increase over first quarter 1994 pro forma net income of $6.1 million or
$0.33 per share. Management attributes such increases to significant increases
in sales of its ATVs, PWC and PG&A. Polaris ended the quarter with no debt and
had cash and cash equivalents of $38.9 million compared to cash and cash
equivalents of $7.0 million at March 31, 1994.
Management believes that the continued devaluation of the United States
dollar versus the yen will result in higher prices for Japanese sourced
materials and components (including engines), which accounted for approximately
28% of cost of sales in 1994. Due to the timing of such purchases, recent
devaluations did not have a material impact on the cost of sales during the
first quarter of 1995, but are likely to adversely affect the cost of sales in
future periods during which the devaluation persists.
Management believes that the substantial percentage increases in sales and
net income during the first quarter of 1995 over the first quarter of 1994 are
not indicative of the results that may be expected for the full year ending
December 31, 1995.
14
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth selected financial data of the Company and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
notes thereto included elsewhere in this Prospectus. The selected statements of
operations data, cash flow data and balance sheet data as of and for each of the
fiscal years in the five-year period ended December 31, 1994, have been derived
from the financial statements of the Company which have been audited by
McGladrey & Pullen, LLP, independent public accountants. The comparability of
the information reflected in the selected financial data is materially affected
by the Conversion to corporate form on December 22, 1994, which resulted in the
Company recording a net deferred tax asset of $65.0 million, Conversion expenses
of $12.3 million and a corresponding net increase in 1994 net income (see Notes
1 and 5 of Notes to the Financial Statements). Pro forma data for 1994 and prior
years is presented to assist in comparing the continuing results of operations
of the Company exclusive of the Conversion expenses and as if the Company were a
taxable corporation with the pro forma provision for income taxes calculated at
an effective tax rate of 38% for each period presented (see Note 10 of Notes to
the Financial Statements).
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT DATA)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales................................... $296,147 $297,677 $383,818 $528,011 $826,286
% change from prior period............ 22% 1% 29% 38% 56%
Gross Profit............................ $ 89,349 $ 88,440 $104,926 $130,287 $183,283
% of sales............................ 30% 30% 27% 25% 22%
Operating expense data
Amortization of intangibles and First
Rights compensation................. $ 12,116 $ 13,108 $ 11,997 $ 13,466 $ 14,321
Conversion costs...................... -- -- -- -- 12,315
Other operating expenses.............. 46,421 43,614 52,238 63,594 80,985
% of sales.......................... 16% 15% 14% 12% 10%
Net income data
Net income............................ $ 31,363 $ 31,462 $ 34,701 $ 45,813 $128,950
Net income per unit................... $ 1.65 $ 1.65 $ 1.73 $ 2.25 --
Net income per share.................. -- -- -- -- $ 7.00
Pro forma data
Pro forma operating income............ $ 30,812 $ 31,718 $ 40,691 $ 53,227 $ 87,977
% of sales.......................... 10% 11% 11% 10% 11%
Pro forma net income.................. $ 20,465 $ 20,727 $ 24,602 $ 33,027 $ 54,703
Pro forma net income per share........ $ 1.19 $ 1.21 $ 1.37 $ 1.81 $ 2.97
CASH FLOW DATA
Cash flow from operating activities..... $ 54,782 $ 46,642 $ 55,316 $ 79,323 $111,669
Purchases of property and equipment..... 7,158 15,988 12,295 18,126 32,529
Cash distributions declared............. 42,582 42,581 44,507 47,217 50,942
Cash distributions declared per unit.... $ 2.50 $ 2.50 $ 2.50 $ 2.51 $ 2.52
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
BALANCE SHEET DATA
Cash and cash equivalents............... $ 32,025 $ 20,098 $ 19,094 $ 33,798 $ 62,881
Current assets.......................... 66,893 59,200 74,999 109,748 206,489
Total assets............................ 138,704 135,509 146,681 180,548 331,166
Current liabilities..................... 46,602 52,646 69,054 98,055 161,457
Shareholders' equity/Partners'
capital............................... 92,102 82,863 77,627 82,493 169,709
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(HISTORICAL AND PRO FORMA)
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, 1994, and should be read in conjunction with the Financial Statements
included elsewhere herein.
RESULTS OF OPERATIONS
Year Ended December 31, 1994 vs. Year Ended December 31, 1993
Sales increased to $826.3 million in 1994, representing a 56% increase over
the $528.0 million of sales in 1993. Total finished goods unit shipments for
1994 increased 52% over 1993. The increase in sales is primarily attributable to
the broadening of the three product lines and the continued popularity of all
Polaris products. Additional factors include the growth of the worldwide market
for all three product lines, the continuing favorable U.S. economy and a
competitive pricing strategy.
Snowmobile unit sales volume increased 34% during 1994, primarily because of
the introduction of new models, including the XLT Special and RXL with Polaris'
new XTRA suspension system.
ATV unit sales volume increased 55% during 1994, primarily because of the
continued growth in the utility and sports-enthusiasts' markets and the
improvement in product availability at the dealer level as a result of the
dedicated ATV production line. The average per unit sales price increased by 11%
for ATVs in 1994, principally through the sale of new, more high-performance
models that have a higher selling price than economy models. The Company
introduced several new models in 1994, including the Magnum, Xplorer and
Scrambler.
PWC unit sales volume increased 146% during 1994, primarily because of the
fast growth in the PWC market and the introduction of models aimed at both the
family and sports-rider market segments.
Sales of PG&A increased 36% in 1994 as a result of the increased sales
volume of all three product lines.
Gross profit increased to $183.3 million in 1994, representing a 41%
increase over gross profit of $130.3 million. The gross profit margin decreased
to 22.2% for 1994, from 24.7% for 1993. This decrease in gross margin percentage
is primarily a result of: (a) the change in product mix towards a greater
percentage of sales from ATVs and PWC which generate lower gross margins than
snowmobiles; (b) continued increases in raw material purchase prices for engines
and certain other component parts because of the weakening U.S. dollar in
relation to the Japanese yen; (c) strengthening of the U.S. dollar in relation
to the Canadian dollar which results in lower gross margins from the Company's
Canadian subsidiary operation; and (d) increase in warranty expenses as a result
of the emphasis on technological innovation and introduction of new
high-performance models.
The Company has continued to invest in new product development, particularly
in the areas of innovation and product diversification. New product research and
development costs are recorded as cost of sales in the statements of operations.
Research and development expenses were $13.5 million (1.6% of sales) in 1994 and
$11.1 million (2.1% of sales) in 1993. In addition, the Company incurred tooling
expenditures for new products of $12.6 million in 1994 and $9.3 million in 1993.
In 1994, more than 70% of sales came from products introduced in the past three
years.
Operating expenses (exclusive of $12.3 million of costs of conversion to a
corporation) increased $18.2 million (24%) in 1994 as a result of the sales
volume increases, but as a percentage of sales, decreased to 11.5% in 1994, from
14.6% in 1993. The percentage decrease is due primarily to the
16
<PAGE>
Company supporting an increasing level of sales without a corresponding increase
in selling and administrative expenses.
Income tax expense (exclusive of the income tax adjustment for the change in
tax status) increased $4.5 million in 1994 compared to 1993. This increase is
attributable primarily to additional reserves established relating to certain
open tax years in the United States and Canada, some of which are under audit by
Revenue Canada (see Note 8 of Notes to the Financial Statements).
Pro forma information is presented in the Statements of Operations to assist
in comparing the continuing results of operations of the Company exclusive of
the conversion costs and as if the Company were a taxable corporation for each
period presented. The pro forma provision for income taxes was calculated at an
effective tax rate of 38%. Pro forma net income increased 66% to $54.7 million
in 1994 from $33.0 million in 1993. Pro forma net income as a percent of sales
was 6.6% and 6.3% in 1994 and 1993, respectively. Pro forma net income per share
increased 64% to $2.97 in 1994 from $1.81 in 1993.
Year Ended December 31, 1993 vs. Year Ended December 31, 1992
Sales for 1993 were $528.0 million, an increase of 38% over 1992 sales of
$383.8 million. Total finished goods unit shipments for 1993 increased 34% over
1992.
Management believes Polaris' success in the snowmobile market is
attributable to product superiority, aggressive consumer promotional programs
and a strong dealer network. The 1993 sales increase resulted from the
introduction of new models and the continued success of other popular models,
including the lightweight XLT model. Snowmobile unit sales volume increased by
26% in 1993 over 1992.
In 1993, the Company's ATV product lines sales grew by 41% over 1992 sales
as retail sales rose to the highest level in Polaris' history. Management
believes Polaris has been successful by targeting the all-purpose segment of the
ATV market with new and improved products. Polaris introduced several new models
in 1993, including the Sportsman 4x4.
Manufacturing and sales of PWC commenced in the first quarter of 1992 with
the introduction of the SL650 model. In 1993, the Company added the SL750 and
the three-passenger SLT750 models designed for families and sports riders. PWC
unit sales volume increased 62% in 1993 over the initial shipments of PWC
products in 1992.
Sales of related parts, garments and accessories increased 43% in 1993 over
1992 as a result of the increased finished goods shipments.
Gross profit increased to $130.3 million in 1993, a 24% increase over 1992.
However, the gross profit percentage decreased to 24.7% in 1993 compared to
27.3% in 1992, primarily due to an aggressive pricing strategy, changes in the
product mix and foreign exchange rates. The growing ATV and PWC businesses
provided a lower gross profit percentage than did the snowmobile business. Raw
material purchase prices increased for engines and certain other component parts
because of the weakening of the U.S. dollar in relation to the Japanese yen.
Strengthening of the U.S. dollar in relation to the Canadian dollar caused gross
margin erosion of the Canadian subsidiary operation.
Operating expenses increased $12.8 million in 1993, but as a percentage of
sales decreased to 14.6% in 1993 from 16.7% in 1992. Operating expenses as a
percentage of sales decreased because the Company was able to increase sales
without incurring a corresponding amount of general and administrative expenses.
In addition, because of the strong demand and competitive pricing for the
Company's products, sales and marketing program expenses remained relatively
constant between 1993 and 1992.
The provision for income taxes in 1993 increased over the prior year at a
rate greater than the growth in income from the Canadian subsidiary because the
Company continued to accrue for open tax years in the United States and Canada
(see Note 8 of Notes to the Financial Statements).
17
<PAGE>
CASH DIVIDENDS AND SPECIAL DISTRIBUTIONS
Since its inception, and prior to the Conversion in 1994, the Partnership
paid cumulative cash distributions to holders of its BACs in the amount of
$16.37 per BAC, which, together with cash distributions paid to its general
partner, aggregated $282.4 million.
On January 26, 1995, the Board of Directors of the Company declared a
regular dividend of $0.15 per share to holders of record on February 6, 1995,
payable on February 15, 1995, and a special cash distribution of $1.92 per share
to holders of record on March 17, 1995, payable on April 1, 1995. On April 18,
1995, the Board of Directors of the Company declared a regular cash dividend of
$0.15 per share to holders of record on May 3, 1995, payable on May 15, 1995.
Management has recommended to the Company's Board of Directors that it establish
an initial cash dividend rate of $0.15 per share per quarter, and pay two
additional special cash distributions, each of $1.92 per share, payable during
the third and fourth quarters of 1995. Management expects to incur indebtedness
of up to $70 million in connection with the payment of the special cash
distributions. However, the timing and amount of future dividends and
distributions will be at the discretion of the Board of Directors of the Company
and will depend, among other things, on continuing levels of performance and the
financial strength of the Company. There can be no assurance that the
recommended dividends or cash distributions for 1995 will be declared and paid.
LIQUIDITY AND CAPITAL RESOURCES
Polaris' primary sources of funds have been cash provided by operating
activities, a line of credit and a dealer financing program provided by third
parties. Polaris' primary uses of funds have been for cash distributions to
partners, capital investments and for new product development.
During 1994, Polaris generated net cash from operating activities of $111.7
million, which was utilized to fund cash distributions to partners of $50.1
million and capital expenditures of $32.5 million. In 1993, Polaris generated
net cash from operating activities of $79.3 million, which was utilized to fund
cash distributions to partners of $46.5 million and capital expenditures of
$18.1 million. At December 31, 1994, cash and cash equivalents totaled $62.9
million, an increase of $29.1 million from December 31, 1993. Working capital
totaled $45.0 million at December 31, 1994.
The seasonality of production and shipments causes working capital
requirements to fluctuate during the year. The Company has a $40 million
unsecured bank line of credit arrangement expiring May 1, 1995 to provide
letters of credit and borrowings for working capital needs. Borrowings under the
line of credit bear interest at the prime interest rate, or a CD-based or
LIBOR-based rates. At December 31, 1994, the Company had no short-term debt
under this line of credit and had utilized its bank line to the extent of
letters of credit outstanding of $15.5 million related to purchase obligations
for raw materials. The Company is currently in negotiations to obtain a $125
million unsecured bank line of credit arrangement to replace its current line of
credit arrangement.
The Company has arrangements with unrelated finance companies to provide
floor plan financing for its distributors and dealers. These arrangements
provide liquidity by financing distributor and dealer purchases of snowmobiles,
ATVs and PWC without the use of the Company's working capital. Substantially all
of the sales of snowmobiles, ATVs and PWC are financed under these arrangements
whereby the Company receives payment within a few days of shipment of the
product. The amount financed by distributors and dealers under these
arrangements at December 31, 1994 and 1993, was approximately $108.0 million and
$64.9 million, respectively. From time to time, the Company participates in the
cost of dealer and distributor financing up to certain limits. The Company has
agreed to repurchase products repossessed by the finance companies to an annual
maximum of 15% of the average amount outstanding during the prior calendar year.
The Company's financial exposure under these arrangements 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 arrangements. However, an adverse change in the economy
could cause this situation to
18
<PAGE>
change and thereby require the Company to repurchase financed units. Management
intends to record a sales allowance when it becomes probable that returns under
this program will be material.
The Company has made capital investments to increase production capacity,
quality and efficiency, and for new product development. Over the past several
years, these investments have included the introduction of the PWC product line,
the introduction of new snowmobile and ATV models to broaden those product
lines, the expansion of manufacturing capacity, the purchase of enhanced
fabrication and assembly equipment, the expansion of computer-aided engineering
and design systems, installation of a new state-of-the-art metals paint system,
and the continuing development and implementation of systems and programs to
improve quality and efficiency and to reduce costs. Improvements in
manufacturing capacity include the $8.0 million purchase of a component parts
fabrication facility in 1991, the addition of an assembly line dedicated to
year-round production of ATVs in 1993, improvements in plant layout and the
expansion to a new leased assembly facility in 1994. The Company anticipates
that capital expenditures, including tooling, for 1995 will approximate $45
million.
The Canadian income tax authorities have proposed adjustments to the 1987
and 1988 income tax returns of the Canadian subsidiary. The resolution of these
proposed adjustments may also affect the Canadian income tax returns for years
subsequent to 1988. The Company has been informed of the Canadian income tax
authorities' intent to initiate audits of the tax years 1989 through 1991. The
proposed adjustments relate primarily to the original purchase price allocation
of the Canadian subsidiary and certain transfer pricing matters. Management
continues to vigorously contest a certain amount of the proposed adjustments.
Management does not believe the outcome of this matter will have a materially
adverse impact on the financial position or continuing operations of the
Company. At December 31, 1994, the Company has accrued $14.3 million for income
taxes related to certain open tax years in the United States and Canada.
The Conversion, effective in December 1994, will significantly impact future
liquidity and capital resources. Management has recommended to the Company's
Board of Directors that it make special cash distributions aggregating
approximately $105 million during 1995. As a corporation, the Company will be
responsible for payment of corporate, federal, state and certain foreign income
taxes on current earnings. The combined tax rate is estimated to be
approximately 38% of pre-tax income, net of related research and development
credits and foreign sales corporations benefits. As a result of the Conversion,
the Company has recorded a deferred tax asset of $65 million in 1994 which will
have the effect of reducing income taxes payable in future periods.
Management believes that existing cash balances, cash flow to be generated
from operating activities and available borrowing capacity under the new line of
credit arrangement currently being negotiated will be sufficient to fund
operations, regular dividends, special cash distributions and capital
expenditure requirements for 1995. At this time, management is not aware of any
factors that would have a materially adverse impact on cash flow beyond 1995.
INFLATION AND EXCHANGE RATES
The Company does not believe that inflation has had a material impact on the
results of its operations. However, the changing relationships of the U.S.
dollar to the Canadian dollar and Japanese yen have had a material impact from
time-to-time (and may be expected to be material in the future).
Over the past several years, weakening of the U.S. dollar in relation to the
Japanese yen has resulted in higher raw material purchase prices. During 1994,
purchases totaling 28% of the Company's cost of sales were from Japanese
suppliers. Management believes that such cost increases also affect its
principal competitors in ATVs, and, to varying degrees, some of its snowmobile
and PWC competitors. See "Recent Operating Results."
The Company operates in Canada through a wholly-owned subsidiary. Sales of
the Canadian subsidiary comprised 16% of total Company sales in 1994.
Strengthening of the U.S. dollar in relation
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to the Canadian dollar has caused unfavorable foreign currency fluctuations from
prior periods resulting in lower gross margin levels.
In the past, the Company has been a party to, and in the future may enter
into, foreign exchange hedging contracts for both the Japanese yen and the
Canadian dollar to minimize the impact of exchange rate fluctuations within each
year. To date, such contracts have not had a material impact on earnings. There
were no open contracts as of December 31, 1994.
In February 1995, the Company entered into an agreement with Fuji to build
engines in the United States for recreational and industrial products. Potential
advantages to the Company of participation in this arrangement include reduced
foreign exchange risk, lower shipping costs and less dependence on a single
source for engines in the future. However, such benefits are not expected to be
significant for some time.
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BUSINESS
INDUSTRY BACKGROUND
Although specific information with respect to industry sales in each of the
Company's product lines is not consistently and reliably available, management
believes that the markets for each of Polaris' product lines are growing.
Management currently estimates that in 1994 worldwide snowmobile industry retail
unit sales volume increased by more than 20%, worldwide ATV industry retail unit
sales volume increased by more than 10%, and worldwide PWC industry retail unit
sales volume increased by approximately 30%.
Snowmobiles. In the early 1950s, a predecessor to Polaris produced a "gas
powered sled" which became the forerunner of the Polaris snowmobile. Snowmobiles
have been manufactured under the Polaris name since 1954.
Originally conceived as a utility vehicle for northern, rural environments,
the snowmobile gained popularity as a recreational vehicle. From the mid-1950s
through the late 1960s, over 100 producers entered the snowmobile market and
snowmobile sales reached a peak of approximately 495,000 units in 1971. The
Company's product survived the industry decline in which snowmobile retail unit
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 Motor ("Yamaha"), Bombardier Inc. ("Bombardier"), Arctco, Inc. ("Arctco")
and the Company. The Company currently estimates that industry sales of
snowmobiles on a worldwide basis were approximately 210,000 units for the season
ended March 31, 1995.
All Terrain Vehicles. The Company entered the ATV market in 1985. Polaris
currently manufactures only four-wheel and six-wheel ATV vehicles with balloon
style tires designed for off-road use and traversing rough terrain, swamps and
marshland. ATVs are used for recreation in such sports as fishing and hunting,
as well as for utility purposes on farms, ranches and construction sites.
ATVs were introduced to the North American market in 1971 by Honda Motor. By
1980, the number of ATV units sold in the North American market had increased to
approximately 140,000 units. Other Japanese vehicle manufacturers, including
Yamaha, Kawasaki Heavy Industries, Ltd. ("Kawasaki") and Suzuki Motor, entered
the North American market in the late 1970s and early 1980s. In August 1994,
Arctco announced its intention to enter the ATV market commencing in 1995. In
1985, the number of three- and four-wheel ATVs sold in North America peaked at
approximately 650,000 units. The Company estimates that since declining from
that level to approximately 187,000 units in 1990, unit volume has been growing,
with approximately 290,000 ATVs sold worldwide during 1994.
Personal Watercraft. PWC are sit-down versions of water scooter vehicles,
and are designed for use on lakes, rivers, oceans and bays. PWC are used
primarily for recreational purposes and are designed for one, two or three
passengers. The Company entered the PWC market in 1992. The Company estimates
that the worldwide market for PWC was approximately 160,000 units in 1994. Other
major PWC manufacturers are Yamaha, Bombardier, Kawasaki and Arctco.
MARKETING AND DISTRIBUTION
With the exception of Illinois, upper Michigan, eastern Wisconsin and
offshore markets, where the Company sells its snowmobiles through independent
distributors, the Company sells its snowmobiles directly to dealers in the
snowbelt regions of the United States and Canada. Over the past several years,
the Company has placed an increasing emphasis on dealer-direct as opposed to
distributor sales. Snowmobile sales in Europe are handled through independent
distributors. See Note 7 of Notes to Financial Statements for discussion of
foreign and domestic operations and export sales.
Most dealers and distributors of Polaris snowmobiles also distribute
Polaris' ATVs and PWC. In the southern region of the United States, where
snowmobiles are not used, the Company has established
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a direct dealer network. Since the beginning of 1986, the Company has
established approximately 500 dealerships in the southern United States. Unlike
its current competitors, which market their ATV products principally through
their affiliated motorcycle dealers, the Company also sells its ATVs and PWC
through lawn and garden, boat and marine, and farm implement dealers.
Dealers and distributors sell the Company's products under contractual
arrangements pursuant to which the dealer or distributor is authorized to market
specified products, required to carry certain replacement parts and perform
certain warranty and other services. The dealer and distributor contracts may be
canceled by either party on specified notice. Changes in dealers and
distributors take place from time to time. The Company believes that a
sufficient number of qualified dealers and distributors exists in all areas to
permit orderly transition whenever necessary.
The Company has arrangements with Transamerica Commercial Finance Company,
Canadian Imperial Bank of Commerce, the Bank of Nova Scotia and ITT Commercial
Finance, a division of ITT Industries of Canada, to provide floor plan financing
for its dealers and distributors. Substantially all of the Company's sales of
snowmobiles, ATVs and PWC are financed under arrangements in which the Company
is paid within a few days of shipment of its product. The Company participates
in the cost of dealer and distributor financing and is required to repurchase
products from the finance companies under certain circumstances and subject to
certain limitations. The Company has not historically recorded a sales return
allowance because it has not been required to repurchase a significant number of
units in the past. However, there can be no assurance that this will continue to
be the case. If necessary, the Company will record a sales return allowance at
the time of sale should management anticipate material repurchases of units
financed through the finance companies. See Notes 1 and 4 of Notes to the
Financial Statements.
The Company does not directly finance the purchase of its snowmobiles, ATVs
or PWC by consumers. However, retail financing plans are offered by certain of
the dealers and the Company has programs to make consumer financing available to
its dealers through unaffiliated third parties.
The Company's marketing activities are designed primarily to promote and
communicate directly with consumers and secondarily to assist the selling and
marketing efforts of its dealers and distributors. From time to time the Company
makes available discount or rebate programs or other incentives for its dealers
and distributors to remain price competitive in order to accelerate reduction of
retail inventories. The Company advertises its products directly using print
advertising in the industry press and in user-group publications, on billboards,
and, less extensively, on television and radio. The Company also provides media
advertising and partially underwrites dealer and distributor media advertising
to a degree and on terms which vary by product and from year to year. Most
dealer and distributor advertising appears in newspapers and on radio. Each
season the Company produces a promotional film for its snowmobiles, ATVs and PWC
which is available to dealers for use in the showroom or at special promotions.
The Company also provides product brochures, leaflets, posters, dealer signs,
and other miscellaneous promotional items for use by dealers. It is anticipated
that during 1995 the Company will centralize its sales, marketing and dealer and
distributor support activities in a wholly-owned subsidiary corporation.
MANUFACTURING OPERATIONS
Snowmobiles, ATVs and PWC incorporate similar technology, with substantially
the same equipment and personnel employed in their production. Much of the
Company's workforce is generally familiar with the use, operation and
maintenance of the products since many employees own snowmobiles, ATVs and PWC.
The Company's production philosophy is to be a low-cost producer and to keep
its costs as variable as possible. The Company purchases such major components
as fuel tanks, hoods and hulls, tracks, tires and instruments from multiple
sources, while engines have been supplied solely by Fuji since 1968. The Company
has, in recent years, increased the number of components fabricated in-house.
In-house
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processes employed in the fabrication of components include machining, stamping,
welding, painting, and the cutting and sewing of foam seats.
The Company's snowmobile and ATV products currently are assembled at its
facility in Roseau, Minnesota. In August 1994, the Company signed a one-year
lease agreement for a 223,000 square foot assembly facility located on 24 acres
of land in Spirit Lake, Iowa, and expects to exercise its option to purchase the
facility for $1.85 million at the end of the lease term. The Company is
utilizing the facility to assemble its PWC product line, and may use it to
assemble certain snowmobiles and ATV models in the future. In August 1991, the
Company acquired a facility in Osceola, Wisconsin in order to fabricate more
components in-house.
Fuji has been the sole manufacturer of the Polaris two-cycle snowmobile
engines since 1968 pursuant to informal agreements between the Company and Fuji.
Fuji has manufactured engines for the Company's ATV products since their
introduction in the spring of 1985 and also supplies engines for Polaris' PWC
products. Such engines are developed by Fuji to the specific requirements of the
Company. The Company believes its relationship with Fuji to be excellent. If,
however, its informal relationship were terminated, interruption in the supply
of engines would adversely affect the Company's production pending the
establishment of substitute supply arrangements.
In February 1995, the Company and Fuji entered into an agreement to form
Robin Manufacturing, U.S.A. ("Robin"). Under the terms of the agreement, the
Company has initially invested $800,000 for a 40% ownership interest in Robin,
which will build engines in the United States for recreational and industrial
products. Management anticipates that, through Robin, the Company may, in the
future, experience reduced foreign exchange risk, lower shipping costs and less
dependence on a single source for engines. However, such benefits are not
expected to be significant for some time.
The Company's products are shipped from its manufacturing facilities by a
contract carrier.
PRODUCTION SCHEDULING
Snowmobiles are used principally in the northern United States, Canada and
northern Europe in what is referred to as the "snow belt." Delivery of
snowmobiles to consumers begins in the fall and continues during the winter
season. Orders for each year's production of snowmobiles are placed in the
spring and orders for ATVs and PWC are placed in fall and winter, after meetings
with dealers and distributors, and units are built to order each year. In
addition, non-refundable deposits made by consumers to dealers in the spring for
snowmobiles facilitate production planning. Sales activity at the dealer level
is monitored on a monthly basis for each of snowmobiles, ATVs and PWC.
Manufacture of snowmobiles commences in the spring and continues through
late autumn or early winter. The Company manufactures PWC during the fall,
winter and spring months. Since May 1993, the Company has the ability to
manufacture ATVs year round. Generally, the Company commences ATV production in
late autumn and continues through early autumn of the following year. For the
past several years, the Company has had virtually no carryover inventory at the
dealer level of its production of snowmobiles, ATVs and PWC.
ENGINEERING, RESEARCH AND DEVELOPMENT
The Company employs approximately 220 persons who are engaged in research,
development and testing of products and improved production techniques. The
Company believes that the Company and its predecessors were the first to
develop, for commercial use, independent front end suspension for snowmobiles,
the long travel rear suspension for snowmobiles, direct drive of the snowmobile
track, the use of liquid cooling in snowmobile engines and brakes, the use of
hydraulic brakes in snowmobiles, the three cylinder engine in snowmobiles and
PWC, the adaptation of the MacPhersonTM strut front suspension and "on demand"
all-wheel drive systems for use in ATVs and the application of a forced-air
cooled variable power transmission system to ATVs.
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The Company utilizes internal combustion engine testing facilities to design
and optimize engine configurations for its products. The Company utilizes
specialized facilities for matching engine, exhaust system and clutch
performance parameters in its products to achieve desired fuel consumption,
power output, noise level and other objectives. The Company's engineering shop
is equipped to make small quantities of new product prototypes for testing by
the Company's testing teams and for the planning of manufacturing procedures. In
addition, the Company's manufacturing facility in Roseau, Minnesota has a
testing ground where each of the products is extensively tested under actual use
conditions.
The Company expended for research and development approximately $7.4 million
in 1992, $11.1 million in 1993 and $13.5 million in 1994, which amounts were
included as a component of the cost of sales in the period incurred.
COMPETITION
The snowmobile, ATV and PWC markets in the United States and Canada are
highly competitive. Competition in such markets is based upon a number of
factors, including brand loyalty, price, quality, reliability, styling, product
innovations and 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 the Company's
competitors are more diversified and have financial and marketing resources
which are substantially greater than those of the Company. See "--Industry
Background."
Polaris snowmobiles, ATVs and PWC are competitively priced and management
believes the Company's sales and marketing support programs for dealers are
comparable to those provided by its competitors. The Company's products compete
with many other recreational products for the discretionary spending of
consumers, and, to a lesser extent, with other vehicles designed for utility
applications.
PRODUCT SAFETY AND REGULATION
Snowmobiles, ATVs and PWC are motorized machines which may be operated at
high speeds and in a careless or reckless manner. Accidents involving property
damage, personal injuries and deaths occur in the use of snowmobiles, ATVs and
PWC.
Laws and regulations have been promulgated or are under consideration in a
number of states relating to the use or manner of use of snowmobiles, ATVs and
PWC. State approved trails and recreational areas for snowmobile and ATV use
have been developed in response to environmental and safety concerns. The
Company has supported laws and regulations pertaining to safety and noise
abatement and believes that its products would be no more adversely affected
than those of its competitors by the adoption of any pending laws or
regulations.
In September 1986, the staff of the CPSC ATV Task Force issued a report on
regulatory options for ATVs. The Task Force recommended that the ATV industry
voluntarily cease marketing ATVs intended for use by children under 12 years of
age. It proposed that warning labels be placed on ATVs intended for use by
children under age 14 stating that these ATVs are not recommended for use by
children under 12, and on adult-sized ATVs stating that these ATVs are not
recommended for use by children under the age of 16. Warning labels were
recommended for use on all ATVs stating that operator training is necessary to
reduce risk of injury or death.
Based upon its findings that most states have not enacted laws regulating
ATVs, the Task Force recommended that the CPSC work closely with states and
other federal agencies to develop practical, uniform state legislation. Topics
to be addressed included minimum operator age recommendations, licensing or
certification standards requiring operator training, helmet requirements, and
prohibitions on the use of alcohol and controlled-substances while operating
ATVs.
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In December 1986, in a follow-up measure to the Task Force Report, the CPSC
voted unanimously to continue efforts with the ATV industry to develop a
voluntary standard regarding the dynamic stability characteristics of ATVs. In
February 1987, the CPSC formally requested that the Justice Department initiate
an enforcement action against the ATV industry seeking a voluntary recall of all
three-wheel ATVs and four-wheel ATVs sold with the intention that they be used
by children under 16, as well as a requirement that ATV purchasers receive
"hands-on" training.
Except for approximately 1,700 three-wheel units produced in 1985, the
Company manufactures only four-wheel and six-wheel ATVs. The Company has always
placed warning labels on its ATVs stating that they are designed for use only by
persons aged 16 or older (which warning was revised in 1987 to provide that only
adults over age 18 should operate the vehicle), that operators should always
wear proper safety helmets and that riders should complete proper training prior
to operating an ATV.
On December 30, 1987, the Company reached an agreement with the CPSC
regarding ATV safety. The agreement called for the repurchase of all three-wheel
ATVs remaining in the hands of its distributors and dealers, the provision of
additional safety oriented point-of-purchase materials in all Polaris ATV
dealerships, and the addition of a mandatory "hands on" consumer and dealer
safety training program designed to give all Polaris ATV dealers and consumers
maximum exposure to safe riding techniques, as outlined by the Specialty Vehicle
Institute of America. The Company conditions its ATV warranties described below
under "--Product Liability and Warranties" on completion of the mandatory "hands
on" consumer training program.
Pursuant to the agreement with the CPSC, the Company has procedures in place
for ascertaining dealer compliance with the provisions of the CPSC consent
decree, including random "undercover" on-site inspections of dealerships to
ensure compliance with the age restriction.
The Company continually attempts to assure that its dealers are in
compliance with the provisions of the CPSC consent decree. The Company has
notified its dealers that it will terminate any dealer it determines to have
violated the provisions of the CPSC consent decree. To date, it has terminated
five dealers for such reason.
The Company does not believe that the agreement with the CPSC has had or
will have a material adverse effect on the Company. Nevertheless, there can be
no assurance that future recommendations or regulatory actions by the CPSC, the
Justice Department or individual states would not have an adverse effect on the
Company. Certain state attorneys general have asserted that the CPSC agreement
is inadequate and have indicated that they will seek stricter ATV regulation.
The Company is unable to predict the outcome of such action or the possible
effect on its ATV business.
Certain states, notably California and New York, have proposed certain
legislation involving more stringent emissions standards for two-cycle engines.
Such engines are used on the Company's snowmobiles, ATVs and PWC. However, the
Company has developed and currently sells a four-cycle engine for its ATVs which
produces lower emissions. The Company currently is unable to predict whether
such legislation will be enacted and, if so, the ultimate impact on the Company
and its operations. Finally, local ordinances have been and may from time to
time be considered and adopted which restrict the use of PWC to specified hours
and locations. The existence of such restrictions can adversely affect market
demand for PWC.
PRODUCT LIABILITY AND WARRANTIES
The Company and its predecessors have self-insured for product liability
claims since June 1985.
Product liability claims are made against the Company from time to time.
Between 1981 and March 31, 1995, the Company and its predecessors have paid an
aggregate of less than $1.6 million in product liability claims. At March 31,
1995, the Company had accrued $5.3 million for the defense and possible payment
of pending claims. The Company believes such accruals are adequate. The Company
does not believe that the outcome of any pending product liability litigation
will have a material adverse effect on the operations of the Company. However,
no assurance can be given that its historical claims
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record, which did not include ATVs prior to 1985, or PWC prior to 1992, will not
change or that material product liability claims against the Company will not be
made in the future. Adverse determination of material product liability claims
made against the Company would have a material adverse effect on the Company's
financial condition. See Note 8 of Notes to the Financial Statements.
The Company warrants its snowmobiles, ATVs and PWC under a "limited
warranty" for a period of one year, six months, and one year, respectively.
Although the Company employs quality control procedures, a product is sometimes
distributed which needs repair or replacement. Historically, product recalls
have been administered through the Company's dealers and distributors and have
not had a material effect on the Company's business.
EMPLOYMENT
The Company employed a total of approximately 3,100 persons at March 31,
1995. Approximately 650 of its employees are salaried. The Company considers its
relations with its personnel to be excellent.
Historically, the Company's snowmobile business was seasonal, resulting in
significant differences in employment levels during the year. Despite such
variations in employment levels, employee turnover was not high. With the
introduction of the ATV line in 1985, the Company's employment levels have
become more stable. The Company's employees have not been represented by a union
since July 1982.
The Company's compensation plans are such that a significant percentage of
compensation of all employees is directly tied to the financial performance of
the Company through a profit-sharing program.
PROPERTIES
The Company owns its principal manufacturing facility in Roseau, Minnesota.
The facility consists of approximately 456,000 square feet of manufacturing
space located on approximately 100 acres. In August 1991, the Company acquired a
fabricating facility in order to bring more component parts manufacturing
in-house. This facility consists of a 190,000 square foot plant situated on 38
acres in Osceola, Wisconsin. The Company makes ongoing capital investments in
its facilities. In August 1994, the Company signed a one-year lease agreement
for a 223,000 square foot assembly facility located on 24 acres of land in
Spirit Lake, Iowa. The Company has an option to purchase the facility for $1.85
million at the end of the lease term, which it currently intends to exercise.
The Company currently uses the facility to assemble its PWC product line, and
may use it to assemble certain snowmobile and ATV models in the future. These
investments have increased production capacity for ATVs, snowmobiles and PWC.
The Company believes that its manufacturing facilities are adequate in size and
suitability for its present manufacturing needs.
The Company owns all tooling and machinery (including heavy presses,
conventional and computer-controlled welding facilities for steel and aluminum,
assembly lines, paint lines, and sewing lines) used in the manufacture of its
products. Although the Company holds numerous patents and uses various
registered trademarks and names, it believes that the loss of any of them would
not have a material effect on its business.
The Company leases 92,000 square feet of headquarters and warehousing
facilities in Minneapolis, Minnesota from related parties pursuant to a lease
that will terminate in 1997. See "Management-- Certain Relationships and Related
Transactions." Polaris also leases an additional 45,000 square feet of warehouse
space in Minneapolis, Minnesota and 42,000 square feet of office and warehouse
space in Winnipeg, Manitoba. The Company does not anticipate any difficulty in
securing alternate facilities on competitive terms, if necessary, upon the
termination of any of its leases.
LEGAL PROCEEDINGS
The Company is involved in a number of legal proceedings, none of which is
expected to have a material effect on the financial condition or the business of
the Company.
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Injection Research Specialists commenced an action in June 1990 against the
Company in Colorado federal court alleging various claims arising out of the
Company's advertisement and sale of electronic fuel-injection snowmobiles.
Injection Research Specialists seeks compensatory and punitive damages, its fees
and costs, and injunctive relief. Fuji and UNISIA Japanese Electronic Control
Systems also are parties to the action. The Company has filed counterclaims in
that action and has instructed its counsel to contest the matter vigorously.
Management does not believe that any judgment rendered against it in this matter
would have a material adverse effect on the financial condition of the Company.
In 1990, the Canadian income tax authorities proposed certain adjustments,
principally relating to the original purchase price allocation to the Canadian
subsidiary and transfer pricing matters for additional income taxes payable by
the Company's Canadian subsidiary for 1987 and 1988. The resolution of these
proposed adjustments may also affect the Company's Canadian income tax expense
for years subsequent to 1988. The Company has been informed of the Canadian
income tax authorities' intent to initiate an audit of the tax years 1989
through 1991. Management intends to vigorously contest a substantial amount of
the proposed adjustments. Management does not believe that the outcome of this
matter will have a materially adverse impact on the financial position or
continuing operations of the Company. See Note 8 of Notes to the Financial
Statements.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of March 31, 1995
are:
NAME AGE POSITION
- ---------------------------------- --- ----------------------------------
W. Hall Wendel, Jr................ 52 Chairman and Chief Executive
Officer, Director
Kenneth D. Larson................. 54 President and Chief Operating
Officer, Director
Beverly F. Dolan.................. 67 Director
Robert S. Moe..................... 63 Director
Stephen G. Shank.................. 51 Director
Gregory R. Palen.................. 39 Director
Andris A. Baltins................. 49 Director
John H. Grunewald................. 58 Executive Vice President, Chief
Financial Officer and Secretary
Charles A. Baxter................. 47 Vice President-Engineering and
Product Safety
Ed Skomoroh....................... 57 Vice President-Sales and Marketing
Jeffrey A. Bjorkman............... 35 Vice President-Manufacturing
Michael W. Malone................. 36 Vice President and Treasurer
The Board of Directors of the Company is divided into three classes serving
staggered three-year terms. The term of office of Messrs. Larson and Baltins
expires in 1995; the term of office of Messrs. Moe and Dolan expires in 1996;
and the term of office of Messrs. Wendel, Palen and Shank expires in 1997.
W. Hall Wendel, Jr. is the Chairman and Chief Executive Officer of the
Company and was Chief Executive Officer of Polaris Industries Capital
Corporation ("PICC"), the managing general partner of Polaris Industries
Associates L.P. which was the operating general partner of Polaris Industries
L.P., from 1987 through the Conversion in 1994. From 1981 to 1987, Mr. Wendel
was Chief Executive Officer of the predecessor of the Company. Before that time,
Mr. Wendel was President of the Polaris E-Z-Go Division for two years and prior
thereto, held marketing positions as Vice President of Sales and Marketing and
National Sales Manager since 1974. Mr. Wendel is Chairman of the Board of
Directors and Chairman of the Executive Committee of the Board of Directors of
the Company.
Kenneth D. Larson has been the President and Chief Operating Officer of the
Company since the Conversion. He was the President and Chief Operating Officer
of PICC from October 1988 through December 1994. Prior thereto, Mr. Larson was
Executive Vice President of Toro Company responsible for its commercial,
consumer and international equipment business, and held a number of general
management positions after joining Toro Company in 1975. Mr. Larson serves as a
director and a member of the audit committee of Featherlite Trailers, a
manufacturer of stock and car trailers and as a director and a member of the
compensation committee of Destron Fearing Corp., a manufacturer of animal
identification devices. Mr. Larson also is a director of various private
corporations. Mr. Larson serves on the Executive Committee of the Board of
Directors of the Company.
Beverly F. Dolan was the Chairman and Chief Executive Officer of Textron,
Inc., a multi-industry company with operations in aerospace technology,
commercial products and financial services, from 1986 through 1992. Since 1992,
Mr. Dolan has been a private investor and currently serves as a director of
Textron, Inc.; First Union Corporation, a bank holding company; Ruddick
Corporation, a multi-industry company with operations in retail grocery, thread
manufacturing and printing; and FPL Group, Inc., a Florida electrical power
producer. Mr. Dolan also served on President Bush's Export Council and was
elected Vice Chairman of that Council in November 1990. Mr. Dolan is Chairman of
the Compensation Committee of the Board of Directors of the Company.
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Robert S. Moe was Executive Vice President and Treasurer of PICC or its
predecessor from 1981 through 1992. Since 1992, he has been a private investor.
Mr. Moe serves on the Compensation Committee and the Executive Committee of the
Board of Directors of the Company.
Stephen G. Shank has been the President and Chief Executive Officer of
Learning Ventures, Inc., a provider of education programs, since September 1991.
Prior thereto, from 1988, he was Chairman and Chief Executive Officer of Tonka
Corporation, a marketer and manufacturer of toy and game products. Mr. Shank is
a director of National Computer Systems, Inc., an information services company,
and Advance Circuits, Inc., a manufacturer of printed circuit boards and
electronic interconnect devices. Mr. Shank is also a director of various private
and non-profit corporations. Mr. Shank is the Chairman of the Audit Committee of
the Board of Directors of the Company.
Gregory R. Palen has been Chairman and Chief Executive Officer of Spectro
Alloys, an aluminum manufacturing company since 1989 and Chief Executive Officer
of Palen/Kimball Company, a heating and air conditioning company, since 1980. He
is a director of Valspar Corporation, a painting and coating manufacturing
company. Mr. Palen is also a director of various private and non-profit
corporations. Mr. Palen serves on the Audit Committee of the Board of Directors
of the Company.
Andris A. Baltins has been a member of the law firm of Kaplan, Strangis and
Kaplan, P.A. since 1979. He is a director of Affinity Group, Inc., a
membership-based marketing company. Mr. Baltins is also a director of various
private and non-profit corporations. Mr. Baltins serves on the Audit Committee
and the Compensation Committee of the Board of Directors of the Company.
John H. Grunewald is Executive Vice President, Chief Financial Officer and
Secretary of the Company. He served as Executive Vice President, Finance and
Administration of PICC from September 1993 until the Conversion. Prior to
joining the Company, Mr. Grunewald was employed for 16 years by Pentair, Inc., a
diversified manufacturer of industrial products, most recently as Executive Vice
President, Chief Financial Officer and Secretary.
Charles A. Baxter is Vice President--Engineering and Product Safety of the
Company. He served as Vice President, Engineering of PICC and its predecessor
from June 1981 until the Conversion. Prior thereto, since 1970, he was employed
as Director of Engineering of the Polaris E-Z-Go Division of Textron.
Ed Skomoroh is Vice President--Sales and Marketing of the Company. He served
as Vice President, Sales and Marketing of the Operating Company from 1988 until
the Conversion. Prior thereto he was Vice President, Polaris Canada and
President, Secretary and Director of Polaris Industries Inc., an Ontario
corporation and a wholly-owned subsidiary of the Partnership. Mr. Skomoroh
joined a predecessor to the Company in 1982 as General Manager, Canada, and was,
for more than one year prior thereto, the General Manager for the Canadian
operations of Arctic Enterprises, Inc., a snowmobile manufacturer.
Jeffrey A. Bjorkman has been Vice President--Manufacturing of the Company
since January 1995, and prior thereto, held positions of Plant Manager and
Manufacturing Engineering Manager since July 1990. Prior to joining the Company,
Mr. Bjorkman was employed by General Motors Corporation in various management
positions for nine years.
Michael W. Malone is Vice President and Treasurer of the Company. Prior to
the Conversion, he served as Chief Financial Officer and Treasurer of PICC from
January 1993. Prior thereto and since 1986, he was Assistant Treasurer of PICC
and its predecessor. Mr. Malone joined a predecessor to the Company in 1984
after four years with Arthur Andersen & Co.
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EXECUTIVE COMPENSATION
Set forth below is information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal years
ended December 31, 1994, 1993 and 1992 of those persons who were, as of December
31, 1994, (i) the Chief Executive Officer and (ii) the four other most highly
paid executive officers whose total annual salary and bonus exceeded $100,000
during the fiscal year ended December 31, 1994 (the "Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------- --------------------------------------
PAYOUTS
OTHER RESTRICTED AWARDS ----------
ANNUAL STOCK ------------ LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($)(A) ($)(B) ($)(C) (#) ($) ($)(D)
- -------------------------- ---- -------- -------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Hall Wendel, Jr........ 1994 $240,000 $480,000 -- $282,000 0 $0 $6,000
Chairman of the Board and 1993 $240,000 $328,800 -- $0 0 $0 $7,075
Chief Executive Officer 1992 $240,000 $249,600 -- $0 0 $3,736,049 $6,866
Kenneth D. Larson......... 1994 $190,000 $437,000 -- $352,500 0 $0 $6,000
Chief Operating Officer 1993 $185,433 $278,149 -- $0 0 $744,002 $7,075
and President 1992 $183,750 $199,920 -- $0 0 $858,297 $6,866
John H. Grunewald......... 1994 $170,000 $340,000 -- $352,500 0 $0 $5,231
Executive Vice President 1993 $42,500 $31,875 -- $337,500 0 $0 $0
and Chief Financial 1992 N/A N/A N/A N/A N/A N/A N/A
Officer(E)
Charles A. Baxter......... 1994 $150,000 $205,500 -- $176,250 0 $0 $6,000
Vice President-- 1993 $150,000 $144,000 -- $0 0 $0 $7,075
Engineering and Product 1992 $150,000 $118,500 -- $0 0 $1,245,335 $6,866
Safety
Ed Skomoroh............... 1994 $129,400 $177,281 -- $176,250 0 $0 $6,000
Vice President-- 1993 $129,402 $121,636 -- $0 0 $248,045 $7,075
Sales and Marketing 1992 $129,402 $102,228 -- $0 0 $286,069 $6,866
</TABLE>
- ------------
<TABLE>
<S> <C>
(A) Bonus payments are reported for the year in which the related services were performed.
(B) The Company provides health club memberships, club dues, financial planning and tax preparation,
Execucare coverage, as well as standard employee medical, dental, and disability coverage to its
senior executives. The value of all such "Other Annual Compensation" is less than the minimum of
$50,000 or 10% of the total cash compensation for each person reported above.
(C) On March 1, 1994, an aggregate of 112,000 First Rights were granted to Polaris employees pursuant
to the 1987 Management Ownership Plan, including 8,000, 10,000, 10,000, 5,000, and 5,000 for
Messrs. Wendel, Larson, Grunewald, Baxter and Skomoroh, respectively. In addition, 10,000 First
Rights were granted to Mr. Grunewald in September 1993. One-half of these First Rights convert to
stock on January 1, 1997 (50%) and the remainder convert on January 1, 1998 (50%). These are the
total outstanding restricted shares or stock units held by the Chief Executive Officer and other
four highest paid executive officers as of December 31, 1994. The share price at the close of
business on December 31, 1994 was $51.625; therefore, the value of the total outstanding
restricted shares for the Executive Officers at the end of the fiscal year was $413,000,
$516,250, $1,032,500, $258,125 and $258,125 respectively, for Messrs. Wendel, Larson, Grunewald,
Baxter and Skomoroh.
(D) Consists of Company matching contributions to the 401(k) retirement savings plan.
(E) Mr. John H. Grunewald was hired on September 27, 1993.
</TABLE>
The Company did not maintain a stock option plan or stock appreciation
rights plan during the fiscal year ended December 31, 1994. No awards were made
by the Company to any Executive Officers under any long term incentive plans
during the fiscal year ended December 31, 1994 other than the First Rights
grants referred to in footnote (C) above.
30
<PAGE>
The Company does not maintain any defined benefit or actuarial pension plan
under which benefits are determined primarily by final compensation and years of
service.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
An agreement with Mr. Wendel provides benefits in the event of death,
disability, retirement or severance. If, during the term of his employment, Mr.
Wendel becomes totally disabled, the Company will pay monthly disability
payments of $4,167 during his lifetime until age 65. In the event of the death
of Mr. Wendel during his employment or while receiving disability payments, the
Company will pay Mr. Wendel's designated beneficiary a total of $500,000 in
monthly payments over ten years. In the event of termination of employment
without cause, the Company will pay a total of $500,000 in monthly installments
over ten years commencing on Mr. Wendel's 65th birthday or, if later,
retirement. In the event of voluntary termination of employment by Mr. Wendel,
the Company will pay $50,000 for each full year of service (including the period
during which disability payments were received) after September 14, 1982, up to
$500,000 in monthly installments over ten years commencing on Mr. Wendel's 65th
birthday or, if later, retirement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors, which was established
on December 22, 1994, consists of Beverly F. Dolan, Robert S. Moe and Andris A.
Baltins. Mr. Moe was Executive Vice President and Treasurer of a predecessor of
the Company from 1981 through 1992. Mr. Baltins is a member of the law firm of
Kaplan, Strangis and Kaplan, P.A., which provided legal services to the
Partnership and the Company during 1994. Of the approximately $12.3 million in
fees and expenses incurred in connection with the conversion of the Partnership
to corporate form in 1994, Kaplan, Strangis and Kaplan, P.A. was paid an
aggregate amount of approximately $1 million. Kaplan, Strangis and Kaplan, P.A.
is expected to continue to provide certain legal services to the Company during
1995. See "Legal Matters."
COMPENSATION COMMITTEE EXECUTIVE COMPENSATION PHILOSOPHY
Levels of base compensation and participation in bonus and profit-sharing
pools for executive officers of the Partnership for 1994 were established by a
compensation committee of the board of directors of the operating general
partner of the Partnership. Members of that compensation committee do not
currently serve as directors or officers of the Company.
The Compensation Committee of the Board of Directors of the Company was
established in December 1994. The Company's future compensation programs will be
tied closely to Company performance and aimed at enabling the Company to attract
and retain the best possible executive talent, aligning the financial interests
of the Company's management with those of its shareholders and rewarding those
executives commensurately with their ability to achieve increases in shareholder
value. It is anticipated that in the future, compensation for each of the
Company's executive officers will consist of a base salary, an annual
performance-based bonus, benefits, perquisites and stock options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Polaris Industries Partners, L.P., a partnership wholly owned by the Company
("PIP"), leases office and warehouse space in a suburb of Minneapolis, Minnesota
from 1225 North County Road 18 Limited Partnership (the "1225 Partnership"). Mr.
Wendel, Mr. Moe and Mr. Baxter are among the partners in the 1225 Partnership.
Under the lease, which was entered into in 1983, and amended in 1990, PIP leases
60,127 square feet of warehouse space and 31,733 square feet of office space
from the 1225 Partnership. The lease is on a "triple net" basis and provides for
annual rent of $2.50 per square foot of warehouse space and $5.50 per square
foot of office space and is adjusted annually by increases
31
<PAGE>
in the consumer price index, not to exceed 3.5% annually. Total lease payments
for the years ending 1992, 1993 and 1994 were $429,000, $443,000 and $456,000,
respectively. The lease expires in 1997.
Mr. Baltins, a member of the Board of Directors, is also a member of the law
firm of Kaplan, Strangis and Kaplan, P.A. which provided legal services to the
Partnership and the Company in 1994. Of the approximately $12.3 million in fees
and expenses incurred in connection with the Conversion, Kaplan, Strangis and
Kaplan, P.A. was paid an aggregate amount of approximately $1 million. Kaplan,
Strangis and Kaplan, P.A. is expected to continue to provide certain legal
services to the Company in 1995. See "Legal Matters."
BONUS AND PROFIT SHARING PLAN
The Company currently maintains a bonus and profit sharing plan for its
employees. Individual awards under the plan, granted each year, are based upon
levels of the Company's "pre-tax cash flow" and individual employee
responsibility and performance. During March 1995, the Company made cash award
payments under this plan for 1994 performance aggregating approximately $25
million, which amounts had been accrued by the Company at December 31, 1994. See
Note 6 of Notes to the Financial Statements.
STOCK OPTION PLAN
On March 15, 1995, the Company's Board of Directors adopted and approved a
new stock option plan for the Company, the Polaris Industries Inc. 1995 Stock
Option Plan (the "Stock Option Plan") under which stock options awards may be
made to employees of the Company. The Stock Option Plan, effective as of March
15, 1995 subject to the approval of the Company's shareholders at the May 10,
1995 annual meeting of the Company (the "Annual Meeting"), will remain effective
until the tenth anniversary of the effective date unless terminated earlier by
the Board of Directors.
The maximum number of shares of Common Stock allocated to the Stock Option
Plan will be 900,000 shares. No employee of the Company may receive options in
respect of more than 400,000 shares in any calendar year. The exercise price for
a stock option must be at least equal to the fair market value of the Common
Stock at the time of awarding of the stock option.
The Stock Option Plan is to be administered by the Compensation Committee of
the Board of Directors. The Compensation Committee is comprised solely of
nonemployee directors of the Company who are not eligible to participate in the
Stock Option Plan. Any employee of the Company may be selected by the
Compensation Committee to receive an award under the Stock Option Plan.
Presently, there are approximately 2,850 employees eligible to participate in
the Stock Option Plan. The amount and type of awards to be made under the Stock
Option Plan have not yet been determined.
The options will be subject to restrictions on exercise, such as exercise in
periodic installments or upon attainment of specified performance criteria, as
determined by the Compensation Committee. Stock options granted under the Stock
Option Plan will not be transferable except by will or the laws of descent and
distribution and may be exercised only by a participant during his or her
lifetime. Unless otherwise determined by the Compensation Committee and provided
in the applicable option agreement, options will be exercisable within 30 days
of any termination of employment other than termination due to disability, death
or normal retirement. The options will be exercisable within one year of a
termination of employment by reason of disability, death or normal retirement
but an Incentive Stock Option will not be exercisable more than three months
after retirement.
The Stock Option Plan may be terminated or amended at any time.
32
<PAGE>
DEFERRED COMPENSATION PLAN FOR DIRECTORS
The Board of Directors approved the Polaris Industries Inc. Deferred
Compensation Plan for Directors (the "Deferred Compensation Plan") on January
26, 1995, subject to approval of the Company's shareholders at the Annual
Meeting. The Deferred Compensation Plan will remain effective until the close of
business on the tenth anniversary of shareholder approval, unless terminated
earlier by the Board.
Under the Deferred Compensation Plan, directors who are not officers or
employees of the Company ("Outside Directors") will receive annual awards of
Common Stock Equivalents and can elect to defer all or a portion of their cash
directors' fees and have the deferred amounts deemed invested in additional
Common Stock Equivalents. These "Common Stock Equivalents" are phantom stock
units, i.e., each Common Stock Equivalent represents the economic equivalent of
one share of Common Stock. Dividends will be credited to Outside Directors as if
the Common Stock Equivalents were outstanding shares of Common Stock. Such
dividends will be converted into additional Common Stock Equivalents.
As of each quarterly date on which retainer fees are payable to Outside
Directors, each Outside Director will automatically receive an award of Common
Stock Equivalents having a fair market value of $1,250.
An Outside Director can also defer all or a portion of the retainer and/or
meeting fees that would otherwise be paid to him or her in cash. Such deferred
amounts will be converted into additional Common Stock Equivalents based on the
then fair market value of the Common Stock.
As soon as practicable after an Outside Director's Board service terminates,
he or she will receive a distribution of a number of shares of Common Stock
equal to the number of Common Stock Equivalents then credited to him or her
under the Deferred Compensation Plan. Upon the death of an Outside Director, the
shares will be issued to his or her beneficiary. Upon a change in control of the
Company (as defined in the Deferred Compensation Plan), however, each Outside
Director will receive a cash payment equal to the value of his or her
accumulated Common Stock Equivalents.
A maximum of 50,000 shares of Common Stock will be available for issuance
under the Deferred Compensation Plan. The Deferred Compensation Plan may be
terminated or amended at any time.
EMPLOYEE STOCK PURCHASE PLAN
On January 26, 1995, the Company's Board of Directors adopted, subject to
the approval of the Company's shareholders at the Annual Meeting, the Polaris
Industries Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"). The
effective date of the Stock Purchase Plan is January 1, 1997 or such earlier
date as the Board of Directors may determine.
Under the Stock Purchase Plan, options ("Purchase Options") to purchase up
to an aggregate of 500,000 shares of Common Stock may be granted to eligible
employees.
The Stock Purchase Plan will be administered by a committee appointed by the
Board of Directors (the "Stock Purchase Plan Committee"). None of the members of
the Stock Purchase Plan Committee will be eligible to purchase Common Stock
under the Stock Purchase Plan. The Stock Purchase Plan Committee will establish
such rules and procedures as are necessary or advisable to administer the Stock
Purchase Plan.
Each employee of the Company who is customarily employed on a full-time or
part-time basis and who is regularly scheduled to work more than 20 hours per
week will be eligible to participate in the Stock Purchase Plan after completing
six months of employment. An employee may not receive a Purchase Option under
the Stock Purchase Plan if, immediately after the Purchase Option is granted,
33
<PAGE>
the employee would own stock possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company. Approximately 2,300
employees would be eligible to participate in the Stock Purchase Plan if it were
to be implemented at the present time.
In addition, no participant will be granted a Purchase Option under the
Stock Purchase Plan or an option under any other employee stock purchase plan
maintained by the Company to the extent that the participant's right to purchase
shares of Common Stock under all such options would accrue at a rate at which
the fair market value of the shares (determined at the time the option is
granted) would exceed $25,000 for each calendar year in which any of the options
granted to such employee is outstanding at any time. Also, unless the Stock
Purchase Plan Committee otherwise determines, executive officers of the Company
will not be eligible to participate in the Stock Purchase Plan.
The Common Stock purchased under the Stock Purchase Plan will be paid for by
payroll deductions. On the first day of each month, a participant will be deemed
to have been granted a Purchase Option for the maximum number of whole shares of
Common Stock that can be purchased at the applicable option price with the
payroll deductions credited to his account for that month. The applicable option
price will be an amount equal to 85% of the averages of the closing prices per
share of Common Stock on the New York Stock Exchange (or other stock exchange or
stock quotation system on which the Common Stock is then quoted or traded) as of
the first day and the last day of the month.
If any participant's employment with the Company terminates for any reason,
any unexercised Purchase Options granted to such participant will terminate as
of the date of the termination of the participant's employment. The Company
promptly will refund to the participant the amount of payroll deductions then
credited to the participant's account, and will deliver to the participant one
or more stock certificates representing the number of shares of Common Stock
credited to the participant under the Plan.
The Employee Stock Purchase Plan may be terminated or amended at any time.
34
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS, OFFICERS AND SELLING SHAREHOLDERS
All of the shares of Common Stock being offered hereby are being sold by the
Selling Shareholders named below.
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of April 10, 1995, assuming the exercise of all
options, if any, exercisable on, or within 60 days of, such date, by (i) each
director, (ii) the Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company, (iii) all executive
officers and directors as a group and (iv) the Selling Shareholders. Other than
as set forth in the table below, there are no persons known to the Company to
beneficially own more than 5% of the Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
--------------------------------------------------------
BEFORE OFFERING AFTER OFFERING
-------------------------- --------------------------
FULLY FULLY
DILUTED DILUTED
NUMBER OF NUMBER OF
BENEFICIAL OWNER SHARES OWNED PERCENTAGE SHARES OWNED PERCENTAGE
- ---------------------------------------------- ------------ ---------- ------------ ----------
DIRECTORS AND EXECUTIVE OFFICERS
- ----------------------------------------------
<S> <C> <C> <C> <C>
W. Hall Wendel, Jr.(2)........................ 988,800 5.4% 988,800 5.4%
Chairman of the Board of Directors and Chief
Executive Officer
Kenneth D. Larson(3).......................... 108,376 * 108,376 *
President and Chief Operating Officer and
Director
John H. Grunewald............................. 7,000 * 7,000 *
Executive Vice President, Chief Financial
Officer and Secretary
Charles A. Baxter............................. 280,000 1.5% 280,000 1.5%
Vice President--Engineering and Product
Safety
Ed Skomoroh................................... 49,020 * 49,020 *
Vice President--Sales and Marketing
Beverly F. Dolan.............................. 1,000 * 1,000 *
Director
Stephen G. Shank.............................. 400 * 400 *
Director
Gregory R. Palen.............................. 1,600 * 1,600 *
Director
Andris A. Baltins(4).......................... 7,550 * 7,550 *
Director
Robert S. Moe(5).............................. 418,400 2.3% 418,400 2.3%
Director
All directors and executive officers as a
group (12 persons)........................... 1,885,208 10.4% 1,885,208 10.4%
</TABLE>
<TABLE><CAPTION>
SELLING SHAREHOLDERS
- ----------------------------------------------
<S> <C> <C> <C> <C>
LB I Group Inc.(6)............................ 1,336,852 7.3% 0 0
President and Fellows of Harvard College...... 500,000 2.7% 0 0
</TABLE>
- ------------
* Represents less than 1%.
(1) Unless otherwise indicated, beneficial ownership disclosed consists of sole
voting and investment power.
(2) Includes 28,000 shares held in a trust for Mr. Wendel's daughter and 100,000
shares held in the Hall and Deborah Wendel Foundation of which Mr. Wendel is
president, as to which Mr. Wendel disclaims any beneficial interest.
(3) Includes 100 shares held in a trust for Mr. Larson's child and 10,200 shares
owned by Mr. Larson's spouse, as to which he disclaims any beneficial
interest.
(Footnotes continued on following page)
35
<PAGE>
(Footnotes continued from preceding page)
(4) Includes 1,000 shares held in trust for Mr. Baltins' children and 2,000
shares held in trust for one of Mr. Baltins' parents. Other members of the
law firm of Kaplan, Strangis and Kaplan, P.A., of which Mr. Baltins is a
member and which serves as counsel for the Company, beneficially own an
aggregate of 39,750 shares.
(5) Includes 222,400 shares held in a trust for Mr. Moe's children, as to which
he disclaims any beneficial interest.
(6) LB I Group Inc. ("LB I Group") is a wholly-owned subsidiary of Lehman
Brothers Holdings Inc.
The business address for Mr. Wendel is 1225 Highway 169 North, Minneapolis,
Minnesota 55441.
The address for LB I Group is 3 World Financial Center, New York, New York
10285.
The address for President and Fellows of Harvard College is c/o Harvard
Management Company, Inc., 600 Atlantic Avenue, Boston, Massachusetts 02210.
In connection with the Conversion, Mr. Wendel and Victor K. Atkins, Jr., the
former general partner of the Partnership prior to the Conversion, entered into
an agreement dated as of August 25, 1994 which provides, among other things,
that for so long as Mr. Atkins owns no less than 3% of the outstanding shares of
the Common Stock, he will vote such shares in favor of the Company's nominees
for election to the Board of Directors.
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has, and upon completion of the Offering will have,
18,206,258 shares of Common Stock outstanding. Of these shares, all of the
shares sold in the Offering will be freely tradeable without restriction or
further registration under the Securities Act, unless held by "affiliates" of
the Company.
Of the outstanding shares of Common Stock, approximately 1.5 million shares
held by Fuji and certain other large shareholders will be subject to certain
restrictions on resale for purposes of the Securities Act. These shares may not
be sold unless they are registered under the Securities Act or unless an
exemption from registration, such as the exemption provided by Rule 144 under
the Securities Act, is available. Pursuant to Rules 144 and 145, such shares are
eligible for sale, subject to the volume limitation described below.
The Company has agreed not to offer, sell, contract to sell or otherwise
dispose of, directly or indirectly, any Common Stock, or any securities
convertible into or exchangeable for Common Stock, until the 90th day following
the closing date of the Offering without the consent of the Representatives of
the Underwriters, subject to certain exceptions. The Company is permitted to
issue Common Stock in connection with certain acquisition, merger and business
combination transactions, none of which is currently contemplated by management.
In general, under Rule 144 as currently in effect, a shareholder (or
shareholders whose shares are aggregated) who has beneficially owned "restricted
securities" for at least two but less than three years, and any affiliate of the
Company who has owned shares for at least two years, is entitled to sell within
any three-month period a number of shares that does not exceed the greater of 1%
of the outstanding shares of the Company's Common Stock (182,062 shares
immediately after the Offering) or the average weekly trading volume in the
Company's Common Stock on the New York Stock Exchange during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
provisions regarding the manner of sale, notice requirements and the
availability of current public information about the Company. A shareholder (or
shareholders whose shares are aggregated) who is not an affiliate of the Company
for at least 90 days prior to a proposed transaction and who has beneficially
owned "restricted securities" for at least three years is entitled to sell such
shares under Rule 144 without regard to the limitations described above.
36
<PAGE>
Pursuant to certain registration rights agreements with the Company, Mr.
Atkins and his permitted transferees have been granted certain demand
registration rights. In addition, Mr. Atkins and his permitted transferees are
entitled to exercise incidental or "piggyback" registration rights with respect
to certain offerings of shares of Common Stock. Mr. Atkins has waived such
rights with respect to the Offering. After the sale of the shares to Fuji, Fuji
will have similar demand and piggyback registration rights. See "Sale of Shares
to Fuji."
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 80,000,000 shares of
Common Stock, par value $.01 per share, and 20,000,000 shares of preferred
stock, issuable in series.
COMMON AND PREFERRED STOCK
As of April 17, 1995, 18,206,258 shares of Common Stock were issued and
outstanding, and 315,500 shares were issuable upon exercise of outstanding
options. All such outstanding shares of Common Stock are fully paid and
nonassessable. Holders of Common Stock have no preemptive rights to purchase or
subscribe for securities of the Company and the Common Stock is not convertible
or subject to redemption by the Company.
Subject to the rights of holders of any class of capital stock of the
Company having any preference or priority over the Common Stock, none of which
are outstanding as of the date of this Prospectus, the holders of the Common
Stock are entitled to dividends in such amounts as may be declared by the Board
of Directors of the Company from time to time out of funds legally available for
such payments and, in the event of liquidation, to share ratably in any assets
of the Company remaining after payment in full of all creditors and provisions
for any liquidation preferences on any outstanding preferred stock ranking prior
to the Common Stock.
The Board of Directors, without further action by the shareholders, is
authorized to issue up to 20,000,000 shares of preferred stock in one or more
series and to fix and determine as to any series all the relative rights and
preferences of shares in such series, including, without limitation,
preferences, limitations or relative rights with respect to redemption rights,
if any, voting rights, if any, dividend rights and preferences on liquidation.
The Company has no present intention to issue any preferred stock, but may
determine to do so in the future.
VOTING
Holders of Common Stock are entitled to cast one vote per share on matters
submitted to a vote of shareholders. No holder of Common Stock will be entitled
to any cumulative voting rights. Approval of any matter submitted to
shareholders requires the affirmative vote of the greater of (a) a majority of
the voting power of the shares present and entitled to vote on that item of
business or (b) a majority of the voting power of the minimum number of shares
entitled to vote that would constitute a quorum for the transaction of business
at a duly held meeting of shareholders; except that the Company's Articles of
Incorporation provide that the affirmative vote of holders of at least 75% of
the voting power of all outstanding shares entitled to vote is required for the
removal of a director, with or without cause, from office. If the Company has
more than one class of stock outstanding in the future, class voting will be
required on certain matters that generally have a material adverse effect on
shares of a class.
BOARD OF DIRECTORS
The Company's Articles of Incorporation provide that the business and
affairs of the Company shall be managed by or under the direction of a Board of
Directors consisting of not less than three nor more than 15 persons, who need
not be shareholders. The number of directors may be increased by
37
<PAGE>
shareholders or the Board of Directors or decreased by the shareholders from the
number of directors on the Board of Directors immediately prior to the effective
date of the Articles of Incorporation, provided, however, that any change in the
number of directors on the Board of Directors shall be approved by the
affirmative vote of not less than 75% of the voting power of all outstanding
shares entitled to vote, entitled to be cast by the holders of the then
outstanding voting shares, voting together as a single class, unless such change
shall have been approved by a majority of the entire Board of Directors. The
directors are divided into three classes, designated Class I, Class II and Class
III. The term of the initial Class I directors terminates on the date of the
1995 annual meeting of shareholders, the term of the initial Class II directors
terminates on the date of the 1996 annual meeting of shareholders, and the term
of the initial Class III directors terminates on the date of the 1997 annual
meeting of shareholders. At each succeeding meeting of annual shareholders
beginning in 1995, successors to the class of directors whose term expires at
that annual meeting shall be elected for a three-year term. Removal of a
director from office, with or without cause, requires the affirmative vote of
not less than 75% of the voting power of all outstanding shares entitled to
vote, voting together as a single class.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and By-laws
and the Minnesota Business Corporations Act ("MBCA") could have an anti-takeover
effect. These provisions are intended to enhance the likelihood of continuity
and stability in the composition of the Company's Board of Directors and
management and in the policies formulated by the Board of Directors and to
discourage an unsolicited takeover of the Company if the Board of Directors
determines that such takeover is not in the best interests of the Company and
its shareholders. However, these provisions could have the effect of
discouraging certain attempts to acquire the Company or remove incumbent
management even if some, or a majority of, shareholders deemed such an attempt
to be in their best interests.
ARTICLES OF INCORPORATION PROVISIONS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors of the Company is divided into three
classes serving staggered three-year terms. In accordance with the MBCA,
directors can be removed from office, with or without cause, only by the
affirmative vote of holders of 75% of the outstanding shares entitled to vote.
BY-LAW PROVISIONS. The By-laws provide that any action required or permitted
to be taken by the shareholders of the Company may be effected only at a regular
or special meeting of shareholders and prohibits shareholder action by less than
unanimous written consent in lieu of a meeting. Special meetings of shareholders
may be called by a shareholder or shareholders holding 10% of the voting power
of all shares entitled to vote; except that a special meeting for the purpose of
considering any action to directly or indirectly facilitate or effect a business
combination, including any action to change or otherwise affect the composition
of the Board of Directors for that purpose, must be called by 25% or more of the
voting power of all shares entitled to vote.
MINNESOTA CONTROL SHARE/FAIR PRICE LAW. Section 671 of the MBCA provides
that, generally, a person who becomes the beneficial owner of 20% or more of the
voting power of the shares of the Company in the election of directors may
exercise only an aggregate of 20% of the voting power of the Company's shares in
the absence of special shareholders' approval. That approval can only be
obtained by resolution adopted by (i) the affirmative vote of the holders of the
majority of the voting power of all shares entitled to vote, including all
shares held by the acquiring person, and (2) the affirmative vote of the holders
of the majority of the voting power of all shares entitled to vote, excluding
all "interested shares" (shares held by the acquiring person, any officer of the
Company or any director of the Company who is also an officer of the Company).
If the shareholders approve a share acquisition that would increase the
acquiring person's beneficial interest to 20% or more, but less than 33 1/3%, of
the voting power of the Company's shares, a similar shareholder vote is required
to permit the acquiring person to exercise voting power with respect to 33 1/3%
or more of the outstanding shares upon becoming beneficial owner of shares
otherwise entitled to one-third or more of the voting power of the Company's
38
<PAGE>
shares. A similar shareholder vote generally is necessary to permit the
acquiring person to exercise the majority of voting power following acquisition
of shares otherwise entitled to the majority of such voting power.
Section 673 of the MBCA restricts transactions with a shareholder acquiring
10% or more of the voting power of the shares of the Company entitled to vote
unless the share acquisition or the transaction has been approved by the Board
of Directors prior to the acquisition of the 10% interest. For four years after
the 10% threshold is exceeded (absent prior board approval), the Company cannot
have a sale of substantial assets, merger, loan, substantial issuance of stock,
plan of liquidation or reincorporation involving such shareholder or its
affiliates.
Section 675 of the MBCA generally provides that, in the absence of
disinterested director approval, an offeror may not acquire shares of the
Company from a shareholder within two years following the offeror's last
purchase of shares of the same class pursuant to a takeover offer, unless the
shareholder is afforded a reasonable opportunity at that time to dispose of the
shares to the offeror on terms substantially equivalent to the terms of the
earlier takeover offer.
LIMITATION OF LIABILITY
As permitted by Minnesota law, the Company's Articles of Incorporation
provide that directors of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its shareholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) relating to prohibited dividends or distributions or the repurchase
or redemption of stock, or (iv) for any transaction from which the director
derives an improper personal benefit.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Norwest Bank
Minnesota, N.A.
SALE OF SHARES TO FUJI
Prior to the Offering, Fuji beneficially owned 60,000 shares of Common
Stock. Pursuant to an agreement dated as of April 24, 1995, Fuji has agreed,
subject to certain conditions, to purchase 600,000 shares of Common Stock from
an affiliate of Lehman Brothers Inc. at a price per share equal to the lesser of
$65 or the public offering price in the Offering (i.e., the "Price to Public"
appearing on the cover page of this Prospectus) (such lesser amount, the "Fuji
Purchase Price"). The closing of such purchase will be contemporaneous with, and
is conditioned upon, the closing of the sale of the shares offered hereby by the
Underwriters. In addition, Fuji has agreed to purchase from Lehman Brothers Inc.
or its affiliates any shares not purchased by the Underwriters pursuant to the
over-allotment option granted to them at a price per share equal to the Fuji
Purchase Price (subject to adjustment in the event the Company pays a dividend
in excess of $0.15 per share). If such over-allotment option is not exercised by
the Underwriters, after consummation of such transactions, Fuji will
beneficially own 796,852 shares of Common Stock, or approximately 4.4% of the
Common Stock outstanding. If such over-allotment option is exercised in full by
the Underwriters, after consummation of such transactions Fuji will beneficially
own 660,000 shares of Common Stock, or approximately 3.6% of the Common Stock
outstanding. See "Underwriting."
39
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), acting through their
representatives, Lehman Brothers Inc., Goldman, Sachs & Co. and Piper Jaffray
Inc. (the "Representatives"), have severally agreed, subject to the terms and
conditions of an Underwriting Agreement with the Selling Shareholders and the
Company (the "Underwriting Agreement"), to purchase from the Selling
Shareholders the aggregate number of shares of Common Stock set forth opposite
their respective names below. The Underwriters are committed to purchase all of
such shares if any are purchased. Under certain circumstances, the commitments
of non-defaulting Underwriters may be increased as set forth in the Underwriting
Agreement.
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------------------------------- ---------
Lehman Brothers Inc. ...........................................
Goldman, Sachs & Co. ...........................................
Piper Jaffray Inc. .............................................
---------
Total..................................................... 1,100,000
---------
---------
The Underwriters are permitted to sell shares of Common Stock to each other
for purposes of resale at the initial public offering price, less an amount not
greater than the selling concession.
LB I Group has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to 136,852 additional shares of
Common Stock to cover over-allotments, if any, at the initial public offering
price, less the underwriting discount. If the Underwriters exercise this option,
each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of the option shares
as the number of shares of Common Stock to be purchased by that Underwriter
shown in the foregoing table bears to the 1,100,000 shares of Common Stock
initially offered hereby.
Prior to the Offering, LB I Group beneficially owned 7.3% of the outstanding
Common Stock on a fully diluted basis. Under Schedule E to the By-Laws of the
National Association of Securities Dealers, Inc. (the "NASD"), LB I Group may be
deemed an affiliate of Lehman Brothers Inc. The Offering is being conducted in
accordance with Schedule E, which provides that, among other things, when an
NASD member participates in the underwriting of an affiliate's equity
securities, the initial public offering price can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
In accordance with this requirement, Goldman, Sachs & Co. has served in such
role and will recommend a price in compliance with the requirements of Schedule
E. In connection with the Offering, Goldman, Sachs & Co. in its role as
qualified independent underwriter has performed due diligence investigations and
reviewed and participated in the preparation of this Prospectus and the
Registration Statement of which this Prospectus forms a part. In addition, the
Underwriters may not confirm sales to any discretionary account without the
prior specific written approval of the customer.
Fuji has agreed to purchase 600,000 shares from an affiliate of Lehman
Brothers Inc., as set forth in "Sale of Shares to Fuji" above. Fuji also has
agreed to purchase from Lehman Brothers Inc. or its affiliates up to 136,852
additional shares of Common Stock to the extent that the over-allotment option
described above is not fully exercised by the Underwriters.
The Underwriters propose initially to offer the shares of Common Stock to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a
40
<PAGE>
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share on sales
to certain other dealers. After the initial public offering of the Common Stock,
the public offering price, concession and discount may be changed.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities which may be incurred in
connection with the offering of the Common Stock and the exercise of the
over-allotment option, including liabilities under the Securities Act.
Without the consent of the Representatives, the Company has agreed not to,
for a period of 90 days following the date of the Offering, directly or
indirectly, sell, offer to sell, grant any option for the sale of, or otherwise
dispose of, any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for any such shares, subject to certain exceptions.
The Company is permitted to issue Common Stock in connection with certain
acquisition, merger and business combination transactions, none of which is
currently contemplated by management.
LEGAL MATTERS
The validity of the shares of Common Stock under Minnesota law will be
passed upon for the Company by Kaplan, Strangis and Kaplan, P.A., Minneapolis,
Minnesota. Andris A. Baltins, a member of the Board of Directors of the Company,
is also a member of the law firm of Kaplan, Strangis and Kaplan, P.A. Certain
legal matters in connection with the offering of the Common Stock being made
hereby will be passed upon for the Underwriters by Simpson Thacher & Bartlett (a
partnership which includes professional corporations), New York, New York.
Simpson Thacher & Bartlett acted as special counsel to the Partnership in
connection with the Conversion. Simpson Thacher & Bartlett will rely upon
Kaplan, Strangis and Kaplan, P.A. with respect to matters of Minnesota law.
EXPERTS
The financial statements of Polaris Industries Inc. (formerly Polaris
Industries Partners, L.P.) as of December 31, 1994 and 1993, and for each of the
three years in the period ended December 31, 1994, included in this Prospectus
and the Registration Statement of which this Prospectus forms a part, have been
audited by McGladrey & Pullen, LLP, independent public accountants, as set forth
in their report appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONTENTS PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS.............................. F-2
FINANCIAL STATEMENTS
Balance sheets........................................................................ F-3
Statements of operations.............................................................. F-4
Statements of shareholders' equity.................................................... F-5
Statements of cash flows.............................................................. F-6
Notes to financial statements......................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
POLARIS INDUSTRIES INC.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of POLARIS INDUSTRIES INC.
(formerly Polaris Industries Partners L.P.) as of December 31, 1994 and 1993,
and the related statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Polaris Industries Inc. as
of December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
MCGLADREY & PULLEN, LLP
Minneapolis, Minnesota
February 2, 1995
F-2
<PAGE>
POLARIS INDUSTRIES INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (Note 2)................................... $ 33,798 $ 62,881
Trade receivables.................................................... 21,340 29,700
Inventories (Note 3)................................................. 52,057 88,714
Prepaid expenses and other........................................... 2,553 5,194
Deferred tax assets (Note 5)......................................... -- 20,000
-------- --------
Total current assets........................................... 109,748 206,489
-------- --------
Deferred Tax Assets (Note 5)........................................... -- 45,000
-------- --------
Property and Equipment at cost
Land, buildings and improvements..................................... 10,737 14,913
Equipment and tooling................................................ 56,480 77,116
-------- --------
67,217 92,029
Less accumulated depreciation........................................ 27,486 38,368
-------- --------
39,731 53,661
-------- --------
Intangibles
Cost in excess of net assets of business acquired, net of
amortization of $4,968, 1993 and $5,722, 1994...................... 25,710 24,956
Dealer network, net of amortization of $39,811, 1993 and
$44,000, 1994...................................................... 4,189 0
Other, net of amortization of $2,311, 1993 and $2,421, 1994.......... 1,170 1,060
-------- --------
31,069 26,016
-------- --------
$180,548 $331,166
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable..................................................... $ 36,122 $ 58,932
Distributions payable................................................ 11,851 12,736
Accrued expenses:
Compensation (Note 6).............................................. 20,060 33,349
Warranties......................................................... 11,412 23,838
Other.............................................................. 10,856 17,447
Income taxes payable (Notes 5 and 8)................................. 7,754 15,155
-------- --------
Total current liabilities...................................... 98,055 161,457
-------- --------
Commitments and Contingencies (Notes 4, 6, 8 and 9)
Partners' Capital...................................................... 82,493 --
Shareholders' Equity (Notes 6 and 8)
Preferred stock $0.01 par value, authorized 20,000 shares, no issued
and outstanding shares............................................. -- --
Common stock $0.01 par value, authorized 80,000 shares, issued and
outstanding, 18,111 shares 1994........................................ -- 181
Additional paid-in capital........................................... -- 103,935
Compensation payable in common stock................................. -- 12,251
Retained earnings.................................................... -- 53,342
-------- --------
82,493 169,709
-------- --------
$180,548 $331,166
-------- --------
-------- --------
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
POLARIS INDUSTRIES INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Sales....................................................... $383,818 $528,011 $826,286
Cost of Sales............................................... 278,892 397,724 643,003
-------- -------- --------
Gross profit........................................ 104,926 130,287 183,283
-------- -------- --------
Operating Expenses
Selling, general and administrative....................... 52,238 63,594 80,985
First Rights compensation................................. 4,570 6,300 9,268
Amortization of intangibles............................... 7,427 7,166 5,053
Conversion (Note 1)....................................... -- -- 12,315
-------- -------- --------
Total operating expenses............................ 64,235 77,060 107,621
-------- -------- --------
Operating income.................................... 40,691 53,227 75,662
Nonoperating Expense (Income), net.......................... 1,010 (43) (254)
-------- -------- --------
Income before income taxes.......................... 39,681 53,270 75,916
Provision for Income Taxes (Notes 5 and 8).................. 4,980 7,457 11,966
-------- -------- --------
34,701 45,813 63,950
Income Tax Adjustment for Change in Tax Status (Note 5)..... -- -- (65,000)
-------- -------- --------
Net income.......................................... $ 34,701 $ 45,813 $128,950
-------- -------- --------
-------- -------- --------
Net Income Per Share (Note 1)............................... $ 7.00
--------
--------
Weighted Average Number of Common and Common Equivalent
Shares Outstanding (Note 1)................................. 17,968 18,215 18,423
-------- -------- --------
-------- -------- --------
Pro Forma Information (Note 10)
Income before income taxes................................ $ 39,681 $ 53,270 $ 88,231
Provision for income taxes................................ 15,079 20,243 33,528
-------- -------- --------
Net income.......................................... $ 24,602 $ 33,027 $ 54,703
-------- -------- --------
-------- -------- --------
Net income per share...................................... $ 1.37 $ 1.81 $ 2.97
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
POLARIS INDUSTRIES INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL
-----------------------------------------------------
LIMITED PARTNERS' INTEREST
-------------------------------------------
SHAREHOLDERS' EQUITY FIRST RIGHTS
------------------------------------------ ---------------------- TOTAL
ADDITIONAL COMPENSATION GENERAL ASSIGNED LIMITED
COMMON PAID-IN PAYABLE IN RETAINED PARTNERS' CAPITAL DEFERRED PARTNERS'
STOCK CAPITAL COMMON STOCK EARNINGS INTEREST BACS VALUE COMPENSATION INTEREST TOTAL
------ ---------- ------------ -------- -------- -------- -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1991.................. $-- $ -- $ -- $ -- $ (5,066) $ 71,499 $ 19,114 $ (2,684) $ 87,929 $ 82,863
First Rights
conversion to
BACs............... -- -- -- -- -- 12,407 (12,407) -- -- --
First Rights grants
and amortization... -- -- -- -- -- -- 2,395 2,175 4,570 4,570
Cash distributions
declared........... -- -- -- -- (9,257) (35,250) -- -- (35,250) (44,507)
Net income for the
year............... -- -- -- -- 7,218 27,483 -- -- 27,483 34,701
------ ---------- ------ -------- -------- -------- -------- ----- --------- --------
Balance, December 31,
1992................ -- -- -- -- (7,105) 76,139 9,102 (509) 84,732 77,627
First Rights
conversion to
BACs.................. -- -- -- -- -- 6,042 (6,072) -- (30) (30)
First Rights grants
and amortization... -- -- -- -- -- -- 5,791 509 6,300 6,300
Cash distributions
declared........... -- -- -- -- (9,821) (37,396) -- -- (37,396) (47,217)
Net income for the
year............... -- -- -- -- 9,529 36,284 -- -- 36,284 45,813
------ ---------- ------ -------- -------- -------- -------- ----- --------- --------
Balance, December 31,
1993................ -- -- -- -- (7,397) 81,069 8,821 -- 89,890 82,493
First Rights
conversion to
BACs............... -- -- -- -- -- 5,778 (5,838) -- (60) (60)
First Rights
grants............. -- -- -- -- -- -- 9,268 -- 9,268 9,268
Cash distributions
declared........... -- -- -- -- (10,596) (40,346) -- -- (40,346) (50,942)
Net income for the
year (Note 1)...... -- -- -- 53,342 15,726 59,882 -- -- 59,882 128,950
Conversion (Note
1).................. 181 103,935 12,251 -- 2,267 (106,383) (12,251) -- (118,634) --
------ ---------- ------ -------- -------- -------- -------- ----- --------- --------
Balance, December 31,
1994................ $181 $103,935 $ 12,251 $53,342 $ -- $ -- $ -- $ -- $ -- $169,709
------ ---------- ------ -------- -------- -------- -------- ----- --------- --------
------ ---------- ------ -------- -------- -------- -------- ----- --------- --------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
POLARIS INDUSTRIES INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income................................................ $ 34,701 $ 45,813 $128,950
Adjustments to reconcile net income to cash flow from
operating activities
Depreciation............................................ 9,830 12,446 18,599
Amortization............................................ 7,427 7,166 5,053
First Rights compensation............................... 4,570 6,300 9,268
Deferred income taxes................................... -- -- (65,000)
Changes in current operating items
Trade receivables..................................... (6,372) (4,465) (8,360)
Inventories........................................... (10,528) (14,481) (36,657)
Accounts payable...................................... 11,605 11,176 22,810
Accrued expenses...................................... 1,167 12,977 32,306
Income taxes payable.................................. 3,154 4,124 7,401
Other................................................. (238) (1,733) (2,701)
-------- -------- --------
Net cash provided by operating activities........... 55,316 79,323 111,669
Cash Flows From Investing Activities
Purchase of property and equipment........................ (12,295) (18,126) (32,529)
Cash Flows From Financing Activities
Cash distributions........................................ (44,025) (46,493) (50,057)
-------- -------- --------
Increase (decrease) in cash and cash equivalents.... (1,004) 14,704 29,083
Cash and Cash Equivalents
Beginning................................................. 20,098 19,094 33,798
-------- -------- --------
Ending.................................................... $ 19,094 $ 33,798 $ 62,881
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: Polaris Industries Inc. (the Corporation) was formed for the
purpose of effecting the conversion of Polaris Industries Partners L.P., a
Delaware limited partnership (the Partnership), from a publicly traded limited
partnership to a publicly traded corporation on December 22, 1994 (the
Conversion). The Corporation issued 16,010,441 shares of $0.01 par value common
stock to the Partnership's Limited Partners in exchange for their limited
partner interests, 2,100,243 shares of common stock to the affiliates of EIP
Associates L.P. (the General Partner) in exchange for the entire general
partnership interests and rights and ultimately 312,500 shares of common stock
to the holders of 312,500 First Rights. As a result of the Conversion, the
Corporation owns all of the general and limited partnership interests in the
Partnership. The Corporation had no operations prior to the conversion and is
continuing the business of the Partnership with the same operating management,
but without management involvement by the General Partner. The activities of the
Partnership and the Corporation are referred to herein as activities of the
Company.
The Conversion has been accounted for as a reorganization of affiliated
entities, with the assets and liabilities of the Partnership recorded at their
historical cost basis, except that deferred taxes relating to the temporary
differences between the financial reporting and the income tax bases of certain
assets and liabilities at the date of the Conversion were recorded by the
Corporation (Note 5). The statements of operations, shareholders' equity and
cash flows for 1992, 1993 and for 1994 through the date of the Conversion
reflect the operations of the Partnership. The costs of the Conversion were
recorded as an expense of the Corporation in the statement of operations at the
time of the Conversion. Other than the effect of recording deferred taxes and
the costs of the Conversion, net income for the year ended December 31, 1994,
has been prorated between retained earnings of the Corporation and partners'
capital of the Partnership for purposes of the statement of shareholders'
equity.
Business: The Company is engaged in a single industry segment consisting of
the design, engineering and manufacture of recreational and utility vehicles and
markets them together with related parts, garments and accessories through a
network of dealers, distributors and its Canadian subsidiary.
Basis of presentation: The financial statements of the Company include the
accounts of the Corporation, the Partnership and its Canadian subsidiary. All
significant intercompany transactions and balances have been eliminated in the
combination.
Cash equivalents: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Depreciation and amortization: Depreciation and amortization are provided
using the straight-line method based on the estimated useful lives of individual
assets over the following periods:
YEARS
-----
Buildings and improvements......................................... 10-20
Equipment and tooling.............................................. 1-7
Cost in excess of net assets of business acquired.................. 40
Other intangibles.................................................. 5-17
Fully depreciated tooling is eliminated from the accounting records
annually.
The Company reviews its intangibles quarterly to determine potential
impairment by comparing the carrying value of the intangibles with expected
future net cash flows provided by operating activities
F-7
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
of the business. Should the sum of the expected future net cash flows be less
than the carrying value, the Company would determine whether an impairment loss
should be recognized. An impairment loss would be measured by comparing the
amount by which the carrying value exceeds the fair value of the business. Fair
value will be determined based on appraised market value. To date, management
has determined that no impairment of intangibles exists.
Product warranties: The Company provides for estimated normal and extended
warranty costs at the time of sale to distributors and dealers and for other
costs associated with specific items at the time their existence and amounts are
determinable.
Reclassification: For the years ended December 31, 1992 and 1993, the
Company has reclassified certain expenses to be consistent with the
classification adopted for the current year's statement of operations
presentation.
Foreign currency: The Canadian subsidiary maintains its books of record
using Canadian currency and uses United States currency as the functional
currency. Canadian assets and liabilities are translated at the foreign exchange
rates in effect at the balance sheet date. Revenues and expenses are translated
at the average foreign exchange rate in effect. Translation and exchange gains
and losses are reflected in earnings.
Foreign exchange contracts: The Company enters into foreign exchange
contracts to hedge certain of its purchase commitments denominated in foreign
currencies and transfers of funds from its Canadian subsidiary; market value
gains and losses are recognized at the time of purchase or transfer of funds,
respectively.
Revenue recognition: Revenues are recognized at the time of delivery to the
dealer or distributor. The Company has not historically recorded an allowance
for product returns because such returns, whether in the normal course of
business or resulting from repossession under its customer financing program
(see Note 4), have not been material. However, management intends to record a
return allowance when it becomes probable such returns will be material. The
Company provides for estimated sales promotion expenses at the time of sale to
the dealer or distributor customer.
Research and development costs: Research and development costs are charged
to operations as incurred and totalled $7,396,000, $11,145,000, and $13,465,000
for 1992, 1993 and 1994, respectively. These costs are included as a component
of cost of sales on the accompanying statements of operations.
Net income per share: Net income per share is calculated based on the
weighted average number of common and common equivalent shares outstanding
during 1994 as if the conversion transaction discussed above occurred at the
beginning of the year. Common equivalent shares represent the number of shares
issuable upon conversion of the rights outstanding. Net income per share is not
applicable for 1992 or 1993 because the Company was a partnership in those
years.
Cash distributions from operations: Prior to the Conversion, cash
distributions from operations were determined at the discretion of the General
Partner and were allocated 79.2 percent to the limited partners and 20.8 percent
to the General Partner.
F-8
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1994
------- -------
<S> <C> <C>
Cash on deposit with United States financial institutions....... $ 522 $ 10
Cash on deposit with a Canadian financial institution (in US
dollars)........................................................ 3,469 12,553
Investment in institutional and government fund................. 29,807 20,352
Commercial paper................................................ -- 29,966
------- -------
$33,798 $62,881
------- -------
------- -------
</TABLE>
The Company maintains cash in deposit accounts which frequently exceed
United States and Canadian insured limits. Management places deposits with
financial institutions only after evaluating the institution's financial
strength.
The Company invests in an institutional and government fund, consisting of a
portfolio of money market instruments with an average weighted maturity of not
more than 90 days, including those of the United States government, banker's
acceptances, time deposits, certificate of deposits and certain high grade
commercial paper, nonconvertible corporate debt and loan participation interest.
The Company also invests in commercial paper, consisting of corporate debt
securities with maturities of not more than 90 days. At December 31, 1994, the
investment in corporate debt securities is diversified among five high credit
quality issuers in various industries. The commercial paper is classified as
available for sale and as such, is stated at fair value, which at December 31,
1994, approximated amortized cost. During 1994, the Company purchased
$109,966,000 of commercial paper and realized proceeds of $80,000,000 from sales
of commercial paper.
NOTE 3. INVENTORIES
The major components of inventories are as follows (in thousands):
DECEMBER 31,
------------------
1993 1994
------- -------
Raw materials........................................... $21,571 $32,717
Service parts........................................... 23,379 29,067
Finished goods.......................................... 7,107 26,930
------- -------
$52,057 $88,714
------- -------
------- -------
NOTE 4. FINANCING
Bank financing: The Company has an unsecured bank line of credit arrangement
to meet seasonal short-term financing needs with a maximum available of
$40,000,000. Interest is charged at the prime interest rate, C.D.-based or
LIBOR-based rates, and the agreement expires on May 1, 1995. The Company is
currently in negotiations to obtain a $125,000,000 unsecured bank line of credit
arrangement to replace its current line of credit arrangement.
Customer financing program: Unrelated finance companies provide floor plan
financing to distributors and dealers on the purchase of the Company's products.
The amount financed by distributors and
F-9
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. FINANCING--(CONTINUED)
dealers under these arrangements at December 31, 1994, was approximately
$108,000,000. The Company has agreed to repurchase products repossessed by the
finance companies to an annual maximum of 15 percent of the average amounts
outstanding during the prior calendar year. The financial exposure under these
arrangements is limited to the difference between the amount paid to the finance
companies and the amount received on the resale of the repossessed product. No
material losses have been incurred under these agreements during the periods
presented. As a part of its marketing program, the Company will from time to
time pay a specified portion of the floor plan interest expense payable by its
distributors and dealers.
Cash payment for interest amounted to $6,764,000, $8,348,000 and $12,121,000
in 1992, 1993 and 1994, respectively.
NOTE 5. INCOME TAX MATTERS AND CHANGE IN TAX STATUS
The Partnership was not a taxpaying entity for United States federal and
state income tax purposes and its taxable income was passed through to the BAC
holders and to the General Partner. The Canadian subsidiary is a corporation
which is subject to Canadian federal and provincial income taxes, at a current
combined effective rate of 44 percent.
As a result of the Conversion, the Corporation, as a taxable entity,
recorded a net deferred tax asset of $65,000,000 with a corresponding credit to
income tax expense, for the following temporary differences between financial
reporting and income tax bases (in thousands):
Current assets:
Inventories.................................................... $ 5,100
Accrued expenses............................................... 13,300
Compensation payable in common stock........................... 1,600
-------
Total current............................................ 20,000
-------
Noncurrent assets:
Cost in excess of net assets of business acquired(a)........... 39,500
Property and equipment......................................... 1,700
Compensation payable in common stock........................... 3,800
-------
Total noncurrent......................................... 45,000
-------
Less valuation allowance......................................... --
-------
Total.................................................... $65,000
-------
-------
(a) The Corporation received a step-up in the tax basis of the assets of the
Partnership, which resulted in a deferred tax asset. There was no step-up
for financial statement purposes.
The Company made cash payments for income taxes of $1,483,000, $3,227,000
and $4,119,000 in 1992, 1993 and 1994, respectively.
NOTE 6. EMPLOYEE BENEFIT PLANS
The Company has various employee benefit plans for management and employees.
A summary of these plans follows:
F-10
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. EMPLOYEE BENEFIT PLANS--(CONTINUED)
Bonus and profit sharing plans: A bonus and profit sharing plan has been
established with amounts determined annually based upon a predetermined formula.
In addition, the Company has an employee retirement savings plan.
Compensation payable in common stock: The Company has an employee benefit
plan which provides for the issuance of rights which convert to shares of common
stock as an incentive for management and employees. The rights require no cash
payments by the recipients. Of such rights, 900,000 have been reserved for
issuance to nonmangement employees (the Employee Plan) and 1,500,000 have been
reserved for issuance to middle management and senior management (the Management
Plan). Rights will not be granted after December 31, 1999, and expire January 1,
2003.
Rights under the Employee Plan are vested when granted. Rights under the
Management Plan are earned but contain vesting provisions up to three years and
terminate if employment ceases prior to the issuance of the related common
stock.
As of December 31, 1994, 215,500 rights under the Management Plan and 97,000
rights under the Employee Plan, respectively, are outstanding as summarized
below:
<TABLE>
<CAPTION>
OUTSTANDING
AT END
GRANTED CONVERTED FORFEITED OF YEAR
------- ---------- --------- -----------
<S> <C> <C> <C> <C>
1992............................. 105,000 (1,205,784) -- 580,022
1993............................. 171,594 (433,356) -- 318,260
1994............................. 220,597 (226,357) -- 312,500
------- ---------- --- -----------
------- ---------- --- -----------
</TABLE>
The Company records the rights at fair market value on the date of grant and
accrues the related compensation expense throughout the year. However, prior to
1993, deferred compensation was recognized for portions of rights granted under
the Management Plan, since certain conversion criteria had not been achieved at
that date.
Cash and noncash compensation expense recorded under these employee benefit
plans was $15,969,000, $22,538,000 and $37,512,000 for 1992, 1993 and 1994,
respectively. Accrued compensation includes approximately $16,236,000 and
$28,243,000 for certain of these plans at December 31, 1993 and 1994,
respectively.
NOTE 7. FOREIGN OPERATIONS
United States operations include export sales (excluding sales in Canada) of
$21,091,000, $27,179,000 and $36,049,000 for 1992, 1993 and 1994, respectively.
The following data relates to Canadian operations (in thousands of United
States dollars):
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1992 1993 1994
------- -------- --------
Sales....................................... $99,286 $106,664 $129,689
Operating income............................ 6,541 6,887 12,116
Identifiable assets......................... 16,639 15,248 19,620
NOTE 8. COMMITMENTS AND CONTINGENCIES
Dividends: On January 26, 1995, the Company declared a regular dividend of
$0.15 per share to holders of record on February 6, 1995, payable on February
15, 1995, and a special cash distribution of
F-11
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
$1.92 per share to holders of record on March 17, 1995, payable on April 1,
1995. Management has recommended to the Company's Board of Directors that it
establish an initial cash dividend rate of $0.15 per share per quarter and pay
two additional special cash distributions, each of $1.92 per share, payable
during the third and fourth quarters of 1995. Management expects to incur
indebtedness of up to $70,000,000 in connection with the payment of the special
cash distributions.
Canadian income tax examination: In 1990, the Canadian income tax
authorities proposed certain adjustments, principally relating to the original
purchase price allocation to the Canadian subsidiary and transfer pricing
matters, for additional income taxes payable by the Company's Canadian
subsidiary for 1987 and 1988. The resolution of these proposed adjustments may
also affect the Company's Canadian income tax expense for years subsequent to
1988. The Company was informed of the Canadian income tax authorities' intent to
initiate an audit of the tax years 1989 through 1991. Management continues to
vigorously contest certain of the proposed adjustments. Management does not
believe that the outcome of this matter will have a materially adverse impact on
the financial position or continuing operations of the Company. Income taxes
payable reflected on the accompanying December 31, 1993 and 1994, balance sheets
include $6,824,000 and $14,265,000, respectively, related to certain open tax
years in Canada and the United States.
Product liability: The Company is subject to product liability claims in the
normal course of business and has elected not to insure for product liability
losses. The estimated costs resulting from any losses are charged to operating
expenses when it is probable a loss has been incurred and the amount of the loss
is determinable. At December 31, 1993 and 1994, the Company has accrued
$3,513,000 and $4,957,000, respectively, in connection with product liability
claims.
Litigation: The Company is a defendant in lawsuits and subject to claims
arising in the normal course of business. While it is not feasible to determine
the outcome of any of these cases, it is the opinion of management that their
outcomes will not have a material adverse effect on the financial position or
operations of the Company.
Workers' compensation and health benefits: The Company is self-insured for
workers' compensation losses and employee health benefits. The costs resulting
from any losses are charged to expense when it is probable a loss has been
incurred and the amount of the loss is determinable.
Major supplier: During 1992, 1993 and 1994, purchases totaling 26 percent of
the Company's cost of sales were from a single supplier. The Company has agreed
with the supplier to share the impact of fluctuations in the exchange rate
between the U.S. dollar and the Japanese yen.
Derivative financial instruments: The Company enters into foreign exchange
contracts to hedge certain of its purchase commitments denominated in foreign
currencies and transfers of funds from its Canadian subsidiary. The purpose of
the Company's foreign exchange contracts is to protect it from the risk that the
eventual dollar cash flows resulting from the purchase commitments and transfers
of funds from its Canadian subsidiary will be adversely affected by changes in
exchange rates. At December 31, 1994, the Company had no open foreign exchange
contracts.
Letters of credit: At December 31, 1994, the Company has open letters of
credit totaling approximately $15,500,000. The amounts outstanding are reduced
as inventory purchases pertaining to the contracts are received.
Leases: The Company leases warehouse and office space from a partnership
controlled by certain directors under an operating lease agreement expiring in
1997. The lease requires payments of $458,000 annually plus other costs. In
addition, the Company leases other buildings and equipment from
F-12
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
unrelated parties under noncancelable operating leases. Total rent expense under
all lease agreements was $1,564,000, $1,643,000 and $1,570,000 for 1992, 1993
and 1994, respectively. Future minimum payments, exclusive of other costs,
required under noncancelable operating leases at December 31, 1994, total
$1,797,000 cumulatively through 1998.
NOTE 9. SUBSEQUENT EVENT
Subsequent to year end, the Company entered into a shareholder agreement
with Fuji Heavy Industries Ltd. to form Robin Manufacturing, USA (Robin).
Under the agreement, the Company will initially invest $800,000 for a 40 percent
ownership position in Robin. Robin will build engines in the United States for
recreational and industrial products.
NOTE 10. PRO FORMA INFORMATION
Pro forma information is presented to assist in comparing the continuing
results of operations of the Company for 1992, 1993 and 1994 exclusive of the
Conversion costs and as if the Company was a taxable corporation for these
years. The pro forma provision for income taxes has been calculated at a rate of
38 percent, which reflects a combined federal and state statutory rate, net of
related research and development credits and foreign sales corporation benefits.
The weighted average number of BACs and BAC equivalents has been retroactively
adjusted to reflect the issuance of an equal number of shares of common stock to
the Partnership's Limited Partners in exchange for the number of BACs
outstanding and the issuance of 2,100,243 shares of common stock to the
affiliates of the General Partner in exchange for the general partnership
interests.
NOTE 11. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE
DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA NET INCOME
GROSS NET NET INCOME PER SHARE
SALES PROFIT INCOME (NOTE 10) (NOTE 10)
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1992:
First Quarter....................... $ 70,227 $ 15,613 $ 2,133 $ 1,642 $ .09
Second Quarter...................... 85,467 22,293 6,181 4,441 .25
Third Quarter....................... 121,548 36,343 15,850 10,815 .60
Fourth Quarter...................... 106,576 30,677 10,537 7,704 .43
-------- -------- -------- ----------
Totals.............................. $383,818 $104,926 $ 34,701 $ 24,602 $ 1.37
-------- -------- -------- ---------- -----
-------- -------- -------- ---------- -----
1993:
First Quarter....................... $107,115 $ 23,264 $ 6,138 $ 4,703 $ .26
Second Quarter...................... 111,235 26,996 6,542 4,702 .26
Third Quarter....................... 166,803 43,044 18,762 12,907 .70
Fourth Quarter...................... 142,858 36,983 14,371 10,715 .59
-------- -------- -------- ----------
Totals.............................. $528,011 $130,287 $ 45,813 $ 33,027 $ 1.81
-------- -------- -------- ---------- -----
-------- -------- -------- ---------- -----
1994:
First Quarter....................... $145,471 $ 27,858 $ 8,566 $ 6,144 $ .33
Second Quarter...................... 180,884 34,252 10,542 7,348 .40
Third Quarter....................... 258,370 63,673 31,503 21,611 1.18
Fourth Quarter...................... 241,561 57,500 78,339 19,600 1.06
-------- -------- -------- ----------
Totals.............................. $826,286 $183,283 $128,950 $ 54,703 $ 2.97
-------- -------- -------- ---------- -----
-------- -------- -------- ---------- -----
</TABLE>
F-13
<PAGE>
- -------------------------------------------
- -------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL
HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
PAGE
----
Available Information................ 2
Incorporation of Certain Information by
Reference.......................... 2
Prospectus Summary................... 3
Risk Factors......................... 7
The Company.......................... 10
Market Prices........................ 11
Dividends............................ 12
Proceeds of Offering................. 13
Capitalization....................... 13
Recent Operating Results............. 14
Selected Historical and Pro Forma
Financial Data....................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 16
Business............................. 21
Management........................... 28
Security Ownership of Directors,
Officers and Selling
Shareholders......................... 35
Shares Eligible for Future Sale...... 36
Description of Capital Stock......... 37
Sale of Shares to Fuji............... 39
Underwriting......................... 40
Legal Matters........................ 41
Experts.............................. 41
Index to Financial Statements........ F-1
- -------------------------------------------
- -------------------------------------------
1,700,000 SHARES
POLARIS INDUSTRIES INC.
COMMON STOCK
---------------
PROSPECTUS
, 1995
---------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
PIPER JAFFRAY INC.
- -------------------------------------------
- -------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registration Fee............................................... $29,491.18
NASD Filing Fee................................................ *
Printing and Engraving Expenses................................ *
Legal Fees and Expenses........................................ *
Accounting Fees and Expenses................................... *
Blue Sky Fees and Expenses..................................... *
Miscellaneous.................................................. *
----------
Total.......................................................... $ *
----------
----------
- ------------
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is required by Minnesota law to indemnify all officers and
directors of the Company for expenses and liabilities (including attorneys'
fees) incurred as the result of proceedings against them in connection with
their capacities as officers or directors. In order to be entitled to
indemnification with respect to a purported act or omission, an officer or
director must (i) have acted in good faith, (ii) have received no improper
personal benefit, (iii) in the case of a criminal proceeding, have had no
reasonable cause to believe the conduct to be unlawful, and (iv) reasonably
believed that the conduct was in the best interests of the Company.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
1.1* --Form of Underwriting Agreement.
4.1* --Stock certificate.
5.1 --Opinion of Kaplan, Strangis and Kaplan, P.A. regarding the legality of the shares
of Common Stock being registered.
23.1 --Consent of McGladrey & Pullen, LLP, independent public accountants.
23.2 --Consent of Kaplan, Strangis and Kaplan, P.A. (included in their opinion filed as
Exhibit 5.1).
24.1 --Power of Attorney.
</TABLE>
- ------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a
II-1
<PAGE>
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF MINNEAPOLIS, STATE OF MINNESOTA ON APRIL 24, 1995.
POLARIS INDUSTRIES INC.
By /s/ W. HALL WENDEL,
JR.
...................................
Name: W. Hall Wendel, Jr.
Title: Chairman of the Board and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON APRIL 24, 1995.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>
/s/ W. HALL WENDEL, JR. Chairman of the Board, Chief Executive
............................................. Officer and Director (Principal Executive
W. Hall Wendel, Jr. Officer)
/s/ KENNETH D. LARSON President, Chief Operating Officer and
............................................. Director
Kenneth D. Larson
/s/ JOHN H. GRUNEWALD Executive Vice President, Chief Financial
............................................. Officer and Secretary (Principal Financial
John H. Grunewald and Accounting Officer)
* Director
.............................................
Beverly F. Dolan
* Director
.............................................
Robert S. Moe
* Director
.............................................
Stephen G. Shank
* Director
.............................................
Gregory R. Palen
* Director
.............................................
Andris A. Baltins
*By: /s/ W. HALL WENDEL, JR.
.......................................
W. Hall Wendel, Jr. Attorney-in-Fact
</TABLE>
* W. Hall Wendel, Jr. pursuant to a Power of Attorney executed by each of the
directors listed above whose name is marked by an "*" and filed as an exhibit
hereto does hereby sign and execute this registration statement on behalf of
such directors.
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------------ ----
<S> <C> <C>
5.1 --Opinion of Kaplan, Strangis and Kaplan, P.A. regarding the legality of the
shares of Common Stock being registered.
23.1 --Consent of McGladrey & Pullen, LLP, independent public accountants.
23.2 --Consent of Kaplan, Strangis and Kaplan, P.A. (included in their opinion
filed as Exhibit 5.1).
24.1 --Power of Attorney.
</TABLE>
EXHIBIT 5.1
April 25, 1995
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Polaris Industries Inc.
Ladies and Gentlemen:
We have acted as counsel to Polaris Industries Inc., a Minnesota corporation
(the "Company"), in connection with the Registration Statement on Form S-3 (the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), relating to
the proposed sale of up to 1,836,852 shares (the "Sale Shares") of the Company's
Common Stock, par value $.01 (the "Common Stock") by certain shareholders of the
Company. The Common Stock is described in the prospectus included in the
Registration Statement to which this opinion is an exhibit.
We have examined an executed copy of the Registration Statement (including
the exhibits thereto), the Articles of Incorporation of the Company filed with
the Secretary of State of the State of Minnesota and such corporate records,
documents and other instruments and have made such other examinations and
inquiries as we have deemed necessary to enable us to express the opinions set
forth herein.
Based upon the foregoing and subject to the qualifications and limitations
stated herein, we are of the opinion that:
The Sale Shares have been duly authorized and are validly issued, fully
paid and nonassessable.
The opinions set forth herein relate solely to the laws of the State of
Minnesota and the federal laws of the United States.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the prospectus forming a part of the Registration Statement.
Very truly yours,
KAPLAN, STRANGIS AND KAPLAN, P.A.
By /s/ JAMES C. MELVILLE
...................................
James C. Melville
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-3 of
our report, dated February 2, 1995, relating to the financial statements of
Polaris Industries Inc., and to the reference to our Firm under the captions
"Experts" and "Selected Historical and Pro Forma Financial Data" in the
Prospectus.
MCGLADREY & PULLEN, LLP
/S/ MCGLADREY & PULLEN, LLP
......................................
Minneapolis, Minnesota
April 24, 1995
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that POLARIS INDUSTRIES INC., a Minnesota
corporation (the "Company"), and each of the undersigned directors of the
Company, hereby constitutes and appoints W. Hall Wendel, Jr. and John H.
Grunewald and each of them (with full power to each of them to act alone)
its/his/her true and lawful attorney-in-fact and agent, for it/him/her and on
its/his/her behalf and in its/his/her name, place and stead, in any and all
capacities to sign, execute, affix its/his/her seal thereto and file a Form S-3
Registration Statement on Form S-3 or any other applicable form under the
Securities Act of 1933 and amendments thereto, including pre-effective and
post-effective amendments, with all exhibits and any and all documents required
to be filed with respect thereto with any regulatory authority, relating to any
proposed registration of shares of the Company's Common Stock, par value $.01
with respect to the exercise of certain Registration Rights pursuant to the
Registration Rights Agreement entered into as of December 22, 1994, by and
between the Company and Victor K. Atkins, Jr., EIP Holdings Inc., a Delaware
corporation, EIP I Inc., a Delaware corporation and LB I Group Inc., a Delaware
corporation, on the terms and conditions set forth in such Registration
Statement.
There is hereby granted to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in respect of the foregoing as fully as it/he/she or
itself/himself/herself might or could do if personally present, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
This Power of Attorney may be executed in any number of counterparts, each
of which shall be an original, but all of which taken together shall constitute
one and the same instrument and any of the undersigned directors may execute
this Power of Attorney by signing any such counterpart.
POLARIS INDUSTRIES INC. has caused this Power of Attorney to be executed in
its name by its Chief Executive Officer on the 26th day of January 1995.
POLARIS INDUSTRIES INC.
By: /s/ W. HALL WENDEL, JR.
..................................
W. Hall Wendel, Jr.
Chief Executive Officer
The undersigned, directors of POLARIS INDUSTRIES INC., have hereunto set
their hands as of the 26th day of January 1995.
<TABLE>
<S> <C>
/s/ W. HALL WENDEL, JR. /s/ STEPHEN G. SHANK
............................................ ............................................
W. Hall Wendel, Jr. Stephen G. Shank
/s/ BEVERLY F. DOLAN /s/ GREGORY R. PALEN
............................................ ............................................
Beverly F. Dolan Gregory R. Palen
/s/ ROBERT S. MOE /s/ ANDRIS A. BALTINS
............................................ ............................................
Robert S. Moe Andris A. Baltins
/s/ KENNETH D. LARSON
............................................
Kenneth D. Larson
</TABLE>
