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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11411
POLARIS INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1790959
(State or other jurisdiction (IRS employer
of incorporation or organization) identification no.)
1225 HIGHWAY 169 NORTH 55441
MINNEAPOLIS, MN (Zip Code)
(Address of principal executive offices)
(612) 542-0500
(Registrant's telephone number,
including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock of the registrant as of March 3,
1997 (based upon the closing reported sale price of the Common Stock at that
date on the New York Stock Exchange) held by non-affiliates (23,961,506 shares)
was approximately $620,003,968.
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APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
As of March 3, 1997, 26,853,417 shares of Common Stock of the registrant
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1996 furnished to the Securities and Exchange Commission (the
"1996 Annual Report") are incorporated by reference into Parts II and III of
this Form 10-K.
2. Portions of the Proxy Statement for the Annual Meeting of Shareholders
to be held May 22, 1997 filed with the Securities and Exchange Commission (the
"1997 Proxy Statement") are incorporated by reference into Part III of this Form
10-K.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Polaris Industries Inc. (the "Company"), a Minnesota corporation, was formed
in 1994 for the purpose of merging (the "Merger") a subsidiary of the Company
into Polaris Industries Partners L.P., a Delaware limited partnership (the
"Partnership") and merging Polaris Industries L.P., a Delaware limited
partnership, into the Partnership. The Merger took place on December 22, 1994.
Upon consummation of the Merger, each unit of Beneficial Assignment of Class A
Limited Partnership Interests of the Partnership was exchanged for one share of
common stock, $.01 par value of the Company. On December 31, 1996, the
Partnership was merged with and into Polaris Industries Inc., a Delaware
corporation (the "Operating Subsidiary"). The Company owns 100% of the Operating
Subsidiary. The term "Polaris" as used herein refers to the business and
operations of the Operating Subsidiary and its predecessors, Polaris Industries
Partners L.P. and Polaris Industries L.P.
Polaris designs, engineers and manufactures snowmobiles, all terrain
recreational and utility vehicles ("ATVs"), and personal watercraft ("PWC") and
markets them, together with related accessories, clothing and replacement parts
through dealers and distributors principally located in the United States,
Canada and Europe. Snowmobiles, ATVs, PWC and clothing, accessories and parts,
accounted for the following approximate percentages of Polaris' sales for the
periods indicated.
<TABLE>
<CAPTION>
CLOTHING,
YEAR ENDED ACCESSORIES AND
DECEMBER 31 SNOWMOBILES ATVS PWC PARTS
- ---------------------------------------------------- ----------------- ----- ----- ---------------
<S> <C> <C> <C> <C>
1996................................................ 37% 37% 15% 11%
1995................................................ 40% 33% 16% 11%
1994................................................ 44% 29% 14% 13%
</TABLE>
INDUSTRY BACKGROUND
SNOWMOBILES. In the early 1950s, a predecessor to Polaris produced a "gas
powered sled" which became the forerunner of the Polaris snowmobile. Snowmobiles
have been manufactured under the Polaris name since 1954.
Originally conceived as a utility vehicle for northern, rural environments,
the snowmobile gained popularity as a recreational vehicle. From the mid-1950s
through the late 1960s, over 100 producers entered the snowmobile market and
snowmobile sales reached a peak of approximately 495,000 units in 1971. The
Polaris product survived the industry decline in which snowmobile sales fell to
a low point of approximately 87,000 units in 1983 and the number of snowmobile
manufacturers serving the North American market declined to four: Yamaha,
Bombardier, Arctic Cat and Polaris. Polaris estimates that industry sales of
snowmobiles on a worldwide basis were approximately 250,000 units for the season
ended March 31, 1996.
ALL TERRAIN VEHICLES. ATVs are four-wheel vehicles with balloon style tires
designed for off road use and traversing rough terrain, swamps and marshland.
ATVs are used for recreation, in such sports as fishing and hunting, as well as
for utility purposes on farms, ranches and construction sites.
ATVs were introduced to the North American market in 1971 by Honda. Other
Japanese motorcycle manufacturers, Yamaha, Kawasaki and Suzuki, entered the
North American market in the late 1970s and early 1980s. By 1980, the number of
ATV units sold in the North American market annually had increased to
approximately 140,000 units. Polaris entered the ATV market in 1985 and Arctic
Cat entered the ATV market in 1995. In 1985, the number of three-and four-wheel
ATVs sold in North America peaked at approximately 650,000 units per year.
Polaris estimates that, since declining from that level, the industry has
stabilized and has experienced modest growth with approximately 400,000 ATVs
sold worldwide during the calendar year 1996.
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PERSONAL WATERCRAFT. PWC are sit-down versions of water scooter vehicles,
and designed for use on lakes, rivers, oceans and bays. PWC are used primarily
for recreational purposes and are designed for one, two or three passengers.
Polaris entered the PWC market in 1992. Polaris estimates that worldwide sales
for PWC was approximately 230,000 units during the calendar year 1996. Other
major PWC manufacturers are Bombardier, Yamaha, Kawasaki and Arctic Cat.
PRODUCTS
SNOWMOBILES. Polaris produces a full line of snowmobiles, consisting of
forty-one models, ranging from utility and economy models to performance and
competition models, with 1997 model suggested retail prices ranging from
approximately $3,100 to $8,800. Polaris snowmobiles are sold principally in the
United States, Canada and Europe. Polaris believes it has the largest share of
the worldwide snowmobile market.
Polaris believes that the Polaris snowmobile has a long-standing reputation
for quality, dependability and performance. Polaris believes that it and its
predecessors were the first to develop several features for commercial use in
snowmobiles, including independent front suspension, variable transmission,
hydraulic disc brakes, liquid cooled engines and brakes and a three cylinder
engine. Polaris also markets a full line of snowmobile accessories, such as
luggage, tow hitches, hand warmers, specialized instrumentation, reverse gear,
special traction products, cargo racks, oils, lubricants, paints and parts.
For the year ended December 31, 1996, snowmobiles accounted for
approximately 37% of Polaris' sales.
ALL TERRAIN VEHICLES. Polaris entered the ATV market in the spring of 1985
with both a three-wheel and a four-wheel product. Polaris currently produces
four-wheel ATV and six-wheel off-road vehicle products, which provide more
stability for the rider than the earlier three-wheel versions. Polaris' line of
ATVs consisting of sixteen models, includes general purpose, sport and four-and
six-wheel drive utility models, with 1996 suggested retail prices ranging from
approximately $3,200 to $6,900.
Polaris' ATV features the totally automatic Polaris variable transmission
which requires no manual shifting and a MacPherson strut front suspension, which
Polaris believes enhances control and stability. Polaris' ATVs include both two
cycle and four cycle engines and both shaft and chain drive.
Prior to 1989, the ATV industry experienced some reduced demand arising from
publicity surrounding safety-related and environmental concerns. However,
management believes that this market has stabilized somewhat since 1989 and has
begun to resume modest growth.
For the year ended December 31, 1996 ATVs accounted for approximately 37% of
Polaris' sales.
PERSONAL WATERCRAFT. In 1992, Polaris introduced the SL650 personal
watercraft, Polaris' first entry into this product category. Since that time,
Polaris has added other models with more power and performance. Management
believes that its models had the industry's first three-cylinder engines
developed specifically for PWC. The introduction of the PWC made use of Polaris'
engineering, production and distribution strengths, and also reduced Polaris'
dependence on its then existing product lines for overall sales and earnings.
The 1996 suggested retail prices for Polaris' PWC range from approximately
$5,300 to $7,500.
For the year ended December 31, 1996, PWC accounted for approximately 15% of
Polaris' sales.
CLOTHING, ACCESSORIES AND REPLACEMENT PARTS. Polaris produces or supplies a
variety of replacement parts and accessories for its snowmobiles, ATVs and PWC.
Polaris also markets a full line of recreational clothing, which includes suits,
helmets, gloves, boots, hats, sweaters and jackets for its snowmobile, ATV and
PWC lines. The clothing is designed to Polaris' specifications, purchased from
independent vendors
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and sold by Polaris through its dealers and distributors under the Polaris brand
name. Replacement parts and accessories are also marketed by Polaris.
For the year ended December 31, 1996, clothing, accessories and parts
accounted for approximately 11% of Polaris' sales.
MANUFACTURING OPERATIONS
Polaris' products are assembled at its original manufacturing facility at
Roseau, Minnesota and since October, 1994 at its facility in Spirit Lake, Iowa.
Since snowmobiles, ATVs and PWC incorporate similar technology, substantially
the same equipment and personnel are employed in their production. Polaris
emphasizes vertical integration in its manufacturing process, which includes
machining, stamping, welding, clutch assembly and balancing, painting, cutting
and sewing, and manufacture of foam seats. Fuel tanks, hoods and hulls, tracks,
tires and instruments, and certain other component parts are purchased from
third party vendors. Polaris manufactures a number of other components for its
snowmobiles, ATVs and PWC. Raw materials or standard parts are readily available
from multiple sources for the components manufactured by Polaris. Polaris' work
force is familiar with the use, operation and maintenance of the product, since
many employees own snowmobiles, ATVs and PWC. In August of 1991, Polaris
acquired a manufacturing facility in Osceola, Wisconsin to manufacture component
parts previously produced by third party suppliers.
Pursuant to informal agreements between Polaris and Fuji Heavy Industries
Ltd. ("Fuji"), Fuji had been the exclusive manufacturer of the Polaris two-cycle
snowmobile engines since 1968. Fuji has manufactured engines for Polaris' ATV
products since their introduction in the spring of 1985 and also supplies
engines for Polaris' PWC products. Such engines are developed by Fuji to the
specific requirements of Polaris. Polaris believes its relationship with Fuji to
be excellent. If, however, its informal relationship were terminated by Fuji,
interruption in the supply of engines would adversely affect Polaris' production
pending the continued development of substitute supply arrangements.
Since October, 1995, Polaris has been designing and producing its own
engines for selected models of PWC and snowmobiles, and purchased a 90,000
square foot building adjacent to the Osceola facility to house the manufacturing
of these Polaris designed and built domestic engines. In addition, in February,
1995, Polaris entered into an agreement with Fuji to form Robin Manufacturing,
U.S.A. ("Robin"). Under the agreement, Polaris initially invested $800,000 for a
40% ownership position in Robin, which builds engines in the United States for
recreational and industrial products. Potential advantages to Polaris of these
additional sources of engines include reduced foreign exchange risk, lower
shipping costs and less dependence in the future on a single supplier for
engines.
Polaris anticipates no significant difficulties in obtaining substitute
supply arrangements for other raw materials or components for which it relies
upon limited sources of supply.
Polaris' products are shipped from its manufacturing facilities by a
contract carrier.
PRODUCTION SCHEDULING
Snowmobiles are used principally in the northern United States, Canada and
northern Europe in what is referred to as the "snow belt." Delivery of
snowmobiles to consumers begins in autumn 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 autumn after meetings with
dealers and distributors, and units are built to order each year. In addition,
non-refundable deposits made by consumers to dealers in the spring for
snowmobiles assist in production planning. The budgeted volume of units to be
produced each year is sold to dealers and distributors prior to production.
Sales activity at the dealer level is monitored on a monthly basis for each of
snowmobiles, ATVs and PWC.
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Manufacture of snowmobiles commences in the spring and continues through
late autumn or early winter. Polaris manufactures PWC during the fall, winter
and spring months. Since May 1993, Polaris has had the ability to manufacture
ATVs year round. Generally, Polaris commences ATV production in late autumn and
continues through early autumn of the following year.
SALES AND MARKETING
With the exception of Illinois, upper Michigan and eastern Wisconsin, where
Polaris sells its snowmobiles through an independent distributor, Polaris sells
its snowmobiles directly to dealers in the snowbelt regions of the United States
and Canada. Over the past several years, Polaris has placed an increasing
emphasis on dealer-direct, as opposed to independent distributor, sales.
Snowmobile sales in Europe and other offshore markets are handled through
independent distributors. See Note 1 of Notes to Consolidated Financial
Statements for discussion of foreign and domestic operations and export sales.
Most dealers and distributors of Polaris snowmobiles also distribute
Polaris' ATVs and PWC. Since the beginning of 1986, Polaris has established
approximately 550 dealerships in the southern United States where snowmobiles
are not regularly sold. Unlike its primary competitors, which market their ATV
products principally through their affiliated motorcycle dealers, Polaris also
sells its ATVs and PWC through lawn and garden, boat and marine, and farm
implement dealers.
Dealers and distributors sell Polaris' products under contractual
arrangements pursuant to which the dealer or distributor is authorized to market
specified products, required to carry certain replacement parts and perform
certain warranty and other services. Changes in dealers and distributors take
place from time to time. Polaris believes that a sufficient number of qualified
dealers and distributors exists in all areas to permit orderly transition
whenever necessary.
In February, 1996, Polaris entered into a partnership agreement with
Transamerica Commercial Finance Corporation ("TCFC") to form Polaris Acceptance.
Polaris Acceptance provides floor plan financing to Polaris' dealers and
distributors and may in the future provide other financial services to dealers,
distributors and retail customers. Under the partnership agreement, Polaris had
a 25% equity interest in Polaris Acceptance throughout 1996. Additionally,
Polaris had guaranteed 25% of the outstanding indebtedness of Polaris Acceptance
under a credit agreement between Polaris Acceptance and TCFC. At December 31,
1996, Polaris' contingent liability with respect to the guarantee was
approximately $56.0 million. In January, 1997, Polaris exercised its option to
increase its equity interest in Polaris Acceptance to 50% for an additional
investment of approximately $10.4 million, and now guarantees 50% of the
outstanding indebtedness of Polaris Acceptance.
Polaris has arrangements with Polaris Acceptance, Transamerica Commercial
Finance Corporation, and Deutsche Financial Services Canada Corporation, a
Deutsche Bank Company, to provide floor plan financing for its dealers and
distributors. Substantially all of Polaris' sales of snowmobiles, ATVs and PWC
are financed under arrangements in which Polaris is paid within a few days of
shipment of its product. Polaris participates in the cost of dealer and
distributor financing and is required to repurchase products from the finance
companies under certain circumstances and subject to certain limitations.
Polaris has not historically recorded a sales return allowance because it has
not been required to repurchase a significant number of units in the past.
However, there can be no assurance that this will continue to be the case. If
necessary, Polaris will record a sales return allowance at the time of sale
should management anticipate material repurchases of units financed through the
finance companies. See Notes 1 and 2 of Notes to Consolidated Financial
Statements.
Polaris does not directly finance the purchase of Polaris snowmobiles, ATVs
or PWC by consumers. However, retail financing plans are offered by certain of
the dealers and Polaris has programs to make consumer financing available to its
dealers through unaffiliated third parties.
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Polaris' marketing activities are designed primarily to promote and
communicate directly with consumers and secondarily to assist the selling and
marketing efforts of its dealers and distributors. From time to time Polaris
makes available discount or rebate programs or other incentives for its dealers
and distributors to remain price competitive in order to accelerate reduction of
retail inventories. Polaris advertises its products directly using print
advertising in the industry press and in user group publications, on billboards,
and, less extensively, on television and radio. Polaris also provides media
advertising and partially underwrites dealer and distributor media advertising
to a degree and on terms which vary by product and from year to year. Most
dealer and distributor advertising appears in newspapers and on radio. Each
season Polaris produces a promotional film for its snowmobiles, ATVs and PWC
which is available to dealers for use in the showroom or at special promotions.
Polaris also provides product brochures, leaflets, posters, dealer signs, and
miscellaneous other promotional items for use by dealers.
ENGINEERING, RESEARCH AND DEVELOPMENT, AND NEW PRODUCT INTRODUCTION
Polaris employs approximately 260 persons who are engaged in the development
and testing of existing products and research and development of new products
and improved production techniques. Polaris believes that Polaris and its
predecessors were the first to develop, for commercial use, independent front
end suspension for snowmobiles, the long travel rear suspension for snowmobiles,
direct drive of the snowmobile track, the use of liquid cooling in snowmobile
engines and brakes, the use of hydraulic brakes in snowmobiles, the three
cylinder engine in snowmobiles and PWC, the adaptation of the MacPherson strut
front suspension and "on demand" four-wheel drive systems for use in ATVs and
the application of a forced air cooled variable power transmission system to
ATVs.
Polaris utilizes internal combustion engine testing facilities to design and
optimize engine configurations for its products. Polaris utilizes specialized
facilities for matching engine, exhaust system and clutch performance parameters
in its products to achieve desired fuel consumption, power output, noise level
and other objectives. Polaris' engineering department is equipped to make small
quantities of new product prototypes for testing by Polaris' testing teams and
for the planning of manufacturing procedures. In addition, Polaris'
manufacturing facility in Roseau, Minnesota has a proving ground where each of
the products is extensively tested under actual use conditions.
Polaris expended for research and development approximately $28.3 million
for 1996, $19.9 million for 1995, and $15.0 million for 1994, which amounts were
included as a component of the cost of sales in the period incurred.
In February, 1997 Polaris announced that it is adding motorcycles to its
line of businesses with the introduction of a made-in-the-USA cruiser under the
brand name "Victory", which is expected to be available in limited quantities in
the spring of 1998. The company expects that the engines for the motorcycles
will be built at Polaris' engine plant in Osceola, Wisconsin and the motorcycles
will be manufactured at the company's Spirit Lake, Iowa plant.
COMPETITION
The snowmobile, ATV and PWC markets in the United States and Canada are
highly competitive. Competition in such markets is based upon a number of
factors, including price, quality, reliability, styling, product features and
warranties. At the dealer level, competition is based on a number of factors
including sales and marketing support programs (such as financing and
cooperative advertising). Certain of Polaris' competitors are more diversified
and have financial marketing resources which are substantially greater than
those of Polaris.
Polaris snowmobiles, ATVs and PWC are competitively priced and management
believes Polaris' sales and marketing support programs for dealers are
comparable to those provided by its competitors. Polaris' products compete with
many other recreational products for the discretionary spending of consumers,
and, to a lesser extent, with other vehicles designed for utility applications.
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PRODUCT SAFETY AND REGULATION
Snowmobiles, ATVs and PWC are motorized machines which may be operated at
high speeds and in a careless or reckless manner. Accidents involving property
damage, personal injuries and deaths occur in the use of snowmobiles, ATVs and
PWC.
Laws and regulations have been promulgated or are under consideration in a
number of states relating to the use or manner of use of snowmobiles, ATVs and
PWC. State approved trails and recreational areas for snowmobile and ATV use
have been developed in response to environmental and safety concerns. Polaris
has supported laws and regulations pertaining to safety and noise abatement and
believes that its products would be no more adversely affected than those of its
competitors by the adoption of any pending laws or regulations.
In September 1986, the staff of the Consumer Products Safety Commission
("CPSC") ATV Task Force issued a report on regulatory options for ATVs. The Task
Force recommended that the ATV industry voluntarily cease marketing ATVs
intended for use by children under 12 years of age. It proposed that warning
labels be placed on ATVs intended for use by children under age 14 stating that
these ATVs are not recommended for use by children under 12, and on adult-sized
ATVs stating that these ATVs are not recommended for use by children under the
age of 16. Warning labels were recommended for use on all ATVs stating that
operator training is necessary to reduce risk of injury or death.
In December 1986, in a follow-up measure to the Task Force Report, the CPSC
voted unanimously to continue efforts with the ATV industry to develop a
voluntary standard regarding the dynamic stability characteristics of ATVs. In
February 1987, the CPSC formally requested that the Justice Department initiate
an enforcement action against the ATV industry seeking a voluntary recall of all
three-wheel ATVs and four-wheel ATVs sold with the intention that they be used
by children under 16, as well as a requirement that ATV purchasers receive
"hands-on" training.
Except for 1,700 three-wheel models initially produced, Polaris manufactures
only four-wheel ATVs and six-wheel off-road vehicle products. Polaris has always
placed warning labels on its ATVs stating that they are designed for use only by
persons 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 approved safety helmets and that riders should complete proper training
prior to operating an ATV.
On December 30, 1987, Polaris reached an agreement with the CPSC regarding
ATV safety. The agreement called for the repurchase of all three-wheel ATVs
remaining in the hands of its distributors and dealers, the provision of
additional safety oriented point-of-purchase materials in all Polaris ATV
dealerships, and the addition of a mandatory "hands on" consumer and dealer
safety training program designed to give all Polaris ATV dealers and consumers
maximum exposure to safe riding techniques. Polaris conditions its ATV
warranties described below under "--Product Liability" on completion of the
mandatory "hands on" consumer training program.
Pursuant to the agreement with the CPSC, Polaris has procedures in place for
ascertaining dealer compliance with the provisions of the CPSC consent decree,
including random "undercover" on-site inspections of dealerships to ensure
compliance with the age restriction.
Polaris continually attempts to assure that its dealers are in compliance
with the provisions of the CPSC consent decree. Polaris has notified its dealers
that it will terminate any dealer it determines to have violated the provisions
of the CPSC consent decree. To date, it has terminated or not renewed nine
dealers for such reason.
The Company does not believe that the agreement with the CPSC has had or
will have a material adverse effect on Polaris. Nevertheless, there can be no
assurance that future recommendations or regulatory actions by the CPSC, the
Justice Department or individual states would not have an adverse effect on the
Company. Certain state attorneys-general have asserted that the CPSC agreement
is
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inadequate and have indicated that they will seek stricter ATV regulation.
Polaris is unable to predict the outcome of such action or the possible effect
on its ATV business.
California has recently enacted legislation setting maximum emission
standards for ATVs and the federal government has proposed legislation setting
maximum emission standards for a number of vehicles including ATVs and
snowmobiles. Currently Polaris' two-cycle engines do not meet the California
emission requirements or those proposed under the federal legislation without
technical enhancement, which is under development. However, Polaris has
developed and sells ATVs with four-cycle engines that meet the California
emission standards. The federal government has also enacted legislation
mandating maximum emission standards for PWC beginning in 1999 with annual
reductions in permitted maximums through 2006. Currently, Polaris' two-cycle
engines for PWC would not meet the new emission requirements without technical
enhancement, which is under development. Polaris is unable to predict the
ultimate impact of the enacted or proposed legislation on Polaris and its
operations. Finally, some states may pass legislation and local ordinances have
been and may from time to time be considered and adopted which restrict the use
of PWC to specified hours and locations.
PRODUCT LIABILITY
Polaris' product liability insurance limits and coverages have been
adversely affected by the general decline in the availability of liability
insurance. As a result of the high cost of premiums, and in view of the
historically small amount of claims paid by Polaris, Polaris was self-insured
from June 1985 to June, 1996. In June, 1996 Polaris purchased excess insurance
coverage for catastrophic product liability claims for incidents occurring
subsequent to the policy date that exceed a self-insured retention.
Product liability claims are made against Polaris from time to time. Since
its inception in 1981 through December 31, 1996, Polaris has paid an aggregate
of less than $2.6 million in product liability claims and had accrued $7.2
million at December 31, 1996, for the defense and possible payment of pending
claims. Polaris believes such accruals are adequate. Polaris does not believe
that the outcome of any pending product liability litigation will have a
material adverse effect on the operations of Polaris. However, no assurance can
be given that its historical claims record, which did not include ATVs prior to
1985, or PWC prior to 1992, will not change or that material product liability
claims against Polaris will not be made in the future. Adverse determination of
material product liability claims made against Polaris would have a material
adverse effect on Polaris' financial condition. See Note 6 of Notes to
Consolidated Financial Statements.
WARRANTY
Polaris warrants its snowmobiles, ATVs and PWC under a "limited warranty"
for a period of one year, six months, and one year, respectively. Although
Polaris employs quality control procedures, a product is sometimes distributed
which needs repair or replacement. Historically, product recalls have been
administered through Polaris' dealers and distributors and have not had a
material effect on Polaris' business.
EFFECTS OF WEATHER
Lack of snowfall in any year in any particular region of the United States
or Canada may adversely affect snowmobile retail sales in that region. Polaris
seeks to minimize this potential effect by stressing pre-season sales (see
"--Production Scheduling") and shifting dealer inventories from one location to
another. However, there is no assurance that weather conditions would not have a
material effect on Polaris' sales of snowmobiles, ATVs or PWC.
EMPLOYMENT
Polaris employed a total of approximately 3,500 persons at December 31,
1996. Approximately 750 of its employees are salaried. Polaris considers its
relations with its personnel to be excellent.
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Historically, Polaris' snowmobile business has been seasonal, resulting in
significant differences in employment levels during the year. Despite such
variations in employment levels, employee turnover has not been high. With the
introduction of the ATV line in 1985, Polaris' employment levels have become
more stable. Polaris' employees have not been represented by a union since July
1982.
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ITEM 2. PROPERTIES
Polaris owns its principal manufacturing facility in Roseau, Minnesota. The
facility consists of approximately 509,000 square feet of manufacturing space
located on approximately 100 acres. In 1991 Polaris acquired a fabricating
facility in order to bring more component parts manufacturing in-house. This
facility consists of a 190,000 square foot plant situated on 38 acres and is
located in Osceola, Wisconsin. Polaris makes ongoing capital investments in its
facilities. In August, 1994, Polaris signed a one-year lease agreement for a
223,000 square foot assembly facility located on 24 acres of land in Spirit
Lake, Iowa. Polaris exercised its option to purchase the facility during 1995.
Polaris currently uses the facility to assemble all of its PWC product line, and
certain ATV models. In August, 1995, Polaris purchased a 90,000 square foot
building adjacent to the Osceola facility to house the manufacturing of Polaris
designed and built domestic engines. These investments have increased production
capacity for snowmobiles, ATVs and PWC. The Company believes that Polaris'
manufacturing facilities are adequate in size and suitability for its present
manufacturing needs.
Polaris owns all tooling and machinery (including heavy presses,
conventional and computer-controlled welding facilities for steel and aluminum,
assembly lines, paint lines, and sewing lines) used in the manufacture of its
products. Although Polaris holds numerous patents and uses various registered
trademarks and names, it believes that the loss of any of them would not have a
material effect on its business.
Polaris leases 92,000 square feet of headquarters and warehouse space in
Minneapolis, Minnesota from related parties pursuant to a lease that will
terminate in 2002. Polaris also leases an additional 109,000 square feet of
warehouse space in Minneapolis, Minnesota and 42,000 square feet of office and
warehouse space in Winnipeg, Manitoba. Polaris does not anticipate any
difficulty in securing alternate facilities on competitive terms, if necessary,
upon the termination of any of its leases.
Polaris is in the process of constructing a 259,000 square foot parts,
garments and accessories distribution center on 50 acres in Vermillion, South
Dakota. When completed in mid-1997, Polaris will reduce its warehouse space
currently leased in Minneapolis, Minnesota.
ITEM 3. LEGAL PROCEEDINGS
Polaris is involved in a number of legal proceedings, none of which is
expected to have a material effect on the financial condition or the business of
Polaris.
Injection Research Specialists commenced an action in June 1990 against
Polaris in Colorado federal court alleging various claims arising out of
Polaris' advertisement and sale of electronic fuel injection snowmobiles.
Injection Research Specialists seeks compensatory and punitive damages, its fees
and costs, and injunctive relief. Fuji and UNISIA Japanese Electronic Control
Systems also are parties to the action. Polaris has filed counterclaims in that
action and has instructed its counsel to contest the matter vigorously.
Management does not believe that any judgment rendered against it in this matter
would have a material adverse effect on the financial condition of Polaris.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
8
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names of the executive officers of the Company as of
March 3, 1997, their ages, titles, the year first appointed as an executive
officer of the Company and employment for the past five years:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------- --- ------------------------------------------------------
<S> <C> <C>
W. Hall Wendel, Jr. 54 Chairman and Chief Executive Officer
Kenneth D. Larson 56 President and Chief Operating Officer
Michael W. Malone 38 Vice President--Finance, Chief Financial Officer and
Secretary
Charles A. Baxter 49 Vice President--Engineering
Ed Skomoroh 59 Vice President--Sales and Marketing
Jeffrey A. Bjorkman 37 Vice President--Manufacturing
</TABLE>
Executive officers of the Company are elected at the discretion of the Board
of Directors with no fixed term. There are no family relationships between or
among any of the executive officers or directors of the Company.
Mr. Wendel has served as Chairman and Chief Executive Officer since the
Company's formation in 1994. Mr. Wendel was the Chief Executive Officer of
Polaris Industries Capital Corporation ("PICC"), which was the managing general
partner of Polaris Industries Associates L.P., which was the operating general
partner of Polaris Industries L.P. from 1987 to December 1994. From 1981 to
1987, Mr. Wendel was Chief Executive Officer of a predecessor of Polaris, which
was formed to purchase the snowmobile assets of the Polaris E-Z-GO Division of
Textron Inc. Before that time, Mr. Wendel was President of the Polaris E-Z-GO
Division for two years and prior thereto, held marketing positions as Vice
President of Sales and Marketing and National Sales Manager since 1974.
Mr. Larson has been President and Chief Operating Officer of the Company
since 1994. Mr. Larson was President and Chief Operating Officer of PICC from
October 1988 to December 1994. Prior thereto, Mr. Larson was Executive Vice
President of The Toro Company and was responsible for its commercial, consumer
and international equipment business, and had held a number of general
management positions since joining The Toro Company in 1975.
Mr. Malone has been Vice President--Finance, Chief Financial Officer and
Secretary of the Company since January 1997. Mr. Malone was Vice President and
Treasurer of the Company from December 1994 to January 1997 and was Chief
Financial Officer and Treasurer of PICC from January 1993 to December 1994.
Prior thereto and since 1986, he was Assistant Treasurer of PICC or its
predecessor. Mr. Malone joined Polaris in 1984 after four years with Arthur
Andersen LLP.
Mr. Baxter has been Vice President--Engineering of the Company since
December 1994 and held that position with PICC or its predecessor since 1981.
Prior thereto, since 1970, Mr. Baxter was employed as Director of Engineering of
the Polaris E-Z-GO Division of Textron.
Mr. Skomoroh has been Vice President--Sales and Marketing of the Company
since December 1994 and held that position with PICC since October 1988. Prior
thereto, he was Vice President, Polaris Canada and President, Secretary and
Director of Polaris Industries, Inc., an Ontario corporation and a wholly owned
subsidiary of Polaris Industries Partners L.P. Mr. Skomoroh joined Polaris in
1982 as General Manager, Canada, and was prior thereto the General Manager of
the Canadian operations of Arctic Enterprises, Inc., a snowmobile manufacturer.
Mr. Bjorkman has been Vice President--Manufacturing of the Company since
January 1995, and prior thereto held positions of Plant Manager and
Manufacturing Engineering Manager since July 1990. Prior to joining Polaris, Mr.
Bjorkman was employed by General Motors Corporation in various management
positions for nine years.
9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the caption "Investor Information" included in the
Company's 1996 Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Selected Financial Data" included in the
Company's 1996 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis" included in the Company's 1996 Annual
Report is included herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Registrant, included in the
Company's 1996 Annual Report, are incorporated herein by reference:
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Operations--Years Ended December 31, 1996, 1995
and 1994.
Consolidated Statements of Shareholders' Equity and Partners'
Capital--Years ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows--Years Ended December 31, 1996, 1995
and 1994.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
The financial statements of the Company and its predecessor, the
Partnership, for the year ended December 31, 1994 were audited by McGladrey &
Pullen, LLP. The separate report of McGladrey & Pullen, LLP for such period has
been omitted from the Company's 1996 Annual Report in reliance on Rule 14a-3 of
Regulation 14A under the Securities Exchange Act of 1934, as amended ("Rule
14a-3"). Pursuant to Note 1 to Rule 14a-3, the separate report of McGladrey &
Pullen, LLP dated February 2, 1995 is included in this Item 8.
10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Polaris Industries Inc.
Minneapolis, Minnesota
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and partners' capital and cash flows of Polaris Industries
Inc. for the year 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 audit.
We conducted our audit 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 statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of its operations and cash
flows of Polaris Industries Inc. for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
February 2, 1995
11
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Registrant
The information under the caption "Election of Directors--Information
Concerning Nominees and Directors" in the Company's 1997 Proxy Statement is
incorporated herein by reference.
(b) Executive Officers of the Registrant
Information concerning Executive Officers of the Company is included in this
Report after Item 4, under "Executive Officers of the Registrant."
(c) Compliance with Section 16(a) of the Exchange Act
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's 1997 Proxy Statement is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation and Other
Information" and "Election of Directors--Directors' Remuneration" in the
Company's 1997 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Security Ownership of Certain Beneficial
Owners and Management" in the Company's 1997 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Relationships and Related
Transactions" in the Company's 1997 Proxy Statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
(1) Consolidated Financial Statements
Information concerning financial statements of Polaris Industries Inc.
included in the Company's 1996 Annual Report are incorporated by reference
to this Report under Item 8 "Financial Statements and Supplementary Data".
(2) Financial Statement Schedules
All supplemental financial statement schedules have been omitted because
they are not applicable or are not required or the information required to
be set forth therein is included in the Consolidated Financial Statements or
notes thereto.
(3) Exhibits
The Exhibits to this Report are listed in the Exhibit Index on page E-1.
12
<PAGE>
A copy of any of these Exhibits will be furnished at a reasonable cost
to any person who was a shareholder of the Company as of March 26, 1997,
upon receipt from any such person of a written request for any such exhibit.
Such request should be sent to Polaris Industries Inc., 1225 Highway 169
North, Minneapolis, Minnesota 55441, Attention: Investor Relations.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the fiscal
year ended December 31, 1996.
(c) Exhibits
Included in Item 14(a)(3) above.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota on March 18, 1997.
POLARIS INDUSTRIES INC.
By: /s/ W. HALL WENDEL, JR.
--------------------------------------
W. Hall Wendel, Jr.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ -------------------------- --------------
<S> <C> <C> <C>
/s/ W. HALL WENDEL, JR. Chief Executive Officer
- ------------------------------------ and Director (Principal March 18, 1997
W. Hall Wendel, Jr. Executive Officer)
Vice President--Finance,
/s/ MICHAEL W. MALONE Chief Financial Officer
- ------------------------------------ and Secretary (Principal March 18, 1997
Michael W. Malone Financial and Accounting
Officer)
*
- ------------------------------------ Director March 18, 1997
Beverly F. Dolan
*
- ------------------------------------ Director March 18, 1997
Robert S. Moe
*
- ------------------------------------ Director March 18, 1997
Kenneth D. Larson
*
- ------------------------------------ Director March 18, 1997
Stephen G. Shank
*
- ------------------------------------ Director March 18, 1997
Gregory R. Palen
*
- ------------------------------------ Director March 18, 1997
Andris A. Baltins
*
- ------------------------------------ Director March 18, 1997
Raymond J. Biggs
*By: /s/ W. HALL WENDEL, JR. March 18, 1997
------------------------------
(W. Hall Wendel, Jr.
Attorney-in-Fact)
</TABLE>
- ------------------------
* W. Hall Wendel, Jr., pursuant to Powers of Attorney executed by each of the
officers and directors listed above whose name is marked by an "*" and filed
as an exhibit hereto, by signing his name hereto does hereby sign and execute
this Report of Polaris Industries Inc. on behalf of each of such officers and
directors in the capacities in which the names of each appear above.
14
<PAGE>
POLARIS INDUSTRIES INC.
EXHIBIT INDEX TO ANNUAL REPORT ON
FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------
<C> <S>
3.(a) Articles of Incorporation of Polaris Industries Inc. ("the Company"),
as amended, incorporated by reference to Exhibit 3(a) to the Company's
Registration Statement on Form S-4 (No. 33-55769) (the "Form S-4").
(b) Bylaws of the Company, incorporated by reference to Exhibit 3(b) to
the Form S-4.
4. Specimen Stock Certificate of the Company, incorporated by reference
to Exhibit 4 to the Form S-4.
10.(a) Agreement for Deferred Compensation and Disability Income and
Amendment No. 1 thereto with W. Hall Wendel, Jr. incorporated by
reference to Exhibit 10 to the Company's Annual Report on Form 10-K
dated May 15, 1995.
(b) Profit Sharing Plan, incorporated by reference to Exhibit 10(f) to the
Registration Statement on Form S-1 (No. 33-015124)("the Form S-1") of
Polaris Industries Partners L.P. ("the Partnership").
(c) Retirement Savings Plan, incorporated by reference to Exhibit 10(g) to
the Form S-1.
(d) 1987 Management Ownership Plan, incorporated by reference to Exhibit
10(h) to the Form S-1.
(e) 1987 Employee Ownership Plan, incorporated by reference to Exhibit
10(i) to the Form S-1.
(f) Management Bonus Plan, incorporated by reference to Exhibit 10(j) to
the Form S-1.
(g) Polaris Industries Inc. 1995 Stock Option Plan, incorporated by
reference to the Company's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on June 12, 1995 (No.
33-60157).
(h) Polaris Industries Inc. Deferred Compensation Plan for Directors.
(i) Joint Venture Agreement between the Company and Transamerica
Commercial Finance Corporation ("Transamerica") dated February 7,
1996.
(j) Manufacturer's Repurchase Agreement between the Company and Polaris
Acceptance dated February 7, 1996.
(k) Credit Agreement by and between the Company and First Bank National
Association and Bank of America Illinois and First Union National Bank
of North Carolina, Dated May 8, 1995 incorporated by reference to
Exhibit 10 to the Company's Quarterly Report in Form 10-Q dated May
15, 1995.
(l) Plymouth, Minnesota, Executive Office Lease, incorporated by reference
to Exhibit 10(m) to the Form S-1 ("the Executive Office Lease").
(m) Shareholder Agreement with Fuji Heavy Industries LTD., incorporated by
reference to Exhibit 10-K to the Company's Annual Report on Form 10-K
dated March 24, 1995.
(n) Registration Rights Agreement between and among the Company, Victor K.
Atkins, EIP I Inc., EIP Holdings Inc. and LB I Group Inc.,
incorporated by reference to Exhibit 10(1) to the Company's Annual
Report on Form 10-K dated March 24, 1995.
(o) Amended and Restated Polaris Industries Inc. 1996 Restricted Stock
Plan, incorporated by reference to the Company's Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on June 7, 1996 (No. 333-05463).
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------
<C> <S>
(p) Polaris Industries Inc. Employee Stock Purchase Plan, incorporated by
reference to the Company's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on February 3, 1997 (No.
333-21007).
(q) Form of Change of Control Agreement entered into with executive
officers of Company.
(r) Amendment to Executive Office Lease dated November 22, 1996.
11. Statement re:Computation of per share earnings.
13. Portions of the Annual Report to Security Holders for the Year Ended
December 31, 1996 included pursuant to Note 2 to General Instruction
G.
21. Subsidiaries of Registrant.
23.(a) Consent of Arthur Andersen LLP.
(b) Consent of McGladrey & Pullen, LLP.
24. Power of Attorney.
27. Financial Data Schedule.
</TABLE>
16
<PAGE>
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT, made and entered into as of __________, 1996 between
POLARIS INDUSTRIES INC., a Minnesota corporation (the "Company"), and ______
(the "Employee").
R E C I T A L S:
WHEREAS, Employee has been and currently is employed by the Company;
WHEREAS, the Board of Directors of the Company (the "Board") believes it is
imperative to diminish the inevitable distraction of Employee by virtue of the
personal uncertainties and risks created by any pending or threatened Change in
Control (as defined below) of the Company; and
WHEREAS, as an inducement to continue employment and to enhance the loyalty
and performance of Employee with the Company, the Company desires to provide the
Employee with certain compensation and benefits in the event a Change in Control
of the Company occurs,
NOW, THEREFORE, in consideration of the mutual premises and agreements set
forth herein, the parties hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, these terms shall have the
following meanings:
(a) CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred if, prior to the Termination Date (as defined below):
(i) Any election has occurred of persons to the Board that causes at
least one-half of the Board to consist of persons other than (x) persons
who were members of the Board on January 1, 1996 and (y) persons who were
nominated for election by the Board as members of the Board at a time when
more than one-half of the members of the Board consisted of persons who
were members of the Board on January 1, 1996; provided, however, that any
person nominated for election by the Board at a time when at least one-half
of the members of the Board were persons described in clauses (x) and/or
(y) or by persons who were themselves nominated by such Board shall, for
this purpose, be deemed to have been nominated by a Board composed of
persons described in clause (x) (persons described or deemed described in
clauses (x) and/or (y) are referred to herein as ("Incumbent Directors"));
or
(ii) The acquisition in one or more transactions, other than from the
Company, by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of a number of Company Voting
Securities equal to or greater than 35% of the Company
1
<PAGE>
Voting Securities unless such acquisition has been designated by the
Incumbent Directors as an acquisition not constituting a Change of Control
for purposes hereof; or
(iii) A liquidation or dissolution of the Company; or a
reorganization, merger or consolidation of the Company unless, following
such reorganization, merger or consolidation, the Company is the surviving
entity resulting from such reorganization, merger or consolidation or at
least one-half of the Board of Directors of the entity resulting from such
reorganization, merger or consolidation consists of Incumbent Directors;
or a sale or other disposition of all or substantially all of the assets of
the Company unless, following such sale or disposition, at least one-half
of the Board of Directors of the transferee consists of Incumbent
Directors.
As used herein,"Company Voting Securities" means the combined voting power of
all outstanding voting securities of the Company entitled to vote generally in
the election of the Board.
(b) CAUSE. For purposes of this Agreement only, "Cause" means (i) repeated
violations of the Employee's employment obligations (other than as a result of
incapacity due to physical or mental illness), which are demonstrably willful
and deliberate on Employee's part and which are not remedied in a reasonable
period after written notice from the Company specifying such violations; or (ii)
conviction for (or plea of nolo contendere to) a felony involving moral
turpitude, or dishonesty with respect to the Company.
(c) GOOD REASON. "Good Reason" means (i) the assignment to Employee of
any duties inconsistent in any material respect with Employee's position or any
material reduction in the scope of the Employee's authority and responsibility
(other than isolated, insubstantial action not taken in bad faith and which is
remedied by the Company upon notice from Employee, or as temporarily required
due to Employee's illness or injury); (ii) there is a reduction in Employee's
base compensation; (iii) the Company requires the Employee's principal place of
employment to be anywhere other than the Company's principal executive offices,
or there is a relocation of the Company's principal executive offices outside of
the Minneapolis, Minnesota metropolitan area; or (iv) the Company otherwise
fails to perform any of its material obligations to Employee.
(b) TERMINATION DATE. "Termination Date" means the date on which the
Employee's employment with the Company is terminated.
2. TERMINATION UPON CHANGE IN CONTROL. If a Change in Control occurs and
upon or within twenty-four (24) months after such Change in Control, the
Employee terminates his employment for Good Reason or the Employee's employment
is terminated by the Company for any reason other than for Cause (a "Change of
Control Termination"), then the Employee shall be entitled to the following
severance benefits:
2
<PAGE>
(a) TERMINATION PAYMENT. The Company shall pay the Employee a lump sum
cash payment, no later than thirty (30) days after the Termination Date, in an
amount equal to [ONE] [TWO] times Employee's average annual cash compensation
(including base salary and cash bonuses, but excluding the award or exercise of
stock options or stock grants) for the three fiscal years (or lesser number of
fiscal years if the Employee's employment has been of shorter duration) of the
Company immediately preceding the Change of Control Termination.
(b) ANNUAL BONUS. If the Termination Date occurs before a cash bonus for
any preceding fiscal year has been paid, the Company shall pay to the Employee
the amount of the Employee's cash bonus for such preceding fiscal year as soon
as it is determinable and such amount shall be included in the determination of
the payment to be made pursuant to Paragraph 2(a). Notwithstanding the
foregoing, no cash bonus shall be paid for any part of the fiscal year in which
the Termination Date occurs.
3. BENEFITS IN LIEU OF SEVERANCE PAY. The severance benefits provided
for in paragraph 2 are in lieu of any benefits that would otherwise be provided
to the Employee under the Company's severance pay policy or practice and the
Employee shall not be entitled to any benefits under the Company's severance pay
policy or practice in the event that severance benefits are payable hereunder.
4. RIGHTS IN THE EVENT OF DISPUTE. If there is a claim or dispute
arising out of or relating to this Agreement or any breach thereof,
regardless of the party by whom such claim or dispute is initiated, the
Company shall, in connection with settlement in the Employee's favor of any
such matter or upon payment of any judgment entered in the Employee's favor,
upon presentation of appropriate vouchers, pay all legal expenses, including
reasonable attorneys' fees, court costs, and ordinary and necessary
out-of-pocket cost of attorneys, billed to and payable by the Employee or by
anyone claiming under or through the Employee.
5. OTHER BENEFITS. The benefits provided under this Agreement shall,
except to the extent otherwise specifically provided herein be in addition to,
and not in derogation or diminution of, any benefits that Employee or his
beneficiary may be entitled to receive under any other contract, plan or program
now or hereafter maintained by the Company, or its subsidiaries.
6. EFFECT ON EMPLOYMENT. Neither this Agreement nor anything contained
herein shall be construed as conferring upon Employee the right to continue in
the employment of the Company or any of its affiliates, or as interfering with
or limiting the right of the Company to terminate the Employee's employment
with or without cause at any time.
7. LIMITATION IN ACTION. Prior to the occurrence of a Change in Control,
Employee shall have no rights under this Agreement and the Board shall have the
power and the right, within its sole discretion to rescind, modify or amend this
Agreement without the consent of Employee. In all other cases, and
notwithstanding the authority granted to the Board to exercise any discretion to
rescind, modify or amend this Agreement contained herein, the Board will not,
3
<PAGE>
following a Change in Control, have the power or right to exercise such
authority or otherwise take any action that is inconsistent with the provisions
of this Agreement.
8. SUCCESSORS. The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company, to expressly
assume and agree to perform its obligations under this Agreement in the same
manner and to the same extent that the Company would be required to perform them
if no succession had taken place unless, in the opinion of legal counsel
mutually acceptable to the Company and the Employee, such obligations have been
assumed by the successor as a matter of law. The Employee's rights under this
Agreement shall inure to the benefit of, and shall be enforceable by, the
Employee's legal representative or other successors in interest, but shall not
otherwise be assignable or transferable.
9. SEVERABILITY. If any provision of this Agreement or the application
thereof is held invalid or unenforceable, the invalidity or unenforceability
thereof shall not affect any other provisions or applications of this Agreement
which can be given effect without the invalid or unenforceable provision or
application.
10. SURVIVAL. The rights and obligations of the parties pursuant to this
Agreement shall survive the termination of the Employee's employment with the
Company to the extent that any performance is required hereunder after such
termination.
11. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Minnesota, without giving effect to the conflicts
of law provisions thereof.
12. NOTICES. All notices under this Agreement shall be in writing and
shall be deemed effective when delivered in person (in the Company's case, to
its Secretary) or 48 hours after deposit thereof in the U.S. mails, postage
prepaid, addressed, in the case of the Employee, to his last known address as
carried on the personnel records of the Company and, in the case of the
Company, to the corporate headquarters, attention of the Secretary, or to
such other address as the party to be notified may specify by written notice
to the other party.
13. AMENDMENTS AND CONSTRUCTION. Except as set forth in Paragraph 7, this
Agreement may only be amended in a writing signed by the parties hereto.
Paragraph headings are for convenience only and shall not be considered a part
of the terms and provisions of the Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first written above.
POLARIS INDUSTRIES INC.
4
<PAGE>
By
--------------------------- -----------------------
EMPLOYEE
Its
-----------------------
5
<PAGE>
AMENDMENT
Amendment to that certain Building Lease dated May 4, 1983 (the "Lease"),
by and between 1225 NORTH COUNTY ROAD 18 LIMITED PARTNERSHIP, a Minnesota
limited partnership (the "Landlord"), and POLARIS INDUSTRIES PARTNERS L.P., a
Delaware limited partnership (the "Tenant") as successor to Polaris Industries
Inc. the original tenant under the Lease.
W I T N E S S E T H :
WHEREAS, the Lease provides for a term of ten (10) years commencing on
May 4, 1983 and ending on May 3, 1993; and
WHEREAS, the Lease was extended on April 12, 1990 to a term ending on April
30, 1997.
WHEREAS, Landlord and Tenant desire to extend the term of the Lease.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Landlord and Tenant agree
that the term of the Lease shall be and hereby is extended for an additional
period ending on April 30, 2002 subject to all the terms and conditions of
the Lease including, but not limited to, the provisions of Article I with
respect to annual adjustment of base rental.
This Amendment is entered into for the purpose of correcting that certain
Amendment relating to the Lease dated March 1, 1996, to properly reflect the
identity of the Tenant.
Dated: November 22, 1996 1225 NORTH COUNTY ROAD 18 LIMITED
PARTNERSHIP, a Minnesota limited partnership
By: 1225 GP, LLC, its General Partner
By: /s/ Keith A. Libbey
----------------------------------
Keith A. Libbey, a Managing Member
POLARIS INDUSTRIES PARTNERS L.P.
By: Polaris Industries Inc., its Managing
General Partner
By: /s/ Michael Malone
---------------------------------
<PAGE>
EXHIBIT 11
POLARIS INDUSTRIES INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOURTH QUARTER TWELVE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income for the Period $16,837 $16,757 $62,293 $60,776
------- ------- ------- -------
Weighted Average Number of Outstanding:
Common shares 27,067 27,324 27,338 27,297
First Rights and Restricted Stock 493 472 504 494
Deferred Compensation Plan for Directors 7 2 5 1
Stock Option Plan -- 3 14 --
------- ------- ------- -------
Total common and common equivalent shares 27,567 27,801 27,861 27,792
------- ------- ------- -------
------- ------- ------- -------
Net Income Per Share $0.61 $0.60 $2.24 $2.19
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
<PAGE>
Polaris Industries Inc. designs, manufactures and markets innovative, high-
quality, high-performance motorized products for recreation and utility use,
including snowmobiles, all-terrain vehicles (ATVs) and personal watercraft
(PWC). - Headquartered in Minneapolis, Polaris operates engineering and
manufacturing facilities in Roseau, Minn.; Osceola, Wisc.; and Spirit Lake,
Iowa; has a wholly owned subsidiary in Winnipeg, Manitoba; and, together with
Fuji Heavy Industries Ltd., manufactures engines in Hudson, Wisc. Polaris
products are sold through a network of more than 2,000 dealers in North America
and 60 distributors in 118 countries. - Polaris common stock trades on the New
York Stock Exchange and Pacific Stock Exchange under the symbol PII.
Financial Highlights
(in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 % Change
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Data
Sales $1,191,901 $1,113,852 7%
Operating income 97,417 101,658 (4%)
Net income 62,293 60,776 2%
Net income per share 2.24 2.19 2%
Balance Sheet Data
Current assets $193,405 $175,271
Property and equipment 93,513 78,455
Total assets 351,717 314,436
Borrowings under credit agreement 35,000 40,200
Shareholders' equity 155,330 118,514
</TABLE>
<PAGE>
Polaris Industries Inc. SELECTED FINANCIAL DATA in thousands, except per
share and per unit data
The selected financial data presented below are qualified in their entirety by,
and should be read in conjunction with, the Consolidated Financial Statements
and Notes thereto and other financial and statistical information referenced
elsewhere herein, including the information referenced under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales data
Total dollars $1,191,901 $ 1,113,852 $ 826,286 $ 528,011 $ 383,818
% change from prior year 7% 35% 56% 38% 29%
Sales mix by product (%)
Snowmobiles 37% 40% 44% 50% 54%
ATVs 37% 33% 29% 26% 25%
PWC 15% 16% 14% 9% 7%
Parts, garments and accessories 11% 11% 13% 15% 14%
Gross profit data
Total dollars $ 235,546 $ 228,122 $ 183,283 $ 130,287 $ 104,926
% of sales 20% 20% 22% 25% 27%
Operating expense data
Amortization of intangibles and
noncash compensation $ 5,325 $ 5,616 $ 14,321 $ 13,466 $ 11,997
Conversion costs - - 12,315 - -
Other operating expenses 132,804 120,848 80,985 63,594 52,238
% of sales 11% 11% 10% 12% 14%
Actual and pro forma data*
Net income $ 62,293 $ 60,776 $ 54,703 $ 33,027 $ 24,602
Net income per share $ 2.24 $ 2.19 $ 1.98 $ 1.21 $ 0.91
CASH FLOW DATA
Cash flow from operating activities $ 89,134 $ 77,246 $ 111,669 $ 79,323 $ 55,316
Cash purchases of property and equipment 44,889 46,651 32,529 18,126 12,295
Cash distributions declared to partners - - 50,942 47,217 44,507
Cash distributions declared per unit - - $ 1.68 $ 1.67 $ 1.67
Cash dividends to shareholders 16,390 116,639 - - -
Cash dividends per share $ 0.60 $ 4.27 - - -
BALANCE SHEET DATA (AT END OF YEAR)
Cash and cash equivalents $ 5,812 $ 3,501 $ 62,881 $ 33,798 $ 19,094
Current assets 193,405 175,271 206,489 109,748 74,999
Total assets 351,717 314,436 331,166 180,548 146,681
Current liabilities 161,387 155,722 161,457 98,055 69,054
Borrowings under credit agreement 35,000 40,200 - - -
Shareholders' equity/Partners' capital 155,330 118,514 169,709 82,493 77,627
<CAPTION>
1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales data
Total dollars $ 297,677 $ 296,147 $ 242,618 $ 171,497
% change from prior year 1% 22% 41% 24%
Sales mix by product (%)
Snowmobiles 60% 67% 67% 70%
ATVs 25% 19% 19% 16%
PWC - - - -
Parts, garments and accessories 15% 14% 14% 14%
Gross profit data
Total dollars $ 88,440 $ 89,349 $ 77,320 $ 52,247
% of sales 30% 30% 32% 30%
Operating expense data
Amortization of intangibles and
noncash compensation $ 13,108 $ 12,116 $ 15,717 $ 8,645
Conversion costs - - - -
Other operating expenses 43,614 46,421 35,302 25,139
% of sales 15% 16% 15% 15%
Actual and pro forma data*
Net income $ 20,727 $ 20,465 $ 16,657 $ 11,538
Net income per share $ 0.81 $ 0.79 $ 0.65 $ 0.47
CASH FLOW DATA
Cash flow from operating activities $ 46,642 $ 54,782 $ 44,447 $ 37,542
Cash purchases of property and equipment 15,988 7,158 7,065 2,724
Cash distributions declared to partners 42,581 42,582 32,514 17,722
Cash distributions declared per unit $ 1.67 $ 1.67 $ 1.51 $ 0.80
Cash dividends to shareholders - - - -
Cash dividends per share - - - -
BALANCE SHEET DATA (AT END OF YEAR)
Cash and cash equivalents $ 20,098 $ 32,025 $ 27,886 $ 15,599
Current assets 59,200 66,893 60,344 36,377
Total assets 135,509 138,704 137,628 118,070
Current liabilities 52,646 46,602 38,875 20,665
Borrowings under credit agreement - - - -
Shareholders' equity/Partners' capital 82,863 92,102 98,753 97,405
</TABLE>
* The comparability of the information reflected in the Selected Financial data
is materially affected by the conversion from a master limited partnership to a
corporation on December 22, 1994, which resulted in the Company recording a net
deferred tax asset of $65.0 million, conversion expenses of $12.3 million and a
corresponding net increase in 1994 net income (see Notes 4 and 8 of Notes to
Consolidated Financial Statements). Pro forma data is presented to assist in
comparing the continuing results of operations of the Company exclusive of the
conversion costs and as if the Company was a taxable corporation for each period
presented (see Note 8 of Notes to Consolidated Financial Statements).
<PAGE>
Polaris Industries Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS of Financial
Condition and Results of Operations
The following discussion pertains to the results of operations and financial
position of the Company for each of the three years in the period ended
December 31, 1996, and should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
1996 VS. 1995
Sales increased to $1.192 billion in 1996, representing a seven percent increase
over $1.114 billion of sales in 1995. Total finished goods unit shipments for
1996 increased three percent over 1995. The increase in sales was primarily
attributable to the continuing popularity and broadening of the Company's all-
terrain vehicle (ATV) product line.
Snowmobile unit sales volume declined five percent during 1996 from the
prior year as the market absorbed an extraordinary growth rate over the prior
two years. New model introductions during 1996 were highlighted by the award-
winning 700 RMK. Sales of snowmobiles comprised 37 percent of total Company
sales in 1996 compared to 40 percent in 1995.
ATV unit sales volume increased 13 percent during 1996 from the prior year,
primarily because of the continued growth in the utility and sports-enthusiasts
markets. Retail ATV sales rose to the highest level in Polaris' history and
management believes that the Company is now second in U.S. ATV market share. The
average per unit sales price increased by six percent in 1996, principally
through the sale of new, higher-performance models that have a higher selling
price than economy models. The Company introduced several new models in 1996,
including the Xplorer 500 and Scrambler 500. Sales of ATVs comprised 37 percent
of total Company sales in 1996 compared to 33 percent in 1995.
Personal watercraft (PWC) unit sales volume was approximately the same in
1996 as during 1995 as a result of leveling of PWC consumer market demand after
several years of unusually high growth in PWC demand. Sales of PWC comprised 15
percent of total Company sales in 1996 compared to 16 percent in 1995.
Sales of related parts, garments and accessories increased for each product
line during 1996 and resulted in an overall increase of 14 percent over 1995.
Sales of parts, garments and accessories comprised 11 percent of total Company
sales in both 1996 and 1995.
Gross profit increased to $235.5 million in 1996, representing
a three percent increase over 1995 gross profit of $228.1 million. The gross
profit margin percentage decreased to 19.8 percent in 1996, from 20.5 percent in
1995. This decrease in gross margin percentage is primarily a result of: (a) an
increase in warranty expense, principally for snowmobiles, as a result of rapid
technological innovation and introduction of new high performance models; and
(b) an increase in research and development costs reflecting the Company's
continued emphasis on innovative new product development; partially offset by
(c) decreases in raw material purchase prices for engines and certain other
component parts because of the strengthening of the U.S. dollar in relation to
the Japanese yen when compared to the 1995 period.
The Company has continued to invest in new product development, innovation
and product diversification. New product research and development costs are
recorded as a component of cost of sales in the consolidated statements of
operations. Research and development expenses were $28.3 million (2.4 percent of
sales) in 1996 and $19.9 million (1.8 percent of sales) in 1995. In addition,
the Company incurred tooling expenditures for new products of $18.0 million in
1996 and $17.6 million in 1995. In 1996, more than 70 percent of sales came from
products introduced in the past three years.
Operating expenses increased $11.7 million (nine percent) in 1996 over 1995
and operating expenses as a percent of sales increased to 11.6 percent in 1996
from 11.4 percent in 1995. These increases are due primarily to an increased
level of promotional and advertising costs targeted to assist dealers in
retailing PWC units late in the 1996 selling season.
Nonoperating expense decreased $2.8 million in 1996 compared to 1995 as a
result of (a) income recorded in 1996 from the Company's investment in Polaris
Acceptance, offset by (b) interest expense incurred in 1996 from borrowings
under the bank line of credit arrangement used to fund the payment of special
cash distributions totaling $104.9 million during 1995.
The provision for income taxes in 1996 has been recorded at a rate of 36.0
percent of pretax income compared to 38.5 percent for 1995. This change reflects
the settlement reached with the Canadian income tax authorities regarding a
claim for additional income taxes payable by the Company's Canadian subsidiary
for tax years 1987 through 1991.
Net income increased two percent to $62.3 million in 1996 from $60.8
million in 1995. Net income as a percent of sales was 5.2 percent in 1996
compared to 5.5 percent in 1995. Net income per share increased two percent
to $2.24 in 1996 from $2.19 in 1995.
1995 VS. 1994
Sales for 1995 were $1.114 billion, an increase of 35 percent over 1994 sales
of $826.3 million. Total finished goods unit shipments for 1995 increased 31
percent over 1994. Management believes such increase is attributable to
product superiority, aggressive consumer promotional programs and a strong
dealer network. All three product lines recorded significant sales increases
during 1995 resulting in further diversification of the Company's sales mix.
Snowmobile unit sales volume increased 18 percent during 1995 as a result
of the introduction of new models and the continued success of other popular
models, many of which featured Polaris' innovative XTRA suspension system. The
average per unit sales price for snowmobiles increased by six percent in 1995
primarily as a result of the introduction of new, high-performance models with
additional features that have a higher selling price.
ATV unit sales volume increased 42 percent during 1995.
<PAGE>
Polaris Industries Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS of Financial
Condition and Results of Operations
Management believes Polaris' ATV sales have been favorably influenced by
targeting the all-purpose segment of the ATV market with new and improved model
offerings. Polaris introduced several new models in 1995, including the
Sportsman 500, Sport 400L, and Magnum 6 x 6. The average per unit sales price
increased five percent for ATVs in 1995 as the sales mix continued to move to
new, higher performance models.
PWC unit sales volume increased 51 percent during 1995 as a result of
continued rapid growth in the PWC market and the continued expansion of
Polaris' product offerings. The Company introduced several new PWC models in
1995 including the popular SLX.
Sales of related parts, garments and accessories increased 16 percent as a
result of the increased sales volume of all three product lines, representing 11
percent of total Company sales in 1995 compared to 13 percent in 1994.
Gross profit increased to $228.1 million in 1995, a 24 percent increase
over gross profit of $183.3 million in 1994. Gross profit as a percent of sales
decreased to 20.5 percent in 1995 compared to 22.2 percent in 1994. This
decrease in gross-margin percentage is primarily a result of: (a) increases in
raw material purchase prices for engines and certain other components because of
the weakening of the U.S. dollar in relation to the Japanese yen; (b)
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 (c) an aggressive pricing strategy in response to increased competition.
Operating expenses increased $31.2 million (33 percent) in 1995 over 1994
(exclusive of $12.3 million of costs of conversion to a corporation) as a result
of the sales volume increase. Operating expenses as a percent of sales decreased
to 11.4 percent in 1995 from 11.5 percent in 1994.
Nonoperating expense increased $3.1 million in 1995 compared to 1994 as a
result of higher interest expense and lower investment income in 1995
attributable to the payment in 1995 of special cash distributions aggregating
$104.9 million.
Income tax expense increased $26.1 million in 1995 compared to 1994
(exclusive of the income tax adjustment for the change in tax status). In 1994,
prior to the conversion of the Company to a corporation effective December 22,
1994, the Company was not separately taxable for U.S. income tax purposes (Note
4 of Notes to the Consolidated Financial Statements).
Pro forma information is presented in the consolidated statements of
operations to assist in comparing the continuing results of operations of the
Company exclusive of the conversion cost and as if the Company was a taxable
corporation for each period presented. Net income increased 11 percent to
$60.8 million in 1995 from pro forma net income of $54.7 million in 1994. Net
income as a percent of sales was 5.5 percent in 1995 and 6.6 percent in 1994
on a pro forma basis. Net income per share increased 11 percent to $2.19 in
1995 from pro forma net income per share of $1.98 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Polaris' primary sources of funds have been cash provided by
operating activities, a $125 million bank line of credit and a dealer floor plan
financing program. Polaris' primary uses of funds have been for cash dividends
and distributions to shareholders and partners, capital investments and new
product development.
During 1996, the Company generated net cash from operating activities of
$89.1 million, which was utilized to fund capital expenditures of $44.9 million,
investments in affiliates of $6.8 million, regular cash dividends of $16.4
million and the repurchase of common stock of $13.6 million. During 1995, the
Company generated net cash from operating activities of $77.2 million which,
combined with the line of credit borrowings, was utilized to fund regular cash
dividends and special cash distributions to shareholders of $116.6 million, a
final cash distribution to partners of $12.7 million, and capital expenditures
of $46.7 million. During 1994, operating as a partnership and therefore not
paying corporate income taxes, 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.
The seasonality of production and shipments causes working capital
requirements to fluctuate during the year. The Company has a $125 million
unsecured bank line of credit arrangement expiring March 31, 1998 to provide
borrowing for working capital needs and to fund the special cash distributions
paid in 1995. Borrowings under the line of credit bear interest based on LIBOR
or "prime" rates, 6.04 percent at December 31, 1996. At December 31, 1996, the
Company had total borrowings under the line of credit of $35.0 million compared
to $40.2 million at December 31, 1995. In addition, at December 31, 1996, the
Company had letters of credit outstanding of $15.4 million related to purchase
obligations for raw materials.
During 1996, the Board of Directors of the Company authorized the
repurchase of up to 1.0 million shares of the Company's common stock. During
1996, the Company paid $13.6 million to repurchase and retire 521,000 shares. On
January 23, 1997, the Board of Directors of the Company expanded the share
repurchase program, authorizing the cumulative repurchase of up to 3.0 million
shares of the Company's common stock.
In February 1996, a wholly-owned subsidiary of the Company entered into a
partnership agreement with Transamerica Commercial Finance Corporation (TCFC) to
form Polaris Acceptance. Polaris Acceptance provides floor plan financing to the
Company's dealers and distributors and may in the future provide other financial
services to dealers, distributors and retail customers of the Company. Under the
partnership agreement, the Company's subsidiary had a 25 percent equity interest
in Polaris Acceptance throughout 1996. Additionally, the Company had guaranteed
25 percent of the outstanding indebtedness of Polaris Acceptance under a credit
agreement between Polaris Acceptance and TCFC. At December 31, 1996, the
<PAGE>
Polaris Industries Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS of Financial
Condition and Results of Operations
Company's contingent liability with respect to the guarantee was approximately
$56.0 million. In January 1997, the Company exercised its option to increase its
equity interest in Polaris Acceptance to 50 percent for an additional investment
of approximately $10.4 million, and now guarantees 50 percent of the outstanding
indebtedness of Polaris Acceptance.
The Company has arrangements with certain finance companies, including
Polaris Acceptance, to provide floor plan financing for its distributors and
dealers. These arrangements provide liquidity by financing distributor and
dealer purchases of snowmobiles, ATVs and PWC without the use of the Company's
working capital. Substantially all of the sales of snowmobiles, ATVs and PWC
(but not parts, garments and accessories) 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, 1996 and 1995, was approximately $327.0 million and
$237.0 million, respectively. The Company participates in the cost of dealer and
distributor financing up to certain limits. The Company has agreed to repurchase
products repossessed by the finance companies to an annual maximum of 15 percent
of the average amount outstanding during the prior calendar year. The Company's
financial exposure under these agreements is limited to the difference between
the amount paid to the finance companies and the amount received on the resale
of the repossessed product. No material losses have been incurred under these
agreements. However, an adverse change in retail sales could cause this
situation to change and thereby require the Company to repurchase financed
units.
The Company has made significant capital investments to increase production
capacity, quality, and efficiency, and for new product development and
diversification. Improvements in manufacturing and distribution capacity
include: (a) an investment of $7.0 million during 1996 for the construction of a
250,000 square foot state-of-the-art parts, garments and accessories
distribution center in Vermillion, South Dakota which should be operational by
mid-1997; (b) $21.3 million since August 1994, to purchase land, buildings,
manufacturing and assembly equipment and paint systems at Polaris' 223,250
square foot Spirit Lake, Iowa facility; and (c) the purchase of a 90,000 square
foot building adjacent to Polaris' Osceola, Wisconsin facility in 1995 to house
the manufacturing of Polaris designed and built domestic engines. The Company
anticipates that capital expenditures, including tooling, for 1997 will
approximate $55.0 million.
Management believes that existing cash balances, cash flows to be generated
from operating activities and available borrowing capacity under the line of
credit arrangement will be sufficient to fund operations, regular dividends,
share repurchases, and capital expenditure requirements for 1997. At this time,
management is not aware of any factors that would have a materially adverse
impact on cash flow beyond 1997.
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 on
financial results from time-to-time.
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
1996, purchases totaling 22 percent of the Company's cost of sales were from
yen-dominated suppliers. Management believes that such cost increases also
affect its principal competitors in ATVs and, to varying degrees, some of its
snowmobile and PWC competitors. The strengthening of the U.S. dollar in relation
to the yen during 1996 has reversed this trend. The Company's cost of sales in
1996 were positively impacted by the yen exchange rate fluctuation when compared
to 1995. In view of the foreign exchange hedging contracts currently in place,
the Company anticipates that the yen-dollar exchange rate will continue to have
a positive impact on cost of sales during 1997 when compared to the same periods
in 1996.
The Company operates in Canada through a wholly-owned subsidiary. Sales of
the Canadian subsidiary comprised 14 percent of total Company sales in 1996.
Over the past several years, strengthening of the U.S. dollar in relation to the
Canadian dollar has resulted in lower gross margin levels on a comparable basis.
However, the fluctuation of the Canadian dollar exchange rate did not have a
significant impact on the gross margin achieved in 1996 when compared to 1995.
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. At December 31, 1996, the Company had open Japanese yen foreign
exchange hedging contracts with notional amounts totaling $90.3 million U.S.
dollars, and open Canadian dollar foreign exchange contracts with notional
amounts totaling $57.7 million U.S. dollars which mature throughout 1997.
Since October 1995, the Company has been manufacturing its own engines for
selected models of personal watercraft and snowmobiles at its Osceola, Wisconsin
facility. In addition, earlier in 1995, the Company entered into an agreement
with Fuji Heavy Industries Ltd. to form Robin Manufacturing U.S.A., Inc.
("Robin"). Under the terms of the agreement, the Company has a 40 percent
ownership interest in Robin, which builds engines in the United States for
recreational and industrial products. Potential advantages to the Company of
these additional sources of engines include reduced foreign exchange risk, lower
shipping costs and less dependence in the future on a single supplier for
engines.
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. In addition
to the factors discussed above, among the other factors that could cause actual
results to differ materially are the following: product offerings and pricing
strategies by competitors; warranty expenses; foreign currency exchange rate
fluctuations; environmental and product safety regulatory activity; effects of
weather; uninsured product liability claims; and overall economic conditions,
including inflation and consumer confidence and spending.
<PAGE>
Polaris Industries Inc. CONSOLIDATED BALANCE SHEETS in thousands, except per
share data
December 31,
1996 1995
- ----------------------------------------------------------------------------
Assets
CURRENT ASSETS
Cash and cash equivalents $ 5,812 $ 3,501
Trade receivables 36,158 40,402
Inventories 122,911 104,633
Prepaid expenses and other 3,524 6,735
Deferred tax assets 25,000 20,000
- ---------------------------------------------------------------------------
Total current assets 193,405 175,271
- ---------------------------------------------------------------------------
DEFERRED TAX ASSETS 30,000 35,000
- ---------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land, buildings and improvements 23,973 21,932
Equipment and tooling 147,238 104,390
- ---------------------------------------------------------------------------
171,211 126,322
Less-accumulated depreciation 77,698 47,867
- ---------------------------------------------------------------------------
93,513 78,455
- ---------------------------------------------------------------------------
INVESTMENTS IN AFFILIATES 10,421 557
INTANGIBLE ASSETS, NET 24,378 25,153
- ---------------------------------------------------------------------------
$351,717 $314,436
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
Polaris Industries Inc. CONSOLIDATED BALANCE SHEETS in thousands, except per
share data
<TABLE>
<CAPTION>
December 31,
1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 50,514 $ 57,388
Accrued expenses:
Compensation 38,685 33,835
Warranties 32,919 23,058
Other 30,712 28,855
Income taxes payable 8,557 12,586
- -----------------------------------------------------------------------------------------------
Total current liabilities 161,387 155,722
- -----------------------------------------------------------------------------------------------
BORROWINGS UNDER CREDIT AGREEMENT 35,000 40,200
- -----------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 1, 2, 5, 6 AND 7)
SHAREHOLDERS' EQUITY
Preferred stock $0.01 par value, 20,000 shares authorized,
no shares issued and outstanding - -
Common stock $0.01 par value, 80,000 shares authorized,
27,011 and 27,324 shares issued and outstanding 270 273
Additional paid-in capital 102,946 109,344
Deferred compensation (978) -
Compensation payable in common stock 9,710 11,418
Retained earnings (accumulated deficit) 43,382 (2,521)
- -----------------------------------------------------------------------------------------------
Total shareholders' equity 155,330 118,514
- -----------------------------------------------------------------------------------------------
$351,717 $314,436
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
Polaris Industries Inc. CONSOLIDATED STATEMENTS OF OPERATIONS in thousands,
except per share data
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $1,191,901 $1,113,852 $826,286
Cost of Sales 956,355 885,730 643,003
- --------------------------------------------------------------------------------------------
Gross profit 235,546 228,122 183,283
- --------------------------------------------------------------------------------------------
Gross profit percent 19.8% 20.5% 22.2%
- --------------------------------------------------------------------------------------------
Operating Expenses
Selling and marketing 112,146 99,483 63,504
General and administrative 25,983 26,981 31,802
Conversion costs (Note 8) - - 12,315
- --------------------------------------------------------------------------------------------
Total operating expenses 138,129 126,464 107,621
- --------------------------------------------------------------------------------------------
Operating income 97,417 101,658 75,662
Nonoperating Expense (Income)
Interest expense 4,339 1,708 -
Equity in (income) loss of affiliates (3,107) 243 -
Other expense (income), net (1,148) 894 (254)
- --------------------------------------------------------------------------------------------
Income before income taxes 97,333 98,813 75,916
Provision for Income Taxes 35,040 38,037 11,966
- --------------------------------------------------------------------------------------------
62,293 60,776 63,950
Income Tax Adjustment for Change in Tax
Status (Note 4) - - (65,000)
- --------------------------------------------------------------------------------------------
Net income $ 62,293 $ 60,776 $128,950
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Net Income Per Share $ 2.24 $ 2.19
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Weighted Average Number of Common and Common
Equivalent Shares Outstanding 27,861 27,792
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
PRO FORMA INFORMATION (NOTE 8)
Income before income taxes $ 88,231
Provision for income taxes 33,528
- --------------------------------------------------------------------------------------------
Net income $ 54,703
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Net income per share $ 1.98
- --------------------------------------------------------------------------------------------
Weighted Average Number of Common and Common
Equivalent Shares Outstanding 27,635
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Polaris Industries Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
PARTNERS' CAPITAL IN THOUSANDS
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
------------------------------------------------------------------------------------
COMPEN-
SATION RETAINED
ADDITIONAL DEFERRED PAYABLE IN EARNINGS
PREFERRED COMMON PAID-IN COMPEN- COMMON (ACCUMULATED
STOCK STOCK CAPITAL SATION STOCK DEFICIT)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ - $ - $ - $ - $ - $ -
First Rights conversion
to BACs - - - - - -
First Rights grants - - - - - -
Cash distributions declared - - - - - -
Net income - - - - - 53,342
Conversion (Note 8) - 181 103,935 - 12,251 -
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 - 181 103,935 - 12,251 53,342
First Rights conversion
to stock - 1 5,520 - (5,586) -
First Rights grants - - - - 4,753 -
Dividends and distributions - - - - - (116,639)
Stock split - 91 (111) - - -
Net income - - - - - 60,776
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 - 273 109,344 - 11,418 (2,521)
First Rights conversion
to stock - 2 5,717 - (5,769) -
First Rights grants - - - - 4,061 -
Restricted stock grants - 1 1,466 (978) - -
Dividends declared - - - - - (16,390)
Repurchase and retirement
of common shares - (6) (13,581) - - -
Net income - - - - - 62,293
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ - $ 270 $102,946 ($978) $ 9,710 $ 43,382
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PARTNERS' CAPITAL
----------------------------------------
LIMITED PARTNERS'
INTEREST
-------------------------
FIRST RIGHTS
GENERAL ASSIGNED
PARTNERS' CAPITAL
INTEREST BACS VALUE TOTAL
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $ (7,397) $ 81,069 $ 8,821 $ 82,493
First Rights conversion
to BACs - 5,778 (5,838) (60)
First Rights grants - - 9,268 9,268
Cash distributions declared (10,596) (40,346) - (50,942)
Net income 15,726 59,882 - 128,950
Conversion (Note 8) 2,267 (106,383) (12,251) -
- ------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 - - - 169,709
First Rights conversion
to stock - - - (65)
First Rights grants - - - 4,753
Dividends and distributions - - - (116,639)
Stock split - - - (20)
Net income - - - 60,776
- ------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 - - - 118,514
First Rights conversion
to stock - - - (50)
First Rights grants - - - 4,061
Restricted stock grants - - - 489
Dividends declared - - - (16,390)
Repurchase and retirement
of common shares - - - (13,587)
Net income - - - 62,293
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ - $ - $ - $ 155,330
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Polaris Industries Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS in thousands
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 62,293 $ 60,776 $128,950
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 30,606 22,720 23,652
Noncash compensation 4,550 4,753 9,268
Equity in (income) loss of affiliates (3,107) 243 -
Deferred income taxes - 10,000 (65,000)
Changes in current operating items
Trade receivables 4,244 (10,702) (8,360)
Inventories (18,278) (15,919) (36,657)
Accounts payable (6,874) (1,544) 22,810
Accrued expenses 16,568 11,114 32,306
Income taxes payable (4,029) (2,569) 7,401
Other 3,161 (1,626) (2,701)
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities 89,134 77,246 111,669
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (44,889) (46,651) (32,529)
Investments in affiliates, net (6,757) (800) -
- --------------------------------------------------------------------------------------------
Net cash used for investing activities (51,646) (47,451) (32,529)
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under credit agreement 276,900 249,700 -
Repayments under credit agreement (282,100) (209,500) -
Repurchase and retirement of common shares (13,587) - -
Cash dividends to shareholders (16,390) (116,639) -
Cash distributions to partners - (12,736) (50,057)
- --------------------------------------------------------------------------------------------
Net cash used for financing activities (35,177) (89,175) (50,057)
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 2,311 (59,380) 29,083
CASH AND CASH EQUIVALENTS
Beginning 3,501 62,881 33,798
- --------------------------------------------------------------------------------------------
Ending $ 5,812 $ 3,501 $ 62,881
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year $ 31,673 $ 24,341 $ 11,718
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Income taxes paid during the year $ 39,069 $ 31,183 $ 4,119
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Polaris Industries Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Polaris Industries Inc. is engaged in a single industry segment consisting of
the design, engineering, manufacturing and marketing of innovative, high-
quality, high-performance motorized products for recreation and utility use,
including snowmobiles, all-terrain vehicles and personal watercraft. Polaris
products, together with related parts, garments and accessories are sold
worldwide through a network of dealers, distributors and its Canadian
subsidiary. Polaris Industries Inc. and its predecessor organizations (Note 8)
are referred to herein as the Company or Polaris.
BASIS OF PRESENTATION: All significant intercompany transactions and balances
have been eliminated in consolidation. Certain amounts previously reported in
the 1995 and 1994 consolidated financial statements have been reclassified to
conform to the 1996 presentation. These reclassifications had no effect on
previously reported net income or shareholders' equity.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Ultimate results could differ from those
estimates. FOREIGN OPERATIONS: The following data relates to the Company's
foreign operations (in thousands of United States dollars):
For the Years Ended December 31,
1996 1995 1994
- -------------------------------------------------------------------
CANADIAN SUBSIDIARY:
Sales $166,471 $172,459 $129,689
Operating income 6,024 6,224 9,062
Identifiable assets 21,703 29,580 19,620
- -------------------------------------------------------------------
OTHER EXPORT SALES $ 49,134 $ 51,385 $ 36,049
CASH EQUIVALENTS: The Company considers all highly liquid investments purchased
with an original maturity of 90 days or less to be cash equivalents. Such
investments have consisted principally of commercial paper and money market
mutual funds.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Except as noted, the carrying value of all
financial instruments approximates their fair value.
INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out
method) or market. The major components of inventories are as follows (in
thousands):
December 31,
1996 1995
- --------------------------------------------------------
Raw materials
and purchased components $ 24,469 $ 26,526
Service parts, garments
and accessories 45,809 39,952
Finished goods 52,633 38,155
- --------------------------------------------------------
$122,911 $104,633
- ---------------------------------------------------------
- ---------------------------------------------------------
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost. Depreciation
is provided using the straight-line method over the estimated useful life of the
respective assets, ranging from 10-20 years for buildings and improvements and
from 1-7 years for equipment and tooling. Fully depreciated tooling is
eliminated from the accounting records annually.
INTANGIBLE ASSETS: Intangible assets are stated net of accumulated amortization
totaling $9,781,000 at December 31, 1996 and $9,006,000 at December 31, 1995,
and consist principally of cost in excess of net assets of business acquired
which is amortized on a straight-line basis over 40 years. Other intangible
assets are amortized using the straight-line method over their estimated useful
lives ranging from 5 to 17 years.
The Company periodically assesses the amortization period and recoverability of
the carrying amount of its intangible assets to determine potential impairment
based upon expected future cash flows from the related business. To date,
management has determined that no such impairment exists.
PRODUCT WARRANTIES: The Company provides for estimated normal and extended
warranty costs at the time of sale to the dealer or distributor customer and for
other costs associated with specific items at the time their existence and
amounts are determinable.
FOREIGN CURRENCY: The Company's Canadian subsidiary uses the United States
dollar as its 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 the results
of operations.
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. 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
<PAGE>
Polaris Industries Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and transfers of funds from its Canadian subsidiary will be adversely affected
by changes in exchange rates. At December 31, 1996, the Company had open
Japanese yen foreign exchange contracts with notional amounts totaling
$90,330,000 United States dollars, and open Canadian dollar foreign exchange
contracts with notional amounts totaling $57,705,000 United States dollars which
mature throughout 1997.
REVENUE RECOGNITION: Revenues are recognized at the time of delivery to the
dealer or distributor. Product returns, whether in the normal course of business
or resulting from repossession under its customer financing program (Note 2),
have not been material. The Company provides for estimated sales promotion
expenses at the time of sale to the dealer or distributor customer.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are charged to
operations as incurred and totaled $28,270,000, $19,871,000 and $15,018,000 for
1996, 1995, and 1994 respectively. These costs are included as a component of
cost of sales on the accompanying statements of operations.
MAJOR SUPPLIER: During 1996, 1995 and 1994, purchases of engines and related
components totaling 21, 26 and 26 percent respectively of the Company's cost
of sales were from a single Japanese supplier. The Company has agreed with
the supplier to share the impact of fluctuations in the exchange rate between
the United States dollar and the Japanese yen.
NET INCOME PER SHARE: Net income per share during 1996 and 1995 was
calculated based on the weighted average number of common and common
equivalent shares outstanding.
NOTE 2 FINANCING
BANK FINANCING: The Company has an unsecured bank line of credit arrangement
with maximum available borrowings of $125,000,000. Interest is charged at
rates based on LIBOR or "prime" and the agreement expires on March 31, 1998,
at which time the outstanding balance is due. The following summarizes
activity under the Company's credit arrangement (in thousands):
1996 1995
- ---------------------------------------------------------------------------
Total borrowings at December 31 $ 35,000 $ 40,200
Average outstanding borrowings
during year $ 72,760 $ 25,467
Maximum outstanding borrowings
during year $ 112,000 $ 85,900
Interest rate at December 31 6.04% 6.44%
LETTERS OF CREDIT: At December 31, 1996, the Company had open letters of credit
totaling approximately $15,356,000. The amounts outstanding are reduced as
inventory purchases pertaining to the contracts are received.
CUSTOMER FINANCING PROGRAM: Certain finance companies, including Polaris
Acceptance, an affiliate (Note 7), provide floor plan financing to distributors
and dealers on the purchase of the Company's products. The amount financed by
distributors and dealers under these arrangements at December 31, 1996, was
approximately $327,000,000. The Company has agreed to repurchase products
repossessed by the finance companies up to an annual maximum of 15 percent of
the average amounts outstanding during the prior calendar year. The Company's
financial exposure under these arrangements is limited to the difference between
the amount paid to the finance companies for repurchases and the amount received
on the resale of the repossessed product. No material losses have been incurred
under these agreements during the periods presented. As a part of its marketing
program, the Company contributes to the cost of dealer and distributor financing
up to certain limits and subject to certain conditions. Such expenditures are
included with selling and marketing expenses on the accompanying statements of
operations.
NOTE 3 SHAREHOLDERS' EQUITY
STOCK SPLIT: During 1995, the Board of Directors of the Company declared a
three-for-two stock split to be effected in the form of a stock dividend. This
stock split has been retroactively reflected in the accompanying financial
statements.
STOCK REPURCHASE PROGRAM: During 1996, the Board of Directors of the Company
authorized the repurchase of up to 1,000,000 shares of the Company's common
stock. During 1996, the Company paid $13,587,000 to repurchase and retire
521,000 shares. On January 23, 1997, the Board of Directors of the Company
expanded the share repurchase program, authorizing the cumulative repurchase of
up to 3,000,000 shares of the Company's common stock.
CASH DIVIDENDS AND DISTRIBUTIONS: During 1996, the Company declared and paid
cash dividends totaling $16,390,000 or $.60 per share. During 1995, the Company
declared and paid cash distributions and dividends totaling $116,639,000 or
$4.27 per share. This total is comprised of four regular quarterly cash
dividends totaling $11,732,000, or $.43 per share and three special cash
distributions totaling $104,907,000, or $3.84 per share.
Prior to the Conversion (Note 8), 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.
<PAGE>
Polaris Industries Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 INCOME TAX MATTERS AND CHANGE IN TAX STATUS
Prior to the Conversion (Note 8), Polaris was not a taxpaying entity for United
States federal and state income tax purposes and its taxable income was passed
through to the partners. Income taxes prior to the Conversion relate to the
Company's Canadian subsidiary which is subject to Canadian federal and
provincial income taxes.
As a result of the Conversion, the Corporation, as a taxable entity,
recorded a net deferred tax asset on the date of the Conversion of $65,000,000
with a corresponding credit to income tax expense, for temporary differences
between financial reporting and income tax bases. The net deferred tax asset
consists of the following (in thousands):
December 31,
1996 1995
- -------------------------------------------------------------------------------
CURRENT DEFERRED TAX ASSETS:
Inventories $ 3,000 $ 2,400
Accrued expenses 19,300 15,400
Compensation payable in common stock 2,700 2,200
- ------------------------------------------------------------------------------
Total current 25,000 20,000
- ------------------------------------------------------------------------------
NONCURRENT DEFERRED TAX ASSETS:
Cost in excess of net assets of
business acquired 30,000 32,200
Property and equipment (1,000) 100
Compensation payable in common stock 1,000 2,700
- ------------------------------------------------------------------------------
Total noncurrent 30,000 35,000
- ------------------------------------------------------------------------------
Total $55,000 $55,000
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Components of the Company's provision for income taxes are as follows (in
thousands):
For the Years Ended December 31,
CURRENT 1996 1995
- ------------------------------------------------------------------------------
Federal $30,063 $23,113
State 2,233 1,665
Foreign 2,744 3,259
Deferred - 10,000
- ------------------------------------------------------------------------------
Total $35,040 $38,037
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Reconciliations of the Federal statutory income tax rate to the effective
tax rate are as follows:
For the Years Ended December 31,
1996 1995
- ------------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0%
State income taxes, net of federal benefit 2.6 2.6
Other permanent differences (1.6) .9
- ------------------------------------------------------------------------------
Effective income tax rate 36.0% 38.5%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTE 5 EMPLOYEE BENEFIT PLANS
The Company has various benefit plans for management and employees. A summary of
these plans follows:
BONUS AND PROFIT SHARING PLANS: A bonus and profit sharing plan has been
established with amounts determined annually based upon a predetermined formula.
In addition, the Company has an employee retirement savings plan and an unfunded
supplemental retirement/savings plan for eligible employees.
STOCK AWARD PLANS: The Company maintains a stock option plan (Option Plan) under
which incentive and nonqualified stock options for a maximum of 1,350,000 shares
of common stock may be issued to certain employees. The exercise price for
shares awarded under this plan is equal to the market price of the Company's
common stock at the date of the award. Options vest three years from the award
date and expire after ten years.
The Company also maintains a plan in which rights to receive shares of
common stock (First Rights) are issued to management (Management Plan) and other
employees (Employee Plan). The Management Plan provides for vesting up to three
years from the award date and has a maximum of 2,225,000 shares reserved, while
First Rights awarded under the Employee Plan vest immediately with a maximum of
1,350,000 shares reserved. First Rights are converted to common stock with no
cash payments required from the recipient. At December 31, 1996, no additional
First Rights are available to be granted under the Management Plan or the
Employee Plan.
In 1996, the Company adopted a restricted stock plan (Restricted Plan) under
which a maximum of 500,000 shares of common stock may be awarded as an incentive
to certain employees with no cash payments required from the recipient. The
restrictions lapse over a three to four year period if certain performance
measures are achieved by the Company.
The following summarizes share activity in the above plans, and the weighted
average exercise price for the Option Plan:
<TABLE>
<CAPTION>
Restricted Manage- Employee
Option Plan Plan ment Plan Plan
- --------------------------------------------------------------------------------------------------------
Weighted
Average
Exercise
Shares Price Shares Shares Shares
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OUTSTANDING AS
OF DECEMBER 31,
1993 - - - 202,590 274,800
Granted - - - 195,750 139,646
Converted - - - (70,590) (268,946)
Forfeited - - - (4,500) -
- -------------------------------------------------------------------------------------------------------
OUTSTANDING AS
OF DECEMBER 31,
1994 - - - 323,250 145,500
Granted 254,550 $29.00 - 34,500 153,000
Converted - - - (15,000) (145,500)
Forfeited - - - (25,500) -
- -------------------------------------------------------------------------------------------------------
OUTSTANDING AS
OF DECEMBER 31,
1995 254,550 $29.00 - 317,250 153,000
Granted 136,830 $33.75 61,795 - 171,005
Converted - - - (57,000) (153,000)
Forfeited - - - - -
- -------------------------------------------------------------------------------------------------------
OUTSTANDING AS
OF DECEMBER 31,
1996 391,380 $30.66 61,795 260,250 171,005
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
EXERCISABLE/VESTED
AS OF DECEMBER 31,
1996 - - - - 171,005
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Polaris Industries Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shares outstanding under the Option Plan have exercise prices ranging from
$29.00 to $33.75 and a weighted average remaining contractual life of 1.7 years.
In 1995, the Company approved a nonqualified deferred compensation plan
under which directors who are not officers or employees of the Company
(Outside Directors) can elect to receive common stock equivalents in lieu of
director's fees, which will be converted into common stock when an Outside
Director's board service ends. A maximum of 75,000 shares of common stock
have been authorized under this plan and 8,333 have been earned as of
December 31, 1996.
The Company accounts for all stock based compensation plans under APB
Opinion No. 25, under which compensation costs of $4,550,000, $4,753,000 and
$9,268,000 were recorded in 1996, 1995 and 1994, respectively. Had
compensation cost for these plans been recorded at fair value consistent with
the methodology prescribed by SFAS No. 123 "Accounting for Stock-Based
Compensation", the Company's net income and earnings per share would have
been reduced to the following pro forma amounts:
1996 1995
- ---------------------------------------------------------------
NET INCOME (IN THOUSANDS)
As Reported $62,293 $60,776
Pro Forma 61,475 60,404
- ---------------------------------------------------------------
EARNINGS PER SHARE
As Reported $ 2.24 $ 2.19
Pro Forma 2.21 2.17
- ---------------------------------------------------------------
- ---------------------------------------------------------------
The fair value of each award under the Option Plan is estimated on the
date of grant using the Black-Scholes option pricing model. The following
assumptions were used to estimate the fair value of options:
1996 1995
- ----------------------------------------------------------------
Risk free interest rate 6.8% 6.5%
Expected life 7 years 7 years
Expected volatility 27% 32%
Expected dividend yield 1.8% 2.1%
The weighted average fair values at the grant dates of First Rights and shares
awarded under the above plans are as follows:
Option Restricted Management Employee
Plan Plan Plan Plan
- --------------------------------------------------------------------
1994 - - $23.33 $34.42
1995 $10.69 - $29.21 $29.38
1996 $12.16 $33.75 - $23.75
NOTE 6 COMMITMENTS AND CONTINGENCIES
PRODUCT LIABILITY: The Company is subject to product liability claims in the
normal course of business and in the past elected not to purchase insurance for
product liability losses. Effective June 1996, the Company purchased excess
insurance coverage for catastrophic product liability claims for incidents
occurring subsequent to the policy date that exceed a self insured retention.
The estimated costs resulting from any losses are charged to operating expenses
when it is probable a loss has been incurred and the amount of the loss is
reasonably determinable.
LITIGATION: The Company is a defendant in lawsuits and subject to claims arising
in the normal course of business. In the opinion of management, it is not a
probability that any legal proceedings pending against or involving the Company
will have a material adverse effect on the Company's financial position or
results of operations.
LEASES: The Company leases warehouse and office space from a partnership
controlled by certain Polaris directors under an operating lease agreement
expiring in 2002. The lease requires payments of $486,000 annually plus other
costs. In addition, the Company leases other buildings and equipment from
unrelated parties under noncancelable operating leases. Total rent expense under
all lease agreements was $2,889,000, $2,212,000 and $1,570,000, for 1996, 1995
and 1994, respectively. Future minimum payments, exclusive of other costs,
required under noncancelable operating leases at December 31, 1996, total
$3,011,000 cumulatively through 2002.
NOTE 7 INVESTMENTS IN AFFILIATES
In February 1996, a wholly-owned subsidiary of the Company entered into a
partnership agreement with Transamerica Commercial Finance Corporation (TCFC) to
form Polaris Acceptance. Polaris Acceptance provides floor plan financing to the
Company's dealers and distributors and may in the future provide other financial
services to dealers, distributors and retail customers of the Company.
Under the partnership agreement the Company's subsidiary had a
25 percent equity interest in Polaris Acceptance throughout 1996. Additionally,
the Company had guaranteed 25 percent of the outstanding indebtedness of Polaris
Acceptance under a credit agreement between Polaris Acceptance and TCFC. At
December 31, 1996, the Company's contingent liability with respect to the
guarantee was approximately $56,000,000. In January 1997, the Company
exercised its option to increase its equity interest in Polaris Acceptance to 50
percent for an additional investment of approximately $10,445,000, and now
guarantees 50 percent of the outstanding indebtedness of Polaris Acceptance.
In February 1995, the Company entered into an agreement with Fuji Heavy
Industries Ltd. to form Robin Manufacturing, U.S.A. (Robin). Under the
agreement, Polaris has a 40 percent ownership interest in Robin, which builds
engines in the United States for recreational and industrial products.
The Company's investments in joint ventures are accounted for under the
equity method. The Company's allocable share of the income of Polaris Acceptance
and Robin has been included as a component of nonoperating expense (income) in
the accompanying statements of operations.
<PAGE>
Polaris Industries Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 CONVERSION TRANSACTION
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 24,015,661 shares of $0.01 par value common stock to the
Partnership's limited partners in exchange for their limited partner interests
("BACs"), 3,150,365 shares of common stock to EIP Associates L.P. (the General
Partner) and affiliates in exchange for the entire general partnership interest
and rights and ultimately 468,750 shares of common stock to the holders of
468,750 First Rights. As a result of the Conversion, the Corporation owns
directly or indirectly all of the general and limited partnership interests in
the Partnership.
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 4). The statements of operation, shareholders' equity and cash
flows 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.
Pro forma information is presented to assist in comparing the continuing
results of operations of the Company for 1994 exclusive of the Conversion costs
and as if the Company was a taxable corporation with the Conversion having
occurred at the beginning of the year. 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 credit 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 3,150,365 shares
of common stock to the affiliates of the General Partner in exchange for the
general partnership interests.
NOTE 9 QUARTERLY FINANCIAL DATA
(Unaudited) (In thousands, except per share data)
<TABLE>
<CAPTION>
GROSS NET NET INCOME
1996: SALES PROFIT INCOME PER SHARE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $ 278,041 $ 50,658 $ 13,298 $ .48
Second Quarter 317,053 63,194 16,286 .58
Third Quarter 299,135 60,632 15,872 .57
Fourth Quarter 297,672 61,062 16,837 .61
- ----------------------------------------------------------------------
Totals $1,191,901 $235,546 $ 62,293 $2.24
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
1995:
- -------------------------------------------------------------------------------------
First Quarter $ 254,793 $ 46,715 $ 12,940 $ .47
Second Quarter 285,357 58,034 12,535 .45
Third Quarter 291,431 63,205 18,544 .67
Fourth Quarter 282,271 60,168 16,757 .60
- ----------------------------------------------------------------------
Totals $1,113,852 $228,122 $ 60,776 $2.19
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Polaris Industries Inc. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO POLARIS INDUSTRIES INC.:
We have audited the accompanying consolidated balance sheets of Polaris
Industries Inc. (a Minnesota corporation) and Subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. 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. The financial statements of Polaris Industries Inc. and Subsidiaries
as of December 31, 1994, and for the year then ended, were audited by other
auditors whose report dated February 2, 1995, expressed an unqualified opinion
on those statements.
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Polaris
Industries Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
January 31, 1997
BOARD OF DIRECTORS
Andris A. Baltins (A, C)
Member of the law firm of
Kaplan, Strangis & Kaplan, P.A.
Raymond J. Biggs (S)
Chairman Emeritus
Huntington Bancshares of Michigan
Beverly F. Dolan (C*, S*)
Retired Chairman and Chief Executive
Officer of Textron Inc.
Kenneth D. Larson (E)
President and Chief Operating Officer of
Polaris Industries Inc.
Robert S. Moe (C, E)
Retired Executive Vice President and
Treasurer of Polaris Industries Inc.
Gregory R. Palen (A)
Chief Executive Officer of
Spectro Alloys and Palen/Kimball Company
Stephen G. Shank (A*)
President and Chief Executive Officer of
Learning Ventures, Inc.
Former Chairman and Chief Executive
Officer of Tonka Corporation
W. Hall Wendel, Jr. (E*)
Chairman and Chief Executive Officer
of Polaris Industries Inc.
(A) Audit Committee Member
(C) Compensation Committee Member
(E) Executive Committee Member
(S) Stock Award Compensation
Committee Member
* Committee Chairman
CORPORATE OFFICERS
W. Hall Wendel, Jr.
Chairman and Chief Executive Officer
Kenneth D. Larson
President and Chief Operating Officer
Michael W. Malone
Vice President Finance,
Chief Financial Officer and Secretary
Charles A. Baxter
Vice President-Engineering
Jeffrey A. Bjorkman
Vice President-Manufacturing
Ed Skomoroh
Vice President-Sales and Marketing
<PAGE>
INVESTOR INFORMATION
INDEPENDENT AUDITORS
Arthur Andersen LLP
Minneapolis, MN
DIVIDENDS
Communications concerning transfer requirements, address changes, dividends
and lost certificates, as well as requests for Dividend Reinvestment Plan
enrollment information should be addressed to:
Norwest Bank Minnesota, N.A.
161 North Concord Exchange
South St. Paul, MN 55075-0738
1-800-468-9716
[email protected]
FORM 10-K
The form 10-K annual report to the Securities Exchange Commission is available
without charge to shareholders upon written request to:
Investor Relations
Polaris Industries Inc.
1225 Highway 169 North
Minneapolis, MN 55441-5078
ANNUAL SHAREHOLDERS' MEETING
The meeting will be held at 10:00 a.m., Thursday, May 22, 1997 at the Radisson
Hotel and Conference Center, 3131 Campus Drive, Plymouth, MN. A proxy statement
will be mailed about April 2, 1997 to each shareholder of record on March 26,
1997.
PRODUCT BROCHURES
For product brochures and dealer locations write or call:
Polaris Industries Inc.
1225 Highway 169 North
Minneapolis, MN 55441-5078
1-800-Polaris (765-2747)
INTERNET ACCESS
To view products and specifications, quarterly financial data, press releases,
and dealer locations:
http://www.polarisindustries.com
SUMMARY OF TRADING
Year Ended December 31
---------------------------------
1996 1995
- --------------------------------------------------
Quarter High Low High Low
First 31.50 28.88 33.25 29.17
Second 35.75 31.00 33.00 25.33
Third 33.50 22.63 31.25 25.08
Fourth 23.88 19.13 30.75 26.88
Shares of common stock of Polaris Industries Inc. trade on the New York Stock
Exchange and on the Pacific Stock Exchange under the symbol PII.
CASH DISTRIBUTIONS AND DIVIDENDS DECLARED
1995
---------------------------
Quarter 1996 Regular Special Total
- --------------------------------------------------
First $.15 $.10 $1.28 $1.38
Second .15 .10 1.28 1.38
Third .15 .10 1.28 1.38
Fourth .15 .13 - .13
- --------------------------------------------------
Total $.60 $.43 $3.84 $4.27
- --------------------------------------------------
- --------------------------------------------------
STOCK EXCHANGES
New York Stock Exchange (PII)
Pacific Stock Exchange (PII)
Shareholders of record of the Company's common stock on
March 3, 1997 4,055. Share price on March 3, 1997 $25.875.
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Company Organization Shares % of
Outstanding Ownership
- --------------------------------------------------------------------------------
Polaris Industries Delaware 100 100%
Inc. Corporation
- --------------------------------------------------------------------------------
Polaris Real Delaware 1,000 100%(1)
Estate Corporation Corporation
of Iowa, Inc.
- --------------------------------------------------------------------------------
Polaris Real Delaware 1,000 100% (2)
Estate Corporation Corporation
- --------------------------------------------------------------------------------
Polaris Acceptance Minnesota 1 100%
Inc. Corporation
- --------------------------------------------------------------------------------
Polaris Industries Barbados 1,000 100%
Export Ltd. Corporation
- --------------------------------------------------------------------------------
Polaris Industries Manitoba 101 100% (3)
Ltd. Corporation
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1), (2), and (3) Owned 100% by Polaris Industries Inc.,
a Delaware Corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements File Nos. 33-60157, 333-05463, 333-
21007 and 33-57053.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 18, 1997
----
<PAGE>
Exhibit 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements on Form S-8 No. 33-21007, No. 33-05463, No. 33-60157 and
No. 33-57063, of our report, dated February 2, 1995, with respect to the
financial statements of Polaris Industries Inc. (formerly Polaris Industries
Partners L.P.) for the year ended December 31, 1994 which report is included
in this Annual Report on Form 10-K for the year ended December 31, 1996.
/s/ McGladrey & Pullen, LLP
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
March 14, 1997
<PAGE>
POWER OF ATTORNEY
(FORM 10-K)
KNOW ALL MEN BY THESE PRESENTS, that POLARIS INDUSTRIES INC., a Minnesota
corporation (the "Company"), and each of the undersigned directors of the
Company, hereby constitutes and appoints W. Hall Wendel, Jr. and Michael W.
Malone 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 it/his/her name, place and stead, in any and all
capacities to sign, execute, affix its/his/her seal thereto and file the Annual
Report on Form 10-K for the year ended December 31, 1996 under the Securities
Exchange Act of 1933, as amended, with any amendment or amendments thereto, with
all exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority.
There is hereby granted to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in respect of the foregoing as fully as it/he/she or
itself/himself/herself might or could do if personally present, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
This Power of Attorney may be executed in any number of counterparts, each
of which shall be an original, but all of which taken together shall constitute
one and the same instrument and any of the undersigned directors may execute
this Power of Attorney by signing any such counterpart.
POLARIS INDUSTRIES INC. has caused this Power of Attorney to be executed in
its name by its Chief Executive Officer on the 22nd day of January 1997.
POLARIS INDUSTRIES INC.
By /s/ W. Hall Wendel, Jr.
----------------------------------
W. Hall Wendel, Jr.
Chief Executive Officer
<PAGE>
The undersigned, directors of POLARIS INDUSTRIES INC., have hereunto set
their hands as of the 22nd day of January 1997.
/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 /s/ Raymond J. Biggs
- ------------------------------------ --------------------------------------
Kenneth D. Larson Raymond J. Biggs
D I R E C T O R S
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF POLARIS INDUSTRIES INC. AS OF DECEMBER 31, 1996,
AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, SHAREHOLDER'S EQUITY AND
CASH FLOWS FOR THE QUARTER ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,812
<SECURITIES> 0
<RECEIVABLES> 36,158
<ALLOWANCES> 0
<INVENTORY> 122,911
<CURRENT-ASSETS> 191,405
<PP&E> 171,211
<DEPRECIATION> 77,698
<TOTAL-ASSETS> 351,717
<CURRENT-LIABILITIES> 161,387
<BONDS> 35,000
0
0
<COMMON> 0
<OTHER-SE> 155,330
<TOTAL-LIABILITY-AND-EQUITY> 351,717
<SALES> 1,191,901
<TOTAL-REVENUES> 1,191,901
<CGS> 956,355
<TOTAL-COSTS> 956,355
<OTHER-EXPENSES> 133,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,339
<INCOME-PRETAX> 97,333
<INCOME-TAX> 35,040
<INCOME-CONTINUING> 62,293
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,293
<EPS-PRIMARY> 2.24
<EPS-DILUTED> 2.24
</TABLE>
