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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 OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 1-11411
POLARIS INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1790959
(State or other jurisdiction (IRS employer
of incorporation or organization) identification no.)
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,
1998 (based upon the closing reported sale price of the Common Stock at that
date on the New York Stock Exchange) held by non-affiliates (23,779,217 shares)
was approximately $768,365,949.
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, 1998, 26,234,550 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, 1997 furnished to the Securities and Exchange Commission (the
"1997 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 21, 1998 filed with the Securities and Exchange Commission (the
"1998 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"), motorcycles and personal watercraft
("PWC") and markets them, together with related replacement parts, garments and
accessories ("PG&A") through dealers and distributors principally located in the
United States, Canada and Europe. Sales of snowmobiles, ATVs and PWC in North
America and International sales (each of which includes PG&A for these markets)
accounted for the following approximate percentages of Polaris' sales for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 SNOWMOBILES ATVS PWC INTERNATIONAL
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<S> <C> <C> <C> <C>
1997............................................... 42% 45% 7% 6%
1996............................................... 43% 37% 16% 4%
1995............................................... 46% 33% 16% 5%
</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 261,000 units for the season
ended March 31, 1997.
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 445,000 ATVs
sold worldwide during the calendar year 1997.
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MOTORCYCLES. Heavyweight motorcycles are over the road vehicles utilized as
a mode of transportation as well as for recreational purposes. There are four
segments including cruisers, touring, sportbikes, and standards.
Polaris is entering the worldwide motorcycle market in 1998 with an initial
entry product in the cruiser segment. U.S. retail cruiser sales nearly doubled
from 1993 to 1997. Polaris estimates that approximately 128,000 cruiser
motorcycles were sold in the U.S. market in 1997. Other major cruiser motorcycle
manufacturers include Harley Davidson, Honda, Yamaha, Kawasaki, Suzuki and BMW.
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. After many years of rapid growth,
Polaris estimates that worldwide sales for PWC declined during calendar 1997 to
approximately 200,000 units. Other major PWC manufacturers are Bombardier,
Yamaha, Kawasaki and Arctic Cat.
PRODUCTS
SNOWMOBILES. Polaris produces a full line of snowmobiles, consisting of
thirty-one models, ranging from utility and economy models to performance and
competition models, with 1998 model suggested retail prices ranging from
approximately $3,200 to $8,500. Polaris snowmobiles are sold principally in the
United States, Canada and Europe. Polaris believes it is the worldwide market
share leader.
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, 1997, North American sales of snowmobiles
and related PG&A accounted for approximately 42% 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 ATVs, which provide more stability for the rider than the earlier
three-wheel versions. Polaris' line of ATVs consisting of twelve models,
includes general purpose, sport and four-wheel drive utility models, with 1998
suggested retail prices ranging from approximately $3,200 to $7,300.
In addition, Polaris has a six-wheel off-road utility vehicle and a
six-wheel drive off-road Polaris Ranger side by side utility and recreational
vehicle.
Polaris' ATV features the totally automatic Polaris variable transmission
which requires no manual shifting and a MacPherson strut front suspension, which
enhances control and stability. Polaris' ATVs include both two cycle and four
cycle engines and both shaft and chain drive. In 1997, Polaris introduced the
Concentric Drive System which combines advanced rear chain drive with front
shaft drive which Polaris believes will deliver improved performance and
handling with excellent long-term durability.
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 since 1989 and has begun to
resume modest growth.
For the year ended December 31, 1997, North American sales of ATVs and
related PG&A accounted for approximately 45% of Polaris' sales.
MOTORCYCLES. In 1998, Polaris will begin manufacturing an American-made
V-twin cruiser motorcycle, the "Victory V92C." Design and assembly of the engine
will occur in Polaris' Osceola, Wisconsin facility
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and final assembly will occur at Polaris' Spirit Lake, Iowa facility. The two
facilities provide sufficient capacity to handle the first few years production
of Victory motorcycles. The 1998 Victory V92C motorcycle suggested retail price
will be $12,995.
PERSONAL WATERCRAFT. In 1992, Polaris introduced the SL650 personal
watercraft, Polaris' first entry into this product category. Polaris' line of
PWC consisting of five models, includes touring, performance and racing.
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 1997 suggested retail prices for Polaris' PWC range from
approximately $5,900 to $9,400.
For the year ended December 31, 1997, North American sales of PWC and
related PG&A accounted for approximately 7% of Polaris' sales.
INTERNATIONAL. Polaris sales to customers outside of North America include
snowmobiles, ATVs, PWC, and related PG&A. Polaris currently markets its products
through 54 distributors in 113 countries. This is a growth opportunity for
Polaris in the future from a market share perspective for existing product lines
as well as the planned introduction of Victory motorcycles to the international
market by the year 2000.
For the year ended December 31, 1997, International sales accounted for 6%
of Polaris' sales.
PARTS, GARMENTS AND ACCESSORIES. Polaris produces or supplies a variety of
replacement parts and accessories for its snowmobiles, ATVs, motorcycles and
PWC. Polaris also markets a full line of recreational clothing, which includes
suits, helmets, gloves, boots, hats, sweaters and jackets for its snowmobile,
ATV, motorcycle and PWC lines. The clothing is designed to Polaris'
specifications, purchased from independent vendors and sold by Polaris through
its dealers and distributors under the Polaris brand name. Replacement parts and
accessories are also marketed by Polaris.
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. In early 1998, the Victory
motorcycle will be in production at Polaris' Spirit Lake, Iowa facility. The
production will include welding, finish painting, and final assembly. Certain
components, including engine assembly, seat manufacturing, and the bending of
frame tubes will be manufactured at the Osceola, Wisconsin facility.
In 1997, Polaris broke ground for the construction of a 58,000 square foot
plastic injection molding facility adjacent to the Roseau, Minnesota facility.
This will be a vertical integration project for Polaris in the manufacture of
snowmobile hoods and certain large plastic molded parts on ATVs. The facility is
expected to be operational in mid-1998.
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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 made an investment for a 40%
ownership position in Robin, which builds engines in the United States for
recreational and industrial products. Potential advantages to Polaris of these
additional sources of engines 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. In early 1998, motorcycle production will begin based
on orders placed after the initial Victory dealer meeting held in January, 1998.
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. Initially, motorcycles
will be manufactured and assembled in the spring and summer. Long term,
manufacturing of motorcycles will commence in late autumn and continue through
early autumn of the following year.
SALES AND MARKETING
Polaris products are sold through a network of nearly 2,000 dealers in North
America and 54 distributors in 113 countries.
With the exception of Illinois, upper Michigan and eastern Wisconsin, where
Polaris sells its snowmobiles through an independent distributor, Polaris sells
its snowmobiles directly to dealers in the snowbelt regions of the United States
and Canada. 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.
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Most dealers and distributors of Polaris snowmobiles also distribute
Polaris' ATVs and PWC. At the end of 1997, approximately 400 dealerships were
located 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.
Victory motorcycles will be distributed direct through authorized Victory
dealers. Polaris has a high quality dealer network in North America for its
other product lines from which most of the initial 200 Victory dealers will be
selected. Polaris expects to develop a Victory dealer network of approximately
500 to 600 dealers over the next three to four years.
Dealers and distributors sell Polaris' products under contractual
arrangements pursuant to which the dealer or distributor is authorized to market
specified products, required to carry certain replacement parts and 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 Distribution Finance ("TDF") 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. 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. Additionally,
Polaris guarantees 50% of the outstanding indebtedness of Polaris Acceptance
under a credit agreement between Polaris Acceptance and TDF. At December 31,
1997, Polaris' contingent liability with respect to the guarantee was
approximately $92.0 million.
Polaris has arrangements with Polaris Acceptance, TDF, 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.
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,
motorcycles and PWC which is available to dealers for use in the showroom or at
special promotions. Polaris also provides
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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 290 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, "on demand" four-wheel drive systems and the Concentric Drive
System 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 $26.7 million
for 1997, $28.3 million for 1996 and $19.9 million for 1995, which amounts were
included as a component of operating expenses in the period incurred.
COMPETITION
The snowmobile, ATV, motorcycle and PWC markets in the United States and
Canada are highly competitive. Competition in such markets is based upon a
number of factors, including price, quality, reliability, styling, product
features and warranties. At the dealer level, competition is based on a number
of factors including sales and marketing support programs (such as financing and
cooperative advertising). Certain of Polaris' competitors are more diversified
and have financial marketing resources which are substantially greater than
those of Polaris.
Polaris snowmobiles, ATVs, motorcycles 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.
PRODUCT SAFETY AND REGULATION
Snowmobiles, ATVs, motorcycles and PWC are motorized machines which may be
operated at high speeds and in a careless or reckless manner. Accidents
involving property damage, personal injuries and deaths occur in the use of
snowmobiles, ATVs, motorcycles 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
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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 Consent Decree with the CPSC expires in April, 1998. Discussions are
proceeding with the CPSC regarding modifications or an extension of the Consent
Decree. 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 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
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impact of the enacted or proposed legislation on Polaris and its operations.
Polaris recently signed an agreement with Outboard Marine Corporation ("OMC")
licensing the Ficht fuel injection technology. This technology may be used in
Polaris vehicles to meet emission standards in the future, particularly in
Polaris vehicles with two-cycle engines. 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. Polaris is unable to predict the outcome of such actions or the
possible effect on its PWC business. However, Polaris continues to monitor these
legislative activities together with the industry associations and supports
balanced and appropriate programs that educate the customer on safe use of the
product and protect the environment.
Victory motorcycles will be subject to federal and state emissions, vehicle
safety and other standards. Polaris anticipates that its motorcycles will comply
fully with all such applicable standards and related regulations.
PRODUCT LIABILITY
Polaris' product liability insurance limits and coverages had 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, 1997, Polaris has paid an aggregate
of approximately $3.7 million in product liability claims and accrued $7.0
million at December 31, 1997, 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, PWC prior to 1992, or motorcycles prior to 1998, will not change or that
material product liability claims against Polaris will not be made in the
future. Adverse determination of material product liability claims made against
Polaris would have a material adverse effect on Polaris' financial condition.
See Note 7 of Notes to Consolidated Financial Statements.
WARRANTY
Polaris warrants its snowmobiles, ATVs, motorcycles and PWC under a "limited
warranty" for a period of one year, six months, one year 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, motorcycles or PWC.
EMPLOYMENT
Due to the seasonality of the Polaris business and certain changes in
production cycles, total employment levels vary throughout the year. During
1997, Polaris employed an average of approximately 2,900 persons. Approximately
780 of its employees are salaried. Polaris considers its relations with its
personnel to be excellent.
8
<PAGE>
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.
YEAR 2000 COMPLIANCE
In 1997, Polaris evaluated its computer system year 2000 compliance issues
and began a conversion process to address necessary changes. In order for a
computer system to be year 2000 compliant, its time sensitive software must
recognize a date using "00" as the year 2000 rather than 1900. Polaris has
implemented a plan to make its computer systems critical to managing its
business year 2000 compliant by the end of 1998 and to make its remaining
computer systems year 2000 compliant by the end of 1999. Expenses incurred by
Polaris in 1997 to address year 2000 compliance issues were immaterial and
Polaris does not expect the level of expenses to be incurred under its
conversion program during the next two years to have material impact on its
financial results of operations.
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,
certain ATV models and, in 1998, its motorcycle product line. 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,
motorcycles 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 13,000 square feet of
office 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 completed construction of a 259,000 square foot PG&A distribution
center on 50 acres in Vermillion, South Dakota in 1997.
In 1997, Polaris broke ground for the construction of a 58,000 square foot
plastic injection molding facility adjacent to the Roseau, Minnesota facility.
This will be a vertical integration project for Polaris in the manufacture of
snowmobile hoods and certain large plastic molded parts on ATVs. The facility is
expected to be operational in mid-1998.
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.
9
<PAGE>
Injection Research Specialists commenced an action in 1990 against Polaris
in Colorado Federal Court alleging various claims relating to electronic fuel
injection systems for snowmobiles. In April 1997, a judgment was entered in
favor of Injection Research Specialists, before interest, for $24.0 million in
compensatory damages and $10.0 million in punitive damages against Polaris, and
$15.0 million in compensatory damages and $8.0 million in punitive damages
against Fuji, one of Polaris' engine suppliers. The judgment against Fuji was
subsequently reduced on post trial motions to $11.6 million in compensatory
damages and no punitive damages. Polaris has appealed the judgment against
Polaris and has been advised that Fuji has also appealed the judgment against
it. Depending upon the conclusion of the appeal, Polaris may require additional
reserves associated with this litigation on its financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names of the executive officers of the Company as of
March 3, 1998, 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. 55 Chairman and Chief Executive Officer
Kenneth D. Larson 57 President and Chief Operating Officer
Charles A. Baxter 50 Vice President--Engineering and General Manager
Engines
Jeffrey A. Bjorkman 38 Vice President--Manufacturing
Michael W. Malone 39 Vice President--Finance, Chief Financial Officer and
Secretary
Thomas H. Ruschhaupt 49 Vice President--Sales and Services
Ed Skomoroh 60 Vice President--Marketing
</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. 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.
10
<PAGE>
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.
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. Ruschhaupt has been Vice President--Sales and Service since March, 1998.
Prior to joining Polaris, Mr. Ruschhaupt was employed by Goodyear Tire and
Rubber Corporation in various management positions for twenty years.
Mr. Skomoroh has been Vice President--Marketing of the Company since
February, 1998. Mr. Skomoroh was Vice President--Sales and Marketing of the
Company from 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.
11
<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 1997 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 1997 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 1997 Annual
Report is included herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Registrant, included in the
Company's 1997 Annual Report, are incorporated herein by reference:
Consolidated Balance Sheets--December 31, 1997 and 1996.
Consolidated Statements of Operations--Years Ended December 31, 1997, 1996
and 1995.
Consolidated Statements of Shareholders' Equity--Years Ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Cash Flows--Years Ended December 31, 1997, 1996
and 1995.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
12
<PAGE>
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 1998 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 1998 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 1998 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 1998 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 1998 Proxy Statement is incorporated herein by
reference.
13
<PAGE>
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 1997 Annual Report are incorporated by reference
to this Report under Item 8 "Financial Statements and Supplementary Data".
(2) Financial Statement Schedules
All supplemental financial statement schedules have been omitted because
they are not applicable or are not required or the information required to
be set forth therein is included in the Consolidated Financial Statements or
notes thereto.
(3) Exhibits
The Exhibits to this Report are listed in the Exhibit Index on page E-1.
A copy of any of these Exhibits will be furnished at a reasonable cost
to any person who was a shareholder of the Company as of March 25, 1998,
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, 1997.
(c) Exhibits
Included in Item 14(a)(3) above.
14
<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 30, 1998.
<TABLE>
<S> <C> <C>
POLARIS INDUSTRIES INC.
By: /s/ W. HALL WENDEL, JR.
-----------------------------------------
W. Hall Wendel, Jr.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
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 30, 1998
W. Hall Wendel, Jr. Executive Officer)
Vice President--Finance,
/s/ MICHAEL W. MALONE Chief Financial Officer
- ------------------------------------ and Secretary (Principal March 30, 1998
Michael W. Malone Financial and Accounting
Officer)
*
- ------------------------------------ Director March 30, 1998
Andris A. Baltins
*
- ------------------------------------ Director March 30, 1998
Raymond J. Biggs
*
- ------------------------------------ Director March 30, 1998
Beverly F. Dolan
*
- ------------------------------------ Director March 30, 1998
Kenneth D. Larson
*
- ------------------------------------ Director March 30, 1998
Robert S. Moe
*
- ------------------------------------ Director March 30, 1998
Gregory R. Palen
*
- ------------------------------------ Director March 30, 1998
Stephen G. Shank
*By: /s/ W. HALL WENDEL, JR. March 30, 1998
------------------------------
(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.
15
<PAGE>
POLARIS INDUSTRIES INC.
EXHIBIT INDEX TO ANNUAL REPORT ON
FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
<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) [RESERVED]
(c) Retirement Savings Plan, incorporated by reference to Exhibit 10(g) to
the Form S-1.
(d) Polaris Industries Inc. Employee Stock Ownership Plan dated January 1,
1997.
(e) Fourth Amendment to Credit Agreement by and between the Company and
First Bank.
(f) Management Bonus Plan, incorporated by reference to Exhibit 10(j) to
the Form S-1.
(g) Polaris Industries Inc. 1995 Stock Option Plan, incorporated by
reference to the Company's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on June 12, 1995 (No.
33-60157).
(h) Polaris Industries Inc. Deferred Compensation Plan for Directors
incorporated by reference to Exhibit 10(h) to the Company's Annual
Report on Form 10-K dated March 22, 1996.
(i) Joint Venture Agreement between the Company and Transamerica
Commercial Finance Corporation, now known as Transamerica Distribution
Finance ("TDF") dated February 7, 1996 incorporated by reference to
Exhibit 10(i) to the Company's Annual Report on Form 10-K dated March
22, 1996.
(j) Manufacturer's Repurchase Agreement between the Company and Polaris
Acceptance dated February 7, 1996 incorporated by reference to Exhibit
10(j) to the Company's Annual Report on Form 10-K dated March 22,
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 on 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(m) 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.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------
<C> <S>
(o) Amended and Restated Polaris Industries Inc. 1996 Restricted Stock
Plan, incorporated by reference to the Company's Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on June 7, 1996 (No. 333-05463).
(p) Polaris Industries Inc. Employee Stock Purchase Plan, incorporated by
reference to the Company's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on February 3, 1997 (No.
333-21007).
(q) Form of Change of Control Agreement entered into with executive
officers of Company incorporated by reference to Exhibit 10(q) to the
Company's Annual Report on Form 10-K dated March 18, 1997.
(r) Amendment to Executive Office Lease dated November 22, 1996
incorporated by reference to Exhibit 10(r) to the Company's Annual
Report on Form 10-K dated March 18, 1997.
13. Portions of the Annual Report to Security Holders for the Year Ended
December 31, 1997 included pursuant to Note 2 to General Instruction
G.
21. Subsidiaries of Registrant.
23. Consent of Arthur Andersen LLP.
24. Power of Attorney.
27.(a) Financial Data Schedule.
(b) Restated Financial Data Schedule for Nine Month Period Ended September
30, 1997.
</TABLE>
17
<PAGE>
POLARIS INDUSTRIES INC.
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE JANUARY 1, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.01 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.02 Affiliated Company. . . . . . . . . . . . . . . . . . . . . . . 1
2.03 Anniversary Date. . . . . . . . . . . . . . . . . . . . . . . . 2
2.04 Annual Addition . . . . . . . . . . . . . . . . . . . . . . . . 2
2.05 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.06 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . 2
2.07 Break in Continuous Service . . . . . . . . . . . . . . . . . . 2
2.08 Capital Accumulation. . . . . . . . . . . . . . . . . . . . . . 2
2.09 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.10 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.11 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.12 Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.13 Company Stock Account . . . . . . . . . . . . . . . . . . . . . 2
2.14 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.15 Continuous Service. . . . . . . . . . . . . . . . . . . . . . . 3
2.16 Direct Rollover . . . . . . . . . . . . . . . . . . . . . . . . 3
2.17 Distributee . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.18 Election Period . . . . . . . . . . . . . . . . . . . . . . . . 3
2.19 Eligible Diversification Amount . . . . . . . . . . . . . . . . 3
2.20 Eligible Retirement Plan. . . . . . . . . . . . . . . . . . . . 3
2.21 Eligible Rollover Distribution. . . . . . . . . . . . . . . . . 4
2.22 Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.23 Employer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.24 Employer Contributions. . . . . . . . . . . . . . . . . . . . . 4
2.25 Employer Securities . . . . . . . . . . . . . . . . . . . . . . 4
2.26 Enrollment Date . . . . . . . . . . . . . . . . . . . . . . . . 4
2.27 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.28 Highly Compensated Employee . . . . . . . . . . . . . . . . . . 4
2.29 Hour of Service . . . . . . . . . . . . . . . . . . . . . . . . 5
2.30 Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.31 Non-Highly Compensated Employee . . . . . . . . . . . . . . . . 6
2.32 Other Investments Account . . . . . . . . . . . . . . . . . . . 6
i
<PAGE>
2.33 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.34 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.35 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.36 Qualified Participant . . . . . . . . . . . . . . . . . . . . . 6
2.37 Retirement. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.38 Section 414(s) Compensation . . . . . . . . . . . . . . . . . . 6
2.39 Suspense Account. . . . . . . . . . . . . . . . . . . . . . . . 6
2.40 Total Distribution. . . . . . . . . . . . . . . . . . . . . . . 6
2.41 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.42 Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . 7
2.43 Trust Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.44 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.45 Year of Eligibility Service . . . . . . . . . . . . . . . . . . 7
ARTICLE III
ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . 7
3.01 Eligibility for Participation . . . . . . . . . . . . . . . . . 7
3.02 Reemployment of Participant . . . . . . . . . . . . . . . . . . 8
ARTICLE IV
EMPLOYEE CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE V
EMPLOYER CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.01 Employer Contributions. . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VI
INVESTMENT OF TRUST ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . 9
6.01 Investment of Trust Assets. . . . . . . . . . . . . . . . . . . 9
6.02 Diversification . . . . . . . . . . . . . . . . . . . . . . . . 10
6.03 Exempt Loan . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VII
ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
7.01 Allocations to Participants' Accounts . . . . . . . . . . . . . 13
7.02 Allocable Shares. . . . . . . . . . . . . . . . . . . . . . . . 14
7.03 Allocation Limitations. . . . . . . . . . . . . . . . . . . . . 15
7.04 Allocation of Net Income (or Loss) of the Trust . . . . . . . . 16
ii
<PAGE>
7.05 Accounting for Allocations. . . . . . . . . . . . . . . . . . . 16
7.06 Nonallocation . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII
EXPENSES OF THE PLAN AND TRUST. . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IX
VOTING COMPANY STOCK AND EXERCISE OF OTHER RIGHTS . . . . . . . . . . . . . 17
9.01 Voting and Tender or Exchange Rights. . . . . . . . . . . . . . 17
ARTICLE X
CAPITAL ACCUMULATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XI
DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.01 Time of Distribution to Participants. . . . . . . . . . . . . . 22
11.02 Benefit Forms for Participants. . . . . . . . . . . . . . . . . 22
11.03 Benefit Form on a Participant's Death . . . . . . . . . . . . . 23
11.04 Distribution in Company Stock . . . . . . . . . . . . . . . . . 23
11.05 Delay in Benefit Determination. . . . . . . . . . . . . . . . . 23
11.06 Designated Beneficiaries. . . . . . . . . . . . . . . . . . . . 23
11.07 Additional Distribution Requirements. . . . . . . . . . . . . . 24
11.08 Distributions Pursuant to Qualified Domestic Relations Orders . 25
ARTICLE XII
DETERMINATION OF SERVICE
12.01 Continuous Service. . . . . . . . . . . . . . . . . . . . . . . 28
12.02 Break in Continuous Service . . . . . . . . . . . . . . . . . . 28
12.03 Affiliated Companies. . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XIII
PLAN ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13.01 Named Fiduciaries . . . . . . . . . . . . . . . . . . . . . . . 29
13.02 Fiduciary Limitations . . . . . . . . . . . . . . . . . . . . . 30
13.03 Company Responsibilities. . . . . . . . . . . . . . . . . . . . 30
13.04 Trustee Responsibilities. . . . . . . . . . . . . . . . . . . . 30
13.05 Appointment of Committee. . . . . . . . . . . . . . . . . . . . 30
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13.06 Organization and Powers of the Committee. . . . . . . . . . . . 31
13.07 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XIV
AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 33
14.01 Company's Right to Amend. . . . . . . . . . . . . . . . . . . . 33
14.02 Mandatory Amendments. . . . . . . . . . . . . . . . . . . . . . 33
14.03 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 34
14.04 Employee Nonforfeitable Rights. . . . . . . . . . . . . . . . . 34
14.05 Distribution upon Termination . . . . . . . . . . . . . . . . . 34
ARTICLE XV
GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.01 Participants' Rights. . . . . . . . . . . . . . . . . . . . . . 34
15.02 Spendthrift Clause. . . . . . . . . . . . . . . . . . . . . . . 35
15.03 Company's Liability . . . . . . . . . . . . . . . . . . . . . . 35
15.04 Merger or Consolidation . . . . . . . . . . . . . . . . . . . . 35
15.05 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.06 Legal Action. . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.07 Binding on All Parties. . . . . . . . . . . . . . . . . . . . . 35
15.08 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.09 Severability of Provisions. . . . . . . . . . . . . . . . . . . 36
15.10 Service of Process. . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XVI
TOP-HEAVY COMPLIANCE PROVISIONS
16.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.02 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.03 Determination of Whether Plan is "Top-Heavy." . . . . . . . . . 37
16.04 Aggregation Group of Employer Plans . . . . . . . . . . . . . . 37
16.05 Special Minimum Contribution Becoming Operative in the
Event the Plan Becomes "Top-Heavy." . . . . . . . . . . . . . . 38
16.06 Pre-"Top-Heavy" Plan Terminated Participant . . . . . . . . . . 38
16.07 Special "Top-Heavy" Reduction in Combined Benefit
and Contribution Limitation . . . . . . . . . . . . . . . . . . 38
16.08 Termination of "Top-Heavy" Status . . . . . . . . . . . . . . . 39
16.09 Multiple "Top-Heavy" Plans. . . . . . . . . . . . . . . . . . . 39
16.10 Effect of the Plan Becoming "Super Top-Heavy" . . . . . . . . . 39
ARTICLE XVII
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DIRECT ROLLOVER AND ELIGIBLE ROLLOVER DISTRIBUTIONS . . . . . . . . . . . . 39
ARTICLE XVII
EXECUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE I
INTRODUCTION
The purposes of the Plan are to enable participating Employees to
share in the growth and prosperity of the Company and to provide Participants
with an opportunity to accumulate capital for their future economic security.
Accordingly, Plan assets will be invested primarily in Employer Securities and
up to one hundred (100) percent of the Plan assets may be invested in Company
Stock.
The Plan is intended to be a stock bonus plan qualified under Section
401(a) of the Code, which constitutes an employee stock ownership plan within
the meaning of Section 4975(e)(7) of the Code and Section 407(d)(6) of ERISA.
All Trust Assets acquired under the Plan as a result of Employer
Contributions and other additions to the Trust will be administered,
distributed, and otherwise governed by the provisions of the Plan. All such
assets will be held in the Trust by the Trustee in accordance with the
provisions of the Trust Agreement. The Plan shall be administered by the
Committee for the exclusive benefit of Participants and their Beneficiaries.
ARTICLE II
DEFINITIONS
In the Plan, whenever the context so requires, the singular or plural
and the masculine, feminine or neuter gender shall each be deemed to include the
others; the terms "he," "his" and "him" shall refer to an Employee or a
Participant; references to a section of the Code, the Treasury Regulations, the
Labor Regulations or ERISA shall include any subsequent amendments to such
section; and capitalized terms shall have the following meanings:
2.01 ACCOUNT. One of the bookkeeping accounts maintained to record
the allocated interest of each Participant in the Plan. Such Accounts shall
include Company Stock Accounts and Other Investments Accounts.
2.02 AFFILIATED COMPANY. Any corporation that is, along with the
Company, a member of a controlled group of corporations (within the meaning of
Section 414(b) of the
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Code) or any other trade or business (whether or not incorporated) which is
under common control with the Company (as defined in Section 414(c) of the Code)
or any member of an "affiliated service group" (as such term is defined in
Section 414(m) of the Code) of which the Company is also a member or as may be
provided in regulations under Section 414(o) of the Code. For purposes of
Section 7.03, the preceding references to Sections 414(b) and 414(c) of the Code
shall be modified by Section 415(h) of the Code.
2.03 ANNIVERSARY DATE. The last day of each Plan Year and such
interim dates as the Committee shall determine from time to time.
2.04 ANNUAL ADDITION. For any Plan Year, the (a) Employer
Contributions, if any, allocated to a Participant's Accounts under the Plan and
(b) employer contributions and forfeitures allocated to a Participant's accounts
under all other defined contribution plans maintained by the Company or an
Affiliated Company. Notwithstanding the foregoing, if no more than one-third
(1/3) of Employer Contributions for a Plan Year are allocated to the group of
Highly Compensated Employees, Annual Additions shall not include Employer
Contributions applied to the repayment of interest on a Loan of Employer
Securities acquired with the proceeds of a Loan.
2.05 BENEFICIARY. The person (or persons) designated under Section
11.06 as entitled to receive any benefits under the Plan in the event of a
Participant's death.
2.06 BOARD OF DIRECTORS. The Board of Directors of the Company.
2.07 BREAK IN CONTINUOUS SERVICE. A Break in Continuous Service
determined pursuant to Section 12.02.
2.08 CAPITAL ACCUMULATION. A Participant's vested (nonforfeitable)
interest in his Accounts under the Plan as described in Article X.
2.09 CODE. The Internal Revenue Code of 1986, as amended from time
to time.
2.10 COMMITTEE. The Committee consisting of such persons appointed
by the Board of Directors to administer the Plan and to give instructions to the
Trustee.
2.11 COMPANY. Polaris Industries Inc. and any corporation which
shall be its successor.
2.12 COMPANY STOCK. Any qualifying employer security within the
meaning of Section 407(d)(5) of ERISA and regulations thereunder including any
share of stock, common or preferred, issued by the Company or an Affiliated
Company.
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2.13 COMPANY STOCK ACCOUNT. An Account of a Participant which is
credited with his allocable share of Company Stock purchased and paid for by the
Trust or contributed or transferred to the Trust.
2.14 COMPENSATION. The total amount of compensation that is paid by
the Employer to an Employee for services rendered in the course of employment
and that is includable in such Employee's gross income for the Plan Year.
Compensation shall include salary reduction contributions to a Cafeteria plan or
cash or deferred 401(k) plan sponsored by an Employer. Notwithstanding the
foregoing, compensation shall not include any profit sharing or any other
incentive or extraordinary compensation or compensation paid with respect to a
Participant's disability. The maximum amount of Compensation that may be taken
into account for any Plan Year shall not exceed $150,000 (or such greater amount
as shall be provided pursuant to Section 401(a)(17) of the Code).
2.15 CONTINUOUS SERVICE. Continuous Service determined pursuant to
Article XII.
2.16 DIRECT ROLLOVER. A payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
2.17 DISTRIBUTEE. An Employee or former Employee. In addition, the
Employee's or former Employee's surviving spouse and the Employee's or former
Employee's spouse or former spouse who is the Alternate Payee under a Qualified
Domestic Relations Order, as such terms are defined in Section 414(p) of the
Code and Section 11.08(c) of the Plan, are Distributees with regard to the
interest of the spouse or former spouse.
2.18 ELECTION PERIOD. A Qualified Participant's Election Period
shall be the six (6) Plan Year period beginning with the Plan Year in which the
Participant attains age fifty-five (55); provided, however, that if the
Participant has not completed ten (10) years of Plan participation by the Plan
Year in which age fifty-five (55) is attained, the Election Period with respect
to such Participant shall be the six (6) Plan Year period beginning with the
Plan Year in which the Participant completes ten (10) years of Plan
participation.
2.19 ELIGIBLE DIVERSIFICATION AMOUNT. For any Plan Year during the
Election Period of a Qualified Participant, that portion of the Qualified
Participant's Accounts equal to the product of (a), (b), (c) and (d):
(a) the number of shares of Company Stock allocated to such
Qualified Participant's Accounts as of the Anniversary Date of the immediately
preceding Plan Year;
(b) plus the number of shares of Company Stock, if any, previously
elected to be diversified pursuant to Section 6.02;
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(c) such sum multiplied by .25 or, in the case of the last year in
such Qualified Participant's Election Period, .50; and
(d) less the number of shares of Company Stock, if any, previously
elected to be diversified pursuant to Section 6.02.
2.20 ELIGIBLE RETIREMENT PLAN. An individual retirement account
described in Section 408(a) of the Code, an individual retirement annuity
described in Section 408(b) of the Code, an annuity plan described in
Section 403(a) of the Code or a qualified trust described in Section 401(a) of
the Code that accepts the Distributee's Eligible Rollover Distribution;
provided, however, that in the case of an Eligible Rollover Distribution to a
surviving spouse, an Eligible Retirement Plan only means an individual
retirement plan or individual retirement annuity.
2.21 ELIGIBLE ROLLOVER DISTRIBUTION. Any distribution of all or any
portion of the balance of a Participant's Accounts to the credit of the
Distributee, except that an Eligible Rollover Distribution does not include:
any distribution that is one of a series of substantially equal periodic
payments (made not less frequently than annually) made for the life (or life
expectancy) of such Distributee or the joint lives (or joint life expectancies)
of such Distributee and such Distributee's designated Beneficiary or for a
specified period of ten (10) years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code; and the portion of
any distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to Employer
Securities).
2.22 EMPLOYEE. Any person who is employed by the Employer on an
employer-employee basis. "Employee" shall also include any "leased employee"
within the meaning of Section 414(n)(2) or 414(o)(2) of the Code, unless such
leased employee is covered by a plan described in Section 414(n)(5) of the Code
and all such leased employees do not constitute more than twenty (20) percent of
the combined non-highly compensated workforce (within the meaning of Section
414(n)(5)(C)(ii) of the Code) of the Company and Affiliated Companies.
2.23 EMPLOYER. The Company or any Affiliated Company which has
adopted the Plan and which has agreed to be bound by the terms of the Plan and
Trust Agreement. Except where the context clearly provides otherwise, any
reference in the Plan to the term "Company" shall also mean any Employer with
respect to its Employees only, as though the term "Employer" was substituted for
the term "Company."
2.24 EMPLOYER CONTRIBUTIONS. Employer Contributions made to the
Trust pursuant to Section 5.01.
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2.25 EMPLOYER SECURITIES. Shares of Company Stock which meet the
requirements of Section 409(l) of the Code.
2.26 ENROLLMENT DATE. January 1 of the Plan Year.
2.27 ERISA. The Employee Retirement Income Security Act of 1974, as
amended from time to time.
2.28 HIGHLY COMPENSATED EMPLOYEE. Any individual who with respect
to a Plan Year:
(a) was a five-percent owner (as defined by Section 416(i)(1) of
the Code) at any time during such Plan Year or the preceding Plan Year; or
(b) for the Plan Year preceding such Plan Year:
(1) had Section 414(s) Compensation from the Company in excess of
$80,000 (as such amount may be adjusted from time to time
pursuant to Sections 414(q) and 415(d) of the Code), and
(2) to the extent elected by the Company with respect to such
preceding Plan Year was in the top-paid group of Employees for
such preceding Plan Year.
For purposes of this Section 2.28, the "top-paid group of Employees" for a Plan
Year shall be the group consisting of the top twenty percent of the Company's
Employees when ranked on the basis of Section 414(s) Compensation paid during
such Plan Year; provided, however, that the following Employees shall be
excluded from the top-paid group of Employees: (i) Employees who have not
completed six months of Continuous Service; (ii) Employees who normally work
less than 17-1/2 hours per week; (iii) Employees who normally work during not
more than six months during any Plan Year, (iv) Employees who have not attained
age 21, and (v) except to the extent otherwise provided by regulations of the
Secretary of the Treasury, Employees covered by a collective bargaining
agreement between Employee representatives and the Employer, as determined by
the Secretary of Labor.
A former Employee shall be treated as a Highly Compensated Employee if
(i) such Employee was a Highly Compensated Employee when such Employer separated
from service or (ii) such Employee was a Highly Compensated Employee at any time
after attaining age 55.
For purposes of this Section 2.28, an Employee who is a nonresident
alien and who receives no earned income (within the meaning of Code Section
911(d)(2)) from the
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Company which constitutes income from sources within the United States (within
the meaning of Code Section 861(a)(3) shall not be treated as an Employee.
2.29 HOUR OF SERVICE. Each hour for which an Employee is directly
or indirectly compensated or entitled to compensation, by the Employer for the
performance of duties during the applicable computation period, including hours
for which back pay, irrespective of mitigation of damages, has been either
awarded or agreed to by an Employer, and further including hours for which an
Employee is either directly or indirectly compensated, or entitled to
compensation, by the Employer, for reasons (such as vacation, sickness or
disability) other than the performance of duties during the applicable
computation period. Hours during which an Employee would have worked during an
Employer-approved leave of absence shall also be credited. The method of
determining the number of Hours of Service to be credited and the method of
crediting such Hours to computation periods shall conform to the requirements
set forth in Section 2530.200b-2(b) & (c) of the Department of Labor
Regulations.
2.30 LOAN. Any loan to the Trustee made or guaranteed by a
disqualified person (within the meaning of Section 4975(e)(2) of the Code),
including, but not limited to, a direct loan of cash, a purchase-money
transaction, an assumption of an obligation of the Trustee, an unsecured
guarantee or the use of assets of a disqualified person (within the meaning of
Section 4975(e)(2) of the Code) as collateral for a loan.
2.31 NON-HIGHLY COMPENSATED EMPLOYEE. Any eligible Employee who is
not a Highly Compensated Employee.
2.32 OTHER INVESTMENTS ACCOUNT. An Account of a Participant which
is credited with his share of the net income (or loss) of the Trust and Employer
Contributions in other than Company Stock and which is debited with payments
made to pay for Company Stock.
2.33 PARTICIPANT. Any Employee who has met the eligibility
requirements set forth in Article III and is participating in the Plan.
2.34 PLAN. This Polaris Industries Inc. Employee Stock Ownership
Plan, as hereafter amended from time to time.
2.35 PLAN YEAR. The twelve (12) month period beginning on January 1
and ending on December 31. The Plan Year is also the limitation year for
purposes of Section 415 of the Code.
2.36 QUALIFIED PARTICIPANT. Any Participant who has completed at
least ten (10) years of Plan participation and attained age fifty-five (55).
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2.37 RETIREMENT. Termination of a Participant's employment with the
Company or a subsidiary after he has attained age fifty-nine and one-half
(59-1/2).
2.38 SECTION 414(s) COMPENSATION. Compensation as described under
Section 415(c)(3) of the Code and the regulations thereunder, including all
amounts currently not included in an Employee's gross income by reason of
Sections 125 and 402(a)(8) of the Code.
2.39 SUSPENSE ACCOUNT. The account maintained by the Trustee to
record unallocated Employer Securities used as collateral on a Loan pursuant to
Section 6.03.
2.40 TOTAL DISTRIBUTION. A distribution to a Participant or
Beneficiary, within a single taxable year of such Participant or Beneficiary, of
the entire balance credited to such Participant's or Beneficiary's Accounts.
2.41 TRUST. The trust created by the Trust Agreement entered into
pursuant to the Plan between the Company and the Trustee.
2.42 TRUST AGREEMENT. The agreement between the Company and the
Trustee (or any successor Trustee) establishing the Trust and specifying the
duties of the Trustee.
2.43 TRUST ASSETS. All cash, Company Stock and other property held
in the Trust for the exclusive benefit of Participants and their Beneficiaries.
2.44 TRUSTEE. The Trustee or Trustees (and any successor Trustee)
designated by the Company's Board of Directors which agrees to serve by
executing the Trust Agreement.
2.45 YEAR OF ELIGIBILITY SERVICE. An Employee will be deemed to
have completed a Year of Eligibility Service if he completes one thousand
(1,000) or more Hours of Service during the twelve (12)-month period beginning
on the date he first completes an Hour of Service for the Employer. If the
Employee does not complete at least one thousand (1,000) Hours of Service during
the first twelve (12) months of his employment, he will be deemed to have
completed a Year of Eligibility Service in the first Plan Year during which he
is credited with at least one thousand (1,000) Hours of Service.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 ELIGIBILITY FOR PARTICIPATION.
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(a) Each Employee, except those described in Sections 3.01(b) and
3.01(c) below, shall become eligible to participate in the Plan as follows:
(1) Each salaried Employee, except those described in clause (3)
below, shall become a Participant in the Plan as of the
Enrollment Date within the first Plan Year during which he
completes at least one month of Continuous Service.
(2) Each hourly paid Employee, except those described in clause (3)
below, shall become a Participant in the Plan as of the
Enrollment Date within the first Plan Year during which such
Employee completes 480 or more Hours of Service.
(3) Each part-time Employee and each seasonal Employee shall become
a Participant in the Plan as of the Enrollment Date within the
first Plan Year during which such Employee completes 1,000
Hours of Service provided that the Employee completes at least
one month of Continuous Service during such Plan Year.
(b) Employees covered by a collective bargaining agreement (as
defined by the United States Secretary of Labor) between Employees'
representatives and an Employer are not eligible to participate in the Plan if
retirement benefits were the subject of good faith bargaining between such
Employees' representatives and the Employer and such collective bargaining
agreement does not provide for participation in the Plan. No Employee shall
participate in the Plan while he is actually employed by a leasing organization
rather than the Employer. In addition, Employees (i) who are non-resident
aliens, and (ii) whose primary place of employment is not located in the United
States, are not eligible to participate in the Plan.
(c) Any Employee who is a temporary Employee or a student Employee
shall not be eligible to participate in the Plan.
(d) Notwithstanding the requirements of Section 3.01(a)(3) and
Section 3.01(c), a regular part-time, seasonal or temporary Employee shall
become a Participant no later than the Enrollment Date within the first Plan
Year during which such Employee completes one Year of Eligibility Service.
3.02 REEMPLOYMENT OF PARTICIPANT. A Participant who terminates
employment and is subsequently reemployed by the Company shall be reinstated as
a Participant as of his reemployment date.
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ARTICLE IV
EMPLOYEE CONTRIBUTIONS
Contributions by Employees to the Plan are not required or permitted.
ARTICLE V
EMPLOYER CONTRIBUTIONS
5.01 EMPLOYER CONTRIBUTIONS.
(a) For each Plan Year, Employer Contributions may be paid to the
Trustee in such amounts (or under such formula) as may be determined by the
Board of Directors not later than the due date for filing the Company's federal
income tax return, including any extensions of such due date; provided, however,
that such Employer Contributions shall not be paid to the Trust in amounts which
would permit the limitation described in Section 7.03 to be exceeded.
(b) Employer Contributions may be paid to the Trust in cash or in
shares of Company Stock, as determined by the Board of Directors; provided,
however, that Employer Contributions shall be paid in cash in such amounts and
at such times as needed to provide the Trust with funds sufficient to pay in
full when due any principal and interest payments required by a Loan incurred by
the Trustee pursuant to Article VI to finance the acquisition of Company Stock,
except to the extent such principal and interest payments have been satisfied by
the Trustee from cash dividends paid to it with respect to Employer Securities
(whether allocated or unallocated) acquired with the proceeds of such Loan or
from the proceeds of sale of Employer Securities.
(c) Employer Contributions may be returned to the Employer if (i)
made in excess of the amount deductible by the Employer for its taxable year
(all such Employer Contributions being automatically conditioned upon such
deductibility), or (ii) made because of a reasonable mistake as to the facts and
circumstances existing at the time the contribution was fixed; provided,
however, that such return is limited, respectively, to (i) that portion in
excess of the amount deductible for the Employer's taxable year which is not
necessary to enable the Trustee to make Loan payments, or (ii) that portion of
the contribution attributable to a reasonable mistake of fact, and provided,
further, that any such return must be made within one (1) year of the date the
deduction was disallowed or the mistaken contribution was made.
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ARTICLE VI
INVESTMENT OF TRUST ASSETS
6.01 INVESTMENT OF TRUST ASSETS. Trust Assets will be invested
primarily in Employer Securities. Employer Contributions and cash dividends
paid on Company Stock may be used to acquire shares of Company Stock from
Company shareholders (including former Participants) or from the Company, except
that any Company Stock acquired with the proceeds of a Loan shall be limited to
Employer Securities. Except as otherwise provided in Section 6.02, Trust Assets
not acquired with the proceeds of a Loan and not invested in Company Stock shall
be invested by the Trustee in accordance with the Trust Agreement. All
investments in Company Stock will be made by the Trustee only upon the direction
of the Committee. The Committee may direct that all Trust Assets be invested
and held in Company Stock. All purchases of Company Stock by the Trust will be
made at a price or at prices which, in the judgment of the Committee, do not
exceed the fair market value of such Company Stock at the time of purchase. The
Committee may direct the Trustee to sell or resell shares of Company Stock to
any person, including the Company; provided, however, that any such sale to any
disqualified person (as defined by Section 4975(e)(2) of the Code), including
the Company, shall be made at not less than the fair market value of such shares
of Company Stock. Any such sale shall be made in conformance with
Section 408(e) of ERISA. Notwithstanding any other provision of the Plan, the
dividends paid with respect to Company Stock may be (i) paid directly to
Participants, (ii) paid to the Trustee and then distributed to Participants
within 90 days thereafter, or (iii) allocated to the Accounts of Participants,
as determined by the Committee in its sole discretion.
6.02 DIVERSIFICATION. Each Qualified Participant may, by applying
to the Committee within ninety (90) days after the close of each Plan Year
during such Qualified Participant's Election Period, elect to have his Eligible
Diversification Amount transferred to the Polaris Industries Inc. 401(k)
Retirement Savings Plan and invested in accordance with the provisions of such
Plan. Such transfer shall be completed by the Committee no later than one
hundred eighty (180) days after the first day of the Plan Year in which such
application is made. The Committee may, in a manner consistent with the
applicable requirements of the Code and regulations issued pursuant thereto,
limit or prohibit diversification by Qualified Participants of de minimis
amounts.
6.03 EXEMPT LOAN.
(a) The Committee may direct the Trustee to obtain Loans. Any such
Loan shall meet all requirements necessary to constitute an "exempt loan" within
the meaning of Treasury Regulation Section 54.4975-7(b)(1)(iii) and shall be
used primarily for the benefit of Participants (and their Beneficiaries). The
proceeds of any such Loan shall be used, within a reasonable time after the Loan
is obtained, only to purchase Employer Securities, repay the Loan or repay any
prior Loan. Any such Loan shall provide for no more than a reasonable
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rate of interest, as determined under Treasury Regulation Section
54.4975-7(b)(7), and must be without recourse against the Plan. The number of
years to maturity under the Loan must be definitely ascertainable at all times.
The only assets of the Plan that may be given as collateral for a Loan are
shares of Employer Securities acquired with the proceeds of the Loan and shares
of Employer Securities that were used as collateral on a prior Loan repaid with
the proceeds of the current Loan. Such Employer Securities so pledged shall be
placed in a Suspense Account. No person entitled to payment under a Loan shall
have recourse against Trust Assets other than such collateral, Employer
Contributions that are available under the Plan to meet obligations under the
Loan and earnings attributable to such collateral and the investment of such
Employer Contributions.
All Employer Contributions paid during the Plan Year in which a Loan
is made (whether before or after the date the proceeds of the Loan are
received), all Employer Contributions paid thereafter until the Loan has been
repaid in full and all earnings from investment of such Employer Contributions,
without regard to whether any such Employer Contributions and earnings have been
allocated to Participants' Other Investments Accounts, shall be available to
meet obligations under the Loan, unless otherwise provided by the Company at the
time any such Employer Contribution is made. Any pledge of Employer Securities
must provide for the release of an appropriate number of shares so pledged, as
provided below, upon the payment of any portion of the Loan. For each Plan Year
during the duration of the Loan, the number of shares of Employer Securities
released from such pledge must equal the number of encumbered securities held
immediately before release for the current Plan Year multiplied by a fraction,
the numerator of which is the amount of principal paid for the year and the
denominator of which is the sum of the numerator plus the principal to be paid
for all future years. Such years will be determined without taking into account
any possible extension or renewal periods. The Loan shall (i) provide for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payment of such amount for ten (10) years,
(ii) provide that interest included in any payment is disregarded for the
purpose of the release from pledge only to the extent that it would be
determined to be interest under standard loan amortization tables and (iii)
provide that the duration of the Loan including renewal extension, or
refinancing, shall not exceed ten (10) years. Notwithstanding the foregoing,
the Committee may elect, in its sole discretion, to provide for the release of
Employer Securities from the Suspense Account on the basis of both principal and
interest paid during the Plan Year. If the Committee elects to apply this
method, it shall be applied throughout the period of such Loan, and the
limitations set forth in clauses (i), (ii) and (iii) above shall not apply to
the Loan. In the event such interest is variable, the interest to be paid in
future years must be computed by using the interest rate applicable as of the
end of the Plan Year. If the collateral includes more than one class of
Employer Securities, the number of shares of each class to be released for a
Plan Year must be determined by applying the same fraction to each class.
(b) Payments of principal and interest on a Loan during a Plan Year
shall be made by the Trustee (as directed by the Committee) only from (i)
Employer Contributions to
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the Trust made to meet the Plan's obligation under such Loan, earnings from such
Employer Contributions and any earnings attributable to Employer Securities held
as collateral for such Loan (both received during or prior to the Plan Year),
less such payments in prior years; (ii) the proceeds of a subsequent Loan made
to repay such prior Loan; and (iii) the proceeds of the sale of any Employer
Securities held as collateral for such Loan. Such Employer Contributions and
earnings must be accounted for separately by the Plan until the Loan is repaid.
(c) Employer Securities released by reason of the payment of
principal or interest on a Loan from amounts allocated to Participants' Other
Investments Accounts shall immediately upon payment be credited pro rata to the
corresponding Participants' Company Stock Accounts. In the event that cash
dividends paid on Employer Securities allocated to Participants' Accounts are
used to repay a Loan, before determining Participants' allocable shares of
Employer Securities released from the Suspense Account for any Plan Year
pursuant to Section 7.02, there shall first be allocated to the Company Stock
Accounts of Participants to whose Accounts such cash dividends would have been
allocated but for such Loan repayment a number of Employer Securities having a
fair market value not less than the amount of the cash dividends so applied.
Only that number of Employer Securities released from the Suspense Account which
is in excess of the number allocated pursuant to the immediately preceding
sentence shall be available for allocation pursuant to Section 7.02(a).
(d) The Employer shall contribute to the Trust amounts sufficient,
after taking into account cash dividends on Employer Securities (whether
allocated or unallocated) and the proceeds of sale, if any, of Employer
Securities acquired with the proceeds of a Loan available for such purpose, to
enable the Trust to pay principal and interest on any such Loan as they are due;
provided, however, that no such Employer Contribution shall exceed the
limitations in Section 7.03. In the event that such Employer Contributions are
insufficient by reason of the limitations in Section 7.03 to enable the Trust to
pay the principal of and interest on such Loan as they are due, then, at the
election of the Committee, the Employer shall:
(1) Make a Loan to the Trust, as described in Treasury Regulation
Section 54.4975-7(b)(4)(iii), in an amount sufficient to meet
such principal and interest payments. Such new Loan shall also
meet all requirements of an "exempt loan" within the meaning of
Treasury Regulation Section 54.4975-7(b)(1)(iii). Employer
Securities released from the pledge of the prior Loan shall be
pledged as collateral to secure the new Loan. Such Employer
Securities will be released from this new pledge and allocated
to the Accounts of the Participants in accordance with the
applicable provisions of the Plan; or
(2) Purchase any Employer Securities pledged as collateral in an
amount necessary to provide the Trustee with funds sufficient
to make the
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principal and interest payments. Any such sale by the Plan
shall meet the requirements of Section 408(3) of ERISA; or
(3) Do any combination of the foregoing.
However, the Employer shall not, pursuant to the provisions of this Section
6.03(d), do, fail to do, cause to be done or cause to be not done any act or
thing which would result in a disqualification of the Plan as a leveraged
employee stock ownership plan under the Code.
(e) PUT OPTION. Shares of Employer Securities acquired with the
proceeds of a Loan by the Trust shall be subject to a "put" option at the time
of distribution; provided, however, that at such time the shares of Employer
Securities are not publicly traded within the meaning of Treasury Regulation
Section 54.4975-7(b)(1)(iv) or, if publicly traded, are subject to a trading
limitation (a "trading limitation" on a security is a restriction under any
federal or state securities law, any regulation thereunder or an agreement
affecting the security which would make the security not as freely tradeable as
one not subject to such restriction). The "put" option shall be exercisable by
the Participant or Beneficiary, by the donees of either or by a person
(including an estate or its distributee) to whom the Employer Securities pass by
reason of the Participant's or Beneficiary's death. This "put" option provides
that, for a period of at least sixty (60) consecutive days immediately following
the date shares are distributed to the holder of the option and for another
sixty (60) consecutive day period during the Plan Year next following the Plan
Year in which shares were distributed, the holder of the option shall have the
right to cause the Company, by notifying it in writing, to purchase such shares
at their fair market value, as determined by the Committee. The Committee may,
with the consent of the Trustee, direct the Trustee to assume the rights and
obligations of the Company at the time a "put" option is exercised, insofar as
the repurchase of Employer Securities is concerned. The period during which a
"put" option is exercisable shall not include any period during which the holder
is unable to exercise such "put" option because the Company is prohibited from
honoring it by federal or state law. The terms of payment for the purchase of
such shares of Employer Securities shall be as set forth in the "put" and:
(1) If the distribution constitutes a Total Distribution, payment
of the fair market value of the Employer Securities shall be
made in five (5) substantially equal annual payments. The
first such installment shall be paid no later than thirty (30)
days after exercise of the "put" option. The Company or the
Plan, as the case may be, shall pay a reasonable rate of
interest and provide adequate security on amounts not paid
after thirty (30) days.
(2) If the distribution does not constitute a Total Distribution,
the Company or the Plan, as the case may be, shall pay the
Participant or Beneficiary an amount equal to the fair market
value of the Employer Securities
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repurchased no later than thirty (30) days after the "put"
option is exercised.
The "put" option provided for by this Section 6.03(e) shall continue to apply to
shares of Employer Securities purchased by the Trustee with the proceeds of a
Loan as described herein, notwithstanding any amendment to or termination of the
Plan which causes the Plan to cease to be a leveraged employee stock ownership
plan within the meaning of Section 4975(e)(7) of the Code.
(f) NONTERMINABLE PROTECTIONS AND RIGHTS. No Employer Securities
acquired with the proceeds of a Loan shall be subject to any put, call or other
option, or buy-sell or similar arrangement while held by and when distributed
from the Plan, other than those described in Section 6.03(e) or as otherwise
required by applicable law. These protections and rights are nonterminable.
ARTICLE VII
ALLOCATIONS
7.01 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS.
(a) Separate Company Stock Accounts and Other Investments Accounts
will be established to reflect Participants' interests under the Plan. Records
shall be kept by the Committee from which can be determined the portion of each
Other Investments Account which at any time is available to meet Loan
obligations and the portion which is not so available as determined pursuant to
Section 6.03.
(b) As of each Anniversary Date, the Company Stock Account
maintained for each Participant under the Plan will be credited with his
allocable shares of Company Stock (including fractional shares) purchased and
paid for by the Trust or contributed in kind to the Trust with Employer
Contributions and any stock dividends on Company Stock allocable to his Company
Stock Account. Employer Securities acquired by the Trust with the proceeds of a
Loan obtained pursuant to Section 6.03 shall be allocated to the Company Stock
Accounts of Participants as the Employer Securities are released from the
Suspense Account as provided for in Section 6.03.
(c) As of each Anniversary Date, each Other Investments Account
maintained for each Participant under the Plan will be credited (or debited)
with its share of the net income (or loss) of the Trust, with any cash dividends
on Company Stock allocable to his Company Stock Account and with Employer
Contributions in cash. Each such Other Investments Account will be debited with
its share of any cash payments for the acquisition of Company Stock for the
benefit of Company Stock Accounts or for any payment of principal of
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and interest on any Loan or other debt chargeable to Participants' Company Stock
Accounts; provided, however, that only the portion of each Other Investments
Account which is available to meet obligations under Loans as determined
pursuant to the provisions of Section 6.03(a) shall be used to pay principal or
interest on a Loan.
7.02 ALLOCABLE SHARES.
(a) Each Plan Year, Employer Contributions not applied to pay
principal of or interest on a Loan and, subject to Section 6.03(c), Employer
Securities released from the Suspense Account for a Plan Year (the "Allocable
Amounts") shall be divided into two parts and allocated as set forth in
subsections 7.02(a)(1) and 7.02(a)(2) below.
(1) The first 85% of the Allocable Amounts for such Plan Year shall
be allocated to the Company Stock Accounts for all Participants
entitled to receive an allocation for such Plan Year. The
allocation to which each such Participant shall be entitled
under this Section 7.02(a)(1) shall be determined by
multiplying 85% of such Allocable Amounts by a fraction, the
numerator of which is such Participant's Compensation for such
Plan Year and the denominator of which is the sum of the
Compensation of each Participant entitled to an allocation for
such Plan Year.
(2) The remaining 15% of the Allocable Amounts for such Plan Year
shall be allocated to the Company Stock Accounts for all
Participants entitled to receive an allocation for such Plan
Year. The allocation to which each such Participant shall be
entitled under this Section 7.02(a)(2) shall be determined by
multiplying 15% of such Allocable Amounts by a fraction, the
numerator of which is such Participant's months of Continuous
Service prior to and including such Plan Year, and the
denominator of which is the aggregate months of Continuous
Service of each Participant entitled to an allocation for such
Plan Year prior to and including such Plan Year.
(b) A Participant must be actively employed by the Employer on the
Anniversary Date of any Plan Year in order to share in the allocation of any
Employer Contributions for such Plan Year made pursuant to Section 7.02(a)
except in the case of the Participant's death during such Plan Year.
7.03 ALLOCATION LIMITATIONS.
(a) For each Plan Year, the Annual Addition to the Accounts of a
Participant under the Plan and to the accounts of such Participant under all
other defined
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contribution plans maintained by the Company or any Affiliated Company, may not
exceed the lesser of:
(1) twenty-five (25) percent of his Section 414(s) Compensation; or
(2) $30,000 or, if greater, one-fourth (1/4) of the defined benefit
dollar limitation set forth in Section 415(b)(1) of the Code as
in effect for such Plan Year.
If this limitation would be exceeded as to any Participant, the
allocation of Employer Contributions shall be reduced with respect to such
Participant, with a reallocation made to other Participants according to the
allocable share of each as determined under Section 7.02 (to the extent not
exceeding the limitation as to each). In the event the Plan is terminated and
there are amounts which cannot be allocated to Participants' Accounts due to
this limitation, such amounts will be returned to the Employer.
If a Participant is, or was, covered under a defined benefit plan and
a defined contribution plan maintained by the Employer, the sum of such
Participant's defined benefit plan fraction and defined contribution plan
fraction (both calculated as provided below) may not exceed one (1.0) in any
Plan Year.
A defined benefit plan fraction is a fraction, the numerator of which
is the sum of a Participant's projected annual benefits (as defined below) under
all defined benefit plans (whether or not terminated) maintained by the
Employer, and the denominator of which is the lesser of (i) one and one-quarter
(1.25) times the dollar limitation of Section 415(b)(1)(A) of the Code in effect
for a Plan Year and (ii) one and four-tenths (1.4) times such Participant's
average Section 414(s) Compensation for the three (3) consecutive years that
produce the highest average.
A defined contribution plan fraction is a fraction, the numerator of
which is the sum of the Annual Additions to a Participant's accounts under all
defined contribution plans (whether or not terminated) maintained by the
Employer for the current and all prior limitation years, and the denominator of
which is the sum of the lesser of the following amounts determined for such year
and for each prior year of Service with the Employer: (i) one and one-quarter
(1.25) times the dollar limitation in effect under Section 415(c)(1)(A) of the
Code for each such year and (ii) one and four-tenths (1.4) times the amount
which may be taken into account under Section 415(c)(1)(B) of the Code.
Projected annual benefit means the annual benefit to which a
Participant would be entitled under the terms of the applicable defined benefit
plan, if such Participant continued employment until normal retirement age (or
current age, if later) and such Participant's compensation for the limitation
year and all other relevant factors used to determine such benefit remained
constant until normal retirement age (or current age, if later).
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If, in any Plan Year, the sum of a Participant's defined benefit plan
fraction and defined contribution plan fraction would exceed one (1.0), such
Participant's Annual Addition under the Plan will be limited to the extent
necessary to comply with Section 415 of the Code.
7.04 ALLOCATION OF NET INCOME (OR LOSS) OF THE TRUST. The net income
(or loss) attributable to Trust Assets for each Plan Year will be determined as
of each Anniversary Date. Each Participant's allocable share of the net income
(or loss) will be allocated to his Other Investments Account in the ratio in
which the credit balance of each such Account on the preceding Anniversary Date
(reduced by the amount of any distribution of Capital Accumulation from such
Account) bears to the sum of such balances for all Participants as of that date.
The net income (or loss) includes the increase (or decrease) in the fair market
value of Trust Assets (other than Company Stock), interest income, dividends and
other income (or loss) attributable to Trust Assets (other than allocated
Company Stock) since the preceding Anniversary Date. For purposes of computing
net income (or loss), interest paid on any Loan or installment sales contract
for the acquisition of Employer Securities by the Trustee shall be disregarded.
7.05 ACCOUNTING FOR ALLOCATIONS. The Committee shall adopt
accounting procedures for the purpose of making the allocations, valuations and
adjustments to Participants' Accounts provided for in this Article VII. Except
as provided in Treasury Regulation Section 54.4975-11, Company Stock acquired by
the Plan shall be accounted for as provided under Treasury Regulation
Section 1.402(a)-1(b)(2)(ii), allocations of Company Stock shall be made
separately for each class of stock and the Committee shall maintain adequate
records of the cost basis of all shares of Company Stock allocated to each
Participant's Company Stock Account. From time to time, the Committee may
modify the accounting procedures for the purpose of achieving equitable and
nondiscriminatory allocations among the Accounts of Participants in accordance
with the general concepts of the Plan and the provisions of this Section.
Annual valuations of Trust Assets shall be made at fair market value. All
valuations of shares of Company Stock which are not readily tradeable on an
established securities market shall be made by an independent appraiser meeting
requirements similar to those contained in Treasury Regulations under
Section 170(a)(1) of the Code.
7.06 NONALLOCATION. Notwithstanding any provision in this Plan to
the contrary, in accordance with Section 409(n) of the Code, if shares of
Company Stock are sold to the Plan by a shareholder of the Company in a
transaction for which special tax treatment is elected pursuant to Section 1042
of the Code by such shareholder, no assets attributable to such Company Stock
may be allocated during the period beginning on the date of the sale of such
shares of Company Stock to the Trust and ending on the later of the tenth (10th)
year anniversary of the date of sale or the date of the allocation attributable
to the final payment on the Loan incurred with respect to the sale to the
Accounts of such shareholder, any person who is related to such shareholder
(within the meaning of Section 267(b) of the Code, but excluding lineal
descendants of such shareholder as long as no more than five (5) percent of the
aggregate amount of all shares of Company Stock sold by such shareholder in a
transaction
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to which Section 1042 of the Code applies is allocated to lineal descendants of
such shareholder) or any other person who owns (after application of Section
318(a) of the Code) more than twenty-five (25) percent in value of the
outstanding securities of the Employer. Further, no allocation of contributions
may be made to the Accounts of such persons unless additional allocations are
made to other Participants, in compliance with the provisions of Sections
401(a)(4) and 410 of the Code, computed without regard to the allocation of any
stock acquired by the Plan in a transaction to which Section 1042 applied.
ARTICLE VIII
EXPENSES OF THE PLAN AND TRUST
All expenses of administering the Plan shall be paid by the Trust to
the extent such are not paid by the Company. The Company may, but shall not be
required to, pay such expenses from time to time. Each Employer, other than the
Company, shall reimburse the Company for that portion of costs and expenses paid
by the Company for any Plan Year as the amount of Employer Contributions from
each such Employer for such Plan Year bears to the aggregate Employer
Contributions from all Employers for that Plan Year.
ARTICLE IX
VOTING COMPANY STOCK AND EXERCISE OF OTHER RIGHTS
9.01 VOTING AND TENDER OR EXCHANGE RIGHTS. If the Company or any
Affiliated Company has a registration-type class of securities (as defined in
Section 409(e)(4) of the Code), then, all shares of Company Stock allocated to
Company Stock Accounts or the Suspense Account and entitled to vote shall be
voted only in accordance with the provisions of Sections 9.01(a), (b), (d) and
(e) applicable to voting. If neither the Company nor any Affiliated Company has
a registration-type class of securities (as defined in Section 409(e)(4) of the
Code), then, only with respect to any corporate matter which involves the voting
of Company Stock allocated to Company Stock Accounts or the Suspense Account
with respect to the approval or disapproval of any corporate merger or
consolidation, recapitalization, reclassification, liquidation, dissolution,
sale of substantially all assets of a trade or business or such other similar
transaction that Treasury Regulations require, all shares of such Company Stock
shall be voted only in accordance with the provisions of Sections 9.01(a), (b),
(d) and (e) applicable to voting. In all cases in which a "tender offer" (as
defined in Section 9.01(a)) is made for Company Stock, the provisions of
Sections 9.01(a), (c), (d) and (e) applicable to a tender offer (as so defined)
shall apply. Where the Trustee is not required to solicit voting instructions
under the second sentence of this paragraph or where the Committee is explicitly
given discretion under Section 9.01(a), (b) or (c), the Trustee shall vote and
take action, as applicable, only as the Committee directs in the Committee's
sole discretion, after the
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Committee determines such action to be in the best interests of Participants and
Beneficiaries. If any action of holders of Company Stock is sought to be taken
by means of a written consent of such holders in lieu of a meeting of such
holders, the giving of such consent is a vote in favor of such action and the
provisions of this Section 9.01 applicable to voting shall apply.
(a) To the extent provided under the foregoing paragraph, the
Trustee shall vote the shares of Company Stock allocated to any Participant's or
Beneficiary's Accounts (including fractional as well as whole shares) in
accordance with timely directions of such Participant or Beneficiary,
respectively; provided, however, that if a Participant or Beneficiary fails to
give such timely direction the shares allocated to such Participant's or
Beneficiary's Accounts shall be voted in the manner directed by the Committee.
The Trustee shall, with respect to the shares of Company Stock allocated to any
Participant's or Beneficiary's Accounts (including fractional as well as whole
shares), act in response to any tender offer or exchange offer for shares of
Company Stock commenced by any person or group of persons, including, but not
limited to, a tender offer or exchange offer within the meaning of the
Securities Exchange Act of 1934, as amended from time to time (any such tender
or exchange offer being a "tender offer"), in accordance with timely directions
of such Participant or Beneficiary; provided, however, that if a Participant or
Beneficiary fails to give such timely direction the manner in which the Trustee
is to act in response to a tender offer with respect to the shares of Company
Stock allocated to such Participant's or Beneficiary's Accounts shall be
directed by the Committee. For purposes of determining the number of shares of
Company Stock to be voted in any particular manner or to be the subject of any
particular response to a tender offer, the Trustee shall use the nearest
practicable date as determined by the Trustee.
(b) The Trustee's functions and responsibilities with respect to
shares of Company Stock, including shares of Company Stock in the Suspense
Account, with respect to voting, shall be exercised as follows:
(1) Each Participant: (i) is hereby designated as a named
fiduciary for purposes of ERISA with respect to the voting of
shares of Company Stock allocated to the applicable Accounts,
and with respect to the voting of the applicable portion (as
determined under Section 9.01(b)(3)) of the shares of Company
Stock held in the Suspense Account, and (ii) shall have the
right to direct the Trustee with respect to the voting of such
shares of Company Stock on each matter brought before any
meeting of the stockholders of the Company and on which such
shares are entitled to vote.
(2) Before each such meeting of shareholders, the Trustee shall
cause to be furnished to each Participant and Beneficiary a
copy of the proxy solicitation or information materials as
shall have been furnished to the Trustee by the issuer of the
Company Stock to be voted at such meeting or, in the case of a
proxy solicitation by any person or group of persons
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other than the board of directors of such issuer, such person
or group, together with a form requesting confidential
directions for the Trustee on how the whole and fractional
shares of Company Stock which are allocated to such
Participant's or Beneficiary's Accounts (or with respect to
which such Participant or Beneficiary otherwise has control
under Section 9.01(b)(3)) shall be voted on each such matter.
The Company and the Committee shall cooperate with the Trustee
in an attempt to ensure that Participants and Beneficiaries
receive the requisite information in a timely manner. Upon
timely receipt of such directions, the Trustee shall on each
such matter vote as directed the number of shares (including
fractional shares of Company Stock) allocated to such
Participant's or Beneficiary's Accounts. The instructions
received by the Trustee from Participants and Beneficiaries
shall be held by the Trustee in confidence and shall not be
divulged or released to any person, including the Committee or
the officers or Employees of the Company or any Affiliated
Company.
(3) The Trustee shall vote all shares of Company Stock in the
Suspense Account in the same proportion as the allocated shares
of Company Stock for which affirmative directions from
Participants to vote for or against each proposal are voted.
The Committee may establish procedures, which shall be followed
by the Trustee upon and after its receipt of notice thereof, by
which Participants may provide separate sets of instructions
with respect to shares of Company Stock allocated to their
Accounts and the pro rata amount of unallocated shares of
Company Stock over which they have voting control. If a vote
is taken at a time when there are no allocated shares of
Company Stock, the Trustee shall vote the shares of Company
Stock in the Suspense Account as directed by the Committee in
the Committee's discretion.
(c) The Trustee's functions and responsibilities with respect to
shares of Company Stock, including shares of Company Stock in the Suspense
Account, with respect to all decisions made in response to a tender offer, shall
be exercised as follows:
(1) In the event a tender offer is commenced, the Committee,
promptly after receiving notice of the commencement of any such
tender offer, shall transfer certain of the Plan's
record-keeping functions to an independent record-keeper
(which, if the Committee consents in writing, may be the
Trustee). The functions so transferred shall be those
necessary to preserve the confidentiality of any directions
given by Participants and Beneficiaries in connection with the
tender offer. Such record-keeper shall use its best efforts to
distribute or cause to be distributed on a timely basis to each
Participant and Beneficiary such information as is
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being distributed to other shareholders of the Company in
connection with any such tender offer. The Company and the
Committee shall cooperate with such record-keeper in an attempt
to ensure that Participants and Beneficiaries receive the
requisite information in a timely manner. The independent
record-keeper shall solicit confidentially from each
Participant and Beneficiary the directions described below as
to the action to be taken with respect to shares of Company
Stock held under the Plan in response to a tender offer. The
independent record-keeper, if different from the Trustee, shall
instruct the Trustee as to all required action, including an
identification of the amount of shares of Company Stock covered
by any particular required action, in accordance with the
following provisions.
(2) Each Participant: (i) is hereby designated as a named
fiduciary for purposes of ERISA with respect to all decisions
made in response to a tender offer regarding shares of Company
Stock allocated to the applicable Accounts, and with respect to
all such decisions regarding the applicable portion (as
determined under Section 9.01(c)(4)) of the shares of Company
Stock held in the Suspense Account, and (ii) shall have the
right to direct the Trustee with respect to all such decisions.
(3) Upon timely receipt of such directions, the Trustee shall on
each such matter act as directed (including, without
limitation, to engage in selling, exchanging, tendering or
retaining) with respect to the number of shares of Company
Stock (including fractional shares of Company Stock) allocated
to such Participant's Accounts. The instructions received by
the Trustee from Participants shall be held by the Trustee in
confidence and shall not be divulged or released to any person,
including the Committee or the officers or Employees of the
Company or any Affiliated Company.
(4) The Trustee shall act as directed (including, without
limitation, to engage in selling, exchanging, tendering or
retaining) with respect to the number of shares of Company
Stock (including fractional shares) in the Suspense Account in
the same proportion as it acts regarding shares of Company
Stock allocated to the Accounts of Participants. The Committee
may establish procedures, which shall be followed by the
Trustee upon and after its receipt of notice thereof, by which
Participants may provide separate sets of instructions with
respect to shares of Company Stock allocated to their Accounts
and the pro rata amount of unallocated shares of Company Stock
over which they have control regarding tender offers. If a
tender offer occurs at a time when there are no allocated
shares of Company Stock, the Trustee shall act in
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response to the tender offer with respect to shares of Company
Stock in the Suspense Account as directed by the Committee in
the Committee's discretion.
(d) Nothing contained in this Section 9.01 shall confer upon
Participants, Beneficiaries, the Committee or the Trustee any additional voting
rights in respect of shares of Company Stock held under the Plan other than the
rights set forth in the certificate of incorporation of the Company and under
state and federal law.
Nothing contained in this Section 9.01 shall confer upon Participants,
Beneficiaries, the Committee or the Trustee any additional rights in respect of
a tender offer, merger or consolidation relating to the shares of Company Stock
held under the Plan other than the rights set forth in the certificate of
incorporation of the Company and under state and federal law.
(e) Any individual who has an interest under the Plan in the nature
of the interest of a Participant or Beneficiary but who is not technically a
Participant or Beneficiary shall be treated as a Beneficiary for purposes of the
foregoing provisions of this Section.
ARTICLE X
CAPITAL ACCUMULATION
Each Participant shall at all times have a 100% fully vested interest
in his Accounts.
ARTICLE XI
DISTRIBUTIONS
11.01 TIME OF DISTRIBUTION TO PARTICIPANTS.
(a) Any Participant whose employment ends by reason of his
Retirement, death or Disability shall receive the vested balance in his Accounts
as soon as is administratively practicable after the end of the Plan Year in
which his employment ends, unless such Participant, or such Participant's
Beneficiary in the event of the Participant's death, elects to defer payment
until a later date.
(b) Any Participant whose employment ends for any reason other than
those specified in Section 11.01(a) shall receive the vested balance in his
Accounts as soon as is
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administratively practicable after the end of the fifth Plan Year following the
Plan Year in which his employment ends, unless such Participant elects to defer
payment until a later date.
(c) Notwithstanding any other provision of this Plan, distribution
of the benefits of any Participant who reaches age seventy and one-half (70-1/2)
shall commence no later than the later of (i) the April 1st next following the
end of the calendar year in which he reaches age seventy and one-half (70-1/2)
or (ii) the date on which such Participant's employment with the Company
terminates, regardless of whether any Loan has been repaid. Notwithstanding the
foregoing, in the case of a Participant who is a five-percent owner (as defined
in Code Section 416(i)), distribution of such Participant's benefits shall
commence no later than the April 1 next following the end of the calendar year
in which he reaches age seventy and one-half (70-1/2)
11.02 BENEFIT FORMS FOR PARTICIPANTS. A Participant's Capital
Accumulation shall, at the election of such Participant, be paid to him in
either a single distribution or a number of annual installments not to exceed
five (5). In the case of an installment distribution, each installment shall be
equal to (i) the number of shares of Company Stock credited to such
Participant's Company Stock Account and the balance credited to such
Participant's Other Investments Account, each divided by (ii) the number of
installments which remain to be paid (including the current installment being
computed).
11.03 BENEFIT FORM ON A PARTICIPANT'S DEATH. If a Participant's
employment is ended by death, or if a terminated Participant has a Capital
Accumulation which has not been fully distributed at the time of his death, such
Participant's remaining Capital Accumulation shall be paid to his Beneficiary in
a single lump sum, within one (1) year after the end of the Plan Year in which
such Participant died.
11.04 DISTRIBUTION IN COMPANY STOCK. A Participant's benefits shall
be paid in the form of Company Stock; provided, however, that the value of any
fractional shares of Company Stock shall be paid in cash.
11.05 DELAY IN BENEFIT DETERMINATION. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment, the benefits shall be paid within sixty (60)
days after the date they can first be determined, with whatever makeup payments
may be appropriate in view of the delay.
11.06 DESIGNATED BENEFICIARIES.
(a) Any person who may become entitled to receive a distribution
under this Article XI may appoint any other person or persons (including a trust
or trusts) as his Beneficiary or Beneficiaries for receipt of such distribution
in the event of his death by filing an appointment with the Committee on forms
provided by it. In the absence of such appointment, a person's Beneficiary or
Beneficiaries will be deemed to be the Beneficiary or
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Beneficiaries designated by such person under the Polaris Industries Inc. 401(k)
Retirement Savings Plan, if any, or, if none, the Beneficiary or Beneficiaries
designated by such Plan. Notwithstanding the foregoing, in the case of a
Participant who is legally married at the date of his death, his Beneficiary
shall be deemed to be the person to whom he was so married, notwithstanding and
disregarding any failure by such Participant to appoint a Beneficiary, or his
appointment of a trust or any other person as his Beneficiary, unless such
Participant had obtained, on forms provided by the Committee, the consent of the
person to whom he was so married to his appointment of a trust or other person
or to his appointment of no Beneficiary. The spouse's consent to payment to a
designated Beneficiary other than the spouse must be in writing on such forms,
must designate a Beneficiary which may not be changed without spousal consent
(unless the consent of the spouse expressly permits designations by the
Participant without any requirement of further consent by the spouse), must
acknowledge the effect of such election and must be witnessed by a notary
public.
(b) Subject to the provisions of Section 11.06(a), a Beneficiary
appointment may be revoked or changed by the appointing person's filing with the
Committee, on forms provided by it, a notice of revocation or change, with a
change of Beneficiary being considered a revocation and the naming of a new
Beneficiary.
(c) An appointment shall not be effective if the Beneficiary named
therein fails to survive the appointing person.
11.07 ADDITIONAL DISTRIBUTION REQUIREMENTS. All benefit
distributions shall be subject to the following additional requirements:
(a) DURATION OF BENEFIT PAYMENTS. The distribution of benefit
payments to each Participant shall be made in accordance with regulations
prescribed by the Secretary of the Treasury over a period not extending beyond
the life expectancy of such Participant or the joint life expectancy of such
Participant and a designated Beneficiary, except that in no event shall the
period of distribution exceed that otherwise permitted under the Plan.
(b) DEATH OF PARTICIPANT BEFORE BENEFITS COMMENCE. In the event
that a Participant dies before the commencement of benefits hereunder, the
entire interest of such Participant under the Plan (if any) shall be distributed
not later than the last day of the calendar year in which occurs the fifth (5th)
anniversary of the death of such Participant or, where any portion of such
Participant's benefit is to be paid to (or for the benefit of) such
Participant's surviving spouse or other designated Beneficiary, such benefit
must commence not later than the last day of the calendar year following the
calendar year in which such Participant's death occurred and be paid over a
period not exceeding the life (of life expectancy) of the surviving spouse or
designated Beneficiary, except that where the Beneficiary is such Participant's
surviving spouse, payments to the surviving spouse need not begin before the
date on which such Participant would have attained age seventy and one-half
(70-1/2). However, in no event
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shall the commencement date or period of distribution exceed that otherwise
permitted under the Plan.
(c) DEATH AFTER COMMENCEMENT OF BENEFITS. If the distribution of
benefits hereunder has commenced and a Participant dies before his entire
interest has been distributed to him, the remaining part of such interest will
be distributed to the surviving payee no less rapidly than under the method of
distribution which was in effect on the date of such Participant's death.
(d) "INCIDENTAL" BENEFITS AND EFFECT OF REQUIREMENTS. In the event
that any payment hereunder is to be made to someone other than a Participant or
jointly to such Participant and his spouse or other payee, such payments must
conform to the "incidental benefit" rules of Section 401(a)(9)(G) of the Code
and Treasury Regulation Section 1.401(a)(9)-2. In addition, all distributions
from the Plan must conform to the rules of this Section, Section 401(a)(9) of
the Code and the regulations promulgated thereunder to the extent not in
conflict with any other provision of the Code.
(e) LUMP SUM PAYMENT. If a Participant's Capital Accumulation is
more than $3,500, such Participant shall be given written notice of his right to
defer the date of distribution of his benefit, and if he does not elect a
current distribution by giving his consent in writing within sixty (60) days of
such notice, the Capital Accumulation shall be retained in the Trust until the
earlier of the date on which such Participant dies, requests distribution in
writing or the date such Participant attains his normal retirement age (59-1/2).
11.08 DISTRIBUTIONS PURSUANT TO QUALIFIED DOMESTIC RELATIONS ORDERS.
(a) PAYMENTS TO AN ALTERNATE PAYEE UNDER A QUALIFIED DOMESTIC
RELATIONS ORDER. The Committee shall pay benefits to the Alternate Payee(s) (as
defined below) in accordance with the terms of this Section 11.08, any
government regulations adopted under Section 206 of ERISA and the applicable
provisions of any Qualified Domestic Relations Order (as defined below) entered
by a court of competent jurisdiction on or after January 1, 1985. In the case
of a Domestic Relations Order (defined below) entered by a court of competent
jurisdiction before January 1, 1985, the Committee may, in its discretion, treat
any such order as a Qualified Domestic Relations Order under this Section 11.08
even if such order does not meet the requirements therefor.
(b) PLAN PROCEDURES RELATIVE TO QUALIFIED DOMESTIC RELATIONS
ORDERS.
(1) NOTIFICATION. Following its receipt of any Domestic Relations
Order, the Committee shall promptly notify in writing the
affected Participant or former Participant and Alternate
Payee(s) of its receipt of the order, and shall furnish such
persons a copy of the order and of these Plan procedures (and
any other procedures which may have been adopted by
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the Committee) for determining whether the order is a Qualified
Domestic Relations Order. Such notice and all other notices
pursuant to this Section 11.08 will be sent to the address
included in the Domestic Relations Order (or to such other
address as is known to the Committee or as may thereafter be
specified in writing by the addressee). Any Alternate Payee
shall be permitted to designate a representative for receipt of
copies of notices that are to be sent to the Alternate Payee.
Such notice shall set a time and date no less than fifteen (15)
days after the date of such notice on which the Committee will
meet to determine whether the order is a Qualified Domestic
Relations Order and shall inform the Participant and Alternate
Payee that they may present written or oral comments at that
time with regard to such determination.
(2) DETERMINATION OF COMMITTEE. On the date specified in the above
described notice, the Committee shall examine the Domestic
Relations Order in light of any comments received and in light
of applicable law and regulations, and shall make one of three
determinations: (i) that the order is a Qualified Domestic
Relations Order; (ii) that the order is not a Qualified
Domestic Relations Order; or (iii) that the determination of
whether the order is a Qualified Domestic Relations Order
should be submitted to and made by a court of competent
jurisdiction. If, within eighteen (18) months from the date on
which the first payment of benefits would be required to be
made under such order, it is determined by the Committee or a
court of competent jurisdiction that the order (or modification
thereof) is a Qualified Domestic Relations Order, then the
Committee shall pay any separately allocated amounts (plus
income or other allocated interest or earnings thereon) to the
specified Alternate Payee, and thereafter shall pay the
Alternate Payee the amount specified by the Qualified Domestic
Relations Order. If, within the aforesaid eighteen (18) month
period, it is determined by the Committee or a court of
competent jurisdiction that the order is not a Qualified
Domestic Relations Order, or the question of whether the order
is a Qualified Domestic Relations Order is not determined by
the Committee or a court of competent jurisdiction, then the
Committee shall pay any amounts (plus any income or other
allocated interest or earnings thereon) separately accounted
for as described below to the applicable Participant, former
Participant or other person or persons who would have been
entitled thereto if there had been no Domestic Relations Order.
Any determination after the close of the aforesaid eighteen
(18) month period shall be applied prospectively only.
(3) SEPARATE ACCOUNTING OF PARTICIPANT'S AND ALTERNATE PAYEE'S
BENEFITS. During any period in which a Participant otherwise
would have had a
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right to payment of Plan benefits and in which the issue of
whether an order is a Qualified Domestic Relations Order is
being determined, the Committee shall separately account for
the amounts as to which the Participant or former Participant
otherwise would have had a right to payment during such period
and the amounts which would have been payable to the Alternate
Payee during such period if the order had been determined to be
payable to such Alternate Payee in accordance with a Qualified
Domestic Relations Order shall not be considered to be part of
such Participant's Accounts with respect to any other spouse or
Beneficiary of such Participant.
(c) DEFINITIONS.
(1) ALTERNATE PAYEE. Any spouse, former spouse, child or other
dependent of a Participant or former Participant who is
recognized by a Domestic Relations Order as having a right to
receive all, or a portion, of the benefits payable under the
Plan with respect to such Participant or former Participant.
(2) DOMESTIC RELATIONS ORDER. Any judgment, decree or order
(including approval of a property settlement agreement) which
relates to the provision of child support, alimony payments or
marital property rights to a spouse, former spouse, child or
other dependent of a Participant, and is made pursuant to a
state's domestic relations law or community property law.
(3) QUALIFIED DOMESTIC RELATIONS ORDER. A Domestic Relations Order
which:
(A) Creates or recognizes the existence of an Alternate
Payee's right to, or assigns to an Alternate Payee the
right to, receive all or a portion of the Plan benefits
payable with respect to a Participant or former
Participant; and
(B) In the order clearly specifies (w) the name and last
known mailing address (if any) of such Participant or
former Participant, and of each Alternate Payee covered
by the order, (x) the amount or percentage of such
Participant's or former Participant's benefits to be
paid by the Plan to each Alternate Payee, or the manner
in which such amount or percentage is to be determined,
(y) the number of payments or period to which such
order applies and (z) each plan to which such order
applies; and
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(C) Does not require the Plan to provide any type or form
of benefit, or any option, not otherwise provided by
the Plan; and
(D) Does not require the Plan to provide increased
benefits, determined on the basis of actuarial value;
and
(E) Does not require the payment of benefits to an
Alternate Payee under another order previously
determined to be a Qualified Domestic Relations Order;
and
(F) In the case of any payment before such Participant
has separated from Service, does not require
payment to the Alternate Payee before the earlier
of (x) the date such Participant or former
Participant attains age fifty (50), or (y) the
earliest date on which he could begin receiving
benefits if he separated from Service; and
(G) Requires payment in a form provided by the Plan. In no
event may payment be in the form of a joint and
survivor annuity with respect to an Alternate Payee and
his subsequent spouse.
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ARTICLE XII
DETERMINATION OF SERVICE
12.01 CONTINUOUS SERVICE. The term "Continuous Service" as used in
the Plan means service with the Company or any Affiliated Company, including
service prior to the adoption of the Plan, whether on a salaried or hourly
basis, calculated from the Employee's most recent employment commencement date
(which means, in the case of a Break in Continuous Service, that Continuous
Service shall be calculated from his reemployment commencement date following
the last unremoved Break in Continuous Service) to his Break in Continuous
Service in accordance with the following provisions:
(a) An Employee's employment commencement date shall be the first
date on which he performs an Hour of Service for the Company.
(b) An Employee shall incur a 1-year Break in Continuous Service
upon the completion of a 12-consecutive month period beginning on the date on
which he incurs a Break in Continuous Service as provided in Section 12.02,
during which period the Employee did not perform an Hour of Service.
(c) There shall be no deduction for any time lost which does not
constitute a Break in Continuous Service.
12.02 BREAK IN CONTINUOUS SERVICE.
(a) An employee shall incur a Break in Continuous Service upon:
(1) Retirement or death;
(2) quit, discharge or other termination of employment by action of
the Company; or
(3) failure to return to work upon expiration of an approved leave
of absence.
(b) Continuous Service shall not be considered broken for any
Employee who (i) has entered the military, naval or merchant marine service of
the United States if such Employee complies with the requirements of
reemployment laws applicable to him and is reemployed; (ii) is on an approved
leave of absence; or (iii) is receiving benefits under an Employer's long-term
disability policy.
(c) In the case of an Employee who is absent from work for
maternity or paternity reasons, the twelve (12) consecutive month period
beginning on the first anniversary
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of the first date of such absence shall not constitute a one (1) year Break in
Continuous Service. For purposes of the previous sentence, an absence from work
for maternity or paternity reasons means an absence (i) by reason of the
pregnancy of the Employee, (ii) by reason of the birth of a child of the
Employee, (iii) by reason of the placement of the child with the Employee in
connection with the adoption of such child by such Employee, or (iv) for
purposes of caring for such child for a period beginning immediately following
such birth or placement.
(d) Notwithstanding any other provision in subsection (a) of this
Section 12.02, an Employee shall not be deemed to incur a Break in Continuous
Service until the expiration of the twelve (12) consecutive month period
following the date the Employee was first absent from work for any reason other
than retirement, quit or discharge, during which he did not perform an Hour of
Service for the Company or Affiliated Company.
(e) An Employee who incurs a Break in Continuous Service on account
of Retirement, quit or discharge and who thereafter performs an Hour of Service
with the Company within the twelve (12) consecutive month period of severance
between the break and performance of an Hour of Service for the purpose of
vesting under the Plan.
(f) In the case of a reemployed Employee who was not a Participant
in the Plan during his prior period of employment or in the case of a
Participant whose prior employment terminated without a Capital Accumulation,
any Continuous Service attributable to his prior period of employment will be
restored only if such aggregate number of years of Continuous Service prior to
such termination equals or exceeds the greater of (i) five (5) years or (ii) the
Employee's prior period of severance.
12.03 AFFILIATED COMPANIES. Notwithstanding any provisions in
Sections 12.01 and 12.02, and solely for the purposes of vesting under the Plan,
Continuous Service shall include service in the employ of any Affiliated Company
which has adopted the Plan.
ARTICLE XIII
PLAN ADMINISTRATION
13.01 NAMED FIDUCIARIES. The Committee and the Company shall each be
a "named fiduciary" within the meaning of Section 402 of ERISA, but each such
party's role as a named fiduciary shall be limited solely to the exercise of its
own authority and discretion, as defined under the terms of the Plan, to control
and manage the operation and administration of the Plan (other than authority
and discretion assigned under this Plan, or delegated pursuant thereto, to the
Trustee). A named fiduciary may designate other persons who are not named
fiduciaries to carry out its fiduciary responsibilities hereunder, and any such
person shall become a fiduciary under the Plan with respect to such delegated
responsibilities. In the event
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of such a designation, the named fiduciary shall not be liable for an act or
omission of the designee in carrying out responsibilities delegated to him
except to the extent provided in Section 405 of ERISA. Article IX describes
circumstances under which Participants shall be named fiduciaries for certain
purposes under the Plan.
13.02 FIDUCIARY LIMITATIONS. Named fiduciaries under the Plan, as
well as the Trustee and any other person who may be a fiduciary by virtue of
Section 3(21) of ERISA, shall exercise and discharge their respective powers and
duties in the following manner:
(a) By acting solely in the interest of the Participants and their
Beneficiaries;
(b) By acting for the exclusive purpose of providing benefits to
Participants and their Beneficiaries and defraying reasonable expenses of
administering the Trust Assets and Plan;
(c) By acting with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent man acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims; and
(d) By otherwise acting in accordance with the Plan and Trust
Agreement to the extent consistent with Title I of ERISA.
13.03 COMPANY RESPONSIBILITIES. The Company, acting through the
Board of Directors, shall have the authority to amend or terminate the Plan
pursuant to the provisions of Article XIV, to determine the amount of Employer
Contributions to the Plan pursuant to Article V, to appoint a Trustee and
Committee, to approve the adoption of the Plan by any other Employer and to act
as agent for any Affiliated Company which has adopted the Plan. Whenever the
Company is permitted or required to do or perform any act under the terms of
this Plan, it shall be done and performed by any officer duly authorized by the
Board of Directors. To enable the Committee to perform its duties, the Company
shall supply completely and timely all information which the Committee may from
time to time require.
13.04 TRUSTEE RESPONSIBILITIES. The Trustee shall have, to the
extent set forth in the Trust Agreement, authority and discretion to receive,
hold and distribute Trust Assets, fiduciary responsibilities in connection with
the exercise of such authority and discretion and a duty to issue reports and
otherwise to account to the Company and the Committee. All contributions under
the Plan shall be paid over to the Trustee and, together with accretions
thereto, shall be invested by the Trustee in accordance with the directions
permitted under the Plan and Trust Agreement.
13.05 APPOINTMENT OF COMMITTEE. The Plan will be administered by a
Committee composed of individuals appointed by the Board of Directors of the
Company to
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serve at its pleasure. A member of the Committee may be removed by the Board of
Directors at any time with or without cause upon written notice from the Board
of Directors, and any member of the Committee may resign by delivering his
written resignation to the Board of Directors.
13.06 ORGANIZATION AND POWERS OF THE COMMITTEE.
(a) A majority of the members of the Committee at the time in
office may do any act which the Plan authorizes or requires the full Committee
to do, and the action of such majority of the members expressed from time to
time by a vote at a meeting, or in writing without a meeting, shall constitute
the action of the Committee and shall have the same effect for all purposes as
if assented to by all the members in office at the time. A member of the
Committee who is also a Participant in the Plan shall not vote or act on any
matter relating solely to himself. Any one member of the Committee may advise
the Trustee in writing with respect to any action taken by the Committee.
The Committee, as Plan administrator, shall have complete control of
the administration of the Plan with all powers necessary to enable it properly
to carry out its duties in that respect.
A benefit administrator may be appointed by the Committee. The duties
of the benefit administrator may include, but shall not be limited to, the
day-to-day supervision of the Plan, handling written requests of Participants or
Beneficiaries regarding the Plan and performing any duties with respect to
claims for benefits specified by the Committee.
The Committee and its delegates shall have sole and complete
discretion in the administration and operation of the Plan. The determination
of the Committee as to any question involving the general administration of the
Plan, including, but not limited to, determinations regarding eligibility for
participation, entitlement to benefit distributions, calculation of benefits and
the timing and form of payment of distributions, shall be conclusive, final and
binding on all parties, including the Employer, the Trustee and Participants and
Beneficiaries.
The Committee may appoint counsel or Plan consultants and hire or
retain agents and such clerical, medical and accounting services as it may
require in carrying out the provisions of the Plan.
(b) DUTIES. The Company shall administer the Plan through the
Committee as Plan administrator. As such, the Committee provides for the
necessary reporting and disclosure and appoints the Plan consultants and
certified public accountant. In addition, the Committee considers appeals and
provides for general administration of the Plan as elsewhere herein provided.
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Upon the request of the Board of Directors, the Committee shall cause
to be presented to the Board of Directors a report for the past calendar year
(or applicable period thereof) on the status of the Plan and its operation.
(c) REIMBURSEMENT OF COMMITTEE. The members of the Committee shall
serve without compensation for services as such. The Company, upon an equitable
basis, shall pay or reimburse the members of the Committee for all expenses
reasonably incurred by them in or about Committee business.
(d) CLAIMS PROCEDURE. Any claim by a Participant or Beneficiary
shall be filed in writing with the Committee. Any decision by the Committee
denying a claim by a Participant or a Beneficiary for benefits under the Plan
shall be communicated in writing to the Participant or Beneficiary, setting
forth the specific reasons for such denial. Any such Participant or Beneficiary
whose claim has been denied, or his duly authorized representative, may (i)
appeal to the Committee in writing within sixty (60) days after receipt of the
notice of denial for a full review of the decision by the Committee; (ii) review
pertinent documents; and (iii) submit issues and comments in writing. The
decision by the Committee following such review shall be made no later than
sixty (60) days after the date of receipt by the Committee of the request for
review, and shall be conclusive as to all persons affected thereby. Such
decision shall be in writing and shall include both specific reasons for the
decision, written in a manner calculated to be understood by the claimant, and
specific references to the pertinent Plan provisions on which the decision is
based.
13.07 INDEMNIFICATION. The officers, directors and employees of the
Company, and the members of the Committee, shall be entitled to indemnification
by the Company to the extent permitted under the laws of the State of Minnesota
and ERISA with regard to any fiduciary liability they or any one or more of them
may incur as a named fiduciary to or in connection with the Plan to the extent
permitted under the Company's by-laws or provided in any applicable insurance
contract(s) which may be maintained by the Company, except to the extent that
such person shall be determined to be liable by a court of competent
jurisdiction for his own willful misconduct. In addition, they each shall be
entitled to rely upon all tables, certificates and reports made by a certified
public accountant for the Plan and upon all written opinions given by any legal
counsel, to the extent it is prudent to so rely, and shall be fully protected
with respect to any action prudently taken or suffered by them in good faith
based on such reliance. The foregoing rights of indemnification shall be in
addition to such other rights as the above persons may enjoy as a matter of law
or by reason of insurance coverage of any kind.
To the extent permitted by law, except as limited by any written
agreement between the Company and the Committee, the Company shall indemnify and
save the Committee, as Plan administrator, the benefit administrator and members
of the Committee harmless against expenses, claims and liability arising out of
being the Plan administrator, the benefit administrator or a Committee member.
The Company shall maintain insurance against
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acts or omissions of the Plan administrator, the benefit administrator and the
Committee members.
ARTICLE XIV
AMENDMENT AND TERMINATION
14.01 COMPANY'S RIGHT TO AMEND. Subject to the provisions
hereinafter set forth, the Company reserves the right, at any time or from time
to time, by action of the Board of Directors, to amend in whole or in part any
or all of the provisions of this Plan; provided, however, that no such amendment
shall be made which:
(a) Will deprive any Participant of any benefit to which he has a
nonforfeitable right under Article X of this Plan; or
(b) Shall make it possible for any part of the Trust Assets or its
income to be used for, or diverted to, purposes other than for the exclusive
benefit of the Participants. No such amendment which affects the rights, duties
or responsibilities of the Trustee may be made without the Trustee's written
consent.
No amendment to the Plan shall decrease a Participant's Account
balances or eliminate an optional form of distribution. Notwithstanding the
preceding sentence, a Participant's Account balances may be reduced to the
extent permitted under Section 412(c)(8) of the Code. Furthermore, no amendment
to the Plan shall have the effect of decreasing a Participant's Capital
Accumulation determined without regard to such amendment as of the later of the
date such amendment is adopted or the date it becomes effective. If the Plan's
vesting schedule is amended, or the Plan is amended in any way that directly or
indirectly affects the computation of any Participant's nonforfeitable
percentage, or if the Plan is deemed amended by an automatic change to or from a
"top-heavy" vesting schedule, each Participant with at least five (5) years of
Service with the Employer may elect, within a reasonable period after the
adoption of the amendment or change, to have his nonforfeitable percentage
computed under the Plan without regard to such amendment or change.
14.02 MANDATORY AMENDMENTS. Notwithstanding the provisions of this
Article XIV, or of any other provision of this Plan, any amendment may be made,
retroactively if necessary, which the Company deems necessary or appropriate to
conform the Plan to, or to satisfy the conditions of, any law, government
regulation or ruling, and to permit the Plan to meet the requirements for
qualification under Sections 4975(e)(7) and 401(a) of the Code, and to permit
the Trust to meet the requirements for tax-exempt status under Section 501 of
the Code. In the event that an initial favorable determination letter from the
Internal Revenue Service is denied with respect to the adoption of this Plan,
then this Plan shall at the option of the Board of Directors be declared null
and void.
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14.03 TERMINATION. The Company shall have the right at any time to
terminate the Plan and the Trust created concurrently herewith by delivering to
the Committee written notice of such termination and by further informing the
Trustee by written notice of such termination. Each Employer reserves the right
to terminate the participation of its Employees under the Plan. Upon any such
termination, such action shall be taken as to render it impossible for any part
of the corpus of the Trust or income of the Plan to be at any time used for, or
diverted to, purposes other than for the exclusive benefit of Participants and
their Beneficiaries.
14.04 EMPLOYEE NONFORFEITABLE RIGHTS. Upon termination (or partial
termination) of the Plan within the meaning of Section 411(d)(3) of the Code or
a complete discontinuance of Employer Contributions hereunder, each Participant
(or in the case of a partial termination, each Participant affected) shall
continue to have a nonforfeitable right to one hundred (100) percent of the
balance in each of his Accounts as of the date of termination, partial
termination or complete discontinuance; provided, however, that replacement of
this Plan with a comparable plan qualified under Section 401(a) of the Code
shall not be a termination for purposes of this Section 14.04.
14.05 DISTRIBUTION UPON TERMINATION. In the event of termination of
the Plan pursuant to Section 14.03, the assets then held in Trust under the Plan
shall be distributed to the Participants in accordance with Article XI as if a
Break in Service occurred as of the date the Plan terminated.
ARTICLE XV
GENERAL PROVISIONS
15.01 PARTICIPANTS' RIGHTS. Neither the establishment of the Plan,
nor any modification hereof, nor the creation of any fund or account, nor the
payment of any benefits, shall be construed as giving to any Participant or
other person any legal or equitable right against the Company or an Affiliated
Company, or any officer or Employee thereof, or the Trustee, or the Committee,
except as herein provided. The adoption and maintenance of the Plan shall not
be deemed to constitute a contract of employment or otherwise between an
Employer and any Employee, or to be a consideration for, or an inducement or
condition of, any employment. Nothing contained herein shall be deemed to give
an Employee the right to be retained in the service of an Employer or otherwise
interfere with the right of an Employer to discharge, with or without cause, any
Employee at any time.
15.02 SPENDTHRIFT CLAUSE. No benefit which shall be payable out of
the Trust Assets to any Participant and/or his Beneficiary shall be subject in
any manner to any voluntary or involuntary anticipation, alienation, sale,
transfer, assignment, garnishment, pledge, encumbrance or charge, and any
attempt to anticipate any such benefit shall be void;
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and no such benefit shall in any manner be liable for or subject to the debts,
contracts, liabilities, engagements or torts of any such Participant and/or his
Beneficiary nor shall it be subject to attachment or legal process for or
against such person, and the same will not be recognized by the Trustee except
to such an extent as may be required by law. The limitations contained in this
Section 15.02 shall apply to the creation, assignment or recognition of a right
to any benefit payable with respect to a Participant pursuant to a Domestic
Relations Order unless such order is determined to be a Qualified Domestic
Relations Order as defined in Section 414(p) of the Code, and as defined in
Section 11.08(c)(3).
15.03 COMPANY'S LIABILITY. All Capital Accumulations will be paid
only from the Trust Assets, and neither the Company nor any Employer nor the
Committee nor the Trustee shall have any duty or liability to furnish the Trust
with any funds, securities or other assets, except as expressly provided in the
Plan.
15.04 MERGER OR CONSOLIDATION. In the event of a merger or
consolidation of the Plan with, or transfer in whole or in part of the Trust
Assets or liabilities to, another trust fund held under any other plan of
deferred compensation maintained or to be established for the benefit of all or
some of the Participants, Trust Assets or liabilities shall be transferred to
the other trust fund only if each Participant or Beneficiary would be entitled
to a benefit immediately after the merger, consolidation or transfer (assuming
the other plan and trust had then terminated) which is equal to or greater than
the benefit to which he would have been entitled to receive immediately before
the merger, consolidation or transfer (as if the Plan had then terminated).
15.05 GOVERNING LAW. This Plan shall be construed according to the
laws of the State of Minnesota and all provisions hereof shall be administered
according to, and its validity shall be determined under, the laws of such
State, except to the extent that such laws have been specifically preempted by
ERISA or other federal legislation.
15.06 LEGAL ACTION. In any action or proceeding involving the Trust,
or any property constituting part or all thereof, or the administration thereof,
Employees or former Employees of the Company or an Affiliated Company or the
Beneficiaries or any other person having or claiming to have an interest in the
Trust Assets or under the Plan shall not be necessary parties nor entitled to
any notice of process.
15.07 BINDING ON ALL PARTIES. Any applicable final judgment which is
not appealed or appealable that may be entered in any legal action or proceeding
shall be binding and conclusive on the Committee and all persons having or
claiming to have an interest in the Trust Assets or under the Plan.
15.08 HEADINGS. The headings of the Plan are inserted for
convenience of reference only and are not to be considered in the construction
or the interpretation of the Plan.
36
<PAGE>
15.09 SEVERABILITY OF PROVISIONS. If any provision of the Plan is
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision, and the Plan shall be construed and enforced as
if such provision had not been included.
15.10 SERVICE OF PROCESS. The Committee is the designated agent of
the Plan for the service of process in connection with all matters affecting the
Plan.
ARTICLE XVI
TOP-HEAVY COMPLIANCE PROVISIONS
16.01 PURPOSE. The purpose of this Article XVI of the Plan is to
comply with the special rules applicable to "top-heavy" plans contained in
Section 416 of the Code, as added by Section 240 of the Tax Equity and Fiscal
Responsibility Act of 1982, and the appropriate Regulations of the Internal
Revenue Service thereunder, including Treasury Regulation Section 1.416-1 and
successor Regulations. The rules set forth in this Article XVI shall be
operative if the Plan is, or becomes, "top-heavy" within the meaning of
Section 416 of the Code and the Regulations thereunder. In the event that by
statutory repeal or amendment, or regulatory change or ruling by the Internal
Revenue Service, any of the limitations or restrictions of this Article XVI are
no longer necessary in order for the Plan to meet the requirements of
Section 416 of the Code or other applicable provisions of the Code then in
effect, such limitations or restrictions shall immediately become null and void
and shall no longer apply without the necessity of further amendment to the
Plan.
16.02 DEFINITIONS. For purposes of this Article XVI only, the
following terms shall have the meanings set forth below:
(a) "Determination Date" means, as to any Plan Year, the last day
of any preceding Plan Year or, in the case of the first Plan Year, the last day
of such Plan Year.
(b) "Key Employee" means any Employee, or former Employee, or
Beneficiary of either, who at any time during the Plan Year or the four (4)
preceding Plan Years, is:
(1) an officer of an Employer having an annual Section 414(s)
Compensation greater than the amount determined by multiplying
one hundred fifty (150) percent of the dollar limitation under
Section 415(c)(1)(A) of the Code;
37
<PAGE>
(2) one of the 10 (ten) Employees owning the largest interests in
an Employer having an annual Section 414(s) Compensation at
least equal to the dollar limitation under Section 415(c)(1)(A)
of the Code;
(3) a five (5) percent owner of an Employer; or
(4) a one (1) percent owner of an Employer having aggregate annual
Section 414(s) Compensation of $50,000 or more from the
Employer and all entities required to be aggregated with the
Employer under Sections 414(b), (c) and (m) of the Code.
For purposes of subparagraphs (2), (3) and (4) above, owners of an
Employer shall include those considered as owners within the meaning of
Section 318 of the Code. In identifying the top ten (10) Employee owners under
Section 16.02(b)(2), only owners of greater than a one-half (1/2) percent
interest will be considered, and if several Employees have equal ownership
interests, those Employees with higher Section 414(s) Compensation shall be
treated as having a greater ownership interest.
The determination of who is a Key Employee shall be made in accordance
with Section 416(i) of the Code and the Regulations thereunder, the provisions
of which are incorporated herein by reference.
As used herein, the term non-Key Employee shall mean any employee who
is not a Key Employee.
(c) "Valuation Date" means the most recent Valuation Date occurring
within the twelve (12) month period ending on the Determination Date.
16.03 DETERMINATION OF WHETHER PLAN IS "TOP-HEAVY." The Plan will
be deemed to be "top-heavy" in any Plan Year if, as of the Determination Date,
the sum of the present value of accrued benefits of Key Employees exceeds sixty
(60) percent of the sum of the present value of accrued benefits of all
Participants, excluding former Key Employees. As used in this Section 16.03,
the present value of accrued benefits includes the amounts attributable to
Employer Contributions allocated to the individual accounts of Participants and
former Participants. The determination of whether the Plan is "top-heavy" and
the extent to which distributions, rollovers and transfers are taken into
account in such calculation shall be made in accordance with Section 416 of the
Code and the regulations thereunder which are herein incorporated by reference.
Furthermore, a former Participant's Account balances are to be disregarded in
determining whether the Plan is "top-heavy" unless the Participant performed any
services for an Employer within the five (5) year period ending on the
Determination Date.
38
<PAGE>
16.04 AGGREGATION GROUP OF EMPLOYER PLANS. All corporations and
businesses that are aggregated under Sections 414(b), (c) and (m) of the Code
with the Employer must be considered with the Employer for the purposes of
determining whether the Plan is "top-heavy." All plans of the Employer in which
a Key Employee participates, and each other stock bonus, pension or profit
sharing plan, if any, of the Employer which enables any plan in which a Key
Employee participates to meet the requirements of Section 401(a)(4) or
Section 410 of the Code, will be aggregated as a required aggregation group
within the meaning of Section 416(g) of the Code. Each plan in the required
aggregation group will be "top-heavy" if the group is "top-heavy," and no plan
in the group will be top-heavy if the group is not "top-heavy."
In addition, the Employer may elect to include as part of the
permissive aggregation group under Section 416(g) of the Code any plans that are
not part of a required aggregation group but that satisfy the requirements of
Sections 401(a)(4) and 410 of the Code when considered together with the plans
constituting the required aggregation group. If the permissive aggregation
group is "top-heavy," only those plans which are part of the required
aggregation group will be subject to the additional requirements applicable to
"top-heavy" plans as herein provided.
16.05 SPECIAL MINIMUM CONTRIBUTION BECOMING OPERATIVE IN THE EVENT
THE PLAN BECOMES "TOP-HEAVY." In the event that the Plan shall be determined to
be "top-heavy" as to any Plan Year, the Employer Contributions allocated to the
Accounts under the Plan of a non-Key Employee for each Plan Year in which the
Plan is "top-heavy" shall equal the lesser of (a) three (3) percent of Section
414(s) Compensation for such Plan Year and (b) the largest percentage of Section
414(s) Compensation, subject to the Compensation Limitation, allocated to the
Accounts of a Key Employee under the Plan for that Plan Year.
All Participants who have not terminated employment as of the last day
of the Plan Year must receive the minimum contribution. Employees who (a)
failed to complete one thousand (1,000) Hours of Service during the Plan Year,
(b) declined to make mandatory contributions to the Plan or (c) would have been
excluded from the Plan because their Compensation is less than a stated amount,
must nevertheless be considered Participants for purposes of the minimum
contribution in this Section 16.05 if such Employees are required to satisfy the
coverage requirements of Section 410(b) of the Code in accordance with
Section 401(a)(5) of the Code. The minimum contribution is determined without
regard to any Social Security contribution.
16.06 PRE-"TOP-HEAVY" PLAN TERMINATED PARTICIPANT. This Article XVI
shall not apply to any Participant who does not complete an Hour of Service
after the Plan becomes "top-heavy."
16.07 SPECIAL "TOP-HEAVY" REDUCTION IN COMBINED BENEFIT AND
CONTRIBUTION LIMITATION. In the event that the Plan shall be determined to be
"top-heavy" in any Plan Year,
39
<PAGE>
the multiple applicable to the dollar limitation in the denominator of the
defined benefit fraction described in Section 7.03 of the Plan and the multiple
applicable to the dollar limitation in the denominator of the defined
contribution fraction described in Section 7.03 of the Plan shall be one (1)
rather than one and one-quarter (1.25); provided, however, that this
Section 16.07 shall not apply in the event that the Plan is not a "super
top-heavy" plan as defined in Section 16.10(a) and each Participant who is a
non-Key Employee shall receive the minimum contribution set forth in Section
16.05, except that the multiple in clause (a) of Section 16.05 shall be four (4)
percent rather than three (3) percent.
16.08 TERMINATION OF "TOP-HEAVY" STATUS. In the event that the Plan
shall be "top-heavy" within the meaning of Section 416 of the Code for any Plan
Year, and in a subsequent Plan Year the Plan shall cease to be "top-heavy," the
special "top-heavy" minimum contribution and Compensation Limitation Rules shall
cease to apply with respect to any Plan Year for which the Plan is not
"top-heavy"; provided, however, that in no event shall a reduction in a
Participant's nonforfeitable percentage occur by reason of a change in the
Plan's status.
16.09 MULTIPLE "TOP-HEAVY" PLANS. In the event that a Participant in
the Plan is also participating in a defined benefit plan maintained by an
Employer or an affiliated employer during a Plan Year in which both the Plan and
such defined benefit plan are "top-heavy," the Participant shall receive the
minimum accrued benefit under the defined benefit plan rather than the minimum
contribution provided for in this Plan.
16.10 EFFECT OF THE PLAN BECOMING "SUPER TOP-HEAVY".
(a) The Plan shall be deemed to be "super top-heavy" if, as of the
most recent Valuation Date, the sum of the present value of accrued benefits for
Key Employees is more than ninety (90) percent of the sum of the present value
of accrued benefits for all Employees, excluding former Key Employees.
(b) In the event that the Plan shall be determined to be "super
top-heavy" in any Plan Year, the multiple applicable to the dollar limitation in
the denominator of the defined benefit fraction described in Section 7.03 of the
Plan and the multiple applicable to the dollar limitation in the denominator of
the defined contribution fraction described in Section 7.03 of the Plan shall be
one (1) rather than one and one-quarter (1.25).
ARTICLE XII
DIRECT ROLLOVER AND ELIGIBLE ROLLOVER DISTRIBUTIONS
40
<PAGE>
17.01 PURPOSE. This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Section, a distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
17.02 DEFINITIONS.
(a) ELIGIBLE ROLLOVER DISTRIBUTION. An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include:
(1) Any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period
of ten years or more;
(2) Any distribution to the extent such distribution is required
under Section 401(a)(9) of the Code; and
(3) The portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(b) ELIGIBLE RETIREMENT PLAN. An eligible retirement plan is an
individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.
(c) DISTRIBUTEE. A distributee includes an employee or former
employee. In addition, the employee's or former employee's surviving spouse and
the employee's or former employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
(d) DIRECT ROLLOVER. A direct rollover is a payment by the Plan to
the eligible retirement plan specified by the distributee.
41
<PAGE>
ARTICLE XVIII
EXECUTION
To record the adoption of the Plan, the Employer has caused its proper
officer to set his hand as of the 17th day of November, 1997.
POLARIS INDUSTRIES INC.
By: /s/Michael Malone
--------------------------------------------------
Title: Vice President and Chief Financial Officer
-----------------------------------------------
42
<PAGE>
EXHIBIT 10(E)
FOURTH AMENDMENT TO
CREDIT AGREEMENT
This Fourth Amendment to Credit Agreement, dated as of March 31, 1997
("Fourth Amendment"), is made by and between POLARIS INDUSTRIES INC., a
Minnesota corporation (the "Borrower"); FIRST BANK NATIONAL ASSOCIATION, BANK OF
AMERICA ILLINOIS and FIRST UNION NATIONAL BANK OF NORTH CAROLINA (collectively,
the "Banks"); and FIRST BANK NATIONAL ASSOCIATION, as administrative agent for
the Banks (the "Administrative Agent").
WHEREAS, the Borrower, the Banks and the Administrative Agent have entered
into that certain Credit Agreement dated as of May 8, 1995, as amended by First
Amendment to Credit Agreement dated as of November 15, 1995, Second Amendment to
Credit Agreement dated as of February 13, 1996 and Third Amendment to Credit
Agreement dated as of September 30, 1996 (as so amended, the "Credit
Agreement").
WHEREAS, the Borrower has requested the Banks and the Administrative Agent
to modify certain provisions of the Credit Agreement, and the Banks and the
Administrative Agent are willing to do so on the terms and conditions set forth
herein.
NOW THEREFORE, in consideration of the premises and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree to be bound as follows:
Section 1. CAPITALIZED TERMS. All capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to them in the
Credit Agreement.
Section 2. AMENDMENTS.
(a) The definitions of "Guarantors," "Revolving Commitment Amount"
and "Revolving Note" in Section 1.1 of the Credit Agreement are amended to read
in their entirety as follows:
"GUARANTORS": Collectively, Polaris Acceptance Inc., Polaris
Industries Inc., Polaris Industries Export Ltd., Polaris Real Estate
Corporation of Iowa, Inc., Polaris Real Estate Corporation and any
Additional Guarantors.
"REVOLVING COMMITMENT AMOUNT": With respect to a Bank:
(a) during the period ending on and including March 31, 1998, the
amount set opposite such Bank's name in the table immediately below or as
specified in the most
<PAGE>
recent Assignment Agreement to which such Bank is a party, but as the same
may be from time to time reduced pursuant to Section 2.14:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bank Revolving Commitment Amount Prior to
---- ------------------------------------
April 1, 1998
-------------
- --------------------------------------------------------------------------------
<S> <C>
First Bank National Association $54,000,000
- --------------------------------------------------------------------------------
Bank of America Illinois $48,000,000
- --------------------------------------------------------------------------------
First Union National Bank of North $48,000,000
Carolina
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(b) during the period beginning on April 1, 1998 and ending on the
Revolving Commitment Date, the amount set opposite such Bank's name in the
table immediately below or as specified in the most recent Assignment
Agreement to which such Bank is a party, but as the same may be from time
to time reduced pursuant to Section 2.14:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bank Revolving Commitment Amount on and
---- ----------------------------------
after April 1, 1998
-------------------
- --------------------------------------------------------------------------------
<S> <C>
First Bank National Association $45,000,000
- --------------------------------------------------------------------------------
Bank of America Illinois $40,000,000
- --------------------------------------------------------------------------------
First Union National Bank of $40,000,000
North Carolina
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
"REVOLVING NOTE": A promissory note of the Borrower in the form of
Exhibit 1.1-2-4 hereto.
(b) The definition of "Co-Lead Manager" is deleted from Section 1.1
of the Credit Agreement, and a new definition of "Documentation Agent" is added
to Section 1.1 of the Credit Agreement, in appropriate alphabetical order, to
read in its entirety as follows:
"DOCUMENTATION AGENT": Each of Bank of American Illinois and First
Union National Bank of North Carolina.
(c) Section 2.6 of the Credit Agreement is amended to read in its
entirety as follows:
Section 2.6 REPAYMENT. On April 1, 1998, the Borrower shall pay
the amount, if any, by which the unpaid principal amount of all Advances
exceeds the Aggregate
2
<PAGE>
Revolving Commitment Amounts as of April 1, 1998. The unpaid principal
amount of all Advances, together with all accrued and unpaid interest
thereon, shall be due and payable on the Termination Date.
(d) Section 2.20 of the Credit Agreement is amended by deleting the
date "March 31, 1998" therefrom and inserting the date "March 31, 2000" in its
place.
(e) Sections 6.12 and 6.13 of the Credit Agreement are amended to
read in their entirety as follows:
Section 6.12 CONTINGENT LIABILITIES. The Borrower will not, and
will not permit any Subsidiary to, be or become liable on any Contingent
Obligations except: (i) Contingent Obligations existing on the date of
this Agreement and described on Exhibit 6.12-4; (ii) the Borrower's
guarantee of up to a percentage of Acceptance Partnership's Indebtedness
under the Acceptance Partnership Credit Agreement equal to PAI's percentage
ownership of Acceptance Partnership and the Borrower's guarantee of PAI's
obligation to make additional capital contributions to Acceptance
Partnership, PROVIDED that the Borrower's maximum liability under such
guarantee does not exceed $250,000,000 (with respect to loans) and
$50,000,000 (with respect to capital contributions); (iii) PAI's liability
as general partner for up to a percentage of Acceptance Partnership's
Indebtedness under the Acceptance Partnership Credit Agreement equal to
PAI's percentage ownership of Acceptance Partnership, PROVIDED that PAI's
maximum liability with respect thereto does not exceed $250,000,000; and
(iv) PAI's obligation to make additional capital contributions to
Acceptance Partnership, PROVIDED that the sum of such obligation, to the
extent quantified at any time, and all Investments in Acceptance
Partnership then existing does not exceed $50,000,000.
Section 6.13 TANGIBLE NET WORTH. The Borrower will not permit its
Tangible Net Worth at any time to be less than: (a) $50,000,000 at all
times until December 31, 1996; (b) $75,000,000 at all times on and after
December 31, 1996, until December 31, 1997; (b) $100,000,000 at all times
on and after December 31, 1997, until December 31, 1998; and
(d) $125,000,000 at all times on and after December 31, 1998.
(f) Section 9.6(c) of the Credit Agreement is amended by adding a new
sentence to the end thereof, to read in its entirety as follows:
If an Assignment Agreement is executed prior to April 1, 1998, it shall
specify the Revolving Commitment of the assigning Bank and the Assignee
both before and after April 1, 1998, and the Revolving Percentages of each
of the assigning Bank and the Assignee shall be the same before and after
April 1, 1998.
3
<PAGE>
(g) Exhibits 1.1-2 and 6.12 are deleted from the Credit Agreement and
new Exhibits 1.1-2-4 and 6.12-4, in the forms of Exhibits 1.1-2-4 and 6.12-4
attached hereto, are added to the Credit Agreement.
Section 3. CONDITIONS TO EFFECTIVENESS OF FOURTH AMENDMENT. The
Amendments contained in this Fourth Amendment shall not become effective until,
and shall become effective when, the Administrative Agent shall have received
each of the following, in sufficient number to distribute to each Bank.
(a) The Agent shall have received, with a counterpart for each Bank,
this Amendment, duly executed by the Borrower, the Banks and the Agent, and
consented to by the Guarantors;
(b) The Agent shall have received a Revolving Note in the form of
Exhibit 1.1-2-4 to this Amendment, duly executed by the Borrower, payable
to each Bank in the amount shown as that Bank's Revolving Commitment Amount
in clause (a) of the definition of that term in Section 1.1, as amended by
this Agreement (each, a "Replacement Revolving Note;" collectively as to
all the Banks, the "Replacement Revolving Notes");
(c) The Agent shall have received, with a counterpart for each Bank,
a copy of resolutions adopted by the Borrower, authorizing the execution,
delivery and performance of this Amendment and the Replacement Revolving
Notes by the Borrower, certified by the Borrower's secretary or assistant
secretary;
(d) The Agent shall have received, with a counterpart for each Bank,
a copy of resolutions adopted by each Guarantor, authorizing the execution,
delivery and performance of that Guarantor's consent to this Amendment,
certified by that Guarantor's secretary or assistant secretary;
(e) The Agent shall have received, with a counterpart for each Bank,
a certificate signed by the secretary or assistant secretary of the
Borrower certifying (i) as to the incumbency of the person or persons
authorized to execute and deliver on behalf of the Borrower this Amendment
and the Replacement Revolving Notes, and (ii) that the articles or
certificate of incorporation and bylaws of the Borrower have not been
repealed, rescinded, amended or otherwise modified since copies of the same
were delivered to the Banks on or about May 8, 1995, pursuant to Section
3.1 of the Credit Agreement;;
(f) The Agent shall have received, with a counterpart for each Bank,
a certificate signed by the secretary or assistant secretary of each
Guarantor certifying (i) as to the incumbency of the person or persons
authorized to execute and deliver on behalf of that Guarantor its consent
to this Amendment, and (ii) that the articles or certificate of
incorporation and bylaws of that Guarantor have not been repealed,
rescinded, amended
4
<PAGE>
or otherwise modified since copies of the same were delivered to the Banks
on or about (x) May 8, 1995, pursuant to Section 3.1 of the Credit
Agreement, or (y) the date such Guarantor became a Guarantor, pursuant to
Section 6.5 of the Credit Agreement;
(g) The Agent shall have received certificates of good standing for
the Borrower and each Guarantor, in the jurisdiction of its incorporation
or organization, in the State of Iowa (with respect to the Borrower), in
the State of Wisconsin (with respect to Polaris Real Estate Corporation),
in the State of Iowa (with respect to Polaris Real Estate Corporation of
Iowa), and in the State of Minnesota (with respect to Polaris Industries
Inc.), certified by the appropriate governmental officials as of a date not
more than 15 days prior to the date hereof;
(h) The Agent shall have received, for the account of each Bank, a
written opinion from Kaplan, Strangis & Kaplan, P.A. covering the matters
set forth on Exhibit A attached hereto; and
(i) The Agent shall have received, with a counterpart for each Bank,
such other documents, instruments, approvals, and, if requested by the
Agent, certified duplicates of executed copies thereof, that the Agent may
reasonably request.
Upon execution and delivery by the Borrower of the Replacement Revolving Notes
and the satisfaction of all of the conditions specified in this Section 3: (i)
all amounts of principal and interest due and payable on those certain Revolving
Notes dated May 8, 1995, in the aggregate principal amount of $125,000,000,
shall be due and payable under the appropriate Replacement Revolving Notes; and
(ii) each reference to the Revolving Notes in the Credit Agreement, any Loan
Document or any other document related thereto shall be deemed to be a reference
to the Replacement Revolving Notes in the form of Exhibit 1.1-2-4 attached
hereto.
Section 4. ACKNOWLEDGMENT. The Borrower acknowledges and agrees that
its obligations to the Banks and the Administrative Agent under the Credit
Agreement, as amended hereby, and the Revolving Notes exist and are owing
without offset, defense or counterclaim assertable by the Borrower against the
Banks and the Administrative Agent.
Section 5. EFFECT OF FOURTH AMENDMENT; REPRESENTATIONS AND WARRANTIES;
NO WAIVER. The Banks, the Administrative Agent and the Borrower agree that
after this Fourth Amendment becomes effective, the Credit Agreement, as hereby
amended, shall remain in full force and effect. The Borrower represents and
warrants that on and as of the date hereof and after giving effect to this
Fourth Amendment: (i) all of the representations and warranties contained in
the Credit Agreement are correct and complete in all material respects as of the
date hereof, as though made on and as of such date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case they were true and correct as of such earlier date; (ii) there will exist
no Default or Event of Default on such date; (iii) there has been no change in
any of the certificates or articles of incorporation, bylaws or partnership
agreements of the Borrower or any
5
<PAGE>
Guarantor since the Closing Date or (if later) the date such Guarantor became a
Guarantor; (iv) the Borrower has the power and legal right and authority to
enter into this Fourth Amendment; (v) neither this Fourth Amendment, nor the
agreements contained herein or therein contravene or constitute a default under
any agreement, instrument or indenture to which the Borrower is a party or
signatory or a provision of the Borrower's articles of incorporation or, to the
best of Borrower's knowledge, any other agreement or requirement of law; and
(vi) no consent, approval or authorization of or registration or declaration
with any Person, including but not limited to any governmental authority, is
required in connection with the execution and delivery by the Borrower of this
Fourth Amendment, or the performance of obligations of the Borrower herein or
therein described.
Section 6. INCORPORATION OF CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS
BY REFERENCE; RATIFICATION OF LOAN DOCUMENTS. Except as expressly modified
under this Fourth Amendment, all of the terms, conditions, provisions,
agreements, requirements, promises, obligations, duties, covenants and
representations of the Borrower under the Credit Agreement, the Revolving Notes
and any and all other documents and agreements entered into with respect to the
obligations under the Credit Agreement are incorporated herein by reference and
are hereby ratified and affirmed in all respects by the Borrower. All
references in the Credit Agreement to "this Agreement," "herein," "hereof," and
similar references, and all references in the other Loan Documents to the
"Credit Agreement," shall be deemed to refer to the Credit Agreement, as amended
by this Fourth Amendment.
Section 7. MERGER AND INTEGRATION, SUPERSEDING EFFECT. This Fourth
Amendment, from and after the date hereof, embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes and has merged into it all prior oral and written
agreements on the same subjects by and between the parties hereto with the
effect that this Fourth Amendment shall control.
Section 8. EXPENSES. As provided in Section 9.2 of the Credit
Agreement, the Borrower agrees to pay all of the expenses, including reasonable
attorneys' fees and expenses, incurred by the Administrative Agent in connection
with this Fourth Amendment.
Section 9. COUNTERPARTS. This Fourth Amendment may be executed in any
number of counterparts, and by the parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original but all such
counterparts together shall constitute but one and the same instrument.
Section 10. GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS FOURTH AMENDMENT SHALL BE GOVERNED BY THE INTERNAL LAWS
OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to
Credit Agreement to be executed as of the date and year first above written.
POLARIS INDUSTRIES INC., a Minnesota corporation
By: /s/ Michael Malone
-----------------------------------------
Michael Malone, Vice President
FIRST BANK NATIONAL ASSOCIATION,
as Administrative Agent and a Bank
By: /s/ David Shapiro
-----------------------------------------
Name: David Shapiro
---------------------------------------
Title: Commercial Banking Officer
---------------------------------------
BANK OF AMERICA ILLINOIS,
as a Documentation Agent and a Bank
By: /s/ R. Guy Stapleton
-----------------------------------------
Name: R. Guy Stapleton
----------------------------------------
Title: Managing Director
---------------------------------------
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as a Documentation Agent
and a Bank
By: /s/ Thomas M. Cambern
-----------------------------------------
Name: Thomas M. Cambern
----------------------------------------
Title: Vice President
---------------------------------------
S-1
<PAGE>
SELECTED FINANCIAL DATA POLARIS INDUSTRIES INC.
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,
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales data
Total dollars $1,048,296 $1,191,901 $1,113,852 $826,286 $528,011
% change from
prior year (12%) 7% 35% 56% 38%
Sales mix by
product (%)
Snowmobiles 42% 43% 46% 52% 59%
ATVs 45% 37% 33% 30% 27%
PWC 7% 16% 16% 14% 9%
International 6% 4% 5% 4% 5%
Gross profit data
Total dollars $262,538 $ 263,816 $ 247,993 $196,783 $141,387
% of sales 25% 22% 22% 24% 27%
Operating expense data
Amortization of
intangibles and
noncash
compensation $ 5,887 $ 5,325 $ 5,616 $ 14,321 $ 13,466
Conversion costs - - - 12,315 -
Other operating
expenses 163,549 161,074 140,719 94,485 74,694
% of sales 16% 14% 13% 11% 14%
Actual and pro
forma data*
Net income $ 65,383 $ 62,293 $ 60,776 $ 54,703 $ 33,027
Basic and diluted
net income
per share $ 2.45 $ 2.24 $ 2.19 $ 1.98 $ 1.21
CASH FLOW DATA
Cash flow from
operating
activities $ 102,308 $ 89,581 $ 77,749 $111,542 $ 78,503
Purchase of
property
and equipment 36,798 45,336 47,154 32,656 18,946
Repurchase and
retirement
of common stock 39,903 13,587 - - -
Cash dividends to
shareholders 16,958 16,390 116,639 - -
Cash dividends
per share $ 0.64 $ 0.60 $ 4.27 - -
Cash distributions
declared to
partners - - - - 50,942 47,217
Cash distributions
declared per unit - - - $ 1.68 $ 1.67
BALANCE SHEET DATA
(at end of year)
Cash and cash
equivalents $ 1,233 $ 5,812 $ 3,501 $ 62,881 $ 33,798
Current assets 217,458 193,405 175,271 206,489 109,748
Total assets 384,746 351,717 314,436 331,166 180,548
Current liabilities 191,111 161,387 155,722 161,457 98,055
Borrowings under
credit agreement 24,400 35,000 40,200 - -
Shareholders' equity/
Partners' capital 169,235 155,330 118,514 169,709 82,493
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended December 31,
1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales data
Total dollars $ 383,818 $ 297,677 $296,147 $242,618 $171,497
% change from
prior year 29% 1% 22% 41% 24%
Sales mix by
product (%)
Snowmobiles 63% 69% 74% 74% 77%
ATVs 25% 25% 19% 19% 17%
PWC 7% - - - -
International 5% 6% 7% 7% 6%
Gross profit data
Total dollars $ 112,322 $ 94,120 $ 93,845 $ 80,384 $ 54,728
% of sales 29% 32% 32% 33% 32%
Operating expense data
Amortization of
intangibles and
noncash
compensation $ 11,997 $ 13,108 $ 12,116 $ 15,717 $ 8,645
Conversion costs - - - - -
Other operating
expenses 59,634 49,294 50,917 38,366 27,620
% of sales 16% 17% 17% 16% 16%
Actual and pro
forma data*
Net income $ 24,602 $ 20,727 $ 20,465 $ 16,657 $ 11,538
Basic and diluted
net income
per share $ 0.91 $ 0.81 $ 0.79 $ 0.65 $ 0.47
CASH FLOW DATA
Cash flow from
operating
activities $ 55,316 $ 46,642 $ 54,782 $ 44,447 $ 37,542
Purchase of
property
and equipment 12,295 15,988 7,158 7,065 2,724
Repurchase and
retirement
of common stock - - - - -
Cash dividends to
shareholders - - - - -
Cash dividends
per share - - - - -
Cash distributions
declared to
partners 44,507 42,581 42,582 32,514 17,722
Cash distributions
declared per unit $ 1.67 $ 1.67 $ 1.67 $ 1.51 $ 0.80
BALANCE SHEET DATA
(at end of year)
Cash and cash
equivalents $ 19,094 $ 20,098 $ 32,025 $ 27,886 $ 15,599
Current assets 74,999 59,200 66,893 60,344 36,377
Total assets 146,681 135,509 138,704 137,628 118,070
Current liabilities 69,054 52,646 46,602 38,875 20,665
Borrowings under
credit agreement - - - - -
Shareholders' equity/
Partners' capital 77,627 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. 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.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS POLARIS INDUSTRIES INC.
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, 1997, and should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
1997 vs. 1996
Sales decreased to $1.048 billion in 1997, representing a 12 percent decrease
from $1.192 billion in 1996. The decrease in sales was primarily due to lower
personal watercraft (PWC) and, to a lesser extent, lower snowmobile sales. The
Company's all-terrain vehicle (ATV) product line posted its eighth consecutive
year of increased sales.
North American sales of snowmobiles and related parts, garments and
accessories (PG&A) of $443.0 million in 1997 were 13 percent lower than $506.5
million in 1996. The decline is due to lower snowmobile production levels driven
by a second consecutive year of relatively flat industry growth. This lower
production has enabled Polaris to assist dealers in managing their field
inventory levels. North American sales of snowmobiles and related PG&A comprised
42 percent of total Company sales in 1997 compared to 43 percent in 1996.
North American sales of ATVs and related PG&A of $473.2 million in 1997
were six percent higher than $445.9 million in 1996. The increased sales
reflects the continued growth of the industry and Polaris' ability to provide
the consumer with a quality product at a competitive price. North American sales
of ATVs and related PG&A comprised 45 percent of total Company sales in 1997
compared to 37 percent in 1996.
North American sales of PWC and related PG&A were $73.4 million in 1997 as
compared to $190.4 million in 1996. The decrease is attributable to
significantly lower production levels of PWC in 1997 to compensate for the
increased dealer inventory remaining from the prior season reflecting the
reduction of industry growth. North American sales of PWC and related PG&A
comprised seven percent of total Company sales in 1997 compared to 16 percent in
1996.
International sales of snowmobiles, ATVs, PWC, and related PG&A of $58.7
million in 1997 were 20 percent higher than $49.1 million in 1996. The increase
in international sales was across all product lines. Polaris continues to focus
on international markets as an opportunity for future growth. International
sales comprised six percent of total Company sales in 1997 compared to four
percent in 1996.
Gross profit of $262.5 million decreased slightly in 1997 from
$263.8 million in 1996. However, the gross profit margin percentage was 25.0
percent in 1997 as compared to 22.1 percent in 1996. The increase in gross
profit margin percentage is primarily a result of (a) continued cost reduction
efforts, including expanded domestic engine production, (b) reduced warranty
costs, (c) decreases in costs of certain purchased components due to the
strengthening of the U.S. dollar in relation to the Japanese yen when compared
to 1996, and (d) a change in sales mix with less sales of the lower margin PWC
product compared to 1996.
Polaris has continued to invest in new product development, innovation and
product diversification. During 1997, Polaris reclassified its research and
development costs as a component of operating expenses in the consolidated
statements of operations for each period presented. Previously, research and
development costs were reported as a component of cost of sales. Research and
development expenses were $26.7 million (2.5 percent of sales) in 1997 and
$28.3 million (2.4 percent of sales) in 1996. In addition, Polaris incurred
tooling expenditures for new products of $19.3 million in 1997 and $18.0 million
in 1996. In 1997, more than 76 percent of sales came from products introduced in
the past three years.
Operating expenses in 1997 increased two percent to $169.4 million from
$166.4 million in 1996. Expressed as a percentage of sales, operating expenses
increased to 16.2 percent in 1997 from 14.0 percent in 1996. These increases are
primarily attributable to the higher level of promotional and advertising costs
related to assisting dealers in selling their remaining snowmobile and PWC
inventory.
The improvement in nonoperating expense (income) in 1997 from 1996
primarily reflects (a) the positive impact of the Canadian dollar exchange rate
hedging activity, (b) the positive financial impact of the Company's equity in
the income of Polaris Acceptance, and (c) lower interest expense resulting from
lower average outstanding borrowings in 1997 as compared to 1996.
The provision for income taxes has been recorded at a rate of 36.0 percent
of pretax income for each of 1997 and 1996.
Net income increased five percent to $65.4 million in 1997 from $62.3
million in 1996. Net income as a percent of sales increased to 6.2 percent in
1997 from 5.2 percent in 1996. Net income per basic and diluted share increased
nine percent to $2.45 in 1997 from $2.24 in 1996.
1996 vs. 1995
Sales increased to $1.192 billion in 1996, representing a seven percent increase
over $1.114 billion of sales in 1995. The increase in sales was primarily
attributable to the continuing popularity and broadening of the Company's ATV
product line.
North American sales of snowmobiles and related PG&A of $506.5 million in
1996 were two percent lower than $514.8 million in 1995 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
and related PG&A comprised 43 percent of total Company sales in 1996 compared to
46 percent in 1995.
North American sales of ATVs and related PG&A of $445.9 million in 1996
were 22 percent higher than $366.6 million in 1995 primarily because of the
continued growth in the utility and sports-enthusiast markets. Retail ATV sales
rose to the highest level in Polaris' history and management believes that the
Company is 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 and related PG&A comprised 37 percent of total
Company sales in 1996 compared to 33 percent in 1995.
North American sales of PWC and related PG&A of $190.4 million in 1996 were
five percent higher than $181.1 million in 1995. Weaker consumer demand led to a
leveling of the PWC market after several years
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS POLARIS INDUSTRIES INC.
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
of unusually high demand. Sales of PWC and related PG&A comprised 16 percent of
total Company sales in each of 1996 and 1995.
International sales of snowmobiles, ATVs, PWC and related PG&A of $49.1
million in 1996 were four percent lower than $51.4 million in 1995.
International sales comprised four percent of total Company sales in 1996
compared to five percent in 1995.
Gross profit increased to $263.8 million in 1996, representing a six
percent increase over 1995 gross profit of $248.0 million. The gross profit
margin percentage decreased to 22.1 percent in 1996 from 22.3 percent in 1995.
This decrease in gross profit 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;
partially offset by (b) 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.
Operating expenses increased $20.0 million (14 percent) in 1996 over 1995
and operating expenses as a percent of sales increased to
14.0 percent in 1996 from 13.1 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.
LIQUIDITY AND CAPITAL RESOURCES
Polaris' primary sources of funds have been cash provided by operating
activities, a $150 million bank line of credit and a dealer floor plan financing
program. Polaris' primary uses of funds have been for cash dividends and
distributions to shareholders and partners, repurchase and retirement of common
stock, capital investments and new product development.
During 1997, Polaris generated net cash from operating activities
of $102.3 million, which was utilized to fund capital expenditures of $36.8
million, net investments in affiliates of $2.6 million, cash dividends of $17.0
million and the repurchase of common stock of $39.9 million. During 1996,
Polaris generated net cash from operating activities of $89.6 million which was
utilized to fund capital expenditures of $45.3 million, net investments in
affiliates of $6.8 million, cash dividends of $16.4 million, and the repurchase
of common stock of $13.6 million. During 1995, Polaris generated net cash from
operating activities of $77.7 million, which 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
$47.2 million.
The seasonality of production and shipments causes working capital
requirements to fluctuate during the year. Polaris is a party to an unsecured
bank line of credit arrangement maturing on March 31, 2000 under which it may
borrow up to $150 million until March 31, 1998 and up to $125 million thereafter
until maturity. The arrangement provides borrowing for working capital needs and
the repurchase and retirement of common stock. Borrowings under the line of
credit bear interest, 6.76 percent at December 31, 1997, based on LIBOR or
"prime" rates. At December 31, 1997, Polaris had total borrowings under the line
of credit of $24.4 million compared to $35.0 million at December 31, 1996. In
addition, at December 31, 1997, Polaris had letters of credit outstanding of
$7.1 million related to purchase obligations for raw materials.
During 1996, the Polaris Board of Directors authorized the repurchase of up
to one million shares of Polaris common stock. On January 23, 1997, the Board of
Directors expanded the share repurchase program, authorizing the cumulative
repurchase of up to three million shares. During 1997, Polaris paid $39.9
million to repurchase and retire 1,455,900 shares. During 1996, Polaris paid
$13.6 million to repurchase and retire 521,000 shares. Polaris has 1,023,100
shares available to repurchase under this authorization as of December 31, 1997.
In February 1996, a wholly-owned subsidiary of Polaris entered into a
partnership agreement with Transamerica Distribution Finance (TDF) to form
Polaris Acceptance. Polaris Acceptance provides floor plan financing to Polaris
dealers and distributors and may in the future provide other financial services
to dealers, distributors and retail customers of Polaris. Under the partnership
agreement, Polaris' subsidiary had a 25 percent equity interest in Polaris
Acceptance throughout 1996. In January 1997, Polaris exercised its option to
increase its equity interest in Polaris Acceptance to 50 percent for an
additional investment of approximately $10.4 million. Polaris guarantees
50 percent of the outstanding indebtedness of Polaris Acceptance under a credit
agreement between Polaris Acceptance and TDF. At December 31, 1997, Polaris'
contingent liability with respect to the guarantee was approximately $92.0
million.
Polaris has arrangements with certain finance companies, including Polaris
Acceptance, to provide floor plan financing for its distributors and dealers.
These arrangements provide liquidity by financing distributor and dealer
purchases of snowmobiles, ATVs and PWC without the use of Polaris' working
capital. Substantially all of the sales of snowmobiles, ATVs and PWC (but not
PG&A) are financed under these arrangements whereby Polaris receives payment
within a few days of shipment of the product. The amount financed by
distributors and dealers under these arrangements at December 31, 1997 and 1996,
was approximately $289.0 million and $327.0 million, respectively. Polaris
participates in the cost of dealer and distributor financing up to certain
limits. Polaris has agreed to repurchase products repossessed by the finance
companies to an
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS POLARIS INDUSTRIES INC.
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
annual maximum of 15 percent of the average amount outstanding during the prior
calendar year. Polaris' financial exposure under these agreements is limited to
the difference between the amount paid to the finance companies for repurchases
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 require Polaris to
repurchase financed units.
Polaris has made significant capital investments to increase production
capacity, quality, and efficiency, and for new product development and
diversification. Improvements in manufacturing capacity, distribution capacity
and vertical integration include (a) an investment of $9.1 million since late
1996 for the construction of a 250,000 square foot parts, garments and
accessories distribution center in Vermillion, South Dakota which was
operational in mid-1997, (b) 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, and (c) the
construction of a new 58,000 square foot injection molding facility in Roseau,
MN that began in 1997 and is expected to be operational in mid-1998. Polaris
anticipates that capital expenditures, including tooling, for 1998 will range
from $60 million to $70 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 1998. At this time,
management is not aware of any factors that would have a materially adverse
impact on cash flow beyond 1998.
Injection Research Specialists commenced an action in 1998 against Polaris
in Colorado Federal Court alleging various claims relating to electronic fuel
injection systems for snowmobiles. In April 1997, a judgment was entered in
favor of Injection Research Specialists, before interest, for $24.0 million in
compensatory damages and $10.0 million in punitive damages against Polaris, and
$15.0 million in compensatory damages and $8 million in punitive damages against
Fuji Heavy Industries, Ltd. ("Fuji"), one of Polaris' engine suppliers. The
judgment against Fuji was subsequently reduced on post trial motions to $11.6
million in compensatory damages and no punitive damages. Polaris has appealed
the judgment against Polaris and has been advised that Fuji has also appealed
the judgment against it. Depending upon the conclusion of the appeal, Polaris
may require additional reserves associated with this litigation.
In 1997, Polaris evaluated its computer system year 2000 compliance issues
and began a conversion process to address necessary changes. In order for a
computer system to be year 2000 compliant, its time sensitive software must
recognize a date using "00" as the year 2000 rather than the year 1900. Polaris
has implemented a plan to make its computer systems critical to managing its
business year 2000 compliant by the end of 1998 and to make its remaining
computer systems year 2000 compliant by the end of 1999. Expenses incurred by
Polaris in 1997 to address year 2000 compliance issues were immaterial and
Polaris does not expect the level of expenses to be incurred under its
conversion program during the next two years to have a material effect on its
financial results of operations.
INFLATION AND EXCHANGE RATES
Polaris does not believe that inflation has had a material impact on the results
of its operations. However, the changing relationships of the U.S. dollar to the
Canadian dollar and Japanese yen have had a material impact from time-to-time.
During 1997, purchases totaling 17 percent of Polaris' cost of sales were
from Japanese yen denominated suppliers. The strengthening of the U.S. dollar in
relation to the Japanese yen since late 1995 has resulted in lower raw material
purchase prices. Polaris' cost of sales in 1997 and 1996 were positively
impacted by the Japanese yen exchange rate fluctuation when compared to the
prior year. In view of the foreign exchange hedging contracts currently in
place, Polaris anticipates that the Japanese yen-U.S. dollar exchange rate will
continue to have a positive impact on cost of sales during 1998 when compared to
the same periods in 1997.
Polaris operates in Canada through a wholly-owned subsidiary. Sales of the
Canadian subsidiary comprised 15 percent of total Company sales in 1997. Polaris
utilizes foreign exchange hedging contracts to manage its exposure to the
Canadian dollar. Although the U.S. dollar in relation to the Canadian dollar
strengthened in 1997 on average, Polaris experienced a positive financial impact
on nonoperating expenses as a result of favorable hedging activity. In view of
the foreign exchange hedging contracts currently in place, Polaris anticipates
that the Canadian dollar currency fluctuation will have a negative impact on net
income during 1998 when compared to the same periods in 1997.
In the past, Polaris 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, 1997, Polaris had open Japanese yen foreign exchange hedging
contracts with notional amounts totaling $81.5 million U.S. dollars, and open
Canadian dollar foreign exchange contracts with notional amounts totaling $108.4
million U.S. dollars which mature throughout 1998.
Since October 1995, Polaris has been manufacturing its own engines for
selected models of personal watercraft and snowmobiles at its Osceola, Wisconsin
facility. In addition, earlier in 1995, Polaris entered into an agreement with
Fuji to form Robin Manufacturing U.S.A., Inc. ("Robin"). Under the terms of the
agreement, Polaris has a 40 percent ownership interest in Robin, which builds
engines in the United States for recreational and industrial products. Potential
advantages to Polaris of 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.
13
<PAGE>
CONSOLIDATED BALANCE SHEETS POLARIS INDUSTRIES INC.
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
December 31,
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,233 $ 5,812
Trade receivables 42,593 36,158
Inventories 139,544 122,911
Prepaid expenses and other 5,088 3,524
Deferred tax assets 29,000 25,000
- -------------------------------------------------------------------------------
Total current assets 217,458 193,405
- -------------------------------------------------------------------------------
Deferred Tax Assets 26,000 30,000
- -------------------------------------------------------------------------------
Property and Equipment
Land, buildings and improvements 31,367 23,973
Equipment and tooling 153,005 138,879
- -------------------------------------------------------------------------------
184,372 162,852
Less-accumulated depreciation (86,352) (69,339)
- -------------------------------------------------------------------------------
Total property and equipment 98,020 93,513
- -------------------------------------------------------------------------------
Investments in Affiliates 19,767 10,421
Intangible Assets, net 23,501 24,378
- -------------------------------------------------------------------------------
$384,746 $351,717
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.
14
<PAGE>
CONSOLIDATED BALANCE SHEETS POLARIS INDUSTRIES INC.
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
December 31,
1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 61,027 $ 50,514
Accrued expenses:
Compensation 40,240 38,685
Warranties 35,594 32,919
Other 38,033 30,712
Income taxes payable 16,217 8,557
- -------------------------------------------------------------------
Total current liabilities 191,111 161,387
- -------------------------------------------------------------------
BORROWINGS UNDER CREDIT AGREEMENT 24,400 35,000
- -------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
(NOTES 1, 2, 4, 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, 26,014 and
27,011 shares issued and
outstanding 260 270
Additional paid-in capital 72,955 102,946
Deferred compensation (3,133) (978)
Compensation payable in common stock 7,346 9,710
Retained earnings 91,807 43,382
- -------------------------------------------------------------------
Total shareholders' equity 169,235 155,330
- -------------------------------------------------------------------
$384,746 $351,717
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.
15
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS POLARIS INDUSTRIES INC.
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
For the Years Ended December 31,
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $1,048,296 $1,191,901 $1,113,852
Cost of Sales 785,758 928,085 865,859
- --------------------------------------------------------------------------------
Gross profit 262,538 263,816 247,993
Gross profit percent 25.0% 22.1% 22.3%
- --------------------------------------------------------------------------------
Operating Expenses 169,436 166,399 146,335
- --------------------------------------------------------------------------------
Operating income 93,102 97,417 101,658
Nonoperating Expense (income)
Interest expense 2,829 4,339 1,708
Equity in (income) loss of
affiliates (6,718) (3,107) 243
Other expense (income), net (5,171) (1,148) 894
- --------------------------------------------------------------------------------
Income before income taxes 102,162 97,333 98,813
Provision for income taxes 36,779 35,040 38,037
- --------------------------------------------------------------------------------
Net income $ 65,383 $ 62,293 $ 60,776
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Basic and Diluted Net Income Per Share $ 2.45 $ 2.24 $ 2.19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
16
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY POLARIS INDUSTRIES INC.
IN THOUSANDS
<TABLE>
<CAPTION>
COMPEN-
SATION RETAINED
ADDITIONAL DEFERRED PAYABLE IN EARNINGS
PREFERRED COMMON PAID-IN COMPEN- COMMON (ACCUMULATED
STOCK STOCK CAPITAL SATION STOCK DEFICIT) TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ - $181 $103,935 $ - $12,251 $53,342 $169,709
First Rights conversion
to stock - 1 5,520 - (5,586) - (65)
Employee stock compensation - - - - 4,753 - 4,753
Dividends and distributions - - - - - (116,639) (116,639)
Stock split - 91 (111) - - - (20)
Net income - - - - - 60,776 60,776
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 - 273 109,344 - 11,418 (2,521) 118,514
First Rights conversion
to stock - 2 5,717 - (5,769) - (50)
Employee stock compensation - 1 1,466 (978) 4,061 - 4,550
Dividends - - - - - (16,390) (16,390)
Repurchase and retirement
of common shares - (6) (13,581) - - - (13,587)
Net income - - - - - 62,293 62,293
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 - 270 102,946 (978) 9,710 43,382 155,330
First Rights conversion
to stock - 3 7,164 - (7,210) - (43)
Employee stock compensation - 2 2,733 (2,155) 4,846 - 5,426
Dividends - - - - - (16,958) (16,958)
Repurchase and retirement
of common shares - (15) (39,888) - - - (39,903)
Net income - - - - - 65,383 65,383
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ - $260 $ 72,955 $(3,133) $ 7,346 $ 91,807 $169,235
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS POLARIS INDUSTRIES INC.
IN THOUSANDS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 65,383 $ 62,293 $ 60,776
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 33,168 31,053 23,223
Noncash compensation 5,010 4,550 4,753
Equity in (income) loss of affiliates (6,718) (3,107) 243
Deferred income taxes - - 10,000
Changes in current operating items
Trade receivables (6,435) 4,244 (10,702)
Inventories (16,633) (18,278) (15,919)
Accounts payable 10,513 (6,874) (1,544)
Accrued expenses 11,551 16,568 11,114
Income taxes payable 7,660 (4,029) (2,569)
Other (1,191) 3,161 (1,626)
- -------------------------------------------------------------------------------
Net cash provided by operating
activities 102,308 89,581 77,749
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (36,798) (45,336) (47,154)
Investments in and advances to
affiliates (16,627) (10,998) (800)
Distributions and repayments from
affiliates 13,999 4,241 -
- -------------------------------------------------------------------------------
Net cash used for investing
activities (39,426) (52,093) (47,954)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under credit agreement 290,100 276,900 249,700
Repayments under credit agreement (300,700) (282,100) (209,500)
Repurchase and retirement of common
shares (39,903) (13,587) -
Cash dividends to shareholders (16,958) (16,390) (116,639)
Cash distributions to partners - - (12,736)
- -------------------------------------------------------------------------------
Net cash used for financing
activities (67,461) (35,177) (89,175)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents (4,579) 2,311 (59,380)
CASH AND CASH EQUIVALENTS
Beginning 5,812 3,501 62,881
- -------------------------------------------------------------------------------
Ending $ 1,233 $ 5,812 $ 3,501
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year $ 25,838 $ 31,673 $ 24,341
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Income taxes paid during the year $ 29,007 $ 39,069 $ 31,183
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POLARIS INDUSTRIES INC.
NOTE 1 ORGANIZATION AND SIGNIFICANT
ACCOUNTING POLICIES
Polaris Industries Inc. ("Polaris" or the "Company") 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,
motorcycles 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.
BASIS OF PRESENTATION: All significant intercompany transactions and balances
have been eliminated in consolidation. Certain amounts previously reported in
the 1996 and 1995 consolidated financial statements have been reclassified to
conform to the 1997 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 Polaris' foreign operations
(in thousands of United States dollars):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Canadian Subsidiary:
Sales $154,318 $166,471 $172,459
Operating income 6,399 6,024 6,224
Identifiable assets 20,279 21,703 29,580
- --------------------------------------------------------------------
Other export sales $ 58,739 $ 49,134 $ 51,385
</TABLE>
CASH EQUIVALENTS: Polaris considers all highly liquid investments purchased with
an original maturity of 90 days or less to be cash equivalents. Such investments
have consisted principally of commercial paper and money market mutual funds.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Except as noted, the carrying value of all
financial instruments approximates their fair value.
INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out
method) or market. The major components of inventories are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Raw materials and purchased components $ 17,614 $ 24,469
Service parts, garments and accessories 45,619 45,809
Finished goods 76,311 52,633
- --------------------------------------------------------------------
$139,544 $122,911
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>
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 $10,657,000 at December 31, 1997, and $9,781,000 at December 31, 1996,
and consist principally of cost in excess of the net assets of the 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.
Polaris 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: Polaris provides for estimated warranty costs
at the time of sale to the dealer or distributor customer and for other costs
associated with specific items at the time their existence and amounts are
determinable.
FOREIGN CURRENCY: Polaris' Canadian 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.
Polaris enters into foreign exchange contracts to manage currency exposures
of its purchase commitments denominated in foreign currencies and transfers of
funds from its Canadian subsidiary. Polaris does not use any financial contract
for trading purposes. These contracts are accounted for as hedges, thus market
value gains and losses are recognized at the time of purchase or transfer of
funds, respectively. The criteria to
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POLARIS INDUSTRIES INC.
determine if hedge accounting is appropriate are (1) the designation of a hedge
to an underlying exposure, (2) whether or not overall risk is reduced and (3) if
there is a correlation between the value of the foreign exchange contract and
the underlying exposure. Gains and losses related to purchase commitments are
recorded as adjustments to cost of sales while gains and losses related to
transfers of funds are recorded as other expense (income) on the accompanying
statements of operations. At December 31, 1997, Polaris had open Japanese yen
foreign exchange contracts with notional amounts totaling $81,543,000 United
States dollars, and open Canadian dollar foreign exchange contracts with
notional amounts totaling $108,420,000 United States dollars which mature
throughout 1998.
REVENUE RECOGNITION: Revenues are recognized at the time of shipment to the
dealer or distributor. Product returns, whether in the normal course of business
or resulting from repossession under its customer financing program (Note 2),
have not been material. Polaris provides for estimated sales promotion expenses
at the time of sale to the dealer or distributor customer.
OPERATING EXPENSES: Significant components of operating expenses are as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Selling and Marketing $112,978 $112,146 $ 99,483
General and Administrative 29,736 25,983 26,981
Research and Development 26,722 28,270 19,871
- -------------------------------------------------------------------------
Total Operating Expenses $169,436 $166,399 $146,335
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>
MAJOR SUPPLIER: During 1997, 1996, and 1995, purchases of engines and related
components totaling 16, 22 and 26 percent, respectively, of Polaris' cost of
sales were from a single Japanese supplier. Polaris has agreed with the
supplier to share the impact of fluctuations in the exchange rate between the
United States dollar and the Japanese yen.
NOTE 2 FINANCING
BANK FINANCING: Polaris is a party to an unsecured bank line of credit
arrangement maturing on March 31, 2000 under which it may borrow up to $150
million until March 31, 1998 and up to $125 million thereafter until
maturity. Interest is charged at rates based on LIBOR or "prime" and the
agreement expires on March 31, 2000, at which time the outstanding balance is
due. The following summarizes activity under Polaris' credit arrangement (in
thousands):
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Total borrowings at December 31 $24,400 $ 35,000
Average outstanding borrowings during year $47,950 $ 72,760
Maximum outstanding borrowings during year $80,000 $112,000
Interest rate at December 31 6.76% 6.04%
</TABLE>
LETTERS OF CREDIT: At December 31, 1997, Polaris had open letters of credit
totaling approximately $7,109,000. 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 6), provide floor plan financing to distributors
and dealers on the purchase of Polaris products. The amount financed by
distributors and dealers under these arrangements at December 31, 1997, was
approximately $289,000,000. Polaris has agreed to repurchase products
repossessed by the finance companies up to an annual maximum of 15 percent of
the average amounts outstanding during the prior calendar year. Polaris'
financial exposure under these arrangements is limited to the difference between
the amount paid to the finance companies for repurchases and the amount received
on the resale of the repossessed product. No material losses have been incurred
under these agreements during the periods presented. As a part of its marketing
program, Polaris contributes to the cost of dealer and distributor financing up
to certain limits and subject to certain conditions. Such expenditures are
included with operating expenses in the accompanying statements of operations.
NOTE 3 INCOME TAXES
Polaris utilizes the liability method of accounting for income taxes whereby
deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of enacted tax laws. The net deferred tax asset
consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Current deferred tax assets:
Inventories $ 4,000 $ 3,000
Accrued expenses 24,000 19,300
Compensation payable
in common stock 1,000 2,700
- -------------------------------------------------------------
Total current 29,000 25,000
- -------------------------------------------------------------
Noncurrent deferred tax assets:
Cost in excess of net assets of
business acquired 27,600 30,000
Property and equipment (2,000) (1,000)
Compensation payable in
common stock 400 1,000
- -------------------------------------------------------------
Total noncurrent 26,000 30,000
- -------------------------------------------------------------
Total $55,000 $55,000
- -------------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POLARIS INDUSTRIES INC.
Components of Polaris' provision for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $31,575 $30,063 $23,113
State 2,255 2,233 1,665
Foreign 2,949 2,744 3,259
Deferred - - 10,000
- -------------------------------------------------------------------
Total $36,779 $35,040 $38,037
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
Reconciliations of the Federal statutory income tax rate to the effective
tax rate are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit 2.5 2.6 2.6
Other permanent differences (1.5) (1.6) 0.9
- -------------------------------------------------------------------
Effective income tax rate 36.0% 36.0% 38.5%
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
NOTE 4 STOCK-BASED
COMPENSATION
Polaris 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 Polaris common stock at the date of the
award. Options vest three years from the award date and expire after ten years.
Polaris maintains 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 after a three to four year period if certain performance
measures are achieved by Polaris.
In 1997, Polaris adopted a qualified non-leveraged Employee Stock Ownership
Plan (ESOP) under which a maximum of 1,250,000 shares of common stock can be
awarded. Shares vest immediately and require no cash payments from the
recipient. Substantially all employees are eligible to participate in the ESOP.
Polaris 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, 1997, no additional
rights are available to be granted under the Management Plan or the Employee
Plan.
The following summarizes share activity in the above plans, and the
weighted average exercise price for the Option Plan:
<TABLE>
<CAPTION>
Restricted Management Employee
Option Plan Plan Plan Plan ESOP
----------------------------------------------------------------------------------
Weighted
Average
Exercise
Shares Price Shares Shares Shares Shares
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 -
Granted 142,980 $25.75 64,915 - - 170,000
Converted - - - (147,750) (171,005) -
Forfeited (38,617) $29.50 (2,835) (15,000) - -
- ---------------------------------------------------------------------------------------------------------------------
Outstanding as
of December 31,
1997 495,743 $29.33 123,875 97,500 - 170,000
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Exercisable/Vested
as of December 31,
1997 - - - - - 170,000
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Shares outstanding under the Option Plan have exercise prices ranging from
$25.75 to $33.75 and a weighted average remaining contractual life of 8.1 years.
In 1995, Polaris approved a nonqualified deferred compensation plan
(Director Plan) under which directors who are not Polaris officers
or employees can elect to receive common stock equivalents in lieu
of director's fees, which will be converted into common stock when board service
ends. A maximum of 75,000 shares of common stock have been authorized under this
plan and 14,831 have been earned as of December 31, 1997.
Polaris accounts for all stock-based compensation plans under APB Opinion
No. 25, under which compensation costs of $5,010,000, $4,550,000, and $4,753,000
were recorded in 1997, 1996 and 1995, respectively. Had compensation costs for
these plans been recorded at fair value consistent with the methodology
prescribed by the Statement
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POLARIS INDUSTRIES INC.
of Financial Accounting Standards ("SFAS") No. 123 "Accounting for
Stock-Based Compensation," Polaris' net income and net income per share would
have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Net Income (in thousands)
As Reported $65,383 $62,293 $60,776
Pro Forma 64,346 61,475 60,404
- -------------------------------------------------------------------
Net Income Per Share
As Reported $2.45 $2.24 $2.19
Pro Forma 2.41 2.21 2.17
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Risk free interest rate 6.6% 6.8% 6.5%
Expected life 7 years 7 years 7 years
Expected volatility 23% 27% 32%
Expected dividend yield 2.5% 1.8% 2.1%
</TABLE>
The weighted average fair values at the grant dates of First Rights and
shares awarded under the above plans are as follows:
<TABLE>
<CAPTION>
Option Restricted Management Employee
Plan Plan Plan Plan ESOP
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 $10.69 - $29.21 $29.38 -
1996 $12.16 $33.75 - $23.75 -
1997 $ 7.45 $25.75 - - $30.56
</TABLE>
NOTE 5 SHAREHOLDERS' EQUITY
STOCK REPURCHASE PROGRAM: During 1996, the Polaris Board of Directors
authorized the repurchase of up to 1,000,000 shares of Polaris' common stock.
On January 23, 1997, the Board of Directors expanded the share repurchase
program, authorizing the cumulative repurchase of up to 3,000,000 shares.
During 1997, Polaris paid $39,903,000 to repurchase and retire 1,455,900
shares. During 1996, Polaris paid $13,587,000 to repurchase and retire
521,000 shares. Cumulative repurchases through December 31, 1997 are
1,976,900 shares for $53,490,000.
NET INCOME PER SHARE: Net income per share during 1997, 1996, and 1995 was
calculated based on the weighted average number of common and common
equivalent shares outstanding.
Polaris adopted SFAS No. 128 "Earnings per share" effective December 31,
1997. As a result, all prior periods presented have been restated to conform
to the provisions of SFAS No. 128, which requires the presentation of basic
and diluted earnings per share. Basic earnings per share is computed by
dividing net income available to common shareholders by the weighted average
number of common shares outstanding during each year, including shares earned
under the First Rights plan, the Director Plan and the ESOP. Diluted earnings
per share is computed under the treasury stock method and is calculated to
reflect the dilutive effect of the Option Plan. A reconciliation of these
amounts is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Net income available to
common shareholders $65,383 $62,293 $60,776
- -------------------------------------------------------------------
Weighted average number of
common shares outstanding 26,403 27,338 27,297
First Rights 139 458 494
Director Plan 12 5 1
ESOP 170 - -
- -------------------------------------------------------------------
Common shares outstanding--basic 26,724 27,801 27,792
- -------------------------------------------------------------------
Dilutive effect of Option Plan 15 14 -
- -------------------------------------------------------------------
Common and potential common
shares outstanding--diluted 26,739 27,815 27,792
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Basic and diluted net income
per share $2.45 $2.24 $2.19
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
Polaris also has shares issued under the Restricted Plan which will not be
included in the above calculations until certain performance criteria are met.
STOCK PURCHASE PLAN: In 1997, Polaris adopted an Employee Stock Purchase Plan
(Purchase Plan). A total of 750,000 shares of common stock are reserved for
this plan. The Purchase Plan permits eligible employees to purchase common
stock at 85 percent of the average market price each month.
NOTE 6 INVESTMENTS
IN AFFILIATES
In February 1996, a wholly-owned subsidiary of Polaris entered into a
partnership agreement with Transamerica Distribution Finance (TDF) to form
Polaris Acceptance. Polaris Acceptance provides floor plan financing to
Polaris' dealers and distributors and may in the future provide other
financial services to dealers, distributors and retail customers of Polaris.
Under the partnership agreement, Polaris' subsidiary had a 25 percent equity
interest in Polaris Acceptance throughout 1996. In January 1997, Polaris
exercised its option to increase its equity interest in Polaris Acceptance to
50 percent for an additional investment of approximately $10,445,000. Polaris
guarantees 50 percent of the outstanding indebtedness of Polaris Acceptance
under a credit agreement between Polaris Acceptance and TDF. At December 31,
1997, Polaris' contingent liability with respect to the guarantee was
approximately $92,000,000.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POLARIS INDUSTRIES INC.
In February, 1995, Polaris entered into an agreement with Fuji Heavy
Industries Ltd. ("Fuji") 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.
Polaris' investments in joint ventures are accounted for under the
equity method. Polaris' allocable share of the income of Polaris Acceptance
and Robin has been included as a component of nonoperating expense (income)
in the accompanying consolidated statements of operations. Polaris Acceptance
is a partnership and the payment of income taxes is the responsibility of
each of the partners. Robin is a corporation responsible for the payment of
its own income taxes.
Summarized combined financial information for the joint ventures is
presented as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Revenues $ 67,228 $ 65,572
Cost of goods sold, interest and
operating expenses 53,620 53,615
- -----------------------------------------------------------------
Net income before income taxes $ 13,608 $ 11,957
- -----------------------------------------------------------------
- -----------------------------------------------------------------
DECEMBER 31,
1997 1996
- -----------------------------------------------------------------
Finance Receivables, net $231,137 $255,701
Other assets 18,424 15,545
- -----------------------------------------------------------------
$249,561 $271,246
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Note Payable $184,835 $213,713
Other liabilities 14,125 14,454
Shareholders' equity and
Partners' capital 50,601 43,079
- -----------------------------------------------------------------
$249,561 $271,246
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
NOTE 7 COMMITMENTS AND
CONTINGENCIES
PRODUCT LIABILITY: Polaris is subject to product liability claims in the
normal course of business and prior to June 1996 elected not to purchase
insurance for product liability losses. Effective June 1996, Polaris
purchased excess insurance coverage for catastrophic product liability claims
for incidents occurring subsequent to the policy date that exceed a self
insured retention. The estimated costs resulting from any losses are charged
to operating expenses when it is probable a loss has been incurred and the
amount of the loss is reasonably determinable.
LITIGATION: Injection Research Specialists commenced an action in 1990
against Polaris in Colorado Federal Court alleging various claims relating to
electronic fuel injection systems for snowmobiles. In April 1997, a judgment
was entered in favor of Injection Research Specialists, before interest, for
$24,000,000 in compensatory damages and $10,000,000 in punitive damages
against Polaris, and $15,000,000 in compensatory damages and $8,000,000 in
punitive damages against Fuji, one of Polaris' engine suppliers. The judgment
against Fuji was subsequently reduced on post trial motions to $11,600,000 in
compensatory damages and no punitive damages. Polaris has appealed the
judgment against Polaris and has been advised that Fuji has also appealed the
judgment against it. Depending upon the conclusion of the appeal, Polaris may
require additional reserves associated with this litigation on its financial
statements.
Polaris is a defendant in lawsuits and subject to claims arising in the
normal course of business. In the opinion of management, it is not a
probability that any legal proceedings pending against or involving Polaris
will have a material adverse effect on Polaris' financial position or results
of operations.
LEASES: Polaris leases buildings and equipment under noncancelable operating
leases. Total rent expense under all lease agreements was $2,779,000,
$2,889,000, and $2,212,000 for 1997, 1996 and 1995, respectively. Future
minimum payments, exclusive of other costs, required under noncancelable
operating leases at December 31, 1997, total $2,630,000 cumulatively through
2002.
NOTE 8 QUARTERLY
FINANCIAL DATA
(Unaudited) (In thousands, except per share data)
<TABLE>
<CAPTION>
Basic and
Diluted
Gross Net Net Income
Sales Profit Income Per Share
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997:
First Quarter $ 224,634 $ 49,492 $12,019 $ .44
Second Quarter 249,888 60,258 13,294 .49
Third Quarter 293,428 78,568 21,640 .82
Fourth Quarter 280,346 74,220 18,430 .70
- -----------------------------------------------------------------
Totals $1,048,296 $262,538 $65,383 $2.45
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1996:
First Quarter $ 278,041 $ 56,908 $13,298 $ .48
Second Quarter 317,053 69,768 16,286 .58
Third Quarter 299,135 67,570 15,872 .57
Fourth Quarter 297,672 69,570 16,837 .61
- -----------------------------------------------------------------
Totals $1,191,901 $263,816 $62,293 $2.24
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS POLARIS INDUSTRIES INC.
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,
1997 and 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
Polaris' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
MINNEAPOLIS, MINNESOTA
JANUARY 30, 1998
BOARD OF DIRECTORS
ANDRIS A. BALTINS (A, C) STEPHEN G. SHANK (A*)
MEMBER OF THE LAW FIRM OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
KAPLAN, STRANGIS AND KAPLAN, P.A. OF LEARNING VENTURES, INC.
FORMER CHAIRMAN AND CHIEF EXECUTIVE
RAYMOND J. BIGGS (S) OFFICER OF TONKA CORPORATION
CHAIRMAN EMERITUS
HUNTINGTON BANCSHARES OF MICHIGAN W. HALL WENDEL, JR. (E*)
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BEVERLY F. DOLAN (C*, S*) OF POLARIS INDUSTRIES INC.
RETIRED CHAIRMAN AND CHIEF EXECUTIVE
OFFICER OF TEXTRON INC.
KENNETH D. LARSON (E) (A) Audit Committee Member
PRESIDENT AND CHIEF OPERATING OFFICER (C) Compensation Committee Member
OF POLARIS INDUSTRIES INC. (E) Executive Committee Member
(S) Stock Award Compensation
ROBERT S. MOE (C, E) Committee Member
RETIRED EXECUTIVE VICE PRESIDENT AND * Committee Chairman
TREASURER OF POLARIS INDUSTRIES INC.
GREGORY R. PALEN (A)
CHIEF EXECUTIVE OFFICER OF SPECTRO
ALLOYS AND PALEN/KIMBALL COMPANY
CORPORATE OFFICERS GENERAL MANAGERS
W. HALL WENDEL, JR. MITCHELL D. JOHNSON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER GENERAL MANAGER, ALL-TERRAIN VEHICLES
KENNETH D. LARSON BENNETT J. MORGAN
PRESIDENT AND CHIEF OPERATING OFFICER GENERAL MANAGER, PARTS, GARMENTS
AND ACCESSORIES
CHARLES A. BAXTER
VICE PRESIDENT -- ENGINEERING AND ROBERT R. NYGAARD
GENERAL MANAGER, ENGINES GENERAL MANAGER, SNOWMOBILES
JEFFREY A. BJORKMAN MATTHEW D. PARKS
VICE PRESIDENT -- MANUFACTURING GENERAL MANAGER, MOTORCYCLES
MICHAEL W. MALONE CLAUDE PICARD
VICE PRESIDENT -- FINANCE, GENERAL MANAGER, PERSONAL WATERCRAFT
CHIEF FINANCIAL OFFICER AND SECRETARY
THOMAS H. RUSCHHAUPT
VICE PRESIDENT -- SALES AND SERVICE
ED SKOMOROH
VICE PRESIDENT -- MARKETING
24
<PAGE>
[LOGO]
Polaris Industries Inc.
1225 Highway 169 North
Minneapolis, Minnesota 55441
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
SUMMARY OF TRADING
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
-------------------------------------------
Quarter HIGH LOW High Low
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
First $26.25 $22.75 $31.50 $28.88
Second 32.56 22.25 35.75 31.00
Third 32.50 28.50 33.50 22.63
Fourth 33.25 28.75 23.88 19.13
</TABLE>
STOCK EXCHANGES
Shares of common stock of Polaris Industries Inc. trade on the New York Stock
Exchange and on the Pacific Stock Exchange under the symbol PII.
CASH DISTRIBUTIONS AND
DIVIDENDS DECLARED
<TABLE>
<CAPTION>
Quarter 1997 1996
- ----------------------------------------
<S> <C> <C>
First $.16 $.15
Second .16 .15
Third .16 .15
Fourth .16 .15
- ----------------------------------------
Total $.64 $.60
- ----------------------------------------
- ----------------------------------------
</TABLE>
Shareholders of record of the Company's common stock on March 2, 1998 3,963.
Share price on March 2, 1998 $32.50.
- - Printed on recycled paper containing
at least 10% post-consumer fiber.
- - 1998 Polaris Industries Inc.
Printed in the USA.
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Company Organization Shares % of
Outstanding Ownership
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Polaris Industries Delaware 100 100%
Inc. Corporation
- --------------------------------------------------------------------------------
Polaris Real Estate Delaware Corporation 1,000 100% (1)
Corporation of Iowa,
Inc.
- --------------------------------------------------------------------------------
Polaris Real Estate Delaware Corporation 1,000 100% (2)
Corporation
- --------------------------------------------------------------------------------
Polaris Acceptance Minnesota Corporation 1 100%
Inc.
- --------------------------------------------------------------------------------
Polaris Industries Barbados Corporation 1,000 100%
Export Ltd.
- --------------------------------------------------------------------------------
Polaris Industries Manitoba Corporation 101 100% (3)
Ltd.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1), (2), and (3) Owned 100% by Polaris Industries Inc.,
a Delaware corporation.
<PAGE>
EXHIBIT 23
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 25, 1998
<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
true and lawful attorney-in-fact and agent, for it/him and on its/his behalf and
in its/his name, place and stead, in any and all capacities to sign, execute,
affix its/his seal thereto and file the Annual Report on Form 10-K for the year
ended December 31, 1997 under the Securities Exchange Act of 1933, as amended,
with any amendment or amendments thereto, with all exhibits and any and all
documents required to be filed with respect thereto with any regulatory
authority.
There is hereby granted to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in respect of the foregoing as fully as it/he or itself/himself might
or could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
This Power of Attorney may be executed in any number of counterparts, each
of which shall be an original, but all of which taken together shall constitute
one and the same instrument and any of the undersigned directors may execute
this Power of Attorney by signing any such counterpart.
POLARIS INDUSTRIES INC. has caused this Power of Attorney to be executed in
its name by its Chief Executive Officer on the 22nd day of January 1998.
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 1998.
/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 F. Biggs
- ------------------------------- ---------------------------------
Kenneth D. Larson Raymond F. 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, 1997,
AND RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, SHAREHOLDERS' EQUITY, AND
CASH FLOWS FOR THE QUARTER ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,233
<SECURITIES> 0
<RECEIVABLES> 42,593
<ALLOWANCES> 0
<INVENTORY> 139,544
<CURRENT-ASSETS> 217,458
<PP&E> 184,372
<DEPRECIATION> 86,352
<TOTAL-ASSETS> 384,746
<CURRENT-LIABILITIES> 191,111
<BONDS> 24,400
0
0
<COMMON> 260
<OTHER-SE> 168,975
<TOTAL-LIABILITY-AND-EQUITY> 384,746
<SALES> 1,048,296
<TOTAL-REVENUES> 1,048,296
<CGS> 785,758
<TOTAL-COSTS> 785,758
<OTHER-EXPENSES> 169,436
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,829
<INCOME-PRETAX> 102,162
<INCOME-TAX> 36,779
<INCOME-CONTINUING> 65,383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,383
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.45
</TABLE>
<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 SEPTEMBER 30, 1997,
AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, SHAREHOLDERS' EQUITY, AND
CASH FLOWS FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,404
<SECURITIES> 0
<RECEIVABLES> 43,777
<ALLOWANCES> 0
<INVENTORY> 163,531
<CURRENT-ASSETS> 242,048
<PP&E> 185,567
<DEPRECIATION> 93,865
<TOTAL-ASSETS> 411,078
<CURRENT-LIABILITIES> 211,698
<BONDS> 40,000
0
0
<COMMON> 262
<OTHER-SE> 159,118
<TOTAL-LIABILITY-AND-EQUITY> 411,078
<SALES> 767,950
<TOTAL-REVENUES> 767,950
<CGS> 598,667
<TOTAL-COSTS> 598,667
<OTHER-EXPENSES> 102,049
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,484
<INCOME-PRETAX> 73,364
<INCOME-TAX> 26,411
<INCOME-CONTINUING> 46,953
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,953
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.75
</TABLE>
