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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(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, 1999, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11411
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POLARIS INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
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MINNESOTA 41-1790959
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2100 HIGHWAY 55, MEDINA, MN 55340
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code 763-542-0500
Securities registered pursuant to Section 12(g) of the Act:
None
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
Pacific Stock Exchange
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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
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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
10, 2000 (based upon the closing reported sale price of the Common Stock at that
date on the New York Stock Exchange) held by non-affiliates (22,165,731 shares)
was approximately $656,659,780.
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 10, 2000, 24,115,666 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, 1999 furnished to the Securities and Exchange Commission (the
"1999 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 18, 2000 filed with the Securities and Exchange Commission (the
"2000 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 all terrain vehicles ("ATVs"),
snowmobiles, 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 ATVs, snowmobiles, motorcycles 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.
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YEAR ENDED DECEMBER 31 ATVS SNOWMOBILES MOTORCYCLES PWC INTERNATIONAL
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1999.......................................... 59% 28% 4% 4% 5%
1998.......................................... 57% 32% 1% 4% 6%
1997.......................................... 45% 42% N/A 7% 6%
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INDUSTRY BACKGROUND
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. Polaris entered the ATV
market in 1985, Arctic Cat entered in 1995 and Bombardier entered in 1998. In
1985, the number of three- and four-wheel ATVs sold in North America peaked at
approximately 650,000 units per year, then dropped dramatically to a low of
148,000 in 1989. Polaris estimates that the industry grew 25% with approximately
650,000 ATVs sold worldwide during the calendar year 1999.
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 industry sales of
snowmobiles on a worldwide basis were approximately 233,000 units for the season
ended March 31, 1999.
Motorcycles. Heavyweight motorcycles are over the road vehicles utilized as
a mode of transportation as well as for recreational purposes. There are four
segments: cruisers, touring, sport bikes, and standards.
Polaris entered the worldwide motorcycle market in 1998 with an initial
entry product in the cruiser segment. U.S. retail cruiser sales more than
doubled from 1993 to 1999. Polaris estimates the cruiser market
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grew 21% in 1999 with approximately 184,000 cruiser motorcycles sold in the U.S.
market. Other major cruiser motorcycle manufacturers include Harley Davidson,
Honda, Yamaha, Kawasaki and Suzuki.
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, three or four
passengers. Polaris entered the PWC market in 1992. After many years of rapid
growth, the number of PWC sold peaked at approximately 225,000 units in 1996.
Polaris estimates worldwide industry retail sales for PWC were approximately
134,000 units for the season ended September 30, 1999. Other major PWC
manufacturers are Bombardier, Yamaha, and Kawasaki.
PRODUCTS
All Terrain Vehicles. Polaris entered the ATV market in the spring of 1985
with both three-wheel and four-wheel products. 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 seventeen models
includes general purpose, sport and four-wheel drive utility models, with 2000
suggested retail prices ranging from approximately $3,000 to $7,600.
In addition, Polaris has a six-wheel off-road utility vehicle, a diesel ATV
and the Polaris RANGER, a six-wheel off-road side by side utility and
recreational vehicle. Polaris also markets a full line of ATV accessories such
as winches, mowers, blades, cargo racks, utility trailers, sprayers, seeders,
tires, oils, lubricants and parts.
Most of Polaris' ATVs feature 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 two
cycle and four cycle engines and both shaft and concentric chain drive. In 1999,
Polaris introduced its first manual transmission ATV models.
Prior to 1989, the ATV industry experienced some reduced demand arising
from publicity surrounding safety-related and environmental concerns. However,
management believes this market has stabilized since 1989 and has sustained
consistent growth.
For the year ended December 31, 1999, North American sales of ATVs and
related PG&A accounted for approximately 59% of Polaris' sales.
Snowmobiles. Polaris produces a full line of snowmobiles, consisting of
twenty-nine models, ranging from utility and economy models to performance and
competition models. The 2000 model year suggested United States retail prices
range from approximately $1,900 to $7,900. Polaris snowmobiles are sold
principally in the United States, Canada and Europe. Polaris believes it is the
worldwide market share leader.
Polaris believes its snowmobiles have 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, covers, tow hitches, hand warmers, specialized instrumentation, reverse
gear, electric start, special traction products, cargo racks, oils, lubricants,
and parts. In 1999, Polaris introduced its first children's sled, the 120 XCR.
For the year ended December 31, 1999, North American sales of snowmobiles
and related PG&A accounted for approximately 28% of Polaris' sales.
Motorcycles. In 1998, Polaris began manufacturing an American-made V-twin
cruiser motorcycle, the "Victory V92C." Design and assembly of the engine is
performed in Polaris' Osceola, Wisconsin facility and final assembly is
completed at Polaris' Spirit Lake, Iowa facility. The two facilities provide
sufficient capacity to handle the first few years production of Victory
motorcycles. In 1999, Polaris introduced its second model, a sport cruiser, the
Victory V92SC. The 2000 Victory motorcycle suggested United States retail prices
range from approximately $13,400 to $14,400.
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For the year ended December 31, 1999, sales of Victory motorcycles and
related PG&A accounted for approximately 4% of Polaris' sales.
Personal Watercraft. In 1992, Polaris introduced the SL650 personal
watercraft, Polaris' first entry into this product category. Polaris' 2000 line
of PWC consists of eight models across the touring, performance and racing
segments. Management believes that its models had the industry's first
three-cylinder engines developed specifically for PWC and that its models were
the first to comply with EPA 2006 requirements. The 2000 suggested retail prices
for Polaris' PWC range from approximately $6,000 to $9,500.
For the year ended December 31, 1999, North American sales of PWC and
related PG&A accounted for approximately 4% 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 51 distributors in 109 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 selected
international markets in 2000 and additional international markets over the next
several years.
For the year ended December 31, 1999, International sales accounted for 5%
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. Polaris markets
replacement parts and accessories. In addition, Polaris has entered into
licensing agreements for products such as go-carts, mini-bikes, video games, die
cast toys and vending machines.
MANUFACTURING OPERATIONS
Polaris' products are assembled at its original manufacturing facility in
Roseau, Minnesota and at its facility in Spirit Lake, Iowa. Since snowmobiles,
ATVs, motorcycles and PWC incorporate similar technology, substantially the same
equipment and personnel are employed in their production. Polaris is vertically
integrated in several key components of its manufacturing process, including
machining, stamping, welding, clutch assembly and balancing, painting, cutting
and sewing, and manufacture of foam seats. Fuel tanks, 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, motorcycles, 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, motorcycles and PWC. In
1991, Polaris acquired a manufacturing facility in Osceola, Wisconsin to
manufacture component parts previously produced by third party suppliers. In
1998, Victory motorcycle production began at Polaris' Spirit Lake, Iowa
facility. The production includes welding, finish painting, and final assembly.
Certain operations, including engine assembly, seat manufacturing, and the
bending of frame tubes are conducted at the Osceola, Wisconsin facility.
In 1998, Polaris completed construction of a 58,000 square foot plastic
injection molding facility adjacent to the Roseau, Minnesota facility. This is a
vertical integration project for Polaris in the manufacture of snowmobile hoods
and certain large plastic molded parts on ATVs.
Pursuant to informal agreements between Polaris and Fuji Heavy Industries
Ltd. ("Fuji"), Fuji had been the exclusive manufacturer of 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 certain of Polaris PWC products. Fuji develops such engines to the
specific requirements of Polaris. Polaris believes its relationship with Fuji to
be excellent. If, however, Fuji terminated its informal relationship,
interruption in the supply of engines would adversely affect Polaris' production
pending the continued development of substitute supply arrangements.
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Since 1995, Polaris has been designing and producing its own engines for
selected models of PWC, snowmobiles and all Victory motorcycles. Polaris
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 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.
A contract carrier ships Polaris' products from its manufacturing
facilities.
PRODUCTION SCHEDULING
Polaris' products are produced and delivered throughout the year. Orders
for ATVs are placed often throughout the year. 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. Orders for PWC
are placed in autumn after meetings with dealers and distributors. 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 substantially sold to
dealers and distributors prior to production. Retail sales activity at the
dealer level is monitored by Polaris for each of snowmobiles, ATVs, motorcycles
and PWC and incorporated into production scheduling.
In 1999, Polaris began a dealer inventory replenishment program for Victory
motorcycle dealers, where rather than take firm annual orders from the dealers,
Polaris continually restocks the dealer inventory upon the completion of a
retail sale to the consumer.
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 1993, Polaris has had the ability to manufacture ATVs
year round. Motorcycle manufacturing began in July 1998 and continues year
round.
SALES AND MARKETING
Polaris products are sold through a network of over 2,000 dealers in North
America and 51 distributors in 109 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 international operations.
Many dealers and distributors of Polaris snowmobiles also distribute
Polaris' ATVs and PWC. At the end of 1998, approximately 700 dealerships were
located in areas of the 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.
During 1999, Polaris acquired its distributor in Australia and New Zealand
and now distributes its products in those countries through its wholly owned
subsidiary.
Victory motorcycles are 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 current 300 Victory dealers were
selected. Polaris expects to develop a Victory dealer network of approximately
500 to 600 dealers over the next three to four years.
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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 a sufficient number of qualified
dealers and distributors exist in all areas to permit orderly transition
whenever necessary.
In 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. In 1999,
Polaris Acceptance began providing other financial services to dealers,
distributors and retail customers such as retail financing and extended service
contracts. Under the partnership agreement, Polaris has a 50% equity interest in
Polaris Acceptance and guarantees 50% of the outstanding indebtedness of Polaris
Acceptance under a credit agreement between Polaris Acceptance and TDF. At
December 31, 1999, Polaris' contingent liability with respect to the guarantee
was approximately $170.0 million. In February 2000, the term of the partnership
agreement was extended; in consideration thereof, the Polaris guarantee of the
outstanding indebtedness of Polaris Acceptance was eliminated.
Polaris has arrangements with Polaris Acceptance, TDF, and GE Commercial
Corporation (Australia), to provide floor plan financing for its dealers and
distributors. Substantially all of Polaris' North American sales of snowmobiles,
ATVs, PWC and motorcycles 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.
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 3 of Notes to Consolidated Financial
Statements.
Polaris has historically not directly financed the purchase of its products
by consumers. In 1999, Polaris made consumer financing available through its
Polaris Acceptance joint venture. Polaris is not obligated to repurchase
products related to the retail financing programs but will share in the losses
of the program through its 50% equity interest in Polaris Acceptance.
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. Polaris
also co-sponsors a car on the NASCAR auto racing circuit. Each season, Polaris
produces a promotional film for each of its products, which is available to
dealers for use in the showroom or at special promotions. Polaris also provides
product brochures, leaflets, posters, dealer signs, and miscellaneous other
promotional items for use by dealers.
ENGINEERING, RESEARCH AND DEVELOPMENT, AND NEW PRODUCT INTRODUCTION
Polaris employs approximately 330 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 the Company and
its predecessors were the first to develop, for commercial use, independent
front end suspension for snowmobiles, 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, the application of a forced air cooled variable
power transmission system to ATVs, and the diesel fuel powered ATV.
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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 maintains numerous test facilities where each of the products
is extensively tested under actual use conditions.
Polaris expended for research and development approximately $31.3 million
for 1999, $28.4 million for 1998, and $26.7 million for 1997. These 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 and marketing resources which are substantially greater than
those of Polaris.
Polaris products 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
these products.
Laws and regulations have been promulgated or are under consideration in a
number of states relating to the use or manner of use of Polaris products. State
approved trails and recreational areas for snowmobile and ATV use have been
developed in response to environmental and safety concerns. Some states may pass
legislation and local ordinances or regulations have been and may from time to
time be considered 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. Polaris has supported laws and regulations
pertaining to safety and noise abatement. Polaris believes that its products
would be no more adversely affected than those of its competitors by the
adoption of any pending laws or regulations. Polaris continues to monitor these
activities in conjunction with industry associations and supports balanced and
appropriate programs that educate the customer on safe use of the product and
how to protect the environment.
In September 1986, the Consumer Product Safety Commission ("CPSC") ATV Task
Force issued a report on regulatory options for ATVs with recommendations for
ATV marketing activities and warning labels. 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 of a specified minimum age, operators should
always wear approved safety helmets and riders should complete proper training
prior to operating an ATV.
On December 30, 1987, Polaris reached an agreement with the CPSC regarding
ATV safety, which was confirmed in a ten-year Consent Decree in April 1988. In
April 1998, the Consent Decree with the CPSC
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expired. Polaris has filed with the CPSC a Voluntary Action Plan under which
Polaris undertook to continue various activities including age recommendations,
dealer monitoring for ascertaining dealer compliance with safety obligations
including age recommendations and training requirements, warning labels, point
of purchase materials, hands on training and an information education effort.
Polaris conditions its ATV warranties described below under "Warranty" on
completion of the mandatory "hands on" consumer training program. In December
1998, the CPSC issued a resolution commending Polaris and certain other industry
members for their ATV Action Plans.
The Company does not believe the Polaris Voluntary Action Plan 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. Polaris
will continue to attempt to assure that its dealers are in compliance with their
safety obligations. Polaris has notified its dealers that it will terminate or
not renew any dealer it determines has violated such safety obligations. To
date, it has terminated or not renewed at least eight dealers for such reasons.
In May 1998, the National Transportation Safety Board ("NTSB") issued a
report regarding PWC safety and made various recommendations. Prior to May 1998,
Polaris was working with and continues to work with the Coast Guard to develop
standards and to evaluate PWC safety matters, including the NTSB
recommendations. Polaris PWC have always complied with industry standards
relevant to PWCs.
California has adopted regulations setting maximum emission standards for
ATVs and the federal Environmental Protection Agency ("EPA") has indicated its
intent to establish emission standards for non-road engines, including ATVs and
snowmobiles. The EPA already has required PWC manufacturers to gradually reduce
their emission by 75% between 1999 and 2006. For the State of California, the
California Air Resources Board has accelerated this scheduled emission reduction
by requiring that manufacturers meet the EPA 2006 level in 2001 and that
manufacturers meet further emission reductions by 2004 and 2008. Conventional
two-stroke cycle engines cannot meet these more restrictive emission
requirements.
In 1997, Polaris signed an agreement with Outboard Marine Corporation
("OMC") licensing the Ficht fuel injection technology. During 1998, Polaris
began production of a new Genesis PWC model utilizing the Ficht technology which
complies with the EPA 2006 emission requirements. This technology may be used in
other Polaris vehicles to meet emission standards in the future, particularly in
Polaris vehicles with two-cycle engines. Polaris is unable to predict the
ultimate impact of the adopted or proposed regulations on Polaris and its
operations.
Victory motorcycles are subject to federal and state emissions, vehicle
safety and other standards. Polaris believes that its motorcycles 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 exceeds its self-insured retention.
Product liability claims are made against Polaris from time to time. Since
its inception in 1981 through December 31, 1999, Polaris has paid an aggregate
of approximately $4.8 million in product liability claims and accrued $7.0
million at December 31, 1999 for the defense and possible payment of pending
claims. Polaris believes such accruals are adequate. Polaris does not believe
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 8 of
Notes to Consolidated Financial Statements.
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WARRANTY
Polaris provides a limited warranty for ATVs for a period of six months and
for its snowmobiles, motorcycles and PWC for a period of one year. 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. Despite
such variations in employment levels, employee turnover has not been high.
During 1999, Polaris employed an average of approximately 3,350 persons.
Approximately 1,175 of its employees are salaried. Polaris considers its
relations with its personnel to be excellent. Polaris' employees have not been
represented by a union since July 1982.
YEAR 2000 COMPLIANCE
Polaris did not experience any significant business interruptions related
to the Year 2000 compliance of its computer systems. The Company is continuing
to monitor potential problems but does not expect any major impact during the
year. The cost of the Year 2000 compliance initiatives of approximately $1.5
million, which were expensed as incurred, was not material to Polaris' financial
position.
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 190,000 square
foot plant situated on 38 acres and located in Osceola, Wisconsin to fabricate
component parts. In 1995, Polaris purchased a 223,000 square foot assembly
facility located on 24 acres of land in Spirit Lake, Iowa. Polaris currently
uses the facility to assemble PWC, certain ATV models and Victory motorcycles.
In 1995, Polaris also purchased a 90,000 square foot building adjacent to the
Osceola facility to house the manufacturing of Polaris designed and built
domestic engines. In 1998, Polaris built a 58,000 square foot plastic injection
molding facility adjacent to the Roseau, Minnesota facility. This is a vertical
integration project for Polaris in the manufacture of snowmobile hoods and
certain large plastic molded parts on ATVs. Polaris makes ongoing capital
investments in its facilities. These investments have increased production
capacity for snowmobiles, ATVs, motorcycles and PWC. The Company believes
Polaris' manufacturing facilities are adequate in size and suitability for its
present manufacturing needs.
In 1997, Polaris completed construction of a 250,000 square foot state of
the art parts, garments and accessories distribution center on 50 acres in
Vermillion, South Dakota.
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.
In early 2000, Polaris completed construction of, and moved into, an owned
130,000 square foot headquarters building on 33 acres of land in the Minneapolis
suburb of Medina. Polaris continues to lease 92,000 square feet of office and
warehouse space in Minneapolis pursuant to a lease that will terminate in 2002.
Polaris also leases 42,000 square feet of office and warehouse space in
Winnipeg, Manitoba, and 10,000
8
<PAGE> 10
square feet of warehouse space in Spirit Lake, Iowa. Polaris does not anticipate
any difficulty in securing alternate facilities on competitive terms, if
necessary, upon the termination of any of its leases.
ITEM 3. LEGAL PROCEEDINGS
Revenue Canada has assessed Polaris approximately $16.0 million in taxes,
penalties and interest for the period January 1, 1992 through December 31, 1994
resulting from an income tax audit for the period. Revenue Canada has asserted
that Polaris over charged its Canadian subsidiary for goods and services during
the audit period primarily through improper intercompany transfer pricing
policies. Polaris disagrees with the assessment and is vigorously contesting it.
In addition to the aforementioned matter, 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.
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 8, 2000, 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. ................. 57 Chairman of the Board
Thomas C. Tiller..................... 38 Chief Executive Officer and President
Vice President -- Engineering and General Manager
Charles A. Baxter.................... 52 Engines
Jeffrey A. Bjorkman.................. 40 Vice President -- Manufacturing
John B. Corness...................... 45 Vice President -- Human Resources
Vice President -- Finance, Chief Financial Officer and
Michael W. Malone.................... 41 Secretary
Richard R. Pollick................... 60 Vice President -- International
Thomas H. Ruschhaupt................. 51 Vice President -- Sales and Services
Ed Skomoroh.......................... 62 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 of the Board since the Company's
formation in 1994 and was Chief Executive Officer of the Company until May 1999.
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. Tiller was named President and Chief Operating Officer of the Company
in July 1998. In May 1999, Mr. Tiller was promoted to his present position of
Chief Executive Officer of the Company. Prior to joining Polaris, Mr. Tiller was
employed by General Electric Company in various management positions for fifteen
years.
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.
9
<PAGE> 11
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. Corness has been Vice President -- Human Resources of the Company since
January 1999. Prior to joining Polaris, Mr. Corness was employed by General
Electric Company in various human resource positions for nine years. Before that
time, Mr. Corness held various human resource positions with Maple Leaf Foods
and Transalta Utilities.
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. Pollick has been Vice President -- International of the Company since
September 1999. Prior to joining Polaris, Mr. Pollick was employed by The Toro
Company in various management positions for nineteen years.
Mr. Ruschhaupt has been Vice President -- Sales and Service of the Company
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.
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 1999 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 1999 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 1999
Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information under the caption "Management's Discussion and
Analysis -- Inflation and Exchange Rates" and Note 1 to the financial statements
of the Registrant, included in the Company's 1999 Annual Report, are
incorporated herein by reference.
10
<PAGE> 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Registrant, included in the
Company's 1999 Annual Report, are incorporated herein by reference:
Consolidated Balance Sheets December 31, 1999 and 1998.
Consolidated Statements of Operations Years Ended December 31, 1999, 1998,
and 1997.
Consolidated Statements of Shareholders' Equity Years Ended December 31,
1999, 1998, and 1997.
Consolidated Statements of Cash Flows Years Ended December 31, 1999, 1998,
and 1997.
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.
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 2000 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 Beneficial Ownership
Reporting Compliance" in the Company's 2000 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 2000 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 2000 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Election of Directors -- Certain
Relationships and Related Transactions" in the Company's 2000 Proxy Statement is
incorporated herein by reference.
11
<PAGE> 13
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 1999 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 14.
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 20, 2000, upon
receipt from any such person of a written request for any such exhibit.
Such request should be sent to Polaris Industries Inc., 2100 Highway 55,
Medina, Minnesota 55340, 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, 1999.
(c) Exhibits
Included in Item 14(a)(3) above.
12
<PAGE> 14
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 24, 2000.
POLARIS INDUSTRIES INC.
By: /s/ W. HALL WENDEL, JR.
------------------------------------
W. Hall Wendel Jr.
Chairman of the Board
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
--------- ----- ----
<C> <S> <C>
/s/ W. HALL WENDEL, JR. Chairman and Director March 24, 2000
- ------------------------------------------
W. Hall Wendel, Jr.
/s/ THOMAS C. TILLER Chief Executive Officer and Director March 24, 2000
- ------------------------------------------ (Principal Executive Officer)
Thomas C. Tiller
/s/ MICHAEL W. MALONE Vice President Finance, Chief Financial March 24, 2000
- ------------------------------------------ Officer and Secretary (Principal
Michael W. Malone Financial and Accounting Officer)
* Director March 24, 2000
- ------------------------------------------
Andris A. Baltins
* Director March 24, 2000
- ------------------------------------------
Raymond J. Biggs
* Director March 24, 2000
- ------------------------------------------
Beverly F. Dolan
* Director March 24, 2000
- ------------------------------------------
Robert S. Moe
* Director March 24, 2000
- ------------------------------------------
Gregory R. Palen
* Director March 24, 2000
- ------------------------------------------
Stephen G. Shank
* Director March 24, 2000
- ------------------------------------------
Bruce A. Thomson
*By: /s/ THOMAS C. TILLER March 24, 2000
-------------------------------------
(Thomas C. Tiller
Attorney-in-Fact)
</TABLE>
Thomas C. Tiller, 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.
13
<PAGE> 15
POLARIS INDUSTRIES INC.
EXHIBIT INDEX TO ANNUAL REPORT ON
FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1999
<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 for the year ended December 31,
1994.
(b) [RESERVED]
(c) Polaris 401(K) Retirement Savings Plan, incorporated by
reference to the Company's Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on
January 11, 2000 (No. 333-94451)
(d) Polaris Industries Inc. Employee Stock Ownership Plan
effective January 1, 1997 (as Amended and Restated Effective
January 1, 1999)
(e) Polaris Industries Inc. 1999 Broad Based Stock Option Plan
incorporated by reference to the Company's Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on May 5, 1999 (No. 333-77765)
(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 for the year ended
December 31, 1995.
(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 for the year ended December 31,
1995.
(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 for the year ended December 31, 1995.
(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 for the year ended December 31,
1994.
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
(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 for the year ended
December 31, 1994.
(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
for the year ended December 31, 1996.
(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 for the year ended December 31,
1996.
(s) Employment Agreement between the Company and Thomas Tiller
incorporated by reference to Exhibit 10(s) to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1998.
(t) Fifth Amendment to Credit Agreement by and between the
Company and U.S. Bank National Association et al. Dated
August 24, 1998, incorporated by reference to Exhibit 10(t)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
(u) Sixth Amendment to Credit Agreement by and between the
Company and U.S. Bank National Association et al. Dated
December 7, 1998, incorporated by reference to Exhibit 10(u)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
(v) Seventh Amendment to Credit Agreement by and between the
Company and U.S. Bank National Association et al. Dated May
10, 1999.
(w) Eighth Amendment to Credit Agreement by and between the
Company and U.S. Bank National Association et al. Dated
December 22, 1999.
(x) First Amendment to Joint Venture Agreement between the
Company and TDF dated June 30, 1999.
(y) Second Amendment to Joint Venture Agreement between the
Company and TDF dated February 24, 2000.
13. Portions of the Annual Report to Security Holders for the
Year Ended December 31, 1999 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.
</TABLE>
15
<PAGE> 1
EXHIBIT 10(d)
POLARIS INDUSTRIES INC.
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE JANUARY 1, 1997
(as Amended and Restated
Effective January 1, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I.........................................................................................................1
INTRODUCTION......................................................................................................1
ARTICLE II........................................................................................................1
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........................................................................................3
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............................................................................4
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...............................................................................................5
2.28 Highly Compensated Employee.........................................................................5
2.29 Hour of Service.....................................................................................6
2.30 Loan................................................................................................6
2.31 Non-Highly Compensated Employee.....................................................................6
2.32 Other Investments Account...........................................................................7
2.33 Participant.........................................................................................7
2.34 Plan................................................................................................7
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
2.35 Plan Year...........................................................................................7
2.36 Qualified Participant...............................................................................7
2.37 Retirement..........................................................................................7
2.38 Section 414(s) Compensation.........................................................................7
2.39 Suspense Account....................................................................................7
2.40 Total Distribution..................................................................................7
2.41 Trust...............................................................................................7
2.42 Trust Agreement.....................................................................................8
2.43 Trust Assets........................................................................................8
2.44 Trustee.............................................................................................8
2.45 Year of Eligibility Service.........................................................................8
ARTICLE III.......................................................................................................8
ELIGIBILITY AND PARTICIPATION.....................................................................................8
3.01 Eligibility for Participation.......................................................................8
3.02 Reemployment of Participant.........................................................................9
ARTICLE IV........................................................................................................9
EMPLOYEE CONTRIBUTIONS............................................................................................9
ARTICLE V.........................................................................................................9
EMPLOYER CONTRIBUTIONS............................................................................................9
5.01 Employer Contributions..............................................................................9
ARTICLE VI.......................................................................................................10
INVESTMENT OF TRUST ASSETS.......................................................................................10
6.01 Investment of Trust Assets.........................................................................10
6.02 Diversification....................................................................................10
6.03 Exempt Loan........................................................................................11
ARTICLE VII......................................................................................................14
ALLOCATIONS......................................................................................................14
7.01 Allocations to Participants' Accounts..............................................................14
7.02 Allocable Shares...................................................................................15
7.03 Allocation Limitations.............................................................................15
7.04 Allocation of Net Income (or Loss) of the Trust....................................................16
7.05 Accounting for Allocations.........................................................................16
7.06 Nonallocation......................................................................................17
ARTICLE VIII.....................................................................................................17
EXPENSES OF THE PLAN AND TRUST...................................................................................17
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE IX.......................................................................................................17
VOTING COMPANY STOCK AND EXERCISE OF OTHER RIGHTS................................................................17
9.01 Voting and Tender or Exchange Rights...............................................................17
ARTICLE X........................................................................................................21
CAPITAL ACCUMULATION.............................................................................................21
ARTICLE XI.......................................................................................................21
DISTRIBUTIONS....................................................................................................21
11.01 Time of Distribution to Participants..............................................................21
11.02 Benefit Forms for Participants....................................................................22
11.03 Benefit Form on a Participant's Death.............................................................22
11.04 Distribution in Company Stock.....................................................................22
11.05 Delay in Benefit Determination....................................................................23
11.06 Designated Beneficiaries..........................................................................23
11.07 Additional Distribution Requirements..............................................................23
11.08 Distributions Pursuant to Qualified Domestic Relations Orders.....................................24
ARTICLE XII......................................................................................................27
DETERMINATION OF SERVICE.........................................................................................27
12.01 Continuous Service................................................................................27
12.02 Break in Continuous Service.......................................................................28
12.03 Affiliated Companies..............................................................................29
ARTICLE XIII.....................................................................................................29
PLAN ADMINISTRATION..............................................................................................29
13.01 Named Fiduciaries.................................................................................29
13.02 Fiduciary Limitations.............................................................................29
13.03 Company Responsibilities..........................................................................29
13.04 Trustee Responsibilities..........................................................................30
13.05 Appointment of Committee..........................................................................30
13.06 Organization and Powers of the Committee..........................................................30
13.07 Indemnification...................................................................................31
ARTICLE XIV......................................................................................................32
AMENDMENT AND TERMINATION........................................................................................32
14.01 Company's Right to Amend..........................................................................32
14.02 Mandatory Amendments..............................................................................32
14.03 Termination.......................................................................................33
14.04 Employee Nonforfeitable Rights....................................................................33
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
14.05 Distribution upon Termination.....................................................................33
ARTICLE XV.......................................................................................................33
GENERAL PROVISIONS...............................................................................................33
15.01 Participants'Rights...............................................................................33
15.02 Spendthrift Clause................................................................................34
15.03 Company's Liability...............................................................................34
15.04 Merger or Consolidation...........................................................................34
15.05 Governing Law.....................................................................................34
15.06 Legal Action......................................................................................34
15.07 Binding on All Parties............................................................................35
15.08 Headings..........................................................................................35
15.09 Severability of Provisions........................................................................35
15.10 Service of Process................................................................................35
15.11 USERRA............................................................................................35
15.12 Earned Income Limitation..........................................................................35
ARTICLE XVI......................................................................................................35
TOP-HEAVY COMPLIANCE PROVISIONS..................................................................................35
16.01 Purpose...........................................................................................35
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".....................................................................................37
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..................................................................38
16.09 Multiple "Top-Heavy"Plans.........................................................................38
16.10 Effect of the Plan Becoming "Super Top-Heavy".....................................................38
ARTICLE XVII.....................................................................................................39
DIRECT ROLLOVER AND ELIGIBLE ROLLOVER DISTRIBUTIONS..............................................................39
17.01 Purpose...........................................................................................39
17.02 Definitions.......................................................................................39
ARTICLE XVIII....................................................................................................40
EXECUTION........................................................................................................40
</TABLE>
iv
<PAGE> 6
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 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.
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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.
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 to the extent provided by Treasury Regulation ss. 1.414(s)-1(c)(3) and
Treasury Regulation ss. 1.414(s)-1(c)(4). Compensation shall include salary
reduction contributions to a Cafeteria plan or cash or deferred 401(k) plan
sponsored by an Employer. 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).
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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;
(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
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<PAGE> 9
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.
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.
(a) Effective for Plan Years beginning prior to January 1,
1997, any individual who with respect to a Plan Year:
(1) 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
(2) for the Plan Year preceding such Plan Year:
(A) 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
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<PAGE> 10
(B) 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 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.
(b) Effective for Plan Years beginning on or after January 1,
1997, "Highly Compensated Employee" means any Employee who (i) was a Five
Percent Owner (as that term is defined in Section 416(i)(1) of the Code) at any
time during the year or the preceding year, or (ii) for the preceding year, (A)
had Compensation from the Employer in excess of $80,000 (or such other amount as
may be in effect under Section 414(q) of the Code from time to time), and (ii)
if the Employer elects for such preceding year, was in the Top-Paid Group of
Employees. For purposes of this Section 2.28(b), the term "Top-Paid Group of
Employees" means the group consisting of the top 20 percent of Employees when
ranked on the basis of Compensation paid for such preceding year, but excluding
(i) Employees who have not completed 6 months of 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 year, (iv) Employees who have not
attained age 21, and (v) except to the provided in Treasury Department
Regulations, Employees who are included in a unit of Employees covered by an
agreement that the Secretary of Labor finds to be a collective bargaining
agreement between Employee representatives and the Employer. Solely for purposes
of this Section 2.28(b), the term "Compensation" shall mean compensation within
the meaning of Section 415(c)(3) of the Code, without regard to Sections 125,
402(e)(3) and 402(h)(1)(B) of the Code and, in the case of employer
contributions made pursuant to a salary reduction agreement, without regard to
Section 403(b) of the Code. A former Employee shall be treated as a Highly
Compensated Employee if (i) such former Employee was a Highly Compensated
Employee when such Employee separated from service, or
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<PAGE> 11
(ii) such Employee was a Highly Compensated Employee at any time after attaining
age 55. Employees who are nonresident aliens and who receive no earned income
(within the meaning of Section 911(d)(2) of the Code) from the Employer which
constitutes income from sources within the United States (within the meaning of
Section 861(a)(3) of the Code) shall not be treated as Employees.
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).
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).
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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. Notwithstanding the foregoing, effective
for limitation years beginning on or after January 1, 1998, the term "Section
415 Compensation" shall include (i) any elective deferral (as defined in Section
402(g)(3) of the Code), and (ii) any amount which is contributed or deferred by
the Employer at the election of the Participant and which is not includible in
the gross income of the Employee by reason of Section 125 or 457.
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.
(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:
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(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, a student
Employee or an officer 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.
ARTICLE IV
EMPLOYEE CONTRIBUTIONS
Contributions by Employees to the Plan are not required or
permitted.
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<PAGE> 14
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.
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
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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 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,
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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 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).
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(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 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
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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 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.
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(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 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 shall be allocated
to the Company Stock Accounts of each Participant by multiplying the aggregate
of the amounts to be allocated 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.
(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 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, for Plan Years beginning before January
1, 1995 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.
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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 beginning before January 1, 2000.
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).
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
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<PAGE> 21
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 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
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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 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
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<PAGE> 23
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 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
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<PAGE> 24
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 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.
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(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 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.
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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 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). Effective for Plan Years beginning on or after January 1, 1997,
distributions shall commence no later than a Participant's required beginning
date. In the case of a Participant who is a Five Percent Owner (as that term is
defined in Section 416(i) of the Code), "required beginning date" shall mean
April 1 of the calendar year following the calendar year in which the
Participant attains age 70-1/2. In the case of a Participant who is not a Five
Percent Owner, "required beginning date" shall mean April 1 of the calendar year
following the later of (A) the calendar year in which the Participant retires,
or (B) the calendar year in which the Participant attains age 70-1/2; provided,
however, that for Plan Years beginning before January 1, 2000, if a Participant
attains age 70-1/2 before he retires, such Participant may elect to commence
receiving distributions pursuant this Section 11.01(c) on April 1 of the
calendar year following the calendar year in which the Participant attains age
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).
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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
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:
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(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 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 )$5,000 effective January 1, 1998), 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).
(f) Required Distributions. Notwithstanding any other
provision of this Plan to the contrary, payment of a Participant's Capital
Accumulation will begin not later than the 60th day after the close of the plan
year in which the latest of the following events occurs: (i) the attainment by
the Participant of age 59-1/2, (ii) the tenth (10th) anniversary of the date on
which the Participant commenced participation in the Plan, or (iii) the
termination of the Participant's service with the Employer.
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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 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
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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 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
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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
(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.
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:
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(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 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
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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 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
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(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 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.
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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.
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
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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 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.
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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.
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
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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; 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). Effective
December 2, 1997, this Section 15.02 shall not apply to any offset of a
Participant's benefits against an amount that the Participant is ordered or
required to pay under or pursuant to any judgment, order, decree, or settlement
agreement described in Section 401(a)(13) of the Code.
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
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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.
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.
15.11 USERRA. Notwithstanding any provision of this Plan to
the contrary, effective December 12, 1994, contributions, benefits and service
credit with respect to qualified military service will be provided in accordance
with Section 414(u) of the Code.
15.12 Earned Income Limitation. Effective for Plan Years
beginning on or after January 1, 1997, any contributions to this Plan on behalf
of any owner-employee (as that term is defined in Section 401(c)(3) of the Code)
may be made only with respect to the earned income of the owner-employee that is
derived from the trade or business with respect to which the Plan is
established.
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.
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(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;
(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 and any former Key Employer (for all purposes
other than Section 16.03).
(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
35
<PAGE> 41
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.
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 beginning before January 1, 2000, the multiple
applicable to the dollar limitation in the
36
<PAGE> 42
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 XVII
DIRECT ROLLOVER AND ELIGIBLE ROLLOVER DISTRIBUTIONS
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.
37
<PAGE> 43
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).
(4) Effective for distributions occurring on or after
January 1, 2000 (or such other time beginning no
earlier than January 1, 1999, as the Plan
Administrator shall determine) the portion of any
distribution that is a hardship distribution
described in Section 401(k)(2)(B)(IV) of the Code.
(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.
38
<PAGE> 44
ARTICLE XVIII
EXECUTION
To record the adoption of the Plan, the Employer has caused
its proper officer to set his hand as of the day of , 1999.
POLARIS INDUSTRIES INC.
By: /s/ Michael W. Malone
----------------------------
Title: Vice President -- Finance
and Chief Financial Officer
----------------------------
39
<PAGE> 1
EXHIBIT 10(V)
SEVENTH AMENDMENT TO
CREDIT AGREEMENT
This Seventh Amendment to Credit Agreement, dated as of May 10, 1999
("Seventh Amendment"), is made by and between POLARIS INDUSTRIES INC., a
Minnesota corporation (the "Borrower"); U.S. BANK NATIONAL ASSOCIATION, formerly
known as FIRST BANK NATIONAL ASSOCIATION, BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, formerly known as BANK OF AMERICA ILLINOIS and FIRST UNION
NATIONAL BANK, formerly known as FIRST UNION NATIONAL BANK OF NORTH CAROLINA
(collectively, the "Banks"); and U.S. 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, Third Amendment to
Credit Agreement dated as of September 30, 1996, Fourth Amendment to Credit
Agreement dated as of March 31, 1997, Fifth Amendment to Credit Agreement dated
as of August 24, 1998, and a Sixth Amendment to Credit Agreement dated as of
December 7, 1998 (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 to extend the
revolving credit commitment ending date and to change certain other provisions
thereof, 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 "Applicable Fee Percentage", "Applicable
Margin" and "Revolving Commitment Amount" in Section 1.1 of the Credit
Agreement are amended as follows:
<PAGE> 2
(i) In the definition of "Applicable Fee Percentage" the table
setting out the Applicable Fee Percentage for the various
levels of Daily Average Cash Flow Coverage Ratio is amended to
read as follows:
<TABLE>
<CAPTION>
Daily Average Applicable
Cash Flow Coverage Ratio Fee Percentage
------------------------ --------------
<S> <C>
Greater than 2.0 to 1.0 0.25%
Greater than 1.0 to 1.0, but 0.185%
less than or equal to
2.0 to 1.0
Less than or equal to 1.0 to 1.0 0.15%
</TABLE>
(ii) In the definition of "Applicable Margin" the table
setting out the Applicable Margin for the various levels of
Daily Average Cash Flow Coverage Ratio is amended to read as
follows:
<TABLE>
<CAPTION>
Daily Average Applicable
Cash Flow Coverage Ratio Margin
------------------------ ------
<S> <C>
Greater than 2.0 to 1.0 1.0%
Greater than 1.0 to 1.0, but 0.50%
less than or equal to
2.0 to 1.0
Greater than 0.55 to 1.0, but 0.40%
less than or equal to
1.0 to 1.0
Less than or equal to 0.55 to 1.0 0.30%
</TABLE>
(iii) The definition of "Revolving Commitment Amount" is
amended to read as follows: "Revolving Commitment Amount":
With respect to a Bank:
(a) during the period commencing May 6, 1999 and ending on and
including March 30, 2000, 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 Prior
- ---- ---------------------------------
to March 31, 2000
-----------------
- ----------------------------------------------------------- --------------------------------------------------------
<S> <C>
U.S. Bank National Association $63,000,000
- ----------------------------------------------------------- --------------------------------------------------------
Bank of America $56,000,000
- ----------------------------------------------------------- --------------------------------------------------------
</TABLE>
<PAGE> 3
<TABLE>
- ----------------------------------------------------------- --------------------------------------------------------
<S> <C>
First Union National Bank $56,000,000
- ----------------------------------------------------------- --------------------------------------------------------
</TABLE>
(b) during the period beginning on March 31, 2000 and ending
on the Revolving Commitment Ending 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
- ---- ----------------------------------------
March 31, 2000 thru the Revolving
---------------------------------
Commitment Ending Date
----------------------
- ----------------------------------------------------------- ---------------------------------------------------------
<S> <C>
U.S. Bank National Association $54,000,000
- ----------------------------------------------------------- ---------------------------------------------------------
Bank of America $48,000,000
- ----------------------------------------------------------- ---------------------------------------------------------
First Union National Bank $48,000,000
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
(b) Section 2.20 of the Credit Agreement is amended by
deleting therefrom the date "March 31, 2000" and inserting in its place the date
"March 31, 2002".
(c) Section 6.12 of the Credit Agreement is amended in
its entirety to read 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; (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; (v) the guarantee by the Subsidiaries of the
-3-
<PAGE> 4
Borrower's obligations under interest rate protection agreements; and (vi) the
guarantee by the Subsidiaries of the Borrower's obligations under import letters
of credit issued by one or more of the Banks.
Section 3. Conditions to Effectiveness of Seventh Amendment. The
Amendments contained in this Seventh 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, with a counterpart for each
Bank, a copy of resolutions adopted by the Borrower, authorizing the
execution, delivery and performance of this Amendment by the Borrower,
certified by the Borrower's secretary or assistant secretary;
(c) 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;
(d) 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 (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;
(e) 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 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;
-4-
<PAGE> 5
(f) 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
(g) 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.
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 Seventh Amendment; Representations and Warranties;
No Waiver. The Banks, the Administrative Agent and the Borrower agree that after
this Seventh 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
Seventh 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 except as waived herein; (iii) there
has been no change in any of the certificates or articles of incorporation,
bylaws or partnership agreements of the Borrower or any 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 Seventh
Amendment; (v) neither this Seventh 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 the
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 Seventh
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 Seventh 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
-5-
<PAGE> 6
the other Loan Documents to the "Credit Agreement," shall be deemed to refer
to the Credit Agreement, as amended by this Seventh Amendment.
Section 7. Merger and Integration, Superseding Effect. This Seventh
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 Seventh 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 Seventh Amendment.
Section 9. Counterparts. This Seventh 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 SEVENTH AMENDMENT SHALL BE GOVERNED BY THE INTERNAL LAWS
OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Seventh
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
U.S. BANK NATIONAL ASSOCIATION,
as Administrative Agent and a Bank
By /s/ David Shapiro
------------------------------------------
Name David Shapiro
----------------------------------------
Title Assistant Vice President
---------------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a
Documentation Agent and a Bank
By /s/ Gretchen Spoo
------------------------------------------
Name Gretchen Spoo
----------------------------------------
Title Vice President
---------------------------------------
FIRST UNION NATIONAL BANK, as a
Documentation Agent and a Bank
By /s/ C. Jeffrey Seaton
------------------------------------------
Name C. Jeffrey Seaton
----------------------------------------
Title Senior Vice President
---------------------------------------
-7-
<PAGE> 1
EXHIBIT 10(W)
EIGHTH AMENDMENT TO
CREDIT AGREEMENT
This Eighth Amendment to Credit Agreement, dated as of December 22,
1999 ("Eighth Amendment"), is made by and between POLARIS INDUSTRIES INC., a
Minnesota corporation (the "Borrower"); U.S. BANK NATIONAL ASSOCIATION, formerly
known as FIRST BANK NATIONAL ASSOCIATION, BANK OF AMERICA, N.A., formerly known
as BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION and FIRST UNION
NATIONAL BANK, formerly known as FIRST UNION NATIONAL BANK OF NORTH CAROLINA
(collectively, the "Banks"); and U.S. 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, Third Amendment to
Credit Agreement dated as of September 30, 1996, Fourth Amendment to Credit
Agreement dated as of March 31, 1997, Fifth Amendment to Credit Agreement dated
as of August 24, 1998, a Sixth Amendment to Credit Agreement dated as of
December 7, 1998 and a Seventh Amendment to Credit Agreement dated as of May 10,
1999 (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 to allow the
formation of a new Subsidiary in Australia and to change certain other
provisions thereof, 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 definition of "Additional Guarantors" in Section 1.1 of
the Credit Agreement is amended to read as follows:
"Additional Guarantors": Collectively, each Subsidiary other
than (i) the Canadian Subsidiary, (ii) the Australian Subsidiary, and (iii) the
Initial Guarantors.
<PAGE> 2
(b) The following new definition of "Australian Subsidiary"
is added to Section 1.1 of the Credit Agreement in appropriate alphabetical
order:
"Australian Subsidiary": Polaris Sales Australia Pty Ltd.
(c) Section 6.9 of the Credit Agreement is amended by adding
the following subsection 6.9(n) at the end thereof:
6.9(n) Investments in the Australian Subsidiary (including but
not limited to Investments in the form of any intercompany receivable or
contributions of or investments in plant, property or equipment); provided that
the aggregate cost of all such Investments outstanding at any time shall not
exceed $12,000,000 in the aggregate for the Australian Subsidiary.
(d) Section 6.10 of the Credit Agreement is amended by
adding the following subsection 6.10(g) at the end thereof:
6.10(g)Indebtedness incurred by the Australian Subsidiary,
provided that the maximum aggregate amount of Indebtedness outstanding at any
time under this clause 6.10(g) shall not exceed $10,000,000 for the Australian
Subsidiary.
(e) Exhibit 4.19-6 is deleted from the Credit Agreement and
new Exhibit 4.19-8, in the form of Exhibit 4.19-8 attached hereto, is added to
the Credit Agreement.
Section 3. Conditions to Effectiveness of Eighth Amendment. The
Amendments contained in this Eighth 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, with a counterpart for
each Bank, a copy of resolutions adopted by the Borrower (or a
Subsidiary, as appropriate), authorizing the execution, delivery and
performance of this Amendment by the Borrower, and authorizing the
formation of the Australian Subsidiary and the transfer of certain
assets of the Borrower (or a Subsidiary) thereto, certified by the
Borrower's or such Subsidiary's secretary or assistant secretary
together with a copy of resolutions of any Subsidiary subscribing for
shares of the Australian Subsidiary and transferring assets thereto,
authorizing such actions, certified by the secretary or an assistant
secretary of such Subsidiary;
2
<PAGE> 3
(c) 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;
(d) 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 (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;
(e) 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 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;
(f) 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;
(g) The Agent shall have received a copy of the Articles or
Certificate of Incorporation of the Australian Subsidiary, with all
amendments thereto, certified by the appropriate governmental official
of the jurisdiction of incorporation of such Subsidiary as of a date
not more than 60 days prior to the date of this Eighth Amendment.
(h) The Agent shall have received a certificate of good
standing for the Australian Subsidiary in the jurisdiction of
incorporation of such Subsidiary as of a date not more than 60 days
prior to the date of this Eighth Amendment.
(i) The Agent shall have received a copy of the bylaws of
the Australian Subsidiary certified as of the date of this Eighth
Amendment by the respective Secretary or an Assistant Secretary of
such Subsidiary.
(j) 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.
3
<PAGE> 4
Section 4. Consent. On the effective date of this Eighth Amendment the
Banks consent to the formation of the Australian Subsidiary and the transfer of
property thereto subject to the terms and conditions of the Credit Agreement as
amended by this Eighth Amendment. The formation of the Australian Subsidiary and
the transfer of property thereto within the limits set forth in the Credit
Agreement as amended by this Eighth Amendment shall not be deemed a Default or
an Event of Default under the Credit Agreement.
Section 5. 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 6. Effect of Eighth Amendment; Representations and Warranties;
No Waiver. The Banks, the Administrative Agent and the Borrower agree that after
this Eighth 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
Eighth 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 unwaived 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 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 Eighth Amendment; (v)
neither this Eighth 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 the 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 Eighth Amendment, or the performance of
obligations of the Borrower herein or therein described.
Section 7. Incorporation of Credit Agreement and Other Loan Documents
by Reference; Ratification of Loan Documents. Except as expressly modified under
this Eighth 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
Eighth Amendment.
4
<PAGE> 5
Section 8. Merger and Integration, Superseding Effect. This Eighth
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 Eighth Amendment shall control.
Section 9. 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 Eighth Amendment.
Section 10. Counterparts. This Eighth 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 11. Governing Law. THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS SEVENTH AMENDMENT SHALL BE GOVERNED BY THE INTERNAL LAWS
OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Eighth
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
U.S. BANK NATIONAL ASSOCIATION,
as Administrative Agent and a Bank
By /s/ David Shapiro
-------------------------------------
Name David Shapiro
-----------------------------------
Title Assistant Vice President
-----------------------------------
BANK OF AMERICA, N.A., as a
Documentation Agent and a Bank
By /s/ Gretchen Spoo
-------------------------------------
Name Gretchen Spoo
-----------------------------------
Title Vice President
-----------------------------------
FIRST UNION NATIONAL BANK, as a
Documentation Agent and a Bank
By /s/ C. Jeffrey Seaton
-------------------------------------
Name C. Jeffrey Seaton
-----------------------------------
Title Senior Vice President
-----------------------------------
6
<PAGE> 1
EXHIBIT 10(X)
FIRST AMENDMENT TO
JOINT VENTURE AGREEMENT
THIS FIRST AMENDMENT TO JOINT VENTURE AGREEMENT is dated the 30th day of
June, 1999 (the "First Amendment") and is between Polaris Industries, Inc., a
Minnesota corporation ("Polaris") and Transamerica Commercial Finance
Corporation, a Delaware corporation ("TCFC") (collectively, Polaris and TCFC,
the "Parties" and individually, a "Party") and amends, in part, the Joint
Venture Agreement (the "JV Agreement") dated the 7th day of February, 1996
between Polaris and TCFC. All capitalized terms herein shall have the same
meaning as in the JV Agreement unless otherwise defined herein.
RECITALS
WHEREAS, Polaris and TCFC caused their respective subsidiaries, Polaris
Acceptance Inc., a Minnesota corporation ("PAI") and Transamerica Joint
Ventures, Inc. ("TJV"), a Delaware corporation (collectively, PAI and TJV the
"Partners"), to enter into a Partnership Agreement dated February 7, 1996, as it
may be amended from time to time (the "Partnership Agreement") to form an
Illinois general partnership (the "Partnership" or "PA" or "Polaris Acceptance")
for the ownership and operation of a commercial finance business and related
finance businesses within the United States and other countries supporting the
business of Polaris and its affiliates from time to time and such other
businesses as the Parties subsequently may agree, as further described therein.
WHEREAS, PA desires to expand its business to enter into an Income Sharing
Agreement with Transamerica Retail Financial Services Corporation, a Delaware
corporation ("TRFS") dated the 30th day of June, 1999 (the "Sharing Agreement");
and
WHEREAS, it is a condition of the Sharing Agreement that Polaris and TCFC
amend the terms of the JV Agreement as set forth in this First Amendment; and
NOW, THEREFORE, in consideration of the premises, recitals and mutual
covenants, undertakings and obligations hereinafter set forth or referred to
herein, the Parties mutually covenant and agree as set forth below.
AGREEMENT
1. Definitions.
(a) The definitions of the following terms, when used in the JV
Agreement, shall, from and after the effective date of this First Amendment, be
hereby amended as follows:
(i) The term "Agreement" shall mean the Agreement as amended by
this First Amendment; and
(ii) The term "Definitive Agreements" shall (A) include the
Sharing Agreement and (B) mean any of the Definitive Agreements as
they may be amended from time to time, including without limitation as
amended by the Amended Definitive Agreements.
1 of 3
<PAGE> 2
(b) The following new terms shall be added to the JV Agreement as of
the effective date of this First Amendment:
(i) The term "First Amendment" shall mean the First Amendment
to the JV Agreement executed by Polaris and TCFC dated the 30th day of
June, 1999;
(ii) The term "Sharing Agreement" shall mean the Income Sharing
Agreement dated the 30th day of June, 1999 between PA and TRFS;
(iii) The term "Amended Definitive Agreements", shall have the
same meaning as in the Sharing Agreement, and shall also include the
(i) Manufacturer's Repurchase Agreement between Polaris Industries
Partners, L.P. and TCFC as amended by the Second Amendment to
Manufacturer's Repurchase Agreement executed by Polaris Industries
Inc., a Delaware corporation and Polaris Sales Inc., a Minnesota
corporation on the one hand, and TCFC on the other hand on the 30th
day of June, 1999; (ii) the Revolving Program Agreement between
Polaris and Transamerica Bank, N.A., dated the 30th day of June, 1999,
and (iii) the Installment Program Agreement between Polaris and TRFS,
dated the 30th day of June, 1999, as any of those or the other
Definitive Agreements may be amended from time to time;
(iv) The term "Retail Effective Date" shall have the same
meaning as in the Sharing Agreement; and
(v) The term "TRFS" shall mean Transamerica Retail Financial
Services Corporation, a Delaware corporation, its successors and
assigns.
2. Amended Purpose. Section 1.1, Purpose, shall be amended by adding a
subparagraph (iv) as follows:
and (iv) an agreement to enter into the Sharing Agreement with TRFS,
as such agreement may be amended from time to time.
3. Amended Location. Section 1.3, Location, shall be amended to change
the principal place of business of the Partnership from Rolling Meadows, IL. to
Hoffman Estates, IL.
4. Amended Notice Address. Section 7.2, Notices, shall be amended to
change the notice addresses to TCFC as follows:
To: TCFC c/o Transamerica Commercial Finance Corporation
5595 Trillium Boulevard
Hoffman Estates, Illinois 60192
Attention: Vice President, Operations
Facsimile Number: 847-747-7451
with a copy to: General Counsel
Transamerica Commercial Finance Corporation
5595 Trillium Boulevard
Hoffman Estates, Illinois 60192
Attention: General Counsel
2 of 3
<PAGE> 3
Facsimile Number: 847-747-7455
5. Representations and Warranties. Each Party represents and warrants
to the other Party with respect to itself and its respective Partner subsidiary
that all representations and warranties in the JV Agreement made as of the
Closing (as defined in the JV Agreement) are made again as of the effective date
of this First Amendment.
6. Entire Agreement. The JV Agreement as amended by this First Amendment,
together with the other Definitive Agreements and the Amended Definitive
Agreements, as of the date hereof contain all of the understandings and
agreements of whatsoever kind and nature existing between the Parties hereto and
their respective affiliates with respect to the JV Agreement, the other
Definitive Agreements and the Amended Definitive Agreements, regarding the
subject matter hereof and the subject matter of the other Definitive Agreements
and Amended Definitive Agreements and the rights, interests, understandings,
agreements and obligations of the Parties and their respective affiliates
pertaining to the subject matter hereof and thereof and the Partnership, and
supersedes any previous agreements between the Parties and their respective
affiliates.
7. Governing Law. This First Amendment shall be governed by, and
construed and enforced under, the laws of the State of Illinois without regard
to conflict of law principles.
Except as otherwise set forth herein, all terms and conditions of the JV
Agreement are hereby ratified and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the date first above written, it being understood and agreed that it shall be
effective as of the Retail Effective Date.
POLARIS INDUSTRIES INC.
By: /s/ Michael Malone
--------------------------------------------
Name: Michael Malone
------------------------------------------
Title: Vice President - Chief Financial Officer
-----------------------------------------
TRANSAMERICA COMMERCIAL FINANCE
CORPORATION
By: /s/ Steven J. Toenisklette
--------------------------------------------
Name: Steven J. Toenisklette
-----------------------------------------
Title: Senior Vice President
-----------------------------------------
3 of 3
<PAGE> 1
EXHIBIT 10(Y)
SECOND AMENDMENT TO
JOINT VENTURE AGREEMENT
THIS SECOND AMENDMENT TO JOINT VENTURE AGREEMENT is dated the 24th day of
February, 2000 (the "Second Amendment") and is between Polaris Industries Inc.,
a Minnesota corporation ("Polaris"), and Transamerica Commercial Finance
Corporation, a Delaware corporation ("TCFC") (collectively, Polaris and TCFC,
the "Parties" and individually, a "Party") and amends, in part, the Joint
Venture Agreement (the "JV Agreement") dated the 7th day of February, 1996
between Polaris and TCFC and as previously amended. All capitalized terms herein
shall have the same meaning as in the JV Agreement unless otherwise defined
herein.
RECITALS
WHEREAS, Polaris and TCFC caused their respective subsidiaries, Polaris
Acceptance Inc., a Minnesota corporation ("PAI") and Transamerica Joint
Ventures, Inc. ("TJV"), a Delaware corporation (collectively, PAI and TJV the
"Partners"), to enter into a Partnership Agreement dated February 7, 1996, as it
may be amended from time to time (the "Partnership Agreement") to form an
Illinois general partnership (the "Partnership") or "PA" or "Polaris
Acceptance") for the ownership and operation of a commercial finance business
and related finance businesses within the United States and other countries
supporting the business of Polaris and its affiliates from time to time and such
other businesses as the Parties subsequently may agree, as further described
therein.
WHEREAS, PA desires to extend the initial term of the Partnership Agreement
and of the JV Agreement; and
WHEREAS, it is a condition of the extension of the initial term of the JV
Agreement that Polaris and TCFC amend the terms of the JV Agreement as set forth
in this Second Amendment, and
WHEREAS, the Parties or their affiliates are also executing amendments to
other of The Amended Definitive Agreements,
NOW, THEREFORE, in consideration of the premises, recitals and mutual
covenants, undertakings and obligations hereinafter set forth or referred to
herein, the Parties mutually covenant and agree as set forth below.
AGREEMENT
1. Definitions.
(a) The definitions of the following terms, when used in the JV
Agreement, shall, from and after the effective date of this Second Amendment, be
hereby amended as follows:
(i) The term "Agreement" shall mean the Joint Venture Agreement
as amended by this Second Amendment; and
(b) The following new terms shall be added to the JV Agreement as of
the effective date of this Second Amendment:
(i) The term "Second Amendment" shall mean the Second Amendment
to the JV Agreement executed by Polaris and TCFC dated the 24th day of
February, 2000;
(ii) The term "Amended Definitive Agreements", shall have the
same meaning as in the First Amendment, and shall also include this
Second Amendment and the various amendments to the Definitive
Agreements being executed concurrently with this Second Amendment and
as any of those Definitive Agreements may be amended from time to
time;
1 of 4
<PAGE> 2
2. Amended Term. Section 1.4 is hereby deleted in its entirety and is
hereby replaced with the following:
1.4 Term. The Partnership shall begin on March 1, 1996 and, unless
sooner dissolved or terminated under the provisions of the Partnership
Agreement, shall continue until February 29, 2004, and thereafter
shall be extended automatically for additional one-year terms unless
at least one year prior to the expiration of the initial or additional
term (as applicable) either Partner gives notice to the other Partner
of its intention not to extend the term, in which event the
Partnership shall dissolve in accordance with the terms of the
Partnership Agreement upon expiration of the then current term.
3. Amended Capital Contribution. The existing paragraph of Section 1.5,
Initial Capital Contribution, is hereby amended by adding the prefix "(A)" prior
to the phrase "Initial Capital Contribution" and new paragraphs (B) and (C) are
hereby added to Section 1.5 which shall read as follows:
1.5(B) Ongoing Capital Contributions. Pursuant to the amended Section
2.2 of the Partnership Agreement entitled "Additional Capital
Contributions", each of PAI and TJV is required to make certain
payments from time to time to maintain capital requirements. In the
event PAI does not make any such payment in full when due, Polaris
shall within 5 business days make or cause one of its affiliates to
make such required payment on behalf of PAI. In the event TJV does not
make any such payment in full when due, TCFC shall within 5 business
days make or cause one of its affiliates to make such required
payments on behalf of TJV.
1.5(C) General Reserve Obligations. Pursuant to Section 2.6 of the
Partnership Agreement entitled "Establishment of Reserves" each of PAI
and TJV may be required to make certain payments from time to time to
maintain general reserves established by the Management Committee. In
the event PAI does not make any such required payment in full when
due, Polaris shall within 5 business days make or cause one of its
affiliates to make such required payments on behalf of PAI. In the
event TJV does not make any such required payment in full when due,
TCFC shall within 5 business days make or cause one of its affiliates
to make such required payments on behalf of TJV.
4. Amended Agreements. Section 1.6, Agreements, is hereby amended by
deleting the following words from the 9th and 10th lines of the paragraph: "the
Guarantee from Polaris given on behalf of PAI dated February 7, 1996 (the
"Polaris Guarantee"),".
5. Amended Technology. Section 7.18, Technology, is hereby amended to
delete the phrase "or 8.14 of the Partnership Agreement" from the thirteenth
line of the section.
6. Representations and Warranties. Each Party represents and warrants to
the other Party with respect to itself and its respective Partner subsidiary
that all representations and warranties in the JV Agreement made as of the
Closing (as defined in the JV Agreement) are made again as of the effective date
of this Second Amendment.
7. Entire Agreement. The JV Agreement as amended by this Second
Amendment, together with the other Definitive Agreements and the Amended
Definitive Agreements, as of the date hereof contain all of the understandings
and agreements of whatsoever kind and nature existing between the Parties hereto
and their respective affiliates with respect to the JV Agreement, the other
Definitive Agreements and the Amended Definitive Agreements, regarding the
subject matter hereof and the subject matter of the other Definitive Agreements
and Amended Definitive Agreements and the rights, interests, understandings,
agreements and obligations of the Parties and their respective affiliates
pertaining to the subject matter hereof and thereof and the Partnership, and
supersedes any previous agreements between the Parties and their respective
affiliates.
8. Notices. Section 7.2 of the JV Agreement is hereby deleted in its
entirety and is replaced with the following: Notices. All notices, documents,
written deliveries and other communications hereunder shall be in
2 of 4
<PAGE> 3
writing and shall be deemed to have been given (i) when delivered in person,
(ii) one business day after deposit with a nationally recognized overnight
courier service, (iii) five business days after being deposited in the United
States mail, postage prepaid, first class, registered or certified mail, or (iv)
the business day on which sent and received by facsimile as follows:
To: Polaris
c/o Polaris Industries Inc.
2100 Highway 55
Medina, Minnesota 55340
Attention: Michael Malone
Facsimile Number: 612-542-0595
With a copy to:
Kaplan, Strangis and Kaplan, P.A.
5500 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attention: James C. Melville
Facsimile Number: 612-375-1143
To: TCFC
c/o Transamerica Commercial Finance Corporation
5595 Trillium Blvd.
Hoffman Estates, Illinois 60192
Attention: Vice President, Operations
Facsimile Number: 847-747-7451
With a copy to:
General Counsel
Transamerica Commercial Finance Corporation
5595 Trillium Blvd.
Hoffman Estates, Illinois 60192
Facsimile Number: 847-747-7455
9. Governing Law. This Second Amendment shall be governed by, and construed
and enforced under, the laws of the State of Illinois without regard to conflict
of law principles.
Except as otherwise set forth herein, all terms and conditions of the JV
Agreement are hereby ratified and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as of
the date first above written, it being understood and agreed that it shall be
effective as of the execution hereof by all Parties hereto.
POLARIS INDUSTRIES INC., A MINNESOTA
CORPORATION
By: /s/ Michael Malone
----------------------------------------
Name: Michael Malone
----------------------------------------
Title: Vice President - Chief Financial Officer
----------------------------------------
3 of 4
<PAGE> 4
TRANSAMERICA COMMERCIAL FINANCE
CORPORATION
By: /s/ Rosario A. Perrelli
----------------------------------------
Name: Rosario A. Perrelli
----------------------------------------
Title: Senior Vice President
----------------------------------------
4 of 4
<PAGE> 1
Exhibit 13
================================================================================
11-YEAR SELECTED FINANCIAL DATA
in thousands, except per share and per unit data
================================================================================
The selected financial data presented below are qualified in their entirety by,
and should be read in conjunction with, the Consolidated Financial Statements
and Notes thereto and other financial and statistical information referenced
elsewhere herein, including the information referenced under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales data
Total sales dollars $1,321,076 $1,175,520 $ 1,048,296 $1,191,901 $1,113,852 $826,286 $528,011
- ---------------------------------------------------------------------------------------------------------------------------------
% change from
prior year 12% 12% (12%) 7% 35% 56% 38%
- ---------------------------------------------------------------------------------------------------------------------------------
Sales mix by product (%)
All-terrain vehicles 59% 57% 45% 37% 33% 30% 27%
- ---------------------------------------------------------------------------------------------------------------------------------
Snowmobiles 28% 32% 42% 43% 46% 52% 59%
- ---------------------------------------------------------------------------------------------------------------------------------
Personal watercraft 4% 4% 7% 16% 16% 14% 9%
- ---------------------------------------------------------------------------------------------------------------------------------
Motorcycles 4% 1% -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
International 5% 6% 6% 4% 5% 4% 5%
- ---------------------------------------------------------------------------------------------------------------------------------
Gross profit data
Total gross profit dollars $ 328,340 $ 278,287 $ 262,538 $ 263,816 $ 247,993 $196,783 $141,387
- ---------------------------------------------------------------------------------------------------------------------------------
% of sales 25% 24% 25% 22% 22% 24% 27%
- ---------------------------------------------------------------------------------------------------------------------------------
Operating expense data
Amortization of
intangibles and
noncash compensation $ 10,472 $ 8,703 $ 5,887 $ 5,325 $ 5,616 $ 14,321 $ 13,466
- ---------------------------------------------------------------------------------------------------------------------------------
Conversion costs -- -- -- -- -- 12,315 --
- ---------------------------------------------------------------------------------------------------------------------------------
Other operating expenses 204,222 169,478 163,549 161,074 140,719 94,485 74,694
- ---------------------------------------------------------------------------------------------------------------------------------
% of sales 15% 14% 16% 14% 13% 11% 14%
- ---------------------------------------------------------------------------------------------------------------------------------
Actual, adjusted,(1) and
pro forma data(2)
Net income $ 76,326 $ 70,624(1) $ 65,383 $ 62,293 $ 60,776 $ 54,703 $ 33,027
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted net income
per share $ 3.07 $ 2.72(1) $ 2.45 $ 2.24 $ 2.19 $ 1.98 $ 1.21
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOW DATA
Cash flow from
operating activities $ 124,354 $ 121,385 $ 102,308 $ 89,581 $ 77,749 $111,542 $ 78,503
- ---------------------------------------------------------------------------------------------------------------------------------
Purchase of property
and equipment 65,063 61,532 36,798 45,336 47,154 32,656 18,946
- ---------------------------------------------------------------------------------------------------------------------------------
Repurchase and retirement
of common stock 52,412 37,728 39,903 13,587 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Cash dividends
to shareholders 19,732 18,582 16,958 16,390 116,639 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Cash dividends per share $ 0.80 $ 0.72 $ 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 $ 6,184 $ 1,466 $ 1,233 $ 5,812 $ 3,501 $ 62,881 $ 33,798
- ---------------------------------------------------------------------------------------------------------------------------------
Current assets 214,714 183,840 217,458 193,405 175,271 206,489 109,748
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets 442,027 378,697 384,746 351,717 314,436 331,166 180,548
- ---------------------------------------------------------------------------------------------------------------------------------
Current liabilities 233,800 204,964 191,111 161,387 155,722 161,457 98,055
- ---------------------------------------------------------------------------------------------------------------------------------
Borrowings under
credit agreement 40,000 20,500 24,400 35,000 40,200 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity/
Partners' capital 168,227 153,233 169,235 155,330 118,514 169,709 82,493
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
1992 1991 1990 1989
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales data
Total sales dollars $383,818 $297,677 $296,147 $242,618
- ----------------------------------------------------------------------------
% change from
prior year 29% 1% 22% 41%
- ----------------------------------------------------------------------------
Sales mix by product (%)
All-terrain vehicles 25% 25% 19% 19%
- ----------------------------------------------------------------------------
Snowmobiles 63% 69% 74% 74%
- ----------------------------------------------------------------------------
Personal watercraft 7% -- -- --
- ----------------------------------------------------------------------------
Motorcycles -- -- -- --
- ----------------------------------------------------------------------------
International 5% 6% 7% 7%
- ----------------------------------------------------------------------------
Gross profit data
Total gross profit dollars $112,322 $ 94,120 $ 93,845 $ 80,384
- ----------------------------------------------------------------------------
% of sales 29% 32% 32% 33%
- ----------------------------------------------------------------------------
Operating expense data
Amortization of
intangibles and
noncash compensation $ 11,997 $ 13,108 $ 12,116 $ 15,717
- ----------------------------------------------------------------------------
Conversion costs -- -- -- --
- ----------------------------------------------------------------------------
Other operating expenses 59,634 49,294 50,917 38,366
- ----------------------------------------------------------------------------
% of sales 16% 17% 17% 16%
- ----------------------------------------------------------------------------
Actual, adjusted,(1) and
pro forma data(2)
Net income $ 24,602 $ 20,727 $ 20,465 $ 16,657
- ----------------------------------------------------------------------------
Diluted net income
per share $ 0.91 $ 0.81 $ 0.79 $ 0.65
- ----------------------------------------------------------------------------
CASH FLOW DATA
Cash flow from
operating activities $ 55,316 $ 46,642 $ 54,782 $ 44,447
- ----------------------------------------------------------------------------
Purchase of property
and equipment 12,295 15,988 7,158 7,065
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
Cash distributions
declared per unit $ 1.67 $ 1.67 $ 1.67 $ 1.51
- ----------------------------------------------------------------------------
BALANCE SHEET DATA
(at end of year)
Cash and cash equivalents $ 19,094 $ 20,098 $ 32,025 $ 27,886
- ----------------------------------------------------------------------------
Current assets 74,999 59,200 66,893 60,344
- ----------------------------------------------------------------------------
Total assets 146,681 135,509 138,704 137,628
- ----------------------------------------------------------------------------
Current liabilities 69,054 52,646 46,602 38,875
- ----------------------------------------------------------------------------
Borrowings under
credit agreement -- -- -- --
- ----------------------------------------------------------------------------
Shareholders' equity/
Partners' capital 77,627 82,863 92,102 98,753
============================================================================
</TABLE>
(1) In 1998, Polaris entered into a settlement agreement related to a trade
secret infringement claim brought by Injection Research Specialists,
Inc. The one-time provision for litigation loss of $61.4 million, or
$1.53 per diluted share, has been excluded from the 1998 financial data
presented to assist in comparing the continuing results of operations
of the Company exclusive of the settlement which had no effect on the
future operations of the Company.
(2) 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.
<PAGE> 2
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
of financial condition and results of operations
================================================================================
The following discussion pertains to the results of operations and financial
position of the Company for each of the three years in the period ended December
31, 1999, and should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
1999 VS. 1998
Sales increased to $1.321 billion in 1999, representing a 12 percent increase
from $1.176 billion in 1998. The increase in sales was primarily due to higher
all-terrain vehicle (ATV) sales, resulting from the tenth consecutive year of
increased ATV sales.
North American sales of ATVs and related parts, garments and accessories
(PG&A) of $774.3 million in 1999 were 15 percent higher than $673.9 million in
1998. The increased sales reflect the continued double-digit growth of the
industry as consumers find new and expanded uses for the product. Polaris'
growth was driven by the continued strength of its Sportsman line of products.
Sales of ATVs and related PG&A comprised 59 percent of total company sales in
1999 compared to 57 percent in 1998.
North American sales of snowmobiles and related PG&A of $376.9 million in
1999 were 1 percent higher than $374.4 million in 1998. The modest increase in
sales was accomplished in spite of a decline in total industry sales in 1999 due
to another winter of below average snowfall levels for much of North America.
Sales of snowmobiles and related PG&A comprised 28 percent of total company
sales in 1999 compared to 32 percent in 1998.
North American sales of personal watercraft (PWC) and related PG&A of $54.2
million in 1999 were 7 percent higher than $50.4 million in 1998. The increase
was attributable to a slight market share increase driven by our new Genesis
model. The average per unit sales price increased 9 percent for PWC in 1999 as a
result of the success of our higher-priced Genesis model. Sales of PWC and
related PG&A comprised 4 percent of total company sales in 1999 and in 1998.
North American sales of Victory motorcycles and related PG&A of $47.4
million in 1999 were significantly higher than $15.2 million in 1998. 1999 was
the first full year of Victory production. Sales of Victory motorcycles and
related PG&A comprised 4 percent of total company sales in 1999 compared to 1
percent in 1998.
International sales of snowmobiles, ATVs, PWC, and related PG&A of $68.3
million in 1999 were 11 percent higher than $61.7 million in 1998. International
sales increased across all product lines as Polaris continues to focus on
international markets as an opportunity for growth. International sales
comprised 5 percent of total company sales in 1999, compared to 6 percent in
1998.
Gross profit increased to $328.3 million in 1999, representing an 18
percent increase over $278.3 million gross profit in 1998. This increase in
gross profit dollars was a result of higher sales volume and an increase in
gross profit margin percentage to 24.9 percent in 1999 from 23.7 percent in
1998. The increase in gross profit margin percentage was primarily a result of
manufacturing cost reductions, in areas such as ATV model consolidation, Victory
cost improvements, a full year impact of the plastic injection molding facility,
and supplier partnership cost savings, as well as the margin benefit of
increased sales of higher margin PG&A. These positive factors have been somewhat
offset by a shift in sales mix to ATVs, which have a lower gross profit margin
than snowmobiles, and the negative impact of the Japanese yen and Canadian
dollar exchange rates during 1999.
Polaris has continued to invest in new product development, innovation, and
product diversification. Research and development expenses were $31.3 million
(2.4 percent of sales) in 1999 and $28.4 million (2.4 percent of sales) in 1998.
In addition, Polaris incurred tooling expenditures for new products of $18.3
million in 1999 and $24.8 million in 1998. In 1999, more than 79 percent of
sales came from products introduced in the past three years.
Operating expenses in 1999 increased 20 percent to $214.7 million from
$178.2 million in 1998. Expressed as a percentage of sales, operating expenses
increased to 16.3 percent in 1999 from 15.2 percent in 1998. These increases are
primarily related to a planned increase in expenses to build the infrastructure
to support the Company's growth and brand recognition initiatives, and a higher
level of promotional and advertising costs related to assisting the dealers in
selling their inventories.
Nonoperating expense (income) in 1998 included a $61.4 million provision
for litigation loss related to the settlement of the Injection Research
Specialists litigation, a one-time charge that did not affect the ongoing
operations of the company. The remaining decline in nonoperating expense
(income) in 1999 from 1998 primarily reflects the unfavorability related to
Canadian dollar exchange rate hedging in 1999 partially offset by the positive
financial impact of the Company's equity in the income of Polaris Acceptance.
Net income in 1999 was $76.3 million, an increase from $31.0 million in
1998, primarily as a result of the 1998 litigation settlement. Net income as a
percent of sales was 5.8 percent in 1999, an increase from 2.6 percent in 1998.
Net income per diluted share increased to $3.07 in 1999 from $1.19 in 1998. Net
income increased 8 percent to $76.3 million from net income (adjusted to exclude
the litigation settlement) of $70.6 million in 1998. Net income as a percent of
sales decreased to 5.8 percent in 1999 from adjusted net income as a percent of
sales of 6.0 percent in 1998. Net income per diluted share increased 13 percent
to $3.07 in 1999 from adjusted net income per diluted share of $2.72 in 1998.
<PAGE> 3
1998 VS. 1997
Sales increased to $1.176 billion in 1998, representing a 12 percent increase
from $1.048 billion in 1997. The increase in sales was primarily due to higher
ATV sales, partially offset by a decline in snowmobile sales.
In 1998, Polaris achieved its ninth consecutive year of increased ATV
sales. North American sales of ATVs and PG&A of $673.9 million in 1998 were 42
percent higher than $473.2 million in 1997. The increased sales reflect the
continued strong growth of the industry as consumers find new and expanded uses
for the product. Additionally, management believes that Polaris increased its
market share of ATV sales as a result of its continued expansion of the popular
Sportsman line of ATVs and other new model introductions. The average per unit
sales price increased 6 percent for ATVs in 1998 as the sales mix continued to
move to new, higher performance models. Sales of ATVs and related PG&A comprised
57 percent of total company sales in 1998 compared to 45 percent in 1997.
North American sales of snowmobiles and PG&A of $374.4 million in 1998 were
16 percent lower than $443.0 million in 1997. The decline is due to lower
snowmobile production levels in 1998 in response to poor snow conditions, warmer
than normal temperatures in North America and higher ending dealer inventories
for the 1997-1998 selling season. Sales of snowmobiles and related PG&A
comprised 32 percent of total company sales in 1998 compared to 42 percent in
1997.
North American sales of personal watercraft (PWC) and related PG&A of $50.4
million in 1998 were 31 percent lower than $73.4 million in 1997. The decrease
is attributable to significantly lower production levels of PWC in 1998 to
compensate for the increased dealer inventory remaining from the prior season
reflecting the reduction of industry growth. Sales of PWC and related PG&A
comprised 4 percent of total company sales in 1998 compared to 7 percent in
1997.
North American sales of Victory motorcycles and related PG&A were $15.2
million in 1998. Victory shipments to our dealers began in July 1998. Sales of
Victory motorcycles and related PG&A comprised 1 percent of total company sales
in 1998, the initial year of production.
International sales of snowmobiles, ATVs, PWC, and related PG&A of $61.7
million in 1998 were 5 percent higher than $58.7 million in 1997. The increase
in international sales was primarily due to an increase in ATV shipments.
International sales comprised 6 percent of total Company sales in 1998, the same
as 1997.
Gross profit increased to $278.3 million in 1998, representing a 6 percent
increase over $262.5 million gross profit in 1997. However, the gross profit
margin percentage of 23.7 percent in 1998 decreased from 25.0 percent in 1997.
The decrease in gross profit margin percentage is primarily a result of (a) the
mix impact of the substantial increase in sales of ATVs, which have a lower
margin than snowmobiles, (b) negative impact of the Canadian dollar exchange
rate when compared to the prior year, (c) initial production rollout of the
Victory motorcycles, and (d) reduced pricing on 1998 model ATVs implemented in
the Fall of 1997. These negative factors have been somewhat offset by the
continued improvement in overall product quality, which has resulted in a
decrease in warranty expenses.
Polaris has continued to invest in new product development, innovation, and
product diversification. Research and development expenses were $28.4 million
(2.4 percent of sales) in 1998 and $26.7 million (2.5 percent of sales) in 1997.
In addition, Polaris incurred tooling expenditures for new products of $24.8
million in 1998 and $19.3 million in 1997. In 1998, 73 percent of sales came
from products introduced in the past three years.
Operating expenses in 1998 increased 5 percent to $178.2 million from
$169.4 million in 1997. Expressed as a percentage of sales, operating expenses
decreased to 15.2 percent in 1998 from 16.2 percent in 1997. These decreases are
primarily attributable to the leveraging effect of higher sales and reduced
level of promotional and advertising costs related to assisting dealers in
selling their PWC and snowmobile inventories partially offset by a planned
increase in advertising expenditures.
Nonoperating expense (income) in 1998 includes a $61.4 million provision
for litigation loss related to the settlement of the Injection Research
Specialists litigation. This is a one-time charge that does not affect the
ongoing operations of the company. The remaining improvement in nonoperating
expense (income) in 1998 from 1997 primarily reflects the positive financial
impact of the Company's equity in the income of Polaris Acceptance.
The provision for income taxes was reduced to a rate of 35.5 percent of
pretax income beginning in the third quarter of 1998 from 36.0 percent in prior
periods as a result of certain tax planning strategies.
Net income in 1998 was $31.0 million, a decrease from $65.4 million in
1997, primarily as a result of the litigation settlement. Net income as a
percent of sales was 2.6 percent in 1998, a decrease from 6.2 percent in 1997.
Net income per diluted share decreased to $1.19 in 1998 from $2.45 in 1997. Net
income adjusted to exclude the litigation settlement increased 8 percent to
$70.6 million in 1998 from $65.4 million in 1997. Adjusted net income as a
percent of sales decreased to 6.0 percent in 1998 from 6.2 percent in 1997.
Adjusted net income per diluted share increased 11 percent to $2.72 in 1998 from
$2.45 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Polaris' primary sources of funds have been cash provided by operating
activities, a $175 million bank line of credit and a dealer floor plan financing
program. Polaris' primary uses of funds have been for capital investments, new
product development, repurchase and retirement of common stock, cash dividends
to shareholders, and payment of litigation expenses.
<PAGE> 4
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
of financial condition and results of operations (continued)
================================================================================
During 1999, Polaris generated net cash from operating activities of $124.4
million, which was utilized to fund capital expenditures of $65.1 million, net
investments in affiliates of $1.9 million, cash dividends of $19.7 million and
the repurchase of common stock of $52.4 million. During 1998, Polaris generated
net cash from operating activities of $121.4 million, which was utilized to fund
capital expenditures of $61.5 million, cash dividends of $18.6 million, and the
repurchase of common stock of $37.7 million. During 1997, Polaris generated net
cash from operating activities of $102.3 million, which was utilized to fund
capitalized 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.
The seasonality of production and shipments causes working capital
requirements to fluctuate during the year. Polaris has an unsecured bank line of
credit arrangement maturing on March 31, 2002, under which it may borrow up to
$175 million until March 31, 2000 and $150 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, 6.52 percent at December 31, 1999, based on LIBOR or "prime" rates. In
July 1999, Polaris entered into an interest rate swap agreement to manage
exposure to fluctuations in interest rates. The effect of the swap agreement is
to fix the interest rate at 5.80 percent for $20 million of borrowings under the
credit line for a period of two years. At December 31, 1999, Polaris had total
borrowings under the line of credit of $40.0 million compared to $20.5 million
at December 31, 1998. In addition, at December 31, 1999, Polaris had letters
of credit outstanding of $16.2 million related to purchase obligations for
raw materials.
On October 21, 1999, the Polaris Board of Directors approved a new share
repurchase authorization of 2.5 million shares of the Company's outstanding
common stock. Prior thereto, the Board of Directors authorized the cumulative
repurchase of up to 5.0 million shares of the company's common stock. During
1999, Polaris paid $52.4 million to repurchase and retire nearly 1.5 million
shares. Polaris had approximately 2.9 million shares available to repurchase
under the Board of Directors authorizations as of December 31, 1999.
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 in 1999 began providing other financial services to
dealers, distributors and retail customers of Polaris including retail credit
and extended service contracts. Polaris has a 50 percent equity interest in
Polaris Acceptance and guarantees 50 percent of the outstanding indebtedness of
Polaris Acceptance under a credit agreement between Polaris Acceptance and TDF.
At December 31, 1999, Polaris' contingent liability with respect to the
guarantee was approximately $170.0 million. In February 2000, the term of the
partnership agreement was extended; in consideration thereof, the Polaris
guarantee of the outstanding indebtedness of Polaris Acceptance was eliminated.
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 Polaris products without the use of Polaris' working capital.
Substantially all of the sales of snowmobiles, ATVs, motorcycles and PWC (but
not parts, garments and accessories) 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, 1999 and 1998, was approximately $472.0 million and $384.0 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 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 and the amount received on the resale of the
repossessed product. No material losses have been incurred under these
agreements. However, an adverse change in retail sales could cause this
situation to change and thereby require 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. Investments made during 1999 include: (a) tooling expenditures
for new product development across all product lines of $18.3 million during
1999, (b) investments of $10.3 million in returnable crates, which not only
reduce costs but also are environmentally friendly and (c) an investment of
$12.0 million in a new corporate headquarters in Medina, MN which became
operational in late January 2000; Polaris had previously been scattered
throughout several office buildings in suburban Minneapolis. Polaris anticipates
that capital expenditures, including tooling, for 2000 will range from $65
million to $75 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 2000. At this time,
management is not aware of any factors that would have a material adverse impact
on cash flow beyond 2000.
Injection Research Specialists ("IRS") commenced an action in 1990 against
Polaris and Fuji Heavy Industries, Ltd. ("Fuji"), one of Polaris' engine
suppliers, in Colorado Federal Court alleging various claims relating to
electronic fuel injection systems for snowmobiles. In October 1998, following
the entry of judgment against Polaris for $34.0 million (before pre- and
post-judgement interest) and affirmance thereof by the Federal Court of Appeals,
IRS, Polaris and Fuji entered into a confidential settlement agreement to settle
all outstanding claims between the parties. The resulting provision for
litigation loss of $61.4 million was reflected as non-operating expense in the
accompanying consolidated statement of operations for the year ended December
31, 1998. Polaris no longer uses any of the technology in dispute.
<PAGE> 5
Polaris proforma results with 1998 adjusted to exclude the provision for
litigation loss are as follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Adjusted income before income taxes $118,335 $109,771
Provision for income taxes 42,009 39,147
- -------------------------------------------------------------------------------
Adjusted net income $ 76,326 $ 70,624
================================================================================
Adjusted net income per diluted share $ 3.07 $ 2.72
================================================================================
</TABLE>
YEAR 2000
Polaris did not experience any significant business related interruptions
relative to the Year 2000 compliance of its computer systems.
The Company is continuing to monitor potential problems but does not expect any
major impact during the year. The cost of the Year 2000 initiatives of
approximately $1.5 million, which were expensed as incurred, was not material to
Polaris' financial position.
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 1999, purchases totaling 16 percent of Polaris' cost of sales were
from Japanese yen denominated suppliers. The weakening of the U.S. dollar in
relation to the Japanese yen since mid-1998 has resulted in higher raw material
purchase prices. Polaris' cost of sales in 1999 was negatively impacted by the
Japanese yen exchange rate fluctuation when compared to the prior year. The
dollar has continued to weaken in relation to the yen and in view of the foreign
exchange hedging contracts currently in place, Polaris anticipates that the
yen-dollar exchange rate will again have a negative impact on cost of sales
during 2000 when compared to 1999.
Polaris operates in Canada through a wholly owned subsidiary. Sales of the
Canadian subsidiary comprised 11 percent of total Company sales in 1999. Polaris
utilizes foreign exchange hedging contracts to manage its exposure to the
Canadian dollar. The U.S. dollar has strengthened in relation to the Canadian
dollar beginning in 1998 and it has had a negative financial impact on Polaris
gross margins when compared to the same periods in both 1999 and 1998. In view
of the currently strengthening Canadian dollar and the foreign exchange hedging
contracts currently in place, Polaris anticipates a positive impact on net
income during 2000 when compared to 1999.
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, 1999, Polaris had open Japanese yen foreign exchange hedging
contracts with notional amounts totaling $25.3 million U.S. dollars and open
Canadian dollar foreign exchange contracts with notional amounts totaling $83.0
million U.S. dollars which mature throughout 2000.
Since October 1995, Polaris has been manufacturing its own engines for
selected models of PWC, motorcycles and snowmobiles at its Osceola, Wisconsin
facility. In addition, earlier in 1995, Polaris entered into an agreement with
Fuji Heavy Industries Ltd. 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 having these additional sources of
engines include reduced foreign exchange risk, lower shipping costs and less
dependence in the future on a single supplier for engines.
Certain matters discussed in this report are "forward-looking statements"
intended to qualify for the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These "forward-looking statements" can generally
be identified as such because the context of the statement will include words
such as the Company or management "believes", "anticipates", "expects",
"estimates" or words of similar import. Similarly, statements that describe the
Company's future plans, objectives or goals are also forward-looking.
Shareholders, potential investors and others are cautioned that all
forward-looking statements involve risks and uncertainty that could cause
results to differ materially from those anticipated by some of the statements
made herein. 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; future conduct of litigation
processes; warranty expenses; foreign currency exchange rate fluctuations;
environmental and product safety regulatory activity; effects of weather;
uninsured product liability claims; and overall economic conditions, including
inflation and consumer confidence and spending.
<PAGE> 6
================================================================================
CONSOLIDATED BALANCE SHEETS
in thousands, except per share data
================================================================================
<TABLE>
<CAPTION>
December 31,
1999 1998
- -------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 6,184 $ 1,466
Trade receivables 53,293 43,035
Inventories 118,062 107,436
Prepaid expenses and other 6,175 2,903
Deferred tax assets 31,000 29,000
- -------------------------------------------------------------------------------
Total current assets 214,714 183,840
- -------------------------------------------------------------------------------
DEFERRED TAX ASSETS 16,000 21,000
- -------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land, buildings and improvements 38,616 37,226
Equipment and tooling 236,951 192,255
- -------------------------------------------------------------------------------
275,567 229,481
Less-accumulated depreciation (124,645) (105,227)
- -------------------------------------------------------------------------------
Total property and equipment 150,922 124,254
- -------------------------------------------------------------------------------
INVESTMENTS IN AFFILIATES 38,310 26,636
INTANGIBLE ASSETS, NET 22,081 22,967
- -------------------------------------------------------------------------------
$ 442,027 $ 378,697
===============================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE> 7
<TABLE>
<CAPTION>
December 31,
1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 91,805 $ 77,258
Accrued expenses:
Compensation 35,291 41,664
Warranties 40,392 37,921
Other 52,899 41,110
Income taxes payable 13,413 7,011
- --------------------------------------------------------------------------------------
Total current liabilities 233,800 204,964
- --------------------------------------------------------------------------------------
BORROWINGS UNDER CREDIT AGREEMENT 40,000 20,500
- --------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 1, 3, 5, 7 AND 8)
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,
24,226 and 25,355 shares issued and outstanding 242 253
Additional paid-in capital 8,987 48,622
Deferred compensation (7,818) (6,726)
Compensation payable in common stock 5,975 6,844
Retained earnings 160,841 104,240
- --------------------------------------------------------------------------------------
Total shareholders' equity 168,227 153,233
- --------------------------------------------------------------------------------------
$ 442,027 $ 378,697
======================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE> 8
================================================================================
CONSOLIDATED STATEMENTS OF OPERATIONS
in thousands, except per share data
================================================================================
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 1,321,076 $ 1,175,520 $ 1,048,296
Cost of Sales 992,736 897,233 785,758
- ------------------------------------------------------------------------------------------------------
Gross profit 328,340 278,287 262,538
- ------------------------------------------------------------------------------------------------------
Gross profit percent 24.9% 23.7% 25.0%
- ------------------------------------------------------------------------------------------------------
Operating Expenses
Selling and marketing 142,406 118,688 112,978
Research and development 31,311 28,387 26,722
General and administrative 40,977 31,106 29,736
- ------------------------------------------------------------------------------------------------------
Total operating expenses 214,694 178,181 169,436
- ------------------------------------------------------------------------------------------------------
Operating income 113,646 100,106 93,102
Nonoperating Expense (income)
Interest expense 4,285 2,959 2,829
Equity in (income) of affiliates (9,745) (7,819) (6,718)
Other expense (income), net 771 (4,805) (5,171)
Provision for litigation loss (Note 2) -- 61,409 --
- ------------------------------------------------------------------------------------------------------
Income before income taxes 118,335 48,362 102,162
Provision for Income Taxes 42,009 17,347 36,779
- ------------------------------------------------------------------------------------------------------
Net income $ 76,326 $ 31,015 $ 65,383
======================================================================================================
Basic Net Income Per Share $ 3.09 $ 1.20 $ 2.45
Diluted Net Income Per Share $ 3.07 $ 1.19 $ 2.45
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 9
================================================================================
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
in thousands
================================================================================
<TABLE>
<CAPTION>
Compensation
Additional Payable in
Preferred Common Paid-in Deferred Common Retained
Stock Stock Capital Compensation Stock Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
First Rights conversion
to stock -- 1 1,841 -- (1,864) -- (22)
Employee stock compensation -- 3 11,543 (3,593) 1,362 -- 9,315
Dividends -- -- -- -- -- (18,582) (18,582)
Repurchase and retirement
of common shares -- (11) (37,717) -- -- -- (37,728)
Net income -- -- -- -- -- 31,015 31,015
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 -- 253 48,622 (6,726) 6,844 104,240 153,233
First Rights conversion
to stock -- -- 323 -- (286) 7 44
Employee stock compensation -- 4 12,439 (1,092) (583) -- 10,768
Dividends -- -- -- -- -- (19,732) (19,732)
Repurchase and retirement
of common shares -- (15) (52,397) -- -- -- (52,412)
Net income -- -- -- -- -- 76,326 76,326
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ -- $ 242 $ 8,987 $(7,818) $ 5,975 $ 160,841 $ 168,227
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 10
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
in thousands
================================================================================
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $76,326 $31,015 $65,383
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 39,281 36,192 33,168
Noncash compensation 9,586 7,808 5,010
Equity in (income) of affiliates (9,745) (7,819) (6,718)
Deferred income taxes 3,000 5,000 --
Changes in current operating items
Trade receivables (10,258) (443) (6,435)
Inventories (10,626) 32,108 (16,633)
Accounts payable 14,547 16,231 10,513
Accrued expenses 7,887 6,828 11,551
Income taxes payable 6,402 (9,206) 7,660
Other (2,046) 3,671 (1,191)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 124,354 121,385 102,308
====================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (65,063) (61,532) (36,798)
Investments in and advances to affiliates (11,366) (9,112) (16,627)
Distributions and repayments from affiliates 9,437 9,702 13,999
- --------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (66,992) (60,942) (39,426)
====================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under credit agreement 501,275 338,200 290,100
Repayments under credit agreement (481,775) (342,100) (300,700)
Repurchase and retirement of common shares (52,412) (37,728) (39,903)
Cash dividends to shareholders (19,732) (18,582) (16,958)
Net cash used for financing activities (52,644) (60,210) (67,461)
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 4,718 233 (4,579)
====================================================================================================================
CASH AND CASH EQUIVALENTS
Beginning 1,466 1,233 5,812
- --------------------------------------------------------------------------------------------------------------------
Ending $6,184 $1,466 $1,233
====================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year $36,620 $24,731 $25,838
====================================================================================================================
Income taxes paid during the year $38,651 $21,475 $29,007
====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 11
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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 all-terrain vehicles, snowmobiles,
motorcycles and personal watercraft. Polaris products, together with related
parts, garments and accessories are sold worldwide through a network of dealers,
distributors and its subsidiaries.
BASIS OF PRESENTATION: All significant intercompany transactions and balances
have been eliminated in consolidation.
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.
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
millions):
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Raw materials and purchased components $ 28.0 $ 32.2
Service parts, garments and accessories 50.6 41.1
Finished goods 39.4 34.1
---------- ----------
$ 118.1 $ 107.4
========== ==========
</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 $12.5 million at December 31, 1999, and $11.6 million at December 31,
1998, 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 and Australian subsidiaries use the United
States dollar as their functional currencies. Canadian and Australian 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 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, 1999, Polaris had open Japanese yen foreign exchange contracts with notional
amounts totaling $25.3 million United States dollars and open Canadian dollar
foreign exchange contracts with notional amounts totaling $83.0 million United
States dollars which mature throughout 2000.
SEGMENT REPORTING: Polaris has reviewed SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" and determined that the
aggregation criteria outlined in SFAS No. 131 has been achieved and therefore
Polaris' four operating divisions are reportable as a single reportable segment.
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 3),
have not been material. Polaris provides for estimated sales promotion expenses
at the time of sale to the dealer or distributor customer.
FOREIGN OPERATIONS: The following data relates to Polaris' foreign operations
(in millions of United States dollars):
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Canadian Subsidiary:
Sales $148.2 $142.5 $154.3
Operating income 3.1 3.0 6.4
Identifiable assets 23.6 18.9 20.3
------ ------ ------
Other export sales $68.3 $61.7 $58.7
====== ====== ======
</TABLE>
<PAGE> 12
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
================================================================================
MAJOR SUPPLIER: During 1999, 1998, and 1997, purchases of engines and related
components totaling 15, 12 and 16 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.
NEW ACCOUNTING PRONOUNCEMENTS: The Financial Accounting Standards Board issued
Statement of Financial Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133) in June 1998. Polaris is not required to
adopt SFAS No. 133 until January 1, 2001. However, Polaris does not believe the
adoption of SFAS No. 133 will have a material effect on its Financial
Statements.
NOTE 2 LITIGATION SETTLEMENT
Injection Research Specialists ("IRS") commenced an action in 1990 against
Polaris and Fuji Heavy Industries, Ltd. ("Fuji") one of Polaris' engine
suppliers, in Colorado Federal Court alleging various claims relating to
electronic fuel injection systems for snowmobiles. In October 1998, following a
judgment against Polaris for $34.0 million (before pre- and post-judgement
interest) and affirmance thereof by the Federal Court of Appeals, IRS, Polaris
and Fuji entered into a confidential settlement agreement to settle all
outstanding claims between the parties. The resulting provision for litigation
loss of $61.4 million has been reflected as non-operating expense in the
accompanying statement of operations for the year ended December 31, 1998. The
net income impact of the litigation loss was $39.6 million or $1.53 per diluted
share in 1998. Adjusted net income excluding the IRS litigation provision was
$70.6 million or $2.72 per diluted share in 1998. Polaris no longer uses any of
the technology in dispute.
NOTE 3 FINANCING
BANK FINANCING: Polaris is a party to an unsecured bank line of credit
arrangement under which it may borrow up to $175 million until March 31, 2000
and up to $150 million thereafter until maturity. Interest is charged at rates
based on LIBOR or "prime" and the agreement expires on March 31, 2002, at which
time the outstanding balance is due. In July 1999, Polaris entered into an
interest rate swap agreement to manage exposure to fluctuations in interest
rates. The effect of the swap agreement is to fix the interest rate at 5.80
percent for $20 million of borrowings under the credit line for a period of two
years. The following summarizes activity under Polaris' credit arrangement (in
millions):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Total borrowings at December 31 $40.0 $20.5
Average outstanding borrowings
during year $80.5 $48.4
Maximum outstanding borrowings
during year $131.5 $77.0
Interest rate at December 31 6.16% 5.95%
</TABLE>
LETTERS OF CREDIT: At December 31, 1999, Polaris had open letters of credit
totaling approximately $16.2 million. The amounts outstanding are reduced as
inventory purchases pertaining to the contracts are received.
CUSTOMER FINANCING PROGRAM: Certain finance companies, including Polaris
Acceptance, an affiliate (Note 7), provide floor plan financing to distributors
and dealers on the purchase of Polaris products. The amount financed by
distributors and dealers under these arrangements at December 31, 1999, was
approximately $472.0 million. 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 4 INCOME TAX MATTERS
Components of Polaris' provision for income taxes are as follows (in millions):
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Current
Federal $36.1 $10.4 $31.6
State 1.6 0.7 2.3
Foreign 1.3 1.2 2.9
Deferred 3.0 5.0 --
----- ----- -----
Total $42.0 $17.3 $36.8
===== ===== =====
</TABLE>
Reconciliations of the Federal statutory income tax rate to the effective
tax rate are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 1.5 2.5 2.5
Other permanent differences (1.0) (1.6) (1.5)
----- ----- -----
Effective income tax rate 35.5% 35.9% 36.0%
===== ===== =====
</TABLE>
<PAGE> 13
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 millions):
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
<S> <C> <C> <C>
Current deferred tax assets:
Inventories $4.1 $4.1 $4.0
Accrued expenses 26.9 24.7 24.0
Compensation payable in
common stock -- 0.2 1.0
----- ----- -----
Total current 31.0 29.0 29.0
----- ----- -----
Noncurrent deferred tax assets:
Cost in excess of net assets
of business acquired 23.0 25.2 27.6
Property and equipment (8.9) (4.9) (2.0)
Compensation payable in
common stock 1.9 0.7 0.4
----- ----- -----
Total noncurrent 16.0 21.0 26.0
----- ----- -----
Total $47.0 $50.0 $55.0
===== ===== =====
</TABLE>
NOTE 5 STOCK-BASED COMPENSATION
Polaris maintains a stock option plan (Option Plan) under which incentive and
nonqualified stock options for a maximum of 2.4 million shares of common stock
may be issued to certain employees. Options granted to date generally vest three
years from the award date and expire after ten years. Shares outstanding under
the Option Plan have exercise prices ranging from $25.75 to $49.45 and a
weighted average remaining contractual life of 7.6 years.
Polaris maintains a broad based stock option plan (Broad Based Plan) under
which incentive stock options for a maximum of 350,000 shares of common stock
may be issued to substantially all Polaris employees. 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 800,000 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 Polaris achieves certain
performance measures.
Polaris sponsors a qualified non-leveraged Employee Stock Ownership Plan
(ESOP) under which a maximum of 1.25 million 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.
The following summarizes share activity in the above plans, and the
weighted average exercise price for the Option Plan:
<TABLE>
<CAPTION>
Broad Based Restricted First Rights
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,
1996 391,830 $30.66 -- 61,795 431,255 --
Granted 142,980 $25.75 -- 64,915 -- --
Converted -- -- -- -- (318,755) --
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
Granted 691,590 $40.15 -- 147,765 -- 173,206
Exercised/
Converted (33,425) $29.00 -- -- (87,750) --
Forfeited (76,183) $30.94 -- (28,605) (1,500) --
- --------- -------- ------ ---- -------- ------- ---
Outstanding as
of December 31,
1998 1,077,725 $36.17 -- 243,035 8,250 343,206
Granted 311,970 $32.47 337,900 145,235 -- 170,000
Exercised/
Converted (29,768) $29.54 -- -- (8,250) --
Forfeited (19,774) 31.50 (19,300) (11,795) -- --
- --------- -------- ----- -------- -------- ---- ----
Outstanding as
of December 31,
1999 1,340,153 $35.06 318,600 376,475 -- 513,206
- ---- ========= ====== ======= ======= ==== =======
Exercisable/
Vested as
of December 31,
1999 258,357 $30.91 -- -- -- 513,206
- ---- ======= ====== ==== ==== ==== ========
</TABLE>
Polaris maintains 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 has been authorized under this plan and 26,305 shares have been
earned as of December 31, 1999.
<PAGE> 14
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
================================================================================
Polaris accounts for all stock based compensation plans under APB Opinion
No. 25, under which compensation costs of $9.6 million, $7.8 million, and $5.0
million were recorded in 1999, 1998 and 1997, respectively. Had compensation
costs for these plans been recorded at fair value consistent with the
methodology prescribed by 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>
1999 1998 1997
<S> <C> <C> <C>
Net Income (in millions)
As Reported 76.3 $31.0 $65.4
Pro Forma 73.5 29.3 64.3
Net Income Per Share
As Reported $3.07 $1.19 $2.45
Pro Forma 2.95 1.13 2.41
===== ===== =====
</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>
1999 1998 1997
<S> <C> <C> <C>
Risk free interest rate 6.6% 5.6% 6.6%
Expected life 7 YEARS 7 years 7 years
Expected volatility 23% 14% 23%
Expected dividend yield 2.2% 2.0% 2.5%
===== ===== =====
</TABLE>
The weighted average fair values at the grant dates of shares awarded under
the above plans are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Option Plan $8.99 $5.57 $7.45
Restricted Plan $32.47 $34.89 $25.75
ESOP $36.25 $39.19 $30.56
Broad Based Plan $8.99 $ -- $ --
===== ===== =====
</TABLE>
NOTE 6 SHAREHOLDERS' EQUITY
STOCK REPURCHASE PROGRAM: In October 1999, the Polaris Board of Directors
approved a new share repurchase authorization of up to 2.5 million shares of the
Company's common stock. Prior thereto, the Board of Directors had authorized the
cumulative repurchase of up to 5.0 million shares of the Company's common stock.
During 1999, Polaris paid $52.4 million to repurchase and retire nearly 1.5
million shares. Cumulative repurchases through December 31, 1999 are
approximately 4.6 million shares for $143.6 million. Polaris had approximately
2.9 million shares available to repurchase under Board of Directors
authorizations as of December 31, 1999.
NET INCOME PER SHARE: Polaris calculates net income per share in accordance with
Statement of Financial Accounting Standards 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 Polaris Industries Inc. 1999 number of common shares
outstanding during each year, including shares earned under the expired First
Rights plan, the Director Plan and the ESOP. Diluted earnings per share is
computed under the treasury stock method and is calculated to compute the
dilutive effect of outstanding stock options. A reconciliation of these amounts
is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income available to common
shareholders $76,326 $31,015 $65,383
======= ======= =======
Weighted average number
of common shares outstanding 24,539 25,709 26,403
First Rights -- 21 139
Director Plan 23 17 12
ESOP 170 170 170
------- ------- -------
Common shares outstanding
-- basic 24,732 25,917 26,724
------- ------- -------
Dilutive effect of Option Plan 168 69 15
------- ------- -------
Common and potential common
shares outstanding -- diluted 24,900 25,986 26,739
======= ======= =======
Basic earnings per share $3.09 $1.20 $2.45
======= ======= =======
Diluted earnings per share $3.07 $1.19 $2.45
======= ======= =======
</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: Polaris maintains 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 7 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 in 1999 began providing other financial services
including retail credit and extended service contracts to dealers, distributors
and retail customers of Polaris. Polaris' subsidiary has a 50 percent equity
interest in Polaris Acceptance and guarantees 50 percent of the outstanding
indebtedness of Polaris Acceptance under a credit agreement between Polaris
Acceptance and TDF. At December 31, 1999, Polaris' contingent liability with
respect to the guarantee was approximately $170.0 million. In February 2000, the
term of the partnership agreement was extended; in consideration thereof, the
Polaris guarantee of the outstanding indebtedness of Polaris Acceptance was
eliminated.
<PAGE> 15
In February 1995, Polaris entered into an agreement with Fuji Heavy
Industries Ltd. to form Robin Manufacturing, U.S.A. (Robin). Under the
agreement, Polaris has a 40 percent ownership interest in Robin, which builds
engines in the United States for recreational and industrial products.
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 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 millions):
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Revenues $81.7 $65.0
Cost of goods sold, interest
and operating expenses 61.5 48.9
------ ------
Net income before income taxes $20.2 $16.1
====== ======
Finance receivables, net $408.8 $323.7
Other assets 21.3 17.3
------ ------
$430.1 $341.0
====== ======
Notes payable $338.6 $278.4
Other liabilities 14.2 12.1
Shareholders' equity and Partners' capital 77.3 50.5
------ ------
$430.1 $341.0
====== ======
</TABLE>
Note 8 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.
INCOME TAX AUDIT: Revenue Canada has assessed Polaris approximately $16.0
million in taxes, penalties and interest for the period January 1, 1992 through
December 31, 1994 resulting from an income tax audit for that period. Revenue
Canada has asserted that Polaris overcharged its Canadian subsidiary for various
goods and services during the audit period primarily through improper
intercompany transfer pricing policies. Polaris disagrees with the assessment
and is vigorously contesting it.
LITIGATION: Polaris is a defendant in lawsuits and subject to claims arising in
the normal course of business. In the opinion of management, it is 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 $2.9 million, $2.5
million, and $2.8 million, for 1999, 1998 and 1997, respectively. Future minimum
payments, exclusive of other costs, required under noncancelable operating
leases at December 31, 1999, total $1.5 million cumulatively through 2004.
Note 9 Quarterly Financial Data
(Unaudited) (In millions, except per share data)
<TABLE>
<CAPTION>
Net Diluted Net
Gross Income Income (Loss)
Sales Profit (Loss) Per Share
1999:
<S> <C> <C> <C> <C>
First Quarter $237.8 $56.4 $9.1 $.36
Second Quarter 324.3 74.9 15.1 .60
Third Quarter 388.9 101.3 27.2 1.10
Fourth Quarter 370.1 95.7 24.9 1.02
-------- ------ -----
Totals $1,321.1 $328.3 $76.3 $3.07
======== ====== ===== =====
1998:
First Quarter $210.0 $46.8 $8.3 $.32
Second Quarter 274.7 64.2 14.5 .55
Third Quarter 359.9 86.4 (14.5) (.56)
Fourth Quarter 330.9 80.9 22.7 .88
-------- ------ -----
Totals $1,175.5 $278.3 $31.0 $1.19
======== ====== ===== =====
</TABLE>
<PAGE> 16
===============================================================================
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
===============================================================================
To Polaris Industries Inc.:
We have audited the accompanying consolidated balance sheets of Polaris
Industries Inc. (a Minnesota corporation) and Subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
January 28, 2000
<PAGE> 17
===============================================================================
INVESTOR INFORMATION
===============================================================================
INDEPENDENT AUDITORS
Arthur Andersen LLP
Minneapolis, MN
FORM 10-K
The Form 10-K annual report to the Securities and Exchange Commission is
available without charge to shareholders upon written request to:
Investor Relations
Polaris Industries Inc.
2100 Highway 55
Medina, MN 55340
ANNUAL SHAREHOLDERS' MEETING
The meeting will be held at 9 a.m., Thursday, May 18, 2000, at the Polaris
Industries Inc. corporate headquarters, 2100 Highway 55, Medina, Minn. A proxy
statement will be mailed on or about March 27, 2000, to each shareholder of
record on March 20, 2000.
INTERNET ACCESS
To view the Company's annual report and financial information, products and
specifications, press releases, and dealer locations, access Polaris on the
Internet at:
www.polarisindustries.com
www.victory_usa.com
SUMMARY OF TRADING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
QUARTER HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First $39.44 $27.00 $38.00 $27.81
Second 45.63 30.06 39.00 33.00
Third 44.75 34.38 38.19 30.31
Fourth 39.50 32.69 39.19 24.75
</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 DIVIDENDS DECLARED
<TABLE>
<CAPTION>
QUARTER 1999 1998
<S> <C> <C>
First $.20 $.18
Second .20 .18
Third .20 .18
Fourth .20 .18
---- ----
Total $.80 $.72
==== ====
</TABLE>
Shareholders of record of the Company's common stock on March 1, 2000: 2,928.
Share price on March 1, 2000: $31-11/16.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Shares % of
Company Organization Outstanding Ownership
------- ------------ ----------- ---------
<S> <C> <C> <C>
Polaris Industries Inc. Delaware Corporation 100 100%
("Polaris Delaware")
Polaris Real Estate Delaware Corporation 1,000 100%(1)
Corporation of Iowa, Inc.
Polaris Real Estate Delaware Corporation 1,000 100%(2)
Corporation
Polaris Industries Export Barbados Corporation 1,000 100%
Ltd.
Polaris Industries Ltd. Manitoba Corporation 101 100%(3)
Polaris Acceptance Inc. Minnesota Corporation 1 100%
Polaris Sales Inc. Minnesota Corporation 100 100%(4)
Polaris Sales Australia Pty Ltd. Australian Corporation 1 100%(5)
</TABLE>
- -----------------------
(1), (2), (3) and (4) Owned 100% by Polaris Delaware.
(5) is Owned 100% by Polaris Sales, Inc.
<PAGE> 1
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. 33-57503, 33-60157,
333-05463, 333-21007, 333-77765 and 333-94451.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 24, 2000
<PAGE> 1
EXHIBIT 24
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 Thomas C. Tiller 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, 1999 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 20th day of January,
2000.
POLARIS INDUSTRIES INC.
By /s/ Thomas C. Tiller
--------------------------------
Thomas C. Tiller
Chief Executive Officer
<PAGE> 2
The undersigned, directors of POLARIS INDUSTRIES INC., have hereunto
set their hands as of the 20th day of January, 2000.
/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/ Bruce A. Thomson /s/ Raymond J. Biggs
- --------------------------------- ----------------------------------
Bruce A. Thomson Raymond J. Biggs
/s/ Thomas C. Tiller
- ---------------------------------
Thomas C. Tiller
DIRECTORS
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF POLARIS INDUSTRIES INC. AS OF DECEMBER 31, 1999,
AND THE RELATED STATEMENTS OF OPERATIONS, SHAREHOLDERS EQUITY AND CASH FLOWS FOR
THE YEAR ENDED DECEMBER 31, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,184
<SECURITIES> 0
<RECEIVABLES> 53,293
<ALLOWANCES> 0
<INVENTORY> 118,062
<CURRENT-ASSETS> 214,714
<PP&E> 275,567
<DEPRECIATION> 124,645
<TOTAL-ASSETS> 442,027
<CURRENT-LIABILITIES> 233,800
<BONDS> 40,000
0
0
<COMMON> 242
<OTHER-SE> 167,985
<TOTAL-LIABILITY-AND-EQUITY> 442,027
<SALES> 1,321,076
<TOTAL-REVENUES> 1,321,076
<CGS> 992,736
<TOTAL-COSTS> 992,736
<OTHER-EXPENSES> 214,694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,285
<INCOME-PRETAX> 118,335
<INCOME-TAX> 42,009
<INCOME-CONTINUING> 76,326
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,326
<EPS-BASIC> 3.09
<EPS-DILUTED> 3.07
</TABLE>
