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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11411
POLARIS INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1790959
(State or other jurisdiction (IRS employer
of incorporation or organization) identification no.)
1225 HIGHWAY 169 NORTH 55441
MINNEAPOLIS, MN (Zip Code)
(Address of principal executive offices)
(612) 542-0500
(Registrant's telephone number,
including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock of the registrant as of March 11,
1996 (based upon the closing reported sale price of the Common Stock at that
date on the New York Stock Exchange) held by non-affiliates (24,681,175 shares)
was approximately $737,350,103.
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 15, 1996, 27,532,086 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, 1995 furnished to the Securities and Exchange Commission (the
"1995 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 9, 1996 filed with the Securities and Exchange Commission (the
"1996 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. The Company, directly or
indirectly, owns 100% of the Partnership and continues to conduct the business
and operations of Polaris Industries L.P. The term "Polaris" as used herein
refers to the business and operations of the Partnership and its predecessor,
Polaris Industries L.P.
Polaris designs, engineers and manufactures snowmobiles, four-and six-wheel
all terrain recreational and utility vehicles ("ATVs"), and personal watercraft
("PWC") and markets them, together with related accessories, clothing and
replacement parts through dealers and distributors principally located in the
United States, Canada and Europe. Snowmobiles, ATVs, PWC and clothing,
accessories and parts, accounted for the following approximate percentages of
Polaris' sales for the periods indicated.
CLOTHING,
YEAR ENDED ACCESSORIES
DECEMBER 31 SNOWMOBILES ATVS PWC AND PARTS
- -------------------- ----------- ----- ----- -----------
1995.............. 40% 33% 16% 11%
1994.............. 44% 29% 14% 13%
1993.............. 50% 26% 9% 15%
INDUSTRY BACKGROUND
SNOWMOBILES. In the early 1950s, a predecessor to Polaris produced a "gas
powered sled" which became the forerunner of the Polaris snowmobile. Snowmobiles
have been manufactured under the Polaris name since 1954.
Originally conceived as a utility vehicle for northern, rural environments,
the snowmobile gained popularity as a recreational vehicle. From the mid-1950s
through the late 1960s, over 100 producers entered the snowmobile market and
snowmobile sales reached a peak of approximately 495,000 units in 1971. The
Polaris product survived the industry decline in which snowmobile sales fell to
a low point of approximately 87,000 units in 1983 and the number of snowmobile
manufacturers serving the North American market declined to four: Yamaha,
Bombardier, Arctco and Polaris. Polaris estimates that industry sales of
snowmobiles on a world wide basis were approximately 212,000 units for the
season ended March 31, 1995.
ALL TERRAIN VEHICLES. ATVs are four-wheel and six-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. By 1980,
the number of ATV units sold in the North American market annually had increased
to approximately 140,000 units. Other Japanese motorcycle manufacturers, Yamaha,
Kawasaki and Suzuki, entered the North American market in the late 1970s and
early 1980s, and Arctco entered the ATV market in 1995. In 1985, the number of
three-and four-wheel ATVs sold in North America peaked at approximately 650,000
units per year. Polaris estimates that, since declining from that level, the
industry has stabilized and begun growing slowly with approximately 325,000 ATVs
sold worldwide during the calendar year 1995.
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
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for one, two or three passengers. Polaris entered the PWC market in 1992.
Polaris estimates that worldwide sales for PWC was approximately 225,000 units
during the calendar year 1995. Other major PWC manufacturers are Yamaha,
Bombardier, Kawasaki and Arctco.
PRODUCTS
SNOWMOBILES. Polaris produces a full line of snowmobiles, consisting of
thirty-six models, ranging from utility and economy models to performance and
competition models, with 1995 suggested retail prices ranging from approximately
$3,000 to $8,500. Polaris snowmobiles are sold principally in the United States,
Canada and Europe. Polaris believes it has the largest share of the worldwide
snowmobile market.
Polaris believes that the Polaris snowmobile has a long-standing reputation
for quality, dependability and performance. Polaris believes that it and its
predecessors were the first to develop several features for commercial use in
snowmobiles, including independent front suspension, variable transmission,
hydraulic disc brakes, liquid cooled engines and brakes and a three cylinder
engine. Polaris also markets a full line of snowmobile accessories, such as
luggage, tow hitches, hand warmers, specialized instrumentation, reverse gear,
special traction products, cargo racks, oils, lubricants, paints and parts.
For the year ended December 31, 1995, snowmobiles accounted for
approximately 40% of Polaris' sales.
ALL TERRAIN VEHICLES. Polaris entered the ATV market in the spring of 1985
with both a three-wheel and a four-wheel product. Polaris currently produces
four-wheel and six-wheel ATV products, which provide more stability for the
rider than the earlier three-wheel versions. Polaris' line of ATVs consisting of
twelve models, includes general purpose, sport and four-and six-wheel drive
utility models, with 1995 suggested retail prices ranging from approximately
$2,950 to $6,300.
Polaris' ATV features the totally automatic Polaris variable transmission
which requires no manual shifting and a MacPherson strut front suspension, which
Polaris believes enhances control and stability. Polaris' ATV is also the only
ATV in its class that uses a two cycle engine and chain drive, which Polaris
believes improves performance and efficiency.
Prior to 1989, the ATV industry experienced some reduced demand arising from
publicity surrounding safety-related and environmental concerns. However,
management believes that this market has stabilized somewhat since 1989 and has
begun to resume modest growth.
For the year ended December 31, 1995 ATVs accounted for approximately 33% of
Polaris' sales.
PERSONAL WATERCRAFT. In 1992, Polaris introduced the SL650 personal
watercraft, Polaris' first entry into this product category. In 1993, Polaris
added other models with more power and performance. Management believes that its
models had the industry's first three-cylinder engines developed specifically
for PWC. The introduction of the PWC made use of Polaris' engineering,
production and distribution strengths, and also reduced Polaris' dependence on
its then existing product lines for overall sales and earnings. The 1995
suggested retail prices for Polaris' PWC range from approximately $5,000 to
$6,300.
For the year ended December 31, 1995, PWC accounted for approximately 16% of
Polaris' sales.
CLOTHING, ACCESSORIES AND REPLACEMENT PARTS. Polaris produces or supplies a
variety of replacement parts and accessories for its snowmobiles, ATVs and PWC.
Polaris also markets a full line of recreational clothing, which includes suits,
helmets, gloves, boots, hats, sweaters and jackets for its snowmobile, ATV and
PWC lines. The clothing is designed to Polaris' specifications, purchased from
independent vendors and sold by Polaris through its dealers and distributors
under the Polaris brand name. Replacement parts and accessories are also
marketed by Polaris.
For the year ended December 31, 1995, clothing, accessories and parts
accounted for approximately 11% of Polaris' sales.
2
MANUFACTURING OPERATIONS
Polaris' products are assembled at its original manufacturing facility at
Roseau, Minnesota and since October, 1994 at its facility in Spirit Lake, Iowa.
Since snowmobiles, ATVs and PWC incorporate similar technology, substantially
the same equipment and personnel are employed in their production. Polaris
emphasizes vertical integration in its manufacturing process, which includes
machining, stamping, welding, clutch assembly and balancing, painting, cutting
and sewing, and manufacture of foam seats. Engines, fuel tanks, hoods and hulls,
tracks, tires and instruments, and certain other component parts are purchased
from third party vendors. Polaris manufactures a number of other components for
its snowmobiles, ATVs and PWC. Raw materials or standard parts are readily
available from multiple sources for the components manufactured by Polaris.
Polaris' work force is familiar with the use, operation and maintenance of the
product, since many employees own snowmobiles, ATVs and PWC. In August of 1991,
Polaris acquired a manufacturing facility in Osceola, Wisconsin to manufacture
component parts previously produced by third party suppliers.
Pursuant to informal agreements between Polaris and Fuji Heavy Industries
Ltd. ("Fuji"), Fuji has been the exclusive manufacturer of the Polaris two-cycle
snowmobile engines since 1968. Fuji has manufactured engines for Polaris' ATV
products since their introduction in the spring of 1985 and also supplies
engines for Polaris' PWC products. Such engines are developed by Fuji to the
specific requirements of Polaris. Polaris believes its relationship with Fuji to
be excellent. If, however, its informal relationship were terminated by Fuji,
interruption in the supply of engines would adversely affect Polaris' production
pending the continued development of substitute supply arrangements.
In October, 1995, Polaris announced it will begin producing its own engines
for selected 1996 models of PWC and purchased a 90,000 square foot building
adjacent to the Osceola facility to house the manufacturing of these Polaris
designed and built domestic engines. In addition, in February, 1995, Polaris
entered into an agreement with Fuji to form Robin Manufacturing, U.S.A.
("Robin"). Under the agreement, Polaris initially invested $800,000 for a 40%
ownership position in Robin, which builds engines in the United States for
recreational and industrial products. Potential advantages to Polaris of these
additional sources of engines include reduced foreign exchange risk, lower
shipping costs and less dependence in the future on a single supplier for
engines.
Polaris anticipates no significant difficulties in obtaining substitute
supply arrangements for other raw materials or components for which it relies
upon limited sources of supply.
Polaris' products are shipped from its manufacturing facilities by a
contract carrier.
PRODUCTION SCHEDULING
Snowmobiles are used principally in the northern United States, Canada and
northern Europe in what is referred to as the "snow belt." Delivery of
snowmobiles to consumers begins in autumn and continues during the winter
season. Orders for each year's production of snowmobiles are placed in the
spring and orders for ATVs and PWC are placed in autumn after meetings with
dealers and distributors, and units are built to order each year. In addition,
non-refundable deposits made by consumers to dealers in the spring for
snowmobiles assist in production planning. The budgeted volume of units to be
produced each year is sold to dealers and distributors prior to production.
Sales activity at the dealer level is monitored on a monthly basis for each of
snowmobiles, ATVs and PWC.
Manufacture of snowmobiles commences in the spring and continues through
late autumn or early winter. Polaris manufactures PWC during the fall, winter
and spring months. Since May 1993, Polaris has the ability to manufacture ATVs
year round. Generally, Polaris commences ATV production in late autumn and
continues through early autumn of the following year. For the past several
years, Polaris has had minimal carryover inventory at the dealer level of its
production of snowmobiles, ATVs and PWC.
SALES AND MARKETING
With the exception of Illinois, upper Michigan and eastern Wisconsin, where
Polaris sells its snowmobiles through independent distributors, Polaris sells
its snowmobiles directly to dealers in the
3
snowbelt regions of the United States and Canada. Over the past several years,
Polaris has placed an increasing emphasis on dealer-direct, as opposed to
independent distributor, sales. Snowmobile sales in Europe and other offshore
markets are handled through independent distributors. See Note 1 of Notes to
Financial Statements for discussion of foreign and domestic operations and
export sales.
Most dealers and distributors of Polaris snowmobiles also distribute
Polaris' ATVs and PWC. In the southern region of the United States, where
snowmobiles are not used, Polaris has established a direct dealer network. Since
the beginning of 1986, Polaris has established approximately 550 dealerships in
the southern United States. Unlike its primary competitors, which market their
ATV products principally through their affiliated motorcycle dealers, Polaris
also sells its ATVs and PWC through lawn and garden, boat and marine, and farm
implement dealers.
Dealers and distributors sell Polaris' products under contractual
arrangements pursuant to which the dealer or distributor is authorized to market
specified products, required to carry certain replacement parts and perform
certain warranty and other services. The dealer and distributor contracts may be
canceled by either party on specified notice. Changes in dealers and
distributors take place from time to time. Polaris believes that a sufficient
number of qualified dealers and distributors exists in all areas to permit
orderly transition whenever necessary.
Polaris has arrangements with Transamerica Commercial Finance Corporation,
Canadian Imperial Bank of Commerce, The Bank of Nova Scotia and Deutsche
Financial Services Canada Corporation, a Deutsche Bank Company, to provide floor
plan financing for its dealers and distributors. Substantially all of Polaris'
sales of snowmobiles, ATVs and PWC are financed under arrangements in which
Polaris is paid within a few days of shipment of its product. Polaris
participates in the cost of dealer and distributor financing and is required to
repurchase products from the finance companies under certain circumstances and
subject to certain limitations. Polaris has not historically recorded a sales
return allowance because it has not been required to repurchase a significant
number of units in the past. However, there can be no assurance that this will
continue to be the case. If necessary, Polaris will record a sales return
allowance at the time of sale should management anticipate material repurchases
of units financed through the finance companies. See Notes 1 and 2 of Notes to
Financial Statements.
In February, 1996, Polaris entered into an agreement with Transamerica
Commercial Finance Corporation to form Polaris Acceptance. Polaris Acceptance
will provide floor plan financing and other financial services to dealer and
distributor customers of Polaris. Polaris will initially invest approximately
$7.5 million for a 25 percent equity interest in Polaris Acceptance. Polaris has
an option to increase its equity interest to 50 percent effective January 1,
1997. Polaris Acceptance may in the future also provide retail financing and
other financial services to consumers of Polaris' products.
Polaris does not directly finance the purchase of Polaris snowmobiles, ATVs
or PWC by consumers. However, retail financing plans are offered by certain of
the dealers and Polaris has programs to make consumer financing available to its
dealers through unaffiliated third parties.
Polaris' marketing activities are designed primarily to promote and
communicate directly with consumers and secondarily to assist the selling and
marketing efforts of its dealers and distributors. From time to time Polaris
makes available discount or rebate programs or other incentives for its dealers
and distributors to remain price competitive in order to accelerate reduction of
retail inventories. Polaris advertises its products directly using print
advertising in the industry press and in user group publications, on billboards,
and, less extensively, on television and radio. Polaris also provides media
advertising and partially underwrites dealer and distributor media advertising
to a degree and on terms which vary by product and from year to year. Most
dealer and distributor advertising appears in newspapers and on radio. Each
season Polaris produces a promotional film for its snowmobiles, ATVs and PWC
which is available to dealers for use in the showroom or at special promotions.
Polaris also provides product brochures, leaflets, posters, dealer signs, and
miscellaneous other promotional items for use by dealers.
4
ENGINEERING, RESEARCH AND DEVELOPMENT
Polaris employs approximately 250 persons who are engaged in the development
and testing of existing products and research and development of new products
and improved production techniques. Polaris believes that Polaris and its
predecessors were the first to develop, for commercial use, independent front
end suspension for snowmobiles, the long travel rear suspension for snowmobiles,
direct drive of the snowmobile track, the use of liquid cooling in snowmobile
engines and brakes, the use of hydraulic brakes in snowmobiles, the three
cylinder engine in snowmobiles and PWC, the adaptation of the MacPherson strut
front suspension and "on demand" four-wheel drive systems for use in ATVs and
the application of a forced air cooled variable power transmission system to
ATVs.
Polaris utilizes internal combustion engine testing facilities to design and
optimize engine configurations for its products. Polaris utilizes specialized
facilities for matching engine, exhaust system and clutch performance parameters
in its products to achieve desired fuel consumption, power output, noise level
and other objectives. Polaris' engineering department is equipped to make small
quantities of new product prototypes for testing by Polaris' testing teams and
for the planning of manufacturing procedures. In addition, Polaris'
manufacturing facility in Roseau, Minnesota has a proving ground where each of
the products is extensively tested under actual use conditions.
Polaris expended for research and development approximately $19.9 million
for 1995, $15.0 million for 1994, and $12.2 million for 1993, which amounts were
included as a component of the cost of sales in the period incurred.
COMPETITION
The snowmobile, ATV and PWC markets in the United States and Canada are
highly competitive. Competition in such markets is based upon a number of
factors, including price, quality, reliability, styling, product features and
warranties. At the dealer level, competition is based on a number of factors
including sales and marketing support programs (such as financing and
cooperative advertising). Certain of Polaris' competitors are more diversified
and have financial marketing resources which are substantially greater than
those of Polaris.
Polaris snowmobiles, ATVs and PWC are competitively priced and management
believes Polaris' sales and marketing support programs for dealers are
comparable to those provided by its competitors. Polaris' products compete with
many other recreational products for the discretionary spending of consumers,
and, to a lesser extent, with other vehicles designed for utility applications.
PRODUCT SAFETY AND REGULATION
Snowmobiles, ATVs and PWC are motorized machines which may be operated at
high speeds and in a careless or reckless manner. Accidents involving property
damage, personal injuries and deaths occur in the use of snowmobiles, ATVs and
PWC.
Laws and regulations have been promulgated or are under consideration in a
number of states relating to the use or manner of use of snowmobiles, ATVs and
PWC. State approved trails and recreational areas for snowmobile and ATV use
have been developed in response to environmental and safety concerns. Polaris
has supported laws and regulations pertaining to safety and noise abatement and
believes that its products would be no more adversely affected than those of its
competitors by the adoption of any pending laws or regulations.
In September 1986, the staff of the Consumer Products Safety Commission
("CPSC") ATV Task Force issued a report on regulatory options for ATVs. The Task
Force recommended that the ATV industry voluntarily cease marketing ATVs
intended for use by children under 12 years of age. It proposed that warning
labels be placed on ATVs intended for use by children under age 14 stating that
these ATVs are not recommended for use by children under 12, and on adult-sized
ATVs stating that these ATVs are not recommended for use by children under the
age of 16. Warning labels were recommended for use on all ATVs stating that
operator training is necessary to reduce risk of injury or death.
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Based upon its findings that most states have not enacted laws regulating
ATVs, the Task Force recommended that the CPSC work closely with states and
other federal agencies to develop practical uniform state legislation. Topics to
be addressed included minimum operator age recommendations, licensing or
certification standards requiring operator training, helmet requirements, and
prohibitions on the use of alcohol and controlled-substances while operating
ATVs.
In December 1986, in a follow-up measure to the Task Force Report, the CPSC
voted unanimously to continue efforts with the ATV industry to develop a
voluntary standard regarding the dynamic stability characteristics of ATVs. In
February 1987, the CPSC formally requested that the Justice Department initiate
an enforcement action against the ATV industry seeking a voluntary recall of all
three-wheel ATVs and four-wheel ATVs sold with the intention that they be used
by children under 16, as well as a requirement that ATV purchasers receive
"hands-on" training.
Except for 1,700 three-wheel models initially produced, Polaris manufactures
only four-wheel and six-wheel ATVs. Polaris has always placed warning labels on
its ATVs stating that they are designed for use only by persons aged 16 or older
(which warning was revised in 1987 to provide that only adults over age 18
should operate the vehicle), that operators should always wear proper safety
helmets and that riders should complete proper training prior to operating an
ATV.
On December 30, 1987, Polaris reached an agreement with the CPSC regarding
ATV safety. The agreement called for the repurchase of all three-wheel ATVs
remaining in the hands of its distributors and dealers, the provision of
additional safety oriented point-of-purchase materials in all Polaris ATV
dealerships, and the addition of a mandatory "hands on" consumer and dealer
safety training program designed to give all Polaris ATV dealers and consumers
maximum exposure to safe riding techniques, as outlined by the Specialty Vehicle
Institute of America. Polaris conditions its ATV warranties described below
under "-- Product Liability" on completion of the mandatory "hands on" consumer
training program.
Pursuant to the agreement with the CPSC, Polaris has procedures in place for
ascertaining dealer compliance with the provisions of the CPSC consent decree,
including random "undercover" on-site inspections of dealerships to ensure
compliance with the age restriction.
Polaris continually attempts to assure that its dealers are in compliance
with the provisions of the CPSC consent decree. Polaris has notified its dealers
that it will terminate any dealer it determines to have violated the provisions
of the CPSC consent decree. To date, it has terminated seven dealers for such
reason.
The Company does not believe that the agreement with the CPSC has had or
will have a material adverse effect on Polaris. Nevertheless, there can be no
assurance that future recommendations or regulatory actions by the CPSC, the
Justice Department or individual states would not have an adverse effect on the
Company. Certain state attorneys-general have asserted that the CPSC agreement
is inadequate and have indicated that they will seek stricter ATV regulation.
Polaris is unable to predict the outcome of such action or the possible effect
on its ATV business.
Certain states, notably California and New York, have proposed certain
legislation involving more stringent emissions standards for two-cycle engines.
Such engines are used on Polaris' snowmobiles, ATVs and PWC. However, Polaris
has developed and currently sells four-cycle engines for its ATVs which produce
lower emissions. Polaris currently is unable to predict whether such legislation
will be enacted and, if so, the ultimate impact on Polaris and its operations.
Finally, local ordinances have been and may from time to time be considered and
adopted which restrict the use of PWC to specified hours and locations.
6
PRODUCT LIABILITY
Polaris' product liability insurance limits and coverages have been
adversely affected by the general decline in the availability of liability
insurance. As a result of the high cost of premiums, and in view of the
historically small amount of claims paid by Polaris, Polaris has been
self-insured since June 1985.
Product liability claims are made against Polaris from time to time. Since
its inception in 1981 through December 31, 1995, Polaris has paid an aggregate
of less than $2.0 million in product liability claims and had accrued $7.0
million at December 31, 1995, for the defense and possible payment of pending
claims. Polaris believes such accruals are adequate. Polaris does not believe
that the outcome of any pending product liability litigation will have a
material adverse effect on the operations of Polaris. However, no assurance can
be given that its historical claims record, which did not include ATVs prior to
1985, or PWC prior to 1992, will not change or that material product liability
claims against Polaris will not be made in the future. Adverse determination of
material product liability claims made against Polaris would have a material
adverse effect on Polaris' financial condition. See Note 5 of Notes to Financial
Statements.
Polaris warrants its snowmobiles, ATVs and PWC under a "limited warranty"
for a period of one year, six months, and one year, respectively. Although
Polaris employs quality control procedures, a product is sometimes distributed
which needs repair or replacement. Historically, product recalls have been
administered through Polaris' dealers and distributors and have not had a
material effect on Polaris' business.
EFFECTS OF WEATHER
Lack of snowfall in any year in any particular region of the United States
or Canada may adversely affect snowmobile retail sales in that region. Polaris
seeks to minimize this potential effect by stressing pre-season sales (see "--
Production Scheduling") and shifting dealer inventories from one location to
another. However, there is no assurance that weather conditions would not have a
material effect on Polaris' sales of snowmobiles, ATVs or PWC.
EMPLOYMENT
Polaris employed a total of approximately 3,500 persons at December 31,
1995. Approximately 750 of its employees are salaried. Polaris considers its
relations with its personnel to be excellent.
Historically, Polaris' snowmobile business has been seasonal, resulting in
significant differences in employment levels during the year. Despite such
variations in employment levels, employee turnover has not been high. With the
introduction of the ATV line in 1985, Polaris' employment levels have become
more stable. Polaris' employees have not been represented by a union since July
1982.
ITEM 2. PROPERTIES
Polaris owns its principal manufacturing facility in Roseau, Minnesota. The
facility consists of approximately 509,000 square feet of manufacturing space
located on approximately 100 acres. In 1991 Polaris acquired a fabricating
facility in order to bring more component parts manufacturing in-house. This
facility consists of a 190,000 square foot plant situated on 38 acres and is
located in Osceola, Wisconsin. Polaris makes ongoing capital investments in its
facilities. In August, 1994, Polaris signed a one-year lease agreement for a
223,000 square foot assembly facility located on 24 acres of land in Spirit
Lake, Iowa. Polaris exercised its option to purchase the facility during 1995.
Polaris currently uses the facility to assemble all of its PWC product line, and
certain snowmobile and ATV models. In August, 1995, Polaris purchased a 90,000
square foot building adjacent to the Osceola facility to house the manufacturing
of Polaris designed and built domestic engines. These investments have increased
production capacity for snowmobiles, ATVs and PWC. The Company believes that
Polaris' manufacturing facilities are adequate in size and suitability for its
present manufacturing needs.
7
Polaris owns all tooling and machinery (including heavy presses,
conventional and computer-controlled welding facilities for steel and aluminum,
assembly lines, paint lines, and sewing lines) used in the manufacture of its
products. Although Polaris holds numerous patents and uses various registered
trademarks and names, it believes that the loss of any of them would not have a
material effect on its business.
Polaris leases 92,000 square feet of headquarters and warehouse space in
Minneapolis, Minnesota from related parties pursuant to a lease that will
terminate in 1997. Polaris also leases an additional 109,000 square feet of
warehouse space in Minneapolis, Minnesota and 42,000 square feet of office and
warehouse space in Winnipeg, Manitoba. Polaris does not anticipate any
difficulty in securing alternate facilities on competitive terms, if necessary,
upon the termination of any of its leases.
ITEM 3. LEGAL PROCEEDINGS
Polaris is involved in a number of legal proceedings, none of which is
expected to have a material effect on the financial condition or the business of
Polaris.
Injection Research Specialists commenced an action in June 1990 against
Polaris in Colorado federal court alleging various claims arising out of
Polaris' advertisement and sale of electronic fuel injection snowmobiles.
Injection Research Specialists seeks compensatory and punitive damages, its fees
and costs, and injunctive relief. Fuji and UNISIA Japanese Electronic Control
Systems also are parties to the action. Polaris has filed counterclaims in that
action and has instructed its counsel to contest the matter vigorously.
Management does not believe that any judgment rendered against it in this matter
would have a material adverse effect on the financial condition of Polaris.
In 1990, the Canadian income tax authorities proposed certain adjustments,
principally relating to the original purchase price allocation to the Canadian
subsidiary and transfer pricing matters for additional income taxes payable by
Polaris' Canadian subsidiary for 1987 and 1988. The resolution of these proposed
adjustments may also affect the Company's Canadian income tax expense for years
subsequent to 1988. The Canadian income tax authorities have since initiated an
audit of the tax years 1989 through 1991. Management continues to vigorously
contest certain of the proposed adjustments. Management does not believe that
the outcome of this matter will have a material adverse effect on Polaris'
financial position or results of operations. See Note 5 of Notes to Financial
Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names of the executive officers of the Company as of
March 22, 1996, their ages, titles, the year first appointed as an executive
officer of the Company and employment for the past five years:
NAME AGE TITLE
- ----------------------- ---- ------------------------------------------------
W. Hall Wendel, Jr. 53 Chairman and Chief Executive Officer
Kenneth D. Larson 55 President and Chief Operating Officer
John H. Grunewald 59 Executive Vice President, Chief Financial
Officer and Secretary
Charles A. Baxter 48 Vice President -- Engineering and Product Safety
Ed Skomoroh 58 Vice President -- Sales and Marketing
Jeffrey A. Bjorkman 36 Vice President -- Manufacturing
Michael W. Malone 37 Vice President and Treasurer
8
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 a Chairman and Chief Executive Officer since the
Company's formation in 1994. Mr. Wendel was the Chief Executive Officer of
Polaris Industries Capital Corporation ("PICC"), which was the managing general
partner of Polaris Industries Associates L.P., which was the operating general
partner of Polaris Industries L.P. from 1987 to December 1994. From 1981 to
1987, Mr. Wendel was Chief Executive Officer of a predecessor of Polaris, which
was formed to purchase the snowmobile assets of the Polaris E-Z-GO Division of
Textron Inc. Before that time, Mr. Wendel was President of the Polaris E-Z-GO
Division for two years and prior thereto, held marketing positions as Vice
President of Sales and Marketing and National Sales Manager since 1974.
Mr. Larson has been President and Chief Operating Officer of the Company
since 1994. Mr. Larson was President and Chief Operating Officer of PICC from
October 1988 to December 1994. Prior thereto, Mr. Larson was Executive Vice
President of The Toro Company and was responsible for its commercial, consumer
and international equipment business, and had held a number of general
management positions since joining The Toro Company in 1975.
Mr. Grunewald has been Executive Vice President, Chief Financial Officer and
Secretary of the Company since its formation and was Executive Vice President,
Finance and Administration of PICC from September 1993 through December 1994.
Prior to joining Polaris, Mr. Grunewald was employed for 16 years by Pentair,
Inc., a diversified manufacturer of industrial products, most recently as
Executive Vice President, Chief Financial Officer and Secretary.
Mr. Baxter has been Vice President -- Engineering and Product Safety of the
Company since December 1994 and held that position with PICC or its predecessor
since 1981. Prior thereto, since 1970, Mr. Baxter was employed as Director of
Engineering of the Polaris E-Z-GO Division of Textron.
Mr. Skomoroh has been Vice President -- Sales and Marketing of the Company
since December 1994 and held that position with PICC since October 1988. Prior
thereto, he was Vice President, Polaris Canada and President, Secretary and
Director of Polaris Industries, Inc., an Ontario corporation and a wholly owned
subsidiary of Polaris Industries Partners L.P. Mr. Skomoroh joined Polaris in
1982 as General Manager, Canada, and was prior thereto the General Manager of
the Canadian operations of Arctic Enterprises, Inc., a snowmobile manufacturer.
Mr. Bjorkman has been Vice President -- Manufacturing of the Company since
January 1995, and prior thereto held positions of Plant Manager and
Manufacturing Engineering Manager since July 1990. Prior to joining Polaris, Mr.
Bjorkman was employed by General Motors Corporation in various management
positions for nine years.
Mr. Malone has been Vice President and Treasurer of the Company since
December 1994 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 & Co.
9
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 1995 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 1995 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 1995 Annual
Report is included herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Registrant, included in the
Company's 1995 Annual Report, are incorporated herein by reference:
Consolidated Balance Sheets -- December 31, 1995 and 1994
Consolidated Statements of Operations -- Years Ended December 31, 1995,
1994 and 1993.
Consolidated Statements of Shareholders' Equity and Partners' Capital --
Years ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows -- Years Ended December 31, 1995,
1994 and 1993.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants dated January 31, 1996.
The financial statements of the Company and its predecessor, the
Partnership, for the years ended December 31, 1994 and 1993 were examined by
McGladrey & Pullen, LLP. The separate report of McGladrey & Pullen, LLP for such
periods has been omitted from the Company's 1995 Annual Report in reliance on
Rule 14a-3 of Regulation 14A under the Securities Exchange Act of 1934, as
amended ("Rule 14a-3"). Pursuant to Note 1 to Rule 14a-3, the separate report of
McGladrey & Pullen, LLP dated February 2, 1995 is included in this Item 8.
10
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Polaris Industries Inc.
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of POLARIS
INDUSTRIES INC. as of December 31, 1994, and the related consolidated statements
of operations, shareholders' equity and partners' capital and cash flows for the
years ended December 31, 1994 and 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Polaris
Industries Inc. as of December 31, 1994, and the results of its operations and
its cash flows for the years ended December 31, 1994 and 1993, in conformity
with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
February 2, 1995
11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The disclosure required by Item 304(a) of Regulation S-K has been previously
reported on the Company's Form 8-K/A#1 filed with the Securities and Exchange
Commission on August 18, 1995. There are no disclosures required by the Company
under Item 304(b) of Regulation S-K.
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 1996 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 "Compliance with Beneficial Ownership
Reporting Rules" in the Company's 1996 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 1996 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 1996 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Relationships and Related
Transactions" in the Company's 1996 Proxy Statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
(1) Consolidated Financial Statements
Information concerning financial statements of Polaris Industries Inc.
included in the Company's 1995 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.
12
(3) Exhibits
The Exhibits to this Report are listed in the Exhibit Index on page E-1.
A copy of any of these Exhibits will be furnished at a reasonable cost
to any person who was a shareholder of the Company as of March 15, 1996,
upon receipt from any such person of a written request for any such exhibit.
Such request should be sent to Polaris Industries Inc., 1225 Highway 169
North, Minneapolis, Minnesota 55441, Attention: Investor Relations.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the fiscal
year ended December 31, 1995.
(c) Exhibits
Included in Item 14(a)(3) above.
13
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 22, 1996.
POLARIS INDUSTRIES INC.
By: /s/ W. HALL WENDEL, JR.
--------------------------------------
W. Hall Wendel, Jr.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------ -------------------------- --------------
/s/ W. HALL WENDEL, JR. Chief Executive Officer
- ------------------------------------ and Director (Principal March 22, 1996
W. Hall Wendel, Jr. Executive Officer)
Executive Vice President,
/s/ JOHN H. GRUNEWALD Chief Financial Officer
- ------------------------------------ and Secretary (Principal March 22, 1996
John H. Grunewald Financial and Accounting
Officer)
*
- ------------------------------------ Director March 22, 1996
Beverly F. Dolan
*
- ------------------------------------ Director March 22, 1996
Robert S. Moe
*
- ------------------------------------ Director March 22, 1996
Kenneth D. Larson
*
- ------------------------------------ Director March 22, 1996
Stephen G. Shank
*
- ------------------------------------ Director March 22, 1996
Gregory R. Palen
*
- ------------------------------------ Director March 22, 1996
Andris A. Baltins
*By: /s/ W. HALL WENDEL, JR. March 22, 1996
------------------------------
(W. Hall Wendel, Jr.
Attorney-in-Fact)
- ------------------------
*W. Hall Wendel, Jr., pursuant to Powers of Attorney executed by each of the
officers and directors listed above whose name is marked by an "*" and filed as
an exhibit hereto, by signing his name hereto does hereby sign and execute this
Report of Polaris Industries Inc. on behalf of each of such officers and
directors in the capacities in which the names of each appear above.
14
POLARIS INDUSTRIES INC.
EXHIBIT INDEX TO ANNUAL REPORT ON
FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1995
EXHIBIT
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------
3.(a) Articles of Incorporation of Polaris Industries Inc. (the "Company"),
as amended, incorporated by reference to Exhibit 3(a) to the Company's
Registration Statement on Form S-4 (No. 33-55769) (the "Form S-4").
(b) Bylaws of the Company, incorporated by reference to Exhibit 3(b) to
the Form S-4.
4. Specimen Stock Certificate of the Company, incorporated by reference
to Exhibit 4 to the Form S-4.
10.(a) Agreement for Deferred Compensation and Disability Income and
Amendment No. 1 thereto with W. Hall Wendel, Jr. incorporated by
reference to Exhibit 10 to the Company's Annual Report on Form 10-K
dated May 15, 1995.
(b) Profit Sharing Plan, incorporated by reference to Exhibit 10(f) to the
Registration Statement on Form S-1 (No. 33-015124)(the "Form S-1") of
Polaris Industries Partners L.P. (the "Partnership").
(c) Retirement Savings Plan, incorporated by reference to Exhibit 10(g) to
the Form S-1.
(d) 1987 Management Ownership Plan, incorporated by reference to Exhibit
10(h) to the Form S-1.
(e) 1987 Employee Ownership Plan, incorporated by reference to Exhibit
10(i) to the Form S-1.
(f) Management Bonus Plan, incorporated by reference to Exhibit 10(j) to
the Form S-1.
(g) Polaris Industries Inc. 1995 Stock Option Plan, incorporated by
reference to the Company's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on June 12, 1995 (No.
33-60157).
(h) Polaris Industries Inc. Deferred Compensation Plan for Directors.
(i) Joint Venture Agreement between the Company and Transamerica
Commercial Finance Corporation ("Transamerica") dated February 7,
1996.
(j) Manufacturer's Repurchase Agreement between the Company and Polaris
Acceptance dated February 7, 1996.
(k) Credit Agreement by and between the Company and First Bank National
Association and Bank of America Illinois and First Union National Bank
of North Carolina, Dated May 8, 1995 incorporated by reference to
Exhibit 10 to the Company's Quarterly Report in Form 10-Q dated May
15, 1995.
(l) Plymouth, Minnesota, Executive Office Lease, incorporated by reference
to Exhibit 10(m) to the Form S-1.
(m) Shareholder Agreement with Fuji Heavy Industries LTD., incorporated by
reference to Exhibit 10-K to the Company's Annual Report on Form 10-K
dated March 24, 1995.
(n) Registration Rights Agreement between and among the Company, Victor K.
Atkins, EIP I Inc., EIP Holdings Inc. and LB I Group Inc.,
incorporated by reference to Exhibit 10(1) to the Company's Annual
Report on Form 10-K dated March 24, 1995.
11. Statement re: Computation of per share earnings.
13. Portions of the Annual Report to Security Holders for the Year Ended
December 31, 1995 included pursuant to Note 2 to General Instruction
G.
21. Subsidiaries of Registrant.
23.(a) Consent of Arthur Andersen LLP.
(b) Consent of McGladrey & Pullen, LLP.
24. Power of Attorney.
27. Financial Data Schedule.
15