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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11411
POLARIS INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1790959
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2100 HIGHWAY 55, MEDINA, MN 55340
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 763-542-0500
Securities registered pursuant to Section 12(g) of the Act:
None
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
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.
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%
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
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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:
NAME AGE TITLE
---- --- -----
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
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.
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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.
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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.
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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.
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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.
SIGNATURE TITLE DATE
--------- ----- ----
/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)
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.
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POLARIS INDUSTRIES INC.
EXHIBIT INDEX TO ANNUAL REPORT ON
FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1999
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 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.
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
(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.
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