Polaris Industries Inc. (the “Company” or “Polaris”), a Minnesota corporation, was formed in 1994 and is the successor to Polaris Industries Partners LP. The term “Polaris” as used herein refers to the business and operations of the Company, its subsidiaries and its predecessors which began doing business in the early 1950’s. Polaris designs, engineers and manufactures off-road vehicles (“ORV”) which includes all terrain vehicles (“ATV”) and side-by-side vehicles for recreational and utility use, snowmobiles, and On-Road vehicles (“On-Road”) including motorcycles and low emission vehicles (“LEV’’), together with the related replacement parts, garments and accessories (“PG&A”). These products are sold through dealers and distributors principally located in the United States, Canada and Europe.
Off-road Vehicles. Polaris entered the ORV market in the spring of 1985 with an ATV. Polaris currently produces four-wheel ATVs, which provide more stability for the rider than earlier three-wheel versions. In 2000, Polaris introduced its first youth ATV models. In addition, Polaris also introduced a six-wheel off-road ATV utility vehicle and the Polaris RANGERtm, an off-road side-by-side utility vehicle. In 2001, Polaris expanded its side-by-side line, the Polaris Professional Series (“PPS”), with a third party sourced all surface loader product as well as a 4X4 and 6X6 ATV (ATV Pro), which were modifications of existing products. In 2004, the PPS line was phased out and the RANGERtm line expanded to meet both the commercial and recreational customer. In 2007, Polaris introduced its first recreational side-by-side vehicle, the RANGER RZRtm and the Company’s first six-passenger side-by-side vehicle, the RANGER Crewtm. Additionally, in 2007, the Company introduced military version ATV and side-by-side vehicles with features specifically designed for ultra-light tactical military applications. Polaris line of military vehicles consisted of thirteen models, with 2010 model year suggested United States retail prices ranging from approximately $8,000 to $19,000. Polaris’ line of ORVs consisted of thirty-three models, including two, four and six-wheel drive general purpose, sport and side-by-side models, with 2010 model year suggested United States retail prices ranging from approximately $2,000 to $15,000.
Most of Polaris’ ORVs feature the totally automatic Polaris variable transmission, which requires no manual shifting, and several have a MacPherson strut front suspension, which enhances control and stability. Polaris’ on demand all-wheel drive provides industry leading traction performance and ride quality due to its patented on demand, easy shift on-the-fly design. Polaris’ ORVs have four-cycle engines and both shaft and concentric chain drive. In 1999, Polaris introduced its first manual transmission ATV models. In 2003, Polaris introduced the industry’s first electronic fuel injected ATV, the Sportsman 700 EFI. In 2005, Polaris introduced the industry’s first independent rear suspension on a sport ATV named the Outlawtm. In 2007, Polaris introduced the RANGER RZRtm, a big bore recreational side-by-side model, and two military vehicles equipped with engines that operate on JP8 militarized fuel. In 2008, Polaris celebrated the 1 millionth unit sale of its Sportsman ATV family, which has been the industry leading big bore ATV for 13 years, by introducing the 100 percent redesigned Sportsman XP, a reengineered Sportsman from top to bottom. In 2008, Polaris also introduced an extension of its recreational side-by-side vehicle with the introduction of the RANGER RZR Stm. In 2009, the Company introduced its first all electric side-by-side vehicle, the RANGER EV. In January 2010, the Company introduced its first 4-seat recreational side-by-side, the RANGER RZR® 4, Robby Gordon Edition.
Snowmobiles. Polaris produces a full line of snowmobiles, consisting of twenty-seven models, ranging from youth models to utility and economy models to performance and competition models. Polaris has made snowmobiles since 1954. The 2010 model year suggested United States retail prices range from approximately $2,300 to $12,000. Polaris snowmobiles are sold principally in the United States, Canada and Europe. 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 wide commercial use in snowmobiles, including independent front suspension, long travel rear suspension, hydraulic disc brakes, liquid cooling for brakes and a three cylinder engine. In 2001, Polaris introduced a new, more environmentally-friendly snowmobile featuring a four-stroke engine designed specifically for snowmobiles. In 2009, Polaris introduced the first true progressive-rate rear suspension snowmobile, the Polaris RUSHtm.
On-road vehicles. Motorcycles: In 1998, Polaris began manufacturing V-twin cruiser motorcycles under the Victory® brand name. In 2008, Polaris introduced its first luxury touring models, the Victory Vision Streettm and Victory Vision Tourtm. In 2009 the Company expanded its touring product line to include the Victory Cross Roadstm and Cross Countrytm models. Polaris’ 2010 model year line of motorcycles consists of thirteen models with suggested United States retail prices ranging from approximately $12,500 to $25,000. In 2009, Polaris introduced its first electric neighborhood vehicle, the Polaris Breezetm. The Company has one model with a retail price of approximately $8,000.
Parts, Garments and Accessories. Polaris produces or supplies a variety of replacement parts and accessories for its ORVs, snowmobiles, motorcycles, LEVs and personal watercraft. ORV accessories include winches, bumper/brushguards, plows, racks, mowers, tires, pull-behinds, cabs, cargo box accessories, tracks and oil. Snowmobile accessories include products such as covers, traction products, reverse kits, electric starters, tracks, bags, windshields, oil and lubricants. Motorcycle accessories include saddle bags, handlebars, backrests, exhaust, windshields, seats, oil and various chrome accessories. Polaris also markets a full line of recreational apparel including helmets, jackets, bibs and pants, leathers and hats for its snowmobile, ORV, and motorcycle lines. The apparel is designed to Polaris’ specifications, purchased from independent vendors and sold by Polaris through its dealers and distributors, and online through its e-commerce subsidiary under the Polaris brand name.
Discontinued Operations — Marine Products. Polaris entered the personal watercraft (“PWC”) market in 1992. On September 2, 2004, the Company announced that it had decided to cease manufacturing marine products effective immediately. As technology and the distribution channel evolved, the marine division’s lack of commonality with other Polaris product lines created challenges for Polaris and its dealer base. The marine division continued to experience escalating costs and increasing competitive pressures and was never profitable for Polaris. See Note 10 of Notes to Consolidated Financial Statements for a discussion of the discontinuation of marine products.
Investment in KTM Power Sports AG
In 2005 Polaris purchased a 25 percent interest in Austrian motorcycle manufacturer KTM and began several important strategic projects with KTM intended to strengthen the competitive position of both companies and provide tangible benefits to their respective customers, dealers, suppliers and shareholders. Additionally, Polaris and KTM’s largest shareholder, Cross Industries AG (“Cross”), entered into an option agreement, which provided that under certain conditions in 2007, either Cross could purchase Polaris’ interest in KTM or, alternatively, Polaris could purchase Cross’ interest in KTM. In December 2006, Polaris and Cross cancelled the option agreement and entered into a share purchase agreement for the sale by the Company of approximately 1.38 million shares of KTM, or approximately 80 percent of its investment in KTM, to a subsidiary of Cross. The agreement provided for completion of the sale of the KTM shares in two stages. In the first half of 2007, the Company completed both stages of its sale of KTM shares generating proceeds of $77.1 million. Polaris now holds ownership of approximately 0.34 million shares, representing slightly less than 5 percent of KTM’s outstanding shares. During the first quarter 2009, the Company determined that the decline in the market value of the KTM shares owned by the Company was other than temporary; therefore, Polaris recorded the decrease in the fair value of the investment as a charge to the income statement in the first quarter of 2009 totaling $9.0 million, pretax, or $0.18 per diluted share.