Polaris 2008 Annual Report Download - page 46

The seasonality of production and shipments causes working capital requirements to fluctuate during the year.
Polaris is party to an unsecured variable interest rate bank lending agreement that matures on December 2, 2011,
comprised of a $250 million revolving loan facility for working capital needs and a $200 million term loan. The
$200 million term loan was utilized in its entirety in December 2006 principally to fund an accelerated share
repurchase transaction. Borrowings under the agreement bear interest based on LIBOR or “prime” rates (effective
rate was 0.77 percent at December 31, 2008). At December 31, 2008, Polaris had total outstanding borrowings
under the agreement of $200.0 million. The Company’s debt to total capital ratio was 59 percent at December 31,
2008 and 54 percent at December 31, 2007. As of December 31, 2008, Polaris had two interest rate swaps
outstanding to manage exposures to fluctuations in interest rates. The effect of these agreements was to fix the
interest rate at 4.42% for $25 million of borrowings through December 2009 and 3.19% for $25 million of
borrowings through October 2010.
The following table summarizes the Company’s significant future contractual obligations at December 31,
2008 (in millions):
Total G1 Year 1-3 Years H3 Years
Borrowings under credit agreement:
Revolving loan facility ............................... $ 0.0 — — —
Term loan ......................................... 200.0 — $200.0 —
Interest expense under term loan and swap agreements.......... 6.6 $ 3.1 3.5 —
Engine purchase commitments............................ 10.2 10.2 — —
Operating leases ...................................... 6.9 3.0 2.5 $1.4
Capital leases ........................................ .1 .1 — —
Total ............................................. $223.8 $16.4 $206.0 $1.4
Additionally, at December 31, 2008, Polaris had letters of credit outstanding of $12.4 million related to
purchase obligations for raw materials. Not included in the above table is unrecognized tax benefits of $5.1 million.
The Polaris Board of Directors authorized the cumulative repurchase of up to 37.5 million shares of the
Company’s common stock through December 31, 2008. Of that total, approximately 33.7 million shares were
repurchased cumulatively from 1996 through December 31, 2008. Polaris paid $107.2 million to repurchase and
retire approximately 2.5 million shares during 2008. The share repurchase activity during 2008 had a positive
impact on earnings per share of approximately $0.16 per diluted share for the year ended December 31, 2008 before
taking into consideration the interest cost of funding the repurchase activity. The Company has authorization from
its Board of Directors to repurchase up to an additional 3.8 million shares of Polaris stock at December 31, 2008,
which represents approximately 12 percent of the total shares currently outstanding.
Polaris has arrangements with certain finance companies (including Polaris Acceptance) to provide secured
floor plan financing for its dealers. These arrangements provide liquidity by financing dealer purchases of Polaris
products without the use of Polaris’ working capital. During 2006 Polaris modified its agreement with GE
Commercial Distribution Finance Corporation (“GECDF”) to finance Polaris’ Canadian dealers’ purchases of
PG&A in addition to financing the Canadian dealers’ wholegood purchases. A significant majority of the
worldwide sales of snowmobiles, ORVs, motorcycles and related PG&A are financed under these arrangements
whereby Polaris receives payment within a few days of shipment of the product. The amount financed by worldwide
dealers under these arrangements at December 31, 2008 and 2007, was approximately $829.1 million and
$853.6 million, respectively. Polaris participates in the cost of dealer financing up to certain limits. Polaris has
agreed to repurchase products repossessed by the finance companies up to an annual maximum of no more than
15 percent of the average month-end balances outstanding during the prior calendar year. Polaris’ financial
exposure under these agreements is limited to the difference between the amounts unpaid by the dealer with respect
to the repossessed product plus costs of repossession and the amount received on the resale of the repossessed
product. No material losses have been incurred under these agreements. However, an adverse change in retail sales
could cause this situation to change and thereby require Polaris to repurchase repossessed units subject to the annual
limitation referred to above.
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