Polaris 2010 Annual Report Download - page 70

Note 3: Financing
Bank financing: Polaris is a party to an unsecured bank agreement comprised of a $250,000,000 revolving
loan facility for working capital needs and a $200,000,000 term loan. The entire amount of the $200,000,000 term
loan was utilized in December 2006 to fund an accelerated share repurchase transaction. Interest is charged at rates
based on LIBOR or “prime.” The agreement contains various restrictive covenants which limit investments,
acquisitions and indebtedness. The agreement also requires Polaris to maintain certain financial ratios including
minimum interest coverage and a maximum leverage ratio. Polaris was in compliance with each of the covenants as
of December 31, 2010. The agreement expires on December 2, 2011 and the outstanding borrowings mature.
The following summarizes activity under Polaris’ credit arrangements (dollars in thousands):
2010 2009 2008
Total borrowings at December 31, ...................... $200,000 $200,000 $200,000
Average outstanding borrowings during year ............... $200,000 $268,100 $282,600
Maximum outstanding borrowings during year ............. $200,000 $345,000 $345,000
Interest rate at December 31 ........................... 0.65% 0.79% 0.77%
As of December 31, 2010, Polaris has entered into the following interest rate swap agreements to manage
exposures to fluctuations in interest rates by fixing the LIBOR interest rate as follows:
Year Swap
Entered into Fixed Rate (LIBOR) Notional Amount Expiration Date
2009 1.34% $25,000,000 April 2011
2009 0.98% $25,000,000 April 2011
Each of these interest rate swaps were designated as and met the criteria of cash flow hedges.
In December 2010, the Company entered into a Master Note Purchase Agreement to issue $25,000,000 of
3.81 percent unsecured Senior Notes due May 2018 and $75,000,000 of 4.60 percent unsecured Senior Notes due
May 2021 (collectively, “The Senior Notes”). The Senior Notes are expected to be issued in May 2011. As a result,
the Company has classified $100,000,000 of the $200,000,000 term loan outstanding as of December 31, 2010 as a
long-term liability in the consolidated balance sheet.
The Company entered into and settled an interest rate lock contract in November 2009 in connection with the
Master Note Purchase Agreement. The interest rate lock settlement resulted in a $251,000 gain, net of deferred
taxes of $149,000, which will be amortized into income over the life of the related debt.
Letters of credit: At December 31, 2010, Polaris had open letters of credit totaling approximately
$3,961,000. The amounts outstanding are reduced as inventory purchases pertaining to the contracts are received.
Dealer financing programs: Certain finance companies, including Polaris Acceptance, an affiliate (see
Note 6), provide floor plan financing to dealers on the purchase of Polaris products. The amount financed by
worldwide dealers under these arrangements at December 31, 2010, was approximately $667,607,000. 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 arrangements is limited to the difference between the amount paid to the finance companies
for repurchases and the amount received on the resale of the repossessed product. No material losses have been
incurred under these agreements during the periods presented. As a part of its marketing program, Polaris
contributes to the cost of dealer financing up to certain limits and subject to certain conditions. Such expenditures
are included as an offset to Sales in the accompanying consolidated statements of income.
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POLARIS INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)