Polaris 2008 Annual Report Download - page 23

distributor in France and now distributes its products to its dealer network in France through a wholly-owned
subsidiary. In 2002, Polaris acquired certain assets of its distributors in Great Britain, Sweden and Norway and now
distributes its products to its dealer networks in Great Britain, Sweden and Norway through wholly-owned
subsidiaries. During 2007, Polaris established a wholly-owned subsidiary in Germany and now distributes its
products directly to its dealer network in Germany. In 2008, Polaris established a wholly-owned subsidiary in Spain
and now distributes its products directly to its dealer network in Spain. See Notes 1 and 10 of Notes to Consolidated
Financial Statements for a discussion of international operations.
Victory motorcycles are distributed directly through authorized Victory dealers. Polaris has a high quality
dealer network for its other product lines from which many of the approximately 315 current North American
Victory dealers were selected. In 2008 Polaris expanded into Australia with one company owned retail store and
expects to further expand its Victory dealer network over the next few years in North America and internationally.
Dealers and distributors sell Polaris’ products under contractual arrangements pursuant to which the dealer or
distributor is authorized to market specified products and is 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 geographic areas to permit an orderly
transition whenever necessary.
In 1996, a wholly-owned subsidiary of Polaris entered into a partnership agreement with a subsidiary of
Transamerica Distribution Finance (“TDF”) to form Polaris Acceptance. Polaris Acceptance provides floor plan
financing to Polaris’ dealers in the United States. Under the partnership agreement, Polaris has a 50% equity interest
in Polaris Acceptance. Polaris does not guarantee the outstanding indebtedness of Polaris Acceptance. In 2004,
TDF was merged with a subsidiary of General Electric Company and, as a result of that merger, TDF’s name was
changed to GE Commercial Distribution Finance Corporation (“GECDF”). No significant change in the Polaris
Acceptance relationship resulted from the change of ownership from TDF. In November 2006, Polaris Acceptance
sold a majority of its receivable portfolio to a securitization facility arranged by General Electric Capital
Corporation, a GECDF affiliate (“Securitization Facility”), and the partnership agreement was amended to provide
that Polaris Acceptance would continue to sell portions of its receivable portfolio to the Securitization Facility from
time to time on an ongoing basis. See Notes 3 and 6 of Notes to Consolidated Financial Statements for a discussion
of the financial services arrangement.
Polaris has arrangements with Polaris Acceptance (United States) and GE affiliates (Australia, Canada,
France, Germany, Great Britain, Spain, Ireland, New Zealand, Norway and Sweden) to provide floor plan financing
for its dealers. Substantially all of Polaris’ North American sales of snowmobiles, ORVs, motorcycles and related
PG&A are financed under arrangements whereby Polaris is paid within a few days of shipment of its product.
Polaris participates in the cost of dealer financing and has agreed to repurchase products from the finance
companies under certain circumstances and subject to certain limitations. Polaris has not historically 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 adjust its sales return allowance at the time of sale should management anticipate material
repurchases of units financed through the finance companies. See Note 6 of Notes to Consolidated Financial
Statements for a discussion of this financial services arrangement.
In October 2001 Household Bank (SB), N.A. (“Household”) and a wholly-owned subsidiary of Polaris entered
into a Revolving Program Agreement to provide retail financing to consumers who buy Polaris products in the
United States. In August 2005, the wholly-owned subsidiary of Polaris entered into a multi-year contract with
HSBC Bank Nevada, National Association (“HSBC”), formerly known as Household Bank (SB), N.A. under which
HSBC is continuing to manage the Polaris private label credit card program under the StarCard label, which until
July 2007 included providing retail credit for non-Polaris products. The 2005 agreement provides for income to be
paid to Polaris based on a percentage of the volume of retail credit business generated. The previous agreement
provided for equal sharing of all income and losses with respect to the retail credit portfolio, subject to certain
limitations. The 2005 contract removed all credit, interest rate and funding risk to Polaris and also eliminated the
need for Polaris to maintain a retail credit cash deposit with HSBC, which was $50.0 million at August 1, 2005.
HSBC ceased financing non-Polaris products under its arrangement with Polaris effective July 1, 2007. During the
first quarter of 2008, HSBC notified the Company that the profitability to HSBC of the 2005 contractual
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