Polaris 2008 Annual Report Download - page 25

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. In 2005, Polaris
completed construction of its 127,000 square-foot research and development facility in Wyoming, Minnesota for
engineering, design and development personnel for Polaris’ line of engines and powertrains, ORVs and Victory
motorcycles. Total cost of the facility was approximately $35 million.
Polaris expended for research and development approximately $77.5 million in 2008, $73.6 million in 2007,
and $73.9 million in 2006.
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.
Competition
The ORV, snowmobile and motorcycle vehicle markets in the United States and Canada are highly compet-
itive. 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 Polaris competitors are more
diversified and have financial and marketing resources which are substantially greater than those of Polaris.
Management believes Polaris’ products are competitively priced and 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
Safety regulation. The federal government and individual states have promulgated or are considering
promulgating laws and regulations relating to the use and safety of Polaris products. The federal government
is the primary regulator of product safety. The Consumer Product Safety Commission (“CPSC”) has federal
oversight over product safety issues related to ATVs, snowmobiles and off-road side-by-side vehicles. The National
Highway Transportation Safety Administration (“NHTSA”) has federal oversight over product safety issues related
to on-road motorcycles.
In 1988, Polaris, five competitors and the CPSC entered into a ten-year consent decree settling litigation
involving CPSC’s attempt to force an industry-wide recall of all three-wheel ATVs and four-wheel ATVs sold that
could be used by children under 16 years of age. The settlement required, among other things, that ATV purchasers
receive “hands on” training. In April 1998, this consent decree expired and Polaris entered into a voluntary action
plan under which Polaris agreed to continue various activities previously required under the consent decree,
including age recommendations, warning labels, point of purchase materials, hands on training and an information
and education effort. Polaris also agreed to continue dealer monitoring to ascertain dealer compliance with safety
obligations including age recommendations and training requirements.
Polaris does not believe that its voluntary action plan has had or will have a material adverse effect on Polaris or
negatively affect its business to any greater degree than those of its competitors who have undertaken similar action
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