Polaris 2011 Annual Report Download - page 78

Note 3. Financing
Bank financing: In August 2011, Polaris entered into a new $350,000,000 unsecured revolving loan facility.
The new bank agreement expires in August 2016. Interest is charged at rates based on LIBOR or “prime.” 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, 2011. There
were no borrowings under this revolving loan facility at December 31, 2011. Prior to August 2011, Polaris was a
party to an unsecured bank agreement comprised of a $250,000,000 revolving loan facility for working capital
needs. As part of the previous bank agreement, the Company had a $200,000,000 term loan outstanding at
December 31, 2010, which was paid off in its entirety in May 2011 with the issuance of the Senior Notes
described below and $100,000,000 of cash on hand.
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 were issued in May 2011.
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.
The following summarizes activity under Polaris’ credit arrangements (dollars in thousands):
2011 2010 2009
Total borrowings at December 31, ................ $100,000 $200,000 $200,000
Average outstanding borrowings during year ....... $133,800 $200,000 $268,100
Maximum outstanding borrowings during year ...... $200,000 $200,000 $345,000
Interest rate at December 31 .................... 4.40% 0.65% 0.79%
The carrying amounts of the Company’s long-term debt approximates its fair vale as December 31, 2011
and 2010.
Capital Leases: With the acquisition of Goupil in late 2011, the Company assumed capital lease obligations
related to certain lease agreements entered into by Goupil. These transactions are classified as capital lease
obligations and recorded at fair value. As of December 31, 2011 the Company’s capital lease obligations totaled
$7,253,000, which includes $2,653,000 classified as a current liability.
Letters of credit: At December 31, 2011, Polaris had open letters of credit totaling approximately
$4,496,000. 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 7), provide floor plan financing to dealers on the purchase of Polaris products. The amount financed by
worldwide dealers under these arrangements at December 31, 2011, was approximately $731,319,000. 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.
Note 4. Goodwill and Other Intangible Assets
Goodwill and other intangible assets: ASC Topic 350 prohibits the amortization of goodwill and intangible
assets with indefinite useful lives. Topic 350 requires that these assets be reviewed for impairment at least
annually. An impairment charge for goodwill is recognized only when the estimated fair value of a reporting
unit, including goodwill, is less than its carrying amount. The Company performed analyses as of December 31,
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