Michelle L. Stotts, Charles B. Shrader and Samuel M. DeMarie
Victory: The New American Motorcycle Celebrates Its First
Decade on the Road
Now that we are in our 10th year and have a fairly complete line of premium cruiser and
touring motorcycles, it is clear what we stand for, and who we appeal to most. Victory stands
for class-leading quality, innovation and style. Victory is American and new- always looking
forward. We are all about the future of American motorcycles.
- Mark Blackwell, Victory Vice President1
Mark Blackwell, vice president in charge of Victory Motorcycle at Polaris Industries, glanced up
at company headquarters in Medina, Minnesota as he pulled his gleaming cruiser into the
parking lot. An accomplished rider himself, winning the national 500cc motocross
championship and being inducted into the American Motorcycle Association’s Hall of Fame, he
knew his company’s bikes had come pretty far since they were first introduced to the riding
public in 1998. With the development of the new Vision, a luxury touring bike, and the steady
release of aggressively-styled cruisers, the company had continually innovated throughout its
first decade in business. Yet Blackwell pondered the recurring questions facing Victory
Motorcycles and Polaris. He wondered if the initial decision to diversify into heavyweight
motorcycles was the right road to take. He realized Polaris took a big risk by moving into
motorcycles and going up against the recognized powerhouses in the industry. He questioned if
Victory could continue successfully competing against the Japanese giants, new energetic and
innovative motorcycle companies, and their closest rival Harley-Davidson.
Victory began making motorcycles in 1998. From 1998 to 2006 Polaris had invested over $100
million in motorcycle development and by 2006 the division was profitable for the first time.
Victory sales were $113 million, 7 per cent of company sales for that year.2 In 2009 Victory
Motorcycles celebrated its first decade in the motorcycle business, but a global recession led to
poor sales, corporate restructuring, and company-wide layoffs. In that year Polaris, Victory’s
parent company, announced a new ‘on-road’ vehicle division of which Victory would be part.
This case was written by Michelle L. Stotts, Dr. Charles B. Shrader and Dr. Samuel M. DeMarie, all of the Department of
Management, College of Business, Iowa State University, January 6, 2011. It is intended to be used as a basis for classroom
discussion rather than as a demonstration of either effective or ineffective management of a situation. Some of the opening and
closing managerial situations included in the case are fictional and are for illustrative purposes only.
Mike Jonikas was appointed as vice president of the new division and Blackwell as vice
president of Polaris’ present and future motorcycle business.3 Both Jonikas and Blackwell
reported directly to Polaris Chief Operating officer, Bennett Morgan.
Jonikas and Blackwell knew Victory needed to maintain the high level of quality engineering
throughout their production processes. If Victory was to be a successful brand with high
demand, it needed to be able to meet customer expectations and not fall behind in terms of
innovation like its main heavyweight competitor- Harley-Davidson. Victory mangers also
needed to consider whether it was a good decision to limit sales of Victory motorcycles to
Polaris dealerships. Their intent was to monitor quality; but were they simultaneously losing
potential business?
At ten years Victory could still call itself a new motorcycle brand. The challenge was how to
continue to innovate and grow in a difficult market segment. The need to examine the
motorcycle division’s strategy seemed imperative.
POLARIS INDUSTRIES, Inc.
Polaris Industries, Inc. designed, engineered and manufactured snowmobiles, all terrain
recreational and utility vehicles (ATVs), motorcycles and personal watercraft (PWC), on and offroad vehicles, and low emission vehicles; and marketed them, together with related replacement
parts, garments and accessories (PG&A) through dealers and distributors principally located in
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the United States, Canada and Europe. The garment and accessory items included helmets,
5
boots, T-shirts, sweat pants, touring luggage and trailers. The company was widely known as
the world's largest manufacturer of snowmobiles and one of the biggest makers of all-terrain
vehicles and personal watercrafts in the United States.
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In 1954 Polaris produced its first snowmobile under co-founder and former CEO Alan Hetteen.
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7
Textron, Inc. bought Polaris from its original Roseau, Minnesota ownership group in 1968.
Then in 1981, Textron, Inc. sold the Polaris division to a group of private investors led by W.
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Hall Wendel Jr., a Textron division head.
The snowmobile business kept the Roseau, Minnesota plant busy six months out of the year but
company managers wanted to figure out how to fill the other six months, so they extensively
surveyed their snowmobiler customer base and decided in 1985 to diversify and produce all
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terrain vehicles (ATVs). The company once again diversified by manufacturing personal
watercrafts (PWC) in 1992, and eventually became a world leader in both ATV and PWC
production and sales. In 1987 Polaris became a publicly traded company.
2
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5
To facilitate its operations, Polaris owned these properties:
• Minneapolis, Minnesota - 92,000 square feet leased headquarters and warehouse plus 13,000
square foot of office space.
• Roseau, Minnesota - 509,000 square feet facility on 100 acres for principal engineering and
manufacturing. This is the place where the company was founded in the 1950s. Polaris
broke ground for a 58,000 square feet plastic injection molding facility at this site.
• Osceola, Wisconsin - 190,000 square feet on 38 acres for fabricating facility and 90,000
square feet for engines
• Spirit Lake, Iowa - 223,000 square feet on 24 acres to assemble PWCs, certain ATV models
and motorcycles
• Winnipeg, Manitoba - 42,000 square feet leased office and warehouse space
• Vermillion, South Dakota - 259,000 square feet on 50 acres for parts, garments and
accessories distribution center
As a result of its diversification strategy, Polaris was able to manufacture products all year.
Snowmobile manufacturing took place in the spring through late autumn or early winter and
personal watercraft were manufactured during the fall, winter and spring months. Polaris has
had the ability to manufacture ATVs year round since May 1993. ATV production starts in late
autumn and continues through early autumn of the following year.
5
Because of the seasonality of the Polaris products and associated production cycles, total
employment levels varied throughout the year. Approximately 3,000 individuals were employed
by the company. Polaris' employees have not been represented by a union since July 1982. The
company announced layoffs in their Osceola, Wisconsin plant in early 2011 due to the
recession.9
EXPANSION INTO MOTORCYCLES7,10
Matt Parks joined Polaris in 1987 as a district sales manager for California, Nevada, and Arizona
to develop the dealer network. He was named ATV product manager in 1992 and earned a spot
at the company's headquarters. W. Hall Wendel Jr. asked him to do research on prospective
acquisitions or expansions. Parks, with the additional title of general manager of new products,
considered such things as go-karts, golf carts, lawn-and-garden products, chain saws, and HulaHoops by investigating the various industries in terms of competition, size, level of service, and
new trends. Parks and others studied the off-road motorcycle market when two dirt bike
companies were put up for sale. Then a European motorcycle company asked to distribute their
bikes through Polaris. "That sparked a study of the motorcycle business that uncovered signs of
a promising market. Along with the dirt bike research, we did a quick study of the street bike
business at that time, and we were kind of interested. We thought, 'You know, this makes some
sense," recalls Parks.
3
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In 1993, Polaris distributed over 300,000 surveys through the company's Spirit magazine for
Polaris vehicle owners to measure the readers' interest in buying a wide variety of products from
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Polaris. "Motorcycling did really, really well [in the survey]," said Matt Parks. The survey
results were personally interesting to Parks since he was a lifetime motorcycle rider and owned
several motorcycles, including a '74 Norton, '66 and '91 BMWs, a '77 Harley XLCR and an '81
Ducati. Motorcycles also caught the interest of Wendel who at the time owned a HarleyDavidson.
In pursuing the possibility of motorcycle production, Victory became the project's confidential
codename. Parks came up with the name because it was a nonsensical name with positive
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connotations. "It's 'V' for victory. It's nostalgic; it has World War II connotations."
Parks along with Bob Nygaard, Snowmobile Division General Manager, proceeded with
investigating the motorcycle production possibility by hiring two outside firms to assist them in
conducting further confidential research on motorcycles. They chose McKinsey and Company,
one of the largest and most prestigious consulting firms in the world, and Jerry Stahl, an
advertising executive who was very familiar with recreational motorsports and the motorcycle
business. Stahl also had experience with Harley-Davidson's advertising campaigns. From May
through August of 1993, Parks & Nygaard assessed the Polaris infrastructure, including the
company's sales force, dealer network, service and warranty operation, and parts and accessories
division. They also looked at Polaris’ current customers to see what types of things they were
interested in and whether they would buy a motorcycle from Polaris. Polaris analysts and
consultants also analyzed statistics from the Motorcycle Industry Council (MIC) in terms of the
location, displacement, and types of bikes sold in the industry.
The research showed there was industry capacity for another manufacturer in the cruiser
business. The research also revealed that Polaris dealers would like to have on-road motorcycles
to sell. Consultants believed that a functionally superior cruiser built in America could find
competitive space between Harley-Davidson and the Japanese producers. "We focused in on
Harley and the Japanese manufacturers and said to ourselves, 'Is Harley vulnerable from any
standpoint?' We thought that their costs were high," Nygaard said. "We thought that, based on
re-engineering the Harley bike, we could build it for less money. We felt that customers were
waiting too long to take delivery of their Harleys, and they (Harley-Davidson) were vulnerable
from that standpoint. We could get to market with a bike that we could make money, and the
heavy cruiser end of it was certainly what we wanted to target because that's where the (sales)
numbers were, and that's where the (profit) margin was. It was the best fit for us, in that the
Japanese were vulnerable there. They really hadn't been able to tackle Harley, because it might
look like a Harley, but the real rider knew that it wasn't an American-made bike from an
American manufacturer. We were close (at the time) to being in the domestic engine business,
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and we could build our own U.S. engine, and that gave us a major leg up on the Japanese. We
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were an American company."
"The result of the study was, believe it or not, yes, there was a tremendous opportunity in the
motorcycle market," Parks said. "It's not the off-road motorcycle market; it's the on-road
motorcycle market, and the entry point, the best entry point, would be in the cruiser market."14
Cruisers were defined as stripped-down versions of heavyweight touring bikes that were
intended for leisurely travel. Research showed that many cruiser owners immediately replaced
many components, such as brakes, seats, wheels, vibration-adsorption devices, frame stiffeners,
and intake systems on their brand-new motorcycles. This was interpreted as an opportunity to
fulfill demand created by undershot customers in the market.
Polaris had experience producing recreational vehicles for over 44 years. It had the engineering
talent and production capabilities to design and produce distinctly different vehicle lines –
snowmobiles, ATVs, and personal watercraft - and produce its own engines for many of those
vehicles. Parks said the study showed “the manufacturing capabilities and technological knowhow required to produce cruisers seemed within Polaris' grasp.”14 “My biggest concern was: Let
me sell against price, let me sell against features and benefits, let me sell against more
advertising, and I can find ways to do that," Nygaard said. "Help me to sell against the lifestyle,
with loyalty that is as passionate as I've ever seen on any product (Harley-Davidson). To sell
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against an image is very, very difficult, and that was my biggest concern." In August 1993, the
officer group gave the okay to continue with the study to see if it fit with existing manufacturing
systems and if it could make money.
VICTORY MOTORCYCLE DEVELOPMENT7,10
An early decision was to determine which parts to make or buy. Dapper and Klancher explained
that “they bought a Honda Shadow and a Harley-Davidson FXRS, took them completely apart,
weighed, measured and estimated the cost of every single part, and determined for each part
whether they would make it or buy it.”15 After figuring manufacturer, dealer, profits and sales
volumes, the consultants and managers felt there was a good opportunity in the motorcycle
business, and in February 1994 the officers group gave the okay to move forward and build a
prototype.
A major boost to the motorcycle development occurred in September 1994 when Geoff Burgess
agreed to lead the Victory team. His extensive motorcycle industry experiences and his
emphasis on thorough analysis and design work set the direction for the Victory development.
The Victory team took a very thorough, methodical, and analytical approach to research and
development so the program didn't waste time, money, or valuable resources. Extensive
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computer-aided design was employed in building a prototype. "A lot of up-front thinking has
saved us a lot of time on the back end," explained Matt Parks.
16
The Victory team began an in-depth benchmarking study by obtaining and extensively roadtesting a fleet of the competitors’ cruisers in Minnesota, Tennessee and Arizona. The Yamaha
Royal Star and Virago, Honda Shadow ACE and Valkyrie, Harley-Davidson Road King, Ducati
Monster and BMW R1100RS were evaluated, compared, and ranked. The goal was not to copy
the competition but to find the benchmarks for building a superior cruiser. The cost of producing
the best features was also analyzed to ensure they could produce the motorcycle within their
target price range.
The Victory team contacted Dunlop, manufacturer and tire supplier of Polaris ATVs, to obtain
information about motorcycle tires. Steve Paulos, a Dunlop test technician with an impressive
motorcycle industry background, assisted the Victory team by sharing competitors' development
and production process information. He accompanied the Victory team to Arizona and shared
valuable insights about the benchmarked bikes.
In the early stages of the motorcycle project, the Victory staff determined the bike must excel in
two key performance areas - handling and power. Marketing studies told Matt Parks that the
engine had to be a big V-twin, and it had to be U.S.-made; an American company like Polaris
couldn't import the engine for a bike whose targeted buyers represented the red, white, and blue
image of the cruiser culture. The group felt that the motorcycle needed to have its own signature
engine. Talks with consulting firms with power-plant expertise convinced the Polaris team that
designing an engine would provide experience curve benefits that would become valuable when
Victory Motorcycles broadened its model line to include other classes of bikes in the future.
This fit well with Polaris' considerations of starting its own engine manufacturing operation.
Geoff Burgess first laid out the parameters for the Victory V92C engine in November 1994.
Victory engineers refined the design, and in February 1995 a concept drawing was created. In
March 1995 Polaris engineering department visited England's Lotus, Cosworth and Triumph
plant, Italy's Ducati and Aprilia plant, and Germany's BMW operation. The team also
benchmarked engines made by Fuji, Kawasaki motorcycles and the Dodge Neon for
manufacturing and assembly ideas.
From the Arizona test, the Victory team determined it should build a bigger engine than the
competition. This would also give it bragging rights for the biggest cruiser engine with the most
horsepower on the market. The Arizona tests helped define handling goals as a top priority, so
much so that chassis’ and frames were designed as desired, then the engine was reconfigured to
fit in the available space in the frame.
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The Arizona tests also convinced the team that the Victory engine should be oil-cooled. Since
rows of cooling fins are an essential part of the cruiser look, the idea of using liquid cooling was
rejected. Instead a system was designed that circulates extra volumes of oil to enhance the fins'
cooling effect. Steve Weinzierl, who has deep knowledge of aircraft-engineering history,
strapped a Czech-built Velorex sidecar onto a prototype Victory bike and took it to Death Valley,
California, for worst-case cooling trials. At temperatures of 121 degrees Fahrenheit, he pulled
within ten inches of the Victory going 90 miles per hour, and handed the rider in the sidecar the
wires from the thermocouple to test the cooling data. This method was used to test and enhance
engine thermal stability.
Once the team had collected and analyzed loads of chassis data, "Francis the Mule," a crude
prototype was created in May 1995. It was built with interchangeable clamps and drilled metal
brackets so selected components, such as its wheel base, steering-head angle, and rearsuspension geometry, could be mounted in varied positions and adjusted accordingly. The team
could test one thing at a time and meticulously evaluate the changes subsequent test rides. They
also used the Mule to focus on the chassis because it was a priority to achieve the Victory ride
and handling. After hundreds of hours riding around on Frances and obtaining some assistance
from Polaris engineers on the frame and chassis, the team agreed on a chassis design. Their
analysis helped reduce the weight of the frame by 20 pounds over the original prototype. In
addition, the Victory team sought larger suspension forks to ensure that the chassis would have
the desired rigidity and earn bragging rights for the biggest forks on the market.
Some elements of the V92C design were dictated by customer demand. It had to have some
traits that are popular with, and familiar to, cruiser enthusiasts. Styling dictated a triangular rear
swing-arm that mocked the "hard-tail" look of the unsuspended bikes of the 1940s. A single
shock mounted underneath the seat included an aluminum sub-frame supporting the seat and rear
fender. They determined that a high-quality Fox shock was to be a standard feature. Polaris still
owns several rear suspension patents as a result.
In May 1995, Mark Bader, who was familiar with compact, high-performance engines, was hired
to lead the engine design staff. One of the first engine mock-ups was made from paper. Created
from CAD drawings using the Victory rapid-prototyping machine, it was made of thousands of
precisely cut pieces of paper glued together. These computer-generated mock-ups allow parts to
be generated and test-fit without excessive costs. The first engine prototype via computer-aideddesign consisted of a tall, 1,507-cc V-twin with a 55-degree angle between its cylinders. This
was too big to fit the frame so the angle was narrowed to 50 degrees. After the frame and chassis
was developed, the engine had to be shrunk. It seemed backwards to fit the engine to the frame
and chassis, but Burgess felt it was appropriate for the V92C in order to deliver the ride and
handling they wanted instead of the engine size determining the bike's size and layout. In
addition, they decided to solid-mount the engine and utilize it as a stressed member or supportive
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Iowa State University College of Business
of the frame and relatively more integral to the bike as a whole. The handling was greatly
increased.
To develop the crankshaft, the team also benchmarked the performance of competitors' bikes.
The Polaris team also considered using Harley-style cylinder heads with push rods operating the
valves, but they decided on a more modern overhead-camshaft design.
The Victory team found that it could eliminate virtually all traces of that vibration, but it refused
to do so because they felt it was a trademark of a cruiser. They had to determine the proper
balance of vibration. Cruisers are supposed to have vibration. As described by Dapper and
Klancher, "In the perfect world, there is imperfection. Without it, things just don't seem right.
Motorcycles need to have personality; a little rumble here and tingle there lets you know that the
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machine underneath you is alive and kicking."
The braking system was a concern of the Victory team and they set out to develop braking
similar to high-performance sport bikes, rather than what's typically on cruisers. They chose
Brembo hardware and worked with Brembo technicians to develop the desired feel and
responsiveness. In addition, the Victory team decided to make its own master brake cylinder.
The Victory motorcycle team continued with numerous rigorous tests of the engine, chassis, and
other components. The first prototype bikes with Victory engines were known as C bikes and an
early prototype cost approximately $250,000 to build. On November 7, 1996, the Victory
concept bike C-1 (engine and chassis together for its first test ride) was first ridden at the
Osceola, Wisconsin municipal airport. Eighteen people witnessed the event.
VICTORY BECOMES A REALITY7,10
Finally, on February 19, 1997, Polaris issued a press release announcing that it would be entering
the motorcycle market. On June 26, 1997, the Victory was rolled out to the press at Planet
Hollywood in the Mall of America in Bloomington, Minnesota. Al Unser Jr. rode a
preproduction bike into the restaurant, and Victory team members fielded questions about the
new bike. The next day, editors from several motorcycle magazines met the Victory staff in
Osceola, Wisconsin to learn more about the new American motorcycle.
Since the announcement the Victory motorcycle has received universally positive reviews in the
motorcycle press. It has also received coverage in newspapers such as the Wall Street Journal,
New York Times, and USA Today. Matt Parks has appeared on CNN and CNBC television
networks promoting the bike. In August 1997, Victory made an appearance at the 57th annual
Sturgis Rally & Races in South Dakota. Demonstration rides sponsored by dealers were given
for the first time during January 1998 in Palm Springs, California. Over 200 motorcyclists
received demo rides on preproduction prototypes of Victory motorcycles during Daytona Bike
Week in March 1998. After taking the bikes for a ride, experiencing street speeds, corners and
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brakes, riders were given a questionnaire and interviewed by the Victory marketing staff. The
riders' feedback indicated the bikes delivered outstanding handling and power. The Victory staff
also made a few adjustments to the motorcycle based on customer feedback.
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The Victory team felt the bike was ready to roll and named the first model the V92C. "V" stood
for the V-twin engine, "92" for the engine's 92-cubic inch displacement, and "C" indicated
cruiser. The V92C had the stiffest frame of any cruiser on the market (as stiff as some sport
bikes), and utilized the engine as a stressed member (fundamental component) of the frame for
increased strength and rigidity. Complementing the stiff frame were its large 45mm diameter
fork tubes with a rear suspension incorporating a stiff triangulated swing-arm controlled by a
single shock absorber under the seat. The Victory V92C delivered up to 50% more horsepower
than any of its direct competitors. Victory motorcycles were first produced in “Knock-YourSocks-Off Blue” or “Antares Red.”
"The first Victory V92C motorcycles rolled off the assembly line at the Polaris plant in Spirit
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Lake, Iowa on the Fourth of July, 1998 just over a year after unveiling the prototype."
Previously, in May 1998, Cycle World, the largest motorcycle magazine in North America,
selected the Victory motorcycle as the "Best Cruiser of 1998" before the first bike was available
to consumers.
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The Polaris team believed it could successfully produce a motorcycle because of its history of
design, manufacturing, and distribution of recreational vehicles along with its engineering talent,
business savvy and loyal Polaris customers. Former Polaris CEO W. Hall Wendel Jr. said,
"Entering the motorcycle market is a logical extension of our diversification strategy. We have
the Polaris name, the engineering and marketing expertise, the manufacturing infrastructure, and
the dealer and distributor network worldwide to effectively compete in this marketplace. Our
main goal right now is to build the brand name recognition. When somebody says, 'What kind of
bike do you have?' we want the answer to be, 'I have a Victory.’”22
Today, Victory motorcycles are lighter, have more torque, more storage, better engine
performance, and a lower center of gravity than comparable Harley-Davidson bikes. Riders
claimed that victory bikes were less tippy, more stable going over bumps, and offered more
control while riding than other cruisers and touring bikes. Victory enjoyed a 95 percent owner
satisfaction rate in 2010.23
MANUFACTURING AND DISTRIBUTION7,10
In addition to developing a new, quality American motorcycle, another challenge was to develop
quality manufacturing, distribution and marketing plans. In determining how to best produce
their bikes, the Victory team visited three European companies- Triumph Motorcycles in
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England, a company that made most of its engine parts; Aprilia of Italy, a scooter and small
racing-bike builder; and BMW, a well-known German bike producer. As a result of these visits,
Polaris decided to combine both outsourcing and original equipment manufacturing. Polaris
would manufacture their own parts and components when they felt they could do a superior job,
and outsource other components to good suppliers with requisite expertise.
The outsourced components of the Victory come from many sources. Wheels, pre-painted body
parts, ignition coils, rear shock absorbers and the lower end of the motor were purchased from
reputable U.S. suppliers. Brakes and front forks were supplied by companies in Italy. The
electronic fuel-injection system was made by the British firm MBE, and pistons and cylinders
were purchased from Mahle, a German company.
Victory motors were assembled at the Polaris plant in Osceola, Wisconsin, alongside lines on
which engines for watercraft and all-terrain vehicles are made. Steel tubing for the bike's frames
is also formed and fabricated in Osceola.
The engines and frame parts were then shipped to Spirit Lake, Iowa, where robots were used to
weld up the frames before they were given a powder-coat treatment. Making the frames inhouse was essential, the company believes, because it ensured the consistent geometry required
to make each bike behave as the designers intended. Engines and all the other parts came
together on an assembly line that consisted of a carrier suspended from an overhead track. The
bottom of the carrier is waist high so employees do not have to bend over. The assembly line is
staffed by nine two-person teams, who walk from station to station on a padded surface covering
the concrete floor, each building an entire motorcycle. At the end of the line each bike is
scrutinized by an optical measuring device called a laser theodolite, which checks the chassis for
misalignments that could hurt handling. Finally, a few test miles are put on each bike using a
"rolling road" dynamometer. The Victory team knows the success of the Victory project depends
on the quality of the bike. This philosophy was expressed by Spirit Lake plant manager, Chuck
Crone, who said, "The interest is not to make them quick. The interest is to make them right."24
The Spirit Lake plant was already producing certain all-terrain vehicles and personal watercraft
prior to assembling motorcycles. The Spirit Lake site was chosen because it had production
capacity and required Polaris to add only a handful of new jobs. Assembling the Victory
motorcycles at the Spirit Lake site allowed approximately 400 employees to change from
seasonal workers to year-round workers. This also marked the first time that a motorcycle was
manufactured in Iowa for commercial distribution.
Polaris managers planned on keeping the motorcycle break-even point low and to start with
conservative numbers to ensure quality, then eventually to expand internationally. Longer term
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they expected Victory to become a significant part of the company's business. Managers planned
initial production to be 2,000-3,000 units.
The first dealer shipments were rolled out in July 1998. To recognize the significance of
Victory's entrance into the motorcycle market, Polaris numbered each of the first 1500 bikes with
a plate fastened to the handlebar clamp. Victory number 0001 was kept by the company to
commemorate its history. Initially, motorcycles were manufactured and assembled in the spring
and summer. However, in the long term, manufacturing of motorcycles commenced year ‘round.
Victory motorcycles were sold through the Polaris dealer network. The selection criteria for
these dealers were very strict. Polaris dealers also sold lawn and garden equipment, marine
products, motorcycles, and farm implements. The Victory was designed to eventually help
Polaris leverage its existing engineering and manufacturing base, and provide cross-selling
opportunities to its entire network of over two thousand dealers.25
Matt Parks wanted dealers who were completely committed to the Victory brand. He felt that
the company would be very well represented by dealers in all 50 states when the motorcycles
became available. All dealers were fully trained in service and sales prior to receiving their
motorcycles. The initial Victory rollout involved two hundred dealers, and each dealer received
approximately 10 bikes.
VICTORY MARKETING7,10,25,26
One of the first public appearances of the production version of the Victory motorcycle was
during The Rock to Rock Victory Tour. This tour was intended to showcase the quality,
performance, and dependability of the Victory motorcycle by riding across America on a Victory
motorcycle. "We're doing it to demonstrate the 'rock-solid engineering' of the new Victory
V92C," said Mark Klein, owner of Big City Motorcycles in Manhattan, New York.
Mark Klein's father, Joe, started the ride from a historic 'rock' on one coast, the Statue of Liberty,
and rode to another one on the opposite coast, Alcatraz, in the San Francisco Bay. The tour
started in Manhattan October 2, 1998 and within eight days and over 3,300 miles later, the tour
ended in California. At the completion of the tour, Joe Klein said he had no problems with the
ride. "I could hop on and ride the bike back home. That's how much confidence I have in the
bike. I had a taillight bulb that went out and that was it," Klein said. "The gas mileage increased
the further west we went, and the bike just performed flawlessly. It was really great." The only
other thing that had to be done to the bike was to adjust the clutch once. They named the support
truck driver and mechanic the Maytag repairman because he seemingly was just along for the
ride.
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A billboard outside Polaris headquarters showed a pair of Victory bikes against the dramatic
backdrop of Monument Valley, Arizona -- a Harley-Davidson kind of scene. The message on
the billboard states, "It's a free country. Act like it." The Victory trailers were also used to
market the motorcycles. The graphic on the Victory trailers featured a huge photo of the V92C
motorcycle and the image of the American flag provided the background on the truck's sides.
The Victory fleet of semi-trailer trucks was honored by Fleet Owner magazine as winner of a
1998 Fleet Owner Vehicle Graphic Award.
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ASSESSING THE MARKET 10
Polaris managers felt the company’s best opportunity for entering the motorcycle industry was
the heavyweight segment. Heavyweight motorcycles were utilized as a mode of transportation
as well as for recreational purposes. There were four sub-segments including cruisers, touring,
sport bikes and standards. Polaris analysts saw that U.S. retail cruiser sales nearly doubled from
1993 to 1997. The company estimated that approximately 128,000 cruiser motorcycles were
sold in the U.S. market in 1997. Demand for cruisers at the time was strong. Cruiser sales in the
United States increased thirty-one percent between 1994 and 1996. Sales were predicted to jump
another nine per cent in 1997 just prior to Polaris’ entry, to nearly 134,000 bikes. According to
industry estimates, the worldwide market for cruiser motorcycles was more than 200,000 units
annually in 1997/98.
In their annual report, Polaris predicted an 11-15 per cent annual growth for the next five years in
U.S. cruiser sales. Polaris started distributing conservative quantities of bikes during the first
few years of production. The company estimated that the first sales would be to existing Polaris
customers, due to a survey that indicated thirty percent of Polaris ATV and PWC owners also
owned motorcycles. Polaris managers felt that re-entry customers were a major potential source
of sales for Victory. Longer term, the company expected to expand internationally and broaden
the product line to include models in all four motorcycle segments - cruisers, touring, sport bikes
and standards. The expectation was for Victory bike sales to become a significant part of the
overall company business. The worldwide motorcycle market was larger than that of
snowmobiles or PWC, and Victory bikes were priced to sell at about twice the average price of
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Polaris’ other products."
"Our assumption all along has been that our target buyer is also a hard-core Polaris enthusiast,"
said Matt Parks. "We asked them if they'd be interested in a motorcycle made by us, and they
said 'absolutely.' We asked how many of our customers had owned or ridden motorcycles and
100 percent said yes." Parks said they were not aiming at the youth market. "A major source of
cruiser business is comeback riders. They've had careers, children and mortgages and got out of
bikes. Now they have empty nests, disposable income and more leisure time, and they're getting
back into riding." Polaris marketing executives were initially targeting a rising cruiser wave
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Iowa State University College of Business
fueled by baby-boomers in their 30s, 40s. One Polaris dealer said his customers had two things
in common, "They wanted another choice besides Harley-Davidson for an American cruiser ...
and people want their money's worth. They don't care what it costs as long as they get their
29
money's worth."
Polaris also intended to build strong owner loyalty through their Preferred Registered Owners
(PRO) program, consisting of more than 600,000 members in 1998. Members were eligible for
exclusive merchandise, competitive insurance rates for their Polaris vehicles, special group rides,
and package tours. In return, these informed, responsible riders served as informal advocates for
the Polaris brand. These customer groups provided valuable feedback on their riding habits and
product demands. Dealer councils were formed to stay attuned to the market and their retailer
needs.
Polaris expected to recoup the money invested in Victory within three years. Victory was
expected to break even on 4,000 bike sales a year - about three percent of the market.
Managers believed that Victory would help Polaris’ overall sales. With an initial retail price of
$12,995 nearly all of the 2,000-3,000 bikes made in 1998 were pre-sold. For example, John
Gardner at Mt. Hood Polaris sold 10 of his first 15 bikes sight unseen. Gardner said the number
of customers was a surprise.
INDUSTRY COMPETITION10
At the beginning of the 20th century there were three big American manufacturers producing
large displacement bikes: Harley-Davidson, Indian and Excelsior-Henderson. Harley-Davidson,
Indian, and Excelsior accounted for ninety per cent of the US market in 1930. The Great
Depression devastated the industry, wiping out most of the smaller manufacturers. Starting in
1975 and continuing through the mid-1980s, Japanese companies penetrated the big-bore custom
motorcycle market with Harley look-alikes sporting V-twin engines. Harley struggled against
Japanese competition in the 1970s, but came back stronger than ever in the eighties. As the
twentieth century ended, 1998 marked the first time since 1955 that Americans have had the
choice of a large American designed and manufactured motorcycle other than Harley31
Davidson. The introduction of the Victory marked the first time in sixty years that a new
American motorcycle manufacturer introduced a "significant motorcycle" that will be widely
distributed.
The Victory motorcycle was aimed at grabbing market share from both the Japanese
manufacturers (Honda, Yamaha, Kawasaki and Suzuki) and Harley-Davidson. Victory’s initial
assessment of the attractiveness of entry into the motorcycle industry was based on their
assessment of Harley’s profit margins. When Victory was launched Harley-Davidson had a
nearly fifty-four per cent share of the U.S. market for heavyweight bikes and held an estimated
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Iowa State University College of Business
thirty per cent share of the $3 billion worldwide heavyweight market. Victory’s goal was to take
five per cent of that market, or in other words, sales of approximately $150 million.32 The
heavyweight cruiser market had been growing and Harley-Davidson had been unable to satisfy
the demand in the United States. By default, the Japanese producers were able to capture
increasingly larger shares of the market. Some analysts felt that Victory bikes would take share
from the Japanese but not from Harley-Davidson.
Japanese Manufacturers - Honda, Yamaha, Kawasaki and Suzuki10
Honda, Yamaha, Kawasaki and Suzuki entered the US market in the seventies at the expense of
both Harley-Davidson and the British motorcycle makers, and were now the predominant world
industry players. These longtime Japanese motorcycle powerhouses were strong competitors
33
because they enjoyed large overall sales volume and diversified product lines. Polaris had
successfully taken on Japanese competitors in the past when it entered the Japanese-dominated
market for all-terrain vehicles in 1985 and started selling personal watercraft in 1992. Polaris
was now one of the biggest makers of each of those markers and was leading in terms of U.S.
market share in snowmobiles. Polaris regarded the Japanese as their significant competitors. At
the time of the Victory launch only two manufacturers, Polaris and Yamaha, competed in all four
power-sports vehicle markets -snowmobiles, personal watercraft, all-terrain vehicles and
motorcycles. Polaris expected their success to continue with motorcycles. The Victory team also
felt that US customers could be lured from Yamaha, Suzuki, Kawasaki, and Honda by exploiting
the notion that the Japanese-brand bikes were not American-made.
However, by 2009 the Japanese bikes were as popular as ever, and the Japanese companies were
showing no sign of retreating from the market. Honda was the world’s largest producer of
motorcycles in 2009. The Honda motorcycle line included everything from small scooters to the
huge 1832cc Valkyrie Rune - one of the largest engines in the market. In 2009 Honda offered an
extensive line of cruisers, custom street bikes, racing, and touring bikes. Their Shadow and VTX
models were, in effect, Harley look-alikes. The Honda Gold Wing was still considered one of
the best touring bikes as well. Honda and the other Japanese manufacturers seemed to be in the
heavyweight segment to stay.
Harley-Davidson10,33
The Harley-Davidson Motor Company was founded in 1903 in Milwaukee, Wisconsin. During
World War I, Harley-Davidson supplied the military with motorcycles and became the largest
motorcycle company in the world in 1918. In 1969, AMF (American Machine and Foundry),
Inc. purchased Harley and poured money into the company. Some think the strategy used by
AMF hurt Harley's quality while others thought AMF actually saved Harley from the Japanese
because of its deep pockets. In 1982, a group of Harley managers, led by Vaughn Beals and
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Iowa State University College of Business
Jeffrey Bluestein, purchased Harley from AMF and turned around the company in the 1980s.
By 1988 Harley was Fortune Magazine’s most admired transportation firm and Harley had
entrenched itself as a world leader in the heavyweight segment.
Harley-Davidson products included cruisers, factory custom, and touring motorcycles, as well as
police and military motorcycles. In 2009, Harley offered over thirty different motorcycle
models. Harley-Davidson benefitted from having one of the world's most recognized and
respected brand names and their motorcycle models- Sportster, Super Glide, Low Rider, Dyna
Glide, Wide Glide, Softail, Road King, Electra Glide and Tour Glide, were among the bestknown in the industry. Harley also supplied or licensed motorcycle replacement parts,
accessories, riding and fashion apparel and collectibles.
Harley-Davidson formed a riders club in 1983 and by 2006 the Harley Owners Group (HOG)
had in excess of 900,000 members worldwide. HOG was the industry's largest companysponsored enthusiast organization. By comparison, Honda’s Gold Wing Road Riders association
registered only 75,000 members.
35
In 1993, Harley-Davidson took an equity stake in the Buell Motorcycle Co. of East Troy,
34
Wisconsin, and began selling Buell cycles through its dealer network. Erik Buell was a former
Harley engineer who left the company to start a sport-bike business. Buells were racing bikes
powered by modified Harley engines mounted on Harley frames, and were designed to appeal to
younger riders. Harley-Davidson acquired one hundred percent of the company in 1998, the
same year as the launch of Victory. Approximately, nine thousand bikes were sold at its zenith
in 2004. However, Buell sales both in the US and overseas started to decline in 2004.35 In an
attempt to continue to grow its sport bike business, Harley acquired MV Agusta of Italy in 2009.
Agusta made sport bikes for both on and off-road enthusiasts.
Harley represented freedom and individuality. Harley viewed competitors as trying to imitate
their motorcycles, but unable copy the intangibles that made owning a Harley-Davidson a unique
experience. Harley managers felt they were able to determine what was original and authentic in
terms of the real riding experience. The quality of their bikes was very good and they were able
to charge a price premium in the market. Prices ranged from approximately $8,000 for an entrylevel Sportster to $30,000 for a top-of-the line touring bike. They felt that even though
competitors were duplicating the Harley design by making look-alike bikes that they could not
copy the Harley image. Harley tended to appeal to older riders with relatively more riding
experience. In the eighties and nineties Harleys became very popular with higher income groups
such as accountants, lawyers and doctors who were attracted by the prestige and image
associated with owning a Harley.
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Iowa State University College of Business
With 1997 sales of $1.75 billion, Harley commanded forty-eight percent share of the growing
North American market for heavy road bikes. Harley’s product line was sold through a
worldwide network of more than 1,000 dealers. Even though the number of motorcycles
produced increased, Harley-Davidson still could not meet the demand for its motorcycles.
Customers worldwide who ordered a new Harley sometimes waited at least a year for delivery.
For years Harley had been building presold bikes, and some dealers have alienated customers by
jacking up prices on scarce models. The wait was sometimes as long as two years for some
models. Dealers were upset because they sometimes had no inventory. Customers were upset
because they had to wait so long for the product.
Harley was facing a dogfight for the first time since 1983, primarily because of Victory and also
because the Japanese were planning to respond to Victory with improvements in their cruisers as
well. As Harley's production caught up with the demand, the phenomenal resale value of the
bikes would begin to decline. Rival producers saw opportunity in Harley-Davidson's production
constraints. Honda, Kawasaki, Suzuki and Yamaha Corp. have all began chipping away at
Harley's grip on the high-margin cruiser category. This continued through the nineties into 2000
and beyond.
By 2010 Harley production volume and sales had dropped to 2001 levels.36 In 2008 the
company made over 300,000 motorcycles but planned to cut production in 2009 to around
200,000 units. It also terminated the Buell line of sport bikes, sold the MV Agusta Italian
motorcycle business back to the Agusta founder, and forced its labor unions into wage and
benefit concessions by threatening to move factories out of Milwaukee. Its bike owners were
getting old and not many younger riders were being attracted to Harley products. Harley sales
peaked in 2006 at 349,000 units but because the bikes were no longer in short supply, demand hit
a wall. As supply met demand Harley became just another industry competitor and in the last
quarter of 2009, it experienced its first quarterly loss in sixteen years.37
Excelsior-Henderson and Indian10,38
Brothers Dave and Dan Hanlon attended a 1993 Sturgis bike rally in South Dakota and noticed
nearly everyone owned a Harley or a Harley knockoff. As a result they decided to resurrect an
American motorcycle manufacturing company and compete in the heavyweight segment. They
thought re-launching a brand, rather than inventing a new one made good sense. The brand they
decided on was Excelsior-Henderson, a name with a rich, proud tradition. Originally founded in
1876, Excelsior Supply was a small but high-quality bicycle manufacturer. Ignatz Schwinn
bought Excelsior in 1911and another company, Henderson, in 1917. Soon thereafter ExcelsiorHenderson began making motorcycles and over time gained a reputation for styling and speed.
Excelsior-Henderson motorcycles were the first to break 100 miles per hour and were known for
their quality, performance, and reliability. Charles Lindbergh and Henry Ford owned Excelsiors.
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Iowa State University College of Business
Schwinn dropped motorcycle production in 1931 with the threat of the Great Depression and
low-priced autos and the motorcycle brand was terminated.
The new Excelsior-Henderson Motorcycle Manufacturing Company headquarters and
manufacturing plant were both constructed in Belle Plaine, Minnesota, less than 100 miles away
from the Victory plant. The original plan was to produce a single heavyweight cruiser- the Super
X. Unlike Victory Motorcycles, which drew on the experience and resources of its corporate
parent, Excelsior-Henderson booted up design, manufacturing, and marketing operations from
scratch. The Hanlons initially signed up dealers, most of whom also sold Harleys. The
Excelsior-Henderson Super X was priced at $17,500 in 1999, which was more than a comparable
Harley. The first Super X production bike was shipped to a dealer on January 30, 1999.
Excelsior expected to compete with Japanese bikes as well as the new Victory and HarleyDavidson even though they were charging a relatively higher price. The Hanlon brothers rode
Super X prototypes to Sturgis and were heartily welcomed by enthusiasts. Excelsior-Henderson
appeared to have a strong brand name with historical cachet and a strong management team with
some motorcycle-industry experience. Excelsior-Henderson was also an American brand.
Excelsior needed to sell 5,000 motorcycles a year to break even. They expected to produce
20,000 bikes per year in the Minnesota plant. However, production facilities never really
materialized and sales were not forthcoming. The company went bankrupt in the year 2000.
Indian Motorcycles (Indian Motorcycle Manufacturing, Inc.) was the most recognizable
American brand next to Harley-Davidson. Indian was the first American motorcycle company
founded in 1901 and the Indian Chief was a classic heavy cruiser highly desired by motorcycle
enthusiasts worldwide. However, the company had been out of business since the British
motorcycles knocked it out of the market in the 1950s. There were several attempts to revive the
brand in the 1990s although none was very successful in the long term.
However, a group of investors restarted the company in 2008 and so far the future has been
promising. The company offers at least two versions of the classic Indian Chief cruiser, the
Chief Blackhawk and the Chief Dark Horse. The company reported yearly sales increases in
2010 of eighty percent and growth in dealerships to twenty-nine. Indian managers projected
growth into the apparel business and announced an event at Sturgis in 2011 to promote its new
models. The company projected growth through 2011 even in a difficult economy.
Other competitors10
BMW
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Iowa State University College of Business
In 1997, Germany's Bavarian Motor Works (BMW) unveiled a new heavyweight, low-slung
cruiser to take on Harley. Over the years, BMW has continually developed high quality/high
performing motorcycles with both comfort and style. BMW had an advantage of engineering
that provides excellent handling characteristics. Known for extremely high quality and
performance, BMW has been able to charge a price premium- sometimes up to forty per cent
over similar bikes.
Big Dog
Big Dog Motorcycles were custom manufactured in Wichita, Kansas and had a high cost of
production and high retail prices.39 Big Dog produced only five models – the Bulldog, Vintage
Sport, ProSport, Vintage Classic, and Pitbull. Their V-Twin motors ranged from 88 to 107 cubic
inches. Each bike was painted to customer specifications and is built within 60 days from the
time of the order. It had relatively few employees and produced only three hundred bikes in
1997. Sheldon Coleman, president of Big Dog Motorcycles of Sun Valley, Idaho, built his first
bike in 1993 and began the company the following year. Big Dog bikes were cruisers that
provided customers with highly customized bikes at a price more competitive with the mass
producers.
New markets and emerging technologies
There were many niches in heavyweight motorcycle market segment. Dealernews reported
seventy-seven different sellers of new ‘big twin’ motorcycles, as well as numerous other custom
and touring producers and sellers.40 Companies such as Lifan, a Chinese motorcycle maker, had
entered the industry by dominating countries where the Japanese were not present. Lifan
marketed initially only in Iran, Nigeria, the Philippines, Vietnam and Indonesia, but was
preparing to move into more mature markets in the new millennium. Shanghai Motorcycle
Works, another Chinese company, was ready to market its Xing-fu cycle worldwide. Xing-fu
meant ‘happiness’ and was a very practical, energy-efficient small bike targeted at commuters
and large city riders.
Traditional Italian bike makers like Bimota, Ducati and Motto Guzzi were continuing to produce
super bikes of extremely high quality and style. Bombardier, a Canadian firm, disrupted the
market with a remarkably popular three-wheeled roadster. And the British bike companies,
Triumph and Norton, were creating very interesting and exciting new motorcycle models as well.
Triumph was the fastest growing motorcycle brand, in terms of percentage sales growth, in the
world in 2010.41
On top of all this, new entrepreneurial companies like Zero Motorcycles were gaining notice in
the business press and in the market. Zero produced electric dirt bikes and won praise from both
Businessweek and Fortune for their products and business planning.42 In June of 2010 at the
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Iowa State University College of Business
Bonneville Salt Flats in Utah, Mission One, another new company, had a rider set a world speed
record of 150 miles per hour on a motorcycle with an electric motor.43
VICTORY: PREPARING FOR THE NEXT DECADE
Mark Blackwell reflected on Victory’s first ten years and all the events surrounding the
heavyweight motorcycle industry. His company’s motorcycle had successfully taken on HarleyDavidson, an American icon. Victory sales had risen to $20.1 million in 2010 a fifty-five per
cent increase over 2009. Demand had improved across the entire Victory line but particularly for
the Cross Roads and Cross Country touring models. Markets outside North America were
growing significantly, and sales of accessories, clothing, and parts were also up twelve percent.
Victory profits constituted over seven percent of the parent company’s bottom line.44
Blackwell realized his motorcycles had received critical acclaim in the industry. Victorys were
perceived as high quality and technologically advanced bikes, especially compared to Harleys,
and were offered at a very competitive price. Blackwell knew his bikes were good, but had they
been marketed and distributed effectively? Was Victory successfully capturing the attractive
profit-margin potential of the heavyweight segment as they had planned?
Blackwell knew the announcement of the new Polaris on-road vehicle division had tremendous
implications for both Victory and Polaris as a whole. He was also aware that current Polaris
CEO, Scott Wine, wanted the company to grow into ‘adjacent’ businesses. Did this mean the
company would move into off-road bikes? Did this mean that Victory would engage in some
sort of overseas expansion? Or perhaps some sort of energy-efficient scooter would make sense
for Polaris? Perhaps the company was thinking of making acquisitions in order to grow? Would
they be in the market for an electric vehicle or some other alternative energy-related acquisition?
Victory’s next decade was certainly shaping up to be as challenging and eventful as the first.
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Iowa State University College of Business
Exhibit 1 – Victory Sales (dollars in millions)
Sales
120
100
80
60
Sales
40
20
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sources: Polaris Industries 2009, 2006, 2003 and 2000 annual reports. Polaris Industries 2010 10K Q1, Q2, and Q3,
quarterly reports.
20
Iowa State University College of Business
Exhibit 2
Victory Motorcycle Models
Motorcycle category
Suggested retail price
Description
Touring
Victory Vision Tour
Victory Cross Roads
Victory Cross Country
$23,199
$14,999
$17,999
luxury touring bike
customized touring bike
high cargo capacity/low seat
8-Ball Cruisers
Vegas 8-Ball
Hammer 8-Ball
Kingpin 8-Ball
Victory Vision 8-Ball
$12,499
$14,499
$12,999
$17,999
basic cruiser
performance cruiser
classic modern cruiser
distance cruiser
Custom Cruisers
Vegas Jackpot
Kingpin
Vegas
$18,499
$14,999
$14,499
custom chrome and graphics
custom performance cruiser
low profile cruiser
Muscle Cruisers
Hammer
Hammer S
$17,799
$18,499
precision performance cruiser
sport version of Hammer
Ness Signature
Arlen Ness Vision
Cory Ness Cross Country
Zach Ness Vegas
$27,999
$24,999
$18,999
customized version of Vision
customized touring bike
customized street bike
2011 Vision Tour
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Iowa State University College of Business
2011 Kingpin 8-Ball
2011 Vegas Jackpot
2011 Hammer S
22
Iowa State University College of Business
2011 Arlen Ness Vision
Source: http://www.polarisindustries.com/en-us/Victory-Motorcycles/Pages/home.aspx,
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Iowa State University College of Business
Exhibit 3
POLARIS INDUSTRIES INC
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
Period Ending
ASSETS
Current Assets:
Cash and cash equivalents
Trade receivables, net
Inventories, net
Prepaid expenses and other
Income taxes receivable
Deferred tax assets
Current assets from discontinued operations
Total current assets
Property and Equipment:
Land, buildings and improvements
Equipment and tooling
Less accumulated depreciation
Property and equipment, net
Investments in finance affiliate
Investments in manufacturing affiliates
Goodwill, net
Deferred tax assets
Intangible and other assets, net
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Accrued expenses:
Compensation
Warranties
Sales promotions and incentives
Dealer holdback
Other
24
2009
2008
2007
2006
2005
$ 140,240
90,405
179,315
20,638
—
60,902
$ 27,127
98,598
222,312
14,924
4,521
76,130
$ 63,281
82,884
218,342
17,643
—
65,406
$ 19,566
63,815
230,533
19,940
—
59,107
$ 19,675
78,350
202,022
13,330
—
60,498
—
491,500
—
443,612
—
447,556
—
392,961
113
373,988
December 31,
2004
2003
2002
2001
2000
1999
$ 138,469
71,172
173,624
12,090
—
65,489
$ 82,761
51,885
182,835
10,718
—
59,517
$ 81,193
51,001
155,858
10,136
—
45,471
$ 40,530
56,119
152,717
10,203
—
45,748
$ 2,369
56,130
143,491
4,922
—
34,000
$ 6,184
53,293
118,062
6,175
—
31,000
4,811
465,655
—
387,716
—
343,659
—
305,317
—
240,912
—
214,714
118,304
117,396
105,377
104,612
99,106
77,910
67,561
62,089
54,350
51,135
38,616
454,023
572,327
478,793
596,189
463,757
569,134
422,482
527,094
415,446
514,552
386,575
464,485
337,297
404,858
325,042
387,131
305,647
359,997
267,484
318,619
236,951
275,567
(377,911)
194,416
41,332
10,536
25,869
—
(380,552)
215,637
51,565
15,641
24,693
—
(364,783)
204,351
53,801
32,110
26,447
5,572
(323,093)
204,001
55,629
99,433
25,040
1,595
(292,216)
222,336
59,601
87,772
25,039
—
(263,584)
200,901
98,386
2,877
24,798
—
(228,437)
176,421
79,578
—
24,295
—
(217,535)
169,596
65,185
—
24,267
2,427
(189,674)
170,323
52,963
—
27,199
9,361
-150,755
167,864
45,468
—
24,558
11,384
—
150,922
38,310
—
—
16,000
—
—
44
132
220
308
3,342
3,512
—
—
22,081
$ 763,653
$ 751,148
$ 769,881
$ 778,791
$ 768,956
$ 792,925
$ 671,352
$ 608,646
$ 565,163
$ 490,186
$ 442,027
$ 75,657
$ 115,986
$ 90,045
$ 100,672
$ 97,065
$ 96,302
$ 65,987
$ 88,462
$ 101,554
$ 89,498
$ 91,805
55,313
25,520
67,055
72,229
38,748
56,567
28,631
75,211
80,941
42,274
55,465
31,782
79,233
83,867
40,746
42,333
27,303
65,226
80,546
37,038
51,022
28,178
62,227
84,707
37,594
50,815
28,243
59,348
78,214
36,084
39,730
30,673
63,481
73,561
34,506
35,572
30,936
39,460
73,651
25,005
34,615
33,301
95,280
—
27,715
30,747
34,216
41,792
—
26,234
35,291
40,392
19,999
—
32,900
Iowa State University College of Business
6,702
3,373
4,806
3,940
9,428
31,001
22,540
20,427
15,872
15,897
13,413
Current liabilities of discontinued operations
Total current liabilities
Long term income taxes payable
Deferred income taxes
Income taxes payable
1,850
343,074
4,988
11,050
1,850
404,833
5,103
4,185
2,302
388,246
8,653
—
4,362
361,420
—
—
5,393
375,614
—
5,685
25,186
405,193
—
8,000
—
330,478
—
3,488
—
313,513
—
—
—
326,380
—
—
—
285,452
—
—
—
233,800
—
—
Borrowings under credit agreement
200,000
200,000
200,000
250,000
18,000
18,000
18,008
18,027
18,043
47,068
40,000
Total liabilities
Shareholders’ Equity:
Preferred stock
Common stock
Additional paid-in capital
Deferred compensation
Compensation payable in common stock
Retained earnings
559,112
614,121
596,899
611,420
399,299
431,193
351,974
331,540
326,380
285,452
273,800
—
326
9,992
—
—
191,399
—
325
—
—
—
140,559
—
342
—
—
—
146,763
—
355
—
—
—
152,219
—
417
—
(3,523)
—
375,193
—
427
—
(8,516)
—
366,345
—
434
—
(8,922)
—
330,205
—
446
—
(12,106)
—
289,433
—
229
—
(4,888)
—
248,634
—
235
—
(3,300)
—
207,613
—
242
8,987
(7,818)
5,975
160,841
2,824
204,541
(3,857)
137,027
25,877
172,982
14,797
167,371
(2,430)
369,657
3,476
361,732
(2,339)
319,378
(667)
277,106
(5,192)
238,783
186
204,734
—
168,227
$ 763,653
$ 751,148
$ 769,881
$ 778,791
$ 768,956
$ 792,925
$ 671,352
$ 608,646
$ 565,163
$ 490,186
$ 442,027
Accumulated other comprehensive income, net
Total shareholders’ equity
Total Liabilities and Shareholders’ Equity
Source: Polaris 2009, 2006, 2003, 2000, 1999 annual reports
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Iowa State University College of Business
Exhibit 4
POLARIS INDUSTRIES INC
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Period Ending
For the Years Ended December 31,
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Sales
$1,565,887
$ 1,948,254
$ 1,780,009
$ 1,656,518
$ 1,869,819
$ 1,773,206
$ 1,552,351
$ 1,468,170
$ 1,512,042
$ 1,425,678
Cost of sales
1,172,668
1,502,546
1,386,989
1,297,159
1,458,787
1,348,943
1,189,475
1,135,738
1,167,668
1,097,574
393,219
445,708
393,020
359,359
411,032
424,263
362,876
332,432
344,374
328,104
Selling and marketing
111,137
137,035
123,897
108,890
108,395
105,984
92,321
81,620
119,905
122,028
Research and development
62,999
77,472
73,587
73,889
70,983
60,700
47,069
41,240
35,708
32,360
General and administrative
71,184
69,607
64,785
55,584
65,282
77,977
67,175
59,765
58,943
51,922
Total operating expenses
245,320
284,114
262,269
238,363
244,660
244,661
206,565
182,625
214,556
206,310
17,071
21,205
45,285
47,061
38,640
32,035
23,587
14,643
—
—
164,970
182,799
176,036
168,057
205,012
211,637
179,898
164,450
129,818
121,794
Interest expense
4,111
9,618
15,101
9,773
4,713
2,111
2,465
2,397
7,251
7,704
Impairment charge on securities held for sale
8,952
—
—
—
—
—
—
—
(14,355)
(14,123)
(Income) from manufacturing affiliates
—
—
—
(3,642)
(2,308)
—
—
—
—
—
(Gain) on sale of manufacturing affiliate shares
—
—
(6,222)
—
—
—
—
—
—
—
733
(3,881)
(3,179)
(1,853)
3,748
5,327
(83)
(3,634)
(2,641)
(173)
151,174
177,062
170,336
163,779
198,859
204,199
177,516
165,687
139,563
128,386
50,157
59,667
57,738
50,988
61,138
67,386
57,693
54,357
48,149
45,577
Net Income from continuing operations
101,017
117,395
112,598
112,791
137,721
136,813
119,823
111,330
91,414
82,809
Loss from discontinued operations, net of tax
—
—
(948)
(812)
(1,007)
(8,457)
(8,894)
(7,738)
—
—
Loss on disposal of discontinued operations, net of tax
—
—
—
(5,401)
—
(23,852)
—
—
—
—
Cumulative effect of accounting change, net of tax
—
—
—
407
—
—
—
—
—
—
Net Income
$ 101,017
$ 117,395
$ 111,650
$ 106,985
$ 136,714
$ 104,504
$ 110,929
$ 103,592
$ 91,414
$ 82,809
Continuing operations
3.12
3.58
3.20
2.80
3.27
3.23
2.80
2.49
4.00
3.52
Loss from discontinued operations
—
—
(0.03)
(0.02)
(0.02)
(0.20)
(0.21)
(0.17)
Loss on disposal of discontinued operations
—
—
—
(0.13)
—
(0.56)
—
—
$ 4.00
$ 3.52
Gross profit
Operating expenses
Income from financial services
Operating Income
Non-operating expense (Income):
Other expense (income), net
Income before income taxes
Provision for income taxes
Basic Net Income per share
Cumulative effect of accounting change
—
—
—
0.01
—
—
—
—
Net Income
$ 3.12
$ 3.58
$ 3.17
$ 2.65
$ 3.24
$ 2.47
$ 2.59
$ 2.32
Diluted Net Income per share
26
Iowa State University College of Business
Continuing operations
3.05
3.50
3.10
2.72
3.15
3.04
2.66
2.36
Loss from discontinued operations
—
—
(0.03)
(0.02)
(0.02)
(0.19)
(0.20)
(0.17)
Loss on disposal of discontinued operations
—
—
—
(0.13)
—
(0.53)
—
—
Cumulative effect of accounting change
—
—
—
0.01
—
—
—
—
Net Income
$ 3.05
$ 3.50
$ 3.07
$ 2.58
$ 3.12
$ 2.32
$ 2.46
$ 2.19
$ 3.88
$ 3.50
Basic
32,399
32,770
35,236
40,324
42,131
42,318
42,905
44,623
22,864
23,501
Diluted
33,074
33,564
36,324
41,451
43,787
45,035
45,056
47,232
23,567
23,666
Weighted average shares outstanding:
Sources: Polaris 2009, 2006, 2003, 2000 and 1999 annual reports.
27
Iowa State University College of Business
Exhibit 5
Polaris Industries – Top Management
Scott W. Wine
Chief Executive Officer
Bennett J. Morgan
President and Chief Operating Officer
Masters in Business Administration
Todd M. Balan
Vice President - Corporate Development
Mark E. Blackwell
Vice President - Victory Motorcycles
Mark Blackwell was appointed Vice President of Motorcycles in May 2009. Mark joined Polaris Industries Inc. in
September 2000 as General Manager for Victory Motorcycles, and was subsequently promoted to Vice President of
Victory
tory Motorcycles in October 2005 and was also Vice President of International Operations from October 2005 to
December 2008. Mark has over 30 years of progressive experience in the Powersports Industry, beginning at retail
and working through a variety of assignments at the distributor and manufacturer level working for Japanese,
European and American companies. Mark began his career as a professional motorcycle racer and was the 1971
AMA 500 Motocross Champion and winner of the Daytona Supercross in 1972. Immediately prior to joining Polaris,
Mark was the Vice President, Sales & Marketing for Arctic Cat Inc. Mark holds a Bachelors Degree in Business
Administration from National University in San Diego, California and a Masters of Business Administration fro
from
Pepperdine University.
Stacy L. Bogart
Vice President - General Counsel and Corporate Secretary
John B. Corness
Vice President - Human Resources
Michael D. Dougherty
Vice President – Global New Market Development
William C. Fisher
Vice President and Chief Information Officer
Matthew J. Homan
Vice President – Off-Road Vehicles
Michael P. Jonikas
Vice President – On-Road Vehicles, Sales & Marketing
Mr. Jonikas was promoted to Vice President, On
On-Road
Road Vehicles in May 2009, and also leads our Sales & Corporate
Marketing teams which he has done since April 2005. Mr. Jonikas joined Polaris in 2000, and during the past nine
years has succeeded in several key roles including Director of Pr
Product
oduct & Marketing Management for the ATV
Division, the first General Manager of the Polaris side
side-by-side
side business, and eventually as Vice President Sales &
Corporate Marketing. Prior to joining Polaris, Mr. Jonikas spent 12 years at General Mills in numero
numerous
us general
management assignments.
Michael W. Malone
Vice President - Finance and Chief Financial Officer
Source: Polaris Industries website, http://phx.corporate
http://phx.corporate-ir.net/phoenix.zhtml?c=108235&p=irol-govmanage
govmanage
28
Iowa
owa State University College of Business
Exhibit 6
Victory Customer Satisfaction Comparisons
Source: http://www.piedpiperpsi.com/pdf/documents/98.pdf
29
Iowa State University College of Business
Source: http://www.piedpiperpsi.com/pdf/documents/98.pdf
30
Iowa State University College of Business
Source: http://www.piedpiperpsi.com/pdf/documents/100.pdf
31
Iowa State University College of Business
Exhibit 7
Polaris
Percent Sales Mix by Product
1998-2009
2009
Sales mix by
product:
Off-road
vehicles
Snowmobiles
Personal
Watercraft
On-road
vehicles/
motorcycles
Parts, garments
and accessories
International
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
65% 67% 67% 67% 66% 66% 65% 62% 56% 59% 59% 57%
12% 10% 10% 10% 14% 16% 14% 19% 25% 22% 28% 32%
3% 4% 4% 5% 4% 4%
3%
5%
6%
7%
5%
4%
4%
2%
1%
1%
4%
1%
5%
6%
20% 18% 17% 16% 15% 14% 14% 13% 14% 13%
Sources: 1999, 2003, and 2009 annual reports.
32
1998
Iowa State University College of Business
Exhibit 8
Market Share by Category
Off-road Vehicles, ATVs, Side-by-Sides, Snowmobiles, and Motorcycles
Source: Polaris Industries Investor Presentation, December 2010
http://phx.corporate-ir.net/phoenix.zhtml?c=108235&p=irol-presentations
33
Iowa State University College of Business
Exhibit 9
North American Heavyweight Motorcycle Segment
Market Share
Source: Powersports Business, Market Data Book 2008, Pg. 44.
34
Iowa State University College of Business
Exhibit 10 - Polaris Properties
(Source: Polaris 2009 10K report, pg. 14)
Location
Spirit Lake, Iowa
Spirit Lake, Iowa
Medina, Minnesota
Roseau, Minnesota
Roseau, Minnesota
Rosseau, Minnesota
Vermillion, South Dakota
Oceola, Wisconsin
Oceola, Wisconsin
Ballarat, Victoria, Australia
Winnipeg, Manitoba, Canada
Passy, France
Askim, Norway
Ostersund, Sweden
Birmingham, United Kingdom
Griesheim, Germany
Wyoming, Minnesota
Eagan, Minnesota
Brooklyn Park, Minnesota
E. Syracuse, New York
Ontario, California
Nashville, Tennessee
Irving, Texas
Spencer, Iowa
Tacoma, Washington
Melbourne Australia
Barcelona, Spain
35
Facility Type/Use
Whole Goods Manufacturing
Warehouse
Headquarters
Whole Goods Manufacturing and R&D
Injection Molding manufacturing
Warehouse (various locations)
Distribution Center
Component Parts Manufacturing
Engine Manufacturing
Office and Distribution facility
Office and Distribution facility
Office and Distribution facility
Office and Distribution facility
Office and Distribution facility
Office and Distribution facility
Office and Distribution facility
Research and Development facility
Wholegoods Distribution
Wholegoods Distribution
Wholegoods Distribution
Wholegoods Distribution
Wholegoods Distribution
Wholegoods Distribution
Wholegoods Distribution
Wholegoods Distribution
Retail store
Office and Distribution facility
Leased
Owned
Leased
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Iowa State University College of Business
Footage
258,000
90,000
130,000
635,000
76,8
39,600
385,000
188,800
97,000
9,200
31,000
10,000
10,800
14,300
6,500
3,200
127,000
35,000
25,000
40,000
112,000
37,500
46,300
45,000
15,000
9,600
4,300
SOURCES
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
36
Dealernews, by Dennis Johnson, January 16, 2009.
From Ho Hum Springs a Radical Vision: Victory Motorcycles enters its 10th year with a
distinct lineup and a healthy reputation, by Dennis Johnson, Big Twin Dealer, February
2008, pp. 4-6
Dealernews, May 22, 2009.
Polaris Industries, Form 10-K, United States Securities and Exchange Commission,
December 31, 1997. And http://finance.yahoo.com//pr?s+PII+Profile
Polaris Industries Inc., Corporate Profile, www.polarisindustries.com
Ryberg, William (1998). Polaris Declares 'Victory': A New Motorcycle is Joining the
Road - and it's Made in Iowa. Des Moines Sunday Register, August 2. Pp. 1G-2G.
Dapper, Michael & Klancher, Lee (1998). The Victory Motorcycle: The Making of a
New American Motorcycle. MBI Publishing Company, Osceola, WI
Klebnikov, Paul (1997). Clear the Roads, Here Comes the Victory. Forbes, October 20,
1997, v. 160, n 9, p. 162 (3).
http://www.bizjournals.com/milwaukee/news/2010/12/23/polaris-layoffs-in-osceolabegin-march-1.html?ana=yfcpc
Stotts, Micelle, Master’s thesis, Iowa State University, 1999.
Dapper, Michael & Klancher, Lee (1998). The Victory Motorcycle: The Making of a
New American Motorcycle. MBI Publishing Company, Osceola, WI, pg. 12.
Ibid, pg. 13.
Ibid, pg. 17.
Ibid. Pg. 15
Ibid, pg. 16
Ibid, pg. 30
Brown, Stuart F. (1998). Gearing Up For The Cruiser Wars. Fortune, August 3, 1998, p.
128B-L.
Dapper, Michael & Klancher, Lee (1998). The Victory Motorcycle: The Making of a
New American Motorcycle. MBI Publishing Company, Osceola, WI, pg. 71
Mollet, Kevin. Motorcyclists Impressed by Victory Performance During Demo Rides at
Daytona Bike Week. http://www.victory-usa.com/victory-usa/demo.htm
Polaris Industries' Victory Motorcycles Ready to Roll. July 9, 1998. http://www.victoryusa.com/victory-usa/ready.htm
Polaris Victory Motorcycle Names "Best Cruiser" by Cycle World. May 12, 1998.
http://www.victory-usa.com/victory-usa/cyclewld.htm
Murphy, John (1997). Polaris Enters the Motorcycle Market. Dealernews, April 1997, v
33, n 4, p. 36.
Victory: the New American Motorcycle, 2010 victory Touring DVD, Polaris Industries,
2009.
Ryberg, William (1998). Polaris Declares 'Victory': A New Motorcycle is Joining the
Road - and it's Made in Iowa. Des Moines Sunday Register, August 2. Pp. 1G-2G.
Miller, James (1998). Polaris Set to Challenge Harley in Motorcycle Market. Wall
Street Journal, March 11, 1998, p. B4.
Iowa State University College of Business
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
37
Historic Cross-Country Victory Motorcycle Tour - the Rock to RockVictory Tour Begins with Kick-off at New York Dealership (1998). http://www.victoryusa.com/victory-usa/mtour.htm
Worwa, Susan (1998). Just Like the Motorcycle Itself, Victory Trucks Are Award
Winners. http://www.victory-usa.com/victory-usa/victruck.htm
Polaris Industries Inc. 1997 Annual Report
Duchene, Paul (1998). Minneapolis-Based Polaris to Fight Harley-Davidson in
Motorcycle Market. Knight-Rider/Tribune Business News, May 13, 1998.
Ballon, Marc (1997). Born to Be Wild: Anatomy of a Start-up, Excelsior-Henderson
Makes a Bid to Become the Next Harley-Davidson. Inc. Vol. 19, N0, 16, November
1997, p. 42-53.
Aker, Jean (1998). And Then There Were Three, And Now There are Three. Winding
Roads Motorcycle Times, http://members.aol.com/JFA2/three.html
Rose, Robert L. (1997). Polaris is Revving Up to Sell Motorcycles in the U.S. Market.
Wall Street Journal, February 20, 1997, p. B2.
Shrader, Charles B., David, Fred R., Dannels, Timothy T. (1997). Harley-Davidson
1997.
That VROOM! You Hear May Not Be a Harley. Business Week, Oct 20, 1997. p 159160.
Nolan, Richard and Kotha, Suresh, Harley-Davidson: Preparing for the Next Century,
Harvard Business School case, April 20, 2006.
Harley Shows its Feminine Side, Bloomberg Businessweek, October 4, 2010, pp. 25-26.
Taylor, Alex, Fortune, September 17, 2010.
The Legend is Back, Excelsior-Henderson Motorcycle Company promotional VHS tape.
Big Dog Motorcycles web site www.bigdogmotorcycles.com
Dealernews, December 2008, Vo. 44, No. 12, pg. 177.
http://www.forumtriumph.gr/topic2019.html
Zero Motorcycles, by Neal Saiki, Fortune, January 21, 2008, pg. 28.
A Motorcycle on a Mission: to get investors to notice its software, a startup built the
world’s fastest electric bike, by Brian Dumaine, Fortune, June 14, 2010, pg. 30.
http://www.motorcyclistcafe.com/forums/showthread.php?8995-Victory-lives-up-to-itsname-for-Polaris-Q3
Iowa State University College of Business