Scott Wine, CEO and chairman of Polaris Industries, known as a commercial power sports vehicle manufacturer, has expanded and diversified the business since he arrived in 2008 — pushing further into the defense sector and acquiring Indian Motorcycle, a Harley Davidson competitor. Polaris has built a militarized all-terrain vehicle for the US and overseas militaries since its defense arm was founded in 2005.

In October, it debuted the deployable advanced ground off-road (DAGOR) vehicle, its first purpose-built military vehicle. DAGOR was demonstrated for the US Army as part of its exploration of ultralight combat vehicles, alongside offerings from five other vendors.

The company unveiled an airless "never-flat" tire in 2012, and last year purchased St. Paul-based Primordial, a firm whose navigation software is already used by the US Army. Both moves are meant to enlarge Polaris' defense business, a small but growing part of its $3.8 billion in annual revenues.

Q. What's a nice company like Polaris doing in a sector like this — and what's its strategy?

A. As in our commercial business, we try to provide the best value, and the best ride, because that's what we do. I was a Navy supply officer so I understand how the whole defense supply chain works. A lot of times you get what is available rather than what you want. We've built a defense business on designing what the war fighters want, and because our rapid innovation process is commercial off the shelf, we can deliver variants of products and all-new products quite quickly. That's something certainly the special operations community and others in the military have come to appreciate. Because of our commercial business we can do things at a much lower cost than most people. And we've got this family of ultra-light vehicles that has been providing tremendous value.

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Q. Does the defense business offset risk for the company in other sectors?

A. The strategy of long term is to do that. 2014 was a big growth year for Polaris Defense, and we're expecting a lot of growth in 2015, but the defense segment is still less than 5 percent of our business. We see an opportunity for it to be an even larger business for us, and certainly it's off cycle, if not counter-cyclical to our commercial business. But that's not why we're doing this. We're doing this because it can be a profitable growth engine for us and then we can deliver significant value in quality, cost and serviceability to the war fighter.

Q. Does a company like Polaris pose a threat to some of the larger defense firms on the block?

A. I don't think we're a threat. I think the defense budget is big enough for all of us to partake in it. We are true capitalists here at Polaris, and what we've learned about ourselves is when there are new competitors in any segment we're in, we get better. By Polaris bringing better vehicles and better value, some defense primes may see it as a threat, but I think they're going to become faster and better themselves, and the Department of Defense is the winner.

Q. How did Polaris break into defense, through special operations?

A. That's been our largest customer. When there were deployed units in Afghanistan and Iraq where there aren't great roads, or roads that weren't safe because of IEDs. And they found that our MV 700, then it was the 800 and 850s, were the right kind of products for them to get around. We've gotten back stories of soldiers with their packs and weapons, five and six on an ATV, getting up and over mountains; It's pretty inspiring and it makes us feel good about what we do.

Q. There's been the MRZR and MV 850, and now the Dagor. Was the Dagor a risk as the company's first purpose-built military vehicle?

A. The MRZRs and the MV ATVs were not purpose-built, they were modified significantly in some cases to be able to withstand the environments and the type of service that they were being put into, which were very different in some cases from the commercial environment. We saw what the customer was doing, and for the DAGOR, we asked if we could build something that would meet a specific need for them and we recognized that, "Hey, this is right in our wheelhouse." And the customer has enjoyed putting this product through the paces.

And, of course it's risky. We put up millions of dollars of our own money; we didn't ask the customer for funding. We designed this product, we built it with commercial, off-the-shelf parts, and that would be a risk we took if it completely bombed. But we felt confident that it would not, and we've been proven right. There's a continuous feedback loop which we can rapidly respond to, to help us make a good product continually better. We feel that the retail price of $150,000 — $149,999, if you will — is a tremendous value. There's nobody that makes a similar vehicle. But if they did, it wouldn't be close to this price point.

Q. And it sounds like there's some military-directed research and development in the works, unmanned ground vehicles. What's that, and what is Primordial ground guidance?

A. Primordial is a small mapping technology company that we acquired last year which sits very well with Polaris. Polaris has about 600 engineers that I would put up against any automotive, engineering or any defense firm in terms of their skill, passion and knowledge. But where we were lacking a little bit was software engineering, and we acquired Primordial and ended up going from not very good to extremely good at software design. They've been able to help us provide mapping solutions and in some cases autonomous vehicle technology. In fact if there's an autonomous ground vehicle contest going on, it's almost assured that half of the vehicles are going to be Polaris. We're also working with the Canadian government on a track vehicle. We do a lot of different things, and the objective is to have a fleet of vehicles and technologies that can be of value to various elements of the armed services.

Q. Some analysts say the company's strong run will be difficult to sustain. What's the strategy to keep the growth going, if that's the plan?

A. Of course that's the plan. It's a hell of a lot more fun to be in a company that's growing. Our first objective is to be the best in power sports. So we're the global leader in power sports. We've got a significant market share lead in off-road vehicles, which is north of $3 billion for us, which includes parts of our military business. We've got a growing motorcycle business, great snowmobile business, great parts, garments.

The second part of our strategy is growth to adjacencies, and military is one of our best adjacent market opportunities. We've talked about SOCOM and big Army, but we've got orders from Australia and the Netherlands and Norway; it's over 25 countries. We've got an electric vehicle adjacent market opportunity, and there's a long list of other acquisitions and organic product developments that we can do.

Our third objective is global market leadership. Only 15 percent of our sales right now is outside of North America and there's a significant opportunity for us to double that percentage. And we do all of those three growth strategies and we drive a lean enterprise in the back end of our business and really add value to customers and drive long-term sustainable profitable growth. We've had 20-plus percent annual growth for the last five years, and we're not promising it's going to stay 20 percent, but it's going to be double-digit growth for many years in the future. And we can drive significant earnings growth with that as well.

Q. Polaris has done business with the militaries of Germany, Israel, Canada, Norway and Australia. With the US budget declining, how much of your efforts are aimed at overseas sales?

A. Even with the declining US defense budget it's still got to far outweigh the combined spending of our allies. So our primary focus is to deliver value to the American war fighter; let's be very, very clear on that. That said, there's the demand and need for our products from our allies overseas; last year it was about 20 percent and this coming year it will probably be closer to 25 percent. We'll continue to explore that, but the biggest long-term opportunity is to break into the big Army and the Marine Corps, ensuring that our fleet of ultralight vehicles, highlighted by the DAGOR, get the opportunity to serve.

Q. Do you have other R&D efforts?

A. For competitive reasons we don't really talk about that. I will tell you, and this is public information: We have very innovative hybrid technology. We are minority owners in one of the best lithium ion power train companies out there. We talked about Primordial; we've got an ownership stake in a very good light armor company with various composites and lightweight vehicle components. We bought a company called swissauto a few years ago and they had a really nice tracked vehicle technology, which the Canadians are going to use as an autonomous vehicle. And non-pneumatic tires.

Q. Will Polaris be making more acquisitions on the defense side?

A. Sure. We've got a maniacal focus on long-term profit and growth, so we're not going to buy a defense firm just to own a defense firm. But if we see an opportunity to buy something that we can grow and accelerate profitability, of course we'll do it.

Twitter: @reporterjoe

Joe Gould is the Congress and industry reporter at Defense News, covering defense budget and policy matters on Capitol Hill as well as industry news.

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