Polaris 2008 Annual Report Download - page 47

In 1996, a wholly-owned subsidiary of Polaris entered into a partnership agreement with a subsidiary of TDF to
form Polaris Acceptance. In 2004, TDF was merged with a subsidiary of General Electric Company and, as a result
of that merger, TDF’s name was changed to GECDF. Polaris Acceptance provides floor plan financing to Polaris’
dealers in the United States. Polaris’ subsidiary has a 50 percent equity interest in Polaris Acceptance. In November
2006, Polaris Acceptance sold a majority of its receivable portfolio to a securitization facility arranged by General
Electric Capital Corporation, a GECDF affiliate (“Securitization Facility”), and the partnership agreement was
amended to provide that Polaris Acceptance would continue to sell portions of its receivable portfolio to the
Securitization Facility from time to time on an ongoing basis. At December 31, 2008 and 2007, the outstanding
balance of receivables sold by Polaris Acceptance to the Securitization Facility (the “Securitized Receivables”)
amounted to approximately $509.0 million and $547.0 million, respectively. The sale of receivables from Polaris
Acceptance to the Securitization Facility is accounted for in Polaris Acceptance’s financial statements as a “true-
sale” under SFAS 140: Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. Polaris Acceptance is not responsible for any continuing servicing costs or obligations with respect to
the Securitized Receivables. The remaining portion of the receivable portfolio is recorded on Polaris Acceptance’s
books, and is funded to the extent of 85 percent through a loan from an affiliate of GECDF (which at December 31,
2008 and 2007 was approximately $78.0 million and $66.2 million, respectively). Polaris has not guaranteed the
outstanding indebtedness of Polaris Acceptance or the Securitized Receivables. In addition, the two partners of
Polaris Acceptance share equally an equity cash investment equal to 15 percent of the sum of the portfolio balance
in Polaris Acceptance plus the Securitized Receivables. Polaris’ total investment in Polaris Acceptance at
December 31, 2008 and 2007, was $51.6 million and $53.8 million, respectively. The Polaris Acceptance
partnership agreement provides for periodic options for renewal, purchase, or termination by either party.
Substantially all of Polaris’ U.S. sales are financed through Polaris Acceptance and the Securitization Facility
whereby Polaris receives payment within a few days of shipment of the product. The partnership agreement
provides that all income and losses of the Polaris Acceptance portfolio and income and losses realized by GECDF’s
affiliates with respect to the Securitized Receivables are shared 50 percent by Polaris’ wholly-owned subsidiary and
50 percent by GECDF. Polaris’ exposure to losses associated with respect to the Polaris Acceptance Portfolio and
the Securitized Receivables is limited to its equity in its wholly -owned subsidiary that is a partner in Polaris
Acceptance.
Polaris’ investment in Polaris Acceptance is accounted for under the equity method, and is recorded as
Investments in finance affiliate in the accompanying consolidated balance sheets. Polaris’ allocable share of the
income of Polaris Acceptance and the Securitized Receivables has been included as a component of Income from
financial services in the accompanying consolidated statements of income. At December 31, 2008, Polaris
Acceptance’s wholesale portfolio receivables from dealers in the United States (excluding the Securitized
Receivables) was $199.0 million, a 16 percent increase from $172.3 million at December 31, 2007. Including
the Securitized Receivables, the wholesale receivables from dealers in the United States at December 31, 2008 was
$709.7 million, a two percent decrease from $722.8 million at December 31, 2007. Credit losses in the Polaris
Acceptance portfolio have been modest, averaging less than one percent of the portfolio over the life of the
partnership.
In October 2001 Household and a subsidiary of Polaris entered into a Revolving Program Agreement to
provide retail financing to consumers who buy Polaris products in the United States. In August 2005, the wholly-
owned subsidiary of Polaris entered into a multi-year contract with HSBC, formerly known as Household Bank
(SB), N.A., under which HSBC is continuing to manage the Polaris private label credit card program under the
StarCard label, which until July 2007 included providing retail credit for non-Polaris products. The 2005 agreement
provides for income to be paid to Polaris based on a percentage of the volume of revolving retail credit business
generated. The previous agreement provided for equal sharing of all income and losses with respect to the retail
credit portfolio, subject to certain limitations. The 2005 contract removed all credit, interest rate and funding risk to
Polaris and also eliminated the need for Polaris to maintain a retail credit cash deposit with HSBC, which was
$50.0 million at August 1, 2005. HSBC ceased financing non-Polaris products under its arrangement with Polaris
effective July 1, 2007 resulting in a significant decline in the income from financial services reported by Polaris in
the second half of 2007. During the first quarter of 2008, HSBC notified the Company that the profitability to HSBC
of the 2005 contractual arrangement was unacceptable and, absent some modification of that arrangement, HSBC
might significantly tighten its underwriting standards for Polaris customers, reducing the number of qualified retail
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