Polaris 2008 Annual Report Download - page 62

quality, shifts in product mix, changes in warranty coverage periods, snowfall and its impact on snowmobile usage,
product recalls and any significant changes in sales volume.
The activity in the warranty reserve during the years presented is as follows (in thousands):
2008 2007 2006
For the Year Ended December 31,
Balance at beginning of year ........................... $ 31,782 $ 27,303 $ 28,178
Additions charged to expense ........................... 39,960 40,375 33,156
Warranty claims paid ................................. (43,111) (35,896) (34,031)
Balance at end of year ................................ $ 28,631 $ 31,782 $ 27,303
Sales promotions and incentives: Polaris provides for estimated sales promotion and incentive expenses, which
are recognized as a reduction to sales, at the time of sale to the dealer or distributor. Examples of sales promotion
and incentive programs include dealer and consumer rebates, volume incentives, retail financing programs and sales
associate incentives. Sales promotion and incentive expenses are estimated based on current programs and
historical rates for each product line. Actual results may differ from these estimates if market conditions dictate
the need to enhance or reduce sales promotion and incentive programs or if the customer usage rate varies from
historical trends. Polaris recorded accrued liabilities of $75,211,000 and $79,233,000 related to various sales
promotions and incentive programs as of December 31, 2008 and 2007, respectively. Historically, sales promotion
and incentive expenses have been within the Company’s expectations and differences have not been material.
Dealer holdback programs: Polaris provides dealer incentive programs whereby at the time of shipment
Polaris withholds an amount from the dealer until ultimate retail sale of the product. Polaris records these amounts
as a reduction of revenue and a liability on the consolidated balance sheet until they are ultimately paid. Payments
are generally made to dealers twice each year, in the first quarter and the third quarter, subject to previously
established criteria. Polaris recorded accrued liabilities of $80,941,000 and $83,867,000 for dealer holdback
programs in the consolidated balance sheets as of December 31, 2008 and 2007, respectively.
Foreign currency translation: The functional currency for the Canada, Australia, France, Great Britain,
Sweden, Norway, Germany, Spain and Austria subsidiaries and the New Zealand branch is their respective local
currencies.
The assets and liabilities in all Polaris foreign entities are translated at the foreign exchange rate in effect at the
balance sheet date. Translation gains and losses are reflected as a component of Accumulated other comprehensive
income (loss) in the shareholders’ equity section of the accompanying consolidated balance sheets. Revenues and
expenses in all of Polaris’ foreign entities are translated at the average foreign exchange rate in effect for each month
of the quarter. The net accumulated other comprehensive income related to translation gains and losses was a net
gain of $3,746,000 at December 31, 2008 and a net gain of $22,167,000 at December 31, 2007.
Revenue recognition: Revenues are recognized at the time of shipment to the dealer or distributor or other
customers. Product returns, whether in the normal course of business or resulting from repossession under its
customer financing program (see Note 3), have not been material. Polaris provides for estimated sales promotion
expenses which are recognized as a reduction of sales when products are sold to the dealer or distributor customer.
Major supplier: During 2008, 2007, and 2006, purchases of engines and related components totaling 5, 6 and
9 percent, respectively, of Polaris’ cost of sales were from a single Japanese supplier. Polaris has agreed with the
supplier to share the impact of fluctuations in the exchange rate between the U.S. dollar and the Japanese yen.
Share-Based Compensation: For purposes of determining estimated fair value of share-based payment awards
on the date of grant under SFAS 123(R), Polaris used the Black-Scholes Model. The Black-Scholes Model requires
the input of certain assumptions that require judgment. Because employee stock options and restricted stock awards
have characteristics significantly different from those of traded options, and because changes in the input
assumptions can materially affect the fair value estimate, the existing models may not provide a reliable single
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POLARIS INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)