Polaris 2008 Annual Report Download - page 74

potential reduction of revolving retail credit available to Polaris consumers, Polaris began to forgo the receipt of a
volume based fee provided for under its agreement with HSBC effective March 1, 2008. Additionally, the Company
initiated legal action against HSBC alleging, among other things, breach of contract. The Company and HSBC
reached an amicable settlement in the case and have agreed to dismiss the lawsuit. The settlement will not result in a
financial payment to Polaris. Management currently anticipates that the elimination of the volume based fee will
continue and that HSBC will continue to provide revolving retail credit to qualified customers through the end of the
contract term on October 31, 2010.
In April 2006, a wholly-owned subsidiary of Polaris entered into a multi-year contract with GE Money Bank
(“GE Bank”) under which GE Bank makes available closed-end installment consumer and commercial credit to
customers of Polaris dealers for both Polaris and non-Polaris products. Polaris’ income generated from the GE Bank
agreement has been included as a component of Income from financial services in the accompanying consolidated
statements of income.
Polaris also provides extended service contracts to consumers and certain insurance contracts to dealers and
consumers through various third-party suppliers. Polaris does not retain any warranty, insurance or financial risk in
any of these arrangements. Polaris’ service fee income generated from these arrangements has been included as a
component of Income from financial services in the accompanying consolidated statements of income.
Income from financial services as included in the consolidated statements of income is comprised of the
following (in thousands):
2008 2007 2006
For the Year Ended December 31,
Equity in earnings of Polaris Acceptance .................... $ 4,604 $ 5,269 $15,907
Income from Securitization Facility ........................ 8,620 8,655 1,161
Income from HSBC and GE Bank retail credit agreements ....... 5,703 28,167 27,052
Income from other financial services activities ................ 2,278 3,194 2,941
Total income from financial services ....................... $21,205 $45,285 $47,061
Note 7: Investment in Manufacturing Affiliates
The caption Investments in manufacturing affiliates in the consolidated balance sheets represents Polaris’
equity investment in Robin Manufacturing, U.S.A. (“Robin”), which builds engines in the United States for
recreational and industrial products, and the investment in the Austrian motorcycle company, KTM Power Sports
AG (“KTM”), which manufactures off-road and on-road motorcycles. Polaris has a 40 percent ownership interest in
Robin and as of December 31, 2008 has a five percent ownership interest in KTM. In December 2006 Polaris
entered into a share purchase agreement for the sale by the Company of approximately 1,379,000 KTM shares, or
approximately 80 percent of its investment in KTM, to a subsidiary of Cross. The agreement provided for the sale of
the KTM shares in two stages during the first half of 2007. On June 15, 2007, Polaris completed the second and final
closing of its sale of KTM shares to Cross under the terms of the December 2006 agreement, as supplemented on
February 20, 2007. The proceeds from the sale of the KTM shares totaled $77,086,000 million and generated a
$6,222,000 gain which was recognized in the first half of 2007. Polaris now holds ownership of approximately
345,000 shares, representing slightly less than 5 percent of KTM’s outstanding shares.
Polaris’ investments in manufacturing affiliates, including associated transaction costs, totaled $15,641,000 at
December 31, 2008 and $32,110,000 at December 31, 2007. The investment in Robin is accounted for under the
equity method. With the first closing of the sale of KTM shares in February 2007, the investment in KTM is no
longer accounted for under the equity method. The remaining KTM shares have been classified as available for sale
securities under FASB Statement 115, Accounting for Certain Investments in Debt and Equity Securities
(SFAS 115). The remaining approximately 345,000 KTM shares held by Polaris have a fair value equal to the
trading price of KTM shares on the Vienna stock exchange, (26.50 Euros as of December 31, 2008). The total fair
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POLARIS INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)