Polaris 2010 Annual Report Download - page 31

and any change in the fair value of the contracts would be offset by changes in the underlying value of the
transactions being hedged.
Our business may be sensitive to economic conditions that impact consumer spending.
Our results of operations may be sensitive to changes in overall economic conditions that impact consumer
spending, including discretionary spending. Weakening of, and fluctuations in, economic conditions affecting
disposable consumer income such as employment levels, business conditions, changes in housing market con-
ditions, capital markets, tax rates, savings rates, interest rates, fuel and energy costs, the impacts of natural disasters
and acts of terrorism and other matters including the availability of consumer credit could reduce consumer
spending or reduce consumer spending on powersports products. A general reduction in consumer spending or a
reduction in consumer spending on powersports products could adversely affect our sales growth and profitability.
In addition, we have a financial services partnership arrangement with a subsidiary of General Electric Company
that requires us to repurchase products financed and repossessed by the partnership, subject to certain limitations.
For calendar year 2010, our maximum aggregate repurchase obligation was approximately $81.4 million. If adverse
changes to economic conditions result in increased defaults on the loans made by this financial services partnership,
our repurchase obligation under the partnership arrangement could adversely affect our liquidity and harm our
business.
We depend on dealers, suppliers, financing sources and other strategic partners who may be sensitive to
economic conditions that could affect their businesses in a manner that adversely affects their relationship
with us.
We distribute our products through numerous dealers and distributors, sources component parts and raw
materials through numerous suppliers and have relationships with a limited number of sources of product financing
for our dealers and consumers. Our sales growth and profitability could be adversely affected if a further
deterioration of economic or business conditions results in a weakening of the financial condition of a material
number of our dealers and distributors, suppliers or financing sources or if uncertainty about the economy or the
demand for our products causes these business partners to voluntarily or involuntarily reduce or terminate their
relationship with us.
Retail credit market deterioration and volatility may restrict the ability of our retail customers to finance
the purchase of our products and adversely affect our income from financial services.
We have arrangements with each of HSBC, Sheffield and GE Bank to make retail financing available to
consumers who purchase our products in the United States. During 2010, consumers financed approximately
33 percent of the vehicles we sold in the United States through the HSBC revolving retail credit, and Sheffield and
GE Bank installment retail credit programs. Furthermore, some customers use financing from lenders who do not
partner with us. There can be no assurance that retail financing will continue to be available in the same amounts and
under the same terms that had previously been available to our customers. If retail financing is not available to
customers on satisfactory terms, it is possible that our sales and profitability could be adversely affected. During the
first quarter of 2008, HSBC notified us 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 our customers, reducing the number of qualified retail credit customers who would be able to obtain
credit from HSBC. In order to avoid the potential reduction of revolving retail credit available to our consumers, we
agreed to forgo the receipt of a volume based fee provided for under our agreement with HSBC effective March 1,
2008. We anticipate 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, 2013.
We intend to grow our business through potential acquisitions, alliances and new joint ventures and
partnerships, which could be risky and could harm our business.
One of our growth strategies is to drive growth in our businesses and accelerate opportunities to expand our
global presence through targeted acquisitions, alliances, and new joint ventures and partnerships that add value
while considering our existing brands and product portfolio. The benefits of an acquisition or new joint venture or
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