Polaris 2010 Annual Report Download - page 44

Reported Net Income
The following table reflects our reported net income for the 2010, 2009 and 2008 periods:
($ in millions) 2010 2009
Change
2010 vs. 2009 2008
Change
2009 vs. 2008
For the Year Ended December 31,
Net Income .............................. $147.1 $101.0 46% $117.4 ⫺14%
Diluted net income per share ................. $ 4.28 $ 3.05 40% $ 3.50 ⫺13%
Weighted Average Shares Outstanding
The weighted average diluted shares outstanding for 2010, 2009 and 2008 were 34.4 million, 33.1 million and
33.6 million shares, respectively. The increase in weighted average diluted shares outstanding for 2010 compared to
2009 is due to no open market share repurchases under our stock repurchase program, the issuance of shares under
employee compensation plans, and the higher dilutive effect of stock options outstanding due to a higher stock price
in 2010. The decrease in the average diluted shares outstanding for 2009 compared to 2008 is due principally to our
share repurchase activity.
Critical Accounting Policies
The significant accounting policies that management believes are the most critical to aid in fully understanding
and evaluating our reported financial results include the following: revenue recognition, sales promotions and
incentives, share-based employee compensation, dealer holdback programs, product warranties and product
liability.
Revenue recognition: Revenues are recognized at the time of shipment to the dealer, distributor or other
customers. Historically, product returns, whether in the normal course of business or resulting from repurchases
made under the floorplan financing program, have not been material. However, we have agreed to repurchase
products repossessed by the finance companies up to certain limits. Our financial exposure is limited to the
difference between the amount paid to the finance companies and the amount received on the resale of the
repossessed product. No material losses have been incurred under these agreements. We have not historically
recorded any significant sales return allowances because it has not been required to repurchase a significant number
of units. However, an adverse change in retail sales could cause this situation to change.
Sales promotions and incentives: We generally provide 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. We record these amounts as a liability in the consolidated
balance sheet until they are ultimately paid. At December 31, 2010 and 2009, accrued sales promotions and
incentives were $75.5 million and $67.1 million, respectively, resulting from an increase in the core ATV and
snowmobile sales promotions and incentives cost environment offset by a reduction in units in dealer inventory
during 2010. 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.
Adjustments to sales promotions and incentives accruals are made from time to time as actual usage becomes
known in order to properly estimate the amounts necessary to generate consumer demand based on market
conditions as of the balance sheet date. Historically, actual sales promotion and incentive expenses have been within
our expectations and differences have not been material.
Share-based employee compensation: We recognize in the financial statements the grant-date fair value of
stock options and other equity-based compensation issued to employees. Determining the appropriate fair-value
model and calculating the fair value of share-based awards at the date of grant requires judgment. The Company
utilizes the Black-Scholes option pricing model to estimate the fair value of employee stock options. Option pricing
models, including the Black-Scholes model, also require the use of input assumptions, including expected volatility,
expected life, expected dividend rate, and expected risk-free rate of return. The Company utilizes historical
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