Polaris 2010 Annual Report Download - page 51

which was included in the consolidated statements of income as a component of cost of sales. We also have
aluminum hedging contracts in place to hedge approximately 13 percent of our expected exposure for 2011. These
aluminum contracts did not meet the criteria for hedge accounting and the resulting unrealized gain as of
December 31, 2010 was $0.6 million pretax, which was included in the consolidated statements of income as
a component of cost of sales.
We are a party to a credit agreement with various lenders consisting of a $250 million revolving loan facility
and a $200 million term loan. Interest accrues on both the revolving loan and the term loan at variable rates based on
LIBOR or “prime” plus the applicable add-on percentage as defined. Additionally, as of December 31, 2010, we
were a party to two interest rate swap agreements that lock in a fixed Libor interest rate on a total of $50.0 million of
borrowings. We are exposed to interest rate changes on any borrowings during the year in excess of $50.0 million.
Based upon the average outstanding borrowings of $200.0 million during 2010, the 0.65 percent interest rate
charged to us at December 31, 2010 and the interest rate swap agreements, a one-percent increase in interest rates
would have had an approximately $1.5 million impact on interest expense in 2010 and a 0.65 percent decrease in
interest rates would have had an approximately $1.0 million impact on interest expense in 2010.
We have been manufacturing our own engines for selected models of snowmobiles since 1995, motorcycles
since 1998 and ORVs since 2001 at our Osceola, Wisconsin facility. Also, in 1995, we entered into an agreement
with Fuji to form Robin. Under the terms of the agreement, we have a 40 percent ownership interest in Robin, which
builds engines in the United States for recreational and industrial products. Potential advantages to Polaris of having
these additional sources of engines include reduced foreign exchange risk, lower shipping costs and less depen-
dence in the future on a single supplier for engines. Fuji and Polaris have agreed to close the Robin facility by mid-
2011 as the production volume of engines produced at the facility has declined significantly in recent years.
Subsequent to the closing of the Robin facility, Fuji will support the production of the Polaris engines from its
facility in Japan.
In the third quarter of 2010, we sold our remaining equity investment in KTM for $9.6 million and recorded a
net gain on securities available for sale of $1.6 million. Prior to the sale of the KTM investment, we owned less than
5 percent of KTM’s outstanding shares. The KTM investment, prior to the sale, had been classified as available for
sale securities under ASC Topic 320. During the second quarter 2010, we determined that the decline in the fair
value of the KTM shares owned by us as of June 30, 2010 was other than temporary and therefore recorded in the
statement of income a non-cash impairment charge on securities held for sale of $0.8 million. During the first
quarter 2009, we determined that the decline in the fair value of the KTM shares owned by us as of March 31, 2009
was other than temporary and therefore recorded in the income statement a non-cash impairment charge on
securities held for sale of $9.0 million.
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