Polaris 2010 Annual Report Download - page 64

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 $75,494,000 and $67,055,000 related to various sales
promotions and incentive programs as of December 31, 2010 and 2009, 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 $79,688,000 and $72,229,000, for dealer holdback
programs in the consolidated balance sheets as of December 31, 2010 and 2009, respectively.
Foreign currency translation: The functional currency for each of the Polaris foreign subsidiaries 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 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 $6,991,000 and $3,861,000 at December 31, 2010 and 2009, respectively.
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 withholds an amount from the dealer for
incentive programs and provides for estimated sales promotion expenses which are recognized as reductions to sales
when products are sold to the dealer or distributor customer.
Share-based employee compensation: For purposes of determining estimated fair value of share-based
payment awards on the date of grant under ASC Topic 718, Polaris uses 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 measure of the fair value of the employee stock options or restricted stock awards. Management will
continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based
compensation. Circumstances may change and additional data may become available over time, which could result
in changes to these assumptions and methodologies and thereby materially impact the fair value determination. If
factors change and the Company employs different assumptions in the application of Topic 718 in future periods,
the compensation expense that was recorded under Topic 718 may differ significantly from what was recorded in
the current period. Refer to Note 2 for additional information regarding share-based compensation.
The Company estimates the likelihood and the rate of achievement for performance sensitive share-based
awards, specifically long-term compensation grants of Long Term Incentive Plan (“LTIP”) and restricted stock.
Changes in the estimated rate of achievement can have a significant effect on reported share-based compensation
expenses as the effect of a change in the estimated achievement level is recognized in the period that the likelihood
factor changes. If adjustments in the estimated rate of achievement are made, they would be reflected in our gross
margin and operating expenses.
Accounting for derivative instruments and hedging activities: ASC Topic 815 requires that changes in the
derivative’s fair value be recognized currently in earnings unless specific hedge criteria are met, and requires that a
company must formally document, designate and assess the effectiveness of transactions that receive hedge
accounting. The net unrealized loss of the derivative instruments of $1,256,000 at December 31, 2010 and the net
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POLARIS INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)