Polaris 2010 Annual Report Download - page 67

Under the Restricted Plan, a maximum of 2,350,000 shares of common stock could be awarded as an incentive
to certain employees with no cash payments required from the recipient. The majority of the outstanding awards
contain restrictions which lapse after a two to four year period if Polaris achieves certain performance measures.
Under the Director Stock Option Plan, nonqualified stock options for a maximum of 200,000 shares of
common stock could be issued to non-employee directors. Each non-employee director as of the date of the annual
shareholders meetings through 2006 was granted an option to purchase 4,000 shares of common stock at a price per
share equal to the fair market value as of the date of grant. Options become exercisable as of the date of the next
annual shareholders meeting following the date of grant and must be exercised no later than 10 years from the date
of grant.
Under the Polaris Industries Inc. Deferred Compensation Plan for Directors (“Director Plan”) members of the
Board of Directors who are not Polaris officers or employees receive annual grants of common stock equivalents
and may also elect to receive additional common stock equivalents in lieu of director’s fees, which will be converted
into common stock when board service ends. A maximum of 250,000 shares of common stock has been authorized
under this plan of which 115,249 equivalents have been earned and an additional 100,200 shares have been issued to
retired directors as of December 31, 2010. As of December 31, 2010 and 2009, Polaris’ liability under the plan
totaled $8,992,000 and $5,690,000, respectively.
Polaris maintains a long term incentive plan under which awards are issued to provide incentives for certain
employees to attain and maintain the highest standards of performance and to attract and retain employees of
outstanding competence and ability with no cash payments required from the recipient. The awards are paid in cash
and are based on certain Company performance measures that are measured over a period of three consecutive
calendar years. At the beginning of the plan cycle, participants have the option to receive a cash value at the time of
awards or a cash value tied to Polaris stock price movement over the three year plan cycle. At December 31, 2010
and 2009, Polaris’ liability under the plan totaled $49,745,000 and $4,587,000, respectively.
Share-based compensation expense: The amount of compensation cost for share-based awards to be recog-
nized during a period is based on the portion of the awards that are ultimately expected to vest. The Company
estimates stock option forfeitures at the time of grant and revises those estimates in subsequent periods if actual
forfeitures differ from those estimates. The Company analyzes historical data to estimate pre-vesting forfeitures and
records share compensation expense for those awards expected to vest.
Total share-based compensation expenses were as follows:
(In thousands) 2010 2009 2008
For the Year Ended
December 31,
Option plan ........................................... $ 6,132 $ 4,653 $6,094
Other share-based awards, net ............................. 52,807 12,354 3,810
Total share-based compensation before tax .................... 58,939 17,007 9,904
Tax benefit ........................................... 23,039 6,620 3,854
Total share-based compensation expense included in net income .... $35,900 $10,387 $6,050
These share-based compensation expenses are reflected in Cost of sales and Operating expenses in the
accompanying consolidated statements of income. For purposes of determining the estimated fair value of share-
based payment awards on the date of grant under ASC Topic 718, Polaris has used the Black-Scholes option-pricing
model. Assumptions utilized in the model are evaluated and revised, as necessary, to reflect market conditions and
experience.
At December 31, 2010, there was $18,606,000 of total unrecognized share-based compensation expense
related to unvested share-based awards. Unrecognized share-based compensation expense is expected to be
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POLARIS INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)