Polaris 2010 Annual Report Download - page 74

Note 6: Financial Services Arrangements
In 1996, one of Polaris’ wholly-owned subsidiaries entered into a partnership agreement with a subsidiary of
Transamerica Distribution Finance (“TDF”) to form Polaris Acceptance. In 2004, TDF was merged with a
subsidiary of General Electric Company and, as a result of that merger, TDF’s name was changed to GECDF.
Polaris’ subsidiary has a 50 percent equity interest in Polaris Acceptance. In November 2006, Polaris Acceptance
sold a majority of its receivable portfolio to the securitization facility arranged by General Electric Capital
Corporation, a GECDF affiliate (“Securitization Facility”), and the partnership agreement was amended to provide
that Polaris Acceptance would continue to sell portions of its receivable portfolio to a Securitization Facility from
time to time on an ongoing basis. At December 31, 2010 and 2009, the outstanding balance of receivables sold by
Polaris Acceptance to the Securitization Facility (the “Securitized Receivables”) amounted to approximately
$323,790,000 and $387,503,000, respectively. The sale of receivables from Polaris Acceptance to the Securitization
Facility is accounted for in Polaris Acceptance’s financial statements as a “true-sale” under ASC Topic 860. Polaris
Acceptance is not responsible for any continuing servicing costs or obligations with respect to the Securitized
Receivables. Polaris’ subsidiary and GECDF have an income sharing arrangement related to income generated from
the Securitization Facility. The remaining portion of the receivable portfolio is recorded on Polaris Acceptance’s
books, and is funded to the extent of 85 percent through a loan from an affiliate of GECDF. Polaris has not
guaranteed the outstanding indebtedness of Polaris Acceptance or the Securitized Receivables. In addition, the two
partners of Polaris Acceptance share equally an equity cash investment equal to 15 percent of the sum of the
portfolio balance in Polaris Acceptance plus the Securitized Receivables. Polaris’ total investment in Polaris
Acceptance at December 31, 2010 and 2009, was $37,169,000 and $41,332,000, respectively. The Polaris
Acceptance partnership agreement provides for periodic options for renewal, purchase, or termination by either
party. Substantially all of Polaris’ United States sales are financed through Polaris Acceptance and the Securi-
tization Facility whereby Polaris receives payment within a few days of shipment of the product. The net amount
financed for dealers under this arrangement at December 31, 2010, including both the portfolio balance in Polaris
Acceptance and the Securitized Receivables, was $497,830,000. Polaris has agreed to repurchase products
repossessed by Polaris Acceptance up to an annual maximum of 15 percent of the average month-end balances
outstanding during the prior calendar year. For calendar year 2010, the potential 15 percent aggregate repurchase
obligation was approximately $81,443,000. Polaris’ financial exposure under this arrangement is limited to the
difference between the amounts unpaid by the dealer with respect to the repossessed product plus costs of
repossession and the amount received on the resale of the repossessed product. No material losses have been
incurred under this agreement during the periods presented. Polaris’ trade receivables from Polaris Acceptance
were $29,000 and $1,837,000 at December 31, 2010 and 2009, respectively. Polaris’ exposure to losses with respect
to the Polaris Acceptance Portfolio and the Securitized Receivables is limited to its equity in its wholly-owned
subsidiary that is a partner in Polaris Acceptance.
Polaris’ total investment in Polaris Acceptance at December 31, 2010 of $37,169,000 is accounted for under
the equity method, and is recorded as Investments in finance affiliate in the accompanying consolidated balance
sheets. The partnership agreement provides that all income and losses of the Polaris Acceptance and the Securitized
Receivables are shared 50 percent by Polaris’ wholly-owned subsidiary and 50 percent by GECDF. Polaris’
allocable share of the income of Polaris Acceptance and the Securitized Facility has been included as a component
of Income from financial services in the accompanying statements of income.
Summarized financial information for Polaris Acceptance reflecting the effects of the Securitization Facility is
presented as follows (in thousands):
2010 2009 2008
For the Year Ended December 31,
Revenues............................................ $12,459 $12,559 $12,484
Interest and operating expenses ........................... 3,311 4,517 3,276
Net income . . . ....................................... $ 9,148 $ 8,042 $ 9,208
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POLARIS INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)