Polaris 2013 Annual Report Download - page 58

Net Income, Including Loss From Discontinued Operations:
The following table reflects our reported net income:
For the Years Ended December 31,
Change Change
($ in millions, except per share data) 2013 2012 2013 vs. 2012 2011 2012 vs. 2011
Net income ................................. $377.3 $312.3 21% $227.6 37%
Diluted net income per share .................... $ 5.35 $ 4.40 22% $ 3.20 38%
Net income, including the loss from discontinued operations, increased 21 percent in 2013 compared to 2012.
The 2013 loss from discontinued operations is a result of a 2013 unfavorable jury verdict in a previously
disclosed lawsuit involving a collision between a 2001 Polaris Virage personal watercraft and a boat. The jury
awarded approximately $21.0 million in damages of which our liability was $10.0 million. We reported a loss
from discontinued operations, net of tax, of $3.8 million in 2013 for an additional provision for our portion of
the jury award and legal fees. The liability was fully paid by the end of 2013. There was no income or loss
from discontinued operations in 2012 or 2011. In September 2004, we announced our decision to cease
manufacturing marine products. Since then, any material financial results of that division have been recorded
in discontinued operations. No additional charges are expected from this lawsuit.
Weighted Average Shares Outstanding:
The weighted average diluted shares outstanding for 2013, 2012 and 2011 were 70.5 million, 71.0 million, and
71.1 million shares, respectively. In November 2013, Polaris entered into and executed a Share Repurchase
Agreement with Fuji pursuant to which Polaris purchased 3.96 million shares of Polaris stock held by Fuji.
This buyback more than offset the issuance of shares under employee compensation plans and resulted in a
decrease to the 2013 weighted average diluted shares outstanding; however, as a result of the timing of the
buyback, it will have a more significant impact on our 2014 weighted average diluted shares outstanding. In
2012, the issuance of shares under employee compensation plans offset market share repurchases under our
stock repurchase program, resulting in flat weighted average shares outstanding compared to 2011.
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, dealer holdback programs, product warranties, share-based employee compensation 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 we have not been required to
repurchase a significant number of units. However, an adverse change in retail sales could cause this situation
to change. Polaris sponsors certain sales incentive programs and accrues liabilities for estimated sales
promotion expenses and estimated holdback amounts that are recognized as reductions to sales when products
are sold to the dealer or distributor customer.
Sales promotions and incentives. We 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
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