Polaris 2015 Annual Report Download - page 42

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Our business may be sensitive to economic conditions that impact consumer spending.
Our results of operations may be sensitive to changes in overall economic conditions, primarily in North
America and Europe, that impact consumer spending, including discretionary spending. Weakening of, and
fluctuations in, economic conditions affecting disposable consumer income such as employment levels, business
conditions, changes in housing market conditions, capital markets, tax rates, savings rates, interest rates, fuel
and energy costs, the impacts of natural disasters and acts of terrorism and other matters, including the
availability of consumer credit could reduce consumer spending or reduce consumer spending on powersports
products. A general reduction in consumer spending or a reduction in consumer spending on powersports
products could adversely affect our sales growth and profitability. In addition, we have a financial services
partnership arrangement with a subsidiary of General Electric Company that requires us to repurchase
products financed and repossessed by the partnership, subject to certain limitations. For calendar year 2015,
our maximum aggregate repurchase obligation was approximately $146.4 million. If adverse changes to
economic conditions result in increased defaults on the loans made by this financial services partnership, our
repurchase obligation under the partnership arrangement could adversely affect our liquidity and harm our
business.
Failure to establish and maintain the appropriate level of dealers and distributor relationships or weak economic
conditions impacting those relationships may negatively impact our business and operating results.
We distribute our products through numerous dealers and distributors and rely on them to retail our products
to the end customers. Our sales growth and profitability could be adversely affected if deterioration of
economic or business conditions results in a weakening of the financial condition of a material number of our
dealers and distributors. Additionally, weak demand for, or quality issues with, our products may cause dealers
and distributors to voluntarily or involuntarily reduce or terminate their relationship with us. Further, if we fail
to establish and maintain an appropriate level of dealers and distributors for each of our products, we may
not obtain adequate market coverage for the desired level of retail sales of our products.
We depend on suppliers, financing sources and other strategic partners who may be sensitive to economic
conditions that could affect their businesses in a manner that adversely affects their relationship with us.
We source component parts and raw materials through numerous suppliers and have relationships with a
limited number of sources of product financing for our dealers and consumers. Our sales growth and
profitability could be adversely affected if deterioration of economic or business conditions results in a
weakening of the financial condition of a material number of our suppliers or financing sources, or if
uncertainty about the economy or the demand for our products causes these business partners to voluntarily
or involuntarily reduce or terminate their relationship with us.
Increases in the cost of raw material, commodity and transportation costs and shortages of certain raw materials
could negatively impact our business.
The primary commodities used in manufacturing our products are aluminum, steel, petroleum-based resins
and certain rare earth metals used in our charging systems, as well as diesel fuel to transport the products.
Our profitability is affected by significant fluctuations in the prices of the raw materials and commodities we
use in our products. We may not be able to pass along any price increases in our raw materials to our
customers. As a result, an increase in the cost of raw materials, commodities, labor or other costs associated
with the manufacturing of our products could increase our costs of sales and reduce our profitability.
Retail credit market deterioration and volatility may restrict the ability of our retail customers to finance the
purchase of our products and adversely affect our income from financial services.
We have arrangements with each of Capital One, Sheffield Financial, Synchrony Bank, Chrome Capital and
FreedomRoad to make retail financing available to consumers who purchase our products in the United
States. During 2015, consumers financed approximately 31 percent of the vehicles we sold in the United States
through the Capital One revolving retail credit and Sheffield Financial, Synchrony Bank, Chrome Capital and
FreedomRoad installment retail credit programs. Furthermore, some customers use financing from lenders
18