Polaris 2015 Annual Report Download - page 65

Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Inflation, Foreign Exchange Rates, Equity Prices and Interest Rates
The changing relationships of the U.S. dollar to the Japanese yen, the Mexican peso, the Canadian dollar, the
Australian dollar, the Euro, the Swiss franc and other foreign currencies have had a material impact from
time to time. We actively manage our exposure to fluctuating foreign currency exchange rates by entering into
foreign exchange hedging contracts.
Japanese Yen: During 2015, purchases totaling approximately two percent of our cost of sales were from
yen-denominated suppliers. Fluctuations in the yen to U.S. dollar exchange rate primarily impacts cost of sales
and net income.
Mexican Peso: With increased production at our Monterrey, Mexico facility, our costs in the Mexican peso
have continued to increase. We also market and sell to customers in Mexico through a wholly owned
subsidiary. Fluctuations in the peso to U.S. dollar exchange rate primarily impacts sales, cost of sales, and net
income.
Canadian Dollar: We operate in Canada through a wholly owned subsidiary. The relationship of the U.S.
dollar in relation to the Canadian dollar impacts both sales and net income.
Other currencies: We operate in various countries, principally in Europe and Australia, through wholly owned
subsidiaries and also sell to certain distributors in other countries. We also purchase components from certain
suppliers directly for our U.S. operations in transactions denominated in Euros and other foreign currencies.
The relationship of the U.S. dollar in relation to these other currencies impacts each of sales, cost of sales and
net income.
At December 31, 2015, we had the following open foreign currency hedging contracts for 2016, and expect the
following currency impact on net income, after consideration of the existing foreign currency hedging
contracts, when compared to the respective prior year periods:
Foreign currency hedging contracts Currency impact
compared to the
Notional amounts Average prior year period
Currency (in thousands of exchange rate of
Foreign Currency Position U.S. dollars) open contracts 2015 2016
Australian Dollar (AUD) ............. Long $20,336 $0.71 to 1 AUD Negative Negative
Canadian Dollar (CAD) .............. Long 81,747 $0.77 to 1 CAD Negative Negative
Euro ............................ Long — — Negative Negative
Japanese Yen ...................... Short 10,066 120.44 Yen to $1 Positive Positive
Mexican Peso ...................... Short 32,857 16.20 Peso to $1 Positive Positive
Norwegian Kroner .................. Long — — Negative Negative
Swedish Krona ..................... Long — — Negative Negative
Swiss Franc ....................... Short — — Positive Positive
The assets and liabilities in all our 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 (loss), net in the shareholders’ equity section of the accompanying consolidated
balance sheets. Revenues and expenses in all of our foreign entities are translated at the average foreign
exchange rate in effect for each month of the quarter. Certain assets and liabilities related to intercompany
positions reported on our consolidated balance sheet that are denominated in a currency other than the
entity’s functional currency are translated at the foreign exchange rates at the balance sheet date and the
associated gains and losses are included in net income.
We are subject to market risk from fluctuating market prices of certain purchased commodities and raw
materials including steel, aluminum, petroleum-based resins, certain rare earth metals and diesel fuel. In
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