Polaris 2015 Annual Report Download - page 94

Brammo is a privately held designer and developer of electric vehicles, which Polaris has invested in since
2011. The investment in Brammo is accounted for under the cost method. Brammo is in the early stages of
designing, developing, and selling electric vehicle powertrains. As such, a risk exists that Brammo may not be
able to secure sufficient financing to reach viability through cash flow from operations. In January 2015,
Polaris acquired the electric motorcycle business from Brammo. Brammo will continue to be a designer and
developer of electric vehicle powertrains.
Polaris will impair or write off an investment and recognize a loss if and when events or circumstances
indicate there is impairment in the investment that is other-than-temporary. When necessary, Polaris evaluates
investments in nonmarketable securities for impairment, utilizing level 3 fair value inputs. During 2014, Polaris
recorded an immaterial impairment expense within other expense (income), net in the consolidated statements
of income, and reduced the Brammo investment. There were no impairments recorded during 2015 related to
these investments.
Note 10. Commitments and Contingencies
Product liability. Polaris is subject to product liability claims in the normal course of business. In 2012, Polaris
purchased excess insurance coverage for catastrophic product liability claims for incidents occurring after the
policy date. Polaris self-insures product liability claims before the policy date and up to the purchased
catastrophic insurance coverage after the policy date. The estimated costs resulting from any losses are
charged to operating expenses when it is probable a loss has been incurred and the amount of the loss is
reasonably determinable. The Company utilizes historical trends and actuarial analysis tools, along with an
analysis of current claims, to assist in determining the appropriate loss reserve levels. At December 31, 2015,
the Company had an accrual of $19,725,000 for the probable payment of pending claims related to continuing
operations product liability litigation associated with Polaris products. This accrual is included as a component
of other accrued expenses in the accompanying consolidated balance sheets.
As previously disclosed, the Company was party to a lawsuit in which the plaintiff was seriously injured in a
2008 accident involving a collision between a 2001 Polaris Virage personal watercraft and a boat. On July 23,
2013, a Los Angeles County jury returned an unfavorable verdict against the Company. The jury returned a
verdict finding that the accident was caused by multiple actions, the majority of which was attributed to the
negligence of the other boat driver, with the balance attributed to the reckless behavior of the driver of the
Virage and the design of the Virage. The jury awarded approximately $21,000,000 in damages, of which
Polaris’ liability was $10,000,000. In the third quarter of 2013, the Company reported a loss from discontinued
operations, net of tax, of $3,777,000 for an additional provision to accrue Polaris’ portion of the jury award
and legal fees. The amount was fully paid in 2013. In September 2004, the Company announced its decision to
cease manufacturing marine products. Since then, any material financial results of that division have been
recorded in discontinued operations.
Litigation. Polaris is a defendant in lawsuits and subject to other claims arising in the normal course of
business. In the opinion of management, it is unlikely that any legal proceedings pending against or involving
Polaris will have a material adverse effect on Polaris’ financial position or results of operations.
Contingent purchase price. As a component of certain past acquisition agreements, Polaris has committed to
make additional payments to certain sellers contingent upon either the passage of time or certain financial
performance criteria. Polaris initially records the fair value of each commitment as of the respective opening
balance sheet, and each reporting period the fair value is evaluated, using level 3 inputs, with the change in
value reflected in the consolidated statements of income. As of December 31, 2015 and 2014 the fair value of
contingent purchase price commitments was $2,222,000 and $27,908,000, respectively, with the current year
decrease related to payments made in 2015.
Leases. Polaris leases buildings and equipment under non-cancelable operating leases. Total rent expense
under all operating lease agreements was $16,823,000, $13,734,000 and $10,656,000 for 2015, 2014 and 2013,
respectively.
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