Polaris 2015 Annual Report Download - page 95

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A property lease agreement signed in 2013 for a manufacturing facility which Polaris began occupying in
Opole, Poland commenced in February 2014. The Poland property lease is accounted for as a capital lease.
Future minimum annual lease payments under capital and operating leases with noncancelable terms in excess
of one year as of December 31, 2015, are as follows (in thousands):
Capital Operating
Leases Leases
2016 .......................................... $ 3,045 $13,736
2017 .......................................... 2,543 8,525
2018 .......................................... 2,070 6,906
2019 .......................................... 1,886 5,053
2020 .......................................... 1,796 3,229
Thereafter ...................................... 15,545 1,928
Total future minimum lease obligation .................. $26,885 $39,377
Note 11. Derivative Instruments and Hedging Activities
The Company is exposed to certain risks relating to its ongoing business operations. From time to time, the
primary risks managed by using derivative instruments are foreign currency risk, interest rate risk and
commodity price fluctuations. Derivative contracts on various currencies are entered into in order to manage
foreign currency exposures associated with certain product sourcing activities and intercompany cash flows.
Interest rate swaps are entered into in order to maintain a balanced risk of fixed and floating interest rates
associated with the Company’s long-term debt. Commodity hedging contracts are entered into in order to
manage fluctuating market prices of certain purchased commodities and raw materials that are integrated into
the Company’s end products.
The Company’s foreign currency management objective is to mitigate the potential impact of currency
fluctuations on the value of its U.S. dollar cash flows and to reduce the variability of certain cash flows at the
subsidiary level. The Company actively manages certain forecasted foreign currency exposures and uses a
centralized currency management operation to take advantage of potential opportunities to naturally offset
foreign currency exposures against each other. The decision of whether and when to execute derivative
instruments, along with the duration of the instrument, can vary from period to period depending on market
conditions, the relative costs of the instruments and capacity to hedge. The duration is linked to the timing of
the underlying exposure, with the connection between the two being regularly monitored. Polaris does not use
any financial contracts for trading purposes.
At December 31, 2015, Polaris had the following open foreign currency contracts (in thousands):
Notional Amounts
Foreign Currency (in U.S. dollars) Net Unrealized Gain (Loss)
Australian Dollar ................. $ 20,336 $ (69)
Canadian Dollar .................. 81,747 5,062
Japanese Yen .................... 10,066 110
Mexican Peso .................... 32,857 (2,336)
Total .......................... $145,006 $ 2,767
These contracts, with maturities through December 31, 2016, met the criteria for cash flow hedges and the
unrealized gains or losses, after tax, are recorded as a component of accumulated other comprehensive loss in
shareholders’ equity.
Polaris enters into derivative contracts to hedge a portion of the exposure related to diesel fuel and aluminum.
These diesel fuel and aluminum derivative contracts have not met the criteria for hedge accounting.
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