Polaris 2008 Annual Report Download - page 29

market conditions resulting in significantly higher proposed premium costs, Polaris again elected not to purchase
insurance for product liability losses. The estimated costs resulting from any losses are charged to expense when it is
probable a loss has been incurred and the amount of the loss is reasonably determinable.
Polaris had a product liability reserve accrual on its balance sheet of $11.1 million at December 31, 2008 for
the possible payment of pending claims related to continuing operations and $1.9 million for discontinued
operations for product liability, regulatory and other legal costs related to marine products. Polaris believes such
accruals are adequate. Polaris does not believe the outcome of any pending product liability litigation will have a
material adverse effect on the operations of Polaris. However, no assurance can be given that its historical claims
record, which did not include ATVs prior to 1985 or motorcycles and side-by-side vehicles prior to 1998, will not
change or that material product liability claims against Polaris will not be made in the future. Adverse determination
of material product liability claims made against Polaris would have a material adverse effect on Polaris’ financial
condition. See Note 8 of Notes to Consolidated Financial Statements.
Significant product repair and/or replacement due to product warranty claims or product recalls could
have a material adverse impact on the results of operations.
Polaris provides a limited warranty for ORVs for a period of six months and for a period of one year for its
snowmobiles and motorcycles. Polaris may provide longer warranties related to certain promotional programs, as
well as longer warranties in certain geographical markets as determined by local regulations and market conditions.
Although Polaris employs quality control procedures, sometimes a product is distributed which needs repair or
replacement. Polaris’ standard warranties require the Company or its dealers to repair or replace defective products
during such warranty periods at no cost to the consumer. Historically, product recalls have been administered
through Polaris’ dealers and distributors and have not had a material effect on Polaris’ business. See Note 1 of Notes
to Consolidated Financial Statements.
Changing weather conditions may reduce demand and negatively impact net sales of certain Polaris
products.
Lack of snowfall in any year in any particular geographic region may adversely affect snowmobile retail sales
and related PG&A sales in that region. Polaris seeks to minimize this potential effect by stressing pre-season sales
(see “Business — Production Scheduling”) and facilitate the transfer of dealer inventories from one location to
another and by balancing production to retail sales and industry conditions. However, there is no assurance that
weather conditions would not have a material effect on Polaris’ sales of ORVs, snowmobiles, motorcycles, or
PG&A.
Polaris faces intense competition in all product lines, including from some competitors that have greater
financial and marketing resources. Failure to compete effectively against competitors would negatively
impact Polaris’ business and operating results.
The snowmobile, ORV and motorcycle markets are highly competitive. Competition in such markets is based
upon a number of factors, including price, quality, reliability, styling, product features and warranties. At the dealer
level, competition is based on a number of factors including sales and marketing support programs (such as
financing and cooperative advertising). Certain Polaris competitors are more diversified and have financial and
marketing resources which are substantially greater than those of Polaris. In addition, Polaris’ products compete
with many other recreational products for the discretionary spending of consumers, and, to a lesser extent, with
other vehicles designed for utility applications. Although Polaris has been able to effectively compete with its
numerous competitors, failure to do so could have a material adverse effect on future business performance.
Termination or interruption of informal supply arrangements could have a material adverse effect on the
Company’s business or results of operations.
Pursuant to informal agreements between Polaris and Fuji in Japan, Fuji was the sole manufacturer of Polaris
two-cycle snowmobile engines from 1968 to 1995. Fuji has manufactured engines for Polaris’ ATV products since
their introduction in the spring of 1985. Such engines are developed by Fuji to the specific requirements of Polaris.
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