Polaris 2008 Annual Report Download - page 30

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Polaris believes its relationship with Fuji to be excellent. If the relationship was terminated by Fuji, Polaris could
experience an interruption in the supply of engines that would adversely affect Polaris’ production pending the
establishment of substitute supply arrangements. Polaris continues to develop additional sources for engines to
reduce the risk of dependence on a single supplier and to minimize the effect of fluctuations in the Japanese yen.
Polaris anticipates no significant difficulties in obtaining substitute supply arrangements for other raw materials or
components for which it relies upon limited sources of supply. There can be no assurance that alternate supply
arrangements will be made on satisfactory terms.
Fluctuations in foreign currency exchange rates could result in declines in Polaris’ reported sales and
net earnings.
The changing relationships of primarily the U.S. dollar to the Canadian dollar, the Euro and the Japanese yen
have from time to time had a negative impact on results of operations. While Polaris actively manages the exposure
to fluctuating foreign currency exchange rates by entering into foreign exchange hedging contracts from time to
time, these contracts hedge foreign currency denominated transactions and any change in the fair value of the
contracts would be offset by changes in the underlying value of the transactions being hedged.
Polaris’ business may be sensitive to economic conditions that impact consumer spending.
Polaris’ results of operations may be sensitive to changes in overall economic conditions that impact consumer
spending, including discretionary spending. Future weakening of 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 Polaris’ sales growth and profitability.
Polaris depends on dealers, 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 the
relationship with Polaris.
The Company distributes its products through numerous dealers and distributors, sources component parts and
raw materials through numerous suppliers and has relationships with a limited number of sources of product
financing for its dealers and consumers. The Company’s sales growth and profitability could be adversely affected if
a further deterioration of economic or business conditions results in a weakening of the financial condition of a
material number of the Company’s dealers and distributors, suppliers or financing sources or if uncertainty about
the economy or the demand for the Company’s products causes these business partners to voluntarily or
involuntarily reduce or terminate their relationship with the Company.
Retail credit market deterioration and volatility may restrict the ability of Polaris’ retail customers to
finance the purchase of Polaris products and adversely affect Polaris’ income from financial services.
The Company has arrangements with each of HSBC and GE Bank to make retail financing available to
consumers who purchase Polaris products in the United States. During 2008 consumers financed approximately
39 percent of the Polaris vehicles sold in the United States through the HSBC revolving retail credit and GE Bank
installment retail credit programs. There can be no assurance that retail financing will continue to be available in the
same amounts and under the same terms that had previously been available to Polaris customers. HSBC ceased
financing non-Polaris products under its arrangement with Polaris effective July 1, 2007 resulting in a significant
decline in the income from financial services reported by Polaris in the second half of 2007. During the first quarter
of 2008, HSBC notified the Company that the profitability to HSBC of the 2005 contractual arrangement was
unacceptable and, absent some modification of that arrangement, HSBC might significantly tighten its underwriting
standards for Polaris customers, reducing the number of qualified retail credit customers who would be able to
obtain credit from HSBC. In order to avoid the potential reduction of revolving retail credit available to Polaris
consumers, Polaris agreed to forgo the receipt of a volume based fee provided for under its agreement with HSBC
effective March 1, 2008. Management anticipates that the elimination of the volume based fee will continue and that
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