Polaris 2008 Annual Report Download - page 41

fee income payment to Polaris as of March 1, 2008. Income from financial services decreased four percent in 2007
to $45.3 million compared to $47.1 million in 2006 resulting from lower wholesale income generated from the
combination of Polaris Acceptance and the securitization facility as dealer inventories declined in 2007 compared
to 2006. (See the “Liquidity and Capital Resources” section below for additional details).
Interest expense
Interest expense decreased to $9.6 million in 2008 compared to $15.1 million in 2007. The decrease in interest
expense is due to lower interest rates on the Company’s bank borrowings during the 2008 period. Interest expense
increased to $15.1 million for 2007 compared to $9.8 million in 2006 due to higher debt levels maintained during
2007 related to the accelerated share repurchase transaction completed in December 2006.
Gain on sale of manufacturing affiliate shares
Gain on sale of manufacturing affiliate shares was $0.0 million for 2008, $6.2 million for 2007 and $0.0 for
2006. In the first and second quarters of 2007, Polaris sold shares of its KTM investment and recorded a gain on the
sale of the investment.
Other expense (income), net
Non-operating other expense (income) was $4.0 million of income in 2008 compared to $2.7 million of income
for 2007. The increase in income for 2008 was primarily due to the weakening U.S. dollar and the resulting effects
on Canadian dollar hedging activities and foreign currency transactions related to the foreign subsidiaries. Non-
operating other) expense (income) was income of $2.7 million in 2007 compared to income of $1.9 million in 2006,
primarily due to the weakening of the U.S. dollar and the resulting effects of foreign currency transactions related to
the foreign subsidiaries.
Provision for Income taxes
The Income tax provision for 2008 was recorded at a rate of 33.7 percent of pretax income, similar to the
33.9 percent of pretax income recorded for 2007. The Income tax provision for the full year 2006 was recorded at a
rate of 31.1 percent. The higher income tax provision rate in 2007 is primarily due to the resolution of certain tax
issues in 2007 compared to more favorable tax events in 2006.
Discontinued Operations
The Company ceased manufacturing marine products on September 2, 2004. As a result, the marine products
division’s financial results have been reported separately as discontinued operations for all periods presented. In
2007 the Company substantially completed the exit of the marine products division, therefore for 2008, there were
no additional material charges incurred related to this discontinued operations event and the Company does not
expect any additional material charges in the future. For the year ended December 31, 2007, the loss from
discontinued operations was $0.9 million, after tax, or $0.03 per diluted share. During 2006, the Company recorded
an additional loss on disposal of discontinued operations of $8.1 million before tax, or $5.4 million after tax, or
$0.13 per diluted share. This loss includes the estimated costs required to resolve past and potential future product
liability litigation claims and warranty expenses related to marine products.
Effects of Adoption of New Accounting Standard
Polaris adopted SFAS 123(R) “Accounting for Stock-Based Compensation” effective the beginning of fiscal
year 2006 using the modified retrospective method. In connection with the adoption of this new accounting
standard, Polaris recorded an after tax benefit of $0.4 million or $0.01 per diluted share on its income statement for
the first quarter 2006 resulting from the cumulative effect of the accounting change.
23