Polaris 2008 Annual Report Download - page 42

Reported Net Income
The following table reflects the Company’s reported net income for the 2008, 2007 and 2006 periods:
($ in millions) 2008 2007
Change
2008 vs. 2007 2006
Change
2007 vs. 2006
For the Year Ended December 31,
Net Income .............................. $117.4 $111.7 5% $107.0 4%
Diluted net income per share ................. $ 3.50 $ 3.07 14% $ 2.58 19%
Reported net income for 2008, including each of continuing and discontinued operations was $117.4 million or
$3.50 per diluted share, compared to $111.7 million or $3.07 per diluted share for the same period in 2007. Reported
net income for the full year ended December 31, 2006, including each of continuing and discontinued operations,
the loss on disposal of discontinued operations and the cumulative effect of adopting SFAS 123(R) was
$107.0 million or $2.58 per diluted share.
Weighted Average Shares Outstanding
The weighted average diluted shares outstanding for 2008, 2007 and 2006 were 33.6 million shares,
36.3 million shares and 41.5 million shares, respectively. The decrease in the average diluted shares outstanding
for each of the years is due principally to the share repurchase activity of the Company.
Critical Accounting Policies
The significant accounting policies that management believes are the most critical to aid in fully understanding
and evaluating the Company’s reported financial results include the following: revenue recognition, sales
promotions and incentives, share-based employee compensation, dealer holdback programs, product warranties
and product liability.
Revenue recognition: Revenues are recognized at the time of shipment to the dealer, distributor or other
customers. Historically, product returns, whether in the normal course of business or resulting from repurchases
made under the floorplan financing program have not been material. However, Polaris has agreed to repurchase
products repossessed by the finance companies up to certain limits. Polaris’ financial exposure is limited to the
difference between the amount paid to the finance companies and the amount received on the resale of the
repossessed product. No material losses have been incurred under these agreements. Polaris has not historically
recorded any significant sales return allowances because it has not been required to repurchase a significant number
of units. However, an adverse change in retail sales could cause this situation to change.
Sales promotions and incentives: Polaris generally provides for estimated sales promotion and incentive
expenses, which are recognized as a reduction to sales, at the time of sale to the dealer or distributor. Examples of
sales promotion and incentive programs include dealer and consumer rebates, volume incentives, retail financing
programs and sales associate incentives. Sales promotion and incentive expenses are estimated based on current
programs and historical rates for each product line. Polaris records these amounts as a liability in the consolidated
balance sheet until they are ultimately paid. At December 31, 2008 and 2007, accrued sales promotions and
incentives were $75.2 million and $79.2 million, respectively, reflecting a reduction in units in dealer inventory and
an increase in the core ATVand snowmobile sales promotions and incentives cost environment during 2007. Actual
results may differ from these estimates if market conditions dictate the need to enhance or reduce sales promotion
and incentive programs or if the customer usage rate varies from historical trends. Adjustments to sales promotions
and incentives accruals are made from time to time as actual usage becomes known in order to properly estimate the
amounts necessary to generate consumer demand based on market conditions as of the balance sheet date.
Historically, sales promotion and incentive expenses have been within the Company’s expectations and differences
have not been material.
Share-Based Employee Compensation: In the first quarter 2006 Polaris adopted SFAS 123(R), which
requires companies to recognize in the financial statements the grant-date fair value of stock options and other
equity-based compensation issued to employees. Polaris adopted SFAS 123(R) using the modified retrospective
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