Polaris 2008 Annual Report Download - page 59

POLARIS INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Organization and Significant Accounting Policies
Polaris Industries Inc. (“Polaris” or the “Company”) a Minnesota corporation, and its subsidiaries, are engaged
in the design, engineering, manufacturing and marketing of innovative, high-quality, high-performance off-road
vehicles (“ORVs”), snowmobiles, and motorcycles. Polaris products, together with related PG&A are sold
worldwide through a network of dealers, distributors and its subsidiaries located in the United States, Canada,
France, Great Britain, Australia, Norway, Sweden, Germany and Spain.
Basis of presentation: The accompanying consolidated financial statements include the accounts of Polaris and
its wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.
Income from financial services is reported as a component of operating income to better reflect income from
ongoing operations of which financial services has a significant impact. Polaris’ share of the income from the KTM
investment is recorded as a component of Income from manufacturing affiliates under the equity method for 2006.
With the sale of a majority of the KTM shares in 2007, the investment in KTM is no longer accounted for under the
equity method. During the first quarter of 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment”
(“SFAS 123(R)”), which requires companies to recognize in the financial statements the fair value of stock options
and other equity-based compensation issued to employees.
On September 2, 2004, the Company announced its decision to discontinue the manufacture of marine
products effective immediately. The marine products division’s financial results are reported separately as
discontinued operations for all periods presented.
The Company evaluates consolidation of entities under Financial Accounting Standards Board (“FASB”)
Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 requires management to
evaluate whether an entity or interest is a variable interest entity and whether the company is the primary
beneficiary. Polaris used the guidelines in FIN 46 to analyze the Company’s relationships, including the relationship
with Polaris Acceptance, and concluded that there are no variable interest entities requiring consolidation by the
Company in 2008, 2007 and 2006.
Fair Value Measurements: In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (SFAS 157). SFAS 157
introduces a framework for measuring fair value and expands required disclosure about fair value measurements
of assets and liabilities. SFAS 157 for financial assets and liabilities is effective for fiscal years beginning after
November 15, 2007, and the Company has adopted the standard for those assets and liabilities as of January 1, 2008
and the impact of adoption was not significant.
SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy
which requires classification based on observable and unobservable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities.
The Company utilizes the market approach to measure fair value for its investment in KTM and the income
approach for the interest rate swap agreements, foreign currency contracts and commodity contracts. The market
approach uses prices and other relevant information generated by market transactions involving identical or
comparable assets or liabilities and for the income approach the Company uses significant other observable inputs
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