Polaris 2008 Annual Report Download - page 60

to value its derivative instruments used to hedge interest rate volatility, foreign currency and commodity trans-
actions. Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
Total Level 1 Level 2 Level 3
Fair Value Measurements as of
December 31, 2008
Asset (Liability)
Investment in KTM ........................... $12,873 $12,873
Interest rate swap agreements .................... (1,487) $(1,487)
Foreign exchange contracts, net................... — —
Commodity contracts .......................... (554) (554)
Total ...................................... $10,832 $12,873 $(2,041) —
Investment in Manufacturing Affiliates: The investment in KTM was accounted for under the equity method at
December 31, 2006. Polaris sold approximately 80 percent of its investment in KTM shares in the first half of 2007,
and, therefore, the remaining KTM shares have been classified as available for sale under SFAS 115, “Accounting
for Certain Investments in Debt and Equity Securities.” The remaining approximately 345,000 shares, which
represents approximately five percent of KTM’s outstanding shares, have a fair value equal to the trading price of
KTM shares on the Vienna stock exchange. Changes in the trading price of KTM shares and changes in the Euro
foreign currency exchange rate generate unrealized gains or losses which are recorded in Accumulated Other
Comprehensive Income (loss) in the Shareholders’ Equity section in the accompanying consolidated balance
sheets. The total fair value of these securities as of December 31, 2008 is $12,873,000 and unrealized holding losses
of $6,676,000 and unrealized currency translation gains of $1,835,000 relating to these securities are included in the
December 31, 2008 consolidated balance sheet.
Use of estimates: The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Ultimate results could
differ from those estimates.
Cash equivalents: Polaris considers all highly liquid investments purchased with an original maturity of
90 days or less to be cash equivalents and are stated at cost, which approximates fair value. Such investments consist
principally of commercial paper and money market mutual funds.
Allowance for doubtful accounts: Polaris’ financial exposure to collection of accounts receivable is limited due
to its agreements with certain finance companies. For receivables not serviced through these finance companies, the
Company provides a reserve for doubtful accounts based on historical rates and trends. This reserve is adjusted
periodically as information about specific accounts becomes available.
Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. The major
components of inventories are as follows (in thousands):
2008 2007
December 31,
Raw materials and purchased components .......................... $ 18,211 $ 29,952
Service parts, garments and accessories ............................ 72,896 67,463
Finished goods .............................................. 148,421 134,455
Less: reserves ............................................... (17,216) (13,528)
Inventories ................................................. $222,312 $218,342
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POLARIS INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)