Polaris 2011 Annual Report Download - page 56

balances outstanding during the prior calendar year. Our financial exposure under these agreements is limited to
the difference between the amounts unpaid by the dealer with respect to the repossessed product plus costs of
repossession and the amount received on the resale of the repossessed product. No material losses have been
incurred under these agreements. However, an adverse change in retail sales could cause this situation to change
and thereby require us to repurchase repossessed units subject to the annual limitation referred to above.
In 1996, one of our wholly-owned subsidiaries entered into a partnership agreement with a subsidiary of
TDF to form Polaris Acceptance. In 2004, TDF was merged with a subsidiary of GE and, as a result of that
merger, TDF’s name was changed to GECDF. Polaris Acceptance provides floor plan financing to our dealers in
the United States. Our subsidiary has a 50 percent equity interest in Polaris Acceptance. In November 2006,
Polaris Acceptance sold a majority of its receivable portfolio to a Securitization Facility, and the partnership
agreement was amended to provide that Polaris Acceptance would continue to sell portions of its receivable
portfolio to the Securitization Facility from time to time on an ongoing basis. At December 31, 2011 and 2010,
the outstanding balance of receivables sold by Polaris Acceptance to the Securitization Facility (the “Securitized
Receivables”) amounted to approximately $477.6 million and $323.8 million, respectively. The sale of
receivables from Polaris Acceptance to the Securitization Facility is accounted for in Polaris Acceptance’s
financial statements as a “true-sale” under ASC Topic 860, (originally issued as SFAS No. 140: “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”). Polaris Acceptance is not
responsible for any continuing servicing costs or obligations with respect to the Securitized Receivables. We
have not guaranteed the outstanding indebtedness of Polaris Acceptance or the Securitized Receivables. The
remaining portion of the receivable portfolio is recorded on Polaris Acceptance’s books. The two partners of
Polaris Acceptance share equally an equity cash investment equal to 15 percent of the sum of the portfolio
balance in Polaris Acceptance plus Securitized Receivables. Our total investment in Polaris Acceptance at
December 31, 2011 and 2010 was $42.3 million and $37.2 million, respectively. The Polaris Acceptance
partnership agreement provides for periodic options for renewal, purchase or termination by either party.
Substantially all of our United States sales are financed through Polaris Acceptance and the Securitization
Facility whereby we receive payment within a few days of shipment of the product. The partnership agreement
provides that all income and losses of the Polaris Acceptance portfolio and income and losses realized by
GECDF’s affiliates with respect to the Securitized Receivables are shared 50 percent by our wholly-owned
subsidiary and 50 percent by GECDF. Our exposure to losses associated with respect to the Polaris Acceptance
Portfolio and the Securitized Receivables is limited to its equity in its wholly-owned subsidiary that is a partner
in Polaris Acceptance.
Our investment in Polaris Acceptance is accounted for under the equity method, and is recorded as Investments
in finance affiliate in the consolidated balance sheets. Our allocable share of the income of Polaris Acceptance and
the Securitized Receivables has been included as a component of Income from financial services in the consolidated
statements of Income. At December 31, 2011, Polaris Acceptance’s wholesale portfolio receivables from dealers in
the United States (excluding the Securitized Receivables) was $90.8 million, a 48 percent decrease from
$174.0 million at December 31, 2010 as more receivables have been securitized. Including the Securitized
Receivables, the wholesale receivables from dealers in the United States at December 31, 2011 was $568.4 million,
a 14 percent increase from $497.8 million at December 31, 2010. Credit losses in the Polaris Acceptance portfolio
have been modest, averaging less than one percent of the portfolio over the life of the partnership.
In August 2005, a wholly-owned subsidiary of Polaris entered into a multi-year contract with HSBC, under
which HSBC manages the Polaris private label credit card program under the StarCard label for the financing of
Polaris products by consumers. During 2010 Polaris and HSBC extended the term of the agreement to October
2013. During 2011 it was announced that HSBC’s U.S. Credit Card and Retail Services business would be
acquired by Capital One, subject to regulatory approval. The transaction is expected to close in the second
quarter of 2012. At this time we do not expect any change in the contractual terms governing our StarCard
program as a result of the sale, other than an assignment to Capital One. Our income generated from the HSBC
agreement has been included as a component of Income from financial services in the accompanying
consolidated statements of income.
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