Polaris 2011 Annual Report Download - page 57

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In April 2006, a wholly-owned subsidiary of Polaris entered into a multi-year contract with GE Money Bank
(“GE Bank”) under which GE Bank makes available closed-end installment consumer and commercial credit to
customers of our dealers for Polaris products. Our income generated from the GE Bank agreement has been
included as a component of Income from financial services in the accompanying consolidated statements of
income. In November 2010, we extended our installment credit contract to March 2016 under which GE Bank
will provide exclusive installment credit lending for Victory motorcycles only.
In January 2009, a wholly owned subsidiary of Polaris entered into a multi-year contract with Sheffield
Financial (“Sheffield”) pursuant to which Sheffield agreed to make available closed-end installment consumer
credit to customers of our dealers for Polaris products in the United States. Our income generated from the
Sheffield agreement has been included as a component of Income from financial services in the accompanying
consolidated statements of income. In October 2010, we extended our installment credit agreement to February
2016 under which Sheffield will provide exclusive installment credit lending for ORV and Snowmobiles.
During 2011, consumers financed approximately 34 percent of our vehicles sold in the United States
through the combined HSBC revolving retail credit and GE Bank and Sheffield installment retail credit
arrangements, while the volume of revolving and installment credit contracts written in calendar year 2011 was
$643.9 million, a 30 percent increase from 2010.
Improvements in manufacturing capacity and product development during 2011 included $29.7 million of
tooling expenditures for new product development across all product lines. We anticipate that capital
expenditures for 2012, including tooling and research and development equipment will be approximately $85.0
million, similar to the capital expenditures made in 2011.
Management believes that existing cash balances, cash flows to be generated from operating activities and
available borrowing capacity under the existing $350.0 million line of credit arrangement and the new Master
Note Purchase Agreement, will be sufficient to fund operations, regular dividends, share repurchases, and capital
expenditure requirements for 2012. At this time, management is not aware of any factors that would have a
material adverse impact on cash flow beyond 2012.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Inflation, Foreign Exchange Rates, Equity Prices and Interest Rates
Commodity inflation has had an impact on our results of operations in 2011. The changing relationships of
the United States dollar to the Canadian dollar, Euro and Japanese yen have also had a material impact from
time-to-time.
During 2011, purchases totaling six percent of our cost of sales were from Japanese yen denominated
suppliers. The impact of the Japanese yen exchange rate fluctuation on our raw material purchase prices and cost
of sales in 2011 had a negative financial impact when compared to 2010. At December 31, 2011, we had no
Japanese yen foreign exchange hedging contracts in place. We anticipate that the yen-dollar exchange rate
fluctuation will again have a negative impact on cost of sales during 2012 when compared to 2011.
We operate in Canada through a wholly-owned subsidiary. Sales of the Canadian subsidiary comprised
14 percent of our total sales in 2011. From time to time, we utilize foreign exchange hedging contracts to manage
our exposure to the Canadian dollar. The United States dollar weakened overall in relation to the Canadian dollar in
2011, which resulted in a net positive financial impact on our sales and gross margins for the full year 2011 when
compared to 2010. At December 31, 2011, we had open Canadian dollar foreign exchange hedging contracts in
place for approximately 50 percent of our expected exposure through December 31, 2012 with notional amounts
totaling $156.9 million with an average exchange rate of approximately 1.01 United States dollar to Canadian
dollar. In view of the current exchange rates and the foreign exchange hedging contracts currently in place, we
anticipate that the Canadian dollar exchange rate fluctuation will have approximately neutral impact on sales and
gross margins during 2012 when compared to 2011.
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