Polaris 2011 Annual Report Download - page 71

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Shipping and Handling Costs: Polaris records shipping and handling costs as a component of cost of sales at
the time the product is shipped.
Product warranties: Polaris provides a limited warranty for its ORVs for a period of six months and for a
period of one year for its snowmobiles and motorcycles and a two year period for SEVs. Polaris provides longer
warranties in certain geographical markets as determined by local regulations and market conditions and may
provide longer warranties related to certain promotional programs. Polaris’ standard warranties require the
Company or its dealers to repair or replace defective products during such warranty periods at no cost to the
consumer. The warranty reserve is established at the time of sale to the dealer or distributor based on
management’s best estimate using historical rates and trends. Adjustments to the warranty reserve are made from
time to time as actual claims become known in order to properly estimate the amounts necessary to settle future
and existing claims on products sold as of the balance sheet date. Factors that could have an impact on the
warranty accrual in any given year include the following: improved manufacturing quality, shifts in product mix,
changes in warranty coverage periods, snowfall and its impact on snowmobile usage, product recalls and any
significant changes in sales volume.
The activity in the warranty reserve during the years presented is as follows (in thousands):
For the Year Ended December 31,
2011 2010 2009
Balance at beginning of year ..................... $ 32,651 $ 25,520 $ 28,631
Additions to warranty reserve through acquisitions .... 2,727 ——
Additions charged to expense .................... 46,217 43,721 40,977
Warranty claims paid ........................... (37,240) (36,590) (44,088)
Balance at end of year .......................... $ 44,355 $ 32,651 $ 25,520
Sales promotions and incentives: Polaris 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. 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. Polaris recorded accrued liabilities of $81,228,000 and $75,494,000 related to
various sales promotions and incentive programs as of December 31, 2011 and 2010, respectively. Historically,
sales promotion and incentive expenses have been within the Company’s expectations and differences have not
been material.
Dealer holdback programs: Dealer holdback represents a portion of the invoiced sales price that is expected
to be subsequently returned to the dealer or distributor as a sales incentive upon the ultimate retail sale of the
product. Holdback amounts reduce the ultimate net price of the products purchased by our dealers or distributors
and, therefore, reduce the amount of sales we recognize at the time of shipment. The portion of the invoiced sales
price estimated as the holdback is recognized as “dealer holdback” liability on our balance sheet until paid or
forfeited. The minimal holdback adjustments in the estimated holdback liability due to forfeitures are recognized
in net sales. Payments are made to dealers or distributors at various times during the year subject to previously
established criteria. Polaris recorded accrued liabilities of $76,512,000 and $79,688,000, for dealer holdback
programs in the consolidated balance sheets as of December 31, 2011 and 2010, respectively.
Foreign currency translation: The functional currency for each of the Polaris foreign subsidiaries is their
respective local currencies.
The assets and liabilities in all Polaris foreign entities are translated at the foreign exchange rate in effect at
the balance sheet date. Translation gains and losses are reflected as a component of Accumulated other
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