Polaris 2011 Annual Report Download - page 73

Foreign exchange contracts: Polaris enters into foreign exchange contracts to manage currency exposures of
certain of its purchase commitments denominated in foreign currencies and transfers of funds from time to time
from its foreign subsidiaries. Polaris does not use any financial contracts for trading purposes. These contracts
met the criteria for cash flow hedges. Gains and losses on the Canadian dollar, Swedish Krona, and Australian
dollar contracts at settlement are recorded in Non-operating other expense (income). Gains and losses on the
Japanese yen and Euro contracts at settlement are recorded in Cost of sales. Unrealized gains or losses, after tax,
are recorded as a component of Accumulated other comprehensive income in Shareholders’ Equity. The fair
value of the foreign exchange contracts was a net asset of $3,578,000 as of December 31, 2011 and a net liability
of $2,019,000 as of December 31, 2010.
Commodity derivative contracts: Polaris is subject to market risk from fluctuating market prices of certain
purchased commodity raw materials including steel, aluminum, fuel, and petroleum-based resins. In addition, the
Company purchases components and parts containing various commodities, including steel, aluminum, rubber,
rare earth metals and others which are integrated into the Company’s end products. While such materials are
typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. The
Company generally buys these commodities and components based upon market prices that are established with
the vendor as part of the purchase process. From time to time, Polaris utilizes derivative contracts to hedge a
portion of the exposure to commodity risks. During 2011 and 2010, the Company entered into derivative
contracts to hedge a portion of the exposure for diesel fuel and aluminum. These contracts did not meet the
criteria for hedge accounting and the resulting unrealized gains and losses are recorded in the consolidated
statement of income as a component of Cost of sales. The fair value of the commodity derivative contracts was a
net liability of $1,337,000 as of December 31, 2011 and a net asset of $889,000 as of December 31, 2010.
Comprehensive income: Components of comprehensive income include net income, foreign currency
translation adjustments, unrealized gains or losses on derivative instruments, and unrealized gains or losses on
securities held for sale, net of tax. The Company has chosen to disclose comprehensive income in the
accompanying consolidated statements of shareholders’ equity and comprehensive income.
New accounting pronouncements: In June 2011, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) No. 2011-05, “Comprehensive Income (Topic 220): Presentation of
Comprehensive Income”. The ASU amends guidance for the presentation of comprehensive income. The
amended guidance requires an entity to present components of net income and other comprehensive income in
one continuous statement, referred to as the statement of comprehensive income, or in two separate, but
consecutive statements. The current option to report other comprehensive income and its components in the
statement of shareholders’ equity will be eliminated. Although the new guidance changes the presentation of
comprehensive income, there are no changes to the components that are recognized in net income or other
comprehensive income under existing guidance. This ASUs is effective for the Company in the first quarter of
2012 and retrospective application will be required. This ASU will change the Company’s financial statement
presentation of comprehensive income, but will not impact net income, financial position, or cash flows.
In September 2011, the FASB issued ASU 2011-08, “Intangibles–Goodwill and Other (Topic 350): Testing
Goodwill for Impairment”.This standard simplifies how entities test goodwill for impairment by permitting
entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the
two-step goodwill impairment test. The ASU is effective for the Company in the first quarter of 2012. The
Company does not expect adoption to have an impact on its consolidated financial statements.
Note 2. Share-Based Employee Compensation
Share-based plans: Polaris maintains an Omnibus Incentive Plan (“Omnibus Plan”) under which the
Company grants long-term equity-based incentives and rewards for the benefit of its employees, directors and
consultants, which were previously provided under several separate incentive and compensatory plans. Upon
approval by the shareholders of the Omnibus Plan in April 2007, the Polaris Industries Inc. 1995 Stock Option
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