Polaris 2011 Annual Report Download - page 86

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Future minimum annual lease payments under capital and operating leases with non-cancelable terms in
excess of one year as of December 31, 2011, including payments for the Monterrey, Mexico facility operating
lease were as follows (in thousands):
Lease Obligations
Capital
Leases
Operating
Leases
2012 ............................................ $2,653 $ 7,184
2013 ............................................ 2,190 5,845
2014 ............................................ 1,444 4,857
2015 ............................................ 701 3,899
2016 ............................................ 222 3,460
Thereafter ........................................ 43 11,644
Total future minimum lease obligation ................. $7,253 $36,889
Note 10. Derivative Instruments and Hedging Activities
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks
managed by using derivative instruments are foreign currency risk, interest rate risk and commodity price
fluctuations. Forward exchange contracts on various currencies are entered into in order to manage foreign
currency exposures associated with certain product sourcing activities and intercompany sales. Interest rate
swaps are entered into from time to time in order to manage interest rate risk associated with the Company’s
variable-rate borrowings. Commodity hedging contracts are entered into in order to manage fluctuating market
prices of certain purchased commodities and raw materials that are integrated into the Company’s end products.
The Company’s foreign currency management objective is to mitigate the potential impact of currency
fluctuations on the value of its United States dollar cash flows and to reduce the variability of certain cash flows
at the subsidiary level. The Company actively manages certain forecasted foreign currency exposures and uses a
centralized currency management operation to take advantage of potential opportunities to naturally offset
foreign currency exposures against each other. The decision of whether and when to execute derivative
instruments, along with the duration of the instrument, can vary from period to period depending on market
conditions, the relative costs of the instruments and capacity to hedge. The duration is linked to the timing of the
underlying exposure, with the connection between the two being regularly monitored. Polaris does not use any
financial contracts for trading purposes. At December 31, 2011, Polaris had open Canadian Dollar contracts with
notional amounts totaling United States $156,941,000 and a net unrealized gain of $3,601,000, open contracts to
purchase Euros with notional amounts totaling United States $22,948,000 and an unrealized loss of $819,000,
open Swedish Krona contracts with notional amounts totaling United States $6,442,000 and an unrealized gain of
$437,000, and open Australian Dollar contracts with notional amounts totaling United States $10,243,000 and a
net unrealized gain of $359,000. These contracts have maturities through December 2012. The Company had no
open Yen foreign currency derivative contracts in place at December 31, 2011.
Polaris has entered into derivative contracts to hedge a portion of the exposure for gallons of diesel fuel for
2012 and metric tons of aluminum for 2012. These diesel fuel and aluminum derivative contracts did not meet
the criteria for hedge accounting.
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