Polaris 2013 Annual Report Download - page 39

Item 1A. Risk Factors
The following are significant factors known to us that could materially adversely affect our business, financial
condition, or operating results, as well as adversely affect the value of an investment in our common stock.
Our products are subject to extensive United States federal and state and international safety, environmental and
other government regulation that may require us to incur expenses or modify product offerings in order to
maintain compliance with the actions of regulators and could decrease the demand for our products.
Our products are subject to extensive laws and regulations relating to safety, environmental and other
regulations promulgated by the United States federal government and individual states as well as international
regulatory authorities. Failure to comply with applicable regulations could result in fines, increased expenses to
modify our products and harm to our reputation, all of which could have an adverse effect on our operations.
In addition, future regulations could require additional safety standards or emission reductions that would
require additional expenses and/or modification of product offerings in order to maintain compliance with
applicable regulations. Our products are also subject to laws and regulations that restrict the use or manner of
use during certain hours and locations, and these laws and regulations could decrease the popularity and sales
of our products. We continue to monitor regulatory activities in conjunction with industry associations and
support balanced and appropriate programs that educate the product user on safe use of our products and
how to protect the environment.
A significant adverse determination in any material product liability claim against us could adversely affect our
operating results or financial condition.
The manufacture, sale and usage of our products expose us to significant risks associated with product liability
claims. If our products are defective or used incorrectly by our customers, bodily injury, property damage or
other injury, including death, may result and this could give rise to product liability claims against us or
adversely affect our brand image or reputation. Any losses that we may suffer from any liability claims, and
the effect that any product liability litigation may have upon the reputation and marketability of our products,
may have a negative impact on our business and operating results.
Because of the high cost of product liability insurance premiums and the historically insignificant amount of
product liability claims paid by us, we were self-insured from 1985 to 1996 and from 2002 to 2012. From 1996
to 2002, and beginning again in 2012, we purchased excess insurance coverage for catastrophic product liability
claims for incidents occurring subsequent to the policy date that exceeded our self-insured retention levels.
The estimated costs resulting from any losses are charged to expense when it is probable a loss has been
incurred and the amount of the loss is reasonably determinable.
We had a product liability reserve accrued on our balance sheet of $17.1 million at December 31, 2013 for the
probable payment of pending claims related to product liability litigation associated with our products. We
believe such accrual is adequate. We do not believe the outcome of any pending product liability litigation will
have a material adverse effect on our operations. However, no assurance can be given that our historical
claims record, which did not include ATVs prior to 1985, motorcycles and side-by-side vehicles prior to 1998,
and SVs prior to 2011, will not change or that material product liability claims against us will not be made in
the future. Adverse determination of material product liability claims made against us would have a material
adverse effect on our financial condition.
Significant product repair and/or replacement due to product warranty claims or product recalls could have a
material adverse impact on our results of operations.
We provide a limited warranty for ORVs for a period of six months, for a period of one year for our
snowmobiles and motorcycles and two years for SVs. We may provide longer warranties related to certain
promotional programs, as well as longer warranties in certain geographical markets as determined by local
regulations and market conditions. We also provide a limited emission warranty for certain emission-related
parts in our ORVs, snowmobiles, and motorcycles as required by the EPA and CARB. Although we employ
quality control procedures, sometimes a product is distributed that needs repair or replacement. Our standard
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