Polaris 2013 Annual Report Download - page 92

EPPL is a joint venture established in 2012 with Eicher Motors Limited (Eicher). Polaris and Eicher each
control 50 percent of the joint venture, which is intended to design, develop and manufacture a full range of
new vehicles for India and other emerging markets. The investment in EPPL is accounted for under the
equity method, with Polaris’ proportionate share of income or loss recorded within the consolidated financial
statements on a one month lag due to financial information not being available timely. The overall investment
is expected to be approximately $50,000,000, shared equally with Eicher over a three year period. Through
December 31, 2013, Polaris has invested $9,433,000 in the joint venture. Polaris’ share of EPPL loss for the
years ended December 31, 2013 and 2012 was $2,414,000 and $179,000, respectively, and is included in equity
in loss of other affiliates on the consolidated statements of income.
Polaris will impair or write off an investment and recognize a loss if and when events or circumstances
indicate there is impairment in the investment that is other-than-temporary. At December 31, 2013, Polaris
evaluated the investment in Brammo for impairment utilizing level 3 fair value inputs. It was determined that
our investment in Brammo was other-than-temporarily impaired due to the specific rights within the series of
preferred stock in which Polaris initially invested. As such, Polaris recorded a $5,000,000 expense within ‘‘other
(income), net’’ in the consolidated statements of income, and reduced the related investment. No other
impairments have been recognized on currently held investments.
Note 10. Commitments and Contingencies
Product liability: Polaris is subject to product liability claims in the normal course of business. In 2012, Polaris
purchased excess insurance coverage for catastrophic product liability claims for incidents occurring after the
policy date. Polaris self-insures product liability claims before the policy date and up to the purchased
catastrophic insurance coverage after the policy date. The estimated costs resulting from any losses are
charged to operating expenses when it is probable a loss has been incurred and the amount of the loss is
reasonably determinable. The Company utilizes historical trends and actuarial analysis tools, along with an
analysis of current claims, to assist in determining the appropriate loss reserve levels. At December 31, 2013,
the Company had an accrual of $17,055,000 for the probable payment of pending claims related to continuing
operations product liability litigation associated with Polaris products. This accrual is included as a component
of other accrued expenses in the accompanying consolidated balance sheets.
As previously disclosed, the Company was party to a lawsuit in which the plaintiff was seriously injured in a
2008 accident involving a collision between a 2001 Polaris Virage personal watercraft and a boat. On July 23,
2013, a Los Angeles County jury returned an unfavorable verdict against the Company. The jury returned a
verdict finding that the accident was caused by multiple actions, the majority of which was attributed to the
negligence of the other boat driver, with the balance attributed to the reckless behavior of the driver of the
Virage and the design of the Virage. The jury awarded approximately $21,000,000 in damages, of which
Polaris’ liability was $10,000,000. The Company reported a loss from discontinued operations, net of tax, of
$3,777,000 for an additional provision to accrue Polaris’ portion of the jury award and legal fees. The amount
was fully paid in 2013. In September 2004, the Company announced its decision to cease manufacturing
marine products. Since then, any material financial results of that division have been recorded in discontinued
operations.
Litigation: Polaris is a defendant in lawsuits and subject to other claims arising in the normal course of
business. In the opinion of management, it is unlikely that any legal proceedings pending against or involving
Polaris will have a material adverse effect on Polaris’ financial position or results of operations.
Contingent purchase price: As a component of certain past acquisition agreements, Polaris has committed to
make additional payments to certain sellers contingent upon either the passage of time or certain financial
performance criteria. Polaris initially records the fair value of each commitment as of the respective opening
balance sheet, and each reporting period the fair value is evaluated, using level 3 inputs, with the change in
value reflected in the consolidated statements of income. As of December 31, 2013 and 2012 the fair value of
contingent purchase price commitments was $18,249,000 and $12,701,000, respectively, recorded in other long-
term liabilities in the consolidated balance sheets.
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