Polaris 2014 Annual Report Download - page 65

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under ASC Topic 860. Polaris Acceptance is not responsible for any continuing servicing costs or obligations
with respect to the Securitized Receivables. The remaining portion of the receivable portfolio is recorded on
Polaris Acceptance’s books, and is funded through a loan from an affiliate of GECDF and through equity
contributions from both partners.
We have not guaranteed the outstanding indebtedness of Polaris Acceptance. In addition, the two partners of
Polaris Acceptance share equally a variable equity cash investment based on the sum of the portfolio balance
in Polaris Acceptance. Our total investment in Polaris Acceptance at December 31, 2014 was $89.1 million.
Substantially all of our U.S. sales are financed through Polaris Acceptance whereby Polaris receives payment
within a few days of shipment of the product. The partnership agreement provides that all income and losses
of Polaris Acceptance are shared 50 percent by our wholly owned subsidiary and 50 percent by GECDF’s
subsidiary. Our exposure to losses associated with respect to the Polaris Acceptance is limited to our equity in
Polaris Acceptance. We have agreed to repurchase products repossessed by Polaris Acceptance up to an
annual maximum of 15 percent of the aggregate average month-end balances outstanding during the prior
calendar year with respect to receivables retained by Polaris Acceptance and the Securitized Receivables. For
calendar year 2015, the potential 15 percent aggregate repurchase obligation is approximately $146.4 million.
Our financial exposure under this arrangement is limited to the difference between the amount paid to the
finance company for repurchases and the amount received on the resale of the repossessed product. No
material losses have been incurred under this agreement. During 2011, Polaris and GECDF amended the
Polaris Acceptance partnership agreement to extend it through February 2017 with similar terms to the
previous agreement.
Our investment in Polaris Acceptance is accounted for under the equity method and is recorded as investment
in finance affiliate in the accompanying consolidated balance sheets. Our allocable share of the income of
Polaris Acceptance has been included as a component of income from financial services in the accompanying
consolidated statements of income. At December 31, 2014, Polaris Acceptance’s wholesale portfolio
receivables from dealers in the United States (including the Securitized Receivables) was $1,141.1 million, a
23 percent increase from $928.5 million at December 31, 2013. Credit losses in the Polaris Acceptance
portfolio have been modest, averaging less than one percent of the portfolio.
We have agreements with Capital One, Sheffield, FreedomRoad, Synchrony Bank, and Chrome under which
these financial institutions provide financing to end consumers of our products. The agreements expire in
October 2015, February 2016, February 2016, April 2016, and January 2018, respectively. The income
generated from these agreements has been included as a component of income from financial services in the
accompanying consolidated statements of income.
During 2014, consumers financed 32 percent of our vehicles sold in the United States through the combined
Capital One revolving retail credit and Sheffield, Synchrony Bank and FreedomRoad installment retail credit
arrangement. The volume of revolving and installment credit contracts written in calendar year 2014 was
$903.7 million, a 16 percent increase from 2013.
We administer and provide extended service contracts to consumers and certain insurance contracts to dealers
and consumers through various third-party suppliers. We do not retain any warranty, insurance or financial
risk under any of these arrangements. The service fee income generated from these arrangements has been
included as a component of income from financial services in the accompanying consolidated statements of
income.
We believe that existing cash balances, cash flow to be generated from operating activities and available
borrowing capacity under the line of credit arrangement will be sufficient to fund operations, new product
development, cash dividends, share repurchases, acquisitions and capital requirements for the foreseeable
future. At this time, we are not aware of any factors that would have a material adverse impact on cash flow.
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