Polaris 2014 Annual Report Download - page 83

The Director Stock Option Plan, which is frozen and contains no unexercised awards as of December 31,
2014, was used to issue nonqualified stock options to non-employee directors.
Under the Polaris Industries Inc. Deferred Compensation Plan for Directors (‘‘Director Plan’’), members of
the Board of Directors who are not Polaris officers or employees may annually elect to receive common stock
equivalents in lieu of director fees, which will be converted into common stock when board service ends. A
maximum of 500,000 shares of common stock has been authorized under this plan of which 101,000
equivalents have been earned and an additional 381,000 shares have been issued to retired directors as of
December 31, 2014. As of December 31, 2014 and 2013, Polaris’ liability under the plan totaled $15,217,000
and $17,031,000, respectively.
Polaris maintains a long term incentive program under which awards are issued to provide incentives for
certain employees to attain and maintain the highest standards of performance and to attract and retain
employees of outstanding competence and ability with no cash payments required from the recipient. Awards
granted through 2011 were paid in cash and were based on certain Company performance measures that are
measured over a period of three consecutive calendar years. At the beginning of the plan cycle, participants
had the option to receive a cash value at the time of awards or a cash value tied to Polaris stock price
movement over the three year plan cycle. At December 31, 2013, Polaris’ liability under the plan totaled
$57,166,000, and the final cash payout was made in 2014. Beginning in 2012, long term incentive program
awards are granted in restricted stock units and therefore treated as equity awards. All remaining conditions
of the long term incentive program remained the same as prior to 2012.
Share-based compensation expense. The amount of compensation cost for share-based awards to be recognized
during a period is based on the portion of the awards that are ultimately expected to vest. The Company
estimates stock option forfeitures at the time of grant and revises those estimates in subsequent periods if
actual forfeitures differ from those estimates. The Company analyzes historical data to estimate pre-vesting
forfeitures and records share compensation expense for those awards expected to vest.
Total share-based compensation expenses were as follows (in thousands):
For the Years Ended
December 31,
2014 2013 2012
Option plan .................................... $24,428 $22,245 $16,497
Other share-based awards .......................... 26,574 57,640 56,770
Total share-based compensation before tax .............. 51,002 79,885 73,267
Tax benefit ..................................... 19,039 29,835 27,401
Total share-based compensation expense included in net
income ...................................... $31,963 $50,050 $45,866
These share-based compensation expenses are reflected in cost of sales and operating expenses in the
accompanying consolidated statements of income. For purposes of determining the estimated fair value of
option awards on the date of grant under ASC Topic 718, Polaris has used the Black-Scholes option-pricing
model. Assumptions utilized in the model are evaluated and revised, as necessary, to reflect market conditions
and experience.
At December 31, 2014, there was $82,778,000 of total unrecognized share-based compensation expense related
to unvested share-based equity awards. Unrecognized share-based compensation expense is expected to be
recognized over a weighted-average period of 1.50 years. Included in unrecognized share-based compensation
is approximately $36,746,000 related to stock options and $46,032,000 for restricted stock.
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