Polaris 2014 Annual Report Download - page 95

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, 2014 and 2013 the fair value of
contingent purchase price commitments was $27,908,000 and $18,249,000, respectively, recorded in other
long-term liabilities in the consolidated balance sheets.
Leases. Polaris leases buildings and equipment under non-cancelable operating leases. Total rent expense
under all operating lease agreements was $13,734,000, $10,656,000, and $10,349,000 for 2014, 2013 and 2012,
respectively.
A property lease agreement signed in 2013 for a manufacturing facility which Polaris began occupying in
Opole, Poland commenced in February 2014. The Poland property lease is accounted for as a capital lease.
Future minimum annual lease payments under capital and operating leases with noncancelable terms in excess
of one year as of December 31, 2014, are as follows (in thousands):
Capital Operating
Leases Leases
2015 .......................................... $ 3,915 $ 9,576
2016 .......................................... 3,281 5,098
2017 .......................................... 2,903 3,326
2018 .......................................... 2,403 1,945
2019 .......................................... 2,203 1,173
Thereafter ...................................... 23,639 1,403
Total future minimum lease obligation .................. $38,344 $22,521
Note 11. Derivative Instruments and Hedging Activities
The Company is exposed to certain risks relating to its ongoing business operations. From time to time, the
primary risks managed by using derivative instruments are foreign currency risk, interest rate risk and
commodity price fluctuations. Derivative contracts on various currencies are entered into in order to manage
foreign currency exposures associated with certain product sourcing activities and intercompany cash flows.
Interest rate swaps are entered into 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 U.S. 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
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