Polaris 2015 Annual Report Download - page 58

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Equity in loss of other affiliates. Increased losses at Eicher-Polaris Private Limited (EPPL) were the result of an
increase in the joint venture’s pre-production and operating activities. During 2015, EPPL began production of
the new, jointly-developed Multix↩ personal vehicle, which is specifically designed to satisfy the varied
transportation needs of consumers in India. We have recorded our proportionate 50 percent share of EPPL
losses.
Other expense (income),net. The change primarily relates to foreign currency exchange rate movements and the
corresponding effects on foreign currency transactions and balance sheet positions related to our foreign
subsidiaries from period to period.
Provision for income taxes. The lower income tax rate for 2015 was primarily due to tax benefits recorded
related to research and development credits from the filing of our 2014 federal income tax return and other
amended returns. The favorable impact, net of related tax reserves, totaled approximately $10.0 million. For
2015, 2014 and 2013, the income tax provision was positively impacted by the United States Congress
extending the research and development income tax credit. However, in 2013 the research and development
credit extension was retroactive to 2012, resulting in two years of benefit in 2013. In addition, we also had a
favorable impact in 2013 from the release of certain income tax reserves due to favorable conclusions of
federal income tax audits. The favorable impact from these items totaled $8.2 million and was recorded as a
reduction to income tax expense in the first quarter of 2013.
Net income. The 2013 loss from discontinued operations is a result of a 2013 unfavorable jury verdict in a
previously disclosed lawsuit involving a collision between a 2001 Polaris Virage personal watercraft and a boat.
The jury awarded approximately $21.0 million in damages of which our liability was $10.0 million. We
reported a loss from discontinued operations, net of tax, of $3.8 million in 2013 for an additional provision for
our portion of the jury award and legal fees. The liability was fully paid by the end of 2013. There was no
income or loss from discontinued operations in 2015 or 2014. In September 2004, we announced our decision
to cease manufacturing marine products. Since then, any material financial results of that division have been
recorded in discontinued operations. No additional charges are expected from this lawsuit.
Weighted average shares outstanding. The change in the weighted average diluted shares outstanding from 2014
to 2015 is primarily due to share repurchases under our stock repurchase program. The decrease from 2013 to
2014 in the weighted average diluted shares outstanding is primarily due to the Company’s November 2013
purchase of 3.96 million shares of Polaris stock previously held by FHI Heavy Industries Ltd (‘‘Fuji’’) under a
Share Repurchase Agreement with Fuji. This buyback more than offset the issuance of shares under employee
compensation plans and resulted in a decrease to the 2014, and to a lesser extent due to the timing of the
transaction, the 2013 weighted average diluted shares outstanding.
Critical Accounting Policies
The significant accounting policies that management believes are the most critical to aid in fully understanding
and evaluating our reported financial results include the following: revenue recognition, sales promotions and
incentives, dealer holdback programs, share-based employee compensation, product warranties and product
liability.
Revenue recognition. Revenues are recognized at the time of shipment to the dealer, distributor or other
customers. Historically, product returns, whether in the normal course of business or resulting from
repurchases made under the floorplan financing program, have not been material. However, we have agreed
to repurchase products repossessed by the finance companies up to certain limits. Our financial exposure is
limited to the difference between the amount paid to the finance companies and the amount received on the
resale of the repossessed product. No material losses have been incurred under these agreements. We have
not historically recorded any significant sales return allowances because we have not been required to
repurchase a significant number of units. However, an adverse change in retail sales could cause this situation
to change. Polaris sponsors certain sales incentive programs and accrues liabilities for estimated sales
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