Polaris 2015 Annual Report Download - page 60

The impact from fluctuations in our stock price is recognized in the period of the change, and is reflected in
our gross margin and operating expenses. At December 31, 2015, the accrual for liability-based awards
outstanding was $9.2 million, and is included in accrued compensation in the consolidated balance sheets.
Product warranties. We provide a limited warranty for ORVs for a period of six months, for a period of one
year for our snowmobiles, for a period of one or two years for our motorcycles depending on brand and
model year, and for a two year period for GEM, Goupil and Aixam vehicles. We provide longer warranties in
certain geographical markets as determined by local regulations and market conditions and may provide
longer warranties related to certain promotional programs. Our standard warranties require us or our dealers
to repair or replace defective products during such warranty periods at no cost to the consumers. The
warranty reserve is established at the time of sale to the dealer or distributor based on management’s best
estimate using historical rates and trends. We record these amounts as a liability in the consolidated balance
sheet until they are ultimately paid. At December 31, 2015 and 2014, the accrued warranty liability was
$56.5 million and $53.1 million, respectively. Adjustments to the warranty reserve are made from time to time
based on actual claims experience in order to properly estimate the amounts necessary to settle future and
existing claims on products sold as of the balance sheet date. While management believes that the warranty
reserve is adequate and that the judgment applied is appropriate, such amounts estimated to be due and
payable could differ materially from what will ultimately transpire in the future.
Product liability. We are subject to product liability claims in the normal course of business. In late 2012, we
purchased excess insurance coverage for catastrophic product liability claims for incidents occurring after the
policy date. We self-insure product liability claims up to the purchased catastrophic insurance coverage. The
estimated costs resulting from any uninsured losses are charged to operating expenses when it is probable a
loss has been incurred and the amount of the loss is reasonably determinable. We utilize 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, 2015 and 2014, we had accruals of $19.7 million and $17.3 million,
respectively, for the probable payment of pending claims related to continuing operations product liability
litigation associated with our products. These accruals are included in other accrued expenses in the
consolidated balance sheets. While management believes the product liability reserves are adequate, adverse
determination of material product liability claims made against us could have a material adverse effect on our
financial condition.
New Accounting Pronouncements
See Item 8 of Part II, ‘‘Financial Statements and Supplementary Data—Note 1—Organization and Significant
Accounting Policies—New Accounting Pronouncements.’’
Liquidity and Capital Resources
Our primary source of funds has been cash provided by operating activities. Our primary uses of funds have
been for acquisitions, repurchase and retirement of common stock, capital investment, new product
development and cash dividends to shareholders.
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