Note 2. Revenue Recognition

The following tables disaggregate the Company’s revenue by major product type and geography (in thousands):



	Three months ended June 30, 2018
	ORV / Snowmobiles		Motorcycles		Global Adj. Markets		Aftermarket		Consolidated
Revenue by product type
Wholegoods	$	820,850	$	146,671	$	93,550	—		$	1,061,071
PG&A	169,991		24,741		19,868		$	226,861	441,461
Total revenue	$	990,841	$	171,412	$	113,418	$	226,861	$	1,502,532

Revenue by geography
United States	$	818,318	$	113,561	$	49,740	$	215,572	$	1,197,191
Canada	68,576		10,769		10,216		11,289		100,850
EMEA	64,632		31,667		52,169		—		148,468
APLA	39,315		15,415		1,293		—		56,023
Total revenue	$	990,841	$	171,412	$	113,418	$	226,861	$	1,502,532



	Six months ended June 30, 2018
	ORV / Snowmobiles		Motorcycles		Global Adj. Markets		Aftermarket		Consolidated
Revenue by product type
Wholegoods	$	1,504,353	$	260,779	$	185,562	—		$	1,950,694
PG&A	319,052		42,190		41,183		$	446,886	849,311
Total revenue	$	1,823,405	$	302,969	$	226,745	$	446,886	$	2,800,005

Revenue by geography
United States	$	1,480,913	$	197,458	$	99,794	$	426,566	$	2,204,731
Canada	126,331		17,709		15,585		20,320		179,945
EMEA	143,561		58,338		109,089		—		310,988
APLA	72,600		29,464		2,277		—		104,341
Total revenue	$	1,823,405	$	302,969	$	226,745	$	446,886	$	2,800,005

Revenue is recognized when obligations under the terms of a contract with the Company’s customer are satisfied which generally occurs with the transfer of control of the wholegood vehicles, parts, garments or accessories, and upon completion of the service or over the term of the agreement in proportion to the costs expected to be incurred in satisfying the obligations under the contract, for services. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Sales, value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The expected costs associated with the Company’s limited warranties and field service bulletin actions continue to be recognized as expense when the products are sold. The Company recognizes revenue for vehicle service contracts that extend mechanical and maintenance beyond the Company’s limited warranties over the life of the contract.

ORV/Snowmobiles, Motorcycles and Global Adjacent Markets segments

Wholegood vehicles and parts, garments and accessories. For the majority of wholegood vehicles, parts, garments and accessories (PG&A), the Company transfers control and recognizes a sale when it ships the product from its manufacturing facility, distribution center, or vehicle holding center to its customer (primarily dealers and distributors). The amount of consideration the Company receives and revenue it recognizes varies with changes in marketing incentives and returns it offers to its dealers and their customers. Sales returns are not material. The Company adjusts its estimate of revenue at the earlier of when the most likely amount of consideration it expects to receive changes or when the consideration becomes fixed.

Depending on the terms of the arrangement, the Company may also defer the recognition of a portion of the consideration received because it has to satisfy a future obligation (e.g., free extended service contracts). The Company uses an observable price to determine the stand-alone selling price for separate performance obligations. The Company has elected to recognize the cost for freight and shipping when control over vehicles, parts, garments or accessories have transferred to the customer as an expense in Cost of sales.

Extended Service Contracts. The Company sells separately-priced service contracts that extend mechanical and maintenance coverages beyond its base limited warranty agreements to vehicle owners. The separately priced service contracts range from 12 months to 84 months. The Company primarily receives payment at the inception of the contract and recognizes revenue over the term of the agreement in proportion to the costs expected to be incurred in satisfying the obligations under the contract.

Aftermarket segment

The Company’s Aftermarket products are sold through dealer, distributor, retail, and e-commerce channels. The Company transfers control and recognizes a sale when products are shipped or delivered to its customer. The amount of consideration the Company receives and revenue it recognizes varies with changes in marketing incentives and return rights it offers to its customers and their customers. When the Company gives its customers the right to return eligible parts and accessories, it estimates the expected returns based on an analysis of historical experience. The Company adjusts its estimate of revenue at the earlier of when the most likely amount of consideration it expects to receive changes or when the consideration becomes fixed.

Service revenue. At the Company’s Transamerican Auto Parts (“TAP”) retail stores (4 Wheel Parts), it offers installation services for parts that the retail store sells. Service revenues are recognized upon completion of the service.

Depending on the terms of the arrangement, the Company may also defer the recognition of a portion of the consideration received because it has to satisfy a future obligation (e.g., extended service contracts). The Company uses an observable price to determine the stand-alone selling price for separate performance obligations. The Company has elected to recognize the cost for freight and shipping when control over parts, garments or accessories have transferred to the customer as an expense in cost of sales.

Deferred revenue

In 2016, Polaris began financing its self-insured risks related to extended service contracts (“ESCs”). The premiums for ESCs are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. Warranty costs are recognized as incurred. Revenues related to sales of its extended warranty program and related accrued costs for claims are deferred and amortized over the warranty period, generally five years, while warranty administrative costs are recognized as incurred. TAP recognizes revenues related to sales of its extended warranty programs for tires and other products over the term of the warranty period, which varies from two to five years.

At January 1, 2018, $45,760,000 of unearned revenue associated with outstanding contracts was reported in other current liabilities and other long-term liabilities. At June 30, 2018, the unearned amount was $52,620,000. The Company expects to recognize approximately $22,265,000 of the unearned amount in 2018 and $30,355,000 thereafter. The activity in the deferred revenue reserve during the periods presented was as follows (in thousands):



	Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017
Balance at beginning of period	$	49,345		$	30,445		$	45,760		$	26,157
New contracts sold	8,848			8,772			17,172			15,114
Less: reductions for revenue recognized	(5,573		)	(3,029		)	(10,312		)	(5,083		)
Balance at end of period (1)	$	52,620		$	36,188		$	52,620		$	36,188

(1) The unamortized ESC premiums (deferred revenue) recorded in other current liabilities totaled $22,265,000 and $14,678,000 at June 30, 2018 and 2017, respectively, while the amount recorded in other long-term liabilities totaled $30,355,000 and $21,510,000 at June 30, 2018 and 2017, respectively.