Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2022

Basis of presentation. The accompanying unaudited consolidated financial statements of Polaris Inc. (“Polaris” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and, therefore, do not include all information and disclosures of results of operations, financial position, and changes in cash flow in conformity with accounting principles generally accepted in the United States for complete financial statements. Accordingly, such statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 previously filed with the Securities and Exchange Commission (“SEC”). In the opinion of management, such statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, equity, and cash flows for the periods presented. Due to the seasonality trends for certain products and to certain changes in production and shipping cycles, results of such periods are not necessarily indicative of the results to be expected for the complete year.

Reclassifications. Reclassifications of certain prior year segment results and account balances have been made to conform to the current-year presentation. The reclassifications had no impact on the consolidated balance sheets, statements of income (loss), comprehensive income (loss), equity, or cash flows, as previously reported. See further information in Note 12.

On July 1, 2022, the Company completed the sale of its Transamerican Auto Parts (“TAP”) business. The operating results of the TAP business are reported in Income (loss) from discontinued operations, net of tax, in the Consolidated statements of income (loss) for all periods presented. In addition, the related assets and liabilities are reported as assets and liabilities held for sale in the consolidated balance sheets. All amounts and disclosures included in the Notes to consolidated financial statements reflect only the Company's continuing operations unless otherwise noted. See further information in Note 4.

Fair value measurements

Fair value measurements. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In making fair value measurements, observable market data must be used when available. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. The Company utilizes the market approach to measure fair value for its non-qualified deferred compensation assets and liabilities, and the income approach for foreign currency contracts and interest rate contracts. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities, and for the income approach, the Company uses significant other observable inputs to value its derivative instruments used to hedge foreign currency and interest rate transactions.

Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions):


	Fair Value Measurements as of June 30, 2022
Asset (Liability)	Total		Level 1		Level 2		Level 3
Non-qualified deferred compensation assets	$	45.4	$	45.4	$	—	$	—
Foreign exchange contracts, net	8.2		—		8.2		—
Interest rate contracts, net	5.4		—		5.4		—
Total assets at fair value	$	59.0	$	45.4	$	13.6	$	—
Non-qualified deferred compensation liabilities	$	(45.4)	$	(45.4)	$	—	$	—


Total liabilities at fair value	$	(45.4)	$	(45.4)	$	—	$	—

	Fair Value Measurements as of December 31, 2021
Asset (Liability)	Total		Level 1		Level 2		Level 3
Non-qualified deferred compensation assets	$	52.4	$	52.4	$	—	$	—
Foreign exchange contracts, net	2.1		—		2.1		—
Total assets at fair value	$	54.5	$	52.4	$	2.1	$	—
Non-qualified deferred compensation liabilities	$	(52.4)	$	(52.4)	$	—	$	—

Interest rate contracts, net	(7.8)		—		(7.8)		—
Total liabilities at fair value	$	(60.2)	$	(52.4)	$	(7.8)	$	—

Fair value of other financial instruments. The carrying values of the Company’s short-term financial instruments, including cash and cash equivalents, trade receivables and short-term debt, including current maturities of long-term debt, finance lease obligations and notes payable, approximate their fair values. As of June 30, 2022 and December 31, 2021, the fair value of the Company’s long-term debt, finance lease obligations and notes payable was approximately $2,047.4 million and $1,870.0 million, respectively, and was determined primarily using Level 2 inputs, including quoted market prices or discounted cash flows based on quoted market rates for similar types of debt. The carrying value of long-term debt, finance lease obligations and notes payable including current maturities was $2,016.8 million and $1,800.7 million as of June 30, 2022 and December 31, 2021, respectively.

Property and equipment

Property and equipment. Depreciation expense was $52.3 million and $45.6 million for the three months ended June 30, 2022 and 2021, respectively, and $103.9 million and $92.4 million for the six months ended June 30, 2022 and 2021, respectively. Substantially all of the Company’s property and equipment is located in North America.

Product warranties

Product warranties.

New Accounting Pronouncements

New accounting pronouncements.

Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The FASB also issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope in January 2021, which adds implementation guidance to clarify which optional expedients in Topic 848 may be applied to derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified as a result of the discounting transition. The Company adopted ASU 2020-04 and ASU 2021-01 on January 1, 2022. The adoption of the ASUs did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows.

There are no other new accounting pronouncements that are expected to have a significant impact on the Company’s consolidated financial statements.