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Significant Accounting Policies | 6 Months Ended
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Jun. 30, 2019
Accounting Policies [Abstract] |
Significant Accounting Policies | Significant Accounting Policies Basis of presentation. The accompanying unaudited consolidated financial statements of Polaris Industries 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, 2018 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. Certain reclassifications of previously reported balance sheet amounts have been made to conform to the current year presentation. The reclassifications had no impact on the consolidated statements of income, cash flows, or total assets, total liabilities, or total equity in the consolidated balance sheets, as previously reported. 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, interest rate, and commodity transactions. Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
| Fair Value Measurements as of June 30, 2019
Asset (Liability) | Total |  | Level 1 |  | Level 2 |  | Level 3
Non-qualified deferred compensation assets | $ | 48,548 |  |  | $ | 48,548 |  |  | $ | — |  |  | $ | — |
Foreign exchange contracts, net | 602 |  |  | — |  |  | 602 |  |  | — |
Total assets at fair value | $ | 49,150 |  |  | $ | 48,548 |  |  | $ | 602 |  |  | $ | — |
Non-qualified deferred compensation liabilities | $ | (48,548 | ) |  | $ | (48,548 | ) |  | $ | — |  |  | $ | — |
Interest rate contracts, net | (8,648 | ) |  | — |  |  | (8,648 | ) |  | — |
Total liabilities at fair value | $ | (57,196 | ) |  | $ | (48,548 | ) |  | $ | (8,648 | ) |  | $ | — |
| Fair Value Measurements as of December 31, 2018
Asset (Liability) | Total |  | Level 1 |  | Level 2 |  | Level 3
Non-qualified deferred compensation assets | $ | 48,545 |  |  | $ | 48,545 |  |  | $ | — |  |  | $ | — |
Foreign exchange contracts, net | 3,128 |  |  | — |  |  | 3,128 |  |  | — |
Total assets at fair value | $ | 51,673 |  |  | $ | 48,545 |  |  | $ | 3,128 |  |  | $ | — |
Non-qualified deferred compensation liabilities | $ | (48,545 | ) |  | $ | (48,545 | ) |  | $ | — |  |  | $ | — |
Interest rate contracts, net | (2,665 | ) |  | — |  |  | (2,665 | ) |  | — |
Total liabilities at fair value | $ | (51,210 | ) |  | $ | (48,545 | ) |  | $ | (2,665 | ) |  | $ | — |
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. At June 30, 2019 and December 31, 2018, the fair value of the Company’s long-term debt, finance lease obligations and notes payable was approximately $1,972,473,000 and $2,013,684,000, 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 $1,898,068,000 and $1,962,570,000 as of June 30, 2019 and December 31, 2018, respectively. Inventories. Inventory costs include material, labor and manufacturing overhead costs, including depreciation expense associated with the manufacture and distribution of the Company’s products. Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. The major components of inventories are as follows (in thousands):
| June 30, 2019 |  | December 31, 2018
Raw materials and purchased components | $ | 281,934 |  |  | $ | 233,258 |
Service parts, garments and accessories | 341,076 |  |  | 342,593 |
Finished goods | 562,252 |  |  | 442,003 |
Less: reserves | (54,998 | ) |  | (48,343 | )
Inventories | $ | 1,130,264 |  |  | $ | 969,511 |
Product warranties. Polaris provides a limited warranty for its vehicles and boats for a period of six months to ten years, depending on the product. Polaris provides longer warranties in certain geographical markets as determined by local regulations and customary practice and may also provide longer warranties related to certain promotional programs. Polaris’ standard warranties require the Company or its dealers to repair or replace defective products during such warranty periods at no cost to the consumer. 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. The Company records these amounts as a liability in the consolidated balance sheet until they are ultimately paid. Adjustments to the warranty reserve are made 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. Factors that could have an impact on the warranty reserve include the following: change in manufacturing quality, shifts in product mix, changes in warranty coverage periods, weather and its impact on product usage, product recalls and changes in sales volume. The activity in the warranty reserve during the periods presented was as follows (in thousands):
| Three months ended June 30, |  | Six months ended June 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Balance at beginning of period | $ | 116,217 |  |  | $ | 116,286 |  |  | $ | 121,824 |  |  | $ | 123,840 |
Additions to reserve related to acquisitions | 8,809 |  |  | — |  |  | 8,809 |  |  | — |
Additions charged to expense | 36,854 |  |  | 26,141 |  |  | 62,873 |  |  | 42,172 |
Warranty claims paid, net | (29,122 | ) |  | (36,272 | ) |  | (60,748 | ) |  | (59,857 | )
Balance at end of period | $ | 132,758 |  |  | $ | 106,155 |  |  | $ | 132,758 |  |  | $ | 106,155 |
New accounting pronouncements. Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and in July 2018, ASU No. 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases (Topic 842) - Targeted Improvements (collectively, “the new lease standard” or “ASC 842”). The new standard requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the income statement. The Company adopted the standard as of January 1, 2019 using the alternative transition method provided under ASC 842, which allowed the Company to initially apply the new lease standard at the adoption date. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company did not elect the hindsight practical expedient permitted under the transition guidance within the new lease standard. The Company made an accounting policy election to not record leases with an initial term of 12 months or less on the balance sheet. The Company also elected the practical expedient to not separate non-lease components from the lease components to which they relate, and instead account for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes. Accordingly, all costs associated with a lease contract are accounted for as lease cost. The new standard resulted in the recognition of additional net lease assets and lease liabilities of approximately $115,681,000 as of January 1, 2019. The adoption of ASC 842 did not have a material impact on the Company’s consolidated results of operations, equity or cash flows as of the adoption date. Under the alternative method of adoption, comparative information was not restated, but will continue to be reported under the standards in effect for those periods. See Note 10 for further information regarding the Company’s leases. Derivatives and hedging. Effective January 1, 2019, the Company adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The adoption of this ASU did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows. Non-employee share-based payments. Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-based Payment Accounting. The adoption of this ASU did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows. Intangibles-Goodwill and Other. Effective January 1, 2019, the Company early adopted ASU 2017-04, Intangibles-Goodwill and Other (Topic 350). The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. Stranded Tax Effects. Effective January 1, 2019 the Company adopted ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the reduction of the U.S. federal statutory income tax rate to 21% from 35% due to the enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). As a result of the adoption of ASU 2018-02, the Company recorded a $668,000 reclassification to decrease Accumulated Other Comprehensive Income and increase Retained Earnings. Financial instruments. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and in November 2018 issued a subsequent amendment, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. ASU 2018-19 will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope of this amendment that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019, and is effective for the Company’s fiscal year beginning January 1, 2020. The adoption of the ASU is not expected to 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.

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- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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