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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion pertains to the results of operations and financial position of the Company and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this report. This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of Polaris’ Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Overview

2020 was a record year for sales which totaled approximately $7.0 billion, a four percent increase from 2019, primarily due to strong ORV sales. Our annual sales to North American customers increased approximately four percent and our annual sales to customers outside of North America increased approximately one percent in 2020.

Full year net income attributable to Polaris Inc. of $124.8 million was a 61 percent decrease from 2019, with diluted earnings per share decreasing 62 percent to $1.99 per share. The decrease was primarily due to the $379.2 million (pre-tax) impairment of goodwill and other intangible assets in the second quarter associated with the Company’s Aftermarket segment as a result of market and economic conditions resulting from the novel coronavirus (COVID-19) pandemic and financial performance and restructuring actions.

On January 28, 2021, we announced that our Board of Directors approved a two percent increase in the regular quarterly cash dividend to $0.63 per share for the first quarter of 2021, representing the 26th consecutive year of increased dividends to shareholders effective with the 2021 first quarter dividend.

The global spread of COVID-19 has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The impact of this pandemic has affected our business segments, employees, dealers, suppliers, and customers in a variety of ways.

As a result of COVID-19, our sales and profitability during the first half of 2020 were negatively impacted by the temporary suspension of select plant operations, which reduced our manufacture and shipment of products, as well as the temporary closures of certain dealers. During this period, sales and profitability were also negatively impacted by a decline in economic activity related to certain of our end markets, such as those served by Global Adjacent Markets and Aftermarket.

Beginning in the second quarter we began to see stronger than anticipated retail demand for our Powersports products as they provided an attractive social-distancing solution for new and existing Powersports customers. Our unit retail sales of ORVs, snowmobiles, and motorcycles to consumers in North America increased 25 percent in 2020. Further, unit retail sales of our boats also increased significantly during the year. Polaris North American dealer inventory as of December 31, 2020 was down 58 percent as retail sales significantly outpaced shipments. At this time, we expect retail demand to be down in 2021 compared to the strong retail of 2020.

During the second half of the year we made significant progress managing operations as we seek to satisfy retail demand. However, due to the dynamics of the COVID-19 pandemic and other natural disasters, our supply chain and manufacturing operations experienced constraints caused by logistics and production-limiting disruptions. Because of the significant economic uncertainty, we are continuing to execute a cautionary approach to spending given the pandemic-generated economic uncertainty. As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess the impact on the Company and respond accordingly.

Looking ahead, adverse impacts to the economy and certain of the Company’s business segments, certain suppliers, dealers or customers as a result of COVID-19 may affect the Company’s future valuation of certain assets and therefore may increase the likelihood of additional impairment charges, write-offs, or reserves associated with such assets, including goodwill, indefinite and finite-lived intangible assets, property and equipment, inventories, accounts receivable, tax assets, and other assets.

We believe we are well positioned to mitigate the impacts of COVID-19. We will continue to adjust mitigation measures as needed related to employee health and safety. Those measures might include further suspensions of select plant operations, modifying workspaces, continuing social distancing policies, implementing new personal protective equipment or health screening policies at our facilities, or such other industry best practices needed to continue to maintain a healthy and safe environment for our employees amidst the pandemic. In addition, while we have and will

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continue to enhance functionality and security of technology for off-site functions, we are also planning for the eventual reintroduction of our currently remote workforce to our facilities.

The duration of these trends and the magnitude of such impacts cannot be precisely estimated at this time, as they are affected by a number of factors (some of which are outside management’s control), including those presented in Item 1A. Risk Factors of this Annual Report.

Consolidated Results of Operations

The consolidated results of operations were as follows:

For the Years Ended December 31,

Percentage of sales 24.3% 24.3% +2 basis points 24.7% -39 basis points

Operating expenses:

Goodwill and other intangible asset impairment 379.2 — NM — NM

Percentage of sales 22.5 % 18.4 % +409 basis points 18.1% +25 basis points

Income from financial services $ 80.4 $ 80.9 (1) % $ 87.4 (7) %

Non-operating expense:

Equity in loss of other affiliates $ — $ 5.1 NM $ 29.3 (83) %

Other (income) expense, net $ 4.2 $ (6.8) NM $ (28.1) (76) %

Effective income tax rate 11.6% 20.6% NM 21.9% -132 basis points

Net (income) loss attributable to noncontrolling interest (0.1) 0.1 NM — NM

Net income attributable to Polaris Inc. $ 124.8 $ 324.0 (61) % $ 335.3 (3) %

Weighted average diluted shares outstanding 62.6 62.3 — % 63.9 (3) %

NM = not meaningful

Sales:

Sales were $7,027.9 million in 2020, a four percent increase from $6,782.5 million in 2019. The components of the consolidated sales change were as follows:

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Percent change in total Company sales compared to the prior year

Volume 3 % 1 %

Product mix and price 1 6

Acquisitions — 6

Currency — (1)

The three percent volume increase in 2020 was primarily the result of increased ORV shipments and related PG&A. Product mix and price contributed a one percent increase in 2020, primarily due to lower promotional costs for ORVs.

Sales by geographic region were as follows:

For the Years Ended December 31,

Sales in the United States for 2020 increased four percent compared to 2019, primarily due to increased ORV wholegood shipments and higher ORV PG&A sales. The United States represented 82 percent of total company sales in 2020.

Sales in Canada for 2020 were flat compared to 2019. Currency rate movements had less than a one percentage point impact on year-over-year sales. Sales in Canada represented six percent of total company sales in 2020.

Sales in other foreign countries, primarily in Europe, increased one percent in 2020 compared to 2019. This increase was primarily driven by higher ORV shipments. Currency rate movements had less than a one percentage point impact on year-over-year sales. Sales in other foreign countries represented 12 percent of total company sales in 2020.

Cost of sales:

The following table reflects our cost of sales in dollars and as a percentage of sales:

For the Years Ended December 31,

Percentage of sales 75.7 % 75.7 % -2 basis points 75.3 % +39 basis points

For 2020, cost of sales increased four percent to $5,317.7 million compared to $5,133.7 million in 2019. The increase in cost of sales in 2020 is primarily attributed to increased purchased materials and services related to increased ORV shipments and higher PG&A sales.

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Gross profit:

Consolidated gross profit for 2020, as a percentage of sales, was approximately flat compared to the 2019. Lower promotional costs and dealer floor plan financing costs were offset by increased costs resulting from supply chain disruption and higher depreciation related to capital expenditures associated with recent new product launches.

Operating expenses:

Operating expenses for 2020, in absolute dollars and as a percent of sales, increased primarily due to the $379.2 million impairment of goodwill and other intangible assets associated with the Company’s Aftermarket segment, partially offset by decreased stock compensation expense related to the CEO departure and lower non-essential expenses driven by our ongoing cautionary approach to spending given the pandemic-generated economic uncertainty.

Income from financial services:

The following table reflects our income from financial services:

For the Years Ended December 31,

Income from Polaris Acceptance joint venture $ 18.5 $ 32.5 (43) % $ 30.4 7 %

Income from retail credit agreements 58.7 45.6 29 % 46.3 (2) %

Income from other financial services activities 3.2 2.8 14 % 10.7 (74) %

Total income from financial services $ 80.4 $ 80.9 (1) % $ 87.4 (7) %

Percentage of sales 1.1 % 1.2 % -5 basis points 1.4 % -25 basis points

Income from financial services decreased one percent to $80.4 million in 2020 compared to $80.9 million in 2019. The decrease in 2020 was primarily due to lower wholesale financing income due to lower dealer inventory levels, partially offset by higher retail credit income driven by higher retail sales.

Interest expense:

The decrease in 2020 compared to 2019, was primarily due to lower interest rates.

Equity in loss of other affiliates:

In the 2019 comparable period, the Company incurred $5.1 million of losses associated with certain investments in nonmarketable securities of strategic companies. Such losses did not occur in 2020.

Other (income) expense, net:

The change in Other (income) expense, net primarily relates to foreign currency exchange rate movements and the corresponding effects on foreign currency transactions, currency hedging positions and balance sheet positions related to our foreign subsidiaries from period to period.

Provision for income taxes:

Income tax expense was $16.5 million, or 11.6% of income before income taxes, for 2020 compared with income tax expense of $83.9 million, or 20.6% of income before income taxes, for 2019. The lower income tax rate for 2020 was primarily due to the lower pretax income generated combined with the incremental benefit from the passing of the statute of limitations on certain tax positions during the year.

Weighted average shares outstanding:

The change in the weighted average diluted shares outstanding from 2019 to 2020 was primarily due to share issuances under employee plans.

Segment Results of Operations

The summary that follows provides a discussion of the results of operations of each of our five reportable segments. Each of these segments is comprised of various product offerings that serve multiple end markets. We evaluate performance based on sales and gross profit.

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Beginning in the first quarter of 2020, certain costs, primarily incentive-based compensation costs, previously classified as "Corporate" in the Company's segment gross profit results were allocated to the respective operating segments results. The comparative 2019 gross profit results for ORV/Snowmobiles, Motorcycles, Global Adjacent Markets, Aftermarket, Boats, and Corporate were reclassified for comparability. However, the 2018 gross profit results presented below have not been reclassified to reallocate the costs discussed above and are therefore not comparable to 2020 and 2019 results.

Our sales and gross profit by reporting segment, which includes the respective PG&A, were as follows:

For the Years Ended December 31,

Sales

For the Years Ended December 31,

Gross profit

NM = not meaningful

ORV/Snowmobiles:

ORV sales, inclusive of PG&A, of $4,187.9 million in 2020, which includes ATV, Polaris GENERAL, RANGER,and RZR vehicles, increased nine percent compared to 2019. This increase was primarily driven by increased RANGER and ATV shipments as a result of strong retail, as well as higher PG&A sales. Polaris’ North American ORV unit retail sales to consumers increased mid-twenties percent for 2020 compared to 2019, with ATV unit retail sales up high-twenties percent and side-by-side vehicles unit retail sales up mid-twenties percent over the prior year, as our products provided an attractive social-distancing solution for new and existing Powersports customers. The Company estimates that North American industry ORV retail sales were up approximately 30 percent over the prior year. Polaris North American dealer inventories of ORVs decreased mid-sixties percent from 2019 as a result of strong retail sales. ORV sales outside of North America increased 11 percent in 2020 compared to 2019. For 2020, the average ORV per unit sales price increased approximately one percent compared to 2019’s average per unit sales price, primarily driven by lower promotional costs.

Snowmobiles sales, inclusive of PG&A sales, decreased 10 percent to $345.4 million for 2020 compared to 2019. Retail sales to consumers for the 2020-2021 season-to-date period through December 31, 2020, increased mid-twenties percent. Sales of snowmobiles to customers outside of North America, principally within the Scandinavian region and Russia, decreased approximately 19 percent in 2020 as compared to 2019. The Company estimates that North American industry snowmobile retail sales for the 2020-2021 season-to-date period through December 31, 2020, increased high-teens

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percent. Polaris North American dealer inventories of snowmobiles decreased 50 percent from 2019. The average per unit sales price in 2020 increased approximately eight percent over 2019’s average per unit sales price, primarily driven by favorable mix.

For the ORV/Snowmobiles segment, gross profit, as a percentage of sales, decreased from 2019 to 2020, primarily due to higher logistical costs as well as plant inefficiencies resulting from the temporary suspension of select plant operations in the first half of the year and ongoing supply chain constraints, partially offset by higher average selling prices driven by lower promotional costs and lower dealer floor plan financing costs, as well as higher PG&A sales.

Motorcycles:

Sales of Motorcycles, inclusive of PG&A sales, decreased slightly from $584.1 million in 2019 to $581.7 million in 2020, primarily due to decreased sales of Indian motorcycles of nine percent, partially offset by an increase in sales of Slingshot of 57 percent. The Company estimates North American industry retail sales of combined 900cc and above cruiser, touring (including 3-wheel), and standard market segments decreased high-single digits percent in 2020 compared to 2019. Over the same period, Polaris North American motorcycle (including Slingshot) unit retail sales to consumers increased high-twenties percent. Polaris North American motorcycle (including Slingshot) dealer inventory decreased low-twenties percent in 2020 versus 2019 levels. Sales of motorcycles (including Slingshot) to customers outside of North America decreased approximately eight percent in 2020 compared to 2019, due primarily to a decrease in Indian motorcycle shipments. The average per unit sales price for the Motorcycles segment in 2020 was approximately flat compared to 2019’s average per unit sales price.

Gross profit, as a percentage of sales, decreased from 2019 to 2020, primarily due to unfavorable mix, higher logistical costs, and plant inefficiencies resulting from the temporary suspension of select plant operations in the first half of the year and ongoing supply chain constraints, partially offset by lower European Union retaliatory tariffs and lower warranty expense.

Global Adjacent Markets:

Global Adjacent Markets sales, inclusive of PG&A sales, decreased eight percent to $424.6 million for 2020 compared to 2019. The decrease in sales was driven by industrial, educational, government and rental organizations reducing or suspending purchases during the COVID-19 pandemic. The decrease in sales was primarily in the Commercial, Government and Defense businesses, partially offset by growth in Polaris Adventures. Sales to customers outside of North America decreased approximately five percent in 2020 compared to 2019.

Gross profit, as a percentage of sales, decreased from 2019 to 2020, primarily due to the reduction of sales volumes resulting in decreased leverage of manufacturing fixed costs, partially offset by favorable product mix.

Aftermarket:

Aftermarket sales, which includes Transamerican Auto Parts (TAP), along with our other aftermarket brands of Klim, Kolpin, ProArmor, Trail Tech and 509, of $884.9 million for 2020 were down two percent compared to 2019, primarily due to a five percent decrease in TAP’s full year sales. TAP sales declined 10% over the first half of the year before stabilizing and growing by one percent over the second half of the year. Underlying the full year performance, we saw a decline within our wholesale business channel, partially offset by growth in our direct to consumer e-commerce platforms. The decrease in full year TAP sales was partially offset by other aftermarket growth of 14%, driven by accessories and apparel demand through dealer, retail, and e-commerce channels.

Gross profit, as a percentage of sales, increased from 2019 to 2020, primarily due to favorable pricing and mix, partially offset by higher freight and logistics costs.

Boats:

Boat sales decreased three percent to $603.4 million in 2020 compared to 2019, primarily due to the temporary suspension of production in the first half of 2020 caused by the COVID-19 pandemic. We estimate that U.S. pontoon industry unit sales increased high-teens percent during 2020. Polaris U.S. pontoon unit retail sales to consumers was also up high-teens percent during 2020.

Gross profit, as a percentage of sales, decreased from 2019 to 2020, primarily due to costs associated with restructuring activities, partially offset by favorable pricing and margin enhancement initiatives.

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Liquidity and Capital Resources

Our primary sources of funds have been cash provided by operating and financing activities. Our primary uses of funds have been for acquisitions, repurchase and retirement of common stock, capital investments, new product development and cash dividends to shareholders. The seasonality of production and shipments cause working capital requirements to fluctuate during the year.

Given the economic uncertainty as a result of the COVID-19 pandemic, we took actions in 2020 to improve our liquidity position, including reducing working capital, temporarily suspending share repurchases, postponing certain capital expenditures, and reducing operating costs by delaying research and development programs, reducing production, initiating workforce reductions and furloughs, and substantially reducing discretionary spending. These actions combined with the strength of our end markets in the second half of 2020 further bolstered our liquidity position heading into 2021. As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs.

We believe that existing cash balances, cash flow to be generated from operating activities and borrowing capacity under the credit facility arrangement will be sufficient to fund operations, new product development, cash dividends, share repurchases, and capital requirements for the foreseeable future.

The following table summarizes the cash flows from operating, investing and financing activities for the years ended December 31, 2020, 2019 and 2018:

($ in millions) For the Years Ended December 31,

Total cash provided by (used for):

Impact of currency exchange rates on cash balances 8.7 (0.8) 9.5 (9.5) 8.7

Operating Activities:

Net cash provided by operating activities was $1,018.6 million and $655.1 million in 2020 and 2019, respectively. The $363.5 million increase is primarily the result of improved working capital due to strong end-market demand. The impacts of demand on working capital have been a decrease in finished goods inventory and increases in raw materials and accounts payable. Further, excluding the impact of the non-cash impairment charge, net income was higher than the prior year comparable period which further added to the increase in net cash provided by operating activities.

Investing Activities:

Net cash used for investing activities was $150.7 million and $239.3 million in 2020 and 2019, respectively. The primary sources and uses of cash in 2020 were for the purchase of property and equipment and tooling for continued capacity and capability at our manufacturing and distribution facilities and for product development, as well as distributions from and contributions to Polaris Acceptance. As a result of the uncertainty associated with the COVID-19 related economic slowdown, the Company reduced or postponed certain planned capital expenditures. This decrease in expenditures combined with an increase in cash distributions from Polaris Acceptance due to lower dealer inventory levels resulted in less cash used for investing activities compared to the prior year.

Financing Activities:

Net cash used for financing activities was $415.4 million and $411.8 million in 2020 and 2019, respectively. We paid cash dividends of $152.5 million and $149.1 million in 2020 and 2019, respectively. Total common stock repurchased in 2020 and 2019 totaled $50.3 million and $8.4 million, respectively. Net repayments under debt arrangements, finance lease obligations and notes payable totaled $246.2 million and $270.0 million in 2020 and 2019, respectively. Proceeds from the issuance of stock under employee plans were $33.6 million and $15.7 million in 2020 and 2019, respectively.

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Financing Arrangements:

We are party to an unsecured credit agreement, which includes a $700.0 million variable interest rate revolving loan facility that expires in July 2023, under which we have unsecured borrowings. At December 31, 2020, there were no borrowings outstanding under this arrangement. Our credit agreement also includes a term loan facility, of which $940.0 million is outstanding as of December 31, 2020. On April 9, 2020, the Company amended the credit agreement to provide a new incremental 364-day term loan (the “incremental term loan”) in the amount of $300.0 million. The new incremental term loan, which was fully drawn on closing, was unsecured and set to mature on April 8, 2021, however, the incremental term loan was paid off in December 2020. Interest is charged at rates based on LIBOR or “prime” for these agreements. As of December 31, 2020, we had $695.3 million of availability on the revolving loan facility. The Company is also party to an unsecured Master Note Purchase Agreement, as amended and supplemented. At December 31, 2020 outstanding borrowings under the agreement totaled $425.0 million.

The credit agreement and the amended Master Note Purchase Agreement contain covenants that require Polaris to maintain certain financial ratios, including minimum interest coverage and maximum leverage ratios. On May 26, 2020, the Company further amended the credit agreement and amended Master Note Purchase Agreement to temporarily decrease its minimum interest coverage ratio from not less than 3.00x to not less than 2.25x and temporarily increase its maximum leverage ratio from 3.50x to 4.75x on a rolling four quarter basis until March 31, 2021. Polaris was in compliance with all such covenants at December 31, 2020. On January 15, 2021 the Company further amended the credit agreement and amended Master Note Purchase Agreement to revert the financial covenants to those in place prior to the 2020 amendments.

As a component of the Boat Holdings merger agreement in 2018, Polaris has committed to make a series of deferred payments to the former owners following the closing date of the merger through July 2030. The original discounted payable was for $76.7 million, of which $66.5 million is outstanding as of December 31, 2020. The outstanding balance is included in long-term debt and current portion of long-term debt in the consolidated balance sheets.

At December 31, 2020 and 2019, we were in compliance with all debt covenants. Our debt to total capital ratio was 56 percent and 60 percent at December 31, 2020 and 2019, respectively.

Share Repurchases:

Our Board of Directors has authorized the cumulative repurchase of up to 90.5 million shares of our common stock through an authorized stock repurchase program. Of that total, approximately 87.9 million shares have been repurchased cumulatively from 1996 through December 31, 2020. We repurchased a total of 0.6 million shares of our common stock for $50.3 million during 2020, which had an immaterial impact on earnings per share. We have authorization from our Board of Directors to repurchase up to an additional 2.6 million shares of our common stock as of December 31, 2020. The repurchase of any or all such shares authorized remaining for repurchase will be governed by applicable SEC rules.

Wholesale Customer Financing Arrangements:

We have arrangements with certain finance companies to provide secured floor plan financing for our dealers. These arrangements provide liquidity by financing dealer purchases of our products without the use of our working capital. A majority of the worldwide sales of snowmobiles, ORVs, motorcycles, boats and related PG&A are financed under similar arrangements whereby we receive payment within a few days of shipment of the product. The amount financed by worldwide dealers under these arrangements related to snowmobiles, ORVs, motorcycles, boats and related PG&A as of December 31, 2020 and 2019, was approximately $1,064.0 million and $1,884.1 million, respectively. We participate in the cost of dealer financing up to certain limits.

Polaris Acceptance, a joint venture between Polaris and Wells Fargo Commercial Distribution Finance Corporation (“WFCDF”), a direct subsidiary of Wells Fargo Bank, N.A. (“Wells Fargo”), which is supported by a partnership agreement between their respective wholly owned subsidiaries, finances substantially all of our U.S. sales of snowmobiles, ORVs, motorcycles, and related PG&A, whereby we receive payment within a few days of shipment of the product. The partnership agreement is effective through February 2027.

Polaris Acceptance sells a majority of its receivables portfolio (the “Securitized Receivables”) to a securitization facility (“Securitization Facility”) arranged by Wells Fargo, a WFCDF affiliate. The sale of receivables from Polaris Acceptance to the Securitization Facility is accounted for in Polaris Acceptance’s financial statements as a “true-sale” under ASC Topic 860. Polaris Acceptance is not responsible for any continuing servicing costs or obligations with respect to the

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Securitized Receivables. The remaining portion of the receivable portfolio is recorded on Polaris Acceptance’s books, and is funded through a loan from an affiliate of WFCDF and through equity contributions from both partners. At December 31, 2020, the outstanding amount of net receivables financed for dealers under this arrangement, including Securitized Receivables, was $771.5 million, a 46 percent decrease from $1,423.4 million at December 31, 2019, as a result of significantly lower dealer inventory in the current year.

We account for our investment in Polaris Acceptance under the equity method. Polaris Acceptance is funded through equal equity cash investments from the partners and a loan from an affiliate of WFCDF. We do not guarantee the outstanding indebtedness of Polaris Acceptance. The partnership agreement provides that all income and losses of Polaris Acceptance are shared 50 percent by our wholly owned subsidiary and 50 percent by WFCDF’s subsidiary. Our total investment in Polaris Acceptance at December 31, 2020 was $59.4 million. Our exposure to losses of Polaris Acceptance is limited to our equity in Polaris Acceptance. Credit losses in the Polaris Acceptance portfolio have been modest, averaging less than one percent of the portfolio.

We have agreed to repurchase products repossessed by Polaris Acceptance up to an annual maximum of 15 percent of the aggregate average month-end outstanding Polaris Acceptance receivables and Securitized Receivables during the prior calendar year. For calendar year 2020, the potential 15 percent aggregate repurchase obligation was approximately $198.3 million. For calendar year 2021, the potential 15 percent aggregate repurchase obligation is approximately $138.7 million. Our financial exposure under this arrangement is limited to the difference between the amount paid to the finance company for repurchases and the amount received on the resale of the repossessed product. No material losses have been incurred under this agreement during the periods presented. However, an adverse change in retail sales could cause this situation to change and thereby require us to repurchase repossessed units subject to the annual limitation referred to above.

A subsidiary of TCF Financial Corporation (“TCF”) finances a portion of our United States sales of boats whereby we receive payment within a few days of shipment of the product. We have agreed to repurchase products repossessed by TCF up to a maximum of 100 percent of the aggregate outstanding TCF receivables balance. At December 31, 2020, the potential aggregate repurchase obligation was approximately $135.7 million. Our financial exposure under this arrangement is limited to the difference between the amounts unpaid by the dealer with respect to the repossessed product plus costs of repossession and the amount received on the resale of the repossessed product. No material losses have been incurred under this agreement during the periods presented. However, an adverse change in retail sales could cause this situation to change and thereby require us to repurchase repossessed units subject to the annual limitation referred to above.

Retail Customer Financing Arrangements:

We have agreements with certain financial institutions under which these financial institutions provide retail credit financing to end consumers of our products in the United States. The income generated from these agreements has been included as a component of income from financial services in the accompanying consolidated statements of income. At December 31, 2020, the agreements in place were as follows:

Financial institution Agreement expiration date

Performance Finance December 2021

Sheffield Financial December 2024

Synchrony Bank December 2025

During 2020, consumers financed 30 percent of our vehicles sold in the United States through the Performance Finance, Sheffield Financial and Synchrony Bank installment retail credit arrangements. The volume of installment credit contracts written in calendar year 2020 with these institutions was $1,515.9 million, a 21 percent increase from 2019.

Critical Accounting Policies

We have adopted various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements. Some of those significant accounting policies require us to make difficult, subjective, or complex judgments or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different

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estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur may have a material impact on our financial condition or results of operations. 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, product warranties, product liability, and goodwill and indefinite-lived intangibles.

Revenue recognition. With respect to wholegood vehicles, boats, parts, garments and accessories, revenue is recognized when we transfer control of the product to our customer. With respect to services provided by us, revenue is recognized upon completion of the service or over the term of the service agreement in proportion to the costs expected to be incurred in satisfying the obligations over the term of the service period. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, value add, and other taxes we collect 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 our limited warranties are recognized as expense when the products are sold. We recognize revenue for vehicle service contracts that extend mechanical and maintenance coverage beyond our limited warranties over the life of the contract. Historically, product returns, whether in the normal course of business or resulting from repurchases made under the floor plan 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. Revenue from goods and services transferred to customers at a point-in-time accounts for the majority of our revenue.

Sales promotions and incentives. We provide for estimated sales promotion and incentive expenses, which are recognized as a component of sales in measuring the amount of consideration we expect to receive in exchange for transferring goods or providing services. Examples of sales promotion and incentive programs include dealer and consumer rebates, volume incentives, retail financing programs and sales associate incentives. Sales promotion and incentive expenses are estimated based on current programs and historical rates for each product line. We record these amounts as a liability in the consolidated balance sheet until they are ultimately paid. At December 31, 2020 and 2019, accrued sales promotions and incentives were $138.1 million and $189.9 million, respectively. Actual results may differ from these estimates if market conditions dictate the need to enhance or reduce sales promotion and incentive programs or if the customer usage rate varies from historical trends. Adjustments to sales promotions and incentives accruals are made as actual usage becomes known in order to properly estimate the amounts necessary to generate consumer demand based on market conditions as of the balance sheet date.

Product warranties. We provide a limited warranty for our vehicles and boats for a period of six months to ten years, depending on the product. We provide longer warranties in certain geographical markets as determined by local regulations and customary practice and may provide longer warranties related to certain promotional programs. Our standard warranties require us, generally through our dealer network, to repair or replace defective products during such warranty periods. 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, 2020 and 2019, the accrued warranty liability was $140.8 million and $136.2 million, respectively. 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. The warranty reserve includes the estimated costs related to recalls, which are accrued when probable and estimable. Factors that could have an impact on the warranty accrual include the following: changes in manufacturing quality, shifts in product mix, changes in warranty coverage periods, impacts on product usage (including weather), product recalls and changes in sales volume. 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, and have a material adverse effect on our financial condition.

Product liability. We are subject to product liability claims in the normal course of business. We carry excess insurance coverage for product liability claims. We self-insure product liability claims before the policy date and up to the purchased insurance coverage after the policy date. 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 estimable. There is significant judgment and estimation required in evaluating the possible outcomes and potential losses of product liability matters. We utilize historical trends and actuarial analysis, along with an analysis of current claims, to assist in determining the appropriate loss reserve levels. At December 31, 2020 and 2019, we had accruals of $70.7 million and

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$57.0 million, respectively, for the probable payment of pending and expected claims related to product liability matters associated with our products. This accrual is included as a component of 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.

Goodwill. Goodwill represents the excess of the purchase price of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed. Goodwill is tested at least annually for impairment and is tested for impairment more frequently when events or changes in circumstances indicate that the asset might be impaired. The Company completes its annual goodwill impairment test as of the first day of the fourth quarter.

The Company may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount. A qualitative assessment requires that we consider events or circumstances including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or carrying amount of a reporting unit’s net assets, and changes in our stock price. If, after assessing the totality of events or circumstances, it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if the Company elects to bypass the qualitative test and proceed to a quantitative test, then the quantitative goodwill impairment test is performed. A quantitative test includes comparing the fair value of each reporting unit to the carrying amount of the reporting unit, including goodwill. If the estimated fair value is less than the carrying amount of the reporting unit, an impairment is recognized in an amount equal to the difference, limited to the total amount of goodwill allocated to that reporting unit.

Under the quantitative goodwill impairment test, the fair value of each reporting unit is determined using a discounted cash flow analysis and market approach. Determining the fair value of the reporting units requires the use of significant judgment, including discount rates, assumptions in the Company’s long-term business plan about future revenues and expenses, capital expenditures, and changes in working capital, which are dependent on internal forecasts, estimation of long-term growth for each reporting unit, and determination of the discount rate. These plans take into consideration numerous factors including historical experience, anticipated future economic conditions, including the impacts from the COVID-19 pandemic, changes in raw material prices and growth expectations for the industries and end markets in which the Company participates. These assumptions are determined over a five year long-term planning period. The five year growth rates for revenues and earnings before interest, taxes, depreciation and amortization ("EBITDA") vary for each reporting unit being evaluated. Revenues and EBITDA beyond five years are projected to grow at a terminal growth rate consistent with industry expectations. Actual results may significantly differ from those used in our valuations. The forecasted future cash flows are discounted using a discount rate developed for each reporting unit. The discount rates were developed using market observable inputs, as well as our assessment of risks inherent in the future cash flows of the respective reporting unit.

In estimating fair value using the market approach, we identify a group of comparable publicly traded companies for each reporting unit that are similar in terms of size and product offering. These groups of comparable companies are used to develop multiples based on total market-based invested capital as a multiple of EBITDA. We determine our estimated values by applying these comparable EBITDA multiples to the operating results of our reporting units. The ultimate fair value of each reporting unit is determined considering the results of both valuation methods. Inputs used to estimate these fair values included significant unobservable inputs that reflect the Company’s assumptions about the inputs that market participants would use and, therefore, the fair value assessments are classified within Level 3 of the fair value hierarchy.

In the second quarter of 2020, as a result of market and economic conditions resulting from the COVID-19 pandemic, as well as financial performance and restructuring actions, we identified indicators that it was more-likely-than-not that the fair value of the Aftermarket and Boats reporting units would be less than their respective carrying values. Our evaluation included consideration of changes in business performance assumptions compared to those used in our 2019 annual impairment test. As a result, we performed quantitative goodwill impairment tests of the Aftermarket and Boats reporting units.

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The level of judgment and estimation is inherently higher in the current environment considering the uncertainty created by the COVID-19 pandemic. We evaluated numerous factors disrupting our business and made significant assumptions which include the severity and duration of the business disruption, the potential impact on customer demand, the timing and degree of economic recovery and ultimately, the combined effect of these assumptions on our future operating results and cash flows.

As a result of this analysis, during the second quarter of 2020 we recorded impairment charges of $270.3 million related to goodwill of the Aftermarket reporting unit. Subsequent to the impairment charges recorded, there is no remaining goodwill for the Aftermarket reporting unit. There were no impairment charges recorded related to the Boats reporting unit. The Boats reporting unit did not have a difference between its fair value and carrying value that was lower than 10%.

In the fourth quarter of 2020, we completed the annual impairment test. It was determined that goodwill was not impaired as each reporting unit’s fair value exceeded its carrying value. We completed a qualitative assessment for the ORV, Snow, Motorcycles and Global Adjacent Markets reporting units and a quantitative goodwill test for the Boats reporting unit. No assessment was performed for the Aftermarket reporting unit as it did not have a goodwill balance as of the annual testing date.

The difference between the Boats reporting unit’s fair value and carrying value was not lower than 10%. While management believes the projections, discount rate, and other assumptions are reasonable, the estimated fair value of the reporting unit is particularly dependent on the strength of the pontoon industry and there is a high level of uncertainty regarding the long-term financial impacts of COVID-19 and the economic recovery. As a result, there can be no assurance that the estimates and assumptions made in our analysis will prove to be an accurate prediction of the future. To the extent future operating results differ from those in our current forecast or our assumptions change pertaining to the business disruption, its impact on customer demand and the related recovery, it is possible that an impairment charge could be recorded in a future accounting period.

Identifiable intangible assets. Our primary identifiable intangible assets include: dealer/customer relationships, brand/trade names, developed technology, and non-compete agreements. Identifiable intangibles with finite lives are amortized and those identifiable intangibles with indefinite lives are not amortized. Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangible assets with indefinite lives are tested for impairment annually or more frequently when events or changes in circumstances indicate that the asset might be impaired. We complete our annual impairment test as of the first day of the fourth quarter each year for identifiable intangible assets with indefinite lives.

Our identifiable intangible assets with indefinite lives include brand/trade names. The impairment test consists of a comparison of the fair value of the brand/trade name with its carrying value. The fair value is determined using the relief-from-royalty method. This method assumes the trade name has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the discount rate. Forecasted revenues are derived from our annual budget and long-term business plan and royalty rates were based on brand profitability. The discount rates are developed using the market observable inputs used in the development of the reporting unit discount rates, as well as our assessment of risks inherent in the future cash flows of the respective trade name.

In the second quarter of 2020, as a result of market and economic conditions resulting from the COVID-19 pandemic, as well as financial performance and restructuring actions, we determined that the conditions indicated that indefinite lived intangible assets within the Aftermarket and Boats reporting units were more-likely-than-not impaired and performed an impairment test to compare the fair value of these indefinite lived intangible assets, consisting of certain brand/trade names, with their carrying value. As a result of this analysis, during the second quarter of 2020 the Company recorded impairment charges of $108.9 million related to certain brand/trade names associated with Transamerican Auto Parts which are included in the Aftermarket reporting unit.

In the fourth quarter of 2020, we completed the annual impairment test. It was determined that the Company’s remaining indefinite lived intangible assets were not impaired.

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While management believes the projections, discount rate, royalty rate, and other assumptions are reasonable, the estimated fair value of the Aftermarket brand/trade names are particularly dependent on Aftermarket’s ability to execute the planned actions underlying the forecasted improvement in its performance and there is a high level of uncertainty regarding the ultimate financial impacts of COVID-19 and the economic recovery. Similarly, the estimated fair value of the Boats brand/trade names are particularly dependent on the continued strength of the pontoon industry. As a result, there can be no assurance that the estimates and assumptions made in our analysis will prove to be an accurate prediction of the future. To the extent future operating results differ from those in our current forecast or our assumptions change pertaining to the business disruption, its impact on customer demand and the related recovery, it is possible that an impairment charge could be recorded in a future accounting period.

New Accounting Pronouncements

See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 1—Organization and Significant Accounting Policies—New accounting pronouncements.”

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Inflation, Foreign Exchange Rates, and Interest Rates

Inflation:

Despite modest inflation in recent years, rising costs, including tariffs and the cost of certain raw materials, continue to affect our operations throughout the world. We strive to minimize the effects of inflation through cost containment, productivity improvements and price increases.

We are subject to market risk from fluctuating market prices of certain purchased commodities and raw materials, including steel, aluminum, petroleum-based resins, certain rare earth metals and diesel fuel. In addition, we are a purchaser of components and parts containing various commodities, including steel, aluminum, rubber and others, which are integrated into the Company’s end products. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. We generally buy these commodities and components based upon market prices that are established with the vendor as part of the purchase process. We do not hedge commodity prices. The total impact of commodities, including tariff costs, had a favorable impact on our gross profit margins for 2020 when compared to 2019. Based on our current outlook for commodity prices, the total impact of commodities, including tariff costs, is expected to have an unfavorable impact on our gross profit margins for 2021 when compared to 2020.

Foreign Exchange Rates:

The changing relationships of the U.S. dollar to foreign currencies can have a material impact on our financial results.

Euro: We have operations in the Eurozone through wholly owned subsidiaries and distributors. We also purchase components from certain suppliers directly for our U.S. operations in transactions denominated in Euros. Fluctuations in the Euro to U.S. dollar exchange rate primarily impacts sales, cost of sales, and net income.

Canadian Dollar: We operate in Canada through a wholly owned subsidiary. The relationship of the U.S. dollar in relation to the Canadian dollar impacts both sales and net income.

Other currencies: We operate in various countries, principally in Europe, Mexico and Australia, through wholly owned subsidiaries. We also sell to certain distributors in other countries. We also purchase components from certain suppliers directly for our U.S. operations in transactions denominated in these foreign currencies. The relationship of the U.S. dollar in relation to these other currencies impacts sales, cost of sales and net income.

Foreign exchange risk can be quantified by performing a sensitivity analysis assuming a hypothetical change in the value of the U.S. dollar compared to other currencies in which we transact. We are most exposed to the Euro and Canadian dollar. All other things being equal, at current annual volumes, a hypothetical 10 percent fluctuation of the U.S. dollar compared to the Euro impacts annual operating income by approximately $23 million and a hypothetical 10 percent fluctuation of the U.S. dollar compared to the Canadian Dollar impacts annual operating income by approximately $39 million.

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We actively manage our exposure to fluctuating foreign currency exchange rates by entering into foreign exchange hedging contracts. A portion of our foreign currency exposure is mitigated with the following open foreign currency hedging contracts as of December 31, 2020:

Foreign Currency Foreign currency hedging contracts

Australian Dollar Long $ 26.0 $0.73 to 1 AUD

Canadian Dollar Long $ 169.8 $0.76 to 1 CAD

Mexican Peso Short $ 13.5 22 Peso to $1

In 2020, after consideration of the existing foreign currency hedging contracts, foreign currencies had a positive impact on net income compared to 2019. We expect currencies to have a positive impact on net income in 2021 compared to 2020.

The assets and liabilities in all our international entities are translated at the foreign exchange rate in effect at the balance sheet date. Translation gains and losses are reflected as a component of accumulated other comprehensive loss, net in the shareholders’ equity section of the accompanying consolidated balance sheets. Revenues and expenses in all of our international entities are translated at the average foreign exchange rate in effect for each month of the year. Certain assets and liabilities related to intercompany positions reported on our consolidated balance sheet that are denominated in a currency other than the entity’s functional currency are translated at the foreign exchange rates at the balance sheet date and the associated gains and losses are included in net income.

Interest Rates:

We are a party to an unsecured credit agreement with various lenders consisting of a $700 million revolving loan facility and a $1,180 million term loan facility. Interest accrues on the revolving loan at variable rates based on LIBOR or “prime” plus the applicable add-on percentage as defined. As of December 31, 2020, there were no borrowings outstanding on the revolving loan and an outstanding balance of $940 million on the term loan. Based on the unhedged variable-rate debt included in our debt portfolio as of December 31, 2020, a 100 basis point increase or decrease in interest rates would increase or decrease interest expense by approximately $9 million.

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INDEX TO FINANCIAL STATEMENTS

Page

Management’s Report on Internal Control over Financial Reporting 40

Consolidated Balance Sheets as of December 31, 2020 and 2019 44

Notes to Consolidated Financial Statements 49

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Item 8. Financial Statements and Supplementary Data

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting of the Company. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting as of December 31, 2020. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—2013 Integrated Framework. Based on management’s evaluation and those criteria, management concluded that the Company’s system of internal control over financial reporting was effective as of December 31, 2020.

Management’s internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report appearing on the following page, in which they expressed an unqualified opinion thereon.

/S/ MICHAEL T. SPEETZEN

Michael T. Speetzen

Interim Chief Executive Officer

/S/ ROBERT P. MACK

Robert P. Mack

Interim Chief Financial Officer

February 16, 2021

Further discussion of our internal controls and procedures is included in Item 9A of this report, under the caption “Controls and Procedures.”

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Polaris Inc.

Opinion on Internal Control over Financial Reporting

We have audited Polaris Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Polaris Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a), and our report dated February 16, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

February 16, 2021

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Polaris Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Polaris Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 16, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Product Liability Claims

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/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2002.

Minneapolis, Minnesota

February 16, 2021

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POLARIS INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except per share data)

Current assets:

Cash and cash equivalents $ 634.7 $ 157.1

Income taxes receivable 3.9 32.5

Property and equipment:

Land, buildings and improvements 517.2 502.9

Less: accumulated depreciation (1,127.9) (993.6)

Investment in finance affiliate 59.4 110.6

Goodwill and other intangible assets, net 1,083.7 1,490.2

Other long-term assets 90.2 99.4

Liabilities and Shareholders’ Equity

Current liabilities:

Accrued expenses:

Sales promotions and incentives 138.1 189.9

Current operating lease liabilities 34.7 34.9

Income taxes payable 22.0 5.9

Long-term income taxes payable 14.4 28.1

Finance lease obligations 14.7 14.8

Deferred tax liabilities 4.4 4.0

Long-term operating lease liabilities 92.3 77.9

Deferred compensation $ 12.3 $ 13.6

Shareholders’ equity:

Accumulated other comprehensive loss, net (58.4) (72.7)

Noncontrolling interest 0.3 0.2

The accompanying footnotes are an integral part of these consolidated statements.

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POLARIS INC.

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

For the Years Ended December 31,

Operating expenses:

Goodwill and other intangible asset impairments 379.2 — —

Non-operating expense:

Equity in loss of other affiliates — 5.1 29.3

Other (income) expense, net 4.2 (6.8) (28.1)

Net (income) loss attributable to noncontrolling interest (0.1) 0.1 —

Net income attributable to Polaris Inc. $ 124.8 $ 324.0 $ 335.3

Net income per share attributable to Polaris Inc. common shareholders:

Weighted average shares outstanding:

The accompanying footnotes are an integral part of these consolidated statements.

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POLARIS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

For the Years Ended December 31,

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments 24.2 (2.8) (18.1)

Unrealized (loss) gain on derivative instruments (9.4) (6.5) 0.4

Retirement plan and other activity (0.5) 0.2 0.3

Comprehensive (income) loss attributable to noncontrolling interest (0.1) 0.1 —

Comprehensive income attributable to Polaris Inc. $ 139.1 $ 314.9 $ 317.9

The accompanying footnotes are an integral part of these consolidated statements.

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POLARIS INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In millions, except per share data)

Employee stock compensation 0.2 — 64.0 — — — 64.0

Deferred compensation — — 0.1 4.7 — — 4.8

Proceeds from stock issuances under employee plans 0.8 — 47.1 — — — 47.1

Cash dividends declared ($2.40 per share) — — — (149.0) — — (149.0)

Repurchase and retirement of common shares (3.2) — (37.1) (311.6) — — (348.7)

Noncontrolling interest — — — — — 0.3 0.3

Other comprehensive income — — — — (17.4) — (17.4)

Employee stock compensation 0.4 — 74.9 — — — 74.9

Deferred compensation — — (4.4) (2.3) — — (6.7)

Proceeds from stock issuances under employee plans 0.2 — 15.7 — — — 15.7

Cash dividends declared ($2.44 per share) — — — (149.1) — — (149.1)

Repurchase and retirement of common shares (0.1) — (1.4) (7.0) — — (8.4)

Other comprehensive loss — — — — (9.1) — (9.1)

Employee stock compensation 0.6 — 65.3 — — — 65.3

Deferred compensation — — 0.5 0.8 — — 1.3

Proceeds from stock issuances under employee plans 0.5 — 33.6 — — — 33.6

Cash dividends declared ($2.48 per share) — — — (152.5) — — (152.5)

Repurchase and retirement of common shares (0.6) — (8.3) (42.0) — — (50.3)

Other comprehensive loss — — — — 14.3 — 14.3

The accompanying footnotes are an integral part of these consolidated statements.

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POLARIS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

For the Years Ended December 31,

Operating Activities:

Noncash income from financial services (18.5) (32.5) (30.1)

Goodwill and other intangible asset impairments 379.2 — —

Other impairment charges 2.8 3.6 24.2

Changes in operating assets and liabilities:

Income taxes payable/receivable 30.5 4.9 (4.5)

Prepaid expenses and other, net (21.2) (6.1) (14.9)

Investing Activities:

Investment in finance affiliate (30.6) (16.9) (12.3)

Distributions from finance affiliate 100.4 30.8 39.1

Investment in other affiliates, net (6.6) — (1.1)

Acquisition and disposal of businesses, net of cash acquired — (1.8) (759.8)

Net cash used for investing activities (150.7) (239.3) (959.5)

Financing Activities:

Repurchase and retirement of common shares (50.3) (8.4) (348.7)

Proceeds from stock issuances under employee plans 33.6 15.7 47.4

Net cash (used for) provided by financing activities (415.4) (411.8) 523.4

Impact of currency exchange rates on cash balances 8.7 (0.8) (9.5)

Net increase in cash, cash equivalents and restricted cash 461.2 3.2 31.5

Supplemental Cash Flow Information:

Interest paid on debt borrowings $ 67.0 $ 77.0 $ 51.0

The accompanying footnotes are an integral part of these consolidated statements.

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POLARIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.Organization and Significant Accounting Policies

Polaris Inc. (“Polaris” or the “Company”), a Minnesota corporation, and its subsidiaries are engaged in the design, engineering, manufacturing and marketing of innovative, high-quality, high-performance Off-Road Vehicles (ORV), Snowmobiles, Motorcycles, Global Adjacent Markets vehicles, and Boats. Polaris products, together with related parts, garments and accessories, as well as aftermarket accessories and apparel, are sold worldwide through a network of independent dealers and distributors, and retail stores. The primary markets for the Company’s products are the United States, Canada, Western Europe, Australia and Mexico.

Basis of presentation. The accompanying consolidated financial statements include the accounts of Polaris and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Income from financial services is reported as a component of operating income to better reflect income from ongoing operations, of which financial services has a significant impact.

The Company evaluates consolidation of entities under Accounting Standards Codification (ASC) Topic 810. This Topic requires management to evaluate whether an entity or interest is a variable interest entity and whether the company is the primary beneficiary. Polaris used the guidelines to analyze the Company’s relationships, including its relationship with Polaris Acceptance, and concluded that there were no variable interest entities requiring consolidation by the Company.

Reclassifications. Certain reclassifications of previously reported segment gross profit amounts have been made to conform to the current year presentation. The reclassifications had no impact on the consolidated balance sheets, statements of income, comprehensive income, equity, or cash flows, as previously reported. Refer to Note 15 for additional information.

Use of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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.

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

Fair Value Measurements as of December 31, 2020

Asset (Liability) Total Level 1 Level 2 Level 3

Non-qualified deferred compensation assets $ 48.3 $ 48.3 $ — $ —

Total assets at fair value $ 48.3 $ 48.3 $ — $ —

Non-qualified deferred compensation liabilities $ (48.3) $ (48.3) $ — $ —

Foreign exchange contracts, net (2.3) — (2.3) —

Interest rate contracts, net (18.1) — (18.1) —

Total liabilities at fair value $ (68.7) $ (48.3) $ (20.4) $ —

Fair Value Measurements as of December 31, 2019

Asset (Liability) Total Level 1 Level 2 Level 3

Non-qualified deferred compensation assets $ 48.9 $ 48.9 $ — $ —

Total assets at fair value $ 48.9 $ 48.9 $ — $ —

Non-qualified deferred compensation liabilities $ (48.9) $ (48.9) $ — $ —

Foreign exchange contracts, net (0.1) — (0.1) —

Interest rate contracts, net (8.0) — (8.0) —

Total liabilities at fair value $ (57.0) $ (48.9) $ (8.1) $ —

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 December 31, 2020 and December 31, 2019, the fair value of the Company’s long-term debt, finance lease obligations and notes payable was approximately $1,552.3 million and $1,769.3 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 $1,450.7 million and $1,693.5 million as of December 31, 2020 and December 31, 2019, respectively.

The Company measures certain assets and liabilities at fair value on a nonrecurring basis. Assets acquired and liabilities assumed as part of acquisitions are measured at fair value. Refer to Notes 3 and 7 for additional information. The Company will impair or write off an investment and recognize a loss when events or circumstances indicate there is impairment in the investment that is other-than-temporary. The amount of loss is determined by measuring the investment at fair value. Refer to Note 11 for additional information.

Cash equivalents. The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value. Such investments consist principally of money market mutual funds.

Restricted cash. The Company classifies amounts of cash that are restricted in terms of their use and withdrawal separately within other long-term assets on the consolidated balance sheets.

Allowance for doubtful accounts. The Company’s financial exposure to collection of accounts receivable is limited due to its agreements with certain finance companies. For receivables not serviced through these finance companies, the Company provides a reserve for doubtful accounts based on historical collection experience, the age of the accounts receivables, credit quality of our customers, current and expected economic conditions, and other factors that may affect our ability to collect from customers.

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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 millions):

Raw materials and purchased components $ 533.5 $ 344.6

Service parts, garments and accessories 330.5 357.0

Investment in finance affiliate. The caption Investment in finance affiliate in the consolidated balance sheets represents the Company’s fifty percent equity interest in Polaris Acceptance, a partnership agreement between Wells Fargo Commercial Distribution Finance Corporation and one of the Company’s wholly-owned subsidiaries. Polaris Acceptance provides floor plan financing to Polaris dealers in the United States. The Company’s investment in Polaris Acceptance is accounted for under the equity method, and is recorded as investment in finance affiliate in the consolidated balance sheets. The Company’s allocable share of the income of Polaris Acceptance has been included as a component of income from financial services in the consolidated statements of income. Refer to Note 10 for additional information.

Investment in other affiliates. The Company’s investment in other affiliates is included within Other long-term assets in the consolidated balance sheets, and represents the Company’s investment in nonmarketable securities of strategic companies. For each investment, the Company assesses the level of influence in determining whether to account for the investment under the cost method or equity method. For equity method investments, the Company’s proportionate share of income or losses is recorded in the consolidated statements of income. The Company will write down or write off an investment and recognize a loss if and when events or circumstances indicate there is impairment in the investment that is other-than-temporary. Refer to Note 11 for additional information.

Property and equipment. Property and equipment is stated at cost. Depreciation is provided using the straight-line method over the estimated useful life of the respective assets, ranging from 10-40 years for buildings and improvements and from 1-7 years for equipment and tooling. Depreciation of assets recorded under finance leases is included with depreciation expense. Fully depreciated tooling is eliminated from the accounting records annually.

Goodwill and other intangible assets. Goodwill represents the excess of the purchase price of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed. Goodwill is tested at least annually for impairment and is tested for impairment more frequently when events or changes in circumstances indicate that the asset might be impaired. The Company completes its annual goodwill impairment test as of the first day of the fourth quarter.

The Company may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount. A qualitative assessment requires that the Company considers events or circumstances including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, changes in the composition or carrying amount of a reporting unit’s net assets, and changes in the Company’s stock price. If, after assessing the totality of events or circumstances, it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if the Company elects to bypass the qualitative test and proceed to a quantitative test, then the quantitative goodwill impairment test is performed. A quantitative test includes comparing the fair value of each reporting unit to the carrying amount of the reporting unit, including goodwill. If the estimated fair value is less than the carrying amount of the reporting unit, an impairment is recognized in an amount equal to the difference, limited to the total amount of goodwill allocated to that reporting unit.

Under the quantitative goodwill impairment test, the fair value of each reporting unit is determined using a discounted cash flow analysis and market approach. Determining the fair value of the reporting units requires the use of significant judgment, including discount rates, assumptions in the Company’s long-term business plan about future revenues and expenses, capital expenditures, and changes in working capital, which are dependent on internal forecasts, estimation of long-term growth for each reporting unit, and determination of the discount rate. These plans take into consideration numerous factors including historical experience, anticipated future economic conditions, including the impacts from the

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COVID-19 pandemic, changes in raw material prices and growth expectations for the industries and end markets in which the Company participates.

For its annual test, the Company completed a qualitative assessment for the ORV, Snow, Motorcycles and Global Adjacent Markets reporting units and a quantitative goodwill test for the Boats reporting unit. No assessment was performed for the Aftermarket reporting unit as it did not have a goodwill balance as of the annual testing date.

The Company’s primary identifiable intangible assets include: dealer/customer relationships, brand/trade names, developed technology, and non-compete agreements. Identifiable intangible assets with finite lives are amortized and those identifiable intangibles with indefinite lives are not amortized. Identifiable intangible assets that are subject to amortization are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangible assets with indefinite lives are tested for impairment annually or more frequently when events or changes in circumstances indicate that the asset might be impaired. The Company’s identifiable intangible assets with indefinite lives include brand/trade names. The impairment test consists of a comparison of the fair value of the brand/trade name with its carrying value. The Company completes its annual impairment test as of the first day of the fourth quarter each year for identifiable intangible assets with indefinite lives.

Refer to Note 7 for additional information on goodwill and other intangible assets.

Revenue recognition. With respect to wholegood vehicles, boats, and parts, garments and accessories (“PG&A”), revenue is recognized when the Company transfers control of the product to the customer. With respect to services provided by the Company, revenue is recognized upon completion of the service or over the term of the service agreement in proportion to the costs expected to be incurred in satisfying the obligations over the term of the service period. 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. When the right of return exists, we adjust the consideration for the estimated effect of returns. We estimate expected returns based on historical sales levels, the timing and magnitude of historical sales return levels as a percent of sales, type of product, type of customer and a projection of this experience into the future. Historically, product returns, whether in the normal course of business or resulting from repurchases made under floor plan financing programs, have not been material. However, the Company has agreed to repurchase products repossessed by the finance companies up to certain limits. The Company’s 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. Refer to Note 2 for additional information.

Sales promotions and incentives. The Company provides for estimated sales promotion and incentive expenses, which are recognized as a component of sales in measuring the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Examples of sales promotion and incentive programs include dealer and consumer rebates, volume incentives, retail financing programs and sales associate incentives. Sales promotion and incentive expenses are estimated based on current programs and historical rates for each product line. The Company records these amounts as a liability in the consolidated balance sheet until they are ultimately paid. Adjustments to sales promotions and incentives accruals are made as actual usage becomes known in order to properly estimate the amounts necessary to generate consumer demand based on market conditions as of the balance sheet date.

Dealer holdback programs. Dealer holdback represents a portion of the invoiced sales price that is expected to be subsequently returned to the dealer or distributor as a sales incentive upon the ultimate retail sale of the product. Holdback amounts reduce the ultimate net price of the products purchased by the Company’s dealers or distributors and, therefore, reduce the amount of sales the Company recognizes. The portion of the invoiced sales price estimated as the holdback is recognized as “dealer holdback” liability on the Company’s consolidated balance sheet until paid or forfeited. The minimal holdback adjustments in the estimated holdback liability due to forfeitures are recognized in net sales. Payments are made to dealers or distributors at various times during the year subject to previously established criteria.

Shipping and handling costs. The Company records shipping and handling costs as a component of cost of sales when control has transferred to the customer.

Research and development expenses. The Company records research and development expenses in the period in which they are incurred as a component of operating expenses.

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Advertising expenses. The Company records advertising expenses as a component of selling and marketing expenses in the period in which they are incurred. In the years ended December 31, 2020, 2019 and 2018, Polaris incurred $95.8 million, $77.4 million and $65.0 million of advertising expenses, respectively.

Product warranties. The Company typically provides a limited warranty for its vehicles and boats for a period of six months to ten years, depending on the product. The Company 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. The Company’s standard warranties require the Company, generally through its dealer network, to repair or replace defective products during such warranty periods. 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. The warranty reserve includes the estimated costs related to recalls, which are accrued when probable and estimable. Factors that could have an impact on the warranty reserve include the following: changes in manufacturing quality, shifts in product mix, changes in warranty coverage periods, impacts on product usage (including weather), product recalls and changes in sales volume.

The activity in the warranty reserve during the periods presented was as follows (in millions):

For the Years Ended December 31,

Additions to reserve related to acquisitions — 8.8 19.5

Leases. The Company leases certain manufacturing facilities, retail stores, warehouses, distribution centers, office space, land, and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company does not separate non-lease components from the lease components to which they relate, and instead accounts for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes. As most of the Company's leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Some leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. Such options are included in the lease term when it is reasonably certain that the option will be exercised. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain lease agreements include rental payments that are variable based on usage or are adjusted periodically for inflation. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Share-based employee compensation. The Company recognizes in the financial statements the grant-date fair value of stock options and other equity-based compensation issued to employees. Determining the appropriate fair-value model and calculating the fair value of share-based awards at the date of grant requires judgment. The Company utilizes the Black-Scholes option pricing model to estimate the fair value of employee stock options, and the Monte Carlo model to estimate the fair value of employee performance restricted stock units that include a market condition. These pricing models also require the use of input assumptions, including expected volatility, expected life, expected dividend yield, and expected risk-free rate of return. The Company utilizes historical volatility as the Company believes this is reflective of market conditions. The expected life of the awards is based on historical exercise patterns. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of awards. The dividend yield assumption is based on the Company’s history of dividend payouts. The Company develops an estimate of the number of share-based awards that will be forfeited due to employee turnover. Changes in the estimated forfeiture rate can have a significant effect on reported share-based compensation, as the effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed. If the actual forfeiture rate is higher or lower than the estimated forfeiture rate, then an adjustment is made to increase or decrease the estimated forfeiture rate, which will result in a decrease or

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increase to the expense recognized in the financial statements. If forfeiture adjustments are made, they would affect gross margin and operating expenses.

All stock options have time-based vesting conditions. The Company estimates the likelihood and the rate of achievement for performance share-based awards, specifically long-term compensation grants of performance-based restricted stock unit awards. Changes in the estimated rate of achievement can have a significant effect on reported share-based compensation expenses as the effect of a change in the estimated achievement level is recognized in the period that the likelihood factor changes. If adjustments in the estimated rate of achievement are made, they would be reflected in gross profit and operating expenses. Fluctuations in the Company’s stock price can have an effect on reported share-based compensation expenses for liability-based awards. The impact from fluctuations in the Company’s stock price is recognized in the period of the change, and is reflected in gross profit and operating expenses. Refer to Note 4 for additional information.

Derivative instruments and hedging activities. Changes in the fair value of a derivative are recognized in earnings unless the derivative qualifies as a hedge. To qualify as a hedge, the Company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company does not use any financial contracts for trading purposes.

The Company enters into foreign exchange contracts to manage currency exposures from certain of its purchase commitments denominated in foreign currencies and transfers of funds from its foreign subsidiaries. These contracts meet the criteria for cash flow hedges. Gains and losses on the Canadian dollar and Australian dollar contracts at settlement are recorded in non-operating other (income) expense, net in the consolidated income statements, and gains and losses on the Mexican peso contracts at settlement are recorded in cost of sales in the consolidated statements of income. The contracts are recorded in other current assets or other current liabilities on the consolidated balance sheets. Unrealized gains and losses are recorded as a component of accumulated other comprehensive loss, net.

The Company enters into interest rate swaps in order to maintain a balanced risk of fixed and floating interest rates associated with the Company’s debt. These contracts meet the criteria for cash flow hedges. The contracts are recorded in other current assets or other current liabilities on the consolidated balance sheets. Unrealized gains and losses are recorded as a component of accumulated other comprehensive loss, net. Refer to Note 14 for additional information.

Foreign currency translation. The functional currency for each of the Company’s foreign subsidiaries is their respective local currencies. The assets and liabilities in all of the Company’s foreign entities are translated at the foreign exchange rate in effect at the balance sheet date. Translation gains and losses are reflected as a component of accumulated other comprehensive loss, net in the shareholders’ equity section of the accompanying consolidated balance sheets. Revenues and expenses in all of the Company’s foreign entities are translated at the average foreign exchange rate in effect for each month of the quarter. Transaction gains and losses including intercompany transactions denominated in a currency other than the functional currency of the entity involved are included in other (income) expense, net in the consolidated statements of income.

Comprehensive income. Components of comprehensive income include net income, foreign currency translation adjustments, unrealized gains or losses on derivative instruments, retirement benefit plan activity, and other activity. The Company discloses comprehensive income in separate consolidated statements of comprehensive income.

New accounting pronouncements.

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. Topic 326 replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost. The Company adopted Topic 326 on January 1, 2020, using a modified retrospective transition method. The adoption of Topic 326 did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows.

Fair Value Measurement. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820 to eliminate, modify, and add certain disclosure requirements for fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s disclosures.

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Income Taxes. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for incomes taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify the accounting for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years and interim periods beginning after December 15, 2020, and is effective for the Company’s fiscal year beginning January 1, 2021. 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.

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 exception 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 ASUs may be applied through December 31, 2022 and are applicable to our contracts and hedging relationships that reference LIBOR. We are still evaluating whether to apply any of the expedients and/or exceptions included in these ASUs.

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

Note 2. Revenue Recognition

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

For the Year Ended December 31, 2020

ORV / Snowmobiles Motorcycles Global Adj. Markets Aftermarket Boats Total

Revenue by product type

Revenue by geography

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For the Year Ended December 31, 2019

ORV / Snowmobiles Motorcycles Global Adj. Markets Aftermarket Boats Total

Revenue by product type

Revenue by geography

For the Year Ended December 31, 2018

ORV / Snowmobiles Motorcycles Global Adj. Markets Aftermarket Boats Total

Revenue by product type

Revenue by geography

With respect to wholegood vehicles, boats, and PG&A, revenue is recognized when the Company transfers control of the product to the customer. With respect to services provided by the Company, revenue is recognized upon completion of the service or over the term of the service agreement in proportion to the costs expected to be incurred in satisfying the obligations over the term of the service period. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. When the right of return exists, we adjust the consideration for the estimated effect of returns. We estimate expected returns based on historical sales levels, the timing and magnitude of historical sales return levels as a percent of sales, type of product, type of customer and a projection of this experience into the future. 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 are recognized as expense when the products are sold. The Company recognizes revenue for vehicle service contracts that extend mechanical and maintenance coverage beyond the Company’s limited warranties over the life of the contract. Revenue from goods and services transferred to customers at a point-in-time accounts for the majority of the Company’s revenue. Revenue from products or services transferred over time is discussed in the deferred revenue section.

ORV/Snowmobiles, Motorcycles Global Adjacent Markets, and Boats segments

Wholegood vehicles, boats, and parts, garments and accessories. For the majority of wholegood vehicles, boats, and 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 rebates it offers to its dealers and their customers. When the right of return exists, we adjust the consideration for the estimated

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effect of returns. We estimate expected returns based on historical sales levels, the timing and magnitude of historical sales return levels as a percent of sales, type of product, type of customer and a projection of this experience into the future. 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, boats, or PG&A has 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 rebates rights it offers to its customers and their customers. When the right of return exists, we adjust the consideration for the estimated effect of returns. We estimate expected returns based on historical sales levels, the timing and magnitude of historical sales return levels as a percent of sales, type of product, type of customer and a projection of this experience into the future. 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. The Company offers installation services for parts that it 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., 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 PG&A has transferred to the customer as an expense in cost of sales.

Deferred revenue

The Company finances 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.

The Company expects to recognize approximately $37.8 million of the unearned amount over the next 12 months and $69.3 million thereafter. The activity in the deferred revenue reserve during the periods presented was as follows (in millions):

For the Years Ended December 31,

Balance at beginning of year $ 81.6 $ 59.9 $ 45.8

Less: reductions for revenue recognized (34.9) (27.9) (21.5)

(1) The unamortized ESC premiums (deferred revenue) recorded in other current liabilities totaled $37.8 million and $34.3 million at December 31, 2020 and 2019, respectively, while the amount recorded in other long-term liabilities totaled $69.3 million and $47.3 million at December 31, 2020 and 2019, respectively.

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Note 3. Acquisitions

2020 Acquisitions.

The Company did not complete any material acquisitions in 2020.

2019 Acquisitions.

The Company did not complete any material acquisitions in 2019.

2018 Acquisitions.

Boat Holdings, LLC

On July 2, 2018, pursuant to the Agreement and Plan of Merger dated May 29, 2018, the Company completed the acquisition of Boat Holdings, LLC, a privately held Delaware limited liability company, headquartered in Elkhart, Indiana which manufactures boats (“Boat Holdings”).

The transaction was structured as an acquisition of 100% of the outstanding equity interests in Boat Holdings for aggregate consideration of $806.7 million, net of cash acquired, subject to customary adjustments based on, among other things, the amount of cash, debt and working capital in the business of Boat Holdings at the closing date. A portion of the aggregate consideration equal to $100.0 million will be paid in the form of a series of deferred annual payments over 12 years following the closing date.

The Company funded the purchase price for the acquisition by amending, extending, and up-sizing the Credit Facility and with the proceeds of the issuance of 4.23% Senior Notes, Series 2018, due July 3, 2028, described in Note 6.

The consolidated statements of income for the years ended December 31, 2020, 2019 and 2018 include $603.4 million, $621.3 million and $279.7 million of net sales and $116.4 million, $124.6 million and $46.3 million of gross profit, respectively, related to Boats.

The following table summarizes the final fair values assigned to the Boat Holdings net assets acquired and the determination of net assets (in millions):

Cash and cash equivalents $ 16.5

Trade receivables 17.5

Other current assets 4.5

Property, plant and equipment 35.3

Customer relationships 341.1

Trademarks / trade names 210.7

Non-compete agreements 2.6

Accounts payable (30.0)

Other liabilities assumed (37.3)

Total fair value of net assets acquired 823.2

Less cash acquired (16.5)

Total consideration for acquisition, less cash acquired $ 806.7

On the acquisition date, amortizable intangible assets had a weighted-average useful life of approximately 19 years. The customer relationships were valued based on the Discounted Cash Flow Method and are amortized over 15-20 years, depending on the customer class. The trademarks and trade names were valued on the Relief from Royalty Method and have indefinite remaining useful lives. Goodwill is deductible for tax purposes.

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The following unaudited pro forma information represents the Company’s results of operations as if the fiscal 2018 acquisition of Boat Holdings had occurred at the beginning of fiscal 2018 (in millions, except per share data):

For the Years Ended December 31,

Diluted earnings per common share $ 1.99 $ 5.28 $ 5.64

The results for the years ended December 31, 2019 and 2018 have been adjusted to exclude the impact of approximately $6.4 million and $9.6 million, respectively, of integration and acquisition-related costs (pre-tax) incurred by the Company that are directly attributable to the transaction.

The results for the years ended December 31, 2019 and 2018 have been adjusted to include the pro forma impact of amortization of intangible assets and the depreciation of property, plant, and equipment, based on purchase price allocations; the pro forma impact of additional interest expense relating to the acquisition; and the pro forma tax effect of both income before taxes and the pro forma adjustments. These performance results may not be indicative of the actual results that would have occurred under the ownership and management of the Company.

The pro forma financial information has been prepared for comparative purposes only and includes certain adjustments, as noted above. The adjustments are estimates based on currently available information and actual amounts may differ materially from these estimates. They do not reflect the effect of costs or synergies that would have been expected to result from the integration of the Boat Holdings acquisition.

Note 4. Share-Based Compensation

Share-based plans. The Company grants long-term equity-based incentives and awards for the benefit of its employees and directors under the shareholder approved Polaris Inc. 2007 Omnibus Incentive Plan (as amended and restated as of April 30,2020) (the “Omnibus Plan”), which were previously provided under several separate incentive and compensatory plans. Upon approval by the shareholders of the Omnibus Plan, in April 2007 prior equity plans maintained by the Company were frozen and no further grants or awards have since been or will be made under such plans. A maximum of 27,775,000 shares of common stock are available for issuance under the Omnibus Plan, together with additional shares canceled or forfeited under the Prior Plans.

Stock option awards granted to date under the Omnibus Plan generally vest one to four years from the award date and expire after ten years. In addition, since 2007, the Company has granted a total of 216,000 deferred stock units to its non-employee directors under the Omnibus Plan (20,000, 15,000 and 12,000 in 2020, 2019 and 2018, respectively), which will be converted into common stock when the director’s board service ends or upon a change in control. Restricted units and performance-based restricted units (collectively restricted stock) awarded under the Omnibus Plan generally vests after a one to four year period. The final number of shares issued under performance-based awards are dependent on achievement of certain performance measures.

Under the Polaris Inc. Deferred Compensation Plan for Directors (“Director Plan”) and the Omnibus Plan, members of the Board of Directors who are not Polaris officers or employees may annually elect to receive common stock equivalents in lieu of director fees, which will be converted into common stock when board service ends. Alternatively, these common stock equivalents may be diversified into other investments until board service ends, pursuant to the terms of the Director Plan. A maximum of 500,000 shares of common stock has been authorized under the Director Plan of which 73,000 common stock equivalents have been earned and 427,000 shares have been issued to retired directors as of December 31, 2020. Authorized shares under the Director Plan were exhausted in 2017. Since 2017, the Company has granted a total of 48,000 common stock equivalents to its non-employee directors under the Omnibus Plan (13,000 in 2020, 14,000 in 2019, and 10,000 in 2018). As of December 31, 2020 and 2019, Polaris’ liability under the plans for the common stock equivalents totaled $8.0 million and $11.0 million, respectively.

Polaris maintains a long term incentive program under which awards are issued to provide incentives for certain employees to attain and maintain the highest standards of performance and to attract and retain employees of outstanding

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competence and ability with no cash payments required from the recipient. Long term incentive program awards are granted in restricted stock units and stock options and therefore treated as equity awards.

Share-based compensation expense. The amount of compensation cost for share-based awards recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company analyzes historical data to estimate pre-vesting forfeitures and records share compensation expense for those awards expected to vest.

Total share-based compensation expenses were as follows (in millions):

For the Years Ended December 31,

Total share-based compensation before tax 54.7 69.8 51.9

These share-based compensation expenses are reflected in cost of sales and operating expenses in the accompanying consolidated statements of income. At December 31, 2020, there was $60.1 million of total unrecognized share-based compensation expense related to unvested share-based equity awards. Unrecognized share-based compensation expense is expected to be recognized over a weighted-average period of 1.04 years. Included in unrecognized share-based compensation expense is approximately $10.2 million related to stock options and $49.9 million for restricted stock.

In addition to the above share-based compensation expenses, the Company sponsors a qualified non-leveraged employee stock ownership plan (ESOP). Shares allocated to eligible participants’ accounts vest at various percentage rates based on years of service and require no cash payments from the recipient. See Note 5 for additional information.

General stock option and restricted stock information. The following summarizes stock option activity and the weighted average exercise price for the Omnibus Plan for the year ended December 31, 2020:

Omnibus Plan (Active)

Options Outstanding Weighted Average Exercise Price

The weighted average remaining contractual life of options outstanding and of options outstanding and exercisable as of December 31, 2020 was 5.17 years and 3.84 years, respectively. Substantially all unvested outstanding options are expected to vest.

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The following assumptions were used to estimate the weighted average fair value of options of $21.76, $19.54 and $26.50 granted during the years ended December 31, 2020, 2019 and 2018, respectively:

For the Years Ended December 31,

Weighted-average volatility 34% 32% 30%

Expected dividend yield 2.6% 2.9% 2.1%

Expected term (in years) 4.5 4.5 4.4

Weighted average risk free interest rate 1.4% 2.5% 2.6%

The total intrinsic value of options exercised during the year ended December 31, 2020 was $13.4 million. The total intrinsic value of options outstanding and of options outstanding and exercisable at December 31, 2020, was $35.6 million and $25.8 million, respectively. The total intrinsic values are based on the Company’s closing stock price on the last trading day of the applicable year for in-the-money options.

The grant date fair value for performance awards with a total shareholder return (TSR) market condition were estimated using a Monte Carlo simulation model utilizing the following weighted-average assumptions:

For the Years Ended December 31,

Weighted-average volatility 35% 34% 33%

Expected dividend yield 2.6% 2.7% 2.1%

Expected term (in years) 3.0 3.0 3.0

Weighted average risk free interest rate 1.4% 2.4% 2.3%

The Company used its historical stock price as the basis for the Company’s volatility assumption. The assumed risk-free interest rates were based on U.S. Treasury rates in effect at the time of grant. The expected term was based on the vesting period. The weighted-average fair value used to record compensation expense for TSR performance share awards granted during 2020, 2019, and 2018 was $98.09, $96.38, and $106.43 per award, respectively.

The following table summarizes restricted stock activity for the year ended December 31, 2020:

Shares Outstanding Weighted Average Grant Price

The shares granted above include 96,000 performance restricted stock unit awards. These performance grants are the number of shares that would be earned at the target level of performance. The number of shares of Polaris common stock that could actually be delivered at the end of the three-year performance period for performance restricted stock units may be anywhere from 0% to 200% of target for each performance share, depending on the performance of the Company during such performance period.

The total intrinsic value of restricted stock expected to vest as of December 31, 2020 was $108.2 million. The total intrinsic value is based on the Company’s closing stock price on the last trading day of the year. The weighted average fair values at the grant dates of grants awarded under the Omnibus Plan for the years ended December 31, 2020, 2019 and 2018 were $92.23, $89.75 and $114.42, respectively.

Note 5. Employee Savings Plans

Employee Stock Ownership Plan (ESOP). Polaris sponsors a qualified non-leveraged ESOP under which a maximum of 7,700,000 shares of common stock can be awarded. The shares are allocated to eligible participants’ accounts based on

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total cash compensation earned during the calendar year. An employee’s ESOP account vests equally after two and three years of service and requires no cash payments from the recipient. Participants may instruct Polaris to pay respective dividends directly to the participant in cash or reinvest the dividends into the participants’ ESOP accounts. Employees who meet eligibility requirements can participate in the ESOP. Participants that meet certain age and service requirements are allowed to transfer balances, subject to limitation, to the Polaris 401(k) Retirement Savings Plan and thus diversify their investments. Total expense related to the ESOP was $12.3 million, $10.3 million and $10.0 million, in 2020, 2019 and 2018, respectively. As of December 31, 2020 there were 3,242,000 shares held in the plan.

Defined contribution plans. Polaris sponsors a 401(k) defined contribution retirement plan covering substantially all U.S. employees. The Company matches 100 percent of employee contributions up to a maximum of five percent of eligible compensation. All contributions vest immediately. The cost of the defined contribution retirement plan was $26.9 million, $26.2 million, and $24.5 million, in 2020, 2019 and 2018, respectively.

Supplemental Executive Retirement Plan (SERP). Polaris sponsors a SERP that provides executive officers of the Company an alternative to defer portions of their salary, cash incentive compensation, and Polaris matching contributions. The deferrals and contributions are held in a rabbi trust and are in funds to match the liabilities of the plan. The assets are recorded as trading assets. The assets of the rabbi trust are included in other long-term assets on the consolidated balance sheets and the SERP liability is included in other long-term liabilities on the consolidated balance sheets. The asset and liability balances are both $48.3 million and $48.9 million at December 31, 2020, and 2019, respectively.

Executive officers of the Company have the opportunity to defer certain restricted stock units. These restricted stock units are redeemable in Polaris common stock or in cash. After a holding period, the executive officer has the option to diversify the vested award into other funds available under the SERP. If the award is diversified, it must be redeemed in cash. Awards probable of vesting, for which the executive has not yet made an election to defer, and awards that have been deferred but have not yet vested and are probable of vesting are reported as deferred compensation in the temporary equity section of the consolidated balance sheets, as these awards have redemption features that are not yet solely within the control of the Company. The awards recorded in temporary equity are recognized at fair value as though the reporting date is also the redemption date, with any difference from stock-based compensation recorded in retained earnings. At December 31, 2020, 129,457 shares are recorded at a fair value of $12.3 million in temporary equity, which includes $11.3 million of compensation cost and $1.0 million of cumulative fair value adjustment recorded through retained earnings.

Note 6. Financing Agreement

The carrying value of debt, finance lease obligations, and notes payable and the average related interest rates were as follows (in millions):

Revolving loan facility — July 2023 $ — $ 75.1

Senior notes—fixed rate — December 2020 — 100.0

Debt issuance costs (5.5) (4.1)

Total debt, finance lease obligations, and notes payable $ 1,450.7 $ 1,693.5

Bank financing. In December 2010, the Company entered into a Master Note Purchase Agreement to issue $75 million of unsecured senior notes due May 2021 (the “Senior Notes”). The Senior Notes were issued in May 2011. In December 2013, the Company entered into a First Supplement to Master Note Purchase Agreement, under which the Company

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issued $100 million of unsecured senior notes due December 2020. In July 2018, the Company entered into a Master Note Purchase Agreement to issue $350 million of unsecured senior notes due July 2028. There are $75 million of the senior notes classified as current maturities in the consolidated balance sheet as of December 31, 2020.

In July 2018, the Company amended its unsecured credit agreement to increase its revolving loan facility (the “revolving loan facility”) to $700 million and increase its term loan facility (the “term loan facility”) to $1,180 million. The expiration date of the facility was extended to July 2023, and interest is charged at rates based on a LIBOR or “prime” base rate. The Company is required to make principal payments under the term loan facility of $59.0 million over the next 12 months. These payments are classified as current maturities in the consolidated balance sheets.

On April 9, 2020, the Company amended the credit agreement to provide a new incremental 364-day term loan (the “incremental term loan”) in the amount of $300 million. The new incremental term loan, which was fully drawn on closing, was unsecured and set to mature on April 8, 2021, however, the incremental term loan was repaid in full in December 2020.

The credit agreement and the amended Master Note Purchase Agreement contain covenants that require Polaris to maintain certain financial ratios, including minimum interest coverage and maximum leverage ratios. On May 26, 2020, the Company further amended the credit agreement and amended Master Note Purchase Agreement to temporarily decrease its minimum interest coverage ratio from not less than 3.00x to not less than 2.25x and temporarily increase its maximum leverage ratio from 3.50x to 4.75x on a rolling four quarter basis until March 31, 2021. Polaris was in compliance with all such covenants as of December 31, 2020. On January 15, 2021 the Company further amended the credit agreement and amended Master Note Purchase Agreement to revert the financial covenants to those in place prior to the 2020 amendments.

Debt issuance costs are recognized as a reduction in the carrying value of the related long-term debt in the consolidated balance sheets and are being amortized to interest expense in the consolidated statements of income over the expected remaining terms of the related debt.

As a component of the Boat Holdings merger agreement in 2018, the Company has committed to make a series of deferred payments to the former owners following the closing date of the merger through July 2030. The original discounted payable was for $76.7 million, of which $66.5 million is outstanding as of December 31, 2020. The outstanding balance is included in long-term debt and current portion of long-term debt in the consolidated balance sheets.

The Company has a mortgage note payable agreement for land, on which Polaris built the Huntsville, Alabama manufacturing facility. The original mortgage note payable, due in 2027, was for $14.5 million, of which $8.5 million is outstanding as of December 31, 2020. The outstanding balance is included in long-term debt and current portion of long-term debt in the consolidated balance sheets. The payment of principal and interest for the note payable is forgivable if the Company satisfies certain job commitments over the term of the note. The Company has met the required commitments to date.

The following summarizes activity under Polaris’ credit arrangements (in millions):

Weighted-average interest rate at December 31 2.30% 3.29% 3.64%

Letters of credit. At December 31, 2020, Polaris had open letters of credit totaling $30.7 million. The amounts are primarily related to inventory purchases and are reduced as the purchases are received.

Dealer financing programs. Certain finance companies, including Polaris Acceptance, an affiliate, and TCF Financial Corporation (see Note 10), provide floor plan financing to dealers on the purchase of Polaris products. The amount financed by worldwide dealers under these arrangements at December 31, 2020, was approximately $1,064.0 million. Polaris has agreed to repurchase products repossessed by the finance companies up to an annual maximum of no more than 15 percent of the average month end balances outstanding during the prior calendar year for Polaris Acceptance, and 100 percent of the balances outstanding for TCF Financial Corporation. At December 31, 2020, the potential aggregate repurchase obligation was approximately $198.3 million and $135.7 million for Polaris Acceptance and TCF Financial