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 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Overview

2022 was a record year for sales which totaled $8.6 billion, a 15 percent increase from 2021. The Company achieved growth across all segments and regions driven primarily by favorable product mix and higher pricing compared to 2021.

The impact of the novel coronavirus (“COVID-19”) pandemic as well as other disruptive events have impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The impact of these factors has affected our business segments, employees, dealers, suppliers, and customers in a variety of ways.

In 2021 and the first half of 2022 we saw strong retail demand for our products. Consistent with macroeconomic trends, as we progressed through 2022, we have seen indicators of demand moderating. Due to the dynamics of the COVID-19 pandemic, heightened demand, natural disasters, and geopolitical events, including the conflict between Russia and Ukraine and related sanctions, our supply chain and manufacturing operations have experienced inefficiencies caused by production-limiting disruptions, including supplier labor shortages. Although these disruptions are moderating, we have made pricing changes to address the resulting increase in production costs.

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.

Full year net income from continuing operations attributable to Polaris Inc. of $602.9 million increased 22 percent from 2021, with diluted earnings per share from continuing operations increasing from $7.92 to $10.04 per share. These increases were primarily driven by higher pricing and favorable product mix.

On February 2, 2023, we announced that our Board of Directors approved a two percent increase in the quarterly cash dividend to $0.65 per share for the first quarter of 2023, representing the 28th consecutive year of increased dividends to shareholders.

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Consolidated Results of Operations

The consolidated results of operations were as follows:

For the Years Ended December 31,

Percentage of sales 22.8 % 23.5 % -72 basis points 24.4 % -91 basis points

Operating expenses:

Goodwill impairment — — 81.1 NM

Percentage of sales 14.0 % 14.7 % -68 basis points 17.4% -275 basis points

Non-operating expense:

Other (income) expense, net $ (28.6) $ 2.3 NM $ 3.8 (39) %

Loss on sale of businesses $ — $ 36.8 NM $ — NM

Net income attributable to noncontrolling interest (0.5) (0.4) 25 % (0.1) NM

Weighted average diluted shares outstanding 60.1 62.7 (4) % 62.6 — %

NM = not meaningful

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Sales:

Sales were $8,589.0 million in 2022, a 15 percent increase from $7,439.2 million in 2021. The components of the consolidated sales change were as follows:

Percent change in total Company sales compared to the prior year

Volume 1 % 9 %

Product mix and price 16 8

Currency (2) 1

Favorable product mix and higher pricing contributed a 16 percent increase to sales in 2022. Volume contributed a one percent increase in 2022 driven by increased motorcycle and snowmobile shipments, partially offset by lower off-road vehicle shipments. Currency rate movements drove a two percent decrease in sales for 2022.

Volume contributed a nine percent increase in 2021 driven by increased shipments in all segments, but most significantly ORV, as well as higher PG&A sales. Product mix and price contributed an eight percent increase in 2021, primarily due to lower promotional spending and increased product pricing. Currency rate movements contributed a one percent increase for 2021.

Sales by geographic region were as follows:

For the Years Ended December 31,

Sales in the United States for 2022 increased 19 percent during the year, primarily driven by favorable product mix, higher pricing, and increased motorcycle and snowmobile shipments. Sales in the United States represented 79 percent of total Company sales in 2022.

Sales in the United States for 2021 increased 13 percent, primarily driven by increased ORV and boat shipments, as well as higher PG&A sales.

Sales in Canada for 2022 increased six percent during the year, primarily driven by favorable product mix and higher pricing. Currency rate movements had an unfavorable impact of four percentage points on sales in 2022. Sales in Canada represented seven percent of total company sales in 2022.

Sales in Canada for 2021 increased 56 percent, primarily driven by increased ORV shipments. Currency rate movements had a favorable impact of eight percentage points on sales in 2021.

Sales in other countries, primarily in Europe, increased four percent during 2022, primarily driven by increased motorcycle shipments and higher pricing. Currency rate movements had an unfavorable impact of nine percentage points on sales in 2022. Sales in other countries represented 14 percent of total company sales in 2022.

Sales in other foreign countries increased 34 percent during 2021, primarily driven by increased ORV and motorcycle shipments. Currency rate movements had a favorable impact of five percentage points on sales in 2021.

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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 77.2 % 76.5 % +72 basis points 75.6 % +91 basis points

Cost of sales increased 17 percent in 2022 primarily due to changes in product mix, as well as higher warranty, labor, raw materials, and logistics costs. Cost of sales increased 20 percent in 2021 primarily due to increased wholegood and PG&A shipments, as well as higher labor, raw materials, and logistics costs.

Gross profit:

Gross profit for 2022, as a percentage of sales, decreased primarily due to higher input costs including logistics, components, and commodity prices, plant inefficiencies related to supply chain constraints, and higher warranty costs, partially offset by higher pricing and favorable product mix.

Gross profit for 2021, as a percentage of sales, decreased primarily due to higher input costs including logistics, components, and commodity prices, as well as plant inefficiencies related to supply chain constraints. The decrease was partially offset by higher sales volume, lower promotional costs and favorable pricing.

Operating expenses:

Operating expenses for 2022, in absolute dollars, increased compared to 2021, primarily due to higher research and development and general and administrative expenses. Operating expenses for 2022, as a percent of sales, decreased compared to 2021, primarily due to higher pricing and favorable mix which drove increased sales.

Operating expenses for 2021, in absolute dollars and as a percent of sales, decreased primarily due to the prior year impairment of goodwill, partially offset by an increase in total operating expenses to levels commensurate with increases in demand.

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 $ 15.1 $ 7.7 96 % $ 18.5 (58) %

Total income from financial services $ 48.4 $ 53.8 (10) % $ 80.4 (33) %

Percentage of sales 0.6 % 0.7 % -16 basis points 1.3 % -56 basis points

Income from financial services decreased 10 percent for 2022, primarily due to lower retail credit income resulting from lower retail sales, partially offset by higher wholesale financing income from Polaris Acceptance due to higher dealer inventory levels.

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Interest expense:

Interest expense increased for 2022 due to higher debt levels and higher interest rates.

Other (income) expense, net:

Other (income) expense is the result of currency exchange rate movements and the corresponding effects on currency transactions related to our international subsidiaries. Also included in Other (income) expense, net in 2021 is a $7.7 million impairment charge related to an investment in a strategic partner that was associated with a divested business.

Loss on sale of businesses:

In the fourth quarter of 2021, we divested our GEM and Taylor-Dunn businesses which resulted in a $36.8 million loss.

Provision for income taxes:

The decrease in the effective income tax rate for 2022 was primarily due to an increased deduction for Foreign Derived Intangible Income (“FDII”) and incremental foreign tax credits, partially offset by a decrease in research and development credits, as well as the unfavorable impact of higher pretax income generated in the current period.

The increase in the effective income tax rate for 2021 was primarily due to the favorable impact of lower pretax income generated in 2020 and the release of certain income tax reserves due to favorable federal tax examination developments in 2020. The increase was partially offset by favorable income tax benefits in jurisdictions with lower tax rates, as well as favorable income tax benefits from research and development credits in 2021.

Weighted average shares outstanding:

Weighted average diluted shares outstanding decreased in 2022 primarily due to share repurchases.

Segment Results of Operations

On January 1, 2022, the Company began management of its portfolio of businesses under a new basis as a result of the divestiture of the GEM and Taylor-Dunn businesses. As a such, the Global Adjacent Markets segment was eliminated and the results of the Company’s remaining businesses historically included within the Global Adjacent Markets segment were reclassified to the Off Road and On Road segments. All historical segment results were reclassified for comparability, including the divested businesses which are included in Corporate.

On June 30, 2022, the Company again began management of its portfolio of businesses under a new basis as a result of the divestiture of TAP. As such, the Aftermarket segment was eliminated and the results of the Company’s remaining aftermarket businesses historically included within the Aftermarket segment were reclassified to the Off Road and On Road segments. All historical segment results were reclassified for comparability.

The summary that follows provides a discussion of the results of operations of each of our three reportable segments, Off Road, On Road, and Marine. Each of these segments is comprised of various product offerings that serve multiple end markets. We evaluate performance based on sales and gross profit. The Corporate amounts include revenues and costs of businesses that were divested in 2021, as well as costs that are not allocated to segments, including certain unallocated manufacturing costs. Businesses that are presented as discontinued operations are excluded from the tables below.

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

For the Years Ended December 31,

NM = not meaningful

Off Road:

Off Road sales, inclusive of PG&A sales, increased 15 percent in 2022 driven by favorable product mix and higher pricing. Sales to customers outside of North America increased five percent in 2022 driven by higher pricing and increased snowmobile shipments. The average per unit sales price for the Off Road segment increased approximately 18 percent, driven by higher pricing.

Additional information on our end markets for 2022:

•Polaris North America ATV unit retail sales down low-twenties percent

•Polaris North America side-by-side unit retail sales down mid-teens percent

•Total Polaris North America ORV unit retail sales down high-teens percent

•Estimated North America industry ORV unit retail sales down about 10 percent

•Total Polaris North America ORV dealer inventories up approximately 140 percent

•Polaris North America snowmobile unit retail sales for the 2022-2023 season-to-date period through December 31, 2022 down mid-single digits percent

•Estimated North America industry snowmobile unit retail sales for the 2022-2023 season-to-date period through December 31, 2022 up low-single digits percent

•Total Polaris North America snowmobile dealer inventories up approximately 45 percent

Gross profit, as a percentage of sales, decreased in 2022 primarily due to higher input costs including logistics, components, and commodity prices, plant inefficiencies related to supply chain constraints, and higher warranty costs, mostly offset by higher pricing.

Off Road sales increased 16 percent in 2021 driven by broad-based demand and shipments across ATV and side-by-side product lines, including PG&A, as well as increased pricing. Gross profit, as a percentage of sales, decreased in 2021 primarily due to higher input costs including logistics, components, and commodity prices, as well as plant inefficiencies related to supply chain constraints, partially offset by favorable mix, lower promotional costs, and higher pricing.

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On Road:

On Road sales, inclusive of PG&A sales, increased 13 percent in 2022 driven by higher pricing and increased shipments. On Road sales to customers outside of North America increased four percent in 2022 driven by higher pricing, partially offset by unfavorable foreign currency exchange rate movement. The average per unit sales price for the On Road segment increased two percent, driven by favorable product mix and higher pricing.

Additional information on our On Road end markets for 2022:

•Indian Motorcycle North America unit retail sales down low-twenties percent

•Estimated North America industry 900cc cruiser, touring, and standard motorcycle unit retail sales down low-double digits percent

•Polaris North America motorcycle dealer inventories up approximately 90 percent

Gross profit, as a percentage of sales, increased in 2022 primarily due to favorable product mix and lower promotional costs, partially offset by higher input costs, warranty costs, and unfavorable foreign currency exchange rate movement.

On Road sales increased 28 percent in 2021 driven by increased Indian motorcycle and Slingshot shipments as a result of strong retail sales, lower promotional costs, and higher PG&A sales. Gross profit, as a percentage of sales, increased in 2021 primarily due to lower promotional costs, partially offset by increased input costs related to supply chain constraints.

Marine:

Marine sales increased 30 percent, primarily due to favorable product mix and increased shipments. The average per unit sales price for the Marine segment increased 15 percent, driven by favorable product mix.

Additional information on our boat end markets for 2022:

•Polaris U.S pontoon unit retail sales down mid-twenties percent

•Estimated U.S. industry pontoon unit retail sales down high-single digits percent

Gross profit, as a percentage of sales, increased slightly primarily due to favorable product mix, mostly offset by higher input costs and higher floor plan interest expense.

Marine sales increased 26 percent in 2021, primarily due to increased production levels driven by retail and demand, as well as higher pricing and favorable mix. Gross profit, as a percentage of sales, increased in 2021, primarily due to favorable product mix, partially offset by higher input costs related to supply chain constraints.

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, repurchases 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 and year to year.

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 at least the next 12 months and for the foreseeable future thereafter.

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Cash Flows

The following table summarizes the cash flows from operating, investing and financing activities of continuing operations:

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

Total cash provided by (used for):

Operating Activities:

The increase in net cash provided by operating activities of continuing operations in 2022 was primarily the result of lower working capital additions and higher net income from continuing operations, partially offset by the impact of the Tax Cuts and Jobs Act (the "Act") which, beginning in 2022, eliminated the option to deduct research and development expenditures and instead capitalize and amortize such expenditures over future periods.

The decrease in net cash provided by operating activities of continuing operations in 2021 was primarily the result of higher working capital additions due to increases in inventory driven by strong end-market demand and supply chain inefficiencies, partially offset by higher net income.

Investing Activities:

The primary sources and uses of cash in 2022 and 2021 were for the purchase of property, equipment and tooling for continued capacity and capability at our manufacturing and distribution facilities and for product development, distributions from and contributions to Polaris Acceptance, as well as proceeds from the sale of businesses. Net cash used for investing activities of continuing operations increased in 2022 due to a net a decrease in distributions from Polaris Acceptance and an increase in property, equipment and tooling purchases, partially offset by proceeds from the sale of businesses. Net cash used for investing activities of continuing operations increased in 2021 due to an increase in property, equipment and tooling purchases.

Financing Activities:

The increase in net cash used for financing activities was primarily due to lower proceeds from stock issuances under employee plans and decreased net borrowings under debt arrangements, finance lease obligations and notes payable. Net borrowings totaled $257.7 million in 2022 compared $351.3 million in 2021. Higher share repurchases also contributed to the increase.

Financing Arrangements:

We are party to an unsecured Master Note Purchase Agreement, as amended and supplemented, under which we have issued senior notes. As of December 31, 2022, outstanding borrowings under the Master Note Purchase Agreement totaled $350.0 million.

We are also party to an unsecured credit agreement, which includes a $1.0 billion variable interest rate Revolving Loan Facility that matures in June 2026, under which we have unsecured borrowings. As of December 31, 2022, there were borrowings of $312.9 million outstanding under the Revolving Loan Facility. Our credit agreement also includes a Term Loan Facility, on which $828.0 million was outstanding as of December 31, 2022. Interest is charged at rates based on adjusted Term SOFR for the credit facility. As of December 31, 2022, we had $679.6 million of availability on the Revolving Loan Facility.

In December 2021, we amended the credit agreement to provide an unsecured incremental 364-day term loan (the “Incremental Term Loan”) in the amount of $500 million, which was fully drawn on closing. In December 2022, we further amended the unsecured credit facility to extend the maturity date of the Incremental Term Loan to December 15, 2023. There are no required principal payments prior to the maturity date. In addition to the payment of the $500 million

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Incremental Term Loan, we are required to make principal payments under the Term Loan Facility totaling $45 million over the next 12 months.

The credit agreements governing the facility and the Master Note Purchase Agreement contain covenants that require us to maintain certain financial ratios, including minimum interest coverage and maximum leverage ratios. The agreements require us to maintain an interest coverage ratio of not less than 3.00 to 1.00 and a leverage ratio of not more than 3.50 to 1.00 on a rolling four-quarter basis.

On July 2, 2018, pursuant to the Agreement and Plan of Merger dated May 29, 2018, the we completed the acquisition of Boat Holdings, LLC, a privately held Delaware limited liability company, headquartered in Elkhart, Indiana which manufactures boats (“Boat Holdings”). As a component of the Boat Holdings merger agreement, we have committed to make a series of deferred payments to the former owners following the closing date of the mthrough July 2030. The original discounted payable was for $76.7 million, of which $55.3 million was outstanding as of December 31, 2022.

As of December 31, 2022 and 2021, we were in compliance with all debt covenants. Our debt to total capital ratio was 65 percent and 60 percent as of December 31, 2022 and 2021, respectively. Additionally, as of December 31, 2022, we had letters of credit outstanding of $38.5 million, primarily related to purchase obligations for raw materials.

Share Repurchases:

As of December 31, 2022, our Board of Directors has authorized us to repurchase up to an additional $349.1 million of our common stock. We repurchased a total of 4.4 million shares of our common stock for $505.0 million during 2022, which had a favorable impact on diluted net income from continuing operations per share of 33 cents.

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, 2022 and 2021, was approximately $1,893.9 million and $946.7 million, respectively. We participate in the cost of dealer financing up to certain limits.

Under these arrangements, we have agreed to repurchase products repossessed by these finance companies. As of December 31, 2022, the potential aggregate repurchase obligations were approximately $413.5 million. Our financial exposure under these repurchase agreements 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 these agreements during the periods presented.

Retail Customer Financing Arrangements:

We have agreements with third-party financing companies to provide financing options to end consumers of our products. We have no material contingent liabilities for residual value or credit collection risk under these agreements. During 2022, consumers financed 23 percent of our vehicles sold in the United States through these arrangements. The volume of installment credit contracts written in calendar year 2022 with these institutions was $1,098.0 million, a one percent increase from 2021.

Critical Accounting Policies and Critical Accounting Estimates

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 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.

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Revenue recognition. With respect to wholegood vehicles, boats, and PG&A, revenue is recognized when we transfer control of the product to our customer (primarily dealers and distributors). 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 based on the amount of consideration that we expect to be entitled to in exchange for the goods or services transferred. Sales, value add, and other taxes collected from a customer 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. 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.

Sales promotions and incentives. We accrue 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, planned 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. As of December 31, 2022 and 2021, accrued sales promotions and incentives were $127.0 million and $96.9 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 typically 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 also 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. As of December 31, 2022 and 2021, the accrued warranty liability was $172.9 million and $132.9 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. 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. In 2012, we began purchasing 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 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 claims experience, historical trends and actuarial analysis, along with an analysis of current claims, to assist in determining the appropriate loss reserve levels. As of December 31, 2022 and 2021, we had accruals of $107.5 million and $70.3 million, respectively, for the probable payment of pending claims related to product liability litigation associated with our products. Adverse determination of material product liability claims made against us could have a material adverse effect on our financial condition.

Goodwill. 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. We complete our annual goodwill impairment test as of the first day of the fourth quarter.

We 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

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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 we elect 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 our 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, changes in raw material prices and growth expectations for the industries and end markets in which we participate. 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 our 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 fourth quarter of 2022, 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 all reporting units.

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 fourth quarter of 2022, we completed the annual impairment test. It was determined that our indefinite lived intangible assets were not impaired.

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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:

Rising costs, including wages, logistics, components, and commodity prices, are negatively impacting our gross profit margins. 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 our 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. The total impact of commodities, had an unfavorable impact on our gross profit margins for 2022 when compared to 2021. Based on our current outlook for commodity prices, the total impact of commodities is expected to have a favorable impact on our gross profit margins for 2023 when compared to 2022.

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 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 $20 million and a hypothetical 10 percent fluctuation of the U.S. dollar compared to the Canadian Dollar impacts annual operating income by approximately $53 million.

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, 2022:

Foreign Currency Foreign currency hedging contracts

Australian Dollar Long $ 13.7 $0.69 to 1 AUD

Canadian Dollar Long $ 93.3 $0.76 to 1 CAD

Mexican Peso Short $ 47.0 22 Peso to $1

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In 2022, after consideration of the existing foreign currency hedging contracts, foreign currencies had a negative impact on net income compared to 2021. We expect currencies to have a negative impact on net income in 2023 compared to 2022.

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 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 $1.0 billion revolving loan facility, a $1.2 billion term loan facility, and a $500 million incremental term loan. Interest accrues on the revolving loan, term loans, and the incremental term loan at variable rates based on adjusted Term SOFR plus the applicable add-on percentage as defined. As of December 31, 2022, there was $312.9 million outstanding on the revolving loan, $828.0 million outstanding on the term loan, and $500 million outstanding on the incremental term loan. We enter into interest rate swaps in order to maintain a balanced risk of fixed and floating interest rates associated with our debt. Based on the unhedged variable-rate debt included in our debt portfolio as of December 31, 2022, a 100 basis point increase or decrease in interest rates would increase or decrease interest expense by approximately $8 million.

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Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

Page

Management’s Report on Internal Control over Financial Reporting 38

Consolidated Balance Sheets as of December 31, 2022 and 2021 42

Notes to Consolidated Financial Statements 47

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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, 2022. 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, 2022.

Management’s internal control over financial reporting as of December 31, 2022 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

Chief Executive Officer

/S/ ROBERT P. MACK

Robert P. Mack

Chief Financial Officer

February 17, 2023

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, 2022, 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, 2022, 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, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a), and our report dated February 17, 2023 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.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

February 17, 2023

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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, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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 17, 2023 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 Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Product Liability

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/s/ Ernst & Young LLP

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

Minneapolis, Minnesota

February 17, 2023

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POLARIS INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except per share data)

Assets

Current assets:

Cash and cash equivalents $ 324.5 $ 502.3

Income taxes receivable 20.3 4.0

Current assets held for sale — 163.2

Investment in finance affiliate 93.1 49.3

Goodwill and other intangible assets, net 910.6 935.2

Long-term assets held for sale — 226.0

Liabilities and Equity

Current liabilities:

Current operating lease liabilities 24.1 19.4

Income taxes payable 6.5 17.1

Current liabilities held for sale — 107.8

Long-term income taxes payable 11.7 13.3

Finance lease obligations 9.9 12.1

Deferred tax liabilities 4.6 5.5

Long-term operating lease liabilities 87.0 71.3

Long-term liabilities held for sale — 66.1

Deferred compensation $ 12.6 $ 11.2

Shareholders’ equity:

Accumulated other comprehensive loss, net (87.5) (77.4)

Noncontrolling interest 2.5 2.0

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 impairment — — 81.1

Non-operating expense:

Other (income) expense, net (28.6) 2.3 3.8

Loss on sale of businesses — 36.8 —

Income from continuing operations before income taxes 761.4 628.7 450.4

Loss from discontinued operations, net of tax (13.2) (2.3) (235.6)

Loss from sale of discontinued operations, net of tax (142.6) — —

Net income attributable to noncontrolling interest (0.5) (0.4) (0.1)

Net income attributable to Polaris Inc. $ 447.1 $ 493.9 $ 124.8

Amounts attributable to Polaris Inc. common shareholders:

Net income from continuing operations $ 603.4 $ 496.6 $ 360.5

Less net income attributable to noncontrolling interest (0.5) (0.4) (0.1)

Net income attributable to Polaris Inc. $ 447.1 $ 493.9 $ 124.8

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

Basic

Discontinued operations $ (2.63) $ (0.04) $ (3.81)

Diluted

Discontinued operations $ (2.60) $ (0.04) $ (3.76)

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, net of tax:

Foreign currency translation adjustments (25.3) (30.4) 24.2

Unrealized gain (loss) on derivative instruments 14.9 11.1 (9.4)

Retirement plan and other activity 0.3 0.3 (0.5)

Comprehensive income attributable to noncontrolling interest (0.5) (0.4) (0.1)

Comprehensive income attributable to Polaris Inc. $ 437.0 $ 474.9 $ 139.1

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 0.6 — 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 — — — (152.5) — — (152.5)

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

Other comprehensive income — — — — 14.3 — 14.3

Employee stock compensation 0.5 — 62.7 — — — 62.7

Deferred compensation — — 1.3 (0.2) — — 1.1

Proceeds from stock issuances under employee plans 1.8 — 156.1 — — — 156.1

Cash dividends declared — — — (153.4) — — (153.4)

Repurchase and retirement of common shares (3.8) — (60.2) (401.4) — — (461.6)

Contributions — — — — — 1.3 1.3

Other comprehensive loss — — — — (19.0) — (19.0)

Employee stock compensation 0.6 — 60.0 — — — 60.0

Deferred compensation — — (2.5) 1.1 — — (1.4)

Proceeds from stock issuances under employee plans 0.4 — 34.1 — — — 34.1

Cash dividends declared — — — (150.0) — — (150.0)

Repurchase and retirement of common shares (4.4) — (83.3) (421.7) — — (505.0)

Other comprehensive loss — — — — (10.1) — (10.1)

Polaris Inc. declared cash dividends of $2.56, $2.52, and $2.48 per share for the years ended December 31, 2022, 2021, and 2020, respectively.

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:

Loss from discontinued operations, net of tax 13.2 2.3 235.6

Loss from sale of discontinued operations, net of tax 142.6 — —

Noncash income from financial services (15.1) (7.7) (18.5)

Loss on sale of businesses, net — 34.8 —

Goodwill impairment — — 81.1

Changes in operating assets and liabilities:

Income taxes payable/receivable 18.4 (3.8) 104.4

Prepaid expenses and other, net (7.6) (13.0) (25.7)

Investing Activities:

Investment in finance affiliate (59.3) (42.2) (30.6)

Distributions from finance affiliate 30.6 60.0 100.4

Investment in other affiliates (26.2) (23.4) (6.6)

Proceeds from sale of businesses, net 42.2 — —

Net cash used for investing activities (324.6) (303.9) (150.7)

Financing Activities:

Repurchase and retirement of common shares (505.0) (461.6) (50.3)

Proceeds from stock issuances under employee plans 34.1 156.1 33.6

Net cash used for financing activities (363.2) (107.6) (415.4)

Impact of currency exchange rates on cash balances (10.2) (10.6) 8.7

Supplemental Cash Flow Information:

Interest paid on debt borrowings $ 71.2 $ 44.8 $ 67.0

Current assets held for sale — 6.9 3.0

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 powersports vehicles, which include: off-road vehicles (“ORV”), including all-terrain vehicles (“ATV”) and side-by-side vehicles; military and commercial ORVs; snowmobiles; motorcycles; moto-roadsters; quadricycles; boats; and related Parts, Garments and Accessories (“PG&A”), which includes aftermarket accessories and apparel. Polaris products are sold worldwide online and through a network of independent dealers and distributors. 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. The Company used the guidelines to analyze the Company’s relationships and concluded that there were no variable interest entities requiring consolidation by the Company.

Reclassifications. Reclassifications of certain prior year segment results and account balances have been made to conform to the current-year presentation. The reclassifications had no impact on the consolidated balance sheets, statements of income, comprehensive income, equity, or cash flows, as previously reported. Refer to Note 16 for additional information.

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

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approach the Company uses significant other observable inputs to value its derivative instruments used to hedge foreign currency and interest rate transactions.

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

Assets

Non-qualified deferred compensation assets Level 1 $ 39.8 $ 52.4

Foreign exchange contracts, net Level 2 8.4 2.1

Interest rate contracts, net Level 2 5.9 —

Liabilities

Non-qualified deferred compensation liabilities Level 1 $ (39.8) $ (52.4)

Interest rate contracts, net Level 2 — (7.8)

Fair value of other financial instruments. The carrying values of the Company’s short-term financial instruments, including cash and cash equivalents, trade receivables and short-term debt, including current maturities of long-term debt, finance lease obligations and notes payable, approximate their fair values. As of December 31, 2022 and December 31, 2021, the fair value of the Company’s long-term debt, finance lease obligations and notes payable was approximately $2,070.3 million and $1,870.0 million, respectively, and was determined primarily using Level 2 inputs, including quoted market prices or discounted cash flows based on quoted market rates for similar types of debt. The carrying value of long-term debt, finance lease obligations and notes payable including current maturities was $2,057.8 million and $1,800.7 million as of December 31, 2022 and December 31, 2021, respectively.

The Company measures certain assets and liabilities at fair value on a nonrecurring basis. 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 12 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 in the consolidated balance sheets. The Company’s restricted cash is comprised primarily of cash held in trust accounts not available for general use due to contractual restrictions.

Allowance for doubtful accounts. The Company’s exposure to credit losses on accounts receivable is limited due to its agreements with certain finance companies. For receivables not serviced through these finance companies, the Company establishes a reserve for doubtful accounts based on historical credit loss 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.

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 or net realizable value with substantially all inventories recorded using the first-in, first-out method. Finished goods include products that are completed and ready for sale or substantially completed as the product has gone through the primary manufacturing and assembly process.

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. 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 11 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

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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 historical cost. Depreciation is determined 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 within depreciation expense. Fully-depreciated tooling is eliminated from the accounting records annually. The Company recorded $214.0 million, $193.4 million, and $198.2 million of depreciation expense for the years ended December 31, 2022, 2021, and 2020, respectively. Substantially all of the Company’s property and equipment is located in North America.

Goodwill and other intangible assets. 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.

For its annual test in 2022, the Company completed a qualitative assessment for all reporting units.

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 8 for additional information on goodwill and other intangible assets.

Revenue recognition. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a good or service to a customer. Revenue is measured based on the amount of consideration that the Company expects to be entitled to in exchange for the goods or services transferred. Sales, value add, and other taxes that are collected from a customer concurrent with revenue-producing activities are excluded from revenue. 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 contract liabilities section.

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. 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. Payment terms vary by customer and most of the Company’s sales

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are financed by the customer under floorplan financing arrangements whereby the Company receives payment within a few days of shipment of the product.

When the right of return exists, the Company adjusts the consideration for the estimated effect of returns. The Company estimates 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. 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.

The Company sells separately-priced service contracts (“ESCs”) that extend mechanical coverages beyond the base limited warranty as well as prepaid maintenance agreements to vehicle owners. Each of these separately priced service contracts range from 12 months to 84 months. The Company typically 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.

Sales promotions and incentives. The Company accrues 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, planned 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.

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, 2022, 2021 and 2020, the Company incurred $87.6 million, $90.8 million and $95.8 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

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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,

Reductions to reserve related to divestitures — (2.1) —

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 accounts for share-based compensation awards, including stock options and other equity-based compensation issued to employees, on a fair value basis. 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 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. 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 5 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

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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 in 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 in the consolidated balance sheets. Unrealized gains and losses are recorded as a component of Accumulated other comprehensive loss, net.

The Company enters into commodity hedging contracts in order to manage fluctuating market prices of certain purchased commodities and raw materials that are integrated into the Company’s end products.

Refer to Note 15 for additional information regarding derivative instruments and hedging activities.

Foreign currency translation. The functional currency for the Company’s foreign subsidiaries is typically their respective local currencies. The assets and liabilities in 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 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.

New accounting pronouncements.

Reference Rate Reform. In March 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The FASB also issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope in January 2021, which adds implementation guidance to clarify which optional expedients in Topic 848 may be applied to derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified as a result of the discounting transition. The FASB also issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 in December 2022, which deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company adopted ASU 2020-04, ASU 2021-01, and ASU 2022-06. The adoption of the ASUs did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows.

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

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Note 2. Supplemental Balance Sheet Information

Inventories

Raw materials and purchased components $ 843.5 $ 720.2

Service parts, garments and accessories 371.1 276.4

Property and equipment

Land, buildings and improvements $ 539.1 $ 501.1

Accrued expenses

Sales promotions and incentives 127.0 96.9

Note 3. Revenue Recognition

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

For the Year Ended December 31, 2022

Off Road On Road Marine Corporate Total

Revenue by product type

Revenue by geography

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For the Year Ended December 31, 2021

Off Road On Road Marine Corporate Total

Revenue by product type

Revenue by geography

For the Year Ended December 31, 2020

Off Road On Road Marine Corporate Total

Revenue by product type

Revenue by geography

Contract Liabilities

Contract liabilities relate to deferred revenue recognized for cash consideration received at contract inception in advance of the Company's performance under the respective contract and generally relate to the sale of separately priced ESCs. The Company finances its self-insured risks related to 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 $35.5 million of the unearned amount over the next 12 months and $75.6 million thereafter. The activity in the deferred revenue reserve during the periods presented was as follows (in millions):

For the Years Ended December 31,

Revenue recognized on existing contracts (46.3) (35.8) (23.0)

The unamortized ESC premiums recorded in other current liabilities totaled $35.5 million and $34.7 million as of December 31, 2022 and 2021, respectively, while the amount recorded in other long-term liabilities totaled $75.6 million and $73.6 million as of December 31, 2022 and 2021, respectively.

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Note 4. Divestitures and Discontinued Operations

2021 Divestitures.

In an effort to more strategically allocate the Company’s resources, the Company sold its Global Electric Motorcar (“GEM”) and Taylor-Dunn businesses on December 31, 2021. The sale resulted in a loss of $36.8 million. As a result of this divestiture, the Company eliminated its Global Adjacent Markets segment on January 1, 2022. All segment results were reclassified for comparability. The 2021 and 2020 financial results of these businesses are reflected in Corporate.

2022 Divestitures.

On July 1, 2022, the Company completed the sale of its Transamerican Auto Parts (“TAP”) business, an aftermarket parts business, for a sales price, net of post-closing purchase price adjustments, of $42.2 million. TAP is a vertically integrated manufacturer, distributor, retailer, and installer of off-road Jeep and truck parts and accessories. The transaction included TAP’s full portfolio of operations, including all brands, product lines, manufacturing operations, distribution facilities, more than 100 4 Wheel Parts retail locations, and more than 1,700 TAP employees.

The results of TAP have been presented as discontinued operations and the related assets and liabilities have been classified as held for sale for all periods presented. For the year ended December 31, 2022, a loss on sale of $187.6 million was recorded which resulted in a $45.0 million income tax benefit.

TAP was historically included within the Company’s Aftermarket segment; however, as a result of the divestiture, the Company began management of its portfolio of businesses under a new basis as of June 30, 2022. The Aftermarket segment was eliminated and the results of the Company’s remaining aftermarket businesses historically included within the Aftermarket segment were reclassified to the Off Road and On Road segments. The comparative 2021 and 2020 segment results were reclassified for comparability.

Results of discontinued operations were as follows (in millions):

For the Years Ended December 31,

Loss from discontinued operations before income taxes (14.5) (3.0) (309.0)

Income tax benefit (1.3) (0.7) (73.4)

Loss from discontinued operations, net of tax (13.2) (2.3) (235.6)

Loss from sale of discontinued operations 187.6 — —

Provision for income taxes (45.0) — —

Loss from sale of discontinued operations, net of tax 142.6 — —

Net loss from discontinued operations $ (155.8) $ (2.3) $ (235.6)

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The carrying amounts of major classes of assets and liabilities of discontinued operations were as follows (in millions):

Trade receivables 12.6

Inventories, net 134.1

Other current assets 9.6

Current assets held for sale $ 163.2

Property and equipment, net $ 47.7

Intangible assets, net 102.3

Operating lease assets 74.8

Other long-term assets 1.2

Long-term assets held for sale $ 226.0

Accounts payable $ 21.5

Accrued expenses and other current liabilities 66.5

Current operating lease liabilities 19.8

Current liabilities held for sale $ 107.8

Long-term operating lease liabilities $ 57.2

Other long-term liabilities 8.9

Long-term liabilities held for sale $ 66.1

Note 5. 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”). 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 243,000 deferred stock units to its non-employee directors under the Omnibus Plan (with grants of 17,000, 10,000 and 20,000 units in 2022, 2021 and 2020, 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 vest 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, 2022. Authorized shares under the Director Plan were exhausted in 2017. Since 2017, the Company has granted a total of 67,000 common stock equivalents to its non-employee directors under the Omnibus Plan (with grants of 11,000, 8,000 and 13,000 units in 2022, 2021 and 2020, respectively). As of December 31, 2022 and 2021, the Company’s liability under the plans for the common stock equivalents totaled $9.2 million and $8.8 million, respectively.

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The Company maintains a long-term incentive program under which awards are issued for certain employees. Long-term incentive program awards are granted in restricted stock units and stock options and are accounted for 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.

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

For the Years Ended December 31,

Total share-based compensation before tax 50.6 50.7 54.7

These share-based compensation expenses are reflected in cost of sales and operating expenses in the consolidated statements of income. As of December 31, 2022, there was $52.4 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 1.2 years. Included in unrecognized share-based compensation expense is approximately $5.1 million related to stock options and $47.3 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 6 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, 2022:

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, 2022 was 5.2 years and 4.4 years, respectively. Substantially all unvested outstanding options are expected to vest.

The following assumptions were used to estimate the weighted average fair value of options granted of $37.41, $36.77 and $21.76 during the years ended December 31, 2022, 2021 and 2020, respectively:

For the Years Ended December 31,

Weighted-average volatility 43% 43% 34%

Expected dividend yield 2.2% 2.1% 2.6%

Expected term (in years) 4.9 4.7 4.5

Weighted average risk free interest rate 1.7% 0.5% 1.4%

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The total intrinsic value of options exercised during the year ended December 31, 2022 was $9.9 million. The total intrinsic value of options outstanding and of options outstanding and exercisable as of December 31, 2022, was $35.7 million and $33.6 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 48% 49% 35%

Expected dividend yield 2.2% 2.1% 2.6%

Expected term (in years) 3.0 3.0 3.0

Weighted average risk free interest rate 1.5% 0.2% 1.4%

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 2022, 2021, and 2020 was $146.08, $165.54, and $98.09 per award, respectively.

The following table summarizes restricted stock activity for the year ended December 31, 2022:

Shares Outstanding Weighted Average Grant Price

The shares granted above include 66,184 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, 2022 was $91.3 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, 2022, 2021 and 2020 were $119.42, $122.08 and $92.23, respectively.

Note 6. Employee Savings Plans

Employee Stock Ownership Plan (ESOP). The Company 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 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 the Company 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 $14.6 million, $13.9 million and $12.3 million, in 2022, 2021 and 2020, respectively. As of December 31, 2022, there were 2,949,000 shares held in the plan.

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Defined contribution plans. The Company 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 $26.4 million, $24.9 million, and $22.5 million, in 2022, 2021 and 2020, respectively.

Supplemental Executive Retirement Plan (SERP). The Company sponsors a SERP that provides executive officers of the Company an alternative to defer portions of their salary, cash incentive compensation, and Company 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 in the consolidated balance sheets and the SERP liability is included in other long-term liabilities in the consolidated balance sheets. The asset and liability balances are both $39.8 million and $52.4 million as of December 31, 2022, and 2021, respectively.

Executive officers and directors 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. As of December 31, 2022, 124,505 shares are recorded at a fair value of $12.6 million in temporary equity, which includes $12.5 million of compensation cost and $0.1 million of cumulative fair value adjustment recorded through retained earnings.

Note 7. Financing Agreement

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

Debt issuance costs (5.9) (7.1)

Total debt, finance lease obligations, and notes payable $ 2,057.8 $ 1,800.7

In December 2010, the Company entered an unsecured Master Note Purchase Agreement, which has been amended and supplemented, under which it has issued senior notes. In July 2018, the Company issued $350 million of unsecured senior notes due July 2028 which remain outstanding.

The Company maintains an unsecured credit facility which consists of a term loan facility (the “Term Loan Facility”) and a revolving loan facility (the “Revolving Loan Facility”). In July 2018, the Company amended its unsecured credit facility to increase its Term Loan Facility to $1,180 million, of which $828.0 million was outstanding as of December 31, 2022. In June 2021, the Company further amended its unsecured credit facility to increase its Revolving Loan Facility to $1.0 billion, of which $312.9 million was outstanding as of December 31, 2022, and extend the maturity date to June 2026. In December 2022, the Company further amended its unsecured credit facility to change its benchmark base interest rate. Interest is charged at rates based on adjusted Term SOFR.

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In December 2021, the Company amended the credit facility to provide an unsecured incremental 364-day term loan (the “Incremental Term Loan”) in the amount of $500 million, which was fully drawn on closing. In December 2022, the Company further amended its unsecured credit facility to extend the maturity date of the Incremental Term Loan to December 15, 2023. There are no required principal payments prior to the maturity date. In addition to the payment of the $500 million Incremental Term Loan, the Company is required to make principal payments under the Term Loan Facility totaling $45 million over the next 12 months. These payments are classified as current maturities in the consolidated balance sheets.

The credit agreements governing the facility and the Master Note Purchase Agreement contain covenants that require the Company to maintain certain financial ratios, including minimum interest coverage and maximum leverage ratios. The agreements require the Company to maintain an interest coverage ratio of not less than 3.00 to 1.00 and a leverage ratio of not more than 3.50 to 1.00 on a rolling four quarter basis. The Company was in compliance with all such covenants as of December 31, 2022.

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.

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”). As a component of the Boat Holdings merger agreement, 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 $55.3 million was outstanding as of December 31, 2022. The outstanding balance is included in long-term debt and current portion of long-term debt in the consolidated balance sheets.

The following summarizes activity under the Company’s credit arrangements (in millions):

Weighted-average interest rate as of December 31 5.33% 1.77% 2.30%

As of December 31, 2022, the Company had open letters of credit totaling $38.5 million. The amounts are primarily related to inventory purchases and are reduced as the purchases are received.

Note 8. Goodwill and Other Intangible Assets

Goodwill and other intangible assets, net of accumulated amortization, as of December 31, 2022 and 2021 are as follows (in millions):

Total goodwill and other intangible assets, net $ 910.6 $ 935.2

There were no material additions to goodwill and other intangible assets in 2022 and 2021. The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2022 and 2021 were as follows (in

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millions):

Off Road On Road Marine Total

Currency translation effect on foreign goodwill balances 0.1 (6.1) — (6.0)

Currency translation effect on foreign goodwill balances (1.0) (4.1) — (5.1)

During 2020, the Company recorded impairment charges of $270.3 million related to goodwill of the Company’s Aftermarket reporting segment. As part of the Company’s segment reorganization in the second quarter of 2022, the Aftermarket segment was eliminated and historical goodwill impairments of $60.8 million and $20.3 million were allocated to the Off Road and On Road segments, respectively, on a relative fair value basis. The goodwill amounts above are shown net of these impairment charges.

PII US Equity

PII · 10-K · period ended 2022-12-31

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

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PII · 10-K · period ended 2022-12-31

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

PII US Equity