Polaris Inc
For the period ended Dec 31, 2024. Filed Feb 18, 2025.
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FY2024 · Filed Feb 18, 2025
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Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
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, 2024 and 2023, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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 18, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
| Product Liability | |
| Description of the Matter | At December 31, 2024, the Company had an accrual of $385.3 million for product liability litigation associated with the Company’s products. As discussed in Note 14 to the consolidated financial statements, the Company is subject to product liability claims in the normal course of business. The Company records a product liability accrual for losses that are probable and reasonably estimable utilizing historical trends and actuarial analysis, along with an analysis of current claims. The Company estimates the value of probable insurance recoveries associated with its product liability accrual based on management’s interpretations and estimates surrounding the available or applicable insurance coverage. At December 31, 2024, the Company’s receivable for insurance recoveries amounted to $227.1 million. Auditing management’s accrual for product liability litigation was complex due to the uncertainty associated with the estimate of projected future product liability costs. The methodology employed by management to develop the estimate of projected future product liability costs is subject to an actuarial analysis that is subject to assumptions such as the number of claims that may be received in the future, the type of product associated with the claim, and the related expected costs to settle the claim. These assumptions have a significant effect on the product liability accrual. |
|---|---|
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the product liability accrual process. These include controls over management’s assessment of the actuarial analysis utilized within the estimate, management’s oversight of product liability trends including claims movement and settlement costs incurred, and the completeness and accuracy of the underlying claims data utilized to project future costs by management’s actuarial specialist.To evaluate the reasonableness of the product liability accrual, our audit procedures included testing the completeness and accuracy of the underlying claims data provided to management’s actuarial experts, utilized to project future costs of claims. Additionally, we evaluated the claims and spend activity from inquiries of internal legal counsel and management, as well as legal letters obtained from internal and external legal counsel. Furthermore, we involved our actuarial subject matter specialists to assist in the evaluation of the methodologies and assumptions applied by management’s experts as described above to determine the appropriateness of the product liability accrual, and to independently prepare an estimated range of the liability. We then assessed the reasonableness of the Company’s recorded reserve against our independently calculated range. |
| Goodwill | |
| Description of the Matter | At December 31, 2024, the Company’s goodwill related to the Marine reporting unit was $230.6 million. As discussed in Note 1 to the consolidated financial statements, goodwill is tested at least annually (as of the first day of the fourth quarter) for impairment and is tested for impairment more frequently when events or changes in circumstances indicate that the asset might be impaired. Auditing management’s annual goodwill impairment assessment for this reporting unit was complex and highly judgmental due to the significant estimation required to determine the fair value of the reporting unit. In particular, the fair value estimates used in the valuation of the unit was sensitive to significant assumptions, such as changes in the discount rate, revenue growth rates, including the terminal growth rate, and operating margins, which are affected by expectations about future market or economic conditions. |
| How we Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s annual goodwill assessment, including controls over prospective financial information used in its analyses. This included controls over management’s review of the valuation model and the significant assumptions used in the fair value measurements discussed above. To test the estimated fair value of the Company’s Marine reporting unit, we performed audit procedures that included, among others, assessing the methodologies used and directly testing the significant assumptions and the underlying data used by the Company in its analysis, including assessing the completeness and accuracy of such underlying data. We utilized internal valuation specialists to assist in the evaluation of the fair value methodologies applied and significant assumptions used in the fair value measurements. We compared the significant assumptions used by management to current industry and economic trends, historical performance, guideline public companies in the same industry and strategic plans. We performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. Furthermore, we assessed the appropriateness of the disclosures in the consolidated financial statements. |
/s/Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Minneapolis, Minnesota
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