Polaris Inc. (PII) FY 2024 MD&A

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 Annual Report. This section of this Annual Report generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Annual Report 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, 2023.

Overview

2024 sales totaled $7.2 billion, a decrease of 20 percent from 2023. The year-over-year decrease in sales was primarily due to decreased shipments in all segments and lower net pricing driven by higher promotional costs, partially offset by product mix.

Our gross profit of $1.5 billion decreased 25 percent from $2.0 billion in 2023. Gross profit, as a percentage of sales, decreased primarily due to lower net pricing driven by higher promotional costs, product mix, and decreased leverage of fixed costs as a result of reduced sales volumes. These decreases were partially offset by favorable operational costs.

Full year net income from continuing operations attributable to Polaris Inc. was $110.8 million, or $1.95 per diluted share, compared to 2023 full year net income from continuing operations attributable to Polaris Inc. of $502.8 million, or $8.71 per diluted share. These decreases were primarily the result of decreased shipments in all segments, lower net pricing driven by higher promotional costs, and decreased leverage of fixed costs as a result of reduced sales volumes, partially offset by favorable operating costs. We reported Adjusted EBITDA of $635.4 million in 2024 compared to $1,020.9 million in 2023. For information on how we define and calculate Adjusted EBITDA, and a reconciliation from net income from continuing operations to Adjusted EBITDA, see “Non-GAAP Financial Measures”.

On January 30, 2025, we announced that our Board of Directors declared a quarterly cash dividend of $0.67 per share for the first quarter of 2025, a two percent increase from the prior quarterly cash dividend, representing the 30th consecutive year of increased dividends to shareholders.

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Consolidated Results of Operations

The consolidated results of operations were as follows:

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Sales:

The year-over-year decrease in sales was due to decreased shipments and lower net pricing driven by higher promotional costs, partially offset by product mix.

The components of the consolidated sales change were as follows:

The year-over-year volume decrease was the result of decreased shipments in all segments. Product mix was favorable as a result of a higher sales mix of ORVs.

Sales by geographic region were as follows:

Sales in the United States decreased primarily as a result of lower shipments in all segments.

Sales in Canada decreased primarily as a result of decreased snowmobile shipments. Currency rate movements had an unfavorable impact of one percentage point on sales in 2024.

Sales in other countries decreased primarily as a result of lower ORV and motorcycle shipments. Currency rate movements had no impact on sales in 2024.

Cost of sales:

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

The year-over-year decrease in cost of sales was primarily as a result of reduced sales volumes driving lower purchased materials and decreased labor costs.

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Gross profit:

Gross profit for 2024, as a percentage of sales, decreased primarily due to lower net pricing driven by higher promotional costs, product mix, and decreased leverage of fixed costs as a result of reduced sales volumes, partially offset by favorable operational costs.

Operating expenses:

Operating expenses for 2024, in absolute dollars, decreased due to reduced selling and marketing and research and development expenses, partially offset by increased general and administrative expenses. Operating expenses for 2024, as a percentage of sales, increased compared to 2023, primarily due to decreased leverage of fixed costs as a result of reduced sales volumes.

Income from financial services:

The following table reflects our income from financial services:

Income from financial services increased 21 percent in 2024, primarily due to higher wholesale financing income from Polaris Acceptance driven by higher dealer inventory levels.

Interest expense:

Interest expense increased for 2024 primarily as a result of higher interest rates.

Other expense (income), net:

Other expense (income) is primarily the result of currency exchange rate movements and the corresponding effects on currency transactions related to our international subsidiaries. The increase in other expenses in 2024 was also attributable to an impairment charge recorded related to an investment held by the Company.

Provision for income taxes:

The increase in the effective income tax rate for 2024 was primarily due to lower pretax earnings which resulted in an increase in the foreign tax rate detriment, as well as unfavorable impacts related to share-based compensation due to a lower stock price, and a valuation allowance related to an investment impairment charge recorded in 2024. These items were partially offset by a tax rate benefit related to reduced research and development credits compared to the prior year and the related beneficial impact due to lower pretax earnings.

Adjusted EBITDA:

Adjusted EBITDA, in absolute dollars and as a percentage of sales, decreased in 2024 primarily as a result of decreased shipments and lower net pricing driven by higher promotional costs. These decreases were partially offset by favorable operating costs.

Weighted average diluted shares outstanding:

Weighted average diluted shares outstanding decreased throughout 2024 primarily due to share repurchases and a reduction in the dilutive effect of share-based equity awards.

Segment Results of Operations

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

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markets. We evaluate performance based on sales and gross profit. The Corporate amounts include costs that are not allocated to segments, including certain unallocated manufacturing costs, the impacts from certain foreign currency transactions, and certain unallocated incentive compensation costs.

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

Off Road:

Off Road sales, inclusive of PG&A sales, decreased 18 percent in 2024 primarily as a result of decreased ORV and snowmobile shipments. The average per unit sales price for the Off Road segment decreased approximately one percent, primarily due to lower net pricing driven by higher promotional costs, partially offset by product mix.

Sales to customers outside of North America decreased 11 percent in 2024 due to lower ORV and snowmobile shipments.

Gross profit, as a percentage of sales, decreased in 2024 primarily due to lower net pricing driven by higher promotional costs, decreased leverage of fixed costs as a result of reduced sales volumes, product mix, and higher finance interest, partially offset by favorable operational costs.

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Additional information on our end markets for 2024:

•Polaris North America utility unit retail sales flat

•Polaris North America recreation unit retail sales down mid-single digits percent

•Total Polaris North America ORV unit retail sales down low-single digits percent

•Estimated North America industry ORV unit retail sales flat

•Total Polaris North America ORV dealer inventories down approximately 16 percent

•Polaris North America snowmobile unit retail sales for the 2024-2025 season-to-date period through December 31, 2024 down low-forties percent

•Estimated North America industry snowmobile unit retail sales for the 2024-2025 season-to-date period through December 31, 2024 down mid-thirties percent

•Total Polaris North America snowmobile dealer inventories up approximately 10 percent

On Road:

On Road sales, inclusive of PG&A sales, decreased 17 percent in 2024 primarily as a result of decreased shipments across the product portfolio. The average per unit sales price for the On Road segment decreased approximately six percent, primarily due to product mix and lower net pricing driven by higher promotional costs.

On Road sales to customers outside of North America decreased 10 percent in 2024, primarily as a result of lower Indian Motorcycle shipments.

Gross profit, as a percentage of sales, decreased in 2024 due to product mix and lower net pricing driven by higher promotional costs, partially offset by reduced warranty expense and favorable operational costs.

Additional information on our end markets for 2024:

•Indian Motorcycle North America unit retail sales down high-single digits percent

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

•Polaris North America motorcycle dealer inventories up approximately five percent

Marine:

Marine sales decreased 37 percent as a result of decreased shipments. The average per unit sales price for the Marine segment increased approximately six percent, primarily driven by product mix.

Gross profit, as a percentage of sales, decreased in 2024 due to decreased leverage of fixed costs as a result of reduced sales volumes and product mix.

Additional information on our end markets for 2024:

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

•Estimated U.S. industry pontoon unit retail sales down low-double digits percent

•Polaris U.S. deck boat unit retail sales down mid-thirties percent

•Estimate U.S. industry deck boat unit retail sales down low-twenties percent

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use the non-GAAP financial measure of Adjusted EBITDA, which is defined as net income from continuing operations, excluding interest expense, income tax expense, depreciation and amortization, and certain other non-cash,

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non-recurring, or non-operating items impacting net income from continuing operations from time to time. For example, costs associated with certain corporate restructuring activities, such as acquisitions and divestitures, are included as non-GAAP adjustments. We use the non-GAAP financial measure of Adjusted EBITDA Margin, which is defined as Adjusted EBITDA divided by adjusted net sales. We believe that Adjusted EBITDA and Adjusted EBITDA Margin help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude from Adjusted EBITDA and Adjusted EBITDA Margin.

We believe that these measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to key metrics used by our management for financial and operational decision making. We are presenting these non-GAAP measures to assist investors in seeing our financial performance through the eyes of management, and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA has limitations and should not be considered in isolation from, as a substitute for, or more meaningful than, net income from continuing operations as determined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance. Our presentation of Adjusted EBITDA and Adjusted EBITDA Margin should not be construed as an inference that our results will be unaffected by unusual or non-recurring items.

The following table presents a reconciliation of net income from continuing operations, the most comparable GAAP financial measure, to Adjusted EBITDA for each of the periods presented:

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Liquidity and Capital Resources

Our primary sources of liquidity have been cash provided by operating and financing activities, including funds as needed from our credit facility and issuances of long-term debt. Our primary uses of funds have been for new product development, capital investments, cash dividends to shareholders, repurchases and retirement of common stock, and acquisitions. The seasonality of production and shipments cause working capital requirements to fluctuate during the year and from year to year.

We believe that existing cash balances and cash flows to be generated from operating activities, borrowing capacity under our credit facility and from future issuances or borrowings of long-term debt, will be sufficient to fund operations, new product development, cash dividends to shareholders, repurchases and retirement of common stock, and capital requirements for at least the next 12 months and for the foreseeable future thereafter.

Cash Flows

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

Operating Activities:

The decrease in net cash provided by operating activities in 2024 was primarily the result of lower net income.

Investing Activities:

The primary sources and uses of cash were for the purchase of property, equipment and tooling for continued capacity and capability at our manufacturing, distribution, and product development facilities, and distributions from and contributions to Polaris Acceptance. Net cash used for investing activities decreased due to a reduction in property, equipment and tooling purchases, as well as net distributions from Polaris Acceptance in 2024 compared to net contributions to Polaris Acceptance in 2023. These decreases were partially offset by increased strategic investments in 2024.

Financing Activities:

The decrease in net cash used for financing activities was primarily the result of net borrowings under debt arrangements in 2024 compared to net repayments under debt arrangements in 2023, as well as lower share repurchases. These changes were partially offset by reduced proceeds from stock issuances under employee plans. Net borrowings totaled $165.8 million in 2024 compared to net repayments of $158.2 million in 2023.

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, 2024, outstanding borrowings under the Master Note Purchase Agreement totaled $350.0 million.

We are also party to an unsecured credit facility, which includes a $1.4 billion variable interest rate Revolving Loan Facility that matures in December 2029, under which we have unsecured borrowings. As of December 31, 2024, there were borrowings of $282.0 million outstanding under the Revolving Loan Facility. Our credit facility also includes a Term Loan Facility, on which $500.0 million was outstanding as of December 31, 2024. We are required to make principal payments under the Term Loan Facility totaling $25.0 million over the next 12 months. For the credit facility, interest is charged at rates based on Adjusted Term SOFR plus the applicable add-on percentage, as defined in the agreements governing the credit facility. As of December 31, 2024, we had $1.1 billion of availability on the Revolving Loan Facility.

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In July 2024, the Company amended the credit facility to provide for a new incremental 364-day term loan in the amount of $400.0 million (the “Incremental Term Loan Facility”). The Incremental Term Loan Facility is unsecured and has a term ending in July 2025. As with other borrowings under the credit facility, interest is charged at rates based on Adjusted Term SOFR plus the applicable add-on percentage, as defined in the agreements governing the credit facility.

The agreements governing the credit 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. In December 2024, the Company entered into an amendment (the “NPA Amendment”) to the Existing Master Note Purchase Agreement. The NPA Amendment amended the Existing Note Purchase Agreement to revise the leverage ratio covenant from a gross leverage ratio to a net leverage ratio and revise the interest coverage ratio covenant definition to be based on EBITDA to interest expense. The credit facility was also amended in December 2024 and, as part of such amendment, the interest coverage ratio covenant definition was revised to be based on EBITDA to interest expense.

In November 2023, we issued $500 million aggregate principal amount of 6.95% Senior Notes pursuant to a public offering. We received approximately $492 million in net proceeds from the notes offering after deducting the underwriting discount and other fees and expenses. The notes bear interest at a rate of 6.95% per year, with interest payable semi-annually in arrears in March and September of each year. The notes mature in March of 2029. The indenture governing the senior notes is subject to customary covenants and make-whole provisions upon early redemption.

On July 2, 2018, pursuant to the Agreement and Plan of Merger dated May 29, 2018, 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 through July 2030. The original discounted payable was for $76.7 million, of which $43.2 million was outstanding as of December 31, 2024.

As of December 31, 2024, and December 31, 2023, we were in compliance with all debt covenants. Our debt to total capital ratio was 62 percent and 57 percent as of December 31, 2024 and December 31, 2023, respectively. Additionally, as of December 31, 2024, we had letters of credit outstanding of $46.1 million, primarily related to purchase obligations for raw materials.

Share Repurchases:

We repurchased a total of 1.0 million shares of our common stock for $82.7 million during 2024, which had a favorable impact on diluted net income from continuing operations per share of three cents. As of December 31, 2024, our Board of Directors has authorized us to repurchase up to an additional $1,109.3 million of our common stock.

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. As of December 31, 2024 and 2023, the outstanding amount financed worldwide by dealers under these arrangements was approximately $2,255.5 million and $2,629.9 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, 2024, the potential aggregate repurchase obligations were approximately $372.8 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 finance 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 2024, consumers financed 31 percent of our vehicles sold in the United States through these arrangements. The volume of installment credit contracts written in calendar year 2024 with these institutions was $1,480.4 million, a five percent increase from 2023.

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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 other intangible assets.

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 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 finance companies up to certain limits. Our financial exposure is limited to the difference between the amount unpaid by the dealer with respect to repurchased product plus costs of repossession 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 sheets until they are ultimately paid. As of December 31, 2024 and 2023, accrued sales promotions and incentives were $249.0 million and $230.9 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 promotion and incentive 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 sheets until they are ultimately paid. As of December 31, 2024 and 2023, the accrued warranty liability was $162.8 million and $181.1 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 and results of operations.

Product liability. We are subject to product liability claims in the normal course of business. We purchase excess insurance coverage annually for product liability claims. We self-insure product liability claims before the policy date

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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 actuarial analysis, which considers claims experience and historical trends, along with an analysis of current claims, to assist in determining the appropriate loss reserve levels. As of December 31, 2024 and 2023, we had accruals of $385.3 million and $136.7 million, respectively, for the probable payment of pending claims related to product liability litigation associated with our products. Amounts due from insurance carriers, to the extent applicable, reduce our financial exposure to product liability claims. As of December 31, 2024 and 2023, we recorded $227.1 million and $9.5 million, respectively, for probable insurance recoveries related to product liability accruals. Adverse determination of material product liability claims made against us could have a material adverse effect on our financial condition and results of operations.

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 carrying amount of a reporting unit’s net assets, and changes in our stock price. If, after assessing the totality of events and 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 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 differ significantly 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 each 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 include 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.

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In the fourth quarter of 2024, we completed the annual impairment test. It was determined that goodwill was not impaired as each reporting unit’s fair value exceeded its carrying value. We completed a qualitative assessment for the Off Road reporting unit and elected to perform a quantitative goodwill test for the On Road and Marine reporting units. The difference between the fair value and carrying value for both the On Road and Marine reporting units was in excess of 10%. While management believes the projections, discount rate, and other assumptions and judgments made are reasonable, the estimated fair values for the On Road and Marine reporting units are particularly dependent upon industries to strengthen which will provide improved sales, margin expansion and cash flow growth. As a result, there can be no assurance that the estimates and assumptions made in our analysis will prove to be an accurate prediction of the future. To the extent future operating results differ from those in our current forecast or our assumptions change pertaining to the markets in which we compete, it is possible that an impairment charge could be recorded in a future accounting period.

Other intangible assets. Our primary identifiable intangible assets include: dealer/customer relationships, brand/trade names and developed technology. Identifiable intangible assets with finite lives are amortized and identifiable intangible assets 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. We complete our annual impairment test for identifiable intangible assets with indefinite lives as of the first day of the fourth quarter.

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 to its carrying value. The fair value is determined using the relief-from-royalty method. This method assumes the brand/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 brand/trade names, the appropriate royalty rate and the discount rate. Forecasted revenues are derived from our annual budget and long-term business plan and royalty rates are 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 each respective brand/trade name.

In the fourth quarter of 2024, we completed the annual impairment test. Through this analysis, as a result of financial performance, the Company recorded impairment charges of $9.5 million during the fourth quarter of 2024 related to certain indefinite-lived brand/trade name intangible assets within the Company’s Off Road segment. It was determined that all other remaining indefinite-lived intangible assets were not impaired.

New Accounting Pronouncements

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