GETTING BACK TO GREAT · products, international markets represent a significant growth...
Transcript of GETTING BACK TO GREAT · products, international markets represent a significant growth...
GREATGETTING BACK TO
POLARIS INDUSTRIES INC. 2006 ANNUAL REPORT
POLARIS INDUSTRIES INC. is headquartered in Medina, Minnesota,
and designs, manufactures and markets innovative, high-quality, high-performance motorized
products for recreation and utility use. • Our product lines consist of all-terrain recreational and
utility vehicles (ATVs); snowmobiles; motorcycles; and related parts, garments and accessories
(PG&A). Polaris engineering, manufacturing and distribution facilities are located in Roseau and
Wyoming, Minnesota; Osceola, Wisconsin; Spirit Lake, Iowa; Vermillion, South Dakota; Passy,
France; Ballarat, Victoria, Australia; Winnipeg, Manitoba, Canada; Gloucester, United Kingdom;
Askim, Norway; Östersund, Sweden; and Hudson, Wisconsin (joint venture with Fuji Heavy
Industries, Ltd.). • Our wholesale finance company, Polaris Acceptance, is a 50/50 joint venture.
Polaris products are sold through a network of 1,700 dealers in North America, five subsidiaries
and 40 distributors in 126 countries outside North America. • Polaris common stock trades
on the New York Stock Exchange under the symbol PII, and the Company is included in the S&P
SmallCap 600 stock price index.
FINANCIAL HIGHLIGHTS (dollars and shares in thousands, except per share data)
2006 2005 % Change
FOR THE YEAR
Sales $ 1,656,518 $ 1,869,819 – 11%Operating income 168,057 205,012 – 18Net income from continuing operations 112,791 137,721 – 18
Percent of sales 6.8% 7.4%
PER SHARE
Net income from continuing operations (diluted) $ 2.72 $ 3.15 – 14%Dividends paid 1.24 1.12 11Average shares outstanding (diluted) 41,451 43,787 – 5
FINANCIAL POSITION
Total assets $ 778,791 $ 770,633 1%Stockholders’ equity 167,371 377,019 – 56
OTHER INFORMATION
Property and equipment (net) $ 204,001 $ 222,336 – 8%Capital expenditures 52,636 89,770 – 41Depreciation and amortization 71,164 67,936 5Borrowings under credit agreement 250,000 18,000 NM*
Return on average shareholder equity 41% 37%Average dividend yield 2.6% 1.9%Average number of employees 3,400 3,600
TABLE OF CONTENTS
IFC Polaris Products at a Glance
1 Letter from the CEO and COO
9 Directors, Officers and Managers
10 11-Year Selected Financial Data
12 Other Investor Information
13 Form 10-K
10%Snowmobiles
67%ATVs
16%PG&A
7%Victory
Motorcycles
PERCENTAGE OF SALES BY PRODUCT LINE
$1.657 BILLION
IN 2006 SALES
Polaris sales reflect a diversified mix ofpowersports products for work and recreationin all climates andseasons.
12%Canada
74%United States
14%International
PERCENTAGE OF SALES BY GEOGRAPHIC AREA
WORLDWIDE
OPPORTUNITIES
While the United Statesis the world’s largestmarket for Polarisproducts, internationalmarkets represent a significant growthopportunity.
NOTE: All periods presented reflect the classification of the marine products division’s financial results, including the loss from discontinued operations and the loss on disposal of the division, as discontinued operations.
* Not meaningful.
$1.9
9
03
$1.8
1
02
$1.64
01
$1.48
00
$1.40
9998
$3.15 $
2.7
2
97 04 06
$2.28
$2.9
7
05
$2.58$
1,327
02
$1,245
01
$1,10
6
00
$9
48
999897
$1,773
$1,8
70
03 05
$1,6
57
06
$1,427
$1,552
04
$1,468
SALES
(dollars in millions)NET INCOME
FROM CONTINUING OPERATIONS
PER SHARE(1)
(dollars)
THESCORECARD
46%
02
50%
01
47%
00
46%
999897
38%
37%
03 05
41%
06
42% 38%
04
41%
RETURN ON AVERAGE SHAREHOLDER EQUITY
FROM CONTINUING OPERATIONS
21.0%
03
21.2%
02
20.1%
01
18.8
%
00
20.1%
9998
22.0%
21.7
%
97 04 06
22.1%
23.5%
05
22.9%
GROSS MARGIN PERCENTAGE
FROM CONTINUING OPERATIONS
Polaris’ productivity strategies historically have resulted in consistent gross margins. The 2006 gross margin decline was due to lower sales volume
for ATVs and snowmobiles, in addition to higher promotional and floor planfinancing costs partially offset by savings from cost reduction initiatives.
–4%
16%
Polaris
19%
S&P500
–2%
Russell2000
19%
RecreationalVehicles
Index
DowJones
10%
Nasdaq
80%
35%
Polaris
73%
S&P500
23%
Russell2000
39%
RecreationalVehicles
Index
DowJones
Nasdaq
24%
TOTAL RETURN TO SHAREHOLDERS – POLARIS VS. MARKET INDICES
One-Year Total Return(2006)
Five-Year Total Return(2002–2006)
$0
.50
03
$0
.44
02
$0
.40
01
$0
.36
00
$0
.32
9998
$1.12
$1.2
4
97 04 06
$0
.56
$0
.92
05
$0
.62
$151
03
$130
02
$120
01
$110
00
$10
1
9998
$211 $
178
97 04 06
$177
$20
2
05
$179
DIVIDENDS PER SHARE
(dollars)In January 2007, Polaris announced a 10 percent increase
in the regular quarterly dividend, the 12th straight year of increases.
CASH FLOW PROVIDED
FROM CONTINUING OPERATIONS(1,2)
(dollars in millions, before changes in current operating items and deferred taxes)
2.4
02
3.0
01
2.2
00
2.9
999897
1.4
2.4
03 05
6.9
06
2.2
2.5
04
2.4
$40
02
$52
01
$38
00
$40
999897
$67
$132
03 05
$3
08
06
$49
$73
04
$76
POLARIS SHARES REPURCHASED
Since inception of the share repurchase program in 1996, approximately 29.2 million shares have been repurchased at an average price of $30.41 per share.
(shares in millions) (dollars in millions)
(1) In 1998, Polaris entered into a settlement agreement related to a trade secret infringement claim brought by Injection ResearchSpecialists, Inc. The one-time provision for litigation loss of$61.4 million, or $0.77 per diluted share, has been excluded fromthe 1998 financial data presented.
(2) A reconciliation of the Company’s calculation of Cash Flow Providedto the most directly comparable cash flow measure, as required byRegulation G, appears on page 11 of this Annual Report.
NOTE: All periods presented reflect the classification of the marine products division’s financial results, including the loss fromdiscontinued operations and the loss on disposal of the division, as discontinued operations.
2006 was a difficult year for Polaris. For the first time in the last 25 years, the Company did not produce record earningsper share from continuing operations. Our two core businesses, ATVs and snowmobiles, were both negatively impacted bydeclining industry trends in each of these markets in 2006. But there were also some positives in 2006 for the Company.Polaris had another good year in RANGER™ utility vehicles, Victory® motorcycles and financial services. And although the2006 results were below expectations, 2006 was still the third-best year in the Company’s 53-year history.
SNOWMOBILES
Polaris pioneered snowmobiles over 50 yearsago, and we are a recognized leader in thesnowmobile industry. We remain competitiveby continually offering product and programinnovations, and competitively priced modelscovering all market segments: performance,crossover, trail sport, trail luxury touring,mountain and youth. For model year 2007, weadded power with several Polaris IQ® andRMK™ models fitted with the new small-blockLiberty 600 HO and 700 HO CleanFire™ semi-direct injection engines. We are committedto uncompromising ride, performance and handling.
PARTS, GARMENTS
AND ACCESSORIES (PG&A)
Pure Polaris® PG&A complete the ridingexperience. We have designed and engineeredPG&A to enhance the performance of Polarisproducts ever since we introduced the firstsnowmobile in 1954. Pure Polaris offers over50,000 items consisting of service parts, a diverse array of accessories and Polaris-designed clothing products tailored to meetthe needs of the Polaris rider. Pure Polaris also offers retail credit, extended servicecontracts and insurance products to facilitatethe consumer’s buying experience.
ALL-TERRAIN VEHICLES (ATVs)
Polaris introduced the first American-madeATV in 1985, and ever since we have pioneeredsuch market-transforming improvements as automatic transmissions, long travel/independent rear suspensions (IRS), fullfloorboards, single-lever hydraulic braking,on-demand AWD (true 4-wheel drive) and the industry’s first electronic fuel-injected 4x4.Our RANGER off-road utility vehicle line hasredefined the market with its industry-leadingpower and ride quality, and our Outlaw™ sport quad powered by a KTM engine takesacceleration and handling to another levelwith the industry’s first IRS on a sport ATV.
VICTORY MOTORCYCLES
For the 2007 model year, the lineup wasextended to include a soft-bag touring model,the Kingpin® Tour, and a limited editionHammer™ S model. Additionally, two new,limited-edition Vegas Jackpot™ modelsdesigned by custom motorcycle builders Arlen and Cory Ness were available, featuringcustom paint schemes, chromed-out forks and swingarms, billet wheels and more. The Custom Order Program continued formodel year 2007 allowing customers to go online and custom-configure a bike,choosing from thousands of combinations.
SALES
(dollars in millions)Year ended December 31
WORLDWIDE ATV
AND UTILITY VEHICLE
INDUSTRY
(units in thousands)
SALES
(dollars in millions)Year ended December 31
U.S. INDUSTRY
(units in thousands)Cruisers and Touring
SALES
(dollars in millions)Year ended December 31
$1,240 $
1,117
04 06
$1,160
05
1,353
1,34
3
04 06
1,324
05
$9
9
$113
04
$74
05 06
466
48
0
04
443
05 06
$257
$15
7
04 06
$28
8
05
174 165
04 06
181
05
WORLDWIDE INDUSTRY
(units in thousands)Season ended March 31
$274
$2
70
04 06
$251
05
SALES
(dollars in millions)Year ended December 31
PG&A PRODUCT MIX
BY BUSINESS LINE
POLARIS AT A GLANCE
PRIMARY
COMPETITORS
• Arctic Cat• BRP• Yamaha
PRIMARY
COMPETITORS
• Parts Unlimited(aftermarketdistributor)
• PowersportsOEMs
• Tucker Rocky(aftermarketdistributor)
PRIMARY
COMPETITORS
• Arctic Cat• BRP• Honda• John Deere• Kawasaki• Kymco• Suzuki• Yamaha
PRIMARY
COMPETITORS
• BMW• Harley-Davidson• Honda• Kawasaki• Suzuki• Yamaha
ATVS
VICTORY
PG&A
SNOWMOBILES
Forward-looking statements made herein involve certain important factors that could change and cause actual results to differ materially from those anticipated. See Management’s Discussion and Analysis ofFinancial Condition and Results of Operation beginning on page 15 of the Form 10-K included with this report.
63% ATV22% Snowmobile
6% Victory7% General Merchandise2% Personal Watercraft
63%
22%
7%
6%
2%
2006 POLARIS INDUSTRIES INC. ANNUAL REPORT PAGE 1
A LETTER FROM THE CEO AND COO
DEAR FELLOW SHAREHOLDERS:
2006 was a disappointing year for Polaris. The negatives outweighed the positives
and, for the first time in the last 25 years, we did not produce record earnings per
share from continuing operations. The following summarizes 2006:
• Sales declined by 11 percent to $1.66 billion.
• Net income from continuing operations declined by 18 percent to $113 million.
• Earnings per share from continuing operations decreased 14 percent to $2.72.
• Gross margins declined by 30 basis points.
• The debt-to-total capital ratio increased to 60 percent. Essentially, all of the
increase was the result of a significant share buy-back. In 2006, we repurchased
a total of 17 percent of the outstanding shares of the company.
• The total annual return to shareholders was a negative 4 percent. For the past
five years, our total return to shareholders has been 80 percent.
While the results were disappointing to the entire Polaris team, it should be noted
that for earnings per share from continuing operations, this was the third-best year
in our history.
In terms of individual results for the various business segments, there were both
successes and disappointments. Let’s start with the things that went well.
We had an excellent year in growing the RANGER utility vehicle business. The RANGER
business has seen fast, profitable growth for the last several years, and 2006 continued
the trend. The overall worldwide side-by-side market grew an estimated 19 percent
in 2006, and our RANGER business continued to outpace the industry growth in 2006.
Thomas C. Tiller
Chief Executive Officer
Bennett J. Morgan
President and Chief Operating Officer
PAGE 2 2006 POLARIS INDUSTRIES INC. ANNUAL REPORT
TAKING VICTORY TO THE NEXT LEVELThe new 2008 model year Victory Vision™ is our most researched product line in company history. We rode 30,000 miles on competitor bikes, spenthundreds of hours in focus groups and talked withriders one-on-one. The result? We focused where it matters most—on comfort and style. The VictoryVision is the most progressive line of American luxury-touring bikes ever built. From the thunderous V-Twinengine to the breakthrough styling and unmatchedcomfort, Victory Vision totally redefines what it meansto be an American Motorcycle and delivers on the rawpassion riders have come to expect from Victory—the New American Motorcycle Company.
Our product quality and performance have
been the primary drivers. With an expanded
product offering in 2007, we expect the
RANGER business to continue to perform well.
The Victory motorcycle division also had a
great year in 2006. While the overall market
for motorcycles sold in the United States hit
another all-time record, Victory retail sales
grew by more than ten times the overall market.
We are now the second-largest American
manufacturer of motorcycles. In 2006,
we marked the first full year of profitability
for our Victory business, and we expect that
performance to accelerate in 2007 and
beyond. Extremely high customer satisfaction
and positive word-of-mouth referrals are two
important drivers of Victory’s success.
Our financial services business also had a
great year. We accelerated our efforts selling
into the military market, and our overall
product quality improved. So there were some
significant positives.
But the disappointments outweighed the wins
in 2006. In two of our businesses, snowmobiles
and ATVs, things were tough. In both cases,
the overall markets were down and we lost
market share. We were not competitive enough
in either market. In ATVs, we did not correctly
forecast the magnitude of the market softness.
SEGMENT: Luxury touring (bagger), designed for comfortable long-distance riding, with amenitiessuch as cruise control, saddlebags and top-notchsound systems
TARGET AUDIENCE: 50-year-old (average age),seasoned rider with time and a passion for long-distance motorcycle touring
COMPETITORS: BMW, Harley-Davidson, Honda
POLARIS DIFFERENTIATORS: Unprecedented comfortand styling for riders who want a fresh take onAmerican-made
2006 U.S. TOURING MARKET OPPORTUNITY
Unit Volume 3-year Compounded Annual Growth Rate
Soft-bag Touring 43,000 – 7%Hard-bag Touring 61,000 +21%Luxury Touring 64,000 + 9%Total 168,000 + 7%Average industry selling price is $19,000, which translates to $3 billion in market opportunityfor touring. In addition, related apparel and accessories for motorcycle touring will be available.
Victory Vision Tour™
Victory Vision Street™
2006 POLARIS INDUSTRIES INC. ANNUAL REPORT PAGE 3
VICTORY VISION
PAGE 4 2006 POLARIS INDUSTRIES INC. ANNUAL REPORT
As a result, dealer inventory levels remained
too high for the year. The decline in volume,
coupled with higher promotional incentives,
led to lower gross margins.
In addition, we were not successful in completing
phase two of the KTM acquisition, which was
important to our long-term goal of building a
larger, more global company.
Finally, and perhaps most importantly, we learned
some important lessons from the mistakes of
2006, and we have incorporated that thinking
into our plan for the next three years.
In a nutshell, we are expecting a continued
tough overall market environment and planning
on Polaris being more competitive. In 2007,
we intend to get the business back on track,
specifically by improving the competitiveness
of our ATV and snowmobile businesses, and
by assisting dealers in reducing their inventory
of ATVs, which should be back to acceptable
levels by mid-year. We will also continue to
work hard to reduce our costs, and enter two
new growth segments, the luxury touring
segment of the motorcycle market and the
recreational segment of the side-by-side utility
market, in early 2007. Results in 2008 and
2009 should benefit from each of these actions.
THE GOALS:• $2.2 billion in sales by 2009
• $150 million in net income by 2009
• $4.25 earnings per share by 2009
1. WIN IN THE CORE
• Grow market share in snowmobiles and ATVs.• Leverage PG&A and financial services to deliver
superior total value.
2. DELIVER OPERATIONAL EXCELLENCE
• Industry-leading quality in every product line.• Greater than 5 percent productivity gains every year.• A lean enterprise, driven by robust, simple designs
and a lean supply chain.
3. GROW BY $500 MILLION BY 2009
• Victory – Obtain 5 percent market share in cruiserand touring segments.
• RANGER – Dominate utility and recreational side-by-side market.
• International – Expand global presence by$50 million.
• Expand military opportunity.• Enter at least one new adjacent market segment.
SUPPORTED BY:PEOPLE AND CULTURE
• Externally focused employee owners with a can-dodrive to consistently deliver outstanding results.
• The best team in powersports.• Passion to ride and win.
TECHNOLOGY
• Consistent, flawless introduction of compelling new products.
• Class-leading ride and handling.• Controlling our destiny in powertrains.• Class-leading information technology.
BRAND
• Ever-improving brand awareness and image through stronger, better and bigger dealer network.
• Consistent advertising and brand support.
2006 POLARIS INDUSTRIES INC. ANNUAL REPORT PAGE 5
GETTING BACK TO GREAT
Our new three-year plan has three specific
financial objectives for 2009:
• $2.2 billion in sales
• $150 million in net income
• $4.25 earnings per share
To achieve these financial objectives, we will
employ three clear strategies: 1) winning in
the core, 2) delivering operational excellence,
and 3) generating $500 million of new
business by entering new segments of our
existing businesses, as well as the military
market and one new adjacent market.
Winning in the core means strengthening our
ATV and snowmobile businesses. It means
gaining market share in a declining market with
better products, more and better advertising,
and more effective marketing. It means fighting
harder—and fighting to win.
Delivering operational excellence means
becoming the most efficient manufacturer in
the powersports industry, just as Toyota has
become the most efficient manufacturer in
the automobile industry. Historically, we have
had strong manufacturing operations, but
we believe we can find an entirely new level
of performance. Just as Toyota is using the
back end of its business to its competitive
advantage, we think we can find new levels
of quality and productivity to help us win.
We have made excellent progress in improving
quality across most product lines over the
last several years, and we continue to target
industry-leading quality in every segment.
Finally, we are looking to develop a lean
enterprise, driven by simple, robust product
designs and a lean supply chain.
Generating $500 million of sales growth
between now and 2009. Both RANGER and
Victory have been rapidly growing and should
continue to grow through new products, by
entering new segments, by expanded distribution
and through overall market growth. The new
RANGER RZR™ (highlighted on page 6) will be
our first entry into the rapidly growing
recreational side-by-side market, and the new
Victory Vision line (highlighted on page 2)
will attack the luxury touring motorcycle
segment. Both RANGER and Victory should
deliver $100 million to $150 million of growth
over the next three years.
PAGE 6 2006 POLARIS INDUSTRIES INC. ANNUAL REPORT
The international sales opportunity remains
significant for Polaris. We can improve our
distribution in several existing markets, and see
growth in emerging markets, as well. Combined,
we should see approximately $50 million of
sales growth outside of North America.
The remaining sales growth will come from
entering two adjacent markets. These are
markets that we currently do not serve, but are
opportunities where we can apply our brand and
technology to create customer value. The first
opportunity is the military market. For the past
few years, we have been working with military
customers on a small scale—learning the market
niches and developing products to deliver the
mission. Based on this early success, we
believe there is a credible, sizable opportunity
for our vehicles in a number of different
military and government applications. We look
to generate $50 million to $75 million in
annual sales in the military market by 2009.
The other adjacent market opportunity is
under development and will be announced in
the future.
LAUNCHING THE NEXT RANGER SUCCESS
Sales of our RANGER utility vehicles have been sosuccessful that we extended our family of side-by-side(SxS) performance vehicles to include a big bore sportmodel — the new RANGER RZR. It competes in therapidly growing recreational segment of the SxS utilitymarket, and pairs our legendary razor-sharp RANGERperformance with a Sportsman® 800 EFI engine forfaster acceleration than the category market leader.
SEGMENT: Big Bore/Sport Utility
TARGET AUDIENCE: Hunters, Big Bore ATV and Sport SxS riders
COMPETITORS: Yamaha, Arctic Cat, other Big Bore ATVs
POLARIS DIFFERENTIATORS: 30 percent more horse-power, 25 percent more suspension travel with dual anti-sway bars for better handling, and a trim 50 inches wide (the only trail-capable SxS)
WORLDWIDE SIDE-BY-SIDE UTILITY VEHICLE MARKET
65% Utility (20% growth in 2006*)
20% Commercial/Industrial (flat growth in 2006*)
15% Recreational (45% growth in 2006*)
Utility segment of the total SxS market is the largest segment today. But the fastest-growingsegment is recreational—where the RANGER RZR is expected to aggressively compete.
* Estimated
2006 POLARIS INDUSTRIES INC. ANNUAL REPORT PAGE 7
RANGER RZR
PAGE 8 2006 POLARIS INDUSTRIES INC. ANNUAL REPORT
The aforementioned three strategies will be
supported by our people, our technology and
our brand. Polaris people have long been
driven by the passion for our products. Thanks
to their creativity and innovation, our company
has grown by a factor of almost 140 over the
last 25 years. As we grow and change, we must
continue to nurture and adapt our culture to
the changing environment. For us, that means
turning the focus of our organization more
outward, and more toward the future. We
believe our employee owners are already the
best in the world at what we do, and we are
continuously looking to strengthen and
sharpen our team.
Our technology has improved significantly
over the past five years. We now employ tools
and processes that allow us to consistently
produce winning new products. Recent
examples include the RANGER RZR and Victory
Vision, where customer input has driven
breakthroughs in performance, style, comfort
and reliability. We will continue to invest
aggressively in product development, with
concentrations in ride, handling, engine and
suspension technology.
Strong support for the Polaris and Victory
brands will also be key to our plan. It is not
enough to develop a great product. The brands
have to connect the product, the experience
and the customer. So we will provide more
consistent support for our brand in advertising
and through the dealer network.
In summary, for us to return Polaris to where
we all want it to be, we need to develop and
deliver awesome products, focus the entire
organization on delighting the customer, and
deliver outstanding results in a much tougher
environment. If we can do those three simple
things, then customers, dealers, employees,
suppliers and investors will all benefit from
a stronger Polaris.
In closing, we would like to thank our employees,
dealers, suppliers and communities for their
support over the last year. And finally, we would
also like to thank you, our loyal shareholders,
for your support and long-term perspective
during a challenging year for the company.
Thomas C. Tiller – Chief Executive Officer
Bennett J. Morgan – President and Chief Operating Officer
2006 POLARIS INDUSTRIES INC. ANNUAL REPORT PAGE 9
CORPORATE OFFICERS
Thomas C. Tiller
Chief Executive Officer
Bennett J. Morgan
President and
Chief Operating Officer
Jeffrey A. Bjorkman
Vice President – Operations
Mark E. Blackwell
Vice President –
Victory Motorcycles and
International Operations
John B. Corness
Vice President –
Human Resources
Michael W. Malone
Vice President –
Finance, Chief Financial
Officer and Secretary
Mary P. McConnell
Vice President –
General Counsel
BOARD OF DIRECTORS
Thomas C. Tiller
Chief Executive Officer
of Polaris Industries Inc.
Committee: Technology
Gregory R. Palen
Chairman of the Board
of Polaris Industries Inc.
and Chairman
of Spectro Alloys and
Chief Executive Officer
of Palen/Kimball Company
Committee: Technology
Andris A. Baltins
Member of the law firm
of Kaplan, Strangis and
Kaplan, P.A.
Committees: Compensation,
Corporate Governance and
Nominating*
Robert L. Caulk
Former Chairman and
Chief Executive Officer
of United Industries
Corporation
Committee: Compensation*
GENERAL MANAGERS
Michael D. Dougherty
General Manager – ATVs
William C. Fisher
Chief Information Officer
and General Manager –
Service
Matthew J. Homan
General Manager –
Utility Vehicles
Michael P. Jonikas
General Manager –
Sales and Marketing
David C. Longren
Chief Technical Officer
Scott A. Swenson
General Manager –
Snowmobiles and
Parts, Garments and
Accessories
Annette K. Clayton
Vice President
of Manufacturing
for the Americas,
Dell Corporation
Committees: Audit, Technology
John R. Menard, Jr.
President of Menard, Inc.
Committees: Corporate Governance
and Nominating, Technology
R.M. (Mark) Schreck
President of
RMS Engineering and
retired Vice President
of Technology,
General Electric
Committees: Corporate Governance
and Nominating, Technology*
William G. Van Dyke
Retired Chairman
of Donaldson Co., Inc.
Committee: Audit
Richard A. Zona
Retired Vice Chairman
of U.S. Bancorp
Committees: Audit,* Compensation
* Committee Chair
BOARD OF DIRECTORS, OFFICERS AND GENERAL MANAGERS
PAGE 10 2006 POLARIS INDUSTRIES INC. ANNUAL REPORT
The selected financial data presented below are qualified in their entirety by, and should be read in conjunction with, the Consolidated Financial Statementsand Notes thereto and other financial and statistical information, including the information referenced under the caption “Management’s Discussion andAnalysis of Financial Condition and Results of Operation,” located in the Form 10-K included in this report.
Prior years’ results have been adjusted to reflect the adoption of SFAS 123(R) under the modified retrospective method.
For the Years Ended December 31, 2006 2005 2004 2003
STATEMENT OF OPERATIONS DATA
Sales data:
Total sales $ 1,656,518 $ 1,869,819 $ 1,773,206 $ 1,552,351
Percent change from prior year (11%) 5% 14% 6%
Sales mix by product:
All-terrain vehicles 67% 66% 66% 67%
Snowmobiles 10% 14% 16% 15%
Motorcycles 7% 5% 4% 4%
Parts, garments & accessories 16% 15% 14% 14%
Gross profit data:
Total gross profit $ 359,359 $ 411,032 $ 416,600 $ 355,961
Percent of sales 22% 22% 23% 23%
Operating expense data:
Total operating expenses $ 238,363 $ 244,660 $ 242,690 $ 206,013
Percent of sales 14% 13% 14% 13%
Net income data:
Net income from continuing operations $ 112,791 $ 137,721 $ 132,257 $ 115,178
Diluted net income per share from continuing operations $ 2.72 $ 3.15 $ 2.97 $ 2.58
Net income $ 106,985 $ 136,714 $ 99,948 $ 106,284
Diluted net income per share $ 2.58 $ 3.12 $ 2.25 $ 2.38
CASH FLOW DATA
Cash flow from continuing operating activities $ 152,754 $ 162,463 $ 237,061 $ 162,540
Purchase of property and equipment for continuing operations 52,636 89,770 88,836 59,209
Repurchase and retirement of common stock 307,621 132,280 66,830 73,125
Cash dividends to shareholders 50,234 46,956 38,856 26,657
Cash dividends per share $ 1.24 $ 1.12 $ 0.92 $ 0.62
BALANCE SHEET DATA(at end of year)
Cash and cash equivalents $ 19,566 $ 19,675 $ 138,469 $ 82,761
Current assets 392,961 373,988 465,655 387,716
Total assets 778,791 770,633 792,925 674,178
Current liabilities 361,420 375,614 405,193 330,478
Borrowings under credit agreements 250,000 18,000 18,000 18,008
Shareholders’ equity 167,371 377,019 368,058 325,692
(1) In 1998, Polaris entered into a settlement agreement related to a trade secret infringement claim brought by Injection Research Specialists, Inc. The one-time provision for litigation loss amounted to$61.4 million pretax, or $0.77 per diluted share in 1998. The settlement had no effect on the future operations of the Company. Excluding this charge, other operating expenses, net income and dilutednet income per share from continuing operations for 1998 would have been $98.0 million, $76.7 million and $1.48 per share, respectively.
NOTE: All periods presented reflect the classification of the marine products division’s financial results, including the loss from discontinued operations and the loss on disposal of the division, as discontinued operations.
11-YEAR SELECTED FINANCIAL DATA (in thousands, except per share and per unit data)
2006 POLARIS INDUSTRIES INC. ANNUAL REPORT PAGE 11
2002 2001 2000 1999 1998 1997 1996
$ 1,468,170 $ 1,427,400 $ 1,327,030 $ 1,244,782 $ 1,105,685 $ 947,775 $ 985,472
3% 8% 7% 13% 17% (4%) 8%
64% 58% 62% 59% 58% 48% 44%
20% 26% 23% 25% 28% 37% 42%
2% 1% 1% 3% 1% — —
14% 15% 14% 13% 13% 15% 14%
$ 324,618 $ 299,194 $ 281,264 $ 250,528 $ 207,807 $ 190,853 $ 191,680
22% 21% 21% 20% 19% 20% 19%
$ 181,764 $ 164,532 $ 153,193 $ 127,079 $ 159,354 $ 82,767 $ 82,087
12% 12% 12% 10% 14%(1) 9% 8%
$ 107,143 $ 93,773 $ 85,733 $ 81,816 $ 37,082(1) $ 74,927 $ 69,890
$ 2.28 $ 1.99 $ 1.81 $ 1.64 $ 0.71(1) $ 1.40 $ 1.26
$ 99,405 $ 87,471 $ 79,076 $ 73,500 $ 29,336(1) $ 64,346 $ 61,475
$ 2.12 $ 1.86 $ 1.67 $ 1.48 $ 0.56(1) $ 1.20 $ 1.11
$ 195,803 $ 192,023 $ 105,055 $ 134,469 $ 124,701 $ 97,655 $ 88,872
52,313 52,856 61,590 60,659 56,796 32,389 37,128
76,389 49,207 39,622 52,412 37,728 39,903 13,587
25,273 22,846 20,648 19,732 18,582 16,958 16,390
$ 0.56 $ 0.50 $ 0.44 $ 0.40 $ 0.36 $ 0.32 $ 0.30
$ 81,193 $ 40,530 $ 2,369 $ 6,184 $ 1,466 $ 1,233 $ 5,812
343,659 305,317 240,912 214,714 183,840 217,458 193,405
614,378 567,979 492,156 443,686 380,093 385,498 351,958
313,513 308,337 238,384 233,800 204,964 191,111 161,387
18,027 18,043 47,068 40,000 20,500 24,400 35,000
282,838 241,599 206,704 169,886 154,629 169,987 155,571
Cash Flow Provided to Net Cash Provided by Operating Activities from Continuing Operations (dollars in millions)
Cash Flow Deferred Changes in Current One-time Provision for Net Cash Provided by
Year Provided Income Taxes Operating Items Litigation Loss, Net(1) Operating Activities
1997 $100.5 $ (0.5) $ (2.3) — $ 97.71998 109.5 4.4 50.4 $(39.6) 124.71999 119.8 2.8 11.9 — 134.52000 129.7 1.3 (25.9) — 105.12001 150.8 (10.6) 51.8 — 192.02002 176.9 4.3 14.6 — 195.82003 179.1 (8.7) (7.9) — 162.52004 202.3 (1.5) 36.3 — 237.12005 211.4 1.6 (50.5) — 162.52006 177.8 1.3 (26.3) — 152.8
PAGE 12 2006 POLARIS INDUSTRIES INC. ANNUAL REPORT
OTHER INVESTOR INFORMATION
STOCK EXCHANGE
Shares of common stock ofPolaris Industries Inc. trade onthe New York Stock Exchange
under the symbol PII.
INDEPENDENT AUDITORS
Ernst & Young LLPMinneapolis, MN
TRANSFER AGENT AND REGISTRAR
Communications concerning transferrequirements, address changes, dividendsand lost certificates, as well as requests for Dividend Reinvestment Plan enrollmentinformation, should be addressed to:
Wells Fargo Bank N.A.Shareowner Services161 North Concord ExchangeSouth St. Paul, MN 55075-11391-800-468-9716www.wellsfargo.com/com/shareowner_services
ANNUAL SHAREHOLDERS’ MEETING
The meeting will be held at 9 a.m. CST,Thursday, April 19, 2007, at the PolarisIndustries Inc. corporate headquarters,2100 Highway 55, Medina, Minnesota. A proxy statement will be mailed on or about March 1, 2007, to each shareholder of record on February 21, 2007.
SUMMARY OF TRADING
For the Years Ended December 31,
2006 2005Quarter High Low High Low
First $54.90 $46.65 $74.18 $62.22Second 53.62 42.33 71.19 51.60Third 45.17 34.24 60.23 46.53Fourth 47.61 39.00 53.95 43.75
CASH DIVIDENDS DECLARED
Cash dividends are declared quarterly andhave been paid since 1995. As of January 18,2007, the quarterly dividend was increasedto $0.34 per share.
Quarter 2006 2005First $0.31 $0.28Second 0.31 0.28Third 0.31 0.28Fourth 0.31 0.28Total $1.24 $1.12
SHAREHOLDERS OF RECORD
Shareholders of record of the Company’scommon stock on February 21, 2007, were 3,023.
SHAREHOLDER COMPOSITION
DIVIDEND REINVESTMENT PLAN
Shareholders may automatically reinvesttheir dividends in additional Polaris commonstock through the Dividend ReinvestmentPlan, which also provides for purchase of common stock by voluntary cash contributions. For additional information, please contactWells Fargo Shareowner Services at1-800-468-9716 or visit the Wells FargoBank Web site at www.wellsfargo.com.
PRODUCT BROCHURES
For product brochures and dealer locations,write or call:
Polaris Industries Inc.2100 Highway 55Medina, MN 553401-800-Polaris (1-800-765-2747)
INTERNET ACCESS
To view the Company’s annual report and financial information, products andspecifications, press releases and dealerlocations, access Polaris on the Internet at:
www.polarisindustries.comwww.victory-usa.com
INVESTOR RELATIONS
Security analysts and investmentprofessionals should direct their business-related inquiries to:
Richard EdwardsDirector of Investor RelationsPolaris Industries Inc.2100 Highway 55Medina, MN [email protected]
RESEARCH COVERAGE
AS OF FEBRUARY 2007
A.G. EdwardsAvondale PartnersBank of America SecuritiesBMO Capital Markets Corp.CitigroupCraig-Hallum PartnersFTN Midwest Securities Corp.Goldman SachsKeyBanc Capital Markets (McDonald)Merrill LynchRaymond James & AssociatesRBC Capital MarketsRobert W. Baird & Co.Wedbush Morgan Securities
STOCK-SPLIT HISTORY
August 1993 2 for 1October 1995 3 for 2March 2004 2 for 1
CEO CERTIFICATION
The Company’s Chief Executive Officersubmitted the annual CEO certification tothe New York Stock Exchange, certifyingthat he is not aware of any violation by theCompany of the New York Stock Exchange’scorporate governance listing standards.
77% Institutions
12% Individuals and Others
1 1% Officers, Directors and Employees
© 2007 Polaris Industries Inc. Printed in the USA E Printed on recycled paper containing 10 percent post-consumer fiber.
Polaris Industries Inc.
2100 Highway 55
Medina, MN 55340
763-542-0500
763-542-0599 fax
www.polarisindustries.com