Polaris Industries Inc. Annual Report 2012 Highlights up %

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Polaris Industries Inc. Annual Report 2012 Highlights up % POLARIS INDUSTRIES INC. ANNUAL REPORT 2012 HIGHLIGHTS UP % record sales | IN BILLIONS JUST ONE YEAR AFTER PASSING THE $2 BILLION MILESTONE 2012 $3,210 2011 $2,657 UP 2010 $1,991 2009 $1,566 % 2008 $1,948 > $312.3 MILLION NET INCOME TRIPLED IN PAST 3 YEARS sales DOLLARS IN MILLIONS 2012 $4.40 UP 2011 $3.20 2010 $2.14 2009 BASIS POINTS TO $1.53 % 2008 $1.75 GROSS PROFIT % NET INCOME PER DILUTED SHARE + BASIS POINTS UP TO NET INCOME margin EARNINGS PER Diluted SHARE | UP 38% AT A GLANCE Polaris Industries Inc. designs, manufactures and markets innovative, high-quality, high-performance motorized products including: all-terrain recreational and utility Off-Road Vehicles (ORVs), which include ATVs and side-by-sides; Snowmobiles; On-Road Vehicles, including Motorcycles and Small Vehicles; and related Parts, Garments and Accessories (PG&A). year ended DEC. 31 PERCENT OF SALES PERCENT OF SALES PERCENT OF SALES INCREASE FROM 2011 INCREASE FROM 2011 INCREASE FROM 2011 2012 2012 2012 $2,226 $283 $240 2011 2011 2011 $1,823 $280 $146 2010 2010 2010 $1,376 $189 $82 SCORECARD GROSS PROFIT MARGIN CASH FLOW PROVIDED RETURN ON AVERAGE DIVIDENDS PER PERCENTAGE (IN MILLIONS) SHAREHOLDER EQUITY SHARE 2012 2012 2012 2012 28.8% $416 52% $1.48 2011 2011 2011 2011 27.9% $303 52% $0.90 2010 2010 2010 2010 26.6% $298 51% $0.80 year ended DEC. 31 2012 $2,311 PERCENT OF SALES 2011 $1,864 PERCENT OF TOTAL SALES 2010 $1,406 INCREASE FROM 2011 INCREASE FROM 2011 2012 $461 2011 2012 $408 $438 2010 2011 $344 PERCENT OF TOTAL SALES $369 2010 $279 INCREASE FROM 2011 2012 $461 2011 PERCENT OF TOTAL SALES $424 2010 $306 INCREASE FROM 2011 TOTAL RETURN TO SHAREHOLDERS TOTAL RETURN TO SHAREHOLDERS ONE-YEAR TOTAL RETURN (2012) FIVE-YEAR TOTAL RETURN (2008–2012) POLARIS POLARIS % 53 310% RECREATIONAL VEHICLES RECREATIONAL VEHICLES INDUSTRY GROUP INDEX — INDUSTRY GROUP INDEX — MORNINGSTAR MORNINGSTAR 39% 47% RUSSEL 2000 RUSSEL 2000 16% 19% S&P500 S&P500 13% 97% NewN Indian Motorcycle line under development ini Polaris’ Spirit Lake, Iowa, facility — Scott Wine, Chairman and CEO During a recent visit to our plant in Spirit Lake, Their work is inspiring us to apply similar effort Iowa, it was rewarding to see many of our to the rest of the company. It’s an exciting and dedicated employees proudly wearing their rewarding task, because we have a stable of Polaris “$2 billion Sales” T-shirts. Their hard strong brands that are already popular. With a work and innovation helped Polaris achieve more concentrated effort to leverage the loyalty that milestone in 2011. But we’ll have to print up they inspire, we can capitalize on even greater new shirts for them, because in early December growth potential. 2012, they helped us surpass the $3 billion mark One of our prominent five-year objectives is to for the first time. A few days later, we reached become a highly profitable, $5+ billion global another landmark as we publicly unveiled enterprise. Our 4,600 employees around the the rumbling notes of the all-new Indian world contribute to this goal every day, from Motorcycle engine. world-class product design and engineering to Although Indian’s full debut is months away, constantly improving manufacturing and global the iconic brand has already had a profound sales teams. Together, our employees drove impact on Polaris. Confronted with the task of overall Polaris revenue up 21 percent to a record restoring Indian to its rightful place among the $3.2 billion in 2012, while doubling sales and leaders of American motorcycles, we quickly tripling net income over the past three years. realized that this storied brand demanded While we’re proud of our third consecutive year more than our proven strength in design, as No. 1 in North American powersports market engineering and operations. It required brand share—and pleased for our shareholders, who support that surpassed anything Polaris had benefited from a 53 percent return in 2012— ever considered. Steve Menneto and his Indian neither entitlement nor complacency exists Motorcycle team have done outstanding work within this team. on the brand positioning, delivering impactful creative marketing materials befitting this great American brand. 2 RANGER XP® 900, 2013 IN SALES MARGIN We have unmet goals and investments Across our portfolio and all over the world, we that must yield a return, so we remain fully seek to maintain or enhance our competitive committed to building capability and executing position. While we’ll continue our traditional our Strategic Objectives. Doing that successfully approach of generating competitive advantage requires us to evolve and adapt in our many through engineering and product leadership, businesses and geographies: we’ll increasingly leverage our lean enterprise skills and brand strength to capture market » We anticipate increased competition to and mind share. Though our strategy remains our industry-leading side-by-side vehicles consistent and our execution relentless, we business, and expect to become an know speed and agility will be as important even more disruptive challenger in the to our corporate success as they are to our heavyweight motorcycle industry. vehicles and their operators. » We’re ready if military spending decreases, In 2012, our Off-Road Vehicles business (ORV) because we believe our innovative vehicle used speed-to-market and industry-leading solutions are capable of saving our global innovation and performance to extend our defense customers millions of dollars. No. 1 North American market share position » The economic outlook in Europe remains a and increase sales by 22 percent. We launched concern, though we’re confident our strong our best-ever RANGER® and RZR® vehicles, team will continue to gain market share and penetrating new customer segments and —through mergers, acquisitions and capital strengthening these brands, which are investments—will generate enhanced profits becoming synonymous with multi-passenger and revenue. off-road riding. » We’ve experienced rapid expansion in Victory Motorcycles grew even faster—more India, China, Brazil and Russia, but are than 40 percent—as our successful “Ride One cognizant of the challenges inherent to and You’ll Own One” campaign showcased sustaining profitable growth in these our outstanding portfolio and creative energy. developing markets. Demonstrating even more ingenuity, we rolled 3 Scott W. Wine Bennett J. Morgan out a Retail Flow Management program to Despite a difficult economy, our Europe/Middle Victory dealers that represents our most East/Africa (EMEA) business gained market complete implementation of Lean principles share and recorded 5 percent sales growth, to date. Early results are encouraging. The demonstrating that our team finds ways to win improved responsiveness, quality and lower regardless of conditions. We’re confident in the inventory levels will serve as a model for our future of our European business. To better serve other business units to adopt and enhance. those customers, in 2013 we’ll break ground on While our Indian bikes will be separate and our first overseas assembly facility. distinct, the brand will certainly use Victory’s Regardless of the challenges, the success of customer-driven Lean model as a springboard. Polaris ultimately depends on leadership and Our Snowmobile business remains a source teamwork. We have a deep and talented team of energy, pride and profits for Polaris, with that is the best in powersports, and we rely 1 percent growth in 2012. Our continued on their experience and ability as we expand focus on quality and “Terrain Dominating into new markets. Our ability to innovate and Control” drove market share gains for a third execute faster and better than the competition consecutive year. provides Polaris with an advantage that plays anywhere; couple that with the global With growth from Snow, ORV and Motorcycles, reach of our strong brands and the potential we saw a corresponding 13 percent increase in of our business is practically unlimited. This our Parts, Garments and Accessories (PG&A) Polaris team has aggressively and consistently business. The acquisition of Klim in late 2012 executed our Strategic Objectives to create adds one of the strongest brands in powersports both value for shareholders and significant technical riding gear, and a remarkable growth opportunities for additional growth. There opportunity for our highest-margin business. will be no easy trails ahead, but we’re more We expanded distribution and improved vehicle convinced than ever that we can create an even performance for GEM and Goupil during the brighter future for Polaris and our many brands. brands’ first full year with Polaris, and our small Sincerely, vehicles business more than doubled revenue. Establishment of our joint venture with Eicher, a leading manufacturer of commercial vehicles and motorcycles in India, was a highlight for Scott W. Wine our Asia Pacific/Latin America team, and we’re Chairman and Chief Executive Officer confident it will be a long-term contributor to the region, which delivered 21 percent sales growth in 2012. We’re focused heavily on identifying and capturing similar opportunities to enlarge our global presence, especially in China and Latin America. Bennett J. Morgan President and Chief Operating Officer 4 OBJECTIVE 3–5 YEAR OBJECTIVES 2012 PROGRESS BEST IN 5–8% annual organic » Introduced the all-new RANGER XP® 900, our most POWERSPORTS growth powerful, fully featured utility side-by-side to date PLUS » On-Road Vehicles sales increased 64% » ATVs reached No. 1 in North American market share for 1st time ever » Acquired Klim GROWTH THROUGH $1 billion – $2 billion » Introduced Polaris non-pneumatic tires for ADJACENCIES from acquisitions and military vehicles new markets » Indian Motorcycle on plan for mid- to late-summer 2013 introduction » Polaris and Bobcat co-developed vehicle on plan for first half 2013 launch GLOBAL MARKET > 33% of total » Announced joint venture with Eicher Motors Limited LEADERSHIP company revenue to develop and market vehicles for India and emerging markets » Increased ORV and Motorcycle market share again; remained clear No.
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