Polaris Industries Inc. 2006 Annual Report Table of Contents Polaris Industries Inc
Total Page:16
File Type:pdf, Size:1020Kb
GETTING BACK TO GREAT POLARIS INDUSTRIES INC. 2006 ANNUAL REPORT TABLE OF CONTENTS POLARIS INDUSTRIES INC. is headquartered in Medina, Minnesota, and designs, manufactures and markets innovative, high-quality, high-performance motorized IFC Polaris Products at a Glance products for recreation and utility use. • Our product lines consist of all-terrain recreational and 1 Letter from the CEO and COO utility vehicles (ATVs); snowmobiles; motorcycles; and related parts, garments and accessories (PG&A). Polaris engineering, manufacturing and distribution facilities are located in Roseau and 9 Directors, Officers and Managers Wyoming, Minnesota; Osceola, Wisconsin; Spirit Lake, Iowa; Vermillion, South Dakota; Passy, 10 11-Year Selected Financial Data France; Ballarat, Victoria, Australia; Winnipeg, Manitoba, Canada; Gloucester, United Kingdom; Askim, Norway; Östersund, Sweden; and Hudson, Wisconsin (joint venture with Fuji Heavy 12 Other Investor Information 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 13 Form 10-K 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 – 18 Net 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 11 Average 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 – 41 Depreciation and amortization 71,164 67,936 5 Borrowings 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 PERCENTAGE OF SALES BY PRODUCT LINE PERCENTAGE OF SALES BY GEOGRAPHIC AREA $1.657 BILLION WORLDWIDE IN 2006 SALES OPPORTUNITIES Polaris sales reflect While the United States a diversified mix of is the world’s largest powersports products market for Polaris for work and recreation products, international in all climates and markets represent seasons. a significant growth opportunity. 67% 16% 7% 10% 74% 14% 12% ATVs PG&A Victory Snowmobiles United States International Canada Motorcycles 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. THE 2006 was a difficult year for Polaris. For the first time in the last 25 years, the Company did not produce record earnings per share from continuing operations. Our two core businesses, ATVs and snowmobiles, were both negatively impacted by SCORECARD declining 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 the 2006 results were below expectations, 2006 was still the third-best year in the Company’s 53-year history. $3.15 $202 $1,870 $211 $2.97 $1,773 $1,657 $2.72 $179 $178 $2.58 $177 $1,552 $1,468 $1,427 $2.28 $1,327 $151 $1,245 $1.99 $130 $1,106 $120 $1.81 $1.64 $110 $948 $1.48 $101 $1.40 97 98 99 00 01 02 03 04 05 06 9798 99 00 01 02 03 04 05 06 9798 99 00 01 02 03 04 05 06 SALES NET INCOME CASH FLOW PROVIDED (dollars in millions) FROM CONTINUING OPERATIONS FROM CONTINUING OPERATIONS(1,2) PER SHARE(1) (dollars in millions, before changes in current (dollars) operating items and deferred taxes) 80% 50% 73% 47% 46% 46% 42% 41% 41% 38% 38% 37% 39% 35% 24% 23% 19% 19% 16% 10% –2% –4% 97 98 99 00 01 02 03 04 05 06 Dow Nasdaq Recreational Russell S&P Polaris Dow Nasdaq Recreational Russell S&P Polaris Jones Vehicles 2000 500 Jones Vehicles 2000 500 RETURN ON AVERAGE SHAREHOLDER EQUITY Index Index FROM CONTINUING OPERATIONS TOTAL RETURN TO SHAREHOLDERS – POLARIS VS. MARKET INDICES One-Year Total Return Five-Year Total Return (2006) (2002–2006) 23.5% $1.24 22.9% 22.0% 22.1% 21.7% $1.12 21.2% 21.0% 20.1% 20.1% 18.8% $0.92 $0.62 $0.56 $0.50 $0.44 $0.40 $0.36 $0.32 9798 99 00 01 02 03 04 05 06 9798 99 00 01 02 03 04 05 06 GROSS MARGIN PERCENTAGE DIVIDENDS PER SHARE FROM CONTINUING OPERATIONS (dollars) Polaris’ productivity strategies historically have resulted in consistent In January 2007, Polaris announced a 10 percent increase gross margins. The 2006 gross margin decline was due to lower sales volume in the regular quarterly dividend, the 12th straight year of increases. for ATVs and snowmobiles, in addition to higher promotional and floor plan financing costs partially offset by savings from cost reduction initiatives. $308 6.9 NOTE: All periods presented reflect the classification of the marine products division’s financial results, including the loss from $132 discontinued operations and the loss on disposal of the division, 3.0 2.9 2.5 2.4 2.4 2.4 as discontinued operations. 2.2 2.2 $76 $73 $67 1.4 $52 $49 (1) In 1998, Polaris entered into a settlement agreement related to $40 $40 $38 a trade secret infringement claim brought by Injection Research Specialists, Inc. The one-time provision for litigation loss of $61.4 million, or $0.77 per diluted share, has been excluded from 97 98 99 00 01 02 03 04 05 06 97 98 99 00 01 02 03 04 05 06 the 1998 financial data presented. (shares in millions) (dollars in millions) (2) A reconciliation of the Company’s calculation of Cash Flow Provided POLARIS SHARES REPURCHASED to the most directly comparable cash flow measure, as required by Since inception of the share repurchase program in 1996, approximately 29.2 million shares Regulation G, appears on page 11 of this Annual Report. have been repurchased at an average price of $30.41 per share. POLARIS 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 of AT A GLANCE Financial Condition and Results of Operation beginning on page 15 of the Form 10-K included with this report. $1,240 1,353 1,343 1,324 ATVS ALL-TERRAIN VEHICLES (ATVs) PRIMARY $1,160 Polaris introduced the first American-made COMPETITORS $1,117 ATV in 1985, and ever since we have pioneered • Arctic Cat such market-transforming improvements • BRP as automatic transmissions, long travel/ • Honda independent rear suspensions (IRS), full • John Deere floorboards, single-lever hydraulic braking, • Kawasaki on-demand AWD (true 4-wheel drive) and • Kymco the industry’s first electronic fuel-injected 4x4. • Suzuki Our RANGER off-road utility vehicle line has • Yamaha redefined the market with its industry-leading 04 05 06 04 05 06 power and ride quality, and our Outlaw™ sport quad powered by a KTM engine takes SALES WORLDWIDE ATV acceleration and handling to another level (dollars in millions) AND UTILITY VEHICLE with the industry’s first IRS on a sport ATV. Year ended December 31 INDUSTRY (units in thousands) 480 $113 466 VICTORY VICTORY MOTORCYCLES PRIMARY 443 For the 2007 model year, the lineup was COMPETITORS $99 extended to include a soft-bag touring model, • BMW the Kingpin® Tour, and a limited edition • Harley-Davidson $74 Hammer™ S model. Additionally, two new, • Honda limited-edition Vegas Jackpot™ models • Kawasaki designed by custom motorcycle builders • Suzuki Arlen and Cory Ness were available, featuring • Yamaha custom paint schemes, chromed-out forks and swingarms, billet wheels and more. The Custom Order Program continued for 04 05 06 04 05 06 model year 2007 allowing customers to go online and custom-configure a bike, SALES U.S. INDUSTRY choosing from thousands of combinations. (dollars in millions) (units in thousands) Year ended December 31 Cruisers and Touring $288 181 174 SNOWMOBILES SNOWMOBILES PRIMARY 165 $257 Polaris pioneered snowmobiles over 50 years COMPETITORS ago, and we are a recognized leader in the • Arctic Cat snowmobile industry. We remain competitive • BRP by continually offering product and program • Yamaha $157 innovations, and competitively priced models covering all market segments: performance, crossover, trail sport, trail luxury touring, mountain and youth. For model year 2007, we added power with several Polaris IQ® and RMK™ models fitted with the new small-block 04 05 06 04 05 06 Liberty 600 HO and 700 HO CleanFire™ semi-direct injection engines. We are committed SALES WORLDWIDE INDUSTRY to uncompromising ride, performance (dollars in millions) (units in thousands) and handling. Year ended December 31 Season ended March 31 $274 $270 PG&A PARTS, GARMENTS PRIMARY $251 AND ACCESSORIES (PG&A) COMPETITORS Pure Polaris® PG&A complete the riding • Parts Unlimited 22% experience. We have designed and engineered (aftermarket PG&A to enhance the performance of Polaris distributor) 6% products ever since we introduced the first • Powersports 63% 7% snowmobile in 1954. Pure Polaris offers over OEMs 2% 50,000 items consisting of service parts, • Tucker Rocky a diverse array of accessories and Polaris- (aftermarket 63% ATV designed clothing products tailored to meet distributor) 22% Snowmobile the needs of the Polaris rider.