Polaris 2005 Annual Report Download - page 5

2005 ANNUAL REPORT 1
A LETTER FROM THE CEO AND COO
DEAR FELLOW SHAREHOLDERS:
2005 was a good year for Polaris — better than any in our history by most measures — but the results fell
somewhat short of our expectations.
• Sales grew by $97 million to a record $1.87 billion, an increase of 5 percent.
• Net income from continuing operations also increased 5 percent to $144.3 million, extending our earnings
growth streak to 24 consecutive years.
• Earnings per share from continuing operations increased by 8 percent to $3.29 per share.
• Return on shareholders’ equity was 39 percent, while our debt-to-total-capital ratio remained a very
comfortable 5 percent.
• After two years of more than 50 percent price appreciation, our share price fell off its historic highs and
finished 26 percent lower than at the start of the year, resulting in a total annual return to investors in 2005
of a negative 25 percent. Our five-year total return remains a respectable 23 percent per year.
Thomas C.Tiller – Chief Executive Officer Bennett J. Morgan – President and Chief Operating Officer
SUMMARY OF 2005
We anticipated that 2005 would be tough, but the year proved even
more challenging than we had planned. We were squeezed from
two directions: the market slowed and our costs escalated. As usual,
during the last year there were some significant accomplishments,
as well as some disappointments:
Victory broke through. Entering the motorcycle business was a big
undertaking for Polaris, and at times, the progress has been slow.
But in recent years, Victory has been building tangible momentum.
Each year the bikes have gotten better looking and more reliable,
at a lower cost, and the brand has gained higher awareness. Victory
customers love their motorcycles, and the powerful word-of-mouth
referrals have brought people into the Victory family. Financially,
while the numbers were improving, it wasn’t until 2005 that we broke
through. The motorcycle business delivered a profitable fourth quarter
in 2005, and we anticipate a profitable full year in 2006. Not only
has the brand turned the corner, the business is now making money.
This is significant because we expect the rapid, profitable growth
of Victory to continue into the next decade.
RANGERs and international sustained double-digit growth. Our largest
business, ATVs, consists of three parts: traditional ATVs sold in
North America, the RANGER utility vehicle business and international
sales. While the North American market slowed, we delivered solid
growth in both RANGER and ATV sales outside of North America,
particularly in Europe. Our deliberate, country-by-country approach to
international markets continues to build steam. In 2005, we grew
international sales 20 percent, and international sales accounted for
over 12 percent of total company revenue, compared to 6 percent
just a few years ago.
Parts, garments and accessories (PG&A) delivered solid performance.
We introduced new Lock & Ride™accessories like the RANGER cab
that don’t just personalize vehicles — they transform them. This
business posted revenue gains, high margins and good execution
across the board.