Polaris 2007 Annual Report Download - page 5

2007 ANNUAL REPORT ONE
Dear Fellow Shareholders:
A year ago, Polaris developed an ambitious three-year plan for
getting back to great. Investors were understandably skeptical.
Our 2006 performance was disappointing. And 2007 looked bleak:
The housing market crashed. The economy was slow. Durable
goods were hit hard and discretionary goods even harder.
But we made the tough decisions and took bold actions. We
reduced inventory at the dealer and factory levels and streamlined
operations well before competitors. We did this while continuing
to introduce revolutionary new products like the RANGER RZR
and Victory Vision, and gained market share in every business,
both domestically and internationally.
As a result, we delivered a strong 2007 and got the company
back on track. Here’s a quick recap of 2007:
• Sales increased by 7 percent to $1.78 billion.
• Earnings per share from continuing operations increased
14 percent to $3.10 per diluted share.
• Gross margins increased by 40 basis points to 22.1 percent.
• We won the competitive battle in 2007. We gained market
share in every business we compete in — both in North America
and internationally.
• Dealer inventories are at much lower levels today than a year ago.
• We grew aggressively in our side-by-side business, particularly
with the introduction of the new RANGER RZR, and made
good progress in further developing our military business.
• Our snowmobile business is on the road to recovery. We grew
sales 14 percent in 2007 and gained market share for the
calendar year.
• The accelerated share repurchase transaction executed in
December 2006, together with the 1.9 million shares repurchased
during 2007, have resulted in a 12 percent reduction in average
diluted shares outstanding in 2007.
• Our total annual return to shareholders was 5 percent. Over
the past five years, our total return to shareholders has been
83 percent.
As in most years, there were some things that did not go well in 2007:
• We expected the overall North American core ATV market
environment to remain challenging in 2007, and that was the
case. But it was even tougher than we expected, declining
13 percent for the full year.
• Even more unexpected was the decline of the U.S. motorcycle
industry. It had grown consistently for 16 years, but the cruiser
and touring markets combined declined 5 percent in 2007.
The slowdown in the motorcycle industry negatively impacted
the cruiser side of our motorcycle business, so we reduced
cruiser production to maintain a balance of supply and demand.
However, we continue to be excited about our Victory motorcycle
business, and particularly the luxury touring segment we
entered in 2007 with the all-new Victory Vision.
• We did not anticipate the significant decline in our financial
services income during the second half of 2007. This was due
to our revolving retail credit provider, HSBC, no longer financing
non-Polaris products at our dealerships beginning July 2007.
A LETTER FROM THE CEO AND COO
Thomas C. Tiller
Chief Executive Officer
Bennett J. Morgan
President and
Chief Operating Officer