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


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


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


U.S. INDUSTRY

(units in thousands)Cruisers and Touring

SALES


$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


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

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™


VICTORY VISION


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.


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.


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


RANGER RZR


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


CORPORATE OFFICERS

Thomas C. Tiller


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


of Polaris Industries Inc.

Committee: Technology

Gregory R. Palen

Chairman of the Board

of Polaris Industries Inc.

and Chairman

of Spectro Alloys and


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


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


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)


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


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

GETTING BACK TO GREAT · products, international markets represent a significant growth...

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