Polaris Industries Inc. 2006 Annual Report Table of Contents Polaris Industries Inc

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. 80% Polaris

$178 (1,2) 06 35% 500 S&P $211 05 $202 73% 2000 Russell $179 03 23% $1.24 06 $177 Index 02 Vehicles Recreational $1.12 05

$151 01

24% (2002–2006)

$130 Nasdaq $0.92 00 Five-Year Total Return Total Five-Year $0.62 $120 03 99 39% Dow Jones CASH FLOW PROVIDED PROVIDED CASH FLOW $0.56 $110 02 98 operating items and deferred taxes) operating items and deferred

$101 $0.50 01 97 04 (dollars) FROM CONTINUING OPERATIONS

(dollars in millions, before changes in current (dollars in millions, before changes $0.44 00

–4% $0.40 All periods presented reflect the classification of the 99 Polaris DIVIDENDS PER SHARE

$0.36 NOTE: financial results, including the loss from marine products division’s discontinued operations and the loss on disposal of the division, as discontinued operations. a trade secret infringement claim brought by Injection Research loss of Specialists, Inc. The one-time provision for litigation $61.4 million, or $0.77 per diluted share, has been excluded from presented. the 1998 financial data to the most directly comparable cash flow measure, as required by Regulation G, appears on page 11 of this Annual Report. 98 and snowmobiles, were both negatively impacted by impacted were both negatively and snowmobiles,

motorcycles and financial services.motorcycles the And although 16% (1) entered into a settlement agreement related to In 1998, Polaris (2) calculation of Cash Flow Provided A reconciliation of the Company’s 500 S&P $0.32 97 04 ®

$2.72 06 19% 2000 $3.15 Russell In January 2007, Polaris announced a 10 percent increase Polaris In January 2007, 05

third-best year in the Company’s 53-year history. in the Company’s third-best year $308 06 $2.97 –2% in the regular quarterly dividend, the 12th straight year of increases. Index (2006) $132 05 Vehicles Recreational $2.58 (1) 03 $67 10% 04

$2.28 Return Total One-Year 02 Nasdaq $73 03

$1.99 01 (dollars)

TOTAL RETURN TO SHAREHOLDERS – POLARIS VS. MARKET INDICES SHAREHOLDERS – POLARIS VS. RETURN TO TOTAL $76 19% 02 Dow ™ utility vehicles, Victory™ utility vehicles, $1.81 Jones PER SHARE 00 NET INCOME

$49 01 $1.64 99 $40 00 $1.48 RANGER 98 $52 99

$1.40 FROM CONTINUING OPERATIONS 97 04 $38 98 21.7% 06 $40 97 22.0% 05 23.5%

41% was due to lower sales volume 06 22.9% 37% 03 $1,657 05 6.9 06 06 22.1% 38% 02 $1,870 04 2.4 05 05

21.0% 01 38% $1,773 03 1.4 04 04 21.2% 41% 00 02 $1,552 2.5 POLARIS SHARES REPURCHASED 2006 results were below expectations, 2006 was still the 2006 was still the were below expectations, 2006 results 2006 was a difficult year for Polaris. For the first time in the last 25 years, the Company did not produce record earnings produce record did not the Company last 25 years, time in the the first For year for Polaris. was a difficult 2006 ATVs two core businesses, Our operations. from continuing per share declining industrydeclining for the Company. in 2006 some positives there were also 2006. But markets in each of these trends in another good year in had Polaris 03 03 20.1% 99

42% 01 $1,468 2.4 02 02 18.8% 46% 98 00 GROSS MARGIN PERCENTAGE GROSS MARGIN PERCENTAGE 01 $1,427 01 2.2 FROM CONTINUING OPERATIONS

SALES 20.1% 50% 97 04 have been repurchased at an average price of $30.41 per share. $1,327 99 2.4 00 00 47% (shares in millions) (dollars in millions) (dollars in millions) $1,245 98 3.0 99 99

46% FROM CONTINUING OPERATIONS $1,106 97 2.2 98 98 Polaris’ productivity strategies historically have resulted in consistent productivity strategies historically have Polaris’ Since inception of the share repurchase program in 1996, approximately 29.2 million shares 29.2 Since inception of the share repurchase program in 1996, approximately

$948 financing costs partiallysavings from cost reduction initiatives. offset by 2.9 97 97 for ATVs and snowmobiles, in addition to higher promotional and floor plan and snowmobiles, in addition to for ATVs RETURN ON AVERAGE SHAREHOLDER EQUITY RETURN ON AVERAGE gross margins. The 2006 gross margin decline The 2006 gross margin gross margins. THE SCORECARD 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. Pure Polaris 6% Victory 04 05 06 7% General Merchandise also offers retail credit, extended service 2% Personal Watercraft contracts and insurance products to facilitate SALES PG&A PRODUCT MIX the consumer’s buying experience. (dollars in millions) BY BUSINESS LINE Year ended December 31 A LETTER FROM THE CEO AND COO

Thomas C. Tiller Chief Executive Officer

Bennett J. Morgan President and Chief Operating Officer

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.

2006 POLARIS INDUSTRIES INC. ANNUAL REPORT PAGE 1 Victory Vision Tour™

Our product quality and performance have TAKING VICTORY been the primary drivers. With an expanded TO THE NEXT LEVEL The new 2008 model year Victory Vision™ is our product offering in 2007, we expect the most researched product line in company history. RANGER business to continue to perform well. We rode 30,000 miles on competitor bikes, spent hundreds of hours in focus groups and talked with The Victory motorcycle division also had a riders one-on-one. The result? We focused where great year in 2006. While the overall market it matters most—on comfort and style. The Victory Vision is the most progressive line of American luxury- for motorcycles sold in the United States hit touring bikes ever built. From the thunderous V-Twin another all-time record, Victory retail sales engine to the breakthrough styling and unmatched comfort, Victory Vision totally redefines what it means grew by more than ten times the overall market. to be an American Motorcycle and delivers on the raw We are now the second-largest American passion riders have come to expect from Victory— manufacturer of motorcycles. In 2006, the New American Motorcycle Company. 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. Victory Vision Street™ SEGMENT: Luxury touring (bagger), designed Our financial services business also had a for comfortable long-distance riding, with amenities such as cruise control, saddlebags and top-notch great year. We accelerated our efforts selling sound systems into the military market, and our overall TARGET AUDIENCE: 50-year-old (average age), product quality improved. So there were some seasoned rider with time and a passion for long- significant positives. distance motorcycle touring COMPETITORS: BMW, Harley-Davidson, Honda But the disappointments outweighed the wins POLARIS DIFFERENTIATORS: Unprecedented comfort in 2006. In two of our businesses, snowmobiles and styling for riders who want a fresh take on and ATVs, things were tough. In both cases, American-made the overall markets were down and we lost 2006 U.S. TOURING MARKET OPPORTUNITY Unit Volume 3-year Compounded market share. We were not competitive enough Annual Growth Rate Soft-bag Touring 43,000 – 7% in either market. In ATVs, we did not correctly Hard-bag Touring 61,000 +21% forecast the magnitude of the market softness. Luxury Touring 64,000 + 9% Total 168,000 + 7% Average industry selling price is $19,000, which translates to $3 billion in market opportunity for touring. In addition, related apparel and accessories for motorcycle touring will be available.

PAGE 2 2006 POLARIS INDUSTRIES INC. ANNUAL REPORT VICTORY VISION

2006 POLARIS INDUSTRIES INC. ANNUAL REPORT PAGE 3 As a result, dealer inventory levels remained THE GOALS: too high for the year. The decline in volume, • $2.2 billion in sales by 2009 coupled with higher promotional incentives, • $150 million in net income by 2009 led to lower gross margins. • $4.25 earnings per share by 2009 In addition, we were not successful in completing 1. WIN IN THE CORE phase two of the KTM acquisition, which was • Grow market share in snowmobiles and ATVs. important to our long-term goal of building a • Leverage PG&A and financial services to deliver superior total value. larger, more global company. 2. DELIVER OPERATIONAL EXCELLENCE Finally, and perhaps most importantly, we learned • Industry-leading quality in every product line. • Greater than 5 percent productivity gains every year. some important lessons from the mistakes of • A lean enterprise, driven by robust, simple designs 2006, and we have incorporated that thinking and a lean supply chain. into our plan for the next three years. 3. GROW BY $500 MILLION BY 2009 • Victory – Obtain 5 percent market share in cruiser In a nutshell, we are expecting a continued and touring segments. • RANGER – Dominate utility and recreational tough overall market environment and planning side-by-side market. on Polaris being more competitive. In 2007, • International – Expand global presence by we intend to get the business back on track, $50 million. • Expand military opportunity. specifically by improving the competitiveness • Enter at least one new adjacent market segment. of our ATV and snowmobile businesses, and by assisting dealers in reducing their inventory SUPPORTED BY: of ATVs, which should be back to acceptable PEOPLE AND CULTURE levels by mid-year. We will also continue to • Externally focused employee owners with a can-do work hard to reduce our costs, and enter two drive to consistently deliver outstanding results. • The best team in powersports. new growth segments, the luxury touring • Passion to ride and win. segment of the motorcycle market and the TECHNOLOGY recreational segment of the side-by-side utility • Consistent, flawless introduction of compelling new products. market, in early 2007. Results in 2008 and • Class-leading ride and handling. 2009 should benefit from each of these actions. • 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.

PAGE 4 2006 POLARIS INDUSTRIES INC. ANNUAL REPORT GETTING BACK TO GREAT we believe we can find an entirely new level of performance. Just as Toyota is using the Our new three-year plan has three specific back end of its business to its competitive financial objectives for 2009: advantage, we think we can find new levels • $2.2 billion in sales of quality and productivity to help us win. • $150 million in net income We have made excellent progress in improving • $4.25 earnings per share quality across most product lines over the last several years, and we continue to target To achieve these financial objectives, we will industry-leading quality in every segment. employ three clear strategies: 1) winning in Finally, we are looking to develop a lean the core, 2) delivering operational excellence, enterprise, driven by simple, robust product and 3) generating $500 million of new designs and a lean supply chain. business by entering new segments of our existing businesses, as well as the military Generating $500 million of sales growth market and one new adjacent market. between now and 2009. Both RANGER and Victory have been rapidly growing and should Winning in the core means strengthening our continue to grow through new products, by ATV and snowmobile businesses. It means entering new segments, by expanded distribution gaining market share in a declining market with and through overall market growth. The new better products, more and better advertising, RANGER RZR™ (highlighted on page 6) will be and more effective marketing. It means fighting our first entry into the rapidly growing harder—and fighting to win. recreational side-by-side market, and the new Delivering operational excellence means Victory Vision line (highlighted on page 2) becoming the most efficient manufacturer in will attack the luxury touring motorcycle the powersports industry, just as Toyota has segment. Both RANGER and Victory should become the most efficient manufacturer in deliver $100 million to $150 million of growth the automobile industry. Historically, we have over the next three years. had strong manufacturing operations, but

2006 POLARIS INDUSTRIES INC. ANNUAL REPORT PAGE 5 The international sales opportunity remains LAUNCHING THE NEXT significant for Polaris. We can improve our RANGER SUCCESS distribution in several existing markets, and see Sales of our RANGER utility vehicles have been so successful that we extended our family of side-by-side growth in emerging markets, as well. Combined, (SxS) performance vehicles to include a big bore sport we should see approximately $50 million of model — the new RANGER RZR. It competes in the sales growth outside of North America. rapidly growing recreational segment of the SxS utility market, and pairs our legendary razor-sharp RANGER ® The remaining sales growth will come from performance with a Sportsman 800 EFI engine for faster acceleration than the category market leader. 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 SEGMENT: Big Bore/Sport Utility believe there is a credible, sizable opportunity TARGET AUDIENCE: Hunters, Big Bore ATV and for our vehicles in a number of different Sport SxS riders military and government applications. We look COMPETITORS: Yamaha, Arctic Cat, other Big Bore ATVs to generate $50 million to $75 million in POLARIS DIFFERENTIATORS: 30 percent more horse- annual sales in the military market by 2009. power, 25 percent more suspension travel with dual anti-sway bars for better handling, and a trim The other adjacent market opportunity is 50 inches wide (the only trail-capable SxS) under development and will be announced in WORLDWIDE SIDE-BY-SIDE UTILITY VEHICLE MARKET the future.

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-growing segment is recreational—where the RANGER RZR is expected to aggressively compete. * Estimated

PAGE 6 2006 POLARIS INDUSTRIES INC. ANNUAL REPORT RANGER RZR

2006 POLARIS INDUSTRIES INC. ANNUAL REPORT PAGE 7 The aforementioned three strategies will be Strong support for the Polaris and Victory supported by our people, our technology and brands will also be key to our plan. It is not our brand. Polaris people have long been enough to develop a great product. The brands driven by the passion for our products. Thanks have to connect the product, the experience to their creativity and innovation, our company and the customer. So we will provide more has grown by a factor of almost 140 over the consistent support for our brand in advertising last 25 years. As we grow and change, we must and through the dealer network. continue to nurture and adapt our culture to In summary, for us to return Polaris to where the changing environment. For us, that means we all want it to be, we need to develop and turning the focus of our organization more deliver awesome products, focus the entire outward, and more toward the future. We organization on delighting the customer, and believe our employee owners are already the deliver outstanding results in a much tougher best in the world at what we do, and we are environment. If we can do those three simple continuously looking to strengthen and things, then customers, dealers, employees, sharpen our team. suppliers and investors will all benefit from Our technology has improved significantly a stronger Polaris. over the past five years. We now employ tools In closing, we would like to thank our employees, and processes that allow us to consistently dealers, suppliers and communities for their produce winning new products. Recent support over the last year. And finally, we would examples include the RANGER RZR and Victory also like to thank you, our loyal shareholders, Vision, where customer input has driven for your support and long-term perspective breakthroughs in performance, style, comfort during a challenging year for the company. and reliability. We will continue to invest aggressively in product development, with concentrations in ride, handling, engine and Thomas C. Tiller – Chief Executive Officer suspension technology.

Bennett J. Morgan – President and Chief Operating Officer

PAGE 8 2006 POLARIS INDUSTRIES INC. ANNUAL REPORT BOARD OF DIRECTORS, OFFICERS AND GENERAL MANAGERS

BOARD OF DIRECTORS CORPORATE OFFICERS GENERAL MANAGERS

Thomas C. Tiller Annette K. Clayton Thomas C. Tiller Michael D. Dougherty Chief Executive Officer Vice President Chief Executive Officer General Manager – ATVs of Polaris Industries Inc. of Manufacturing Committee: Technology for the Americas, Bennett J. Morgan William C. Fisher Dell Corporation President and Chief Information Officer Gregory R. Palen Committees: Audit, Technology Chief Operating Officer and General Manager – Chairman of the Board Service of Polaris Industries Inc. John R. Menard, Jr. Jeffrey A. Bjorkman and Chairman President of Menard, Inc. Vice President – Operations Matthew J. Homan of Spectro Alloys and Committees: Corporate Governance General Manager – Chief Executive Officer and Nominating, Technology Mark E. Blackwell Utility Vehicles of Palen/Kimball Company Vice President – R.M. (Mark) Schreck Victory Motorcycles and Michael P. Jonikas Committee: Technology President of International Operations General Manager – Andris A. Baltins RMS Engineering and Sales and Marketing Member of the law firm retired Vice President John B. Corness of Kaplan, Strangis and of Technology, Vice President – David C. Longren Kaplan, P.A. General Electric Human Resources Chief Technical Officer Committees: Compensation, Committees: Corporate Governance Michael W. Malone Scott A. Swenson Corporate Governance and and Nominating, Technology* Nominating* Vice President – General Manager – William G. Van Dyke Finance, Chief Financial Snowmobiles and Robert L. Caulk Retired Chairman Officer and Secretary Parts, Garments and Former Chairman and of Donaldson Co., Inc. Accessories Chief Executive Officer Committee: Audit Mary P. McConnell of United Industries Vice President – Corporation Richard A. Zona General Counsel Committee: Compensation* Retired Vice Chairman of U.S. Bancorp Committees: Audit,* Compensation

* Committee Chair

2006 POLARIS INDUSTRIES INC. ANNUAL REPORT PAGE 9 11-YEAR SELECTED FINANCIAL DATA (in thousands, except per share and per unit data)

The selected financial data presented below are qualified in their entirety by, and should be read in conjunction with, the Consolidated Financial Statements and Notes thereto and other financial and statistical information, including the information referenced under the caption “Management’s Discussion and Analysis 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 diluted net income per share from continuing operations for 1998 would have been $98.0 million, $76.7 million and $1.48 per share, respectively.

PAGE 10 2006 POLARIS INDUSTRIES INC. ANNUAL REPORT 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) — $ 97.7 1998 109.5 4.4 50.4 $(39.6) 124.7 1999 119.8 2.8 11.9 — 134.5 2000 129.7 1.3 (25.9) — 105.1 2001 150.8 (10.6) 51.8 — 192.0 2002 176.9 4.3 14.6 — 195.8 2003 179.1 (8.7) (7.9) — 162.5 2004 202.3 (1.5) 36.3 — 237.1 2005 211.4 1.6 (50.5) — 162.5 2006 177.8 1.3 (26.3) — 152.8

2006 POLARIS INDUSTRIES INC. ANNUAL REPORT PAGE 11 OTHER INVESTOR INFORMATION

STOCK EXCHANGE CASH DIVIDENDS DECLARED INVESTOR RELATIONS Shares of common stock of Cash dividends are declared quarterly and Security analysts and investment Polaris Industries Inc. trade on have been paid since 1995. As of January 18, professionals should direct their business- the New York Stock Exchange 2007, the quarterly dividend was increased related inquiries to: under the symbol PII. to $0.34 per share. Richard Edwards Director of Investor Relations INDEPENDENT AUDITORS Quarter 2006 2005 Polaris Industries Inc. Ernst & Young LLP First $0.31 $0.28 2100 Highway 55 Minneapolis, MN Second 0.31 0.28 Medina, MN 55340 Third 0.31 0.28 763-513-3477 TRANSFER AGENT AND REGISTRAR Fourth 0.31 0.28 [email protected] Communications concerning transfer Total $1.24 $1.12 requirements, address changes, dividends RESEARCH COVERAGE and lost certificates, as well as requests SHAREHOLDERS OF RECORD AS OF FEBRUARY 2007 for Dividend Reinvestment Plan enrollment Shareholders of record of the Company’s A.G. Edwards information, should be addressed to: common stock on February 21, 2007, Avondale Partners Wells Fargo Bank N.A. were 3,023. Bank of America Securities Shareowner Services BMO Capital Markets Corp. 161 North Concord Exchange SHAREHOLDER COMPOSITION Citigroup South St. Paul, MN 55075-1139 Craig-Hallum Partners 1-800-468-9716 FTN Midwest Securities Corp. www.wellsfargo.com/ 77% Institutions Goldman Sachs com/shareowner_services KeyBanc Capital Markets (McDonald) 12% Individuals and Others Merrill Lynch ANNUAL SHAREHOLDERS’ MEETING Raymond James & Associates The meeting will be held at 9 a.m. CST, 11% Officers, Directors and Employees RBC Capital Markets Thursday, April 19, 2007, at the Polaris Robert W. Baird & Co. Industries Inc. corporate headquarters, Wedbush Morgan Securities 2100 Highway 55, Medina, Minnesota. DIVIDEND REINVESTMENT PLAN A proxy statement will be mailed on or Shareholders may automatically reinvest STOCK-SPLIT HISTORY about March 1, 2007, to each shareholder their dividends in additional Polaris common August 1993 2 for 1 of record on February 21, 2007. stock through the Dividend Reinvestment October 1995 3 for 2 Plan, which also provides for purchase of March 2004 2 for 1 SUMMARY OF TRADING common stock by voluntary cash contributions. For the Years Ended December 31, For additional information, please contact CEO CERTIFICATION 2006 2005 Wells Fargo Shareowner Services at The Company’s Chief Executive Officer Quarter High Low High Low 1-800-468-9716 or visit the Wells Fargo submitted the annual CEO certification to First $54.90 $46.65 $74.18 $62.22 Bank Web site at www.wellsfargo.com. the New York Stock Exchange, certifying Second 53.62 42.33 71.19 51.60 that he is not aware of any violation by the Third 45.17 34.24 60.23 46.53 PRODUCT BROCHURES Company of the New York Stock Exchange’s Fourth 47.61 39.00 53.95 43.75 For product brochures and dealer locations, corporate governance listing standards. write or call: Polaris Industries Inc. 2100 Highway 55 Medina, MN 55340 1-800-Polaris (1-800-765-2747)

INTERNET ACCESS To view the Company’s annual report and financial information, products and specifications, press releases and dealer locations, access Polaris on the Internet at: www.polarisindustries.com www.victory-usa.com

PAGE 12 2006 POLARIS INDUSTRIES INC. ANNUAL REPORT

Polaris Industries Inc. 2100 Highway 55 Medina, MN 55340

763-542-0500 763-542-0599 fax